                               T.C. Memo. 2019-46



                         UNITED STATES TAX COURT



                    TURNER ANSLEY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 388-18L.                          Filed May 1, 2019.



      Turner Ansley, pro se.

      Christine A. Fukushima, for respondent.



                           MEMORANDUM OPINION


      URDA, Judge: In this collection due process (CDP) case Turner Ansley

seeks review pursuant to section 6330(d)(1)1 of the determination of the Internal



      1
       All section references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all dollar amounts to the nearest dollar.
                                         -2-

[*2] Revenue Service (IRS) Office of Appeals to uphold a notice of intent to levy.

The principal question for decision is whether the IRS settlement officer abused

her discretion in rejecting petitioner’s $100 offer-in-compromise (OIC).

Respondent has moved for summary judgment under Rule 121, contending that no

disputed issues of material fact remain and that the settlement officer acted within

her discretion. We agree and accordingly will grant the motion.

                                    Background

A.    Notice of Deficiency and IRS Collection Efforts

      On August 4, 2015, the IRS sent petitioner by certified mail a notice of

deficiency for his 2012 through 2014 tax years. The IRS determined Federal

income tax deficiencies of $6,013 for his 2012 tax year, $6,665 for his 2013 tax

year, and $6,517 for his 2014 tax year. The IRS also determined an accuracy-

related penalty under section 6662(a) for each year. Petitioner did not seek this

Court’s review of the IRS’ determination within 90 days, and the IRS accordingly

assessed the tax liabilities in question. See secs. 6201, 6213(a).

      To collect petitioner’s 2012 through 2014 liabilities, the IRS issued a pair of

notices on June 20, 2016--one relating to his 2012 liability and the other for his

2013 and 2014 liabilities--informing petitioner of its intent to levy and apprising

him of his right to request a CDP hearing pursuant to section 6330(b)(1).
                                         -3-

[*3] Petitioner filed a timely Form 12153, Request for a Collection Due Process or

Equivalent Hearing, on which he indicated his interest in submitting an OIC in

lieu of the proposed levy. Petitioner did not challenge the underlying liabilities or

identify any other issues.

B.    Initial CDP Proceedings

      Petitioner’s case thereafter was received by a settlement officer in the IRS

Office of Appeals. On August 2, 2016, the settlement officer sent petitioner a

letter scheduling a telephone CDP hearing for September 7, 2016. The settlement

officer requested that petitioner submit a Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, as well as his 2015

Federal income tax return, so that she could consider any alternative to collection

that he wished to propose.

      Petitioner neither supplied the requested information nor called the

settlement officer on the appointed date. Given the lack of response, the

settlement officer sent petitioner a form letter stating that she would decide the

case based on the administrative file and any information previously provided.

      While preparing her final determination, the settlement officer learned that

the IRS Centralized Offer In Compromise (COIC) unit had received an OIC from

petitioner on September 26, 2016. In response the settlement officer alerted the
                                          -4-

[*4] COIC unit and suspended the CDP proceeding so that the COIC unit could

investigate petitioner’s offer, consistent with the relevant procedures in the

Internal Revenue Manual. See Internal Revenue Manual (IRM) pt. 5.8.4.15

(May 10, 2013), pt. 8.22.7.10.1.2 (Sept. 23, 2014).

C.    COIC Unit Investigation

      1.     Initial Reporting

      The OIC that petitioner submitted to the COIC unit consisted of a Form 656,

Offer in Compromise, and a Form 433-A. On the Form 656 petitioner offered

$100 to settle his tax liabilities for 2012 through 2014 (the years at issue) as well

as his tax liability for 2015. On the “Reason for Offer” section of the form

petitioner checked the box marked “Doubt as to Collectibility”. Petitioner did not

check the box marked “Exceptional Circumstances” or offer any justification for

not paying the full amounts of his underlying liabilities.

