T.C. Memo. 2009-276



                      UNITED STATES TAX COURT



                EDWARD L. ALDRIDGE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3468-08L.              Filed November 30, 2009.



     Mary M. Gillum, for petitioner.

     Beth A. Nunnink and John Bampfield, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   This proceeding was commenced in response to

a Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 with respect to petitioner’s Federal

income tax liabilities for 1993, 1994, 1995, 2001, 2002, 2003,

2004, and 2005.   The issue for decision is whether the Internal

Revenue Service’s (IRS) Appeals Office abused its discretion by
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sustaining the filing of a Federal tax lien.    Unless otherwise

indicated, all section references are to the Internal Revenue

Code.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Shelby County, Tennessee, at the time he

filed his petition.

     Petitioner failed to file Federal income tax returns for

1993, 1994, 1995, 2002, and 2003.    For 2001, 2004, and 2005,

petitioner filed income tax returns, but he failed to pay all of

the liabilities reported.

     On October 5, 1999, the IRS sent petitioner three notices of

deficiency determining Federal income tax deficiencies and

additions to tax for 1993, 1994, and 1995, respectively.

Petitioner sent a Form 1040, U.S. Individual Income Tax Return,

signed October 25, 1999, for 1995 to the IRS.

     On September 8, 2000, petitioner filed a petition pursuant

to chapter 13 of the Bankruptcy Code in the U.S. Bankruptcy Court

for the Western District of Tennessee.    The IRS filed a proof of

claim regarding petitioner’s unpaid tax liabilities for 1993,

1994, and 1995.   On May 3, 2001, the bankruptcy court entered an

order closing petitioner’s case.    Petitioner filed another

chapter 13 bankruptcy petition in the U.S. Bankruptcy Court for
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the Western District of Tennessee on December 27, 2001.     The IRS

again filed a proof of claim regarding petitioner’s unpaid tax

liabilities for 1993, 1994, and 1995.   On May 26, 2006, the

second bankruptcy case was dismissed.    Petitioner did not object

to the IRS’ proof of claim and did not receive a discharge in

either bankruptcy case.

     On July 10, 2006, the IRS sent petitioner two notices of

deficiency determining Federal income tax deficiencies and

additions to tax for 2002 and 2003, respectively.    The notices

were sent via certified mail to petitioner’s last known address.

     The IRS sent petitioner a Notice of Federal Tax Lien Filing

and Your Right to a Hearing under Section 6320, dated July 26,

2007, regarding petitioner’s outstanding 1993, 1994, 1995, 2001,

2002, 2003, 2004, and 2005 income tax liabilities.    Included with

the notice was a copy of the tax lien as filed in Shelby County,

Tennessee.

     On August 3, 2007, the IRS received a Form 12153, Request

for a Collection Due Process or Equivalent Hearing, from

petitioner in response to the lien notice.   On this form

petitioner requested withdrawal of the lien and indicated that he

wanted an installment agreement or offer-in-compromise (OIC) to

be considered.    Petitioner indicated that the existence of the

lien would interfere with his ability to obtain a loan for which

he had applied.
                               - 4 -

     By letter dated August 16, 2007, sent from H&R Block

Mortgage Corp., petitioner was informed that his loan application

to refinance a property he had purchased in January 2007 was

denied.   Included with the letter, the lender’s Statement of

Credit Denial, Termination, or Change form stated that the

principal reasons for denying the loan were (1) “Value, or

condition of collateral not sufficient” and (2) “Rate, terms,

conditions and/or programs requested are not offered at this

time”.

     An IRS settlement officer sent a letter dated October 16,

2007, informing petitioner that a telephone conference for his

requested collection due process (CDP) hearing was scheduled for

November 29, 2007, and that during this hearing petitioner could

discuss his disagreement with the collection action and/or

discuss alternatives to the collection action.   The settlement

officer’s letter noted:

          For me to consider alternative collection methods
     such as an installment agreement or offer in
     compromise, you must provide any items listed below.
     In addition, you must have filed all federal tax
     returns required to be filed.

