                       T.C. Memo. 2009-43



                      UNITED STATES TAX COURT



    ANTHONY MARTINO, JR. AND MIKELIN MARTINO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 13912-06L, 8524-07L.   Filed February 24, 2009.



     Anthony J. Martino, Jr., pro se.

     Kristina Rico, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   These cases are before the Court

consolidated for purposes of trial, briefing, and opinion.

Respondent mailed petitioner Anthony Martino, Jr. (Mr. Martino),

and petitioner Mikelin Martino (Mrs. Martino) (collectively,

petitioners), a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 for 1998, 1999, 2000,
                               - 2 -

2001, and 2002 (first notice of determination), and for 2003 and

2004 (second notice of determination).   Petitioners seek review

under sections 6320 and 6330 of respondent’s determinations.1

     The parties’ controversy poses the following issues for our

consideration:   (1) Whether respondent abused his discretion by

rejecting petitioners’ collection alternatives because of

petitioners’ failure to remain in compliance with their tax

obligations; (2) whether respondent abused his discretion by

determining that petitioners possessed sufficient funds to fully

pay their tax liability; and (3) whether respondent abused his

discretion in denying the requests of Mrs. Martino for innocent

spouse relief under section 6015(f) for the 1998 through 2004 tax

liabilities.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, together with the attached exhibits, is

incorporated herein by this reference.   At the time petitioners

filed their petitions, they resided in Pennsylvania.

     Mr. Martino is an attorney.   From 1998 through 2004

petitioners derived their income from Mr. Martino’s partnership




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
                               - 3 -

interest and employment in a small law firm that focused on civil

and criminal litigation.

I.   Collection Alternatives

     A.    1998 Through 2002

     Petitioners filed joint Federal income tax returns for 1998

through 2002 but failed to pay the taxes reported on their

returns.   Respondent assessed taxes for 1998 through 2002

commensurate with the sums petitioners reported on their returns

as follows:

           Year                Taxes Reported and Assessed

           1998                         $37,583
           1999                          45,776
           2000                          34,997
           2001                          31,453
           2002                          36,651
             Total                      186,460

     On June 19, 2004, petitioners submitted an offer-in-

compromise of approximately $170,000 for liabilities incurred

from 1997 through 2002.2   Petitioners attached a Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals, to their offer-in-compromise which listed

petitioners’ sources of income and assets as follows:   (i) Mr.




     2
      In docket No. 13912-06L, respondent filed a motion to
dismiss taxable year 1997 for mootness because petitioners had
already paid the liability due for that year. Respondent also
filed a motion to dismiss for lack of jurisdiction as to taxable
year 1997 as to the sec. 6015 determination and to strike. We
granted both motions on Oct. 5, 2007.
                              - 4 -

Martino’s 20-percent interest in a law firm partnership3 valued

at $314,467; (ii) Mr. Martino’s legal job with a county; (iii)

Fleet Bank checking account with a balance of approximately

$3,000; (iv) Fleet Bank savings account with a balance of

approximately $100; (v) Merrill Lynch mutual fund with a value of

approximately $1,500; (vi) Northampton County Employees

Retirement Fund with a current value of approximately $16,000;

(vii) available credit from Citibank VISA of approximately

$1,500; (viii) available credit from First USA of approximately

$500; (ix) available credit from miscellaneous sources of

approximately $2,000; (x) 1999 Isuzu Trooper with current value

of approximately $16,000 and current loan balance of

approximately $15,390; (xi) 1995 Mercedes Benz with current value

of approximately $10,000 and current loan balance of

approximately $9,000; (xii) property located in Roseto,

Pennsylvania, with a value of approximately $235,000 subject to a

mortgage of approximately $100,000; (xiii) property located in

Roseto, Pennsylvania, with a value of approximately $140,000

subject to a mortgage of approximately $103,000; (xiv)

furniture/personal effects with a value of approximately $15,000;

and (xv) jewelry with a value of approximately $18,000.




     3
      Mr. Martino is also a shareholder in a real estate holding
company established by the partnership.
                               - 5 -

     On August 24, 2004, respondent mailed each petitioner a

Notice of Federal Tax Lien Filing and Your Right to a Hearing

under IRC 6320 for their unpaid 1998 through 2002 tax

liabilities.

     On August 26, 2004, respondent mailed each petitioner letter

1058, Final Notice of Intent to Levy and Notice of Your Right to

Hearing (first notice of levy) for their unpaid 1998 through 2002

tax liabilities.