      Petitioner supplied certain other bits of information on the Form 433-A. On

the personal front petitioner disclosed that he was born in September 1939, was

married, and rented his residence. Petitioner set forth only three personal assets--a

1990 Lexus, a 1997 Toyota, and a 1973 Buick--each of which he valued at zero.

For his monthly income petitioner listed wages of $3,623 and reported no income

from Social Security, pensions, or other sources.
                                         -5-

[*5] According to petitioner, his total monthly expenses were $4,503. He

reported $585 for food, clothing, and miscellaneous expenses, $1,382 for housing

and utilities, $432 in vehicle operating costs, and $50 for out-of-pocket healthcare

costs. Petitioner further reported monthly taxes of $1,180 and a secured debt of

$874.

        On February 28, 2017, an offer examiner from the COIC unit called one of

petitioner’s representatives to obtain further information about his OIC and

finances. After a few months of back-and-forth (including a brief closing of the

investigation), the offer examiner was able to obtain a clearer view of petitioner’s

financial picture. She learned that petitioner’s wife had filed for divorce and left

the country. The offer examiner also was told that petitioner’s roster of cars had

changed. Petitioner’s representative reported that he had given his Toyota to

charity and disclosed his ownership of a previously unreported 2004 Honda,

which was purportedly encumbered by a car loan (reported on the Form 433-A as

a secured debt). Despite repeated requests for loan documentation by the offer

examiner, none was supplied. Finally, the offer examiner was informed that

petitioner had a practice of cashing checks and redepositing funds because of

concerns about levies and overdrawing his account.
                                          -6-

[*6] 2.      Financial Analysis

      To evaluate petitioner’s offer and his ability to pay the liabilities, the offer

examiner performed a financial analysis of his assets, income, and expenses. She

first determined that petitioner had assets worth $2,974. The offer examiner

reached this conclusion by using the “quick sale” values of petitioner’s three

vehicles: (i) $1,564 for the 2004 Honda, (ii) $510 for the 1990 Lexus, and

(iii) $400 for the 1973 Buick. She further concluded that petitioner’s Toyota

constituted dissipated assets of $500 because “the receipt provided for deed

transfer was for a used car lot, not a charity.”

      The offer examiner next determined that petitioner had monthly income of

$5,955. She derived this amount by adopting the monthly wage set forth on

petitioner’s Form 433-A ($3,623) and then adding his monthly Social Security

income ($2,007) and an average of “other” unaccounted-for monthly income

($325). This “other” income was based on her analysis of petitioner’s

unaccounted-for bank account deposits.

      The offer examiner finally concluded that petitioner had $3,818 in average

monthly expenses. She reached this amount by accepting the expenses that

petitioner reported on his Form 433-A for housing and utilities ($1,382) and

current taxes ($1,180). Consistent with the national standards published by the
                                          -7-

[*7] IRS for 2017, she allowed food, clothing, and miscellaneous expenses of

$639 and out-of-pocket healthcare expenditures of $117. She also increased

petitioner’s total monthly car expenses from $432 to $500. The offer examiner

disallowed only one monthly expense--petitioner’s secured debt (car loan), for

which he had offered no substantiation.

      On the basis of this analysis the offer examiner determined that petitioner

had a monthly net income of $2,137 and that he could pay $256,440 over 120

months. The offer examiner also noted that petitioner had assets with a value of

$2,974. Combining these figures, she determined a reasonable collection potential

of $259,414.2 The offer examiner further observed that petitioner could retire his

total underlying liability ($32,300, including both tax and penalties) in

approximately 16 months.




