Etkin v. Comm'r

T.C. Memo. 2005-245

UNITED STATES TAX COURT

DAVIS AND LOIS ETKIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 7627-02L, 17722-03L. Filed October 20, 2005.

Davis and Lois Etkin, pro se.

Michelle L. Maniscalco, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: These consolidated cases concern: (1) A

notice of determination concerning collection action (notice of

determination) upholding liens under section 6320 for

petitioners’ taxable years 1997 through 1999; (2) a notice of

determination upholding a levy under section 6330 for

petitioners’ taxable year 1999; (3) a notice of determination
 - 2 -

upholding a lien for petitioners’ taxable year 2000.

The issues for decision are:

(1) Did respondent abuse his discretion in upholding the

liens under section 6320 in the notices of determination for

petitioners’ taxable years 1997, 1998, 1999, and 2000? We hold

that respondent did not abuse his discretion.

(2) Did respondent abuse his discretion in upholding the

proposed levy under section 6330 in the notice of determination

for petitioners’ taxable year 1999? We hold that respondent did

not abuse his discretion.

(3) Did respondent abuse his discretion in denying

petitioner Lois Etkin equitable relief under section 6015(f) for

the taxable years 1997, 1998, 1999, and 2000? We hold that

respondent did not abuse his discretion.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioners Davis Etkin

and Lois Etkin have been married and resided together at all

times in Schenectady, New York, since 1990. Davis Etkin is the

former president of Off-Track Betting Organization. Lois Etkin

is a retired school teacher with a master’s degree in education.

Petitioners filed joint income tax returns for 1997, 1998, 1999,

and 2000. They reported tax liabilities due, but these
 - 3 -

liabilities were not fully paid either by withholdings or by any

payment submitted with the returns. The balance owed in each

return is allocable to the income of both petitioners.

Respondent has not determined a deficiency against either

petitioner for the taxable years at issue. Petitioners’ joint

income tax returns for the taxable years 1997 through 2000 showed

the following unpaid balances:

Taxable Year Unpaid Balance
1997 $18,504
1998 28,448
1999 12,421
2000 14,359
Respondent assessed the following additions to tax under

sections 6654(a) and 6651(a)(2) in connection with the unpaid

balances:

Additions to Tax
Taxable Year Sec. 6651(a)(2) Sec. 6654(a)
1997 $712.12 $701.00
1998 1,093.80 1,103.00
1999 248.42 525.22
2000 646.15 675.54

Further, respondent assessed a $1,292.31 addition to tax for

failure to file a timely return for the taxable year 2000 under

section 6651(a)(1).1

1
Petitioners received an extension of time to file their
joint income tax return for the tax year 2000 until Oct. 15,
2001; however, they did not file it until Nov. 23, 2001.
 - 4 -

A. Notices of Determination for the Taxable Years 1997, 1998,
and 1999

1. Final Notices of Intent To Levy

On June 26 and May 16, 2000, respectively, respondent

issued to petitioners Forms 1058, Final Notices of Intent to Levy

and Notice of Your Right to a Hearing, as required by section

6330(a), with respect to unpaid liabilities for the taxable years

1997 and 1998. On September 28, 2000, respondent issued to

petitioners Form 1058 for the taxable year 1999.

On October 12, 2000, petitioners submitted Form 12153,

Request for a Collection Due Process Hearing, in response to the

May, June, and September final notices of intent to levy,

requesting a hearing for the taxable years 1997-99. Petitioners’

Form 12153 was timely submitted in response to the September 2000

notice of intent to levy for the taxable year 1999. However,

petitioners’ request for a hearing under section 6330 for the

taxable years 1997 and 1998 was untimely submitted. Accordingly,

respondent provided an “equivalent” hearing under section

301.6330-1(i), Proced. & Admin. Regs., as to the proposed levy

for the taxable years 1997 and 1998. In addition, petitioners

filed Form 2848, Power of Attorney and Declaration of

Representative, conferring on their C.P.A., Robert Kristel, the

authority to represent petitioners at their hearing for the

taxable years 1997-99.
 - 5 -

2. Notice of Federal Tax Lien

On October 4, 2000, respondent issued a notice of Federal

tax lien, as required by section 6320(a), for petitioners’ 1997-

99 tax years. On October 12, 2000, petitioners timely submitted

Form 12153 requesting a hearing under section 6320 for taxable

years 1997-99.

3. Lois Etkin’s Request for Innocent Spouse Relief

On December 14, 2000, respondent received from Lois Etkin

Form 8857, Request for Innocent Spouse Relief, for her taxable

years 1997-99. On her Form 8857, Lois Etkin claimed that it

would be inequitable to hold her liable for petitioners’ joint

income taxes because (1) she relied on Davis Etkin to prepare the

income tax returns and pay the taxes, and (2) she believed that

her withholding was sufficient to pay her income taxes for the

aforementioned taxable years. In addition, Lois Etkin submitted

to respondent a completed Questionnaire for Requesting Spouse

during the course of the hearing for the taxable years 1997-99.

