                        T.C. Memo. 2009-27



                      UNITED STATES TAX COURT



                   CORA TAYLOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 12424-05L, 14765-07L.   Filed February 5, 2009.



     Robert E. McKenzie and Kathleen M. Lach, for petitioner.

     Gregory J. Stull and Gorica B. Djuraskovic, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   In these consolidated cases petitioner,

pursuant to sections 63201 and 6330, seeks a review of two

notices of determination in which respondent determined that


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
                               - 2 -

collection actions could proceed with respect to petitioner’s

unpaid Federal income tax liabilities.    In docket No. 12424-05L

(the lien case), petitioner alleges that respondent abused his

discretion in determining that the filing of a notice of Federal

tax lien (NFTL) regarding petitioner’s unpaid income tax

liabilities for 1998, 2000, and 2001 (unpaid tax liabilities) was

appropriate.   In docket No. 14765-07L (the levy case), petitioner

alleges that respondent abused his discretion in determining that

collection of petitioner’s unpaid tax liabilities for 1998 and

2000 could proceed by levy.   In both cases petitioner contends

that respondent erred (1) by not accepting petitioner’s offer-in-

compromise (OIC) on grounds of effective tax administration, (2)

by denying petitioner’s request for the abatement of section

6651(a)(2) additions to tax assessed with respect to 1998, 2000,

and 2001, and (3) by determining that the collection action was

appropriate.

                         FINDINGS OF FACT

     Petitioner is a well-known musical and recording artist who

performs under the name of Koko Taylor.     Petitioner, who is 80

years old, resides in Illinois.   Petitioner is married and filed

her Federal income tax returns for 1998, 2000, and 2001 using a

filing status of married filing separately.
                                 - 3 -

Petitioner’s Professional Career and Medical Condition

     Petitioner is a professional blues singer who is sometimes

called “Queen of the Blues”.   Her performing career spans five

decades.

     Petitioner was born into a poor family on a farm in

Tennessee and was orphaned at an early age.   She received only a

few years of formal schooling.    In her early twenties petitioner

moved to Chicago, where she worked cleaning houses.

     Petitioner started her singing career by singing blues in

Chicago night clubs.   Her big break came in 1962 when an arranger

and composer named Willie Dixon discovered her.   He helped

petitioner get a recording contract and produce several singles,

including the hit “Wang Dang Doodle”, and two albums.

     Petitioner went on to become a very successful blues singer.

During her career she released 12 albums, one completed sometime

around 2007.   Petitioner has received two Grammy Awards and has

been nominated for eight.   She has also received 24 W.C. Handy

Awards, among many other awards, and in 2004 she was a recipient

of the National Heritage Fellowship of the National Endowment for

the Arts.

     In December 2001 petitioner had her first heart attack.

After the heart attack, she was hospitalized for approximately 9

days.   During the hospitalization stents were inserted into her

arteries.   Petitioner began to perform again in February 2002.
                                - 4 -

     In October 2003 petitioner suffered a second heart attack.

She underwent coronary bypass surgery.      Following the surgery,

petitioner developed abdominal bleeding, resulting in additional

surgery.   After the second heart attack she did not perform again

until spring of 2004.   Petitioner also suffers from high blood

pressure and diabetes and must take insulin three times daily.

Petitioner’s Unpaid Tax Liabilities for 1998, 2000, and 2001

     Petitioner timely filed her 1998 Form 1040, U.S. Individual

Income Tax Return (1998 return), on or about October 14, 1999,

pursuant to extensions.   Petitioner reported an income tax

liability of $136,382, no estimated tax payments, and a section

6654(a) addition to tax of $4,914.      Petitioner also claimed a

credit for tax withheld of $1,486, and she remitted a $60,000

payment with the 1998 return.

     On December 6, 1999, respondent assessed an income tax

liability of $136,382, as reported on the 1998 return.

Respondent also assessed a section 6651(a)(2) addition to tax of

$4,796 for failure to pay timely the tax shown on the 1998 return

and a section 6654(a) addition to tax of $4,914.      Respondent

applied the credit for the $1,486 of tax withheld and the $60,000

payment petitioner remitted with her 1998 return against the

assessed amount.   From February 23, 2000, through June 21, 2002,

petitioner made installment payments of approximately $1,550 per

month on her 1998 unpaid tax liability.
                                - 5 -

     On or around October 15, 2001, petitioner filed a timely

2000 Form 1040 (2000 return), pursuant to extensions.    On the

2000 return, petitioner reported an income tax liability of

$143,097 and no estimated tax payments, and she claimed a credit

for tax withheld of $1,723.   She did not send any payment with

the 2000 return.

     On November 26, 2001, respondent assessed the income tax

reported on petitioner’s 2000 return, a section 6651(a)(2)

addition to tax of $5,655, a section 6654(a) addition to tax of

$7,032, and interest.   Respondent credited the tax withheld

against the assessed amounts.

     At some point before February 2002, respondent selected

petitioner’s 1998 return for examination.   The parties resolved

the examination by agreement.   On or about February 18, 2002,

respondent assessed a $15,880 income tax deficiency for 1998 in

accordance with Form 4549, Income Tax Examination Changes, dated

November 26, 2001, which petitioner signed, and interest.

     On or about February 25, 2002, petitioner filed a Form

1040X, Amended U.S. Individual Income Tax Return, for 2000,

claiming an overpayment of $19,293 resulting from a passive loss

carryover from 1998.    On August 19, 2002, respondent credited the

overpayment to petitioner’s unpaid 2000 tax liability.

     On or about August 16, 2002, petitioner filed a timely 2001

Form 1040 (2001 return), pursuant to extensions.   Petitioner
                                 - 6 -

reported income tax due of $88,591 and no estimated tax payments,

and she claimed a credit for tax withheld of $1,610.   Petitioner

did not send any payment with the 2001 return.

     On September 23, 2002, respondent assessed the tax liability

reported on petitioner’s 2001 return.    Respondent also assessed a

section 6651(a)(2) addition to tax of $2,609, a section 6654(a)

addition to tax of $3,435, and interest.   Respondent credited the

tax withheld against the assessed amounts.

Petitioner’s Compliance History After 2001

     For 2002, 2003, and 2004 petitioner timely filed her Federal

income tax returns and paid all taxes due for those years.

However, with respect to 2005, petitioner did not timely pay her

entire tax liability either through estimated tax payments or at

the time she filed her return.    On November 6, 2006, petitioner

submitted an $8,515 payment for application to her 2005 tax

liability, but the check was returned for insufficient funds.

For 2006 petitioner made no estimated tax payments.

Petitioner’s Performances and Income During 2002-06

     During 2002-06, despite her health problems, petitioner

continued to perform at events in the United States and abroad.

