                               T.C. Memo. 2014-179


                         UNITED STATES TAX COURT



               LEON MAC CROSSWHITE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19878-11L.                       Filed September 2, 2014.



      Vincent Mesis Jr., for petitioner.

      G. Chad Barton, for respondent.



                           MEMORANDUM OPINION


     PARIS, Judge: This case is before the Court on a petition for review of a

Notice of Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 (notice of determination). See sec. 6330(d).1 Petitioner seeks review



      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                                        -2-

[*2] of respondent’s determination to proceed with a proposed levy. This

collection action concerns outstanding employment tax liabilities from Forms 941,

Employer’s Quarterly Federal Tax Return, that petitioner owes as a result of his

ownership of the sole proprietorship Crosswhite Spraying Service, for the

following quarterly periods: September 30 and December 31, 1998;2 March 31,

June 30, September 30, and December 31, 1999; March 31 and June 30, 2000;

June 30 and September 30, 2002; June 30 and September 30, 2003; and December

31, 2004. The issue for decision is whether respondent’s determination to sustain

the proposed collection by levy constitutes an abuse of discretion.

                                    Background

      The parties submitted this case for decision fully stipulated. See Rule

122(a). The stipulation of facts and the attached exhibits are incorporated herein

by this reference. Petitioner resided in Oklahoma at the time he filed his petition.

A. Petitioner’s Administrative Offers-in-Compromise

      On October 31, 2003, petitioner’s attorney, Vincent Mesis, Jr., mailed to

respondent’s Centralized Offer in Compromise (COIC) Unit in New York a Form

656, Offer in Compromise, on behalf of petitioner and his wife to settle certain of

      2
        The Court notes that, after the date of the notice of determination, through a
series of payments and transfers of overpayments the September 30, 1998, balance
is now zero.
                                         -3-

[*3] petitioner’s outstanding Form 941 employment tax liabilities.3 Respondent

did not process the offer-in-compromise, and on November 20, 2003, respondent

returned it to petitioner along with a letter indicating the offer was not processable

because respondent’s records showed that: (1) petitioner had failed to file Forms

941 for the quarterly periods ending on September 30, 1998; June 30, September

30, and December 31, 2002; (2) petitioner had failed to timely file and pay his

quarterly Form 941 employment tax liabilities for the quarterly periods ending on

June 30 and September 30, 2003; and (3) petitioner had failed to make timely

Federal tax deposits during the quarterly period in which the offer-in-compromise

was submitted.

      On March 16, 2004, Mr. Mesis sent respondent a letter indicating that

respondent’s records were incorrect and that respondent had erred in returning the

offer-in-compromise or alternatively that respondent had intentionally not

processed petitioner’s offer in order to require petitioner to submit an additional

offer after the date in which an application fee was required.4 Specifically, Mr.


      3
        As discussed infra, petitioner’s wife was not liable for the Form 941
employment tax liabilities that are at issue. The record does not show the terms of
petitioner’s proposed offer.
      4
       Pursuant to the grant of authority in 31 U.S.C. sec. 9701, the Secretary
issued final regulations, secs. 300.0 and 300.3, User Fee Regs., effective
                                                                       (continued...)
                                          -4-

[*4] Mesis indicated in his letter that petitioner had filed Forms 941 for the

quarterly periods ending on September 30, 1998, and June 30, September 30, and

December 31, 2002. He also indicated that he was enclosing copies of the Forms

941 for those quarterly periods as well as the June 30 and September 30, 2003,

quarterly periods.5 Mr. Mesis represented to respondent that petitioner had been

advised by his accountant that it was not necessary for petitioner to make a

monthly deposit for the quarter in which the offer-in-compromise was submitted.

He enclosed a copy of a Form 656 and requested respondent to accept the offer

and “submit it for review.”6

      Respondent did not process petitioner’s second offer-in-compromise, and on

March 24, 2004, respondent returned petitioner’s Form 656, indicating by letter

that the offer-in-compromise could not be processed because petitioner had failed

to submit an application fee.



      4
       (...continued)
November 1, 2003, generally requiring a taxpayer to submit a $150 application fee
before IRS acceptance and processing of an offer-in-compromise unless the
taxpayer meets the Low Income Certification guidelines. T.D. 9086, 2003-2 C.B.
817; see also Rev. Proc. 2003-71, sec. 2.03, 2003-2 C.B. 517, 517.
      5
        The purported copies of the Forms 941 enclosed with the letter are not a
part of the record.
      6
          The record does not show the terms of petitioner’s proposed offer.
                                        -5-