4. The Appeals Officer’s Consideration of Petitioners’
Proposed Installment Agreements During Their
Hearing for the Taxable Years 1997-99

In January 2000, before any notices of liens or proposed

levies were issued, petitioners proposed to the revenue agent

handling their case an installment agreement to satisfy their

joint income tax liabilities for the taxable years 1997-99. The

installment agreement required payments of $800 a month over 5
 - 6 -

years. Petitioners made payments from November 2000 until

September 2003. On December 6, 2000, the revenue agent rejected

petitioners’ proposed January 2000 installment agreement and

referred the case to the Appeals Office to fulfill petitioners’

request for a hearing. In their Form 12153, petitioners again

requested an installment agreement and claimed that the monthly

payments previously determined by the revenue agent exceeded

their ability to pay.

The Appeals officer engaged in a series of phone calls and

letters with petitioners’ representative concluding sometime in

November 2001. On July 12, 2001, the Appeals officer mailed to

petitioners a letter offering them the opportunity to have a

face-to-face conference on July 25, 2001, for the taxable years

1997-99. At petitioners’ representative’s request, the Appeals

officer rescheduled the conference for September 12, 2001, at the

Appeals Office. Neither petitioners nor their representative

appeared for the September 12, 2001, conference. On November 9,

2001, respondent mailed to petitioners a followup letter giving

them 2 weeks to raise any additional issues regarding the lien or

intent to levy. Petitioners’ representative then contacted the

Appeals officer and, on behalf of petitioners, proposed an

installment agreement requiring monthly payments of $800 over 5

years to pay their outstanding tax liability of $55,362.13, which

terms were the same terms the revenue agent in charge of
 - 7 -

petitioners’ case had previously rejected. The only financial

information available to the Appeals officer in the

administrative record was a Form 433-A, Collection Information

Statement (the financial statement), that petitioners submitted

in October 2000 to the revenue agent reviewing their case. This

statement reflected total monthly income of $15,630.77 and total

monthly expenses of $16,816.01. On the basis of the information

provided in the financial statement and the procedures of the

Internal Revenue Manual (IRM), the revenue agent disallowed

certain expenses and determined that petitioners could afford to

pay $4,912 per month for the first year and $7,106 per month

thereafter. By the time the Appeals Office reviewed petitioners’

case, the financial statement was more than 12 months old and

thus outdated. Given the age of the financial statement, the

information on petitioners’ 2000 income tax return, and the

Appeals officer’s conversations with petitioners’ representative,

the Appeals officer determined that the financial statement did

not reflect their current financial status. The Appeals officer

informed petitioners’ representative that he did not have

sufficient financial information to make a determination as to

their installment agreement proposal and requested updated

financial information. Petitioners’ representative informed the

Appeals officer that he could not rely on the financial statement
 - 8 -

in the administrative record because petitioners’ financial

circumstances had changed.

Petitioners’ representative agreed to provide the Appeals

officer with updated financial statements from petitioners by

December 31, 2001, but never did so. The lack of an updated

financial statement compelled the Appeals officer to use the

financial statement and the information on petitioners’ taxable

year 2000 income tax return to determine petitioners’ eligibility

for the proposed installment agreement. The Appeals officer

determined that certain expenses petitioners claimed on the

financial statement were not allowable under the provisions of

the IRM. Therefore, the Appeals officer could not take those

expenses into account in determining how much petitioners were

able to pay.

5. Notices of Determination and Decision Letter Issued
for the Taxable Years 1997-99

On March 21, 2002, respondent issued a final notice of

determination upholding the Federal tax lien for the taxable

years 1997-99. Respondent also issued a notice of determination

upholding the Federal tax levy for the taxable year 1999.

Further, respondent issued a decision letter concerning the

equivalent hearing under section 6330 for the taxable years 1997

and 1998 in which respondent upheld the proposed levy actions.

At the time the notices were issued, petitioners’ outstanding

income tax liability was $55,362.13. In analyzing petitioners’
 - 9 -

claims, the Appeals officer denied petitioners’ offer of an

installment agreement and determined that: (1) Pursuant to their

proposed installment agreement, only $48,000 would have been paid

towards their total outstanding liability of $55,362.13; (2)

petitioners were delinquent in paying their joint income tax

liability for the taxable year 2000 and had not made any

estimated tax payments for the taxable year 2001; and (3) the

revenue agent was correct in his determination that petitioners’

proposed installment agreement was unacceptable because they

could afford to pay $4,912 per month in the first year and $7,106

per month in the years thereafter.

In addition, in a Form 866-A, Explanation of Items, the

Appeals Office denied petitioner Lois Etkin’s claim for equitable

relief under section 6015(f) for the taxable years 1997-99. In

analyzing Lois Etkin’s entitlement to equitable relief under

section 6015(f), the Appeals officer relied on the following

factors: (1) Lois Etkin was married to and still residing with

Davis Etkin; (2) Davis Etkin did not abuse Lois Etkin; (3) Lois

Etkin failed to establish that she would suffer economic hardship

if relief was not granted; (4) Lois Etkin derived a significant

benefit from not paying the tax liabilities; (5) some of the tax

due in each year at issue was attributable to Lois Etkin’s

income; (6) there were perceptible asset transfers between

petitioners; and (7) Lois Etkin was well educated and knew or had
 - 10 -

reason to know that the tax liabilities would not be paid and

were not solely attributable to Davis Etkin. Further,

petitioners did not offer any evidence to rebut the Appeals

officer’s determination.

