                        T.C. Memo. 2009-232



                     UNITED STATES TAX COURT



              KENNETH EVERETT BLAIR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16510-07L.               Filed October 8, 2009.



     Kenneth Everett Blair, pro se.

     Francis Mucciolo, for respondent.



                        MEMORANDUM OPINION


     WELLS, Judge:   Petitioner petitioned the Court pursuant to

section 6330(d)1 to review the determination of respondent’s

Office of Appeals (Appeals Office) sustaining a proposed levy to

collect petitioner’s Federal income tax liabilities for 2001



     1
      Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code.
                                 -2-

through 2003.    Petitioner argues that the Appeals officer was

required to accept his offer of $24,000 to compromise his

$81,483.52 (inclusive of penalties and interest) in liabilities.

We decide whether the Appeals officer abused his discretion in

rejecting petitioner’s offer.

                             Background

     The parties filed with the Court stipulations of fact and

accompanying exhibits.   The stipulated facts are found

accordingly.    When the petition was filed, petitioner resided in

Florida.

     On October 20, 2006, respondent mailed to petitioner a

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

Right to a Hearing, regarding petitioner’s 2001, 2002, and 2003

income tax years.   On October 27, 2006, respondent mailed to

petitioner a Letter 3172, Notice of Federal Tax Lien Filing and

Your Right to a Hearing Under IRC 6320, regarding petitioner’s

2001, 2002, and 2003 taxable years.    In his request for a hearing

petitioner stated that the proposed levy would cause him

financial hardship.

     Petitioner was granted a hearing by respondent’s Appeals

Office for both the notice of lien and the notice of levy.    At

the hearing, petitioner made an offer-in-compromise of $24,000 as

a collection alternative.   After reviewing petitioner’s financial

information, the settlement officer assigned to petitioner’s case
                                -3-

(settlement officer) determined that petitioner’s reasonable

collection potential was $58,998.     Petitioner did not agree to

that amount.   The settlement officer offered petitioner an

installment agreement, which petitioner declined.     Because the

settlement officer was presented with no other collection

alternatives, he made a determination upholding the collection

action.

     The notice of determination states that:     Petitioner failed

to file tax returns for 2001 and 2002; respondent prepared

substitutes for returns under section 6020(b) and assessed the

tax due; respondent made an additional tax assessment on

petitioner’s self-filed return for 2003; respondent’s records

show that the assessments were properly made; notice and demand

was sent to petitioner for each tax period as required by section

6303 and petitioner failed to pay the liabilities in full; there

was a balance due at the time that the collection notices were

sent as required by sections 6322 and 6331(a); Letter 3172 was

sent to petitioner on October 27, 2006; Letter 1058 was sent to

petitioner on October 20, 2006; and petitioner made a timely

request for a hearing on Form 12153, Request for a Collection Due

Process Hearing, that was received November 16, 2006.

     During the hearing that was conducted via telephone on June

12, 2007, the settlement officer advised petitioner that, after

review of all the information petitioner had provided, it was
                                  -4-

determined that petitioner’s offer of $24,000 to compromise his

tax liabilities could not be accepted.    The settlement officer

explained to petitioner that an amount larger than $24,000 could

be collected and that an offer could not be accepted under these

circumstances.   The settlement officer determined that the

reasonable collection potential (RCP) was $58,998.    The RCP was

calculated as follows:

                         Income/Expense Table

                                                     Allowed Per
                           Claimed by Taxpayer   Settlement Officer

Monthly gross income             $2,580               $2,580
Monthly necessary
  living expenses:
     Food, clothing, misc.         300                    556
     Housing & utilities           200                    200
     Transportation                350                    350
     Health care                   270                    270
     Taxes                         438                    563
                                                         1
     Child care                    400                     -0-
     Life insurance                 90                    119
                                                         2
     Unsecured loan                200                     -0-
  Total                          2,248                 2,058
Net monthly income                 332                    522
Future income (x 109)                                 56,898
     1
       The $400 in childcare expenses claimed by petitioner were
college expenses, and the record does not establish that those
expenses were a legal obligation of petitioner.
     2
       The record does not establish that petitioner is legally
obligated to repay the unsecured loan.
                                 -5-