[*5] On April 7, 2004, Mr. Mesis sent respondent a letter indicating that when

petitioner had filed the October 31, 2003, offer-in-compromise, no fee was

required and that respondent had failed to process petitioner’s original offer for no

valid reason. Mr. Mesis enclosed a Form 656 along with a $300 check for the

application fee but asserted in his letter that respondent was attempting to “extort”

this fee from petitioner.7 He requested that respondent process the offer and

refund the $300.8

      On July 12, 2004, respondent sent to petitioner a CP 504 notice, indicating

respondent might levy upon State tax refunds petitioner might be entitled to

because petitioner had failed to pay his Form 941 employment tax liability with



      7
        It is not apparent from the record why Mr. Mesis submitted a $300 check
when the application fee required at that time was $150. The amount of
petitioner’s offer and the details surrounding petitioner’s offer are not in the
record, but periodic payment offers-in-compromise did not require submission of
the first proposed payment until 60 days after May 17, 2006. See sec. 7122(c)
(2006); see also Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA),
Pub. L. No. 109-222, sec. 509(a), 120 Stat. at 362. The record does not show the
terms of petitioner’s proposed offer.
      8
        As indicated infra p. 6, respondent apparently did not process petitioner’s
April 7, 2004, offer-in-compromise. Sec. 7122(f) (2006) provides that a
taxpayer’s submitted offer-in-compromise is deemed accepted by the Secretary
after 24 months if the Secretary fails to reject that offer. This provision is
inapplicable to petitioner’s April 7, 2004, offer-in-compromise because subsection
(f) applies only to offers submitted on or after the date which is 60 days after May
17, 2006. See TIPRA sec. 509(b)(2), 120 Stat. at 363.
                                        -6-

[*6] respect to the quarterly period ending on September 30, 1998. On July 13,

2004, Mr. Mesis sent respondent a letter indicating that petitioner had filed an

offer-in-compromise and that he believed respondent’s assessment of the Form

941 taxes relating to petitioner’s quarterly period ending on September 30, 1998,

was in error. Mr. Mesis requested that respondent provide him supporting

documentation for the assessment of this tax before any levy being made.

      On August 30, 2004, respondent issued petitioner a Notice CP 171 for each

unpaid balance for petitioner’s Form 941 employment tax liabilities for the

quarters ending December 31, 1998; March 31, June 30, September 30, and

December 31, 1999; and March 31 and June 30, 2000. On September 21, 2004,

petitioner’s attorney mailed respondent a letter asserting that these taxes were the

subject of an offer-in-compromise.

      On December 31, 2006, Mr. Mesis mailed respondent a letter requesting

that respondent advise him of the status of petitioner’s offer-in-compromise so that

the matter could be resolved.

      On January 18, 2007, Mr. Mesis mailed to respondent a letter

acknowledging receipt of a letter dated January 3, 2007, setting forth facts relating

to the offer-in-compromise, and requesting that respondent proceed expeditiously
                                         -7-

[*7] with sending a written acknowledgment of the offer-in-compromise and a

written acceptance of the offer.

      In the meantime, petitioner sent to respondent an additional Form 656.9

Respondent did not process petitioner’s offer-in-compromise, and on March 20,

2007, respondent returned the Form 656, indicating by letter that petitioner had

failed to: (1) pay the $150 offer-in-compromise application fee; (2) make an

initial payment with the offer; and (3) file all required Federal tax returns. On

April 23, 2007, Mr. Mesis sent respondent a letter asserting that petitioner was not

required to pay an application fee and that he had filed all required tax returns.

B. Collection Due Process Hearing

      On June 22, 2009, respondent sent petitioner a Final Notice-Notice of Intent

to Levy and Notice of Your Right to a Hearing (notice of levy) with respect to

petitioner’s Form 941 employment tax liabilities for the quarterly periods ending

on September 30 and December 31, 1998; March 31, June 30, September 30, and

December 31, 1999; March 31 and June 30, 2000; June 30 and September 30,

2002; June 30 and September 30, 2003; and December 31, 2004. On the date the




      9
       The parties have stipulated that this offer-in-compromise was submitted
“on an unknown later date”. The record does not show the terms of petitioner’s
proposed offer.
                                          -8-

[*8] notice of levy was mailed, according to respondent’s records petitioner owed

$110,709 for the assessed balances, late penalties, and interest.

         On July 9, 2009, Mr. Mesis mailed respondent a letter indicating that it was

his belief that respondent had accepted one of petitioner’s offers-in-compromise

because petitioner had not received a response from respondent rejecting that

offer.

         On July 13, 2009, petitioner timely sent respondent a Form 12153, Request

for a Collection Due Process or Equivalent Hearing, and indicated that the hearing

request was in regard to the filing of a notice of Federal tax lien and a proposed or

actual levy. Petitioner also indicated that he wanted to submit an offer-in-

compromise as a collection alternative.