In 2003, 2004, and 2005 petitioner performed at 54, 21, and 27

events, respectively.   From January 15 through September 3, 2006,

petitioner performed at 18 shows, and she was still performing in

2007.
                                - 7 -

     Petitioner reported on her Federal income tax returns gross

receipts from performances and adjusted gross income as follows:

                      Gross receipts        Adjusted
          Year       from performances1   gross income

          2002           $415,875           $308,411
          2003            488,750            268,369
          2004            233,250            161,759
          2005            326,800            166,365
     1
      Petitioner’s gross receipts from performances reflect the
income from her performances as reported on a statement attached
to her returns. Petitioner’s gross receipts or sales reported on
her 2002 and 2004 Schedules C, Profit or Loss From Business, are
higher amounts than her gross receipts from performances in those
years.

Respondent’s Collection Actions in the Lien Case

     On December 13, 2002, respondent sent an NFTL with respect

to petitioner’s unpaid tax liabilities for 1998, 2000, and 2001

to the Office of Recorder of Deeds, Cook County, Illinois.    On

December 18, 2002, respondent mailed a Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under IRC 6320 to petitioner

by certified mail.    On January 9, 2003, petitioner, through her

counsel, submitted to respondent a timely Form 12153, Request for

a Collection Due Process Hearing, with respect to the NFTL.    In

the request, petitioner contended that (1) the filing of the NFTL

adversely affects her credit rating, business activities, and

ability to secure financing; (2) she is entitled to an abatement

of the addition to tax for failure to pay because she has

reasonable cause for not paying her taxes; (3) she is entitled to

an OIC based on inability to pay, doubt as to liability, and
                                - 8 -

effective tax administration; and (4) if she is not granted an

OIC, she is entitled to an installment agreement.

     On or about January 21, 2003, petitioner submitted to

respondent a $150,000 OIC dated November 18, 20022 (OIC I),

seeking to settle her unpaid tax liabilities on the ground of

effective tax administration.   Respondent returned OIC I to

petitioner for clarification of certain information.

     Respondent referred petitioner’s request for a section 6320

hearing regarding the NFTL filing to the Appeals Office in

Chicago, Illinois.   Petitioner’s case was assigned to Settlement

Officer Paul Lewis (Settlement Officer Lewis).

     On March 26, 2003, petitioner’s counsel sent to Settlement

Officer Lewis a letter and copy of OIC I that had previously been

submitted to respondent and returned to petitioner.    On July 28,

2003, Settlement Officer Lewis approved OIC I for consideration,

and on or about August 19, 2003, OIC I was referred to

respondent’s OIC group for investigation.

     On or about September 15, 2003, an OIC specialist requested

additional information from petitioner regarding OIC I.

Specifically, the OIC specialist requested a copy of petitioner’s

2002 tax return and proof that petitioner made 2003 estimated tax

payments.   The OIC specialist determined that petitioner had paid



     2
      The parties incorrectly stipulated that the OIC was dated
Nov. 12, 2002.
                               - 9 -

only $20,000 towards her 2003 estimated tax liability and that

she owed an additional $54,250.   Petitioner’s counsel responded

to the OIC specialist’s inquiry, explaining that petitioner had

received an extension for filing her 2002 return and that a copy

would be forwarded when completed.     She also explained that

petitioner had made another payment of $25,000 towards her 2003

estimated tax liability but that petitioner anticipated her 2003

earnings would be significantly reduced because of her health

condition.   On or around November 20, 2003, petitioner submitted

a copy of her 2002 return to Settlement Officer Lewis.

     In March 2004 the OIC specialist returned OIC I to

Settlement Officer Lewis with a recommendation that OIC I be

rejected.3   The OIC specialist calculated petitioner’s reasonable

collection potential and determined that petitioner’s income was

sufficient to satisfy her unpaid tax liabilities within a

reasonable time without causing undue hardship.    The OIC

specialist also explained that petitioner’s medical condition was

not extraordinary for a person her age and did not appear to

affect her income.

     On or about April 7, 2004, Settlement Officer Lewis sent

petitioner’s counsel a letter enclosing copies of an Income

Expense Table (IET) and an Asset Equity Table (AET) prepared by


     3
      In the recommendation report, the OIC specialist noted that
petitioner was in current compliance with all estimated tax
obligations.
                               - 10 -

the OIC specialist.   The letter stated that the IET and AET

showed that petitioner had the ability to resolve her liabilities

without an OIC, that her age was considered, and that

petitioner’s counsel could discuss the calculations or an

installment agreement for petitioner.   On July 1 and 22, 2004,

petitioner’s counsel wrote to Settlement Officer Lewis regarding

the “other expenses” and royalties listed in OIC I, explaining

that the “other expenses” included attorney’s and accountant’s

fees and that petitioner’s royalties in 2003 were approximately

$22,000.

     During the OIC negotiations petitioner proposed to increase

the amount offered in OIC I to $200,000 with a future income

collateral agreement (OIC II).   Settlement Officer Lewis sent a

letter dated August 9, 2004, to petitioner’s counsel

acknowledging petitioner’s proposal and requesting additional

verification of the “other expenses” claimed in OIC I.    He also

informed petitioner’s counsel that petitioner’s medical

documentation did not describe a significant health problem for

someone of petitioner’s age.   In response, petitioner’s counsel

sent copies of invoices regarding legal fees petitioner paid for

her representation and a copy of a letter from petitioner’s

physician dated October 11, 2004, regarding petitioner’s medical

condition.   Petitioner also submitted a copy of her 2003 Form

1040 (2003 return).
                              - 11 -

     Petitioner’s counsel continued to communicate with

Settlement Officer Lewis regarding an OIC.   In response to

requests by Settlement Officer Lewis, petitioner’s counsel

provided documentation of petitioner’s performance schedule and

additional information from petitioner’s physician.     Petitioner’s

counsel also sent Settlement Officer Lewis a copy of petitioner’s

2004 Form 1040.

     In 2005 respondent began an examination of petitioner’s 2003

return (2003 examination).   By letter dated May 27, 2005,

Settlement Officer Lewis informed petitioner that her OIC could

not be considered because of the pending 2003 examination and

that she could resubmit an OIC through the normal processing

procedures after the audit was resolved.

     On June 7, 2005, respondent’s Appeals Office mailed

petitioner a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330, sustaining respondent’s

filing of the NFTL.   The attachment to the notice of

determination explained that petitioner raised the following

issues in the hearing:   (1) The NFTL would adversely affect her

credit rating and hinder her business activities, (2) petitioner

is entitled to an abatement of penalties, (3) petitioner requests

an OIC, and (4) petitioner requests an installment agreement.

The attachment stated that petitioner presented no evidence that

the NFTL would hinder her business activities or that she had
                              - 12 -

reasonable cause for the abatement of penalties.    The attachment

also stated that petitioner was advised that she could resubmit

her OIC after the audit was resolved and that she was not

eligible for an installment agreement because her tax liabilities

could be satisfied by liquidating her assets.

