                        T.C. Memo. 2006-20



                      UNITED STATES TAX COURT



          JOHN F. AND CAROLYN J. JOSEPH, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6799-04L.            Filed February 8, 2006.



     John F. Joseph, pro se.

     Paul Butler, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:   Respondent sent petitioners a Notice of

Determination Concerning Collection Action(s) Under Section 63201

and/or 6330 in which respondent determined to proceed with

collection by levy of petitioners’ income taxes for 1998-2001.


     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code in effect at relevant times. Rule
references are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

Pursuant to section 6330(d), petitioners seek our review of

respondent’s determination.    The issue for decision is whether

respondent’s determination was an abuse of discretion.

                          FINDINGS OF FACT

     Some of the facts have been deemed stipulated pursuant to

Rule 91(f).    The deemed stipulations, with accompanying exhibits,

are incorporated herein by this reference.

     Petitioners, John F. Joseph and Carolyn J. Joseph,2 husband

and wife, resided in Silver Spring, Maryland, when they filed

their petition in this case.    John F. Joseph (petitioner) is 69

years of age and has a master’s degree.      He is a chemical

engineer employed by the U.S. Department of Energy at a grade of

GS-15.

     Petitioners began to experience financial difficulties when

their son was diagnosed with a terminal illness.      Petitioners’

son died in December 2000.

     Petitioners filed joint income tax returns for 1998 through

2001 but did not pay the balances due shown on the returns.      In

November 2000, petitioners entered into an installment agreement

with respondent with respect to their 1998 and 1999 income tax

liabilities.   Petitioners agreed that during the term of the


     2
      Carolyn J. Joseph did not appear at trial. The Court sua
sponte will dismiss the case for lack of prosecution with respect
to her and enter a decision for respondent with respect to her
consistent with the decision entered with respect to John F.
Joseph.
                                 - 3 -

installment arrangement they would (1) make monthly payments of

$400, (2) timely file all tax returns, and (3) timely pay all

Federal taxes that become due.    Petitioners paid $400 monthly

from January through July 2001.    They did not make an installment

payment in August 2001.

     After petitioners failed to make the August 2001 payment,

the installment agreement was revised to include unpaid taxes for

2000, and the amount of the monthly payments was increased to

$700.    Petitioners paid $676 in September 2001 and made monthly

payments of $700 from October 2001 through July 2002 and in

October 2002.3   They did not make a payment in August or September

2002 or after October 31, 2002.

     On January 4, 2003, the Internal Revenue Service (IRS)

mailed to petitioners a Final Notice of Intent to Levy and Notice

of Your Right to a Hearing (the levy notice) with respect to

petitioners’ liability for income taxes for 1998-2001.    The levy

notice reflects the following unpaid tax liabilities for 1998-

2001:




     3
      Petitioners made two payments of $700 each in January 2002
but did not make a payment in February 2002.
                                - 4 -

      Year    Income Tax     Statutory Additions      Total

      1998    $5,026.51           $2,416.16         $7,442.67
      1999     6,688.98            3,015.57          9,704.55
      2000     4,569.00              764.60          5,333.60
      2001     3,709.99              143.13          3,853.12

      On January 27, 2003, petitioners filed a Form 12153,

Request for a Collection Due Process Hearing.

     On May 21, 2003, the IRS Appeals Office sent a letter to

petitioners that acknowledged receipt of their request for a

hearing and explained the appeal process.     On June 18, 2003, the

IRS Appeals Office sent petitioners a letter requesting that they

submit certain information, including a completed collection

information statement.    On July 14, 2003, the Appeals officer

assigned to conduct the administrative hearing sent a letter to

petitioners requesting that they call her to schedule the

hearing.

     Petitioners submitted a Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals

(collection statement).    On the collection statement, petitioners

stated that the value of their residence was $280,000, subject to

a $79,000 mortgage, and that they owned other real property

valued at $260,000.   The value of the real property stated on the

collection statement was based on the assessed value of the

property for property tax purposes.     On the collection statement,
                                - 5 -

petitioners stated that they had a combined monthly income of

$8,924 and total expenses of $7,546.