         On September 30, 2009, respondent sent to petitioner a letter

acknowledging receipt of petitioner’s Form 12153. Respondent also indicated that

petitioner was not entitled to a section 6320 hearing with respect to the Form 941

taxes.10 The parties agree that respondent was correct in determining that

petitioner cannot challenge the filing of a notice of Federal tax lien under section


         10
          The record shows that respondent filed a notice of Federal tax lien on
February 28, 2001, with respect to petitioner’s Form 941 employment tax
liabilities for quarterly periods ending on December 31, 1998; March 31, June 30,
September 30, and December 31, 1999; and March 31 and June 30, 2000.
                                          -9-

[*9] 6320 for certain Form 941 taxes and that the dispute properly before the

Court relates to the notice of intent to levy.11

      On February 23, 2010, Settlement Officer Jeffrey Silverhorn (SO

Silverhorn) sent petitioner a letter acknowledging that the Internal Revenue

Service Appeals Office had received petitioner’s request for a section 6330

hearing. SO Silverhorn advised petitioner that before he could consider an offer-

in-compromise, petitioner would need to file Forms 941 for quarterly periods

ending on December 31, 2003, and March 31, 2004, as well as provide proof of

estimated tax payments for December 2009. The letter also stated the following:

      Your primary argument is the IRS did not properly consider the OIC
      that was submitted to the Centralized Offer Unit on 10/31/2003.
      Based on the evidence reviewed, I believe the COIC unit did receive
      your request but it could not be considered primarily due to
      noncompliance. IRS cannot consider any collection alternatives until
      you are completely compliant with all filing and paying requirements.
      They would have returned the OIC if compliance was at issue.

      With respect to the $150.00 user fee, the Service began collecting this
      for all offers beginning 11/01/2003. You submitted the OIC on
      10/31/2003 and provided copies of postal receipts. Unfortunately, the

      11
        The record shows that on February 12, 2001, respondent sent petitioner a
Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320
(notice of tax lien). Although petitioner checked the box on his Form 12153 for
an equivalent hearing, respondent’s Appeals Office determined that the equivalent
hearing request was untimely because it was not made within one year after the
end of the five-business-day period following the filing of the notice of tax lien.
See sec. 301.6320-1(i)(2) Q&A-I7, Proced. & Admin. Regs.
                                         - 10 -

      [*10] OIC was returned due to the compliance issue. In fact, the
      compliance issue is still a factor in your case as notated above.

      If it is your intention to submit another OIC, it will be considered
      under the current rules and regulations. I will consider the same if
      you desire.

      On March 31, 2010, a face-to-face hearing was held between SO Silverhorn

and petitioner, petitioner’s wife, and Mr. Mesis. During the hearing Mr. Mesis

raised an issue with respect to respondent’s rejection of petitioner’s October 31,

2003, offer-in-compromise. SO Silverhorn told Mr. Mesis that he would not

consider petitioner’s October 31, 2003, offer-in-compromise but that he would

consider a new offer if petitioner wished to submit one. Mr. Mesis requested an

additional 30 days to submit an offer-in-compromise, and SO Silverhorn agreed to

allow him 30 additional days to do so.

      On April 29, 2010, respondent’s field assistance personnel received a Form

656 from petitioner and his wife. On the Form 656 petitioner indicated the offer

was for Form 941 employment tax liabilities for the quarters ending on December

31, 1998; March 31, June 30, September 30, and December 31, 1999; and March

31 and June 30, 2000. Petitioner also proposed to settle these taxes through a

short-term periodic payment offer-in-compromise of $7,200 based on doubt as to

collectibility and payable over 24 months. Attached to the Form 656 was an
                                        - 11 -

[*11] “Explanation of Circumstances” that indicated that petitioner’s business had

been adversely affected in 2001 and 2002 by an ice storm and by an employee who

stole and embezzled from petitioner’s business.

      On May 3, 2010, SO Silverhorn reviewed petitioner’s offer-in-compromise

and the next day sent it to respondent’s COIC Unit. On May 25, 2010,

respondent’s COIC Unit mailed petitioner a letter indicating that petitioner would

need to amend the April 29, 2010, offer-in-compromise before respondent could

process it. Specifically, respondent advised petitioner that the offer had been

made on behalf of petitioner and his wife but that his wife was not liable for the

Form 941 employment tax liabilities; that the offer failed to list all the Form 941

employment tax liabilities petitioner owed; and that the offer was not accompanied

by a Form 433-A, Collection Information Statement for Wage Earners and Self-

Employed Individuals. By letter dated July 15, 2010, Mr. Mesis stated that he

would provide an amended offer-in-compromise on or before August 15, 2010.

