On March 31, 2010, a face-to-face hearing was held between SO Silverhorn and petitioner, petitioner's wife, and Mr. Mesis. During the hearing Mr. Mesis raised an issue with respect to respondent's rejection of petitioner's October 31, 2003, offer-in-compromise. SO Silverhorn told Mr. Mesis that he would not consider petitioner's October 31, 2003, offer-in-compromise but that he would consider a new offer if petitioner wished to submit one. Mr. Mesis requested an additional 30 days to submit an offer-in-compromise, and SO Silverhorn agreed to allow him 30 additional days to do so.

On April 29, 2010, respondent's field assistance personnel received a Form 656 from petitioner and his wife. On the Form 656 petitioner indicated the offer was for Form 941 employment tax liabilities for the quarters ending on December 31, 1998; March2014 Tax Ct. Memo LEXIS 177">*188 31, June 30, September 30, and December 31, 1999; and March 31 and June 30, 2000. Petitioner also proposed to settle these taxes through a short-term periodic payment offer-in-compromise of $7,200 based on doubt as to collectibility and payable over 24 months. Attached to the Form 656 was an *189 "Explanation of Circumstances" that indicated that petitioner's business had been adversely affected in 2001 and 2002 by an ice storm and by an employee who stole and embezzled from petitioner's business.

On May 3, 2010, SO Silverhorn reviewed petitioner's offer-in-compromise and the next day sent it to respondent's COIC Unit. On May 25, 2010, respondent's COIC Unit mailed petitioner a letter indicating that petitioner would need to amend the April 29, 2010, offer-in-compromise before respondent could process it. Specifically, respondent advised petitioner that the offer had been made on behalf of petitioner and his wife but that his wife was not liable for the Form 941 employment tax liabilities; that the offer failed to list all the Form 941 employment tax liabilities petitioner owed; and that the offer was not accompanied by a Form 433-A, Collection Information Statement for Wage Earners and2014 Tax Ct. Memo LEXIS 177">*189 Self-Employed Individuals. By letter dated July 15, 2010, Mr. Mesis stated that he would provide an amended offer-in-compromise on or before August 15, 2010.

On September 8, 2010, respondent's COIC Unit received from petitioner an amended offer-in-compromise, a completed Form 433-A, and other documentation. This offer was made by petitioner only and not jointly with his wife and was made with respect to Form 941 employment tax liabilities for the quarters ending September 30 and December 31, 1998; March 31, June 30, *190 September 30, and December 31, 1999; March 31 and June 30, 2000; June 30 and September 30, 2002; June 30 and September 30, 2003; and December 31, 2004. Petitioner again proposed to settle these outstanding taxes through a short-term periodic payment offer-in-compromise of $7,200 based on doubt as to collectibility and payable over 24 months. Petitioner's assets according to petitioner's September 2010 Form 433-A are summarized as follows:¹²

The Form 433-A also indicated that petitioner had $1,947 of total monthly income and $3,365 of total monthly living expenses. Petitioner also attached to his *191 offer-in-compromise a letter indicating that although petitioner's and his wife's health was "generally good", his wife had been diagnosed with breast cancer in 2005. He also indicated that when his wife was diagnosed with breast cancer their health insurance deductible was $10,000 and they had "a lot of out-of-pocket [health] expenses for several years."

On February 17, 2011, SO Silverhorn mailed to petitioner a letter informing him that he had determined on the basis of petitioner's Form 433-A that petitioner's reasonable collection potential was $82,948.^{132014 Tax Ct. Memo LEXIS 177">*191} SO Silverhorn's calculations of petitioner's reasonable collection potential are summarized below.

*192 ¹ Liquid assets includes petitioner's bank accounts, IRA, and life insurance.

² Respondent determined that petitioner's IRA had a fair market value of $1,2352014 Tax Ct. Memo LEXIS 177">*192 and a quick-sale value of $865.

