¹This column reflects the income that petitioners claimed on their Form 433-A.

*70 ¹This column reflects the expenses that petitioners2015 Tax Ct. Memo LEXIS 63">*72 claimed on their Form 433-A.

²Petitioners' Form 433-A incorrectly stated that the expenses totaled $6,644. The correct total is $6,664.

On the basis of these calculations, Settlement Officer Degiovanni found that petitioners had monthly disposable income and a reasonable collection potential⁶ (RCP) of $995 and $26,198, respectively, and she therefore preliminarily determined that petitioners would be able to pay the tax liability in full. On March *71 1, 2013, Settlement Officer Degiovanni sent petitioners a letter explaining her preliminary determination and scheduling a telephone call for April 9, 2013. The letter also stated that petitioners could provide additional information by March 22, 2013.

In response to the letter, petitioners sent Settlement Officer Degiovanni additional financial information, including a pay stub, rent checks, utility bills, and medical bills. Mr. Gurule also included a2015 Tax Ct. Memo LEXIS 63">*73 letter explaining certain housing and vehicle expenses and the fourth section 401(k) plan account loan. Although he stated in the letter that the fourth section 401(k) plan account loan had increased his payroll deduction to $622, petitioners did not provide an updated earnings statement to this effect. The pay stub that petitioners sent was current as of February 2013 and reflected only the first three section 401(k) plan account loans.

Mr. Gurule and Settlement Officer Degiovanni spoke on the telephone on April 11, 2013. Following the telephone call, Settlement Officer Degiovanni recalculated petitioners' expenses as follows:

*72 ¹This column reflects the expenses that petitioners claimed during the sec. 6330 hearing.

²Although Mr. Gurule stated that his taxes and medical insurance costs had increased, Settlement Officer Degiovanni did not adjust these amounts because she determined that the difference was2015 Tax Ct. Memo LEXIS 63">*74 netted out by increased wages and smaller contributions to a healthcare flexible spending account.

³Settlement Officer Degiovanni increased petitioners' allowable medical expenses to $626 per month, which she calculated by totaling all of the medical bills in the record and dividing by 15 months.

⁴Settlement Officer Degiovanni's calculations and the notice of determination show an incorrect total of $6,664. The correct total is $8,140.

As the table above reflects, Settlement Officer Degiovanni included a part of Mr. Gurule's payroll deduction for the section 401(k) plan account loans as an expense when she recalculated petitioners' expenses. She allowed a $536 monthly expense for the section 401(k) plan account loans because Mr. Gurule's most *73 recent earnings statement "shows $536 being deducted". Mr. Gurule was paid biweekly, but Settlement Officer Degiovanni allowed only $536 as Mr. Gurule's monthly expense for the section 401(k) plan account loans.

Settlement Officer Degiovanni did not reduce the net realizable equity in Mr. Gurule's section 401(k) plan account by the amount of the third or fourth section 401(k) plan account loan. As the case activity record explains, because petitioners "chose to borrow an additional amount against the equity in the2015 Tax Ct. Memo LEXIS 63">*75 IRA, knowing that they owed [F]ederal taxes, we will not now consider the additional loan encumbrance when figuring RCP. This could also be considered a dissipated asset." We construe this statement to mean that Settlement Officer Degiovanni considered the additional loan amounts to be dissipated assets.

On the basis of these adjustments, Settlement Officer Degiovanni determined that petitioners' RCP was $16,310 and their monthly net income was $171. She therefore rejected petitioners' proposed OIC of $950. She offered petitioners the choice of either increasing their OIC or accepting an installment agreement with a payment of $171 per month and the filing of a notice of Federal tax lien. She also informed petitioners that they did not meet the requirements for currently not collectible status.

*74 On April 18, 2013, Mr. Gurule called Settlement Officer Degiovanni to propose an installment agreement with a payment of $120 per month. Petitioners felt this was the maximum they could pay because this was the amount left in their bank account at the end of each month. Settlement Officer Degiovanni did not accept this amount because her financial analysis showed monthly net income of $171. Petitioners2015 Tax Ct. Memo LEXIS 63">*76 alternatively offered to increase their OIC to $6,100. Settlement Officer Degiovanni did not accept this offer because she determined that petitioners' RCP exceeded this amount.

Respondent sent petitioners a notice of determination on May 13, 2013, sustaining the proposed levy. The notice of determination explained the Appeals Office's final calculations of petitioners' net realizable equity, monthly income and expenses, and RCP. The notice of determination further stated: "We will not consider additional encumbrances against your 401(k), which you chose to take when you were aware that you had an outstanding tax liability."