     On September 22, 2004, petitioners timely submitted a Form

12153, Request for a Collection Due Process Hearing, for the

years 1998 through 2002.   In their request petitioners stated

that their offer-in-compromise was still pending and noted they

were willing to pay respondent $2,500 per month through an

installment agreement.

     On March 23, 2006, respondent’s Appeals officer, Paula

Stanton (Ms. Stanton), sent petitioners a letter scheduling a

telephone conference for April 12, 2006.

     On April 3, 2006, Mr. Martino sent respondent’s Appeals

Office a letter regarding the estimated tax payments that he made

in 2003, 2004, and 2005.

     On April 12, 2006, Ms. Stanton held a telephone conference

with petitioners.   Ms. Stanton informed petitioners that they had

made inadequate estimated tax payments for 2003 and 2004 and had

thus accrued income tax liabilities that were not included in the
                              - 6 -

June 19, 2004, offer-in-compromise.    Ms. Stanton notified

petitioners that if payment for the additional accrued income tax

liabilities was not remitted within a reasonable time, their

collection alternatives would be rejected.    Petitioners did not

pay the additional liabilities or file an amended offer.

     On June 15, 2006, Ms. Stanton sent petitioners a letter

rejecting their offer-in-compromise.    Using the information

contained in the Form 433-A, respondent determined that

petitioners’ reasonable collection potential was $474,100.4

For purposes of calculating petitioners’ collection potential,

respondent did not include the value of Mr. Martino’s law firm

partnership interest.

     On June 15, 2006, Ms. Stanton mailed petitioners the first

notice of determination wherein the Appeals Office determined

that it could not consider petitioners’ proposal for a collection

alternative because petitioners had accrued additional tax

liabilities for 2003 and 2004, that enforced collection action

was not more intrusive than necessary, and that the Internal

Revenue Service (IRS) should proceed with the collection action.




     4
      Respondent determined petitioners’ collection potential
using the published guidelines of Internal Revenue Manual pt.
5.15.1.3, 5.15.1.8, and 5.15.1.9 (May 1, 2004). These guidelines
establish certain national and local allowances for basic living
expenses and treat income and assets in excess of those needed
for basic living expenses as available to satisfy Federal income
tax liabilities.
                                - 7 -

     B.   2003 and 2004

     Petitioners filed joint Federal income tax returns for 2003

and 2004 but failed to pay the taxes reported on their returns.

Respondent assessed taxes for 2003 and 2004 commensurate with the

sums petitioners reported on their returns as follows.

          Year                  Taxes Reported and Assessed

          2003                             $51,608
          2004                              72,283
            Total                          123,891

     On April 3, 2006, respondent mailed each petitioner a Notice

of Federal Tax Lien Filing and Your Right to a Hearing under IRC

6320 for their unpaid 2003 through 2004 tax liabilities.

     On April 24, 2006, petitioners timely submitted a Form

12153 for the years 2003 and 2004.      In their request petitioners

stated that their offer-in-compromise for their 1998 through 2002

tax liabilities was still pending and noted they were willing to

pay respondent $2,500 per month through an installment agreement.

     On August 17, 2006, respondent’s settlement officer, Ms.

Stanton, wrote to petitioners scheduling a telephone conference

for September 13, 2006.    Ms. Stanton also informed petitioners

that they would be required to submit proof of estimated tax

payments for 2005 and 2006 before respondent would consider any

collection alternatives.
                               - 8 -

     On September 13, 2006, Mr. Martino called Ms. Stanton to

reschedule the conference.   Ms. Stanton rescheduled the

conference for September 21, 2006, and sent petitioners a letter

reflecting the new telephone conference date and time.     Ms.

Stanton also provided petitioners with the opportunity to provide

any additional information they wanted the Appeals Office to

consider.

     On September 26, 2006, petitioners called Ms. Stanton to

cancel the conference.   Ms. Stanton advised petitioners that

respondent’s Appeals Office would make a determination based on

the administrative file and the information that was previously

provided.

     On October 10, 2006, respondent’s Appeals Office received an

undated letter from Mr. Martino to Ms. Stanton which had a

postmark date of October 6, 2006.   In this letter Mr. Martino

indicated that while he wanted to reschedule the telephone

conference for a third time, the information previously provided

to respondent in response to the first notice of levy outlined

petitioners’ position and would have been reconfirmed during the

telephone conference.