      On September 8, 2010, respondent’s COIC Unit received from petitioner an

amended offer-in-compromise, a completed Form 433-A, and other

documentation. This offer was made by petitioner only and not jointly with his

wife and was made with respect to Form 941 employment tax liabilities for the

quarters ending September 30 and December 31, 1998; March 31, June 30,
                                       - 12 -

[*12] September 30, and December 31, 1999; March 31 and June 30, 2000; June

30 and September 30, 2002; June 30 and September 30, 2003; and December 31,

2004. Petitioner again proposed to settle these outstanding taxes through a short-

term periodic payment offer-in-compromise of $7,200 based on doubt as to

collectibility and payable over 24 months. Petitioner’s assets according to

petitioner’s September 2010 Form 433-A are summarized as follows:12

                         Assets                     Equity

            Liquid assets, bank accounts,
              IRA, and life insurance              $21,075
            Credit lines                             9,505
            Equity in business                      30,000
            Equity in home                          25,000
            Equity in vehicles                      26,100
            Equity in personal property             15,072
            Accounts receivable (current)            4,412
            Accounts receivable (over 30 days)       1,262
            Accounts receivable (over 60 days)       1,487
            Accounts receivable (over 90 days)      10,281
            Business assets                         12,000
            Tools of trade                           5,000
               Total                               161,194

The Form 433-A also indicated that petitioner had $1,947 of total monthly income

and $3,365 of total monthly living expenses. Petitioner also attached to his offer-


      12
        The original Form 433-A had multiple subcategories. The classes and the
amounts have been collapsed into primary categories and totaled to facilitate a
table format.
                                        - 13 -

[*13] in-compromise a letter indicating that although petitioner’s and his wife’s

health was “generally good”, his wife had been diagnosed with breast cancer in

2005. He also indicated that when his wife was diagnosed with breast cancer their

health insurance deductible was $10,000 and they had “a lot of out-of-pocket

[health] expenses for several years.”

      On February 17, 2011, SO Silverhorn mailed to petitioner a letter informing

him that he had determined on the basis of petitioner’s Form 433-A that

petitioner’s reasonable collection potential was $82,948.13 SO Silverhorn’s

calculations of petitioner’s reasonable collection potential are summarized below.




      13
         Generally, under the Commissioner’s administrative guidelines, an offer to
compromise based on doubt as to collectibility will be accepted only if the offer
reflects the reasonable collection potential of the case. See Murphy v.
Commissioner, 125 T.C. 301, 309 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006); see
also Internal Revenue Manual (IRM) pt. 5.8.1.1.3(3) (Sept. 1, 2005) (“Absent
special circumstances, a Doubt as to Collectibility (DATC) offer amount must
equal or exceed a taxpayers [sic] reasonable collection potential (RCP) in order to
be considered for acceptance”). A taxpayer’s reasonable collection potential
includes realizable equity in assets owned by the taxpayer as well as amounts
collectible from the taxpayer’s future income after allowing for payment of
necessary living expenses. IRM pt. 5.8.4.4.1 (Sept. 1, 2005).
                                           - 14 -

[*14]            Quick sale value based on 80% of current market value

        Assets              FMV             QSV      Encumb/Exemp         Equity

Liquid assets1           $21,073       2
                                           $20,703        ---            $20,703
Lines of credit             9,505             ---         ---              9,505
Business real
  property                80,000           66,000      $51,000            15,000
Home                      75,000           60,000       49,979             5,010
Household goods           15,000             ---         8,370             6,630
Vehicles                  35,700             ---         9,683            26,100
Accounts
   receivable             44,461             ---          ---              -0-
     Total reasonable
        collection potential                                              82,948
        1
      Liquid assets includes petitioner’s bank accounts, IRA, and life insurance.
        2
      Respondent determined that petitioner’s IRA had a fair market value of
$1,235 and a quick-sale value of $865.

SO Silverhorn also determined that petitioner had monthly net negative income of

$2,073, consisting of $1,947 of gross monthly income and $4,020 of total monthly

allowable expenses. In determining petitioner had $4,020 of total monthly

allowable expenses, SO Silverhorn determined that petitioner was entitled to $655

more in monthly expenses than he had claimed on his Form 433-A.14 Directly




        14
         Specifically, SO Silverhorn determined that petitioner was entitled to a
monthly national standard allowance of $985 for “Misc.”; a monthly national
standard allowance of $957 for “Housing and Utilities”; $478 for ownership costs
related to petitioner’s vehicles; $400 for out-of-pocket health care costs; and
$1,200 for health insurance costs.
                                       - 15 -

[*15] below SO Silverhorn’s income and expense analysis was the notation

“Currently not collectible closing code: 28 ($52,000)”. The letter also stated the

following:

      As you can see, I will not be able to recommend the OIC based on
      doubt as to collectibility since you have the ability to pay more. I
      have also factored in your spouse’s medical situation by allowing the
      additional medical expenses as reflected above.