SO Silverhorn also determined that petitioner had monthly net negative income of $2,073, consisting of $1,947 of gross monthly income and $4,020 of total monthly allowable expenses. In determining petitioner had $4,020 of total monthly allowable expenses, SO Silverhorn determined that petitioner was entitled to $655 more in monthly expenses than he had claimed on his Form 433-A.¹⁴ Directly *193 below SO Silverhorn's income and expense analysis was the notation "Currently not collectible closing code: 28 ($52,000)". The letter also stated the following:

As you can see, I will not be able to recommend the OIC based on doubt as to collectibility since you have the ability to pay more. I have also factored in your spouse's medical situation by allowing the additional medical expenses as reflected above.

After careful consideration of the other factors presented, I will be willing to recommend an OIC totaling $61,815 for acceptance. I will of course consider any additional information such as additional expenses that may not have been previously considered. If you are willing to amend and increase the OIC to an acceptable amount, please respond by 02/28/2011 and I2014 Tax Ct. Memo LEXIS 177">*193 will submit you an amended 656. You may also contact me at the telephone number listed above.

On February 25, 2011, Mr. Mesis mailed a letter to SO Silverhorn indicating that petitioner would amend and increase his offer-in-compromise. Mr. Mesis also indicated in his letter that he was enclosing Forms 941 for quarterly periods ending on December 31, 2003, and March 31, 2004. On April 14, 2011, SO Silverhorn mailed petitioner an Addendum to Form 656 through which petitioner could amend his offer-in-compromise.

On April 29, 2011, Mr. Mesis mailed respondent a letter indicating that he had "questions * * * concerning the basis for [SO Silverhorn's] calculation of the amount which should be offered". Specifically, Mr. Mesis's "main question" *194 related to why SO Silverhorn was "showing $45,000.00 as accounts receivable for the company when * * * the correct2014 Tax Ct. Memo LEXIS 177">*194 current amount to date is $5,337.50". Mr. Mesis also indicated that the petitioner had a negative balance in his bank account as of February 2011 and that petitioner had also borrowed $7,000 from a bank. Mr. Mesis expressed frustration "about the method in which * * * [respondent] had handled [petitioner's] account from the time that the original Offer was submitted in October of 2003." He requested SO Silverhorn to submit a blank Addendum to Form 656 to permit his client to submit an amended offer-incompromise "in an amount that they can reasonably be expected to pay on a monthly basis".

On June 20, 2011, SO Silverhorn recorded in his case activities record the following:

Based on all facts reviewed will not be able to recommend OIC as filed. TP owes about $112k and is offering to settle for $7,200. They are still squabbling over the prior OIC that was returned in 2003. During Appeals consideration, TP was advised a viable OIC can be considered. POA however continues to write letters alluding to the original OIC filing. Based on all facts/circumstances, Appeals cannot recommend the $7,200 offer but would be willing to recommend an amended OIC totaling $68,847.00 based on the RCP. Set2014 Tax Ct. Memo LEXIS 177">*195 [deadline of July 5, 2011] to respond. Do not expect TP & POA to agree but wanted to give one last opportunity. Sent revised letter along w/addendum reflecting the same.

¹See 123 T.C. 1">supra p. 14 table note 1.

² Respondent determined that petitioner had zero equity with respect to his bank account, which2014 Tax Ct. Memo LEXIS 177">*196 had originally had a fair market value of $11,628 on the previous submission.

*196 ³ It appears the settlement officer reduced the available equity in the home by 50% to reflect the potential spousal ownership interest in the tenancy. Petitioner was solely responsible for the trust fund recovery penalties.

¹ The number in SO Silverhorn's letter to petitioner was entered erroneously as $14,630. However, SO Silverhorn arrived at the correct total net equity of $68,847 despite this miscalculation.

The letter also stated the following:

As you can see, I eliminated the previous bank account balance to $0, reduced the vehicles to a quick sale value ($18,870), and utilized the accounts receivable currently due $5,337.00 and listed it as an asset since there is no future value of income (FVI) to consider.

I have also factored in your spouse's medical situation by allowing the additional medical expenses as reflected2014 Tax Ct. Memo LEXIS 177">*197 above.

Based on these facts, I will not be able to recommend the $7,200.00 OIC but would be willing to recommend an amended OIC totaling $68,847.00 based on the tables.