     Petitioner filed a timely petition under section 6320

contesting respondent’s determination in the lien case.

     On October 12, 2005, respondent notified petitioner by

letter of no changes to petitioner’s 2003 return.   On

September 13, 2006, a trial was held in the lien case.

Respondent’s Collection Actions in the Levy Case

     On or about August 6, 2002, respondent sent petitioner a

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

Hearing with respect to petitioner’s unpaid 1998 and 2000 tax

liabilities.   Petitioner, through an authorized representative,

submitted a timely Form 12153 contesting the proposed levy.

     Respondent assigned petitioner’s levy case to Settlement

Officer Mary McHugh (Settlement Officer McHugh).    On or about

November 16, 2006, Settlement Officer McHugh sent petitioner and

her counsel a letter acknowledging receipt of petitioner’s

request for a hearing and explaining the hearing process.     The

letter stated:

     Appeals cannot approve an installment agreement or
     accept an offer-in-compromise unless all required
     estimated tax payments for the current year’s income
     tax liability have been made. If you wish to pursue
                              - 13 -

     one of these alternatives during the * * * [collection
     due process] hearing process, you must arrange for the
     payment of any required estimated tax payments.
     Delinquent estimated tax payments can be included in an
     installment agreement. However, the estimated tax
     payments must be paid in full before an offer-in-
     compromise can be accepted. Our records indicate that
     you have not made estimated tax payments for the
     following period(s): 2006.

Settlement Officer McHugh requested that petitioner submit a

completed Collection Information Statement (Form 433-A for

individuals and/or Form 433-B for businesses) with verification

and required attachments and proof of estimated tax payments for

2006.   Settlement Officer McHugh scheduled a hearing for

January 9, 2007.

     On or about December 21, 2006, petitioner’s counsel

submitted to respondent a Form 656, Offer in Compromise, that was

marked “AMENDED” (OIC III) for consideration in connection with

the hearing.   OIC III included a cash offer of $125,000 and a

collateral agreement to pay a percentage of annual net income

that exceeded $125,000.   Petitioner attached to the Form 656 an

explanation of her circumstances that was almost identical to the

one attached to OIC I submitted in the lien case.   Petitioner

also submitted a Form 2261, Collateral Agreement, and Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals.   On the Form 433-A, petitioner reported the

following monthly income and expenses:
                                   - 14 -
                Income                          Living expenses
                          Gross                                    Gross
          Source         monthly          Expense items           monthly

      Wages              $1,259       Food, clothing, misc.       $1,500
      Net income                      Housing and utilities        1,400
        from business    11,813       Transportation                 500
      Pension/Social                  Health care (estimate)         500
        Security         1,500        Taxes (income and FICA)      5,000
      Other                           Life insurance                 400
        Royalties           140       Other secured debt
          Total          14,712           (credit cards)             600
                                      Other expenses1              3,000
                                        Total2                    12,400
      1
       Other expenses include average legal and accounting fees of $2,000 and
an estimate of other household expenses of $1,000.
      2
       The total amount of living expenses should be shown as $12,900.

Petitioner also gave Settlement Officer McHugh a copy of an

appraisal prepared by Rick Hiton & Associates, dated March 1,

2000, valuing petitioner’s personal residence at $215,000 and

additional documentation of her assets, liabilities, income, and

expenses, including various Explanation of Benefits forms from

Blue Cross/Blue Shield of Illinois, a Medicare Summary Notice, a

copy of a matter ledger card from the law firm representing

petitioner, and several months of bank account statements for

each of petitioner’s bank accounts.

      After reviewing the documentation petitioner submitted and

petitioner’s financial status, Settlement Officer McHugh prepared

a draft IET and AET to determine petitioner’s reasonable

collection potential.       Settlement Officer McHugh determined that

petitioner had $6,094 of monthly disposable income available to

satisfy her tax liabilities and $306,242 of equity in assets.

The draft IET and AET showed the following:
                       - 15 -

                         IET

       Income          Claimed   Appeals

Gross wages             $1,259    $1,259
Royalties                  140       140
Social Security          1,500     1,500
Income from business    11,813    11,813
  Total                 14,712    14,712

      Expenses

National Standard       $1,500      $916
Housing & utilities      1,400     1,375
Housing & utilities      1,000      -0-
Transportation--
  operating costs          500       327
Taxes (on income)        5,000     5,000
Health care expenses       500       500
Life insurance             400      -0-
Other expenses:
  Credit cards             600      -0-
  Legal/accounting       2,000       500
    Total               12,900     8,618

Monthly disposable
  income                 1,812     6,094
                               - 16 -

                                   AET

       Asset                Fair     Percentage QS         Collect
    description         market value    RED1    Value1     Equity1

  Checking acct.            $549         ---      ---        $549
  Savings acct.           14,672         ---      ---      14,672
  Life insurance
    value                  3,651         ---      ---       3,651
  Real estate
    (Residence)          302,523          20   $242,018   242,018
  Household goods         15,000          20     12,000     4,280
  Vehicle 1                7,000          20      5,600     5,600
  Vehicle 2               11,000          20      8,800     8,800
  Vehicle 3                7,000          20      5,600     5,600
  Hummer2                 26,340          20     21,072    21,072
    Total                                                 306,242
     1
      We understand these captions to mean quick sale reduction
percentage, quick sale value, and realizable equity,
respectively.
     2
      Petitioner did not disclose the Hummer on her Form 433-A.
Settlement Officer McHugh determined that a 2006 Hummer H3 SUV 4-
Door Wagon Sport Utility was registered under petitioner’s name.
Settlement Officer McHugh used the Kelly Blue Book to determine
the value of the vehicle in “good” condition and included its
value in the AET.

     On January 9, 2007, a hearing was held in the levy case.

Settlement Officer McHugh and petitioner’s counsel discussed

whether one of petitioner’s counsel had orally withdrawn

petitioner from the section 6330 hearing process in the levy

case.    The parties agreed that because there was no written

withdrawal, petitioner was entitled to a hearing in the levy

case.    They also discussed whether OIC III was a new OIC or an

amended OIC.    Petitioner’s counsel suggested that OIC III be

treated as an amended OIC because only one OIC should be in
                                - 17 -

process.   Settlement Officer McHugh agreed but stated that she

would consult counsel.4

     Settlement Officer McHugh next explained that she calculated

petitioner’s reasonable collection potential using 3 years of

income and that it was greater than petitioner’s tax

liabilities.5   Settlement Officer McHugh told petitioner’s

counsel that petitioner was not a candidate for an effective tax

administration OIC because petitioner did not have any hardship.

