                        T.C. Memo. 2009-19


                      UNITED STATES TAX COURT



                JEANETTE M. GREGG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 11005-07L, 11006-07L,       Filed January 29, 2009.
                 11007-07L.



     Robert E. McKenzie, for petitioner.

     Karen Lynne Baker, for respondent.



                        MEMORANDUM OPINION


     JACOBS, Judge:   In these consolidated cases petitioner seeks

review of respondent’s determination to proceed with actions

taken (the filing of tax liens) and actions proposed to be taken

(intent to levy) to collect petitioner’s unpaid income taxes for

1998 to 2004.   The cases were submitted fully stipulated pursuant
                                - 2 -

to Rule 122.    The issues for decision are whether respondent

abused his discretion:    (1) In rejecting petitioner’s offer-in-

compromise to satisfy her unpaid tax liabilities, and (2) in

sustaining the filing of tax liens and proposed levy on

petitioner’s assets.

     All Rule references are to the Tax Court Rules of Practice

and Procedure, and all section references are to the Internal

Revenue Code.

                             Background

     The stipulation of facts and the attached exhibits are

incorporated herein by this reference.       At the time she filed her

petitions, petitioner resided in Illinois.

     Petitioner has a history of either filing her income tax

returns late or failing to file her returns, and either making

tax payments late or failing to make any payments.

     Year              Filing of Return            Payment of Tax

     1993           Timely                           Late
     1994           Timely                           Late
     1995           Not filed                        Never   paid
     1996           Not filed                        Never   paid
     1997           Not filed                        Never   paid
     1998           Return completed   by   IRS      Never   paid
     1999           Return completed   by   IRS      Never   paid
     2000           Return completed   by   IRS      Never   paid
     2001           Return completed   by   IRS      Never   paid
     2002           Late                             Never   paid
     2003           Late                             Never   paid
     2004           Late                             Never   paid
                                   - 3 -

Petitioner is current on her Federal income tax filing and

payment requirements for 2005, 2006, and 2007.

     Respondent prepared returns pursuant to section 6020(b) for

petitioner for 1998, 1999, 2000, and 2001.         On the basis of those

returns, respondent issued notices of deficiencies to petitioner.

Thereafter, petitioner petitioned this Court challenging

respondent’s determinations.   The parties subsequently resolved

their differences, and on March 25, 2005, the Court entered four

separate decisions reflecting the parties’ agreement.        On May 2,

2005, respondent made the following assessments against

petitioner, which were based on the Court’s decisions:

                      Year         Deficiency

                      1998          $11,470
                      1999           14,881
                      2000           19,367
                      2001           42,214

     On May 12, 2005, petitioner filed her 2002 and 2004 Federal

income tax returns.   She did not pay the tax reported thereon.

On June 6, 2005, on the basis of amounts reported on these

returns, respondent made the following assessments against

petitioner:

                                      Additions to Tax
     Year     Tax   Sec. 6651(a)(1)      Sec. 6651(a)(2)     Sec. 6654

     2002 $31,616      $5,959.35              $3,443.18       $866.04
     2004 46,245        1,396.35                 310.30         -0-

     Petitioner filed her Federal income tax return for 2003 on

May 13, 2005, but did not pay the tax reported thereon.        On the
                                 - 4 -

basis of the amount reported on this return, respondent made the

following assessment against petitioner on June 13, 2005:

                                   Additions to Tax
     Year   Tax     Sec. 6651(a)(1)   Sec. 6651(a)(2)   Sec. 6654

     2003 $24,480       $5,508           $1,713.60      $631.63

     On November 10, 2005, respondent sent petitioner a Letter

3172, Notice of Federal Tax Lien Filing and Right to a Hearing

under IRC 6320, for her unpaid Federal taxes for 1998, 1999,

2000, and 2001.   In response, on December 9, 2005, petitioner

requested a collection due process hearing (section 6330

hearing).

     On December 15, 2005, respondent sent petitioner a Letter

3172 for her unpaid Federal taxes for 2002, 2003, and 2004.    In

response, on January 13, 2006, petitioner requested a section

6330 hearing.