      2
        The Commissioner has promulgated guidelines for the evaluation of offers.
See, e.g., Churchill v. Commissioner, T.C. Memo. 2011-182, 102 T.C.M. (CCH)
116, 117 (2011). The calculation of a taxpayer’s reasonable collection potential
occupies a central place in those guidelines. See id.; see also Internal Revenue
Manual (IRM) pt. 5.8.5.1 (Sept. 23, 2008). A settlement officer derives the
reasonable collection potential from her estimate of a taxpayer’s assets and likely
future income. See IRM pt. 5.8.5.4 (Sept. 30, 2013), pt. 5.8.5.20 (Sept. 30, 2013).
Likely future income, in turn, is determined by multiplying a taxpayer’s monthly
disposable income (gross income minus necessary living expenses) by a certain
number of months. See id. pt. 5.8.5.22 (Oct. 22, 2010), pt. 5.8.5.25 (Sept. 30,
2013).
                                         -8-

[*8] On May 2, 2017, the offer examiner sent petitioner a letter preliminarily

rejecting his OIC of $100 based on her financial analysis. The letter explained,

however, that the final decision to reject or accept rested with the Office of

Appeals.

D.    Discussions With Settlement Officer and Notice of Determination

      The settlement officer concurred in the offer examiner’s financial analysis.

Accordingly, on May 10, 2017, the settlement officer sent petitioner a letter in

which she noted that rejection had been recommended. She nonetheless offered

him an installment agreement, which would have resulted in payments of $419 per

month to his tax liabilities.3

      Petitioner responded with several faxes during May. These faxes included

assorted IRS documents to which petitioner had added handwritten notes, inter

alia, asking the settlement officer to “reconsider your negative decision” and

referring to his overtime work. Some of the faxes contained letters from lawyers

(addressed generally to “Creditor”) stating that petitioner was preparing to file for

bankruptcy and should be afforded the benefits of fair debt collection laws.




      3
       This letter was the second time the settlement officer had extended this
offer. She also had done so--to no avail--after the COIC unit had temporarily
closed its investigation in March 2017.
                                        -9-

[*9] Petitioner also faxed a copy of a newspaper article about the 2017 median

income of Los Angeles County residents.

      The settlement officer replied by letter on June 2, 2017. After noting that

she had reviewed petitioner’s correspondence, the settlement officer explained that

the amount that the offer examiner had used for petitioner’s wage income ($3,623)

was less than both the monthly “low income” amount for Los Angeles ($4,208,

according to the article petitioner submitted) and the monthly wage indicated by

his work history from 2014 through 2016. On the latter point the settlement

officer noted that, even during 2014, his lowest earning year, his monthly wage

worked out to $4,664. The settlement officer concluded her letter by extending

another opportunity for petitioner to enter into an installment agreement.

      More faxes followed. As most pertinent here, on July 1, 2017, petitioner

faxed a handwritten note in which he represented that he made a total of $51,043

per year based on wages of $25,043 and annual Social Security income of

$26,000. In this note he again lamented the high cost of living in Los Angeles.

      On July 18, 2017, the Office of Appeals issued a notice of determination

sustaining the levy notice. The notice rejected petitioner’s OIC of $100 “due to
                                         -10-

[*10] the reasonable collection potential of $259,414.00 with disposable income

of $2,137.00 and equity in assets of $2,974.40.”4

E.    Proceedings in This Court

      Petitioner, who lived in California at the time, filed a timely petition on

July 31, 2017.5 Respondent subsequently filed a motion for summary judgment to

which petitioner responded.

                                      Discussion

A.    Summary Judgment

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment

when there is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520


      4
       At one point in the notice of determination the settlement officer refers to
the reasonable collection potential as “$253,465.60.” The reasonable collection
potential determined by the offer examiner and adopted by the settlement officer,
however, was $259,414. Although this error concerns us, it appears from our
review of the record to be an isolated mistake and not to have affected the
substance of the settlement officer’s analysis.
      5
        Petitioner filed a petition in this Court before the issuance of the notice of
determination, which we initially docketed as No. 12702-17. We later dismissed
that petition as premature and docketed the instant case on the basis of a petition
filed on July 31, 2017.
                                         -11-

[*11] (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant

summary judgment, we construe factual materials and inferences drawn from them

in the light most favorable to the nonmoving party. Id. However, the nonmoving

party may not rest upon the mere allegations or denials of its pleadings but instead

must set forth specific facts showing that there is a genuine dispute for trial.

Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

B.    Standard of Review

      Pursuant to section 6330(d)(1), we have jurisdiction to review the Office of

Appeals’ determination. See Murphy v. Commissioner, 125 T.C. 301, 308 (2005),

aff’d, 469 F.3d 27 (1st Cir. 2006). Where the validity of the underlying tax

liability is properly at issue, we review the determination regarding the underlying

tax liability de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000). We review all other determinations

for abuse of discretion. Sego v. Commissioner, 114 T.C. at 610; Goza v.

Commissioner, 114 T.C. at 182. In reviewing for abuse of discretion we must

uphold the Office of Appeals’ determination unless it is arbitrary, capricious, or

without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C.

at 320; Taylor v. Commissioner, T.C. Memo. 2009-27, 97 T.C.M. (CCH) 1109,

1116 (2009).
                                        -12-

[*12] C.     Underlying Liability

      In his amended petition, petitioner asserts that the IRS made a “math

mistake” that affected his 2008 through 2017 Federal tax liabilities. Our

jurisdiction in the instant proceeding, however, extends only to the review of the

proposed levy for petitioner’s 2012 through 2014 tax years. Sec. 6330(d)(1);

see also Gallagher v. Commissioner, T.C. Memo. 2018-77, at *9-*10.

      Even for those years for which we have jurisdiction, we are precluded from

considering petitioner’s liability challenge. A taxpayer may dispute his underlying

tax liability in a CDP case only if he properly raised that issue at the CDP hearing.

See Giamelli v. Commissioner, 129 T.C. 107, 113 (2007); sec. 301.6320-1(f)(2),

Q&A-F3, Proced. & Admin. Regs. Petitioner did not raise the issue in the Office

of Appeals, and thus we cannot consider it now.6




      6
        Petitioner attached to his summary judgment opposition what appears to be
the first page of an undated IRS notice of deficiency addressed to “Turner Aansley
[sic].” Petitioner has added to this page handwritten notes to the effect that he
“did not receive” it, and that his name was misspelled. This exhibit relates to his
underlying liability challenge, which, as explained above, lies outside our purview
because it was not raised in the Office of Appeals. Petitioner’s failure on this
count accordingly makes moot any argument that he did not receive a notice of
deficiency in the first place.
                                         -13-

[*13] D.     Abuse of Discretion

      We next consider whether the settlement officer: (1) properly verified that

the requirements of applicable law or administrative procedure have been met,

(2) considered any relevant issues petitioner raised, and (3) considered whether

“any proposed collection action balances the need for the efficient collection of

taxes with the legitimate concern of * * * [petitioner] that any collection action be

no more intrusive than necessary.” Sec. 6330(c)(3).

      1.     Verification

      As an initial matter, this Court has authority to review satisfaction of the

verification requirement regardless of whether the taxpayer raised that issue at the

CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008),

supplemented by 136 T.C. 463 (2011). Petitioner did not contest verification in

the Office of Appeals, nor does he allege in his petition that the settlement officer

failed to satisfy this requirement.

      Our examination of the record shows that the settlement officer satisfied her

obligations in this regard.7 According to her case notes she confirmed that proper

assessments had been made, and a notice properly sent, for 2012 through 2014.

      7
       Respondent has conceded the sec. 6662(a) penalties based on the
settlement officer’s failure to properly verify that the supervisory approval
requirements of sec. 6751 had been satisfied.
                                         -14-

[*14] She reviewed examination files and the notice of deficiency relating to these

years as well as the certified mailing list showing the mailing of the notice and the

United States Postal Service tracking results for it. Her case notes also reflect that

she confirmed that a balance remained due when the CDP levy notice was issued.

This thorough review plainly satisfies the verification requirement.