      After careful consideration of the other factors presented, I will be
      willing to recommend an OIC totaling $61,815 for acceptance. I will
      of course consider any additional information such as additional
      expenses that may not have been previously considered.
      If you are willing to amend and increase the OIC to an acceptable
      amount, please respond by 02/28/2011 and I will submit you an
      amended 656. You may also contact me at the telephone number
      listed above.

      On February 25, 2011, Mr. Mesis mailed a letter to SO Silverhorn indicating

that petitioner would amend and increase his offer-in-compromise. Mr. Mesis also

indicated in his letter that he was enclosing Forms 941 for quarterly periods

ending on December 31, 2003, and March 31, 2004. On April 14, 2011, SO

Silverhorn mailed petitioner an Addendum to Form 656 through which petitioner

could amend his offer-in-compromise.

      On April 29, 2011, Mr. Mesis mailed respondent a letter indicating that he

had “questions * * * concerning the basis for [SO Silverhorn’s] calculation of the

amount which should be offered”. Specifically, Mr. Mesis’s “main question”
                                       - 16 -

[*16] related to why SO Silverhorn was “showing $45,000.00 as accounts

receivable for the company when * * * the correct current amount to date is

$5,337.50”. Mr. Mesis also indicated that the petitioner had a negative balance in

his bank account as of February 2011 and that petitioner had also borrowed $7,000

from a bank. Mr. Mesis expressed frustration “about the method in which * * *

[respondent] had handled [petitioner’s] account from the time that the original

Offer was submitted in October of 2003.” He requested SO Silverhorn to submit a

blank Addendum to Form 656 to permit his client to submit an amended offer-in-

compromise “in an amount that they can reasonably be expected to pay on a

monthly basis”.

      On June 20, 2011, SO Silverhorn recorded in his case activities record the

following:

      Based on all facts reviewed will not be able to recommend OIC as
      filed. TP owes about $112k and is offering to settle for $7,200. They
      are still squabbling over the prior OIC that was returned in 2003.
      During Appeals consideration, TP was advised a viable OIC can be
      considered. POA however continues to write letters alluding to the
      original OIC filing. Based on all facts/circumstances, Appeals cannot
      recommend the $7,200 offer but would be willing to recommend an
      amended OIC totaling $68,847.00 based on the RCP. Set [deadline of
      July 5, 2011] to respond. Do not expect TP & POA to agree but
      wanted to give one last opportunity. Sent revised letter along
      w/addendum reflecting the same.
                                          - 17 -

[*17] Also on June 20, 2011, SO Silverhorn mailed petitioner a letter indicating

that he had determined that his calculation for petitioner’s reasonable collection

potential “was not computed correctly and should be reduced”. SO Silverhorn

also determined, however, that certain business assets that were not included in the

original calculation of petitioner’s reasonable collection potential should now be

included in that calculation. He provided in his letter two tables explaining his

calculation of petitioner’s reasonable collection potential, both of which are

summarized below.

               Quick sale value based on 80% of current market value

      Assets            FMV             QSV        Encumb/Exemp           Equity
                                    1                                     2
Liquid assets          $21,073          $20,703         ---               $9,075
Lines of credit           9,505           ---           ---                  ---
Business                 80,000          66,000      $51,000              15,000
                                                                          3
Home                     75,000          60,000       49,979                5,010
Household goods          15,000           ---          8,370                6,630
Vehicles                 35,700          28,560        9,683              18,870
Accounts
  receivable             44,461           ---           ---                    -0-
    Total reasonable
       collection potential                                                   54,585
      1
       See supra p. 14 table note 1.
      2
       Respondent determined that petitioner had zero equity with respect to his
bank account, which had originally had a fair market value of $11,628 on the
previous submission.
                                         - 18 -

       [*18] 3It appears the settlement officer reduced the available equity in the
home by 50% to reflect the potential spousal ownership interest in the tenancy.
Petitioner was solely responsible for the trust fund recovery penalties.

              Quick sale value based on 80% of current market value

     Assets            FMV              QSV       Encumb/Exemp               Equity

Account
 receivable          $5,337             ---             ---               $5,337
A/R--60 days           1,261            ---             ---                 ---
A/R--90 plus
 days                  1,486            ---             ---                    ---
A/R over 90
 days                10,280            ---              ---                    ---
Business assets      15,000         $12,000           $3,074                  8,926
Tools of trade         5,000          4,000            4,185                   ---
  Total reasonable
                                                                         1
     collection potential                                                    14,263
      1
       The number in SO Silverhorn’s letter to petitioner was entered erroneously
as $14,630. However, SO Silverhorn arrived at the correct total net equity of
$68,847 despite this miscalculation.