     On January 9, 2006, respondent sent petitioner a Final

Notice, Notice of Intent to Levy and Notice of Your Right to a

Hearing, for her unpaid Federal taxes for 1998, 1999, 2000, 2001,

2002, 2003, and 2004.   In response, on February 2, 2006,

petitioner requested a section 6330 hearing.

     On July 13, 2006, petitioner submitted a Form 656, Offer in

Compromise, and a Form 433-A, Collection Information Statement

for Wage Earners and Self-Employed Individuals, with attachments,

offering to pay $60,000 in satisfaction of unpaid 1998-2004
                                - 5 -

taxes totaling $205,652 as of February 8, 2006.   The offer was

made on the bases of:   (1) Doubt as to collectibility and (2)

effective tax administration.   Attached to Form 656 was an

explanation of petitioner’s circumstances, which stated:

          Jeanette Gregg is a 57-year old woman. She is retired,
     but has secured her real estate license, and has begun to
     sell real estate to supplement her retirement income. She
     has one child, a 33-year old daughter who has been diagnosed
     with kidney failure.
          Since the discovery of her child’s illness, the
     taxpayer has become very involved in her care and treatment.
     The taxpayer’s daughter did receive a kidney transplant in
     February, 2005. The taxpayer has been involved in all
     follow-up care and treatment in connection with the
     transplant.
          Additionally, the taxpayer has been diagnosed with
     Spinal Stenosis. She is in physical therapy for this
     condition. She underwent back surgery on April 4, 2005,
     which has effected [sic] her mobility. She also suffers
     from high blood pressure and diabetes, and is on medication
     for these conditions.
          In connection with her work in real estate,
     consideration must be given to the imminent slow-down in
     real estate sales. Increased interest rates and a slowing
     economy are contributing factors, and it remains uncertain
     as to how long the taxpayer will generate any income in this
     area, even if healthy.

On Form 433-A, section 9, petitioner reported that her monthly

income was $7,324 ($3,000 business income plus $4,324 from

pensions) and her monthly living expenses were $7,149.

     Petitioner’s hearing requests and the review of her offer-

in-compromise were assigned to Appeals Settlement Officer Ivan

Porrata (the settlement officer).   By letter dated December 4,

2006, the settlement officer proposed to have a telephone

conference on December 28, 2006, to discuss the reasons
                               - 6 -

petitioner disagreed with respondent’s proposed collection

activities and/or to discuss alternatives to such actions.     The

settlement officer informed petitioner that in order for

petitioner’s offer to be considered, she would have to file her

Federal income tax returns for 1995, 1996, and 1997.   On December

20, 2006, petitioner’s counsel sent the settlement officer a

letter together with copies of two sections of the Internal

Revenue Manual (IRM), consisting of IRM pt. 5.1.11.6.1 and IRM

pt. 5.9.13.19, which counsel maintained was “the IRS policy that

pursuit of unfiled returns is generally limited to six years.”

     During the December 28, 2006, conference,1 petitioner’s

counsel posited that pursuant to Internal Revenue Service (IRS)

policy, petitioner’s offer-in-compromise should be considered

notwithstanding petitioner’s failure to file tax returns for

1995, 1996, and 1997.   The settlement officer and petitioner’s

counsel discussed the following sections from the IRM:

          IRM 5.8.3.4.1--Determining Processability (9-1-2005)

          (1) An offer in compromise will be deemed not
     processable if one or more of the following criteria are
     present:

               (a.) Taxpayer Not in Compliance--All tax returns
          for which the taxpayer has a filing requirement must be
          filed. This rule applies even if a Service employee
          previously decided not to pursue the filing of the


     1
      Petitioner requested an abatement of all late payment
penalties for reasonable cause, claiming that both she and her
daughter had medical problems. Acceding to petitioner’s request,
respondent abated the late payment penalties.
                         - 7 -

     return under the provisions of Policy Statement
     P-5-133, because it was believed to have “little or no
     tax due” * * *.