*197 Based on the last letter received, it does not appear you will be able to fund the revised OIC. If you are however willing to amend and increase the OIC to an acceptable amount, please respond by 07/05/2011. Your POA can submit an amended 656. You may also contact me at the telephone number listed above.

On June 29, 2011, Mr. Mesis mailed SO Silverhorn a letter indicating that he had received the June 20, 2011, letter and that it was his intent to "amend and increase the OIC previously submitted". Mr. Mesis also indicated that he would submit the amended offer "within thirty days from the date of this letter". SO Silverhorn did not respond to petitioner's letter.

Thirty days after Mr. Mesis' correspondence, on July 29, 2011, respondent mailed petitioner the notice of determination sustaining the proposed levy. Respondent determined that petitioner's $7,200 offer-in-compromise should not be recommended for acceptance because petitioner could pay $68,847. Respondent also determined that although Mr. Mesis had indicated in2014 Tax Ct. Memo LEXIS 177">*198 his June 29, 2011, letter that he would submit an amended offer-in-compromise for the Appeals Office to consider, nothing had been received as of the date of the notice of determination. The same day that respondent mailed the notice of determination, July 29, 2011, Mr. Mesis hand-delivered Addendum to Form 656, accompanied by a letter, revising the offer to $25,000. SO Silverhorn did not *198 consider the Addendum to Form 656 and the revised offer as the documents literally passed in the office.¹⁵

Under section 6331, if a person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax by levy upon all property and rights to property belonging to such person. A taxpayer may appeal the proposed levy to the Internal Revenue Service2014 Tax Ct. Memo LEXIS 177">*199 (IRS) under section 6330 by requesting an administrative hearing. At the hearing, the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy, including challenges to the appropriateness of the collection action and collection alternatives such as an offer-in-compromise. Sec. 6330(c)(2)(A). The underlying tax liability is properly at issue at a collection due process hearing only when the taxpayer has not received a notice of deficiency or has not otherwise had an opportunity to challenge the liability. Sec. 6330(c)(2)(B).

*199 Following the hearing, the Appeals officer must determine whether the proposed levy may proceed. The Appeals officer is required to take into consideration: (1) verification that the requirements of applicable law and administrative procedure have been met; (2) relevant issues raised by the taxpayer; and (3) whether the proposed 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)(3). If the hearing culminates in an adverse determination, the taxpayer may seek judicial review of the determination in the Tax Court pursuant to section 6330(d). Petitioner seeks review2014 Tax Ct. Memo LEXIS 177">*200 of respondent's determination.

When the validity of the underlying tax liability is properly at issue, the Court will review the matter de novo. Davis v. Commissioner, 115 T.C. 35">115 T.C. 35, 115 T.C. 35">39 (2000). When the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. Sego v. Commissioner, 114 T.C. 604">114 T.C. 604, 114 T.C. 604">610 (2000); Goza v. Commissioner, 114 T.C. 176">114 T.C. 176, 114 T.C. 176">181-182 (2000). In reviewing for abuse of discretion, we will reject the determination of the Appeals Office only if the determination was arbitrary, *200 capricious, or without sound basis in fact or law. See 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).

On brief petitioner argues that although he does not contest the existence or amounts of Form 941 employment tax liabilities with respect to the quarters ending in 1998, 1999, and 2000, he does contest "all other quarters". Judicial review of a notice of determination is limited to issues that the taxpayer properly raised at the CDP hearing. Sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; see Giamelli v. Comm'r, 129 T.C. 107">129 T.C. 107, 129 T.C. 107">112-116 (2007). Petitioner did not raise the issue of underlying liability at his CDP hearing with SO Silverhorn. Therefore, petitioner is precluded from contesting the underlying liabilities at this time.

Alternatively, petitioner did not adhere to the Court's Rules for raising an issue pertaining2014 Tax Ct. Memo LEXIS 177">*201 to a lien or levy in the petition. Pursuant to the Court's Rules, a petition filed in a section 6330 case must contain "clear and concise assignments of each and every error which the petitioner alleges to have been committed in the notice of determination." Rule 331(b)(4). Any issue not raised in the assignments of error shall be deemed conceded. Id. Petitioner has failed to challenge the validity of the underlying tax liabilities in his petition. Accordingly, we conclude *201 that petitioner is precluded from challenging the validity of his underlying tax liabilities in this case.