Because petitioners' two OIC proposals were below the calculated RCP, the notice of determination sustained the proposed collection action by levy. The notice of determination also stated that the applicable law, regulations, and procedures had been followed and that the Appeals Office balanced the need for efficient collection with petitioners' concern that the collection action be no more *75 intrusive than necessary. However, the notice of determination did not address petitioners' claim of financial hardship, which they brought to the attention of the Appeals Office2015 Tax Ct. Memo LEXIS 63">*77 with their section 6330 hearing request. Settlement Officer Degiovanni's case activity report likewise does not mention the financial hardship claim.

Petitioners timely filed a petition disputing the notice of determination on June 12, 2013.⁷ After the filing of the petition, petitioners' middle son passed away, and Mr. Gurule took out the fifth section 401(k) plan account loan to pay for the funeral services.

On March 11, 2014, petitioners sent respondent an updated but unsigned Form 433-A showing increased expenses that exceeded their monthly income by $250. Petitioners also sent respondent a printout that shows, as of April 8, 2014, that Mr. Gurule was eligible to take out an additional $4,753.33 from his section 401(k) plan account as a loan. If he took out an additional loan from the section *76 401(k) plan account in this amount, his biweekly loan repayment2015 Tax Ct. Memo LEXIS 63">*78 would increase to $816.67.

Under section 6331(a), the Secretary may levy upon property and property rights of a taxpayer liable for tax if the taxpayer fails to pay the tax within 10 days after notice and demand for payment. Section 6330(a) provides that no levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of the right to a hearing before the levy is made. Section 6330(a) and (b) and section 6331(d) provide that the Secretary must give at least 30 days' written notice to the taxpayer of his intent to levy and must send the taxpayer written notice of the taxpayer's right to a hearing before the IRS Appeals Office at least 30 days before any levy begins.

If a taxpayer requests a hearing in response to a notice of intent to levy pursuant to section 6330, a hearing shall be held before an impartial officer or employee of the Appeals Office. Sec. 6330(b)(1), (3). At the hearing the taxpayer may raise any relevant issue, including appropriate spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. Sec. 6330(c)(2)(A). A taxpayer is precluded from contesting the existence or amount *77 of the underlying tax liability unless the taxpayer did not receive a notice2015 Tax Ct. Memo LEXIS 63">*79 of deficiency for the liability in question or did not otherwise have an opportunity to dispute the liability. Sec. 6330(c)(2)(B); see Sego v. Commissioner, 114 T.C. 604">114 T.C. 604, 114 T.C. 604">609 (2000). The phrase "underlying tax liability" includes the tax deficiency, additions to tax, and statutory interest. Katz v. Commissioner, 115 T.C. 329">115 T.C. 329, 115 T.C. 329">339 (2000).

In determining whether to sustain the proposed collection action, the settlement officer must take into account verification of the Secretary's compliance with "the requirements of any applicable law or administrative procedure", the issues that the taxpayer raised at the hearing, and whether the collection action "balances the need for the efficient collection of taxes with the legitimate concern of the * * * [taxpayer] that any collection action be no more intrusive than necessary." Sec. 6330(c)(1), (3); e.g., Goza v. Commissioner, 114 T.C. 176">114 T.C. 176, 114 T.C. 176">180-181 (2000). The Court has jurisdiction to review this determination. Sec. 6330(d)(1); e.g., Sego v. Commissioner, 114 T.C. 604">114 T.C. 609.

Where the underlying tax liability is properly at issue, the Court reviews the determination de novo. E.g., Goza v. Commissioner, 114 T.C. 176">114 T.C. 181-182. Where the validity of the underlying tax is not properly at issue, the Court reviews the Commissioner's determination for abuse of discretion. E.g., Sego v. Commissioner, 114 T.C. 604">114 T.C. 610*78 . The Appeals Office abuses its discretion when its exercise of discretion is arbitrary, capricious, or without sound basis in fact or2015 Tax Ct. Memo LEXIS 63">*80 law. Murphy v. Comm'r, 125 T.C. 301">125 T.C. 301, 125 T.C. 301">308, 125 T.C. 301">320 (2005), aff'd, 469 F.3d 27">469 F.3d 27 (1st Cir. 2006); Woodral v. Commissioner, 112 T.C. 19">112 T.C. 19, 112 T.C. 19">23 (1999).