          Note: Generally speaking, IRM 5.1.11.1.3(2),
     Delinquent Return Program, only requires employees to
     conduct a compliance check to confirm and document all
     IMF tax returns were filed for the preceding 6-year
     period. The only exception would be if fraud were
     discovered during the course of the investigation. Even
     then it should be extremely rare to go beyond 6 years.

          IRM 5.1.11.4, Cases Requiring Special Handling,
     discusses enforcement criteria, which states that if
     the taxpayer refuses to file, neglects to file, or
     indicates an inability to file, then the employees
     should determine to what extent enforcement should be
     used (e.g. summons, 6020(b), referral to Exam, or
     field, etc.). Filing requirements will normally be
     enforced for a 6-year period, which is calculated by
     starting with the tax year that is currently due and
     going back 6 years.

     IRM 5.1.11.6.1--Enforcement Determination (05-07-2002)

     (1) The determination to pursue or not pursue a return
will depend upon the facts of each case. Review Policy
Statement P-5-133 (see IRM 1.2.1.5.19) for general
guidelines and factors to consider when determining whether
to pursue enforcement of filing requirements and secure a
return.

     (2) The specific factors that must be considered when
making an enforcement determination are:

          (a.) Degree of flagrancy;

          (b.) History of noncompliance;

          (c.) Impact on future voluntary compliance;

          (d.) Whether the delinquency involves trust fund
     monies collected;

          (e.) Special circumstances peculiar to a specific
     taxpayer, class, industry or type of tax;

          (f.) Existence of income from illegal sources;
                              - 8 -

               (g.) Minimal or no Tax due (See LEM 5.2.4);

               (h.) Cost to the service to secure a return with
          respect to anticipated tax revenue;

               (i.) Bankruptcy; (contact Insolvency).

          (3) Enforcement of filing requirements will normally be
     pursued for a six year period. Always request all (non-
     fraudulent) unfiled returns. The taxpayer may file for all
     open periods regardless of the age of the delinquency.
     [Emphasis added.]

They also discussed Policy Statement 5-133, which is included in

IRM pt. 1.2.14.1.18.

          IRM 1.2.14.1.18--Policy Statement 5-133 (08-04-2006)

          (1) Delinquent returns--enforcement of filing
     requirements

          (2) Taxpayers failing to file tax   returns due will be
     requested to prepare and file all such   returns except in
     instances where there is an indication   that the taxpayer’s
     failure to file the required return or   returns was willful
     or if there is any other indication of   fraud. * * *

          (3) Where it is determined that required returns have
     not been filed, the extent to which compliance for prior
     years will be enforced will be determined by reference to
     factors ensuring compliance and evenhanded administration of
     staffing and other Service resources.

          (4) Factors to be taken into account include, but are
     not limited to: prior history of noncompliance, existence of
     income from illegal sources, effect upon voluntary
     compliance, anticipated revenue, and collectibility, in
     relation to the time and effort required to determine tax
     due. Consideration will also be given any special
     circumstances existing in the case of a particular
     taxpayer, class of taxpayer, or industry, or which may be
     peculiar to the class of tax involved. * * *

          (5) Normally, the application of the above criteria
     will result in enforcement of delinquency procedures for not
     more than six (6) years. Enforcement beyond such period
     will not be undertaken without prior managerial approval.
                               - 9 -

     The settlement officer disagreed with the position of

petitioner’s counsel that IRM pt. 5.8.3.4.1 limited the pursuit

of a taxpayer’s tax filings to those income tax returns for the

6-year period preceding petitioner’s current tax year.    The

settlement officer maintained that:    (1) IRM pt. 5.1.11.6.1(1)

provides that the determination to pursue or not pursue the

filing of a return depends on the facts of each case, and (2) IRM

pt. 5.1.11.6.1(2) provides a list of factors that must be

considered, including degree of flagrancy of noncompliance,

history of noncompliance, and impact on future voluntary

compliance, all of which directly apply to petitioner.    The

settlement officer believed that because petitioner had taxable

income in years both before (i.e., 1993 and 1994) and after

(i.e., 1998-2004) the years relating to the unfiled tax returns

(i.e., 1995-97), it was likely that a tax balance existed for

1995, 1996, and 1997.