Settlement Officer McHugh explained that petitioner was able to

meet her normal living expenses using her Social Security income

and income from her music ventures.      When petitioner’s counsel

asked about the collateral agreement, Settlement Officer McHugh

responded that an OIC is generally considered without regard to a

collateral agreement.     She explained that a collateral agreement

is used when there is a strong likelihood that a taxpayer’s

income will increase in the future and that that was not the case

with petitioner.

     Settlement Officer McHugh also informed petitioner’s counsel

that petitioner was not in current compliance with her tax

payment obligations because the check for petitioner’s 2005 tax


     4
      On a later telephone conference call among respondent’s
counsel, the Appeals Office, and petitioner’s counsel, it was
decided that OIC III would be treated as an amended OIC.
     5
      As of Sept. 5, 2006, petitioner’s tax liabilities for 1998,
2000, and 2001 totaled $296,666.
                                  - 18 -

liability had been returned and petitioner had not made any of

her required 2006 estimated tax payments.       Settlement Officer

McHugh requested that petitioner make those payments by

January 19, 2007.6

       On January 9, 2007, the same day as the hearing, Settlement

Officer McHugh faxed petitioner’s counsel a copy of her draft IET

and AET.       By letter dated January 19, 2007, petitioner objected

to several of Settlement Officer McHugh’s findings in the IET and

AET.       With respect to the IET, petitioner made the following

objections:       (1) Her income from business should not be included

in her future income; (2) her actual expenses, and not the

amounts permitted under National and Local Standards, should be

allowed;7 (3) the expense for life insurance should be allowed

because the value of the policy was included in the AET; and (4)

legal and accounting fees incurred should be allowed.       With

respect to the AET, petitioner objected to the value used for her

residence and the inclusion of the Hummer.       Petitioner requested

additional time to obtain an appraisal of her residence.


       6
      During the hearing, Settlement Officer McHugh and
petitioner’s counsel also discussed the Hummer vehicle and
petitioner’s daughter’s income, both of which were not included
on petitioner’s Form 433-A. Settlement Officer McHugh explained
that because petitioner’s daughter lives with petitioner, the
daughter’s income should increase the monthly payment amounts.
       7
      National Standards include living expenses for clothing,
food, housekeeping supplies, personal care products, and
miscellaneous. Local Standards include living expenses for
housing and utilities and for transportation.
                              - 19 -

Petitioner also noted that she could borrow only approximately

$100,000 against the residence and that anything above that

amount was irrelevant as to whether an effective tax

administration OIC should be accepted.

     Petitioner enclosed with the January 19, 2007, letter an

$8,515 check for her 2005 tax liability and an $8,000 check for

her 2006 estimated tax liability.   Each payment, however, was

insufficient to fully satisfy the liability.   Settlement Officer

McHugh notified petitioner’s counsel by telephone that the

payments were insufficient,8 and she gave petitioner until

February 15, 2007, to pay the remaining tax liabilities.

     On or around February 15, 2007, petitioner paid another $441

to satisfy the remaining 2005 tax liability.   However, petitioner

did not make another payment towards her 2006 estimated tax

liability.   In a letter to respondent, petitioner’s counsel

indicated that petitioner’s income had declined in 2006, that

petitioner did not yet have an income projection, and that

petitioner intended to satisfy her 2006 tax liability by



     8
      Settlement Officer McHugh also notified one of petitioner’s
counsel by telephone that her research indicated that the Hummer
was registered in petitioner’s name. After petitioner’s counsel
suggested that petitioner’s granddaughter drives the Hummer,
Settlement Officer McHugh requested verification that
petitioner’s funds were not used to purchase it. However,
petitioner never provided the requested verification. They also
discussed the value of petitioner’s residence, and petitioner’s
counsel stated that she did not dispute Settlement Officer
McHugh’s valuation.
                                - 20 -

April 15, 2007.   Petitioner’s counsel attached to the letter an

appraisal dated February 14, 2007, from an Internet Web site that

valued petitioner’s residence at $279,132.

     On February 22, 2007, another hearing was held.     Settlement

Officer McHugh began by explaining that petitioner was not in

current compliance with her 2006 estimated tax obligations.      She

also explained that even if petitioner were in current

compliance, OIC III would not be acceptable on the grounds of

effective tax administration because petitioner’s circumstances

did not present any hardship.

     The parties also discussed the possibility of an installment

agreement.   Settlement Officer McHugh explained that in order for

petitioner to qualify for an installment agreement she should

make a significant downpayment based on her home equity and that

a reverse mortgage was a possibility.      She also explained that

petitioner’s monthly disposable income of approximately $6,000,

as calculated by Settlement Officer McHugh, would be the amount

of her monthly installment payment.      Petitioner’s counsel

indicated that petitioner would not agree on any of the issues,

and Settlement Officer McHugh informed petitioner’s counsel that

a notice of determination would be issued.

     On June 1, 2007, respondent’s Appeals Office mailed to

petitioner a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 sustaining respondent’s
                                - 21 -

determination to proceed with collection by levy.       The attachment

to the notice of determination addressed petitioner’s objections

to the AET and IET calculated by Settlement Officer McHugh.       It

explained that the value of petitioner’s residence was based on a

2000 appraisal applying a 5-percent annual increase in value as

suggested by petitioner’s counsel.       It also explained that an

Internet appraisal dated February 14, 2007, did not consider

items such as the pool and other property characteristics.       The

attachment stated that petitioner did not provide the requested

verification that she did not use her funds to purchase the

Hummer.   The attachment explained that Settlement Officer McHugh

reduced the expense items in the IET to match the amounts allowed

by National and Local Standards.    It also noted that the housing

and utilities expense should consist of only real estate taxes

and utilities and that the amount petitioner claimed was

unrealistic.   The attachment stated that on the basis of

statements of petitioner’s legal and accounting fees incurred,

petitioner’s monthly fees incurred should equal $500 and not

$2,000 as petitioner claimed.    The attachment also stated that

petitioner was not entitled to an abatement of penalties for

failure to pay.   It explained that petitioner’s investment in a

local club and her heart attack were not reasonable cause for her

failure to pay her taxes.
                              - 22 -

     On June 28, 2007, petitioner timely filed a petition

contesting respondent’s levy determination.   The parties filed a

joint motion to assign the levy case to the same Judge who had

conducted the trial in the lien case and a joint motion to submit

the levy case to the Court fully stipulated under Rule 122.     At

the request of the parties the Court, by order dated February 4,

2008, consolidated the two cases for briefing and opinion and set

a briefing schedule.   Both parties filed opening briefs, and

petitioner filed an answering brief.

                              OPINION

I.   Section 6320 and 6330 Hearings

     Section 6321 imposes a lien on all property and property

rights of a taxpayer liable for taxes where a demand for the

payment of the taxes has been made and the taxpayer fails to pay.