The letter also stated the following:

      As you can see, I eliminated the previous bank account balance to $0,
      reduced the vehicles to a quick sale value ($18,870), and utilized the
      accounts receivable currently due $5,337.00 and listed it as an asset
      since there is no future value of income (FVI) to consider.

      I have also factored in your spouse’s medical situation by allowing
      the additional medical expenses as reflected above.

      Based on these facts, I will not be able to recommend the $7,200.00
      OIC but would be willing to recommend an amended OIC totaling
      $68,847.00 based on the tables.
                                        - 19 -

      [*19] Based on the last letter received, it does not appear you will be
      able to fund the revised OIC. If you are however willing to amend
      and increase the OIC to an acceptable amount, please respond by
      07/05/2011. Your POA can submit an amended 656. You may also
      contact me at the telephone number listed above.

      On June 29, 2011, Mr. Mesis mailed SO Silverhorn a letter indicating that

he had received the June 20, 2011, letter and that it was his intent to “amend and

increase the OIC previously submitted”. Mr. Mesis also indicated that he would

submit the amended offer “within thirty days from the date of this letter”. SO

Silverhorn did not respond to petitioner’s letter.

      Thirty days after Mr. Mesis’ correspondence, on July 29, 2011, respondent

mailed petitioner the notice of determination sustaining the proposed levy.

Respondent determined that petitioner’s $7,200 offer-in-compromise should not

be recommended for acceptance because petitioner could pay $68,847.

Respondent also determined that although Mr. Mesis had indicated in his June 29,

2011, letter that he would submit an amended offer-in-compromise for the

Appeals Office to consider, nothing had been received as of the date of the notice

of determination. The same day that respondent mailed the notice of

determination, July 29, 2011, Mr. Mesis hand-delivered Addendum to Form 656,

accompanied by a letter, revising the offer to $25,000. SO Silverhorn did not
                                        - 20 -

[*20] consider the Addendum to Form 656 and the revised offer as the documents

literally passed in the office.15

                                     Discussion

A. Section 6330 Hearing

       Under section 6331, if a person liable to pay any tax neglects or refuses to

pay the same within 10 days after notice and demand, it shall be lawful for the

Secretary to collect such tax by levy upon all property and rights to property

belonging to such person. A taxpayer may appeal the proposed levy to the Internal

Revenue Service (IRS) under section 6330 by requesting an administrative

hearing. At the hearing, the taxpayer may raise any relevant issue relating to the

unpaid tax or the proposed levy, including challenges to the appropriateness of the

collection action and collection alternatives such as an offer-in-compromise. Sec.

6330(c)(2)(A). The underlying tax liability is properly at issue at a collection due

process hearing only when the taxpayer has not received a notice of deficiency or

has not otherwise had an opportunity to challenge the liability. Sec.

6330(c)(2)(B).

       15
        The proposed addendum is marked as Ex. 43-P, subject to a relevancy
objection by respondent. The Court denies respondent’s objection and finds that
the performance of actually delivering the amended offer-in-compromise, although
on the final day and probably the final hour, is relevant to deciding whether
respondent abused his discretion in sustaining the levy.
                                       - 21 -

[*21] Following the hearing, the Appeals officer must determine whether the

proposed levy may proceed. The Appeals officer is required to take into

consideration: (1) verification that the requirements of applicable law and

administrative procedure have been met; (2) relevant issues raised by the taxpayer;

and (3) whether the proposed collection action “balances the need for the efficient

collection of taxes with the legitimate concern of the * * * [taxpayer] that any

collection action be no more intrusive than necessary.” Sec. 6330(c)(3). If the

hearing culminates in an adverse determination, the taxpayer may seek judicial

review of the determination in the Tax Court pursuant to section 6330(d).

Petitioner seeks review of respondent’s determination.

B. Standard of Review

      When the validity of the underlying tax liability is properly at issue, the

Court will review the matter de novo. Davis v. Commissioner, 115 T.C. 35, 39

(2000). When the underlying tax liability is not properly at issue, the Court will

review the Commissioner’s administrative determination for abuse of discretion.

Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114

T.C. 176, 181-182 (2000). In reviewing for abuse of discretion, we will reject the

determination of the Appeals Office only if the determination was arbitrary,
                                        - 22 -

[*22] capricious, or without sound basis in fact or law. See Murphy v.

Commissioner, 125 T.C. 301, 308, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

C. Tax Liability

       On brief petitioner argues that although he does not contest the existence or

amounts of Form 941 employment tax liabilities with respect to the quarters

ending in 1998, 1999, and 2000, he does contest “all other quarters”. Judicial

review of a notice of determination is limited to issues that the taxpayer properly

raised at the CDP hearing. Sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin.