     Petitioner’s counsel disagreed with the settlement officer’s

conclusions but stated that petitioner would endeavor to file the

three delinquent returns.   Counsel noted that petitioner was

retired and might have difficulty getting the financial

information necessary to file her 1995-97 returns.

     By letter dated March 1, 2007, the settlement officer

requested additional financial documentation from petitioner.      By

letter dated March 22, 2007, petitioner’s counsel provided the
                              - 10 -

requested documents.   That letter informed the settlement officer

that petitioner had attempted to secure information to prepare

the 1995-97 returns, but that the information was not available.

     On March 23, 2007, the settlement officer informed

petitioner that her offer-in-compromise would be rejected because

of her noncompliance with filing requirements.2    However, the

settlement officer offered petitioner a proposed partial payment

installment agreement that was based on the financial information

petitioner provided.   Petitioner would be required to make

monthly payments of $788 until January 2008, followed by monthly

payments of $1,800 from February 2008 to June 2009 and monthly

payments of $2,100 thereafter.   By letter dated March 28, 2007,

petitioner’s counsel informed the settlement officer that

petitioner would not accept the proposed partial payment

installment agreement.

     On April 20, 2007, respondent sent petitioner three separate

Notices of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 regarding liens and proposed levies for

1998, 1999, 2000, 2001, 2002, 2003, and 2004.     In each of the

notices respondent rejected petitioner’s offer-in-compromise

because of petitioner’s noncompliance with filing requirements.


     2
      The settlement officer followed IRM procedure by procuring
manager approval before requiring petitioner to file her income
tax returns for 1995, 1996, and 1997, as required by Policy
Statement 5-133 when requiring the filing of income tax returns
beyond the 6-year period.
                                - 11 -

Each notice noted that petitioner had rejected respondent’s offer

of a proposed partial payment installment agreement.

     On May 18, 2007, petitioner filed three petitions requesting

the Court to review respondent’s collection determinations.

                              Discussion

A.   Standard of Review

     These cases involve a review of respondent’s determination

to proceed with collection of petitioner’s unpaid tax liabilities

for 1998 to 2004.   Administrative hearings under section 6320

(dealing with liens) and section 6330 (dealing with levies) are

conducted in accordance with section 6330(c).3    After the

Commissioner issues his notice of determination following an

administrative hearing, a taxpayer has the right to petition this

Court for judicial review of the determination.    Secs. 6320(c),

6330(d)(1).   Our review of the determination is subject to the

provisions of section 6330.

     The judicial review that we are required to conduct in

section 6320/6330 cases focuses on the determination made by the

Commissioner.   Unless the underlying tax liability of the

taxpayer that is the subject of the proceeding is properly at

issue, we review the Commissioner’s determination for abuse of



     3
      The rules governing section 6330 hearings govern hearings
under sec. 6320. Sec. 6320(c). Sec. 6320(b)(4) provides that to
the extent practicable, a hearing under sec. 6320 shall be held
in conjunction with a hearing under sec. 6330.
                                - 12 -

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

v. Commissioner, 114 T.C. 176 (2000)

     Petitioner’s deficiencies for 1998, 1999, 2000, and 2001

were decided by this Court.    We therefore review respondent’s

determinations for these years for abuse of discretion.

Petitioner’s deficiencies for 2002, 2003, and 2004 were not

subject to deficiency proceedings, either administratively before

respondent or before this Court.    However, petitioner does not

dispute the validity of the underlying tax liability for any of

those years.   Accordingly, we review respondent’s determinations

for these years for abuse of discretion.

     An abuse of discretion is defined as any action that is

unreasonable, arbitrary or capricious, clearly unlawful, or

lacking sound basis in fact or law.      Thor Power Tool Co. v.

Commissioner, 439 U.S. 522, 532-533 (1979); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

B.   The Offer-in-Compromise

     Section 7122(a) authorizes compromise of a taxpayer’s

Federal income tax liability.    “The decision to entertain, accept

or reject an offer in compromise is squarely within the

discretion of the appeals officer and the IRS in general.”