     •     A completed Collection Information Statement (Form
           433-A for individuals) with all verifications.
     •     A completed Offer in Compromise request with all
           payments required if you are interested in this
           type of collection alternative.

     Please send me the items requested above within 14 days
     from the date of this letter. I cannot consider
     collection alternatives at your conference without this
                                - 5 -

     information. I am enclosing the applicable forms for
     your convenience.

     On November 29, 2007, the settlement officer held a

telephonic section 6330 hearing with petitioner.    During the

hearing petitioner told the settlement officer that he had

requested copies of his tax returns from the IRS for the

liability periods because he might be able to amend the returns

that were filed by the IRS to claim additional deductions.

Petitioner also voiced his desire to enter into an installment

agreement.    The settlement officer informed petitioner that he

needed to submit a Form 433-A, Collection Information Statement

for Wage Earners and Self-Employed Individuals, with supporting

financial documents, for an installment agreement to be

considered.    The settlement officer told petitioner that if he

forwarded the information by December 4, 2007, it would be

analyzed and another phone conference would be scheduled for

December 6, 2007.

     Petitioner submitted a completed Form 433-A and additional

financial documentation to the settlement officer.    Among other

things, on the Form 433-A petitioner reported that he worked as

an automobile salesman and his monthly wages were $5,900.

Petitioner also reported $100 monthly rental income for a

residential property on Ivan Road that he had owned since 1978

and included a copy of a lease entered into on August 1, 2007,

for a 1-year term.    Petitioner identified two properties as real
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estate that he owned--the Ivan Road property and another property

purchased in January 2007 for $304,000 with a loan balance of

$290,000 and current value of $270,000.   Petitioner claimed $800

for housing and utilities expenses on the form.   Financial

documents that petitioner submitted with Form 433-A included a

monthly mortgage statement of $2,366 for the property purchased

in January 2007 and an invoice showing $227 for utilities

expenses.   In addition, documents that petitioner submitted

identified monthly retirement contributions and a State of

Tennessee Department of Workforce and Network Development benefit

overpayment balance of $850.

     On December 6, 2007, the settlement officer called

petitioner after analyzing the Form 433-A and accompanying

financial documents.   The settlement officer proposed a monthly

installment agreement amount of $2,064, petitioner’s monthly

disposable income as calculated by the settlement officer.     In

his calculations, the settlement officer used the IRS local

standard for housing and utilities expenses of $1,073 for a

family of one in Shelby County, Tennessee, for late 2007, instead

of either the $800 that petitioner claimed on Form 433-A or the

actual expenses.   Petitioner stated he could not pay the proposed

$2,064 monthly installment agreement payments.

     During the December 6, 2007, phone call the settlement

officer asked petitioner why he identified himself as married on
                                - 7 -

the Form 433-A when he had filed his 2006 tax return as single.

Petitioner responded that he was married in November 2006.

     On January 8, 2008, the IRS sent a notice of determination

to petitioner sustaining the lien filing.   The notice of

determination contained a “Summary of Determination” concluding:

          Our determination is not to grant you relief under
     Internal Revenue Code (IRC) section 6320 from the
     filing of the Notice of Federal Tax Lien (NFTL)
     covering your 1993, 1994, 1995, 2001, 2002, 2003, 2004,
     and 2005 liabilities. You have not met any conditions
     for withdrawal of this Lien. Appeals’ [sic] believe
     that the Notice of Federal Tax Lien is appropriate and
     that it should remain in place until the requirements
     for issuance of a release have been met.

                               OPINION

     Section 6321 imposes a lien in favor of the United States on

all property and property rights of a taxpayer liable for taxes

after a demand for the payment of the taxes has been made and the

taxpayer fails to pay.   The lien arises when the assessment is

made.   Sec. 6322.   The IRS files a notice of Federal tax lien to

preserve priority and put other creditors on notice.   See sec.

6323.   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.

     The hearing generally shall be conducted consistent with

procedures set forth in section 6330(c), (d), (e), and (g).    Sec.