Pursuant to section 6330(c)(1), the settlement officer shall "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." When the IRS has assessed additional tax from its determination of a deficiency in the income tax that married taxpayers reported on a joint return, the settlement officer must verify each of the following: (1) either that the Commissioner mailed a valid notice of deficiency to the taxpayers at their last known address (or addresses) or each spouse signed an appropriate waiver, secs. 6212(b), 6213; (2) that the Commissioner made a valid assessment, sec. 6203; (3) that the Commissioner issued notice and demand, sec. 6303; (4) that the taxpayers did not pay the liability, sec. 6331(a); and (5) that the Commissioner issued to the taxpayers notice of intent to collect the outstanding liability by levy and of the taxpayers' right to a hearing, sec. 6330(a); see Ron Lykins, Inc. v. Comm'r, 133 T.C. 87">133 T.C. 87, 133 T.C. 87">96-97 (2009); Manko v. Comm'r, 126 T.C. 195">126 T.C. 195, 126 T.C. 195">203 (2006)*79 ; Freije v. Comm'r, 125 T.C. 14">125 T.C. 14, 125 T.C. 14">35 (2005); Marlow v. Comm'r, T.C. Memo 2010-113.

The settlement officer must verify that these requirements have been satisfied. Sec. 6330(c)(1), (3)(A); Hoyle v. Comm'r, 131 T.C. 197">131 T.C. 197, 131 T.C. 197">201-202 (2008), supplemented by136 T.C. 463">136 T.C. 463 (2011). If they have not, collection cannot proceed and the settlement officer cannot sustain the proposed collection action. See Med. Practice Solutions, LLC v. Commissioner, T.C. Memo. 2009-214. The Court reviews the Appeals Office's verification2015 Tax Ct. Memo LEXIS 63">*81 under section 6330(c)(1) without regard to whether the taxpayers raised these issues during the section 6330 hearing. Hoyle v. Commissioner, 131 T.C. 197">131 T.C. 202-203.

The IRS was required to send Mr. and Mrs. Gurule a notice of deficiency before assessing tax. Seesec. 6213(a); see also Commissioner v. Shapiro, 424 U.S. 614">424 U.S. 614, 424 U.S. 614">616-617, 96 S. Ct. 1062">96 S. Ct. 1062, 47 L. Ed. 2d 278">47 L. Ed. 2d 278 (1976); Manko v. Commissioner, 126 T.C. 195">126 T.C. 200-201; Freije v. Commissioner, 125 T.C. 34-37. However, a copy of a notice of deficiency is not in the record. The notice of determination does not say that the Appeals Office verified the mailing of a notice of deficiency. This is especially worrisome because the notice of determination specifically states that the settlement officer verified each of the other statutory requirements. Settlement Officer Degiovanni's case activity record states that she verified that the Letter 1058 was sent to *80 petitioners and other procedural requirements were satisfied, but it does not indicate that she verified that an appropriate notice of deficiency was mailed to petitioners at their last known address.

The only possible reference to a notice of deficiency appears in the case history transcript, which has an entry for a "STAT NOTICE" on August 1, 2011. The case history transcript does not indicate when, if ever, the Commissioner mailed this notice to petitioners. Because multiple notices required by applicable Code provisions and related regulations2015 Tax Ct. Memo LEXIS 63">*82 must be sent to taxpayers before and during the collection process, the Court cannot tell whether the "STAT NOTICE" entry refers to the mailing of a notice of deficiency. On the basis of the limited record before us, the Court cannot determine whether Settlement Officer Degiovanni verified that the IRS properly mailed a notice of deficiency to petitioners. We may remand when the Appeals officer did not develop a record sufficient for judicial review. See Hoyle v. Commissioner, 131 T.C. 197">131 T.C. 204-205; Churchill v. Comm'r, T.C. Memo 2011-182. Accordingly, we will remand this case to the Appeals Office for it to clarify the record as to whether it verified that a notice of deficiency was properly sent to petitioners at their last known address and, if so, on what it relied to do so.

Once the settlement officer verifies that the applicable law and administrative procedures have been followed, the settlement officer must consider any relevant issue that the taxpayer has raised relating to the unpaid tax or the proposed levy. Sec. 6330(c)(2); see Sego v. Commissioner, 114 T.C. 604">114 T.C. 608-609. Petitioners argue that Settlement Officer Degiovanni did not properly address the issues they raised in the section 6330 hearing. We cannot determine on the basis of the record before us whether the settlement officer properly considered the2015 Tax Ct. Memo LEXIS 63">*83 issues petitioners raised in the section 6330 hearing.