B. The Taxable Year 2000 Hearing

1. Notice of Federal Tax Lien

On April 5, 2002, respondent filed a notice of Federal tax

lien in the County of Schenectady, New York, for the taxable year

2000. On April 11, 2002, respondent issued to petitioners the

notice of Federal tax lien filing and a Form 1058. On May 3,

2002, petitioners timely submitted a Form 12153 requesting a

hearing under section 6320. On their Form 12153, petitioners

claimed (as they had in the Form 12153 for the 1997-99 tax years)

that respondent requested monthly payments that greatly exceeded

their ability to pay and requested an installment agreement.

Along with petitioners’ Form 12153, Lois Etkin submitted a Form

8857, requesting innocent spouse relief, claiming that she

believed her withholding was sufficient to pay her income taxes,

and that her husband had assumed responsibility for the filing of

their income tax return and payment of their joint tax liability

for the taxable year 2000. Although petitioners incurred an

additional income tax liability for the taxable year 2000 of

$17,759.51, petitioners made payments towards their outstanding

joint income tax liabilities for the taxable years 1997 and 2000,
 - 11 -

which reduced their total outstanding income tax liability from

$55,362.13 on March 21, 2002, to $45,776.13 on September 16,

2003.

The factors petitioner Lois Etkin set forth for entitlement

to section 6015(f) equitable relief for the taxable year 2000 are

virtually identical to the factors set forth in her claim for

equitable relief associated with the taxable years 1997-99.

2. Hearing

During a phone call to the Appeals officer on August 13,

2003, petitioners proposed an installment agreement to satisfy

their outstanding joint liabilities for the taxable years 1997

through 2000. The proposed agreement provided that petitioners

would pay $762.94 per month, which would have fully satisfied

their outstanding income tax liability of $45,776.13 within 5

years. On July 21, 2003, the Appeals Office issued a letter to

petitioners informing them that Lois Etkin was not entitled to

equitable relief under section 6015(f) and inviting petitioners

to raise any additional issues regarding their hearing.

Petitioners did not have legal representation during the hearing

for the taxable year 2000. After a phone call with the Appeals

officer in response to the Appeals Office’s July 21, 2003,

letter, petitioners agreed to raise any additional issues by mail

within 10 days, but failed to do so. The Appeals officer

followed the administrative procedures which require requesting a
 - 12 -

new or updated financial statement if the financial information

is more than 12 months old and/or the information is no longer

accurate. Despite his requests, petitioners did not provide

updated financial information. Because of petitioners’ failure

to provide updated financial information, and the fact that the

only financial information in the administrative record remained

the financial statement, the Appeals officer considered the

financial information from the hearing for the taxable years

1997-99.

3. Notice of Determination for the Taxable Year 2000

On September 16, 2003, respondent issued a notice of

determination upholding the proposed lien under section 6320 for

the taxable year 2000. On the same date, respondent also issued

a notice of determination denying Lois Etkin equitable relief

under section 6015(f). The Appeals officer concluded that even

though petitioners proposed to fully pay their outstanding income

tax liabilities over 5 years, they did not qualify for the 5-year

rule as set forth by IRM sec. 5.15.1.3(4) (2000)2 because (1) they

did not provide the Appeals officer with an updated financial

2
Internal Revenue Manual (IRM), sec. 5.15.1.3(4) (2000)
provides for a “five-year” rule that excessive necessary and
conditional expenses may be allowed if the tax liability,
including projected accruals, will be fully paid within 5 years.
“Excessive necessary” and “conditional expenses” are expenses
that do not meet the test for “necessary expenses”, which must
provide for a taxpayer and his family’s health and welfare and/or
the production of income. See IRM sec. 5.15.1.3(2) (2000).
 - 13 -

statement from which the Appeals officer could determine

petitioners’ income and allowable expenses, and (2) they failed

to provide substantiation for their expenses as required by the

IRM.

As to Lois Etkin’s claim for equitable relief under section

6015(f), respondent considered the following factors dispositive

of the issue: (1) Lois Etkin signed a joint income tax return

with her husband for the taxable year 2000, while the hearing was

taking place for the taxable years 1997-99; and (2) she was well

educated. On the basis of these two factors, respondent

determined that Lois Etkin had reason to know when she signed the

2000 income tax return that the tax liability would not be paid.

As a result of this determination and Lois Etkin’s failure to

meet some of the requirements set forth in Rev. Proc. 2000-15,

sec. 4.02, 2000-1 C.B. 447, 448, respondent denied Lois Etkin’s

claim for relief under section 6015(f).

OPINION

Sections 6320 and 6330 provide for Tax Court review of the

Commissioner’s administrative determinations to proceed with

liens and levies. Where the validity of the underlying tax

liability is at issue, the Court will review the matter de novo.

Davis v. Commissioner, 115 T.C. 35, 39 (2000). However,

petitioners have not challenged the validity of the underlying

tax liability. Because the underlying tax liability and section
 - 14 -

6015(b) and (c) is not at issue, the Court will review

respondent’s administrative determinations for abuse of

discretion; that is, whether the determinations were arbitrary,

capricious, or without sound basis in fact or law. See Sego v.

Commissioner, 114 T.C. 604, 610 (2000); Woodral v. Commissioner,

112 T.C. 19, 23 (1999). We note that we do not have jurisdiction

under section 6330(d) to review petitioners’ claims contesting

the proposed levy actions for the taxable years 1997 and 1998.