6320(c).   At the hearing a taxpayer may raise any relevant issue,

including challenges to the appropriateness of the collection
                                - 8 -

action and possible collection alternatives.    Sec. 6330(c)(2)(A).

A taxpayer may contest the validity of the underlying tax

liability, but only if the taxpayer did not receive a statutory

notice of deficiency or otherwise have an opportunity to dispute

the tax liability.   See sec. 6330(c)(2)(B); see also Hoyle v.

Commissioner, 131 T.C. __, __ (2008) (slip op. at 5).

     Petitioner asserts that the Appeals settlement officer

abused his discretion in failing to consider petitioner’s

liability issues and in denying petitioner’s request for an

installment agreement or an OIC.    Petitioner contends that the

settlement officer acted inconsistently with the Internal Revenue

Manual (IRM).

     Petitioner asserts that his underlying tax liabilities were

raised at the CDP hearing when he stated that he might be able to

file an amended return claiming additional expenses for the years

for which the IRS filed section 6020(b) substitutes for returns--

1993, 1994, 1995, 2002, and 2003.

     Respondent contends that section 6330(c)(2)(B) precluded

petitioner from challenging his underlying tax liabilities at the

CDP hearing because he had prior opportunities to dispute his tax

liabilities.    Respondent asserts that because petitioner did not

object to the proofs of claim filed for 1993, 1994, and 1995 in

each of petitioner’s two bankruptcy proceedings, he is precluded

from challenging the underlying tax liabilities for those years.
                               - 9 -

See Kendricks v. Commissioner, 

, 77-79 (2005).   For

2002 and 2003, respondent contends that petitioner is precluded

from contesting the liabilities because statutory notices of

deficiency were sent to him for those years.    See sec.

6330(c)(2)(B).

     Petitioner argues that he did not receive the notices of

deficiency for 2002 and 2003 and thus may raise the underlying

tax liabilities.   Petitioner did not identify any additional

expenses to the Appeals Office, and the only item presented at

trial was a copy of a 1995 tax return that petitioner sent to the

IRS in 1999, prior to the bankruptcy proceedings that provided

petitioner an opportunity to dispute his 1993, 1994, and 1995

liabilities.   See Kendricks v. Commissioner, supra at 77-79.

Thus, even if he were allowed to challenge the liability, he

failed to show that the assessed amounts were incorrect.

     Petitioner argues that the Appeals settlement officer should

have directed him to submit amended returns and permitted him to

contest his liabilities contemporaneous with the hearing, even if

he was otherwise precluded from judicial review of those

liabilities.   Petitioner relies on section 301.6330-1(e)(3), Q&A-

E11, Proced. & Admin. Regs.

     To establish an abuse of discretion, petitioner must show

that the decision complained of is arbitrary, capricious, or

without sound basis in fact or law.    See Giamelli v.
                              - 10 -

Commissioner, 

, 111 (2007).   Petitioner never

demonstrated any reasonable dispute as to liabilities that go

back more than 15 years, including multiple years for which he

filed no returns and 3 years for which he failed to pay the

liabilities reported on his returns.   When the IRS prepares

substitutes for returns under section 6020, the returns are

generally based on income reported on third-party information

returns.   Generally, the IRS has no way of knowing or estimating

a taxpayer’s deductions beyond the standard deduction and

exemption.   Petitioner’s belated and vague references to

possible, but not identified, additional deductions were

insufficient to raise a bona fide dispute as to liability for the

years in issue.   An obvious purpose of section 6330(c)(2)(B) is

to prevent stale claims raised as a dilatory tactic.   The

settlement officer did not abuse his discretion in not addressing

the liability issues.

     Petitioner argues that it was an abuse of discretion for the

settlement officer (1) to not consider an OIC and (2) to not

follow the IRM or consider all the relevant financial information

when calculating his monthly expenses to derive the installment

agreement amount.