     On January 21 and February 26, 2004, the Appeals officer

spoke by telephone with petitioner concerning payment of

petitioners’ outstanding tax liabilities.   Petitioner requested

that he be allowed to pay petitioners’ tax liability in monthly

installments of $700.

     The Appeals officer advised petitioner that she could not

consider an installment agreement calling for monthly payments of

$700 unless the balance due for all years was reduced to $25,000

or less.    Petitioner told the Appeals officer that he could not

pay the $4,000 required to reduce the balance to $25,000.    The

Appeals officer informed petitioner that since he could not bring

the balance to $25,000, any new installment agreement would

require petitioners to pay monthly installments in an amount

equal to the amount of their available income after necessary

expenses.   The Appeals officer suggested that petitioners borrow

against the equity in their real property and/or other assets to

pay the balance in full.   Petitioner did not agree to the

alternatives suggested by the Appeals officer.

     Petitioners did not raise any spousal defenses.

     The IRS Appeals Office issued a notice of determination

dated April 2, 2004, sustaining the proposed collection by levy.
                                - 6 -

On April 23, 2004, petitioners filed a petition in this Court

challenging respondent’s determination.

                               OPINION

     Section 6330 entitles a taxpayer to notice and an

opportunity for a hearing before the IRS can proceed with tax

collection by levy.    Upon request, a taxpayer is entitled to a

fair hearing before an impartial Appeals officer.    Sec.

6330(b)(1), (3).   At the hearing, the Appeals officer is required

(1) to verify that the requirements of any applicable law or

administrative procedure have been met, and (2) to consider any

relevant issue the taxpayer raises relating to the unpaid tax or

the proposed levy.    Sec. 6330(c)(1) and (2)(A).   Relevant issues

include an appropriate spousal defense, challenges to the

appropriateness of the collection action, and offers of

collection alternatives.    Sec. 6330(c)(2)(A).   The taxpayer may

challenge the existence or amount of the underlying tax liability

if he/she did not receive a statutory notice of deficiency for

the tax liability or did not have an opportunity to dispute it.

Sec. 6330(c)(2)(B).

     Following the hearing, the Appeals officer must determine

whether the collection action is to proceed, taking into account

the issues raised by the taxpayer at the hearing and whether the

proposed collection action balances the need for the efficient

collection of taxes with the taxpayer’s legitimate concern that
                                - 7 -

the collection action be no more intrusive than necessary.     Sec.

6330(c)(3).    If the Commissioner issues a determination letter to

the taxpayer following an administrative hearing, the taxpayer

may file a petition for judicial review of that determination.

Sec. 6330(d)(1); Davis v. Commissioner, 115 T.C. 35, 37 (2000);

Goza v. Commissioner, 114 T.C. 176, 179 (2000).   We have

jurisdiction over this matter because petitioners filed a timely

petition for review in response to respondent’s valid notice of

determination to proceed with collection of their income tax

liabilities.   See sec. 6330(d)(1); Lunsford v. Commissioner, 117

T.C. 159 (2001); Sarrell v. Commissioner, 117 T.C. 122 (2001);

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

Commissioner, 114 T.C. 492, 498 (2000).

     Petitioners do not dispute the existence or amount of the

underlying tax liabilities for 1998-2001.   Thus, we must

determine whether the determination to proceed with collection of

those tax liabilities by levy was an abuse of respondent’s

discretion.

     The Internal Revenue Manual (IRM), together with section

301.6159-1, Proced. & Admin. Regs., establishes the IRS’s

procedures for determining whether an installment agreement will

facilitate collection of the liability.   See Orum v.

Commissioner, 123 T.C. 1, 13 (2004), affd. 412 F.3d 819 (7th Cir.

2005); Etkin v. Commissioner, T.C. Memo. 2005-245; McCorkle v.
                               - 8 -

Commissioner, T.C. Memo. 2003-34; Schulman v. Commissioner, T.C.

Memo. 2002-129.   When determining whether an installment

agreement will facilitate the collection of tax, the IRS

considers the taxpayer’s ability to pay the tax by analyzing the

taxpayer’s assets, liabilities, and monthly income and expenses.