     On March 13, 2007, respondent mailed petitioners the second

notice of determination, wherein respondent determined that the

collection action should be sustained for taxable years 2003 and

2004.   The Appeals Office determined that it could not consider
                                 - 9 -

petitioners’ proposal for a collection alternative because

petitioners were not current with estimated tax payments, that

enforced collection action was not more intrusive than necessary,

and that the IRS should proceed with the collection action.

II.   Relief From Joint and Several Liability

      A.   1998 through 2002

      On September 24, 2004, Mrs. Martino sent respondent a Form

8857, Request for Innocent Spouse Relief, for 1998 through 2002.

      On March 16, 2006, Ms. Stanton wrote to Mrs. Martino and

scheduled a telephone conference on April 5, 2006 to discuss her

innocent spouse relief request.    Ms. Stanton also sent Mr.

Martino a letter regarding his wife’s request.

      On April 6, 2006, Ms. Stanton sent Mrs. Martino a letter

enclosing a partially completed Form 12510, Questionnaire for

Requesting Spouse, and requesting that Mrs. Martino sign a Form

433-A.

      On April 8, 2006, Mr. Martino sent respondent a completed

Form 12507, Innocent Spouse Statement.

      On April 19, 2006, Mrs. Martino sent respondent’s Appeals

Office a completed Form 12510.    Mrs. Martino did not submit a

signed Form 433-A.

      On June 15, 2006, respondent sent Mrs. Martino a Notice of

Determination Concerning Your Request for Relief from Joint and

Several Liability under Section 6015 (section 6015 notice of
                               - 10 -

determination) wherein respondent determined Mrs. Martino was not

eligible for relief under section 6015(f) for 1998 through 2002.

     B.   2003 and 2004

     On August 17, 2006, Ms. Stanton sent Mrs. Martino a

Form 8857 and Form 12510 for 2003 and 2004.    On August 31, 2006,

Mrs. Martino sent respondent’s Appeals Office completed Forms

8857 and 12510.

     On March 13, 2007, respondent sent Mrs. Martino a section

6015 notice of determination wherein respondent determined Mrs.

Martino was not eligible for relief under section 6015(f) for

2003 and 2004.

                               OPINION

I.   Collection Alternatives

     Petitioners make two arguments regarding respondent’s

rejection of their collection alternatives:    (1) Petitioners lack

sufficient assets to satisfy the tax liabilities; and (2)

respondent abused his discretion by basing his determination to

reject petitioners’ collection alternatives on petitioners’

failure to establish that they made estimated tax payments.

     When a lien is filed or levy is proposed to be made on any

property or right to property, a taxpayer is entitled to a notice

of lien or of intent to levy and notice of the right to a fair

hearing before an impartial officer of the Appeals Office.      Secs.

6320(a) and (b), 6330(a) and (b), 6331(d).    If the taxpayer
                                - 11 -

requests a hearing, he may raise in that hearing any relevant

issue relating to the unpaid tax, the lien, or the proposed levy,

including challenges to the appropriateness of the collection

action and “offers of collection alternatives, which may include

the posting of a bond, the substitution of other assets, an

installment agreement, or an offer-in-compromise”.    Sec.

6330(c)(2)(A).   A determination is then made which takes into

consideration those issues, the verification that the

requirements of applicable law and administrative procedures have

been met, and “whether any proposed collection action balances

the need for the efficient collection of taxes with the

legitimate concern of the person that any collection action be no

more intrusive than necessary.”    Sec. 6330(c)(3)(C).

     Petitioners dispute respondent’s rejection of their proposed

offer-in-compromise and installment agreements.    We review the

determinations for abuse of discretion because the underlying tax

liabilities are not at issue.    See Lunsford v. Commissioner, 117

T.C. 183, 185 (2001); Nicklaus v. Commissioner, 117 T.C. 117, 120

(2001).

     A.   Compliance With Tax Obligations

     Respondent rejected petitioners’ collection alternatives for

their 1998 through 2002 tax liabilities because the Appeals

Office determined that petitioners had accrued additional unpaid

tax liabilities in 2003 and 2004.    Respondent similarly denied
                               - 12 -

petitioners’ collection alternatives for their 2003 and 2004 tax

liabilities because the Appeals Office determined that

petitioners had failed to make estimated tax payments for 2005

and 2006.   Petitioners argue that respondent abused his

discretion in rejecting petitioners’ collection alternatives for

the above reasons.