Petitioners assert that the proposed collection action should not proceed because they are experiencing economic hardship and the equity in their only meaningful asset, Mr. Gurule's section 401(k) plan account, is needed as a source for loans to pay necessary living expenses. Section 6343(a)(1)(D) directs the Commissioner to release a levy upon all, or part of, a taxpayer's property if he determines that a levy would cause economic hardship to the taxpayer. A levy causes "economic hardship" when the taxpayer would be unable to pay reasonable basic living expenses, according to the taxpayer's complete and current financial information, if a levy were made. Washington v. Commissioner, 120 T.C. 137">120 T.C. 137, 120 T.C. 137">149-150 (2003)*82 ; sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.; seesec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs. (outlining what constitutes basic living expenses and including any "factor that the taxpayer claims bears on economic hardship and brings to the attention of the director"). By extension, the settlement officer in a section 6330 hearing may not proceed with a proposed levy when a taxpayer establishes that it would create an economic hardship because section 6343 would require the levy's immediate release. Vinatieri v. Comm'r, 133 T.C. 392">133 T.C. 392, 133 T.C. 392">400, 133 T.C. 392">402 (2009) ("Proceeding with2015 Tax Ct. Memo LEXIS 63">*84 the levy would be unreasonable because section 6343 would require its immediate release, and the determination to do so was arbitrary."). Instead, the settlement officer "must consider an alternative." 133 T.C. 392">Id. at 401.

Beyond this statutory requirement, the IRS has implemented its own procedures that restrict the levying upon retirement accounts because they are specifically intended for a taxpayer's future welfare. The Internal Revenue Manual (IRM) has a three-step procedure for levying upon retirement accounts and instructs IRS employees to levy upon these accounts only if (1) a taxpayer's conduct has been flagrant^{82015 Tax Ct. Memo LEXIS 63">*85} and (2) the taxpayer does not depend on the funds in *83 the account to pay necessary living expenses, taking into account any special circumstances such as extraordinary expenses.⁹ IRM pt. 5.11.6.2 (Dec. 2, 2011); see Wadleigh v. Comm'r, 134 T.C. 280">134 T.C. 280, 134 T.C. 280">294-296 (2010) (discussing the IRM provision that addresses the Commissioner's ability to levy upon retirement accounts).

Petitioners wrote "[c]ollection will cause a hardship" on their section 6330 hearing request and provided documents supporting this claim. Settlement Officer Degiovanni was aware that Mrs. Gurule and petitioners' middle son suffered from severe medical conditions that left them with high medical bills every month. Petitioners had borrowed against Mr. Gurule's section 401(k) plan account, their *84 only asset2015 Tax Ct. Memo LEXIS 63">*86 with a positive net realizable equity according to the notice of determination, to pay basic living expenses such as moving and medical expenses. Petitioners took out two of the five section 401(k) plan account loans during the course of the section 6330 hearing and promptly notified Settlement Officer Degiovanni by letter after each loan. The chronic nature of the medical conditions suggested that medical bills would continue to accumulate. Yet the notice of determination and Settlement Officer Degiovanni's case notes do not show that the Appeals Office ever considered, much less made a determination about, petitioners' economic hardship claim. The administrative record also does not show that Settlement Officer Degiovanni considered or followed the three-step process for levying upon retirement accounts pursuant to the IRM even though she was aware that petitioners were using the section 401(k) plan account to pay necessary living expenses.^{102015 Tax Ct. Memo LEXIS 63">*87} On the basis of the record before us, we cannot determine whether Settlement Officer Degiovanni abused her discretion by *85 upholding the proposed levy notwithstanding petitioners' economic hardship claim.

Assuming arguendo that petitioners' economic hardship claim does not bar collection action entirely, we address Settlement Officer Degiovanni's determination to reject petitioners' proposed collection alternatives. Petitioners first proposed an OIC of $950 and later increased the amount to $6,100 after the Appeals Office rejected the first offer. Petitioners also proposed an installment agreement with a payment of $120 per month. Settlement Officer Degiovanni rejected the offers because they fell below petitioners' calculated RCP (for the OIC) and monthly net income (for the installment agreement). Petitioners contend that the settlement officer incorrectly calculated their RCP and/or monthly net income by either (1) not reducing the section 401(k) plan account's net realizable equity by the amounts of the additional loans petitioners took out2015 Tax Ct. Memo LEXIS 63">*88 during the section 6330 hearing or (2) failing to reduce petitioners' monthly income by the amounts of the loan payments to the section 401(k) plan account.¹¹ Petitioners *86 also assert that their RCP has changed since the time of the settlement officer's determination because of their middle son's death.