Schulman v. Commissioner, supra.   In determining the amount a

taxpayer is able to pay, the IRS allows the taxpayer to offset

income with certain necessary or conditional expenses, provided

the taxpayer substantiates them.   Id. (citing 2 Administration,

IRM (CCH), secs. 5.15.1 to 5.15.1.4, at 17,653-17,660).

“Necessary” expenses are those that provide for a taxpayer’s

health and welfare and/or the production of income.    2

Administration, IRM (CCH), sec. 5.15.1.3(2), at 17,655.

“Conditional” expenses are any expenses other than “necessary”

expenses.   Id. secs. 5.15.1.7(6), at 17,661, 5.15.1.3(3), at

17,655.   An Appeals officer may allow “excessive necessary” and

“conditional” expenses, provided that the tax liability,

including all accruals, will be paid within 5 years.       Id. sec.

5.15.1.3(4).

     On the collection statement submitted to the Appeals

officer, petitioners stated that they had a combined monthly

income of $8,924 and total expenses of $7,546.4   Thus, without


     4
      The IRS determined that petitioners had a combined gross
monthly income of $14,382. Moreover, petitioners were unable to
                                                    (continued...)
                               - 9 -

eliminating any expense as unnecessary or unsubstantiated,

petitioners had at least $1,378 of monthly income available to

pay their tax liabilities.   Additionally, petitioners stated that

the current value of their residence was $280,000, subject to a

$79,000 mortgage, and that they owned other real property valued

at $260,000.

     On the basis of the entirety of the record, we conclude that

respondent did not abuse his discretion in determining that

petitioners’ proposed installment agreement did not reflect their

ability to pay.   Petitioners’ tax liability, including projected

accruals, would not be fully paid within 5 years under an

installment agreement permitting monthly payments of $700.

Petitioners have sufficient equity in their real property and

other assets to pay the tax liability.   Consequently, we are

satisfied that respondent did not abuse his discretion in denying

petitioners’ proposed installment agreement.

     This case was set for trial on June 10, 2005.   During that

proceeding petitioner gave respondent’s counsel a check for

$4,000, and the parties and the Court agreed to continue the case

until August 30, 2005, to allow petitioner time to attempt to

make arrangements to pay the balance of the tax liabilities for

the years at issue.


     4
      (...continued)
verify to the satisfaction of the IRS the amount claimed as their
monthly expenses.
                               - 10 -

     On August 30, 2005, this case was recalled.   At that

hearing, petitioner informed the Court that he had been unable to

borrow from his thrift savings account, obtain a home equity

loan, or otherwise arrange to pay the balance of the tax

liabilities.   He asked that respondent give him “a few months

more and then I can pay off the entire thing”.5

     While we sympathize with petitioners over the loss of their

son and the financial burden it placed upon them, during the

administrative proceedings petitioners made no offers of

collection alternatives other than to reinstate an installment

agreement that does not reflect their ability to pay, nor did

they raise any spousal defenses or challenges to the

appropriateness of the levy.

     In conclusion, we hold that respondent’s determination to

proceed with collection by levy of petitioners’ income taxes for


     5
      In petitioners’ answering brief, filed with the Court on
Jan. 13, 2006, petitioner requests that he be allowed to postpone
payment of his tax liabilities until January 2007 to allow time
to process a new loan from his thrift savings account after the
existing loan is repaid in full in October 2006. Petitioner asks
the Court to remand the case to respondent’s Appeals Office to
consider that proposal. We will not consider a proposal not made
during the administrative proceedings. Moreover, petitioners
have over $1,000 of monthly income available to pay their tax
liabilities and/or to pay down the outstanding loan from the
thrift savings plan. Yet during the 21 months since they filed
the petition in this case, petitioners have not increased the
monthly payments on the existing loan from petitioner’s thrift
savings account and have paid only $4,000 toward their tax
liabilities. Under these circumstances, petitioner’s request is
unreasonable.
                             - 11 -

1998-2001 was not an abuse of discretion.   To reflect the

foregoing,


                                   An appropriate order of

                              dismissal and decision will be

                              entered.