     Ms. Stanton’s consideration and rejection of petitioners’

collection alternatives in two separate hearings was reasonable

and not an abuse of discretion.   With regard to the first notice

of determination, a taxpayer’s history of noncompliance is a

valid basis for the Commissioner’s rejection of a collection

alternative.   See Londono v. Commissioner, T.C. Memo. 2003-99.

With regard to the second notice of determination, estimated tax

payments, intended to ensure that current taxes are paid, are a

significant component of the Federal tax system.    Cox v.

Commissioner, 126 T.C. 237, 258 (2006), revd. 514 F.3d 1119 (10th

Cir. 2008).    In fact, petitioners’ circumstances illustrate the

primary reason for requiring current compliance before granting

collection alternatives; namely, “the risk of pyramiding tax

liability.” See Schwartz v. Commissioner, T.C. Memo. 2007-155;

see also Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005),

affg. 123 T.C. 1 (2004).    Accordingly, we conclude that
                                 - 13 -

respondent’s rejection of petitioners’ collection alternatives

was not an abuse of discretion.5

     B.     Insufficient Funds

     Petitioners argue that respondent erred in rejecting

petitioners’ offer-in-compromise because petitioners lack

sufficient assets to satisfy their tax liabilities.6

Respondent’s determination not to enter into an offer-in-

compromise agreement with petitioners was not an abuse of

discretion.     Section 7122(a) authorizes the Secretary to

compromise any civil case arising under the internal revenue

laws.     The regulations set forth three grounds for the compromise

of a liability:     (1) Doubt as to liability; (2) doubt as to

collectibility; or (3) promotion of effective tax administration.

Sec. 301.7122-1(b), Proced. & Admin. Regs.; see sec. 7122(c)(1).

Doubt as to liability is not at issue in this case.




     5
      In Martino v. Commissioner, T.C. Memo. 2009-1, a case
involving the instant petitioners unsuccessfully contesting a
levy for 2005, we found that petitioners had not paid the taxes
due on their returns for 2005, 2006, and 2007. With a 10-year
record of noncompliance, petitioners give every indication of
being recidivists whose strategy is delay.
     6
      Respondent’s first notice of determination specifies that
petitioners’ offer-in-compromise was rejected because petitioners
had accrued unpaid tax liabilities for 2003 and 2004. However,
respondent’s Form 5402-c, Appeals Transmittal and Case Memo.,
specifies that respondent rejected the offer in part because
petitioners were determined to be capable of fully paying their
liability. Because both parties spent the lion’s share of their
briefs addressing this issue, we shall consider it here.
                               - 14 -

     The Secretary may compromise a liability on the ground of

doubt as to collectibility when “the taxpayer’s assets and income

are less than the full amount of the liability.”    Sec.

301.7122-1(b)(2), Proced. & Admin. Regs.    Additionally, the

Secretary may compromise a liability on the ground of “effective

tax administration” when:   (1) Collection of the full liability

will create economic hardship; or (2) exceptional circumstances

exist such that collection of the full liability will be

detrimental to voluntary compliance by taxpayers; and (3)

compromise of the liability will not undermine compliance by

taxpayers with tax laws.    Sec. 301.7122-1(b)(3), Proced. & Admin.

Regs.; see 2 Administration, Internal Revenue Manual (CCH), pt.

5.8.11.2, at 16,385-15 (Sept. 1, 2005) (taxpayer’s liability may

be eligible for compromise to promote effective tax

administration if not eligible for compromise based on doubt as

to liability or doubt as to collectibility and taxpayer has

exceptional circumstances to merit the offer).

     Ms. Stanton reviewed petitioners’ submitted financial

information at the hearing and determined that an offer-in-

compromise was not appropriate.   We received as exhibits the

financial information presented to respondent and find that Ms.

Stanton could have reasonably concluded that there are sufficient

income and assets to satisfy the tax liabilities.   Accordingly,
                              - 15 -

we conclude that respondent’s refusal to enter into an offer-in-

compromise was not an abuse of discretion.

II.   Relief From Joint and Several Liability

      If a husband and wife file a joint Federal income tax

return, they generally are jointly and severally liable for the

tax due.   Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276,

282 (2000).   However, a spouse may qualify for relief from joint

and several liability under section 6015(b) or (c) if various

requirements are met.   The parties agree that petitioner does not

qualify for relief under section 6015(b) or (c).      If relief is

not available under section 6015(b) or (c), the Commissioner may

relieve an individual of liability for any unpaid tax if, taking

into account all the facts and circumstances, it would be

inequitable to hold the individual liable.      Sec. 6015(f).   This

Court has jurisdiction to determine whether a taxpayer is

entitled to equitable relief under section 6015(f).      Sec.