Section 6320(a) requires the Secretary to send written notice to

the taxpayer of the filing of a notice of lien and of the

taxpayer’s right to an administrative hearing on the matter.

Section 6331(a) provides that if any taxpayer liable to pay any

tax neglects or refuses to pay such tax within 10 days after

notice and demand for payment, then the Secretary is authorized

to collect such tax by levy upon the taxpayer’s property.

Section 6330(a) requires the Secretary to send written notice to

the taxpayer of the taxpayer’s right to request a section 6330

hearing before a levy is made.
                                - 23 -

     If the person makes a timely request for a hearing under

section 6320 (dealing with liens) or section 6330 (dealing with

levies), a hearing shall be held by the Internal Revenue Service

Office of Appeals.    Secs. 6320(a)(3)(B), (b)(1), and (c),

6330(b)(1).    Administrative hearings under sections 6320 and 6330

must be conducted in accordance with section 6330(c).    Secs.

6320(c), 6330(c).

     At the hearing, a taxpayer may raise any relevant issue,

including appropriate spousal defenses, challenges to the

appropriateness of the collection action, and collection

alternatives, such as an OIC or an installment agreement.       Sec.

6330(c)(2)(A).    Additionally, the taxpayer may contest the

validity of the underlying tax liability, but only if the

taxpayer did not receive a notice of deficiency or otherwise have

an opportunity to dispute the tax liability.    Sec. 6330(c)(2)(B).

The phrase “underlying tax liability” includes the tax

deficiency, any penalties and additions to tax, and statutory

interest.     Katz v. Commissioner, 115 T.C. 329, 339 (2000).

     Following a hearing, the Appeals Office must issue a notice

of determination regarding the validity of the filed Federal tax

lien or the appropriateness of the proposed levy action.      In

making a determination, the Appeals Office must take into

consideration:    (1) The verification presented by the Secretary

that the requirements of applicable law and administrative
                               - 24 -

procedures have been met; (2) the relevant issues raised by the

taxpayer; and (3) whether the proposed collection action

appropriately balances the need for efficient collection of taxes

with a taxpayer’s concerns regarding the intrusiveness of the

proposed collection action.    Sec. 6330(c)(3).   If the taxpayer

disagrees with the Appeals Office’s determination, the taxpayer

may seek judicial review by appealing to this Court.     Sec.

6330(d).   Where the underlying tax liability is properly at

issue, the Court reviews any determination regarding the

underlying tax liability de novo.    Sego v. Commissioner, 114 T.C.

604, 610 (2000).    Where the underlying tax liability is not

properly at issue, the court will review the administrative

determination of the Appeals Office for abuse of discretion.

Lunsford v. Commissioner, 117 T.C. 183, 185 (2001); Sego v.

Commissioner, supra; Goza v. Commissioner, 114 T.C. 176, 182

(2000).    In reviewing for an abuse of discretion, we do not

conduct an independent review of whether an OIC submitted by a

taxpayer was acceptable or substitute our judgment for that of

the Appeals Office.    Rather, we must uphold the Appeals Office’s

determination unless it is arbitrary, capricious, or without

sound basis in fact or law.    See, e.g., Murphy v. Commissioner,

125 T.C. 301, 320 (2005), affd. 469 F.3d 27 (1st Cir. 2006);

Hansen v. Commissioner, T.C. Memo. 2007-56; Catlow v.

Commissioner, T.C. Memo. 2007-47.
                              - 25 -

     Section 7122(a) authorizes the Secretary to compromise any

civil case arising under the internal revenue laws.     Section

7122(c)(1)9 authorizes the Secretary to prescribe guidelines for

officers and employees of the IRS to determine whether an OIC is

adequate and should be accepted.     The regulations under section

7122 provide that effective tax administration is one ground for

the compromise of a tax liability.10    Sec. 301.7122-1(b)(3),

Proced. & Admin. Regs.   In order to compromise a tax liability to

promote effective tax administration, the Secretary must

determine that collection in full could be achieved but that

collection in full would cause the taxpayer economic hardship.11

Sec. 301.7122-1(b)(3)(i), Proced. & Admin. Regs.

     Economic hardship exists if satisfaction of the levy in

whole or in part would render a taxpayer unable to pay reasonable

basic living expenses.   Secs. 301.7122-1(b)(3), 301.6343-

1(b)(4)(i), Proced. & Admin. Regs.     The determination of a



     9
      In the Tax Increase Prevention and Reconciliation Act of
2005, Pub. L. 109-222, sec. 509, 120 Stat. 362 (2006), Congress
redesignated sec. 7122(c) as sec. 7122(d) effective for OICs
submitted on and after July 16, 2006.
     10
      The other grounds for the compromise of a tax liability
are doubt as to liability and doubt as to collectibility. Sec.
301.7122-1(b)(1) and (2), Proced. & Admin. Regs.
     11
      A taxpayer and the IRS may not enter into a compromise of
a tax liability to promote effective tax administration if
compromise of the liability would undermine the taxpayers’
compliance with the tax laws. Sec. 301.7122-1(b)(3)(iii),
Proced. & Admin. Regs.
                             - 26 -

reasonable amount for basic living expenses must be made and will

vary according to the unique circumstances of the taxpayer.     Sec.

301.6343-1(b)(4)(i), Proced. & Admin. Regs.    Unique

circumstances, however, do not include the maintenance of an

affluent or luxurious standard of living.     Id.

     Factors supporting a determination that collection would

cause economic hardship include, among others:      (1) The taxpayer

is incapable of earning a living because of a long-term illness,

medical condition, or disability, and it is reasonably

foreseeable that the taxpayer’s financial resources will be

exhausted providing care and support during the course of the

condition; and (2) although the taxpayer has certain assets, the

taxpayer cannot borrow against the equity in those assets, and

liquidation of those assets to pay outstanding tax liabilities

would render the taxpayer unable to meet basic living expenses.

Sec. 301.7122-1(c)(3)(i), Proced. & Admin. Regs.

     A.   Settlement Officer Lewis’s Determination in the Lien
          Case

     Petitioner argues that Settlement Officer Lewis abused his

discretion in the lien case by returning the OIC12 because of the

pending 2003 examination and thereby prematurely ending the


     12
      Petitioner orally amended OIC I to include a $200,000 cash
payment and collateral agreement (OIC II). Although Settlement
Officer Lewis recognized the amendment in a letter to petitioner,
the notice of determination is unclear as to whether it was
issued with respect to OIC I or II. In any event, this
distinction does not affect our decision.
                                - 27 -

negotiations.   Petitioner contends that her counsel told

Settlement Officer Lewis that the issue in the 2003 examination

was minor and would be resolved quickly.   Settlement Officer

Lewis denies receiving this information.   Nevertheless,

Settlement Officer Lewis informed petitioner by letter that she

could resubmit an OIC after the 2003 examination was resolved and

that a notice of determination would be issued.