Section 301.6330-1(b), Proced. & Admin. Regs., provides that the

taxpayer must request the section 6330 hearing within the 30-day

period commencing on the day after the date of the notice of

intent to levy. Failure to do so results in the taxpayer’s being

allowed only an “equivalent hearing”. Section 301.6330-1(i)(2),

Q&A-15, Proced. & Admin. Regs., generally provides that a

taxpayer may not obtain court review of the decision following an

equivalent hearing. Petitioners did not file their Forms 12153

within the 30-day period following the 1997 and 1998 notices of

intent to levy. Therefore, we lack jurisdiction to review

respondent’s decision to uphold the levy actions for the taxable

years 1997 and 1998.

Notwithstanding our lack of jurisdiction to review the

upheld levy actions under section 6330 for the taxable years 1997

and 1998, we have statutory jurisdiction to consider petitioners’

challenge to the liens under section 6320, as well as Lois
 - 15 -

Etkin’s claim for equitable relief under section 6015(f) for each

of the taxable years at issue, including 1997 and 1998. Section

6320(c) incorporates section 6330(c), (d), and (e) by reference

(with the exception of section 6330(d)(2)(B)). Section

6330(c)(2)(A) gives the taxpayer the right to raise any relevant

spousal defenses in connection with the hearing. Section 6330(d)

is the specific provision that governs our jurisdiction to review

a proposed collection action. Therefore, this Court has

jurisdiction over petitioners’ sections 6320 and 6015(f) claims

for each of the taxable years at issue.3

I. Respondent Did Not Abuse His Discretion Rejecting
Petitioners’ Proposed Installment Agreements, and Upholding
the Proposed Actions to Collect Petitioners’ Joint Income Tax
Liabilities for the Taxable Years 1997, 1998, 1999, and 2000

A. Background on Proposed Installment Agreements

Section 6159 authorizes the Commissioner to enter into

installment agreements with taxpayers to satisfy their tax

liabilities if the Commissioner determines that such agreements

will facilitate the collection of the liability. The IRM,

together with sections 301.6159-1, 301.6320-1, and 301.6330-1,

Proced. & Admin. Regs., establishes the IRS procedures for

3
Lois Etkin received a notice of determination in response
to her request for relief under sec. 6015 and was notified that
she could petition a stand-alone sec. 6015 case under sec.
6015(e). See sec. 301.6330-1(i)(2), Q&A-15, Proced. & Admin.
Regs. Lois Etkin did not file such a petition. Nevertheless, we
have jurisdiction over the sec. 6015(f) claims for each taxable
year at issue pursuant to sec. 6320(c).
 - 16 -

determining whether an installment agreement will facilitate

collection of the liability. This Court has previously upheld the

Commissioner’s determinations based in part on the provisions of

the IRM. See, e.g., Orum v. Commissioner, 123 T.C. 1, 13 (2004)

(upholding the Commissioner’s determination because of the

taxpayers’ failure to timely provide requested information

regarding their current financial condition in accordance with IRM

guidelines), affd. 412 F.3d 819 (7th Cir. 2005); McCorkle v.

Commissioner, T.C. Memo. 2003-34 (the taxpayer was not current in

her filing and paying obligations, and therefore the Commissioner

under the IRM guidelines rejected her proposed installment

agreement); Schulman v. Commissioner, T.C. Memo. 2002-129

(upholding settlement officer’s proposed monthly installment

agreements computed under IRM guidelines).

When determining whether a taxpayer’s proposed installment

agreement will facilitate collection of the liability under

section 6159, the Internal Revenue Service makes a financial

analysis of the taxpayer’s monthly income and expenses and the

taxpayer’s ability to pay. See Schulman v. Commissioner, supra.

We have previously held that consideration of a taxpayer’s ability

to pay is reasonable in the Commissioner’s determination of

whether a proposed installment agreement is acceptable. See id.

In determining the amount taxpayers are able to pay, the IRS

allows taxpayers to claim certain expenses to offset their income.
 - 17 -

Those procedures contain guidelines for allowable expenses, which

include necessary and conditional expenses. See id. (citing IRM

(CCH), sec. 5.15.1 to 5.15.1.4, at 17,653-17,660). “Necessary”

expenses are those that provide for a taxpayer’s health and

welfare and/or the production of income. See IRM sec. 5.15.1.3(2)

(2000). Under IRM sec. 5.15.1.3(4) (2000), the Appeals officer is

permitted to allow “excessive necessary” and “conditional”

expenses when examining a taxpayer’s financial statement, provided

that the tax liability, including all accruals, will be paid

within 5 years. “Conditional” expenses are any expenses other

than “necessary” expenses. See IRM secs. 5.15.1.7(6) (2004) and

5.15.1.3(3) (2000). Further, all expenses must be substantiated

in order to be allowable. See Schulman v. Commissioner, supra

(sustaining the Appeals officer’s disallowance of unsubstantiated

expenses).

Sections 301.6320-1(e) and 301.6330-1(e), Proced. & Admin.

Regs., provide that the taxpayers are obligated to provide all

requested information, including financial statements, throughout

the course of the hearing. In addition, IRM sec. 5.15.1.1(8)

(2004) states that financial statements submitted by taxpayers in

the course of a hearing should be updated if they are older than

12 months. This Court has previously upheld the Commissioner’s

determination that a proposed installment agreement was

unacceptable on account of the taxpayer’s failure to provide
 - 18 -

updated financial statements. See Orum v. Commissioner, supra at

13.