During the course of a section 6330 hearing taxpayers may propose collection alternatives such as an OIC or an installment agreement. Sec. 6330(c)(2)(A)(iii); Giamelli v. Comm'r, 129 T.C. 107">129 T.C. 107, 129 T.C. 107">112 n.3 (2007).

Pursuant to section 7122(a) the Secretary may compromise any civil or criminal case arising under the internal revenue laws before its referral to the Department of Justice. Section 7122(d) authorizes the Secretary to prescribe guidelines for officers and employees of the IRS to determine whether an OIC is adequate and should be accepted. Accordingly, we generally uphold the rejection of an OIC when the Appeals Office has followed the IRM. See, e.g., Churchill v. Comm'r, T.C. Memo 2011-182, 102 T.C.M. 116">102 T.C.M. 116, 117 (2011); *87 Atchison v. Comm'r, T.C. Memo 2009-8, 97 T.C.M. 1034">97 T.C.M. 1034, 1036 (2009).

Petitioners do not challenge the existence or amount of the underlying liability. Their challenge focuses on their claimed inability to pay and their difficult financial circumstances.

The Commissioner may accept an OIC of a Federal tax debt on the grounds of "Doubt as to collectibility", among others. Sec. 301.7122-1(b)(1), (2), and (3), Proced. & Admin. Regs. In making a determination regarding collectibility, the Secretary must calculate a taxpayer's ability to pay. Id.para. (c)(2). Generally, this type of OIC will be accepted only if the amount offered equals or exceeds the taxpayer's RCP; i.e., the amount that the IRS could collect through other means such as administrative2015 Tax Ct. Memo LEXIS 63">*90 and judicial collection remedies. Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517; seeIRM pt. 5.8.1.1.3 (Mar. 16, 2010). The IRM sets forth procedures for analyzing a taxpayer's financial condition to determine the taxpayer's RCP. SeeIRM pt. 5.8.5.1 (Sept. 23, 2008). A taxpayer's RCP is generally defined as the sum of (1) the taxpayer's net realizable equity in assets (net realizable equity) and (2) the amount collectible from the taxpayer's expected future income after allowing for payment of necessary living expenses. Id.pt. 5.8.4.3.1 (June 1, 2010); seesec. 301.7122-1(c)(2)(i), Proced. & Admin. Regs. *88 (stating that the Secretary is required to "permit taxpayers to retain sufficient funds to pay basic living expenses").

Sec. 6159(a) authorizes the Secretary to enter into an installment agreement upon determining that the proposed agreement would facilitate full or partial collection of the taxpayer's liability. An installment agreement generally does not reduce the amount of taxes, interest, or penalties that the taxpayer owes but rather allows the taxpayer to pay the liability over time. Seesec. 301.6159-1(c)(1)(ii), Proced. & Admin. Regs. The decision to accept or reject installment agreements lies within the discretion of the Commissioner. Thompson v. Comm'r, 140 T.C. 173">140 T.C. 173, 140 T.C. 173">179 (2013) (citing section 301.6159-1(a), (c)(1)(i), Proced. & Admin. Regs.).2015 Tax Ct. Memo LEXIS 63">*91 If a settlement officer follows all statutory and administrative guidelines and provides a reasoned and balanced decision, the Court will not reweigh the equities. Id.; Lipson v. Commissioner, T.C. Memo. 2012-252, at *9 (citing Fifty Below Sales & Mktg., Inc. v. United States, 497 F.3d 828">497 F.3d 828, 497 F.3d 828">830 (8th Cir. 2007)).

IRM pt. 5.14.1.4(4) (June 1, 2010) states: "Installment agreements must reflect taxpayers' ability to pay on a monthly basis throughout the duration of agreements." A taxpayer's ability to pay is determined by comparing his monthly income to allowable expenses. Thompson v. Commissioner, 140 T.C. 173">140 T.C. 179-180 (discussing allowable monthly expenses); Friedman v. Commissioner, T.C. Memo. 2013-44, at *9*89 . In reviewing for abuse of discretion the Court ordinarily does not recalculate a taxpayer's ability to pay nor substitute its judgment for that of the settlement officer. See, e.g., Boulware v. Comm'r, T.C. Memo 2014-80.