Regs.; see Giamelli v. Commissioner, 129 T.C. 112, 112-116 (2007). Petitioner

did not raise the issue of underlying liability at his CDP hearing with SO

Silverhorn. Therefore, petitioner is precluded from contesting the underlying

liabilities at this time.

       Alternatively, petitioner did not adhere to the Court’s Rules for raising an

issue pertaining to a lien or levy in the petition. Pursuant to the Court’s Rules, a

petition filed in a section 6330 case must contain “clear and concise assignments

of each and every error which the petitioner alleges to have been committed in the

notice of determination.” Rule 331(b)(4). Any issue not raised in the assignments

of error shall be deemed conceded. Id. Petitioner has failed to challenge the

validity of the underlying tax liabilities in his petition. Accordingly, we conclude
                                        - 23 -

[*23] that petitioner is precluded from challenging the validity of his underlying

tax liabilities in this case.

D. Petitioner’s October 2003 Offer-in-Compromise

       Petitioner argues that SO Silverhorn abused his discretion in failing to

consider his October 2003 offer-in-compromise and that his offer should have

been processed in 2003 without a $150 application fee. Respondent argues that

petitioner’s offer-in-compromise was returned because at the time petitioner filed

his offer respondent’s records showed that: petitioner had failed to file Forms 941

for the quarters ending on September 30, 1998, and June 30, September 30, and

December 31, 2002; petitioner had failed to timely file and pay his quarterly Form

941 employment tax liabilities for the two quarters preceding the quarter the offer

was submitted; and petitioner had failed to make timely Federal tax deposits

during the quarter in which he submitted his offer. See IRM pt. 5.8.3.2.1 (Nov.

30, 2001).

       Section 7122(a) authorizes the Secretary to compromise any civil case

arising under the internal revenue laws. Section 7122(c) provides that the

Secretary shall prescribe guidelines to be used to evaluate “whether an offer-in-

compromise is adequate and should be accepted to resolve a dispute.” Section

301.7122-1(d)(1), Proced. & Admin. Regs., provides that an “offer to compromise
                                         - 24 -

[*24] a tax liability pursuant to section 7122 must be submitted according to the

procedures, and in the form and manner, prescribed by the Secretary”.

      Pursuant to IRM pt. 5.8.3.2.1(a) (Nov. 30, 2001), an offer-in-compromise is

not processable and should be returned to a taxpayer who owns a business if the

taxpayer has failed to: (1) file all required tax returns; (2) timely file and timely

deposit all employment taxes for the two quarters preceding the offer-in-

compromise; and (3) timely pay all Federal tax deposits that are due in the quarter

in which the offer-in-compromise was submitted. See Reed v. Commissioner, 141

T.C. 248, 256 (2013) (noting that taxpayers requesting offers-in-compromise must

be in compliance with their filing requirements and be current in their tax

payments before IRS acceptance of an offer-in-compromise for processing),

supplemented by T.C. Memo. 2014-41; see also Orum v. Commissioner, 412 F.3d

819, 821 (7th Cir. 2005) (holding that the judiciary’s role is to ensure the

lawfulness of executive decisions, not to micromanage executive decisionmaking),

aff’g 123 T.C. 1 (2004). Generally, the decision to accept or reject an offer is left

to the discretion of the Secretary, see sec. 301.7122-1(c)(1), Proced. & Admin.

Regs., and the Commissioner does not abuse his discretion by returning an offer-

in-compromise on account of taxpayers’ failure to meet current tax obligations,

Reed v. Commissioner, 141 T.C. at 256 (and cases cited thereat). Moreover, the
                                        - 25 -

[*25] Commissioner is not required to reopen an offer-in-compromise during a

section 6330 hearing when that offer has been returned to a taxpayer as not

processable before the hearing. Id. at 254-255.

      On October 31, 2003, petitioner submitted an offer-in-compromise, and on

November 20, 2003, respondent returned that offer as not processable because

respondent’s records showed that petitioner was not in compliance with certain

filing and tax payment requirements. Respondent’s transcripts for petitioner’s tax

accounts show that petitioner filed his September 30, 1998, and June 30 and

September 30, 2002, quarterly Forms 941 on March 22, 2004, which was several

months after petitioner had submitted his offer-in-compromise. Additionally,

respondent’s records show that as of December 6, 2011, no payment had been

received for petitioner’s June 30, 2003, quarterly Form 941 tax period, which is

one of the two quarters preceding the offer-in-compromise. SO Silverhorn’s case

activity record and February 23, 2010, letter to petitioner show that he reviewed

petitioner’s file and transcripts and determined that petitioner was not in

compliance with his tax obligations when he submitted the offer-in-compromise.