6015(e); see also Farmer v. Commissioner, T.C. Memo. 2007-74; Van

Arsdalen v. Commissioner, T.C. Memo. 2007-48.

      Petitioner bears the burden of proving that she is entitled

to equitable relief under section 6015(f).      See Rule 142(a).   The

Commissioner analyzes petitions for section 6015(f) relief using

the procedures set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296.

See Banderas v. Commissioner, T.C. Memo. 2007-129.      The parties
                                 - 16 -

have not disputed the application of the conditions and factors

listed in the revenue procedure.

     The Commissioner generally will not grant relief unless the

taxpayer meets seven threshold conditions.        Rev. Proc. 2003-61,

sec. 4.01, 2003-2 C.B. at 297.     Respondent concedes that

petitioner meets these conditions.        If a taxpayer meets the

threshold conditions, the Commissioner considers several factors

to determine whether a requesting spouse is entitled to relief

under section 6015(f).   Id. sec. 4.03, 2003-2 C.B. at 298.         We

consider all relevant facts and circumstances in determining

whether the taxpayer is entitled to relief.        Sec. 6015(e) and

(f)(1).   The following factors are relevant to our inquiry.

     A.    Petitioner’s Marital Status

     Mrs. Martino and Mr. Martino were still married when Mrs.

Martino sought relief.   This factor is neutral.

     B.    Significant Benefit

     Receipt by the requesting spouse, either directly or

indirectly, of a significant benefit in excess of normal support

from the unpaid liability or the item giving rise to the

deficiency weighs against relief.     Lack of a significant benefit

beyond normal support weighs in favor of relief.        Normal support

is measured by the circumstances of the particular parties.

Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989).

The record does not indicate whether Mrs. Martino received a
                                 - 17 -

significant benefit from the unpaid liability.       This factor is

neutral.

     C.     Compliance With Tax Laws

     The record indicates that petitioners accrued unpaid

liabilities from 1997 through 2004.       Additionally, petitioners

were unable to show proof of estimated tax payments from 2005 and

2006.     This factor favors respondent.

     D.      Economic Hardship

     A factor treated by the Commissioner as weighing in favor of

relief under section 6015(f) is that paying the taxes owed would

cause the requesting spouse to suffer economic hardship.       Rev.

Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298.       The

Commissioner considers the taxpayer to suffer economic hardship

if paying the tax would prevent the taxpayer from paying

reasonable basic living expenses.      Sec. 301.6343-1(b)(4)(i),

Proced. & Admin. Regs.; Rev. Proc. 2003-61, secs. 4.02(1)(c),

4.03(2)(a)(ii), 2003-2 C.B. at 298.       As the record does not

indicate that Mrs. Martino would experience hardship from paying

the tax, this factor favors respondent.

     E.      Knowledge or Reason To Know

     In the case of a properly reported but unpaid liability we

are less likely to grant relief under section 6015(f) if the

requesting spouse knew or had reason to know when the returns

were signed that the tax would not be paid.       Washington v.
                             - 18 -

Commissioner, 120 T.C. 137, 151 (2003).   If the requesting spouse

did not know or have reason to know, we are more likely to grant

relief.

     Mrs. Martino has not alleged that she was unaware that the

taxes reported on her Federal income tax returns would be left

unpaid, and the record does not indicate that she was unaware.

Accordingly, this factor favors respondent.

     F.   Whether the Underpayment of Tax Is Attributable to
          the Nonrequesting Spouse

     Respondent concedes that the underpayment of tax was solely

attributable to Mr. Martino’s business activities.   This factor

favors relief.

     The only factor favoring relief is that the underpayment of

tax was attributable to Mr. Martino’s business activities.    This

factor is strongly outweighed by Mrs. Martino’s failure to

demonstrate economic hardship, her failure to demonstrate she was

unaware the taxes would not be paid, and petitioners’ history of

noncompliance with Federal tax laws.   On the basis of the above,

we find that Mrs. Martino has failed to carry her burden of

showing that she is entitled to relief from joint and several

liability under section 6015(f).

     In reaching our holding herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude that they are moot, irrelevant, or without merit.
                        - 19 -

To reflect the foregoing,


                                  Decisions will be entered

                             for respondent.