Kindred v. Commissioner, 454 F.3d 688, 696 (7th Cir. 2006).       It

is in this light that we review respondent’s rejection of

petitioner’s offer-in-compromise.    We do not decide whether in
                              - 13 -

our opinion petitioner’s offer-in-compromise should have been

accepted.   See Woodral v. Commissioner, supra at 23; Keller v.

Commissioner, T.C. Memo. 2006-166.

     Each of respondent’s notices of determination, all dated

April 20, 2007, states:

     The taxpayer submitted an Offer in Compromise on July 12,
     2006 under Doubt as to Collectibility and Effective Tax
     Administration. The taxpayer is not compliant with filing
     requirements. The taxpayer has not filed returns for years
     ended December 31, 1997, December 31, 1996 and December 31,
     1995. In a letter dated December 4, 2006; Mr. Porrata
     requested the filing of these returns as part of the
     compliance requirement for the Offer in Compromise
     investigation. On December 19, 2006, Ms. Lach [petitioner’s
     counsel] called Mr. Porrata of Appeals and stated there was
     an IRS policy which limits the filing of delinquent returns
     to 6 years. During the telephone conference held on
     December 28, 2006, the issue was addressed; several IRM
     sections and Policy statements were discussed. Mr. Porrata
     maintained that the sections cited by Ms. Lach referred to
     the service’s enforcement procedure in securing delinquent
     returns. Mr. Porrata informed Ms. Lach that per IRM section
     5.8.4.1(1) which addresses the Offer in Compromise program
     states that all returns for which the taxpayer has a filing
     requirement must be filed. Ms. Lach conceded that the
     taxpayer had tax liabilities prior to and subsequent to the
     delinquent periods and would likely have liabilities for the
     delinquent periods but, she disagreed that the returns must
     be filed; hence, the Offer in Compromise was rejected.

     Petitioner argues that the settlement officer’s demand that

she file her delinquent income tax returns for 1995, 1996, and

1997 before he would consider her offer-in-compromise violated

IRS policy as stated in the IRM and hence was arbitrary.

Petitioner maintains that respondent abused his discretion by

ignoring her economic and medical status by focusing on her

delinquent income tax returns.   However, in the Answering Brief
                               - 14 -

for Petitioner, dated August 7, 2008, petitioner’s counsel

concedes that the IRM does not have the force and effect of law

but only provides direction and guidance.4

       We do not believe respondent abused his discretion in

rejecting petitioner’s offer-in-compromise.    Petitioner has a

history of not timely filing returns and paying her Federal

income taxes. It is well within respondent’s discretion to

require that petitioner be in full compliance with these

requirements before accepting an offer-in-compromise.    See Otto’s

E-Z Clean Enters., Inc. v. Commissioner, T.C. Memo. 2008-54;

Corona Pathology Servs., Inc. v. Commissioner; T.C. Memo. 2003-

120.

       As noted supra, the decision whether to accept petitioner’s

offer-in-compromise rests squarely within the discretion of

respondent.    The settlement officer was under no obligation to

accept petitioner’s offer.    We find there was a reasonable basis

for the settlement officer’s decision.

C.     The Installment Agreement

       After respondent rejected petitioner’s offer-in-compromise,

the settlement officer proposed a partial payment installment

agreement which required petitioner to make monthly payments of



       4
      We have previously held that as a general rule, provisions
within the Commissioner’s IRM are not binding on the Commissioner
and confer no rights on taxpayers. See Thoburn v. Commissioner,
95 T.C. 132, 141-142 (1990).
                                - 15 -

$788 until January 2008, followed by monthly payments of $1,800

from February 2008 to June 2009 and monthly payments of $2,100

thereafter.   In general, the proposed partial payment installment

agreement was based on the financial information petitioner

provided on Form 433-A, which she submitted with her offer-in-

compromise.   The settlement officer made certain adjustments to

petitioner’s financial information that were based on the

Commissioner’s national allowable expense tables (national

standards) before adopting the proposed installment agreement.