      2.     Collection Alternative

             a.     Legal Background

      This brings us to the crux of the case: the settlement officer’s rejection of

petitioner’s OIC of $100.8 Section 7122(a) authorizes the IRS to compromise an

outstanding tax liability on grounds that include doubt as to collectibility, the

ground that petitioner urged. See sec. 301.7122-1(b)(2), Proced. & Admin. Regs.

The Secretary may compromise a tax liability on this basis where the taxpayer’s

assets and income render full collection unlikely. Id. Conversely, the IRS may

reject an OIC when the taxpayer’s reasonable collection potential exceeds the

amount he proposes to pay. See Johnson v. Commissioner, 136 T.C. 475, 486

(2011), aff’d, 502 F. App’x 1 (D.C. Cir. 2013). Generally, settlement officers are

directed to reject any offer substantially below the taxpayer’s reasonable collection

      8
       We have jurisdiction to review a settlement officer’s rejection of an OIC
that encompasses liabilities for both CDP years and non-CDP years. Gallagher v.
Commissioner, T.C. Memo. 2018-77, at *10 n.5.
                                         -15-

[*15] potential unless special circumstances justify acceptance of such an offer.

See Mack v. Commissioner, T.C. Memo. 2018-54, at *10; Rev. Proc. 2003-71,

sec. 4.02(2), 2003-2 C.B. 517, 517.

      In reviewing the settlement officer’s determination we do not make an

independent evaluation of what would be an acceptable collection alternative.

See Thompson v. Commissioner, 140 T.C. 173, 179 (2013); Murphy v.

Commissioner, 125 T.C. at 320; see also Randall v. Commissioner, T.C. Memo.

2018-123, at *9 (“We * * * do not recalculate a different amount for an acceptable

installment agreement or OIC.”). Rather, our review is limited to determining

whether the settlement officer abused her discretion--that is, whether her decision

to reject petitioner’s offer was arbitrary, capricious, or without sound basis in fact

or law. Thompson v. Commissioner, 140 T.C. at 179; Murphy v. Commissioner,

125 T.C. at 320.

             b.     Analysis of OIC

      The settlement officer’s decision to reject petitioner’s $100 OIC was not an

abuse of discretion in light of the financial analysis of petitioner’s assets, income,

and expenses showing that he had assets on hand of $2,974 and monthly net

income of $2,137. Petitioner does not quibble with the asset valuation, which by

itself likely would supply sufficient grounds for rejecting petitioner’s $100 offer.
                                        -16-

[*16] Instead, at various points in the Office of Appeals and before this Court,

petitioner has trained his fire on the calculation of his monthly income and

allowable expenses. We find no fault as to either.

      Turning first to the income calculation, petitioner has not contested the

determinations that he had monthly Social Security income of $2,007 and “other”

income of $325--two revenue streams he left off his Form 433-A. Instead, he

challenges the settlement officer’s determination that he earned $3,623 in monthly

wages, contending that he earned $2,087 a month ($25,043 annually). The figure

used by the IRS, however, comes directly from the monthly wage income

petitioner reported on his Form 433-A. Petitioner has offered no reason or support

for the change.9

      The determination of petitioner’s monthly expenses was similarly sound.

Pursuant to Congress’ directive, the IRS has published “national and local

allowances” to ensure that taxpayers entering into collection alternatives have

adequate means to provide for basic living expenses. Sec. 7122(d)(1), (2)(A).

This Court has upheld the IRS’ use of such standards to determine basic living


      9
      Even crediting petitioner’s unsupported assertion that his total annual
income (counting wages and Social Security income) was $51,043 produces a net
monthly income of more than $400 to dedicate to retiring his tax liability
(assuming monthly expenses of $3,818, the amount the IRS allowed).
                                        -17-

[*17] expenses when evaluating proposed collection alternatives. See Speltz v.