B. Respondent Did Not Abuse His Discretion Upholding the
Proposed Collection Actions and Rejecting Petitioners’
Proposed Installment Agreement During the Hearing
for the 1997-99 Taxable Years

Petitioners argue that respondent abused his discretion in

rejecting the terms of their proposed installment agreement for

the taxable years 1997-99 of $800 per month over 5 years and

sustaining the proposed collection actions. Petitioners’ main

reasons are that (1) the Appeals officer arbitrarily set an amount

that was suitable for petitioners to pay monthly, and (2) the

Appeals officer did not fully take into account the financial and

health conditions of petitioners. We disagree.

The primary flaw in petitioners’ argument is that petitioners

failed to provide more updated financial information despite the

Appeals officer’s repeated requests.4 The Appeals officer

properly followed the administrative procedures requiring him to

request a new or updated financial statement if the financial

4
Petitioners allege that there is an updated 2002 financial
statement on file with the Appeals office. Respondent is not
aware of the existence of such a document. Although this Court’s
review is not limited to the evidence in the administrative
record, Robinette v. Commissioner, 123 T.C. 85 (2004),
petitioners did not introduce such evidence at any juncture,
including at trial. We merely have petitioners’ assertion that
it exists. Therefore, because of the lack of substantive
documentation of this alleged financial statement and
petitioners’ failure to introduce it into evidence for this Court
to consider, we are unable to acknowledge its existence.
 - 19 -

information in the administrative file is more than 12 months old

and/or the information is no longer accurate. After petitioners

failed to appear for their September 12, 2001, face-to-face

hearing, the Appeals officer informed petitioners through their

representative that he did not have sufficient financial

information to make a determination on their installment agreement

proposal. Then the Appeals officer invited petitioners to submit

additional information to assist in his consideration of their

proposed installment agreement, but petitioners never sent him any

information. Despite the Appeals officer’s multiple requests to

either petitioners or their representative, petitioners did not

submit updated financial information. As a result, we find that

the Appeals officer could have reasonably rejected an installment

agreement proposal by petitioners on account of their failure to

timely provide the requested information. See Orum v.

Commissioner, supra.

Given petitioners’ failure to provide the requested updated

financial statement, respondent considered the financial statement

in determining whether to accept petitioners’ proposed installment

agreement. If petitioners had paid $800 a month for 5 years

pursuant to their proposed installment agreement, only $48,000

would have been paid towards their total outstanding liability of

$55,362.13. Since they did not offer an alternative installment

proposal, the revenue agent calculated a reasonable payment
 - 20 -

expectation, applying the reasonable expense criteria5 of the IRM

to reach a payment plan that would reflect their actual ability to

pay off the tax liability timely. Petitioners argue that

respondent abused his discretion in determining that their

proposed installment agreement did not reflect their ability to

pay and thus upholding the revenue agent’s determination, based on

the financial statement, that petitioners could afford to pay

$4,912 per month for the first year, and $7,106 per month

thereafter. Petitioners further argue that the record does not

reflect the reasoning behind the revenue agent’s calculation of

what they can afford to pay and suggest it may be a subjective

opinion. Petitioners also suggest that the Appeals Office simply

took the actions of the revenue agent at face value without coming

to an independent determination of what was an acceptable payment

plan.

We conclude that respondent did not abuse his discretion in

determining that petitioners’ proposed installment agreement did

not reflect their ability to pay. We also conclude that

respondent did not base his determination of petitioners’ proposed

installment agreement on a subjective formula. The revenue agent

computed the monthly installment payment under the guidelines of

5
Pursuant to the criteria in the IRM, the Appeals officer
determined that a number of the expenses petitioners claimed on
their financial statements were not allowable. See IRM sec.
5.15.1.3 (2000).
 - 21 -

the IRM. This Court has previously found determinations following

from computations under the IRM to be a proper exercise of the

Commissioner’s discretion. See Schulman v. Commissioner, T.C.

Memo. 2002-129. The revenue agent applied these procedures and

disallowed certain expenses. The Appeals officer acknowledged at

trial that he was not bound by the revenue agent’s determination.

However, the Appeals officer properly reviewed the revenue agent’s

computations, which were based upon the financial statement, and

found them to be correct. Therefore, those computations were not

based on any arbitrary determination, and petitioners’ argument is

without merit.

Petitioners set forth a litany of factors that they argue the

Appeals officer did not take into account in assessing their

ability to pay, such as Davis Etkin’s age, heart condition, gall

bladder removal, and other health-related problems. In addition,

petitioners cite the termination of Davis Etkin by his employer

and the denial of benefits, along with $200,000 in fines and

restitution payments that Davis Etkin was required to make in

connection with his sentence for defrauding the Government and

bribery. Petitioners’ argument is without merit because

petitioners failed to submit an updated financial statement that

reflected these alleged changes in their financial situation. See

Orum v. Commissioner, 123 T.C. 1 (2004).
 - 22 -

In addition, the Appeals officer exercised proper discretion

in rejecting petitioners’ proposed installment agreement because

petitioners were not in full compliance with their filing and

payment obligations. See Orum v. Commissioner, 412 F.3d at 820;

McCorkle v. Commissioner, T.C. Memo. 2003-34 (citing IRM pt.