Petitioners contend that Settlement Officer Degiovanni did not properly account for Mr. Gurule's section 401(k) plan account loans in calculating their ability to pay, whether by reducing the net realizable equity of the section 401(k) plan account or by reducing their monthly net income by the amounts of the loan payments. Respondent contends that petitioners are not entitled to any adjustment to their monthly net income because2015 Tax Ct. Memo LEXIS 63">*92 petitioners are essentially repaying a loan to themselves and allowing an adjustment would result in double counting the section 401(k) plan account encumbrances. Respondent further avers that petitioners may not receive a reduction in the net realizable equity of the section 401(k) plan account because the additional loans Mr. Gurule took are "dissipated assets".

Initially, before Mr. Gurule took out the additional loans, Settlement Officer Degiovanni calculated the net realizable equity of Mr. Gurule's section 401(k)*90 plan account by reducing its cash value by encumbrances (the first two section 401(k) plan account loans) and tax consequences. SeeIRM pt. 5.8.5.9 (Oct. 22, 2010). However, Settlement Officer Degiovanni determined not to reduce the section 401(k) plan account's net realizable equity by the amounts of the two additional loans because "[w]e will not consider additional encumbrances against your 401(k), which you chose to take when you were aware that you had an outstanding tax liability."

Although the settlement officer did not further reduce the net realizable equity of the section 401(k) plan account, she allowed a $536 monthly expense for Mr. Gurule's section 401(k) plan account loan payments. This allowance reduced petitioners' calculated monthly net income. Respondent2015 Tax Ct. Memo LEXIS 63">*93 contends that this adjustment favored petitioners because ordinarily loan payments to a retirement account are not allowable as an expense in calculating RCP, as retirement account loan payments are essentially moving a taxpayer's money from one account to another. See id.pt. 5.8.5.20.4(9) (Oct. 22, 2010). However, Settlement Officer Degiovanni determined it was appropriate to include the loan payments in petitioners' RCP because the loans originated, at least in part, to pay necessary medical expenses.

*91 According to the case activity report, Settlement Officer Degiovanni allowed petitioners a monthly expense of $536 for the loan payments on the basis of Mr. Gurule's earnings statement that petitioners provided.^{122015 Tax Ct. Memo LEXIS 63">*94} However, the record establishes that Mr. Gurule was paid biweekly for all relevant periods. The earnings statements on which Settlement Officer Degiovanni relied reflected biweekly earnings and not monthly earnings.

In sum, after Mr. Gurule took out the third section 401(k) plan account loan, Settlement Officer Degiovanni did not adjust the net realizable equity of the section 401(k) plan account for the balance remaining on the section 401(k) plan account loans or adjust petitioners' monthly net income by the full amount of the loan payment per month. Thus, it appears that Settlement Officer Degiovanni may have made a material error in calculating petitioners' RCP.

In at least one instance, the IRM sanctions the use of an inflated RCP for public policy reasons. A dissipated asset is any asset, liquid or illiquid, that has *92 been sold, transferred, or spent on nonpriority items or debts so that it is no longer available to pay a tax liability. Johnson v. Comm'r, 136 T.C. 475">136 T.C. 475, 136 T.C. 475">487 (2011), aff'd without published opinion, 502 Fed. Appx. 1">502 Fed. Appx. 1 (D.C. Cir. 2013). The IRM instructs that a dissipated asset may be included in the RCP calculation even though it is no longer at the taxpayer's disposal as a way to discourage delinquent taxpayers from squandering money instead of paying taxes. Id.; IRM2015 Tax Ct. Memo LEXIS 63">*95 pt. 5.8.5.16(3) (Oct. 22, 2010); see, e.g., Tucker v. Comm'r, 676 F.3d 1129">676 F.3d 1129, 676 F.3d 1129">1135, 400 U.S. App. D.C. 192">400 U.S. App. D.C. 192 (D.C. Cir. 2012), aff'g135 T.C. 114">135 T.C. 114 (2010), and aff'gT.C. Memo. 2011-67. Settlement Officer Degiovanni's case notes indicate that she did not reduce petitioners' calculated RCP by the total amount of the additional section 401(k) plan account loans because she considered that amount to be a dissipated asset.

The IRM states that dissipated assets should not automatically be included in the RCP calculation. See IRM pt. 5.8.5.16(1); id.pt. 8.23.3.3.2.3(2) (Oct. 14, 2011). The IRM lists factors that the Appeals Office should analyze when deciding whether to include dissipated assets in the RCP calculation.^{132015 Tax Ct. Memo LEXIS 63">*96} The IRM *93 also states: "When it can be shown through internal research or substantiation provided by the taxpayer that the funds were needed to provide for necessary living expenses, these amounts should not be included in the RCP calculation." Id.pt. 5.8.5.16(5); see also Layton v. Comm'r, T.C. Memo 2011-194; IRM pt. 8.23.3.3.2.3(5). Further, "[i]nclusion of the value of dissipated assets must clearly be justified in the case file and documented on the ICS or AOIC history, as appropriate."14IRM pt. 5.8.5.16(4), (10).