Commissioner, 124 T.C. 165, 179 (2005), aff’d, 454 F.3d 782 (8th Cir. 2006). For

“Housing and Utilities” and “Transportation”, a taxpayer is allowed the lesser of

the applicable local standards or the amounts that he actually paid monthly for

expenses. See IRM pt. 5.15.1.7(4) (Oct. 2, 2012), pt. 5.15.1.9 (Nov. 17, 2014).

For “Food, Clothing and Other Items” and “Out-of-Pocket Health Care Expenses”,

a settlement officer is to allow the national standard amounts “without questioning

the amounts * * * [the taxpayer] actually spend[s].” IRM pt. 5.15.1.7(3) (Oct. 2,

2012).

      The settlement officer did not abuse her discretion in determining monthly

allowable expenses of $3,818. The financial analysis (adopted by the settlement

officer) generally accepted the amounts petitioner had reported on his Form

433-A. Consistent with the IRM, the analysis allowed the national standard

amounts for food, clothing, and miscellaneous expenses and for out-of-pocket

healthcare expenses, which were greater than the amounts petitioner had reported.

It also permitted greater total automobile expenses than petitioner had reported.

The analysis disallowed only one expense--the secured debt (car loan) for which

petitioner supplied no documentation, despite being given multiple opportunities

to do so.
                                        -18-

[*18] Rather than attacking any of the specifics of the analysis, petitioner instead

suggests that the allowances were insufficient because of the high cost of L.A.

living. Deviations from the national and local allowances set by the IRS, however,

are permitted only upon a showing that the standard amounts are “inadequate to

provide for a specific taxpayer’s basic living expenses”. See IRM pt. 5.15.1.7(5)

(Oct. 2, 2012). The taxpayer bears the burden of providing sufficient information

to justify a deviation from local standards. See, e.g., Thomas v. Commissioner,

T.C. Memo. 2015-182, at *27. Petitioner fails to point to any specific facts

indicating that these amounts were inadequate to provide for his basic living

expenses.

      We consequently find no abuse of discretion in the settlement officer’s

rejection of petitioner’s $100 offer-in-compromise given the well-reasoned

analysis showing “disposable income in the amount of $2,137 [per month] and

equity in assets in the amount of $2,974.40.”10

      10
         We are skeptical about one aspect of the reasonable collection potential
determination: the reasonableness of using a 10-year window for determining
future income for petitioner, who was 77 years old at the time. See IRM
pt. 5.8.5.25 (Sept. 30, 2013), pt. 5.8.11.2.1(5) (Aug. 8, 2015) (“In addition to the
basic living expenses, other factors to consider that impact upon the taxpayer’s
financial condition include * * * [t]he taxpayer’s age[.]”). Nonetheless, any error
in this regard is harmless given the significant difference between petitioner’s OIC
($100) and his ability to pay ($2,137 in monthly net income, plus assets worth
                                                                        (continued...)
                                         -19-

[*19] 3.     Balancing Analysis

      Petitioner did not allege in his petition or argue at any later point that the

settlement officer failed to consider “whether any proposed collection action

balances the need for the efficient collection of taxes with the legitimate concern

of the person that any collection action be no more intrusive than necessary.”

Sec. 6330(c)(3)(C). He thus has conceded this issue. See Rules 121(d), 331(b)(4).

In any event the settlement officer expressly concluded in the notice of

determination that the proposed levy action balanced the need for efficient tax

collection with petitioner’s legitimate concerns about intrusiveness “[s]ince no

alternative could be reached”.

E.    Conclusion

      Finding no abuse of discretion in any respect, we will grant summary

judgment for respondent and affirm the IRS’ determination to sustain the notice of

intent to levy. To reflect the foregoing,


                                                An appropriate order and decision

                                        will be entered.


      10
       (...continued)
$2,974). And, of course, petitioner is free to submit another OIC if his
circumstances legitimately warrant it. See sec. 6330(d)(3)(B).