Although petitioner argues that he was in compliance with his tax obligations, the

record is devoid of any evidence that would support his contention. Accordingly,

we conclude that respondent did not abuse his discretion in determining that
                                         - 26 -

[*26] petitioner was not in compliance with his tax obligations at the time his

October 31, 2003, offer-in-compromise was submitted.

E. Petitioner’s September 2010 Offer-in-Compromise

      Even though petitioner has submitted multiple offers-in-compromise

beginning as early as 2003, the first complete offer to include the correct taxpayer,

correct tax periods, supporting financial documentation, and filed tax returns was

not delivered during the course of the CDP hearing until September 2010. At that

time petitioner proposed a short-term periodic payment offer-in-compromise based

on doubt as to collectibility. Pursuant to the relevant regulations, taxpayers may

compromise their outstanding tax liabilities on three grounds: (1) doubt as to

liability; (2) doubt as to collectibility; and (3) promotion of effective tax

administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.

      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. Determinations

based on doubt as to collectibility will include a determination of a taxpayer’s

ability to pay, and the Secretary is required to “permit taxpayers to retain sufficient

funds to pay basic living expenses.” Sec. 301.7122-1(c)(2)(i), Proced. & Admin.

Regs. An offer-in-compromise based on doubt as to collectibility “will be
                                        - 27 -

[*27] considered acceptable if it is unlikely that the tax can be collected in full and

the offer reasonably reflects the amount the Service could collect through other

means * * * This amount is the reasonable collection potential of a case.” Rev.

Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. at 517. The policy of promoting

effective tax administration means that the IRS has discretion to compromise

liability when full collection could be achieved but would cause an economic

hardship to the taxpayer and the compromise would not undermine compliance of

the tax laws. See id.; see also sec. 301.6343-1(b)(4), Proced. & Admin. Regs.

(defining economic hardship as the inability to pay reasonable basic living

expenses).

      The Internal Revenue Manual provides procedures for analyzing a

taxpayer’s financial condition to determine reasonable collection potential. See

IRM pt. 5.8.5.1 (Sept. 23, 2008). A taxpayer’s reasonable collection potential is

defined under the IRM as net equity plus future income. Id. pt. 5.8.4.3 (June 1,

2010). “Future income is defined as an estimate of the taxpayer’s ability to pay

based on an analysis of gross income, less necessary living expenses, for a specific

number of months into the future. The number of months depends on the payment

terms of the offer.” Id. pt. 5.8.5.23(2) (Oct. 22, 2010). “Generally, the amount to

be collected from future income is calculated by taking the projected gross
                                        - 28 -

[*28] monthly income, less allowable expenses, and multiplying the difference by

the number of months applicable to the terms of the offer.” Id. pt. 5.8.5.23(3)

(Oct. 22, 2010).

      SO Silverhorn rejected petitioner’s $7,200 proposed offer-in-compromise

but indicated in his June 20, 2011, letter that he “would be willing to recommend

an amended OIC totaling $68,847.00 based on [petitioner’s reasonable collection

potential].” It appears that in determining petitioner’s reasonable collection

potential SO Silverhorn considered petitioner’s net equity in personal and business

assets but disregarded the fact that petitioner and his wife have a negative monthly

net income of $2,073, which includes expenses SO Silverhorn himself determined

were necessary. As discussed above, a taxpayer’s reasonable collection potential

includes both net equity and future income. See Porro v. Commissioner, T.C.

Memo. 2014-81, at *8 (noting where an IRS settlement officer reduced taxpayers’

reasonable collection potential because their monthly expenses exceeded their

monthly income). It seems as if SO Silverhorn considered only one of these

factors, net equity, in determining petitioner’s reasonable collection potential and

did not consider petitioner’s future income in the calculation. In addition, the

information in the Addendum to Form 656, dated July 29, 2011, was not

considered in the determination of petitioner’s reasonable collection potential. On
                                       - 29 -

[*29] the record before us, we are unable to conclude whether it was an abuse of

discretion for respondent to determine to proceed with the proposed levy for

petitioner’s Form 941 employment tax liabilities. We will remand the case to

respondent’s Appeals Office for further consideration and clarification and to

allow petitioner, if he wishes, to propose a new collection alternative. See

Fairlamb v. Commissioner, T.C. Memo. 2010-22; Blair v. Commissioner, T.C.

Memo. 2009-232. We also remand for clarification of why SO Silverhorn in his

February 17, 2011, letter determined that petitioner’s account should be placed in

currently not collectible status but continued to seek an offer-in-compromise.

See IRM pt. 5.16.1.1(2) (May 22, 2012).

      To reflect the foregoing,


                                                      An appropriate order

                                                will be issued.