5.14.1.4.1 (July 1, 2002), pt. 5.14.9.3(5) (Mar. 30, 2002), pt.

5.19.1.3.3.1(1) and (5) (Oct. 1, 2001), pt. 5.19.1.5.4.10(1)-(2)

(Oct. 1, 2001)). Petitioners were delinquent in paying their

joint income tax liability for the taxable year 2000 and had not

made any estimated tax payments for the taxable year 2001.

Therefore, respondent did not abuse his discretion in denying

petitioners’ proposed installment agreement.

C. Respondent Did Not Abuse His Discretion Upholding
the Proposed Collection Actions and Rejecting
Petitioners’ Proposed Installment Agreement During the
Collection Due Process Hearing for the 2000 Taxable
Year

During petitioners’ hearing for the taxable year 2000, they

proposed an installment agreement whereby they would fully pay

their outstanding tax liabilities in equal monthly installments

over 5 years. Petitioners contend that respondent abused his

discretion by rejecting their proposed installment agreement.

Petitioners’ position is without merit because of their

repeated failure to provide respondent with updated financial

statements. See Orum v. Commissioner, 123 T.C. at 13. During the

course of the communications associated with the hearing for the
 - 23 -

taxable year 2000, the Appeals officer requested updated financial

statements in order to consider petitioners’ proposed installment

agreement. By this time, the financial statement was over 3 years

old. Petitioners had previously acknowledged in connection with

their hearing for the taxable years 1997-99 that their

circumstances had changed from the facts shown in the financial

statement, and that the Appeals officer could no longer rely on

the financial statement. Clearly, respondent could not make an

objective determination of the viability of petitioners’ proposed

installment agreements on the basis of such outdated information.

Respondent, therefore, did not abuse his discretion in denying

petitioners’ proposed installment agreement on the basis of their

failure to comply with his request for updated financial

information. See id.

Petitioners have also contended that respondent abused his

discretion in refusing to consider “excessive necessary” and

“conditional” expenses. Under IRM sec. 5.15.1.3(4) (2000), the

“five-year” rule states that the Appeals officer may consider any

“excessive necessary” or “conditional” expenses if the taxpayers

can show that they can fully pay their outstanding income tax

liabilities over 5 years. Respondent argues that he was unable to

consider any “conditional” or “excessive necessary” expenses

because petitioners did not provide an updated financial statement
 - 24 -

or substantiate any of the expenses that they claimed on the

statement available to respondent. We agree with respondent.

Sections 301.6320-1(e)(1) and 301.6330-1(e)(1), Proced. &

Admin. Regs., require that “Taxpayers will be expected to provide

all relevant information requested by Appeals, including financial

statements, for its consideration of the facts and issues involved

in the hearing.” (Emphasis added.) IRM sec. 5.15.1.1(8) (2004)

requires financial statements reviewed for purposes of determining

the viability of proposed installment agreements to be no more

than 12 months old. As we have repeatedly observed, petitioners

did not meet this requirement. The Appeals officer properly

requested a new or updated financial statement, but petitioners

did not comply with that request. Respondent, thus, did not have

any basis other than the previous evaluation on which to consider

petitioners’ proposed installment agreement. In the previous

evaluation of the financial statement, the revenue agent

disallowed many of petitioners’ claimed expenses because they did

not conform with the expenses allowable under the provisions of

the IRM. Had respondent relied upon the financial statement, he

would have reached the same conclusions as the previous evaluation

for the taxable years 1997-99. As a result, respondent did not

abuse his discretion in following the applicable procedures using

the only information provided to him, which justifiably led to the

same conclusions as those reached in the hearing for the taxable
 - 25 -

years 1997-99. In addition, petitioners’ proposal did not qualify

for the 5-year rule because they failed to provide substantiation

for the “conditional” and “excessive necessary” expenses listed on

their financial statement. See Schulman v. Commissioner, T.C.

Memo. 2002-129 (citing 2 Administration, Internal Revenue Manual

(CCH), sec. 5.15.1.3(8)(a), at 17,655). Respondent was therefore

within his discretion to reject petitioners’ proposed installment

agreement.

II. Respondent Did Not Abuse His Discretion When He Denied
Equitable Relief Pursuant to Section 6015(f) to Lois Etkin
for the Taxable Years 1997, 1998, 1999, and 2000

We note this case involves unpaid tax liabilities for the

years in issue. Because no understatements of tax or deficiencies

are involved, Lois Etkin does not qualify for relief under section

6015(b) or (c). See sec. 6015(b)(1) and (c)(1); Washington v.

Commissioner, 120 T.C. 137, 146-147 (2003). Therefore, our review

is limited to section 6015(f), which permits in certain

circumstances relief from joint and several liability for unpaid

taxes. See Ewing v. Commissioner, 118 T.C. 494, 497 (2002).

Section 6015(f) grants the Commissioner discretion to grant

equitable relief from tax liability to a spouse if, taking into

account all the facts and circumstances, it is inequitable to hold

the spouse liable for any unpaid tax or any deficiency (or any

portion of either) and relief is not available under section

6015(b) or (c). In order to prevail, Lois Etkin must demonstrate
 - 26 -

that respondent abused his discretion by acting arbitrarily,

capriciously, or without sound basis in fact or law. See Jonson

v. Commissioner, 118 T.C. 106, 125 (2002), affd. 353 F.3d 1181

(10th Cir. 2003); Butler v. Commissioner, 114 T.C. 276, 289-290,

(2000). Lois Etkin bears the burden of proving that respondent

abused his discretion in denying her equitable relief under

section 6015(f). See Rule 142(a); Alt v. Commissioner, 119 T.C.