                          Asset/Equity Table

            Fair Market     Quick Sale
 Asset         Value          Value        Encumbrance    Equity

‘88 GMC         $500            $400            -0-         $400
‘93 Ford       1,500           1,200            -0-        1,200
Savings
  acct.          500             500            -0-             500
Future
  income      56,898          56,898            -0-       56,898
  Total (RCP)                                             58,998


       At the hearing with the settlement officer, petitioner

stated that he could not increase his offer to the amount of the

RCP.    Petitioner did not raise any other issues, such as a

challenge to the tax liabilities.

                              Discussion

       Petitioner contends that respondent’s settlement officer did

not consider his obligations to make payments out of his income.

Petitioner also argues that his health care costs have increased

and those costs were not included in the settlement officer’s

consideration.    Petitioner further contends that his offer-in-

compromise was the amount he could reasonably expect to repay

“before I go on Social Security.”

       Where the underlying tax liability is not in issue, we

review the determination of the Appeals Office for abuse of

discretion.    See Sego v. Commissioner, 114 T.C. 604, 610 (2000).

We reject the determination of the Appeals Office only if the

determination was arbitrary, capricious, or without sound basis
                                  -6-

in fact or law.    See Murphy v. Commissioner, 125 T.C. 301, 308,

320 (2005), affd. 469 F.3d 27 (1st Cir. 2006).

     Where we decide the propriety of the Appeals Office’s

rejection of an offer-in-compromise, we review the reasoning

underlying that rejection to decide whether the rejection was

arbitrary, capricious, or without sound basis in fact or law.      We

do not substitute our judgment for that of the Appeals Office,

and we do not decide independently the amount that we believe

would be an acceptable offer-in-compromise.    See Murphy v.

Commissioner, supra at 320.

     Section 6330(c)(2)(A)(iii) allows a taxpayer to offer to

compromise a Federal tax debt as a collection alternative to a

proposed levy.    Section 7122(d) authorizes the Commissioner to

prescribe guidelines to determine when a taxpayer’s offer-in-

compromise should be accepted.    Sec. 301.7122-1(b), Proced. &

Admin. Regs., lists grounds on which the Commissioner may accept

an offer-in-compromise of a Federal tax debt.

     The settlement officer determined petitioner’s RCP to be

$58,998.   Therefore, it is undisputed that petitioner cannot

fully pay his $81,483.52 tax liability.    The Commissioner

evaluates economic hardship.    See Internal Revenue Manual (IRM)

pt. 5.8.11.2.1 (Sept. 1, 2005).    In accordance with the

Commissioner’s guidelines, an offer-in-compromise should not be

accepted even in a case of economic hardship if the taxpayer does
                                  -7-

not offer an acceptable amount.    See IRM pt. 5.8.11.2.1(11)

(Sept. 1, 2005).

     As we noted in Barnes v. Commissioner, T.C. Memo. 2006-150,

n.8, affd. in part and vacated in part sub nom. Keller v.

Commissioner, 568 F.3d 710 (9th Cir. 2009), IRM pt. 5.8.5.5

allows the calculation of future income using a 48-month factor

where the taxpayer offers to pay the compromise amount in cash

within 5 months.    It appears that petitioner’s offer met the

criteria set forth in the IRM, and it is unclear why the

settlement officer used a 109-month factor instead of a 48-month

factor.   The difference between petitioner’s offer of $24,000 and

the amount called for by applying a 48-month factor

(approximately $27,156) is only a few thousand dollars.      It is

not clear to the Court from the record that the settlement

officer took into account the 48-month factor allowed in the IRM

as noted above.    Consequently, we will remand this case to

respondent’s Appeals Office for reconsideration of petitioner’s

offer in the light of the 48-month factor.

     To reflect the foregoing,


                                             An appropriate order will

                                        be issued.