Petitioner argues that SO Silverhorn abused his discretion in failing to consider his October 2003 offer-in-compromise and that his offer should have been processed in 2003 without a $150 application fee. Respondent argues that petitioner's offer-in-compromise was returned because at the time petitioner filed his offer respondent's records showed that: petitioner had failed to file Forms 941 for the quarters ending on September 30, 1998, and June 30, September 30, and December 31, 2002; petitioner had failed to timely file and pay his quarterly Form 941 employment tax liabilities for the2014 Tax Ct. Memo LEXIS 177">*202 two quarters preceding the quarter the offer was submitted; and petitioner had failed to make timely Federal tax deposits during the quarter in which he submitted his offer. SeeIRM pt. 5.8.3.2.1 (Nov. 30, 2001).

Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. Section 7122(c) provides that the Secretary shall prescribe guidelines to be used to evaluate "whether an offer-incompromise is adequate and should be accepted to resolve a dispute." Section 301.7122-1(d)(1), Proced. & Admin. Regs., provides that an "offer to compromise *202 a tax liability pursuant to section 7122 must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary".

Pursuant to IRM pt. 5.8.3.2.1(a) (Nov. 30, 2001), an offer-in-compromise is not processable and should be returned to a taxpayer who owns a business if the taxpayer has failed to: (1) file all required tax returns; (2) timely file and timely deposit all employment taxes for the two quarters preceding the offer-in-compromise; and (3) timely pay all Federal tax deposits that are due in the quarter in which the offer-in-compromise was submitted. See Reed v. Comm'r, 141 T.C. 248">141 T.C. 248, 141 T.C. 248">256 (2013) (noting that taxpayers requesting offers-in-compromise must be in compliance2014 Tax Ct. Memo LEXIS 177">*203 with their filing requirements and be current in their tax payments before IRS acceptance of an offer-in-compromise for processing), supplemented byT.C. Memo. 2014-41; see also Orum v. Comm'r, 412 F.3d 819">412 F.3d 819, 412 F.3d 819">821 (7th Cir. 2005) (holding that the judiciary's role is to ensure the lawfulness of executive decisions, not to micromanage executive decisionmaking), aff'g123 T.C. 1">123 T.C. 1 (2004). Generally, the decision to accept or reject an offer is left to the discretion of the Secretary, seesec. 301.7122-1(c)(1), Proced. & Admin. Regs., and the Commissioner does not abuse his discretion by returning an offer-in-compromise on account of taxpayers' failure to meet current tax obligations, Reed v. Commissioner, 141 T.C. 248">141 T.C. 256 (and cases cited thereat). Moreover, the *203 Commissioner is not required to reopen an offer-in-compromise during a section 6330 hearing when that offer has been returned to a taxpayer as not processable before the hearing. 141 T.C. 248">Id. at 254-255.

On October 31, 2003, petitioner submitted an offer-in-compromise, and on November 20, 2003, respondent returned that offer as not processable because respondent's records showed that petitioner was not in compliance with certain filing and tax payment requirements. Respondent's transcripts for petitioner's tax accounts show that petitioner filed his September 30, 1998, and June 30 and September 30, 2002,2014 Tax Ct. Memo LEXIS 177">*204 quarterly Forms 941 on March 22, 2004, which was several months after petitioner had submitted his offer-in-compromise. Additionally, respondent's records show that as of December 6, 2011, no payment had been received for petitioner's June 30, 2003, quarterly Form 941 tax period, which is one of the two quarters preceding the offer-in-compromise. SO Silverhorn's case activity record and February 23, 2010, letter to petitioner show that he reviewed petitioner's file and transcripts and determined that petitioner was not in compliance with his tax obligations when he submitted the offer-in-compromise. Although petitioner argues that he was in compliance with his tax obligations, the record is devoid of any evidence that would support his contention. Accordingly, we conclude that respondent did not abuse his discretion in determining that *204 petitioner was not in compliance with his tax obligations at the time his October 31, 2003, offer-in-compromise was submitted.