     Although Settlement Officer Lewis may have abused his

discretion by concluding that OIC I or II could not be considered

because of the pending 2003 examination, as petitioner contends,

we need not decide the issue.    After the notice of determination

was issued in the lien case and a trial was held to review the

determination, petitioner submitted OIC III, marked “AMENDED”, to

respondent in the levy case.    Petitioner attached to OIC III an

Explanation of Circumstances almost identical to the one

submitted with OIC I in the lien case.   During the levy hearing,

respondent and petitioner’s counsel agreed that OIC III would be

treated as an amended OIC.   Because the parties treated OIC III

as amending OIC I and OIC II, we conclude that OIC III superseded

OIC I and OIC II.   A remand to the Appeals Office for a

redetermination regarding OIC I or II would be neither necessary

nor productive.

     Petitioner further argues that Settlement Officer Lewis

abused his discretion by not giving petitioner time to discuss
                              - 28 -

other collection alternatives such as an installment agreement.

We disagree.   Several months before the notice of determination

was issued, Settlement Officer Lewis sent petitioner’s counsel a

letter explaining that petitioner could not enter into an

installment agreement with respondent until petitioner addressed

whether the liquidation of some of her assets was appropriate, as

required by Internal Revenue Manual (IRM) pt. 5.14.1.5(6) (Sept.

30, 2004).   According to the IRM part cited by Settlement Officer

Lewis, a taxpayer does not qualify for an installment agreement

if the taxpayer’s tax liabilities could be fully or partially

satisfied by liquidating assets, unless factors such as advanced

age, ill health, or other special circumstances are determined to

prevent the liquidation of the assets.   Id.

     The record does not establish that petitioner ever provided

Settlement Officer Lewis any information regarding the

liquidation of her assets or whether her circumstances prevented

the liquidation of her assets.   Moreover, petitioner never

submitted a Form 433-D, Installment Agreement, or any other

document requesting an installment agreement in the lien case.

Because petitioner failed to provide the information necessary

for Settlement Officer Lewis to consider an installment

agreement, as requested, we cannot conclude that Settlement

Officer Lewis’s decision to close the lien case without

considering whether petitioner qualified for an installment
                                - 29 -

agreement was an abuse of discretion.    Accordingly, we sustain

respondent’s determination that the NFTL filing was an

appropriate enforcement action with respect to petitioner’s

unpaid tax liabilities.    See Kindred v. Commissioner, 454 F.3d

688, 695-698 (7th Cir. 2006); Orum v. Commissioner, 412 F.3d 819

(7th Cir. 2005), affg. 123 T.C. 1 (2004).

     B.    Settlement Officer McHugh’s Determination in the Levy
           Case

     Petitioner argues that Settlement Officer McHugh abused her

discretion by rejecting petitioner’s OIC in that she failed to

balance petitioner’s legitimate needs with the necessity of

efficient collection.     Petitioner also contends that Settlement

Officer McHugh abused her discretion in failing to consider the

facts of the case, such as the amount of the OIC, petitioner’s

health, and her limited resources.

     In the attachment to the notice of determination, two

reasons were cited for Settlement Officer McHugh’s rejection of

OIC III:   (1) Petitioner was not in current compliance with her

2006 estimated tax liability, and (2) petitioner was not entitled

to an effective tax administration OIC because she had the

ability to satisfy her unpaid tax liabilities without creating

any hardship.   The attachment also stated that a collateral

agreement is appropriate only when it is likely that the taxpayer
                              - 30 -

will have an increase in future income and that petitioner has

not shown that such an increase in income is likely.13

     The IRM, which contains procedures for evaluating OICs,

provides that the Commissioner must return an OIC if the taxpayer

has not made sufficient estimated tax payments.    IRM pt.

5.8.7.2.2.1(1) (Sept. 1, 2005).   Before returning an offer for

noncompliance, the Appeals Office is instructed by the IRM to

determine whether the taxpayer is required to make estimated tax

payments, to calculate the amount of estimated tax payments that

should have been made, and to contact the taxpayer to explain the

noncompliance and request payment.     IRM pt. 5.8.7.2.2.1(2) (Sept.

1, 2005).   The Appeals officer should give the taxpayer a

reasonable deadline for responding, with a warning that the OIC

will be returned if payment is not received by the deadline.      Id.

     Settlement Officer McHugh made at least three requests that

petitioner pay her 2006 estimated tax liability and explained

that she could not consider OIC III until petitioner complied.


     13
      The IRM states that securing a collateral agreement should
be the exception and not the rule and that a collateral agreement
should not be used to accept an offer amount less than the
taxpayer’s financial condition indicates. IRM pt. 5.8.6.3(1) and
(2) (Sept. 1, 2005). It further provides that a future income
collateral agreement is appropriate only when a substantial
increase in the taxpayer’s future income is expected. IRM pt.
5.8.6.3.1(1) (Sept. 1, 2005). Settlement Officer McHugh did not
abuse her discretion in determining that the future income
collateral agreement petitioner offered did not affect her
evaluation of OIC III. Moreover, petitioner never introduced any
evidence that a substantial increase in her future income was
likely.
                                - 31 -

Settlement Officer McHugh requested the payment during the

January 9, 2007, hearing and gave petitioner until January 19,

2007, to comply.    Petitioner submitted an $8,000 payment towards

her 2006 estimated tax liability.    After Settlement Officer

McHugh notified petitioner that the payment was insufficient to

satisfy her 2006 estimated tax liability, Settlement Officer

McHugh gave petitioner until February 15, 2007, to pay the

remaining amount.   Petitioner did not submit another payment

toward her 2006 estimated tax liability.

     Settlement Officer McHugh followed the procedures in the IRM

for handling an OIC when the taxpayer is not in current

compliance with her estimated tax obligations.    She gave

petitioner several chances to comply with her required estimated

tax payments, but petitioner failed to do so.    Consequently, we

cannot conclude that Settlement Officer McHugh abused her

discretion in rejecting OIC III on the grounds that petitioner

was not in current compliance with her 2006 estimated tax

liability.   See Orum v. Commissioner, supra at 821.

     Settlement Officer McHugh also concluded that petitioner did

not qualify for an effective tax administration OIC on the

grounds of economic hardship.    Settlement Officer McHugh

determined that petitioner had the ability to satisfy her unpaid

tax liabilities without creating economic hardship.
                                - 32 -

     When a taxpayer has sufficient disposable income to satisfy

her tax liabilities, an effective tax administration OIC may be

appropriate if satisfaction of those liabilities would cause the

taxpayer economic hardship.14   Sec. 301.7122-1(b)(3)(i), Proced.

& Admin. Regs.; see also IRM pt. 5.8.11.2.1(1) (Sept. 1, 2005).