     In a collection hearing a taxpayer may raise offers of

collection alternatives, which may include an OIC or an

installment agreement.   Secs. 6330(c)(2)(A)(iii), 6320(c).
                                - 11 -

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

income tax liability.    Taxpayers who wish to propose an OIC must

submit a Form 656, Offer in Compromise.    See Godwin v.

Commissioner, T.C. Memo. 2003-289, affd. 

(11th

Cir. 2005).

     In his letter dated October 16, 2007, the settlement officer

informed petitioner that if he wanted an OIC to be considered, he

needed to submit a completed OIC request.    Petitioner failed to

submit the appropriate Form 656 or required payments.      This Court

has held that when “there was no offer in compromise before

Appeals, there was no abuse of discretion in Appeals’ failing to

consider an offer in compromise.”     Kendricks v. Commissioner,

supra at 79.   The settlement officer had no OIC to consider; thus

there was no abuse of discretion by the Appeals Office not

considering an OIC.     See Nelson v. Commissioner, T.C. Memo. 2009-

108 (holding that the Appeals Office did not abuse its discretion

in sustaining a lien when a taxpayer requested an OIC generally

but had not prepared one).

     Section 6159(a) gives the Secretary discretionary authority

to enter into installment agreements to satisfy tax liabilities

when it is determined that this will facilitate full or partial

collection.    Generally, we have held that it is not an abuse of

discretion for purposes of section 6320 or 6330 when an Appeals

Office employee relies on guidelines published in the IRM to
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evaluate a proposed installment agreement.     See, e.g., Orum v.

Commissioner, 

, 13 (2004), affd. 

(7th Cir.

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

     Eligibility for an installment agreement is based on the

taxpayer’s current financial condition.     See generally IRM pt.

5.14.1.5 (July 12, 2005).    According to the IRM, the installment

agreement payment amount should be equal to a taxpayer’s monthly

disposable income, which is the taxpayer’s monthly gross income

less allowable expenses.    See IRM pt. 5.14.1.5.3 (July 12, 2005);

IRM pt. 5.15.1.2(1) (May 1, 2004).

     Allowable expenses include those expenses that meet the

necessary expense test.    See IRM pt. 5.15.1.7(1) (May 1, 2004).

Necessary expenses are those expenses necessary to provide for

the production of income and/or for the health and welfare of the

taxpayer and his family.

the necessary expenses

establishes the minimum amount the taxpayer needs to live.

submitted Form 433-A and other

financial documents, the settlement officer determined that

petitioner had $2,064 of monthly disposable income and proposed

an installment agreement with monthly payments of this amount.

Petitioner stated he would not be able to make the proposed

installment agreement payments.

     Petitioner asserts that it was an abuse of discretion for

the settlement officer to not consider his (1) actual housing and
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utilities expenses, (2) expenses for a voluntary retirement fund,

and (3) expenses for an outstanding debt for overpaid

unemployment compensation in calculating his monthly disposable

income used for the proposed installment agreement.

     Petitioner argues that his actual expenses for housing and

utilities should be allowed instead of the local allowances that

the settlement officer used when calculating his monthly

disposable income.   Section 7122(d)(2)(A) provides that “the

Secretary shall develop and publish schedules of national and

local allowances designed to provide that taxpayers entering into

a compromise have an adequate means to provide for basic living

expenses.”   Section 7122(d)(2)(B) provides that the national and

local allowances should not be used “to the extent such use would

result in the taxpayer not having adequate means to provide for

basic living expenses.”

     This Court has sustained the Commissioner’s use of the IRS’

published national and local allowances as guidelines for basic

living expenses in evaluating the adequacy of proposed

installment agreements and OICs.   See, e.g., Speltz v.

Commissioner, 

, 179 (2005), affd. 

(8th

Cir. 2006); Dean v. Commissioner, T.C. Memo. 2009-269; Fernandez

v. Commissioner, T.C. Memo. 2008-210; Klein v. Commissioner, T.C.

Memo. 2007-325.   Generally, this Court has found no abuse of

discretion where Appeals officers used the housing and utilities
                              - 14 -

standard allowances rather than the taxpayer’s actual expenses.