The administrative record does not establish that Mr. Gurule took out the additional section 401(k) plan account loans intending to disregard the outstanding tax liability, seeIRM pt. 5.8.5.16(7), or that the loans otherwise qualify as dissipated assets that should2015 Tax Ct. Memo LEXIS 63">*97 be included in the RCP calculation. In any event, Settlement Officer Degiovanni's decision to treat the additional loan encumbrance *94 as a dissipated asset was not clearly justified in the case file. Settlement Officer Degiovanni included the purported dissipated asset in the RCP calculation, but it is unclear to what extent she considered petitioners' unique circumstances or any of the factors that the IRM instructs the Appeals Office to consider. See id.pt. 5.8.5.16(1) ("The value of dissipated assets should not automatically be included in the calculation of the RCP. Each particular case must be evaluated on its own merit."); id.pt. 5.8.5.16(4); see also Titsworth v. Commissioner, T.C. Memo. 2012-12, slip op. at 18-19 ("Whether to include dissipated assets in a taxpayer's RCP is not an automatic determination but must be evaluated on the basis of the facts and circumstances of each case in the light of certain enumerated factors [in the IRM]."). The case activity report and the notice of determination summarily state that this amount is included in the RCP calculation because Mr. Gurule took out the loans when petitioners knew of their outstanding Federal tax liability. Especially considering that the subsequent loans appear to have been used2015 Tax Ct. Memo LEXIS 63">*98 to pay necessary living expenses, we cannot properly review Settlement Officer Degiovanni's conclusion and evaluate its impact on the Appeals Office's determination with the cursory explanation in the administrative record. SeeIRM pt. 5.8.5.16(4) and (5); see also Jones v. Commissioner, T.C. Memo. 2012-274, at *32; Tucker v. Comm'r, T.C. Memo 2011-67 (holding that the RCP*95 calculation should not include the entire amount the taxpayer placed in his day trading account as a dissipated asset if he later withdrew half the amount to pay for basic living expenses).

Because the administrative record does not fully and clearly explain Settlement Officer Degiovanni's treatment of the additional section 401(k) plan account loans, we cannot determine whether she calculated petitioners' RCP correctly at the time of the section 6330 hearing. Moreover, Settlement Officer Degiovanni's calculation of petitioners' ability to pay also affected her determination to reject petitioners' proposed installment agreement with a payment of $120 per month. SeeIRM pt. 5.14.1.4(4). Although we do not substitute our judgment for that of the Appeals Office in calculating a taxpayer's ability to pay when the Appeals Office rejects an installment agreement, see, e.g., Boulware v. Comm'r, T.C. Memo 2014-80, we can consider whether the Appeals Office's decision2015 Tax Ct. Memo LEXIS 63">*99 to reject an installment agreement was the result of a failure to properly consider the taxpayers' financial information in the record. Because the record does not permit us to do so, a remand is appropriate.

A remand may also be appropriate when a taxpayer has experienced a material change in circumstances between the time of the section 6330 hearing and the trial that affects the RCP calculation. Leago v. Commissioner, T.C. Memo. 2012-39*96 ; Churchill v. Comm'r, T.C. Memo 2011-182 (remanding to the Appeals Office when the taxpayer's RCP had changed as a result of his divorce); see INS v. Ventura, 537 U.S. 12">537 U.S. 12, 537 U.S. 12">14-18, 123 S. Ct. 353">123 S. Ct. 353, 154 L. Ed. 2d 272">154 L. Ed. 2d 272 (2002); SKF USA, Inc. v. United States, 254 F.3d 1022">254 F.3d 1022, 254 F.3d 1022">1028 (Fed. Cir. 2001); Harrell v. Comm'r, T.C. Memo 2003-271 (remanding when a Supreme Court case decided after the notice of determination resolved a relevant question about equitable tolling). Petitioners' middle son passed away in August 2013 after the notice of determination was issued. This tragic event constitutes a material change of circumstances for petitioners, who had to take out a fifth section 401(k) plan account loan to pay his final expenses and who are still unable to pay for the placement of his ashes in a mausoleum. These additional costs could have affected petitioners' RCP and their ability to pay their tax liability. On remand the Appeals Office is directed to consider updated financial information that2015 Tax Ct. Memo LEXIS 63">*100 petitioners should provide to document any change in their ability to pay resulting from their middle son's death.