The IRM requires that a taxpayer’s financial information and

special circumstances be examined to determine whether the

taxpayer qualifies for an effective tax administration offer on

the basis of economic hardship.    IRM pt. 5.8.11.2.1(3) (Sept. 1,

2005).

     The regulations and the IRM provide that economic hardship

exists only if satisfaction of the taxpayer’s tax liabilities

would leave the taxpayer unable to pay reasonable basic living

expenses.   Secs. 301.7122-(b)(3), 301.6343-1(b)(4)(i), Proced. &

Admin. Regs.; IRM pt. 5.8.11.2.1(2) (Sept. 1, 2005).   The IRM

states that basic living expenses are those expenses that provide

for health, welfare, and production of income of the taxpayer and


     14
      A compromise to promote effective tax administration may
also be appropriate where compelling public policy or equity
considerations identified by the taxpayer provide a sufficient
basis for compromising the liability and where, because of
exceptional circumstances, collection of the full liability would
undermine public confidence that the tax laws are being
administered fairly and equitably. Sec. 301.7122-1(b)(3)(ii),
Proced. & Admin. Regs.; see also Speltz v. Commissioner, 124 T.C.
165 (2005), affd. 454 F.3d 782 (8th Cir. 2006). Petitioner did
not argue that her OIC should be accepted on these grounds, nor
did she identify any compelling public policy or equity
consideration that would provide a sufficient basis for
compromising the liability.
                              - 33 -

the taxpayer’s family.   IRM pt. 5.8.11.2.1(4) (Sept. 1, 2005).

It further states that some basic living expenses are limited to

the National Standards while other expenses are limited to Local

Standards, and deviation from those standards is permissible only

if the taxpayer can justify the expenses that exceed those

limits.   IRM pt. 5.8.11.2.1(4) (Sept. 1, 2005).   In addition to

the basic living expenses, the IRM lists several other factors to

consider:   (1) The taxpayer’s age and employment status; (2) the

number, age, and health of taxpayer’s dependents; (3) the cost of

living in the area where the taxpayer resides; and (4) any

extraordinary circumstances, including a medical catastrophe.

IRM pt. 5.8.11.2.1(5) (Sept. 1, 2005).

     Settlement Officer McHugh followed the regulations and IRM

procedures for determining whether petitioner qualified for an

effective tax administration OIC based on economic hardship.

Settlement Officer McHugh calculated petitioner’s reasonable

collection potential using the information petitioner provided on

the Form 433-A and elsewhere and determined that petitioner had

approximately $6,000 of disposable monthly income that could be

used to satisfy her unpaid tax liabilities.15


     15
      There is a calculation error in the IET attached to the
notice of determination. The IET shows that petitioner’s monthly
disposable income is $8,618 as determined by the Appeals Office
and $12,400 as claimed by petitioner. The IET should show that
the Appeals Office determined that petitioner’s monthly
disposable income was $6,094 and that petitioner claimed monthly
                                                   (continued...)
                                 - 34 -

     In making her determination, Settlement Officer McHugh made

several adjustments to petitioner’s claimed monthly living

expenses.     First, she decreased the National Standards amount to

$916.     Second, she decreased the housing and utilities expense

petitioner claimed to $1,375.     She determined that according to

the Cook County treasurer’s office, petitioner’s real estate

taxes for 2006 were approximately $534 per month and that the

remaining amount of petitioner’s claimed housing and utilities

expense was too high for the utilities.16     Third, she decreased

petitioner’s transportation expenses to $327.     Fourth, she

disallowed petitioner’s expense for life insurance because she

determined that it was excessive and that petitioner had no minor

children to consider.     Fifth, she disallowed the $600 of credit

card expenses petitioner claimed.     Sixth, she decreased

petitioner’s monthly legal/accounting expense to $500.       She based

her determination regarding these expenses on petitioner’s

current balance as reflected on the statements petitioner

submitted and on the payments already made.




     15
      (...continued)
disposable income of $1,812. The draft IET that Settlement
Officer McHugh sent petitioner’s counsel reflected the correct
monthly disposable income amounts. Petitioner does not argue and
we do not find that this error was material to Settlement Officer
McHugh’s determination to reject OIC III.
     16
          Petitioner did not have a mortgage on her residence.
                              - 35 -

     Settlement Officer McHugh also made adjustments to the

assets petitioner reported on the Form 433-A.   She determined

that petitioner’s residence had a value of $302,523 using an

appraisal petitioner submitted and using a 5-percent annual

appreciation value as petitioner suggested on the Form 433-A.

Settlement Officer McHugh also included the Hummer vehicle in

petitioner’s assets after Settlement Officer McHugh’s research

revealed that the Hummer was registered in petitioner’s name.

Although petitioner claimed the vehicle belonged to her

granddaughter, petitioner never provided any verification that

the Hummer was not purchased with her funds, as requested by

Settlement Officer McHugh.

     Settlement Officer McHugh gave petitioner the opportunity to

object to her adjustments.   However, petitioner’s objections to

the adjustments for monthly living expenses consisted of

unsubstantiated statements regarding her actual expenses and

assertions that her expenses should be allowed.   Because

petitioner did not provide substantiation of her actual expenses

that would have permitted Settlement Officer McHugh to deviate

from the National or Local Standards or to increase the expenses,

we cannot conclude that Settlement Officer McHugh abused her

discretion in making the adjustments to petitioner’s monthly

living expenses.   We also cannot conclude that Settlement Officer

McHugh abused her discretion in adjusting the value of
                               - 36 -

petitioner’s residence and including the Hummer in petitioner’s

assets.

     Aside from petitioner’s financial status, Settlement Officer

McHugh also considered that petitioner was still performing17 and

earning income and that her health condition was not uncommon for

someone her age.   Settlement Officer McHugh did not abuse her

discretion by determining that petitioner’s age and health were

not such extraordinary circumstances that petitioner would have

suffered economic hardship if she were required to pay her

outstanding tax liabilities.

     Settlement Officer McHugh followed the procedures outlined

in the regulations and the IRM for evaluating effective tax

administration offers based on economic hardship.   We cannot

conclude on the record in the levy case that Settlement Officer

McHugh’s findings were arbitrary, capricious, or without sound

basis in law or fact.   Consequently, we conclude that Settlement

Officer McHugh did not abuse her discretion in rejecting OIC III

on the grounds that petitioner did not qualify for an effective

tax administration OIC on the ground of economic hardship.    We

therefore conclude that respondent’s determination to proceed by




     17
      Settlement Officer McHugh reviewed an article from the
Chicago Tribune Sunday Magazine dated Jan. 7, 2007, stating that
petitioner “still belts out her songs on stage regularly and just
finished work on her 12th album.”
                              - 37 -

levy with the collection of petitioner’s 1998 and 2000 unpaid tax

liabilities was not an abuse of discretion.