306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004); Ogonoski

v. Commissioner, T.C. Memo. 2004-52.

Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. 447, 448,

prescribes guidelines that will be considered in determining

whether an individual qualifies for equitable relief under section

6015(f).6 This Court has upheld the use of the guidelines

specified in Rev. Proc. 2000-15, supra, and has analyzed the

factors listed therein, in reviewing the Commissioner’s negative

determinations under section 6015(f). See, e.g., Washington v.

Commissioner, supra at 147-152. Rev. Proc. 2000-15, sec. 4.01,

lists seven threshold conditions that must be satisfied before the

6
On Aug. 11, 2003, the Commissioner issued Rev. Proc.
2003-61, 2003-2 C.B. 296, which supersedes Rev. Proc. 2000-15,
2000-1 C.B. 447, effective for requests for relief pending on or
after Nov. 1, 2003, for which no preliminary determination letter
has been issued as of Nov. 1, 2003. Rev. Proc. 2003-61, supra,
does not apply in this case because petitioners’ request for
relief was denied before the effective date.
 - 27 -

Commissioner will consider a request for equitable relief under

section 6015(f). Those conditions are:

(1) The requesting spouse filed a joint return for the

taxable year for which relief is sought;

(2) relief is not available to the requesting spouse under

section 6015(b) or (c);

(3) the requesting spouse applies for relief no later than 2

years after the date of the Commissioner’s first collection

activity after July 22, 1998;

(4) the liability remains unpaid;

(5) no assets were transferred between the spouses as part

of a fraudulent scheme;

(6) there were no disqualified assets transferred to the

requesting spouse by the nonrequesting spouse; and

(7) the requesting spouse did not file the return with

fraudulent intent.

Respondent concedes that threshold conditions (1), (2), (3),

(4), and (7) have been met. However, respondent contends that

Lois Etkin does not satisfy threshold conditions (5) and (6)

because Davis Etkin added Lois Etkin to the deed for his house,

and he transferred a car and a boat to Lois Etkin after they

became delinquent in paying taxes. Respondent contends that the

addition of Lois Etkin’s name to the deed for their marital

residence within the 2 years preceding March 28, 2001, and the
 - 28 -

transfer to Lois Etkin of a jointly owned car and boat between

March 28, 2001, and January 1, 2003,7 were part of a fraudulent

scheme to frustrate the collection of their delinquent taxes.

Further, respondent argues that these assets constitute

“disqualified assets” and that therefore Lois Etkin also fails to

meet the sixth threshold requirement. Section 6015(c)(4)(B)(i)

provides that a “disqualified asset” is any property or right to

property transferred to an individual making the election by the

other person filing the joint return if the principal purpose of

the transfer is the avoidance of tax or the payment of tax.8 If

7
Respondent derives these dates from the representations
made by Lois Etkin on two different Innocent Spouse
Questionnaires for Electing Spouse that were submitted on Mar.
28, 2001, and Jan. 1, 2003. The first form was submitted for the
consideration of Lois Etkin’s sec. 6015(f) claim in connection
with petitioners’ hearing for the taxable years 1997-99, and the
second form was submitted in connection with the consideration of
Lois Etkin’s sec. 6015(f) claim in connection with petitioners’
hearing for the taxable year 2000. On the March 2001
questionnaire, Lois Etkin stated under penalty of perjury that
Davis Etkin added her name to the title of the home “within the
last year or two.” In completing his portion of the form, Davis
Etkin stated that no assets were transferred between him and Lois
Etkin except for the house. By the time Lois Etkin submitted the
second questionnaire pertaining to the sec. 6015(f) relief
request for the taxable year 2000 in January 2003, the answer to
this question changed. Lois Etkin stated that her husband had
transferred a jointly owned car and a boat to her. Therefore,
respondent deduced that the house had been transferred within 2
years (or less) before Mar. 28, 2001, and that the boat and the
car had been transferred between Mar. 28, 2001, and Jan. 1, 2003.
When asked at trial about the exact dates, petitioners were
unable to recall.
8
Sec. 6015(c)(4)(B)(ii)(I) provides a presumption that any
transfer which is made after the date which is 1 year before the
(continued...)
 - 29 -

disqualified assets are transferred to the requesting spouse by

the nonrequesting spouse, relief will be available only to the

extent that the liability exceeds the value of those disqualified

assets. Rev. Proc. 2000-15, sec. 4.01(6). Petitioners presented

no evidence of the value of the disqualified assets. However, on

the basis of the figures on the financial statement, the combined

value of the home, the boat, and the automobile is at least

$210,000.9

Petitioners’ only rebuttal to respondent’s contentions is

that Davis Etkin transferred this property to Lois Etkin because

of their marriage. However, this argument loses much of its

credibility in light of the fact that Davis Etkin transferred the

property to Lois Etkin over 10 years after they were married. In

addition, the transfer of the house occurred proximately to the

filing of the liens for the taxable years 1997-99 and before the

April 2002 Federal tax lien was filed for the taxable year 2000.