     Petitioner alleges that respondent abused his discretion by

failing to consider her age and health concerns and the realities

of the market in which she earns her living when determining her

monthly excess income over expenses.

     Petitioner’s argument is not supported by the record.    As

reflected in his calculations entered onto petitioner’s Form 433-

A, the settlement officer used petitioner’s earnings statement to

calculate her monthly income.    On Form 433-A, petitioner

estimated she would receive $7,324 in total monthly income

(annualized to $87,888), including an estimated $3,000 per month

in net business income in 2006.

     We are mindful that as part of her offer-in-compromise,

petitioner provided a physician’s report stating that petitioner

was being treated for a degenerative back condition beginning in

at least 2003.   However, petitioner’s income statements did not
                              - 16 -

reflect a decline in her income while she was under treatment.

The records petitioner provided showed she earned $73,681 in

adjusted gross income in 2003, $183,647 in 2004, and $94,545 for

2005.   Thus, there is no indication that petitioner’s income had

declined during the period she was treated for her back

condition.   Given that petitioner estimated her future monthly

net business income to be $3,000 (after 4 years of treatment for

her back condition), we reject petitioner’s argument that

respondent did not take her health into consideration in his

calculation.

     Petitioner also argues that in determining her income,

respondent did not take into account the local real estate market

in which petitioner works.   Petitioner did not provide any

evidence regarding local real estate projections.   Instead,

petitioner makes a general assertion that she will not be able to

maintain her income level.   This is mere speculation.   Given the

information presented to him, it was not arbitrary or capricious

for the settlement officer to discount petitioner’s speculative

future income projections in making his offer of an installment

agreement.

     Similarly, respondent used petitioner’s own transportation,

health care, tax, and legal monthly costs in calculating her

living expenses.   We find that it was not arbitrary or capricious
                              - 17 -

for respondent to use these figures in calculating petitioner’s

monthly living expenses.5

     The settlement officer did adjust petitioner’s “food,

clothing and misc.” expenses and her “housing and utilities”

expenses and eliminated her condominium assessment expenses in

accordance with respondent’s national standards.   Petitioner

argues that pursuant to section 301.7122-1(c)(2)(i), Proced &

Admin. Regs., respondent was required to include her actual

expenses when determining her total monthly living expenses and

not use the national standards.   Section 7122(c)(2)(B), in effect

when petitioner submitted her offer-in-compromise, provides that

the Commissioner may depart from the national standards when

“such use would result in the taxpayer not having adequate means

to provide for basic living expenses.”

     Petitioner did not provide evidence demonstrating that she

would not have adequate means to provide for her basic living

expenses if the national standards were used.   And where a

taxpayer does not present this evidence, we have held that use of

the national standards is not an abuse of discretion by the

Commissioner.   See Diffee v. Commissioner, T.C. Memo. 2007-304;

McDonough v. Commissioner, T.C. Memo. 2006-234.




     5
      Respondent increased petitioner’s monthly life insurance
expenses, a change which benefited petitioner.
                              - 18 -

     Skrizowski v. Commissioner, T.C. Memo. 2004-229, cited by

petitioner, is distinguishable.   In Skrizowski, the Commissioner

ignored his own financial determination regarding the taxpayer

when he rejected a collection alternative.   In these cases,

however, respondent considered all of the information petitioner

provided and did not make any contradictory findings.

     Although section 6330(c) requires respondent to consider

relevant issues properly raised by petitioner, including a claim

that a collection alternative, such as an installment agreement,

is more appropriate, respondent is not required to offer

petitioner a collection alternative acceptable to petitioner

before determining that a lien and a levy are more appropriate

collection tools.   See sec. 6159(a) (generally granting the

Commissioner discretion to enter into installment agreements).

D.   Conclusion

     Respondent did not abuse his discretion in rejecting

petitioner’s proposed offer-in-compromise or in proposing his

installment agreement.   We sustain respondent’s lien and levy

collection activities.

     To reflect the foregoing,


                                         Decisions will be entered

                                    for respondent.