II.   Section 6651(a)(2) Additions to Tax

      Petitioner argues that respondent erred in the lien and levy

case by denying petitioner’s request for an abatement of

penalties for reasonable cause.18   References to penalties in the

record are to the addition to tax under section 6651(a)(2) for

petitioner’s failure to pay her 1998, 2000, and 2001 tax

liabilities by their respective due dates.    We understand

petitioner’s argument to mean that she should not be held liable

for the section 6651(a)(2) addition to tax because she had

reasonable cause for not timely paying her tax liabilities.

      Section 6330(c)(2)(B) provides that a taxpayer may raise at

the hearing challenges to the existence or amount of the

underlying tax liability if the taxpayer did not receive a notice

of deficiency for such tax liability and did not otherwise have

an opportunity to dispute the tax liability.    A taxpayer’s

underlying tax liability includes the addition to tax under


      18
      At trial respondent asserted that petitioner was precluded
from presenting evidence regarding reasonable cause for the sec.
6651(a)(2) additions to tax in the lien case because petitioner
had an earlier opportunity to dispute her liability for the
additions to tax. See sec. 6330(c)(2)(B). Specifically,
respondent contended that petitioner received a notice of intent
to levy but that petitioner orally withdrew her challenge to the
proposed levy before the hearing process was completed. However,
petitioner’s counsel and Settlement Officer McHugh agreed during
the levy hearing that petitioner did not withdraw from the levy
case, and we so find.
                              - 38 -

section 6651(a)(2).   See Katz v. Commissioner, 115 T.C. at 339.

Petitioner raised the issue of her liability for the section

6651(a)(2) additions to tax in both the lien and levy hearings.

We review de novo respondent’s determination that petitioner is

liable for the addition to tax under section 6651(a)(2).    See

Goza v. Commissioner, 114 T.C. at 181.

     Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount of tax shown on the taxpayer’s Federal income tax

return on or before the payment due date, unless such failure is

due to reasonable cause and not due to willful neglect.    A

failure to pay will be considered due to reasonable cause if the

taxpayer makes a satisfactory showing that she exercised ordinary

business care and prudence in providing for payment of her tax

liability but nevertheless either was unable to pay the tax or

would suffer undue hardship if she paid on the due date.    Sec.

301.6651-1(c)(1), Proced. & Admin. Regs.

     Section 7491(c) imposes on the Commissioner the burden of

production with respect to additions to tax.    In order to meet

his burden of production, the Commissioner must come forward with

sufficient evidence that it is appropriate to impose the relevant

addition to tax or penalty.   Higbee v. Commissioner, 116 T.C.

438, 446 (2001).   However, the Commissioner is not required to

introduce evidence regarding reasonable cause, substantial

authority, or similar defenses.   Id.    Once the Commissioner meets
                              - 39 -

his initial burden of production, the taxpayer must come forward

with persuasive evidence that the Commissioner’s determination is

incorrect.   Id. at 447.

     Petitioner does not dispute that she failed to timely pay

her 1998, 2000, and 2001 tax liabilities and therefore respondent

satisfied the initial burden of production with respect to the

section 6651(a)(2) additions to tax.   Petitioner argues however

that she should not be held liable for the section 6651(a)(2)

additions to tax because she had reasonable cause for not timely

paying her tax liabilities.

     Petitioner argues that two factors contributed to her

inability to pay her tax liabilities timely and that those

factors establish that her failure to pay was due to reasonable

cause.   First, petitioner claims that a bad investment in an

unsuccessful club led to her failure to pay her tax.   However,

petitioner introduced no evidence regarding her investment in the

club or how the club’s failure affected her ability to pay her

taxes.   Because of the lack of evidence regarding petitioner’s

investment in the club, we cannot conclude that the investment

constituted reasonable cause for her failure to pay her 1998,

2000, and 2001 tax liabilities by their respective due dates.

Second, petitioner cites her poor health as reasonable cause.

Petitioner introduced in evidence a letter from her physician,

who has treated petitioner since 2002, describing her medical
                               - 40 -

condition during 2003 and 2004.    Because the letter did not

address petitioner’s medical condition at the time her 1998,

2000, and 2001 taxes were due, we find it unconvincing.    In

addition, although petitioner’s first heart attack occurred in

December 2001 and left her hospitalized for over a week, she was

performing again in February 2002, before her 2001 taxes were

due.    Petitioner did not establish that her medical bills were

such that she did not have the funds to pay her tax liabilities.

Petitioner presented no other evidence that her medical condition

rendered her unable to pay her 1998, 2000, and 2001 taxes or that

she would have suffered undue hardship if she had paid them.

Although we recognize that petitioner had to deal with serious

health problems in 2001 and 2003, we cannot conclude on the

record in these consolidated cases that her medical problems were

the reason she failed to pay her 1998, 2000, and 2001 tax

liabilities or that her health problems constituted reasonable

cause for not timely paying her tax liabilities.

       On review of the record, we cannot conclude that petitioner

exercised ordinary business care and prudence with respect to her

1998, 2000, and 2001 tax liabilities.    Because petitioner has not

established that her failure to timely pay her taxes was due to
                                - 41 -

reasonable cause, we sustain respondent’s determination not to

abate the section 6651(a)(2) additions to tax.19

III. Conclusion

     Both petitioner and respondent repeatedly commented on

petitioner’s stature as a beloved and well-known professional

singer as support for their respective positions in these

consolidated cases.20    We disagree with both parties insofar as

they contend that a taxpayer’s celebrity status is somehow

relevant to what this Court must do in deciding whether the

Commissioner’s collection action may proceed.     Every taxpayer, no

matter how famous or notorious, has a legal obligation to

honestly report and pay his or her income tax liability each year

and is entitled to fair enforcement of Federal tax laws.       A

taxpayer like petitioner whose business income is generated by

performances must carefully comply with estimated tax

requirements.     The record establishes that petitioner had

outstanding tax liabilities for 1998, 2000, and 2001 because she

did not make required estimated tax payments when due and that

respondent did not abuse his discretion in determining that the



     19
      Because we conclude that petitioner has not established
reasonable cause for her failure to timely pay her tax
liabilities, we need not decide whether her failure was due to
willful neglect.
     20
      Petitioner’s consolidated cases before this Court were
publicized in a June 2, 2008, Forbes magazine Internet article
entitled “Singing Tax Blues”.
                             - 42 -

filing of an NFTL was appropriate and that respondent may proceed

to collect petitioner’s outstanding tax liabilities by levy.

Respondent gave petitioner ample opportunity to rectify her

failure to pay estimated tax when due and considered petitioner’s

collection alternatives in accordance with applicable

administrative and legal requirements.

     To reflect the foregoing,

                                      Decisions will be entered

                                 for respondent.