The IRS may accept an OIC on the basis of doubt as to collectibility when the offer is less than the RCP if there are "special circumstances". Rev. Proc. 2003-71, sec. 4.02(2); see Fairlamb v. Comm'r, T.C. Memo 2010-22. For *97 this purpose, special circumstances are: (1) circumstances demonstrating that the taxpayer would suffer economic hardship if the IRS were to collect from him an amount equal to the RCP and (2) compelling public policy or equity considerations that provide sufficient basis for compromise. See Murphy v. Commissioner, 125 T.C. 301">125 T.C. 309; McClanahan v. Comm'r, T.C. Memo 2008-161; IRM pt. 5.8.4.2(4) (June 1, 2010) (stating that the factors establishing special circumstances for doubt as to collectibility are the same as those considered under effective tax administration); IRM pt. 5.8.11.2(2)(b) (Sept. 23, 2008). Factors indicating economic hardship include, but are not limited to, (1) the taxpayer's long-term illness, medical condition, or disability that renders him incapable of earning a living, where it is "reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition"; (2) the taxpayer's monthly2015 Tax Ct. Memo LEXIS 63">*101 income is exhausted each month in providing for care of dependents without other means of support; and (3) the taxpayer is unable to borrow against the equity in assets and liquidation of those assets to pay a tax liability would render the taxpayer unable to meet basic living expenses. Sec. 301.7122-1(c)(3)(i), Proced. & Admin. Regs.; IRM pt. 5.8.11.2.1(6) (Sept. 23, 2008).

*98 Our analysis here closely tracks our analysis of petitioners' economic hardship claim supra. The record does not show whether Settlement Officer Degiovanni considered accepting petitioners' OIC on the basis of doubt as to collectibility with special circumstances. SeeIRM pt. 5.8.11.4(2) (Sept. 23, 2008) (instructing IRS employees to consider a taxpayer's OIC under doubt as to collectibility with special circumstances when the taxpayer's RCP does not exceed the tax liability and special circumstances exist). The notice of determination states: "The IRS cannot compromise tax liabilities for less than the amount determined to be reasonably collectible. Your Offer in Compromise was rejected." Settlement Officer Degiovanni knew that Mrs. Gurule could not work because of her neurological condition, and she also knew that Mr. Gurule had to take several section 401(k) plan account loans2015 Tax Ct. Memo LEXIS 63">*102 to pay their son's medical expenses and other basic living expenses. Even though Mr. Gurule had positive net realizable equity in his section 401(k) plan account at that time, it was quickly being depleted to pay basic expenses. Yet the notice of determination suggests that the Appeals Office rejected petitioners' OIC pro forma because the offer fell below the calculated RCP. We cannot determine whether the Appeals Office gave due regard to potential special circumstances before rejecting the offer. See Anderson v. Comm'r, T.C. Memo 2013-261 (remanding when it was unclear whether *99 the settlement officer properly considered the taxpayer's health in rejecting the taxpayer's OIC with special circumstances); Leago v. Comm'r, T.C. Memo 2012-39 (same); see also Antioco v. Comm'r, T.C. Memo 2013-35 (remanding when the settlement officer did not meaningfully consider the taxpayer's special circumstances before rejecting her proposed installment agreement).

In the light of the inadequacy of the administrative record and the reasons stated for rejecting petitioners' proposed collection alternatives, we are unable to conclude whether it was an abuse of discretion for respondent to determine to proceed with the proposed collection action for petitioners' 2009 tax liability. Because a remand would be2015 Tax Ct. Memo LEXIS 63">*103 "helpful", "necessary", or "productive", see Kelby v. Comm'r, 130 T.C. 79">130 T.C. 79, 130 T.C. 79">86 n.4 (2008); Lunsford v. Comm'r, 117 T.C. 183">117 T.C. 183, 117 T.C. 183">189 (2001); Churchill v. Comm'r, T.C. Memo 2011-182, we will remand the case to the Appeals Office for further consideration and clarification. Upon remand the Appeals Office shall consider any additional information or evidence that petitioners may wish to submit, any new collection alternative that petitioners may wish to propose, and any asserted change in circumstances. *100 We have considered the parties' remaining arguments and, to the extent not discussed above, conclude that those arguments are irrelevant, moot, or without merit. For the reasons identified above, we will remand this case to the Appeals Office for further proceedings consistent with this opinion.

To reflect the foregoing,

An appropriate order will be issued.