Even though petitioner has submitted multiple offers-in-compromise beginning as early as 2003, the first complete offer to include the correct taxpayer, correct tax periods, supporting2014 Tax Ct. Memo LEXIS 177">*205 financial documentation, and filed tax returns was not delivered during the course of the CDP hearing until September 2010. At that time petitioner proposed a short-term periodic payment offer-in-compromise based on doubt as to collectibility. Pursuant to the relevant regulations, taxpayers may compromise their outstanding tax liabilities on three grounds: (1) doubt as to liability; (2) doubt as to collectibility; and (3) promotion of effective tax administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.

The Secretary may compromise a liability on the ground of doubt as to collectibility when "the taxpayer's assets and income are less than the full amount of the liability." Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Determinations based on doubt as to collectibility will include a determination of a taxpayer's ability to pay, and the Secretary is required to "permit taxpayers to retain sufficient funds to pay basic living expenses." Sec. 301.7122-1(c)(2)(i), Proced. & Admin. Regs. An offer-in-compromise based on doubt as to collectibility "will be *205 considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the Service could collect through other means * * * This amount is the2014 Tax Ct. Memo LEXIS 177">*206 reasonable collection potential of a case." Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. at 517. The policy of promoting effective tax administration means that the IRS has discretion to compromise liability when full collection could be achieved but would cause an economic hardship to the taxpayer and the compromise would not undermine compliance of the tax laws. See id.; see alsosec. 301.6343-1(b)(4), Proced. & Admin. Regs. (defining economic hardship as the inability to pay reasonable basic living expenses).

The Internal Revenue Manual provides procedures for analyzing a taxpayer's financial condition to determine reasonable collection potential. SeeIRM pt. 5.8.5.1 (Sept. 23, 2008). A taxpayer's reasonable collection potential is defined under the IRM as net equity plus future income. Id. pt. 5.8.4.3 (June 1, 2010). "Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. The number of months depends on the payment terms of the offer." Id. pt. 5.8.5.23(2) (Oct. 22, 2010). "Generally, the amount to be collected from future income is calculated by taking the projected gross *206 monthly income, less allowable expenses,2014 Tax Ct. Memo LEXIS 177">*207 and multiplying the difference by the number of months applicable to the terms of the offer." Id. pt. 5.8.5.23(3) (Oct. 22, 2010).

SO Silverhorn rejected petitioner's $7,200 proposed offer-in-compromise but indicated in his June 20, 2011, letter that he "would be willing to recommend an amended OIC totaling $68,847.00 based on [petitioner's reasonable collection potential]." It appears that in determining petitioner's reasonable collection potential SO Silverhorn considered petitioner's net equity in personal and business assets but disregarded the fact that petitioner and his wife have a negative monthly net income of $2,073, which includes expenses SO Silverhorn himself determined were necessary. As discussed above, a taxpayer's reasonable collection potential includes both net equity and future income. See Porro v. Commissioner, T.C. Memo. 2014-81, at *5 (noting where an IRS settlement officer reduced taxpayers' reasonable collection potential because their monthly expenses exceeded their monthly income). It seems as if SO Silverhorn considered only one of these factors, net equity, in determining petitioner's reasonable collection potential and did not consider petitioner's future income in the calculation. In addition, the information2014 Tax Ct. Memo LEXIS 177">*208 in the Addendum to Form 656, dated July 29, 2011, was not considered in the determination of petitioner's reasonable collection potential. On *207 the record before us, we are unable to conclude whether it was an abuse of discretion for respondent to determine to proceed with the proposed levy for petitioner's Form 941 employment tax liabilities. We will remand the case to respondent's Appeals Office for further consideration and clarification and to allow petitioner, if he wishes, to propose a new collection alternative. See Fairlamb v. Comm'r, T.C. Memo 2010-22; Blair v. Comm'r, T.C. Memo 2009-232. We also remand for clarification of why SO Silverhorn in his February 17, 2011, letter determined that petitioner's account should be placed in currently not collectible status but continued to seek an offer-in-compromise. SeeIRM pt. 5.16.1.1(2) (May 22, 2012).

To reflect the foregoing,

An appropriate order will be issued.