See Marks v. Commissioner, T.C. Memo. 2008-226; Diffee v.

Commissioner, T.C. Memo. 2007-304.

     The taxpayer has the burden of providing information to the

Appeals Office to justify a departure from the local standards.

See Lindley v. Commissioner, T.C. Memo. 2006-229 (no abuse of

discretion to use local standards when taxpayer does not make

showing that he will be unable to provide for basic living

expenses), affd. sub nom. Keller v. Commissioner, 

(9th Cir. 2009).

      Petitioner submitted documentation showing his actual

expenses, but he did not present information to justify a

departure from the local standard allowance for housing and

utilities expenses.   Further, petitioner purchased real property

and incurred the additional mortgage and utilities expenses at a

time when he owed a substantial tax liability.    See, e.g.,

Steinberg v. Commissioner, T.C. Memo. 2006-217.    Under the

circumstances, it was not arbitrary, unreasonable, or without

basis in fact to conclude that the Government’s interest

justified a lien on petitioner’s property.

     Respondent suggests that petitioner probably did not pay all

of the actual expenses claimed because he is married and his wife

may also pay a portion of the expenses.   Because petitioner did

not supply information about his wife, he was allowed expenses
                              - 15 -

based on a single person.   See IRM pt. 5.15.1.4 (May 1, 2004)

(providing guidelines that indicate generally a taxpayer is

allowed only the expenses that he or she is required to pay and

consideration must be given to any other income available to the

household and any expenses shared with a nonliable person.)    We

conclude that the record does not show that the settlement

officer did not properly apply the provisions of the Code, the

regulations, or the IRM with respect to the local standard

allowance for monthly housing and utilities expenses.

     Although petitioner did not claim retirement contributions

as an expense on his Form 433-A, he provided documents to the

settlement officer showing monthly retirement contributions.

Petitioner asserts that the settlement officer failed to follow

the IRM and allow the retirement contributions as a necessary

expense.   According to the IRM, contributions to voluntary

retirement plans are not a necessary expense.   IRM pt.

5.8.5.3.8(2) (Sept. 1, 2005). Petitioner argues that he is

nearing retirement age and has a small retirement account and

that the voluntary contributions are a necessary expense.

However, the settlement officer followed the IRM guidelines in

this regard.

     Petitioner next argues that the settlement officer failed to

follow the IRM and consider his unemployment overpayment debt to

the Tennessee Department of Labor and Workforce Development
                                  - 16 -

because it was incurred for the production of income.     Petitioner

did not claim this unsecured debt on his Form 433-A but submitted

a statement from the Tennessee Department of Labor and Workforce

Development showing an outstanding balance of $850.

     To be considered a necessary expense, the expense must

provide for the health and welfare of the taxpayer and/or his

family or must be for the production of income.    IRM pt.

5.15.1.10 (May 1, 2004).    When reviewing an unsecured debt, if

the taxpayer substantiates and justifies the expense, the minimum

payment may be allowed.

the debt arose from overpaid

unemployment compensation.     Petitioner has not explained how

repayment of amounts wrongfully received is necessary for the

production of income.     We conclude that the settlement officer

did not abuse his discretion by not including the overpaid

unemployment debt when calculating petitioner’s allowable monthly

expenses.

     In summary, petitioner’s complaints amount to the argument

that the settlement officer should have reached a different

conclusion based on the financial information presented.     Our

review, however, is limited to abuse of discretion.     We do not

recalculate petitioner’s ability to pay and substitute our

judgment for that of the Appeals Office.     See Speltz v.

Commissioner, supra at 179-180; Bergevin v. Commissioner, T.C.
                                - 17 -

Memo. 2008-6.   Even if the parties had executed an installment

agreement the lien would probably remain in place.     It was not an

abuse of discretion to sustain the notice of lien filing.    In

reaching our decision, we have considered all arguments made,

and, to the extent not mentioned, we conclude that they are moot,

irrelevant, or without merit.

     To reflect the foregoing,


                                          Decision will be entered

                                     for respondent.