The car and the boat were transferred to Lois Etkin after the

8
(...continued)
date on which the first letter of proposed deficiency which
allows the taxpayer an opportunity for administrative review in
the Internal Revenue Service Office of Appeals is sent shall be
presumed to have as its principal purpose the avoidance of tax or
the payment of tax. Respondent does not rely on this presumption
in this case since there was no notice of deficiency or of
proposed deficiency.
9
Given the outdated nature of the statement, it is plausible
that these values have slightly fluctuated; however, this does
not concern us in light of the fact that the estimate exceeds the
tax liability by approximately 400 percent.
 - 30 -

levies for the taxable years 1997-99 were filed and very close to

the filing of the notice of Federal tax lien on April 5, 2002.10

Previous cases have upheld the Commissioner’s determination that

the taxpayer did not meet the threshold factors under Rev. Proc.

2000-15, sec. 4.01(6), on the basis of the sequence of events and

the proximity of the transfer to any action on behalf of the IRS.

See, e.g., Ohrman v. Commissioner, T.C. Memo. 2003-301. In

Ohrman, the taxpayers entered into a separation agreement shortly

after the Commissioner proposed adjustments to their tax

liability. The result of the separation agreement was the

transfer of assets from the taxpayer’s husband to her. The

husband, however, continued to pay all of the expenses, and the

taxpayer continued to engage in a marital relationship with her

husband. The Commissioner concluded that the transfer of assets

between the taxpayers was an effort to shield those assets from

the Commissioner’s attempt to collect the tax liability. The

Commissioner based his conclusion on the proximity of the transfer

to the taxpayer’s learning of the potential liability. Given that

there was no logical reason for the transfer that could be

substantiated and that the transfer was proximate to the inception

of the taxpayer’s knowledge of the liability for the taxable years

10
We determined, on the basis of petitioners’ sworn
statements, that the boat and the car were transferred sometime
between Mar. 28, 2001, and Jan. 1, 2003. The notice of Federal
tax lien for the taxable year 2000 was filed on Apr. 5, 2002.
 - 31 -

in question, the Commissioner determined that the purpose of the

transfer was to avoid tax, and thus the taxpayer did not meet the

sixth threshold condition of Rev. Proc. 2000-15, sec. 4.01. In

particular, the Commissioner concluded that the taxpayer received

a transfer of disqualified assets. This Court upheld the

Commissioner’s determination.

Davis Etkin added Lois Etkin’s name to the deed of their

marital residence within 2 years preceding March 28, 2001, and

transferred their jointly owned car and boat between March 2001

and January 2003. These transfers took place shortly after their

tax liabilities arose, and the transfer of the car and the boat

took place after petitioners received the notice of intent to levy

on their property. Further, Davis Etkin claimed that the

transfers were made because of his marriage to Lois Etkin;

however, the record shows that Lois and Davis Etkin have been

married since 1990 and that Davis Etkin owned the house before he

married Lois Etkin. In addition, Davis Etkin did not convert

ownership of the car or boat to joint ownership; rather, he

transferred the assets solely to Lois Etkin. Petitioners have not

produced any evidence that the principal purpose of the transfer

was not to avoid the payment of tax. Further, petitioners have

not provided any other logical or substantial reason for the
 - 32 -

transfer.11 Nor have petitioners shown the value of the

disqualified assets. Therefore, we conclude that Lois Etkin has

failed to satisfy the sixth threshold requirement of Rev. Proc.

2000-15, sec. 4.01 and thus does not qualify for equitable relief

under section 6015(f). Because we decided that Lois Etkin

received a transfer of disqualified assets from Davis Etkin, we

conclude that Lois Etkin does not meet all seven of the threshold

conditions of Rev. Proc. 2000-15, sec. 4.01.12

In addition, we find adequate support in the record to

sustain the Appeals officer’s determination that Lois Etkin, when

signing the returns, should have known that the tax for the years

in question would not be paid. Lois Etkin possessed sufficient

knowledge and education to understand that she was signing a joint

income tax return showing a balance due for the year in question.

She simply relied on Davis Etkin’s assertions that he would pay

11
In Ohrman v. Commissioner, T.C. Memo. 2003-301, there was
a dispute as to who bears the burden of proving that the taxpayer
did or did not receive a transfer of disqualified assets. The
Court in Ohrman refrained from resolving the dispute because “the
preponderance of the evidence establishes that the principal
purpose of the transfer was the avoidance of tax.” We are also
convinced that the preponderance of the evidence resolves the
issue in this case and therefore do not need to determine who has
the burden of proof.
12
Since we conclude that the transfer of assets had a
principal purpose of avoiding tax, and therefore Lois Etkin fails
to satisfy one of the threshold conditions resulting in her
disqualification from equitable relief, it is unnecessary for us
to consider respondent’s contention that the transfer was part of
a fraudulent scheme by petitioners.
 - 33 -

the liability late through installment payments. Further, Lois

Etkin had specific notice that her tax liability for the taxable

year 2000 would remain unpaid because she signed the joint income

tax return for the taxable year 2000, showing a significant

balance due, while her request for innocent spouse relief was

being considered for the taxable years 1997-99. Accordingly, we

conclude that respondent did not abuse his discretion by acting

arbitrarily, capriciously, or without sound basis in fact in

denying Lois Etkin’s request for equitable relief under section

6015(f).

In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not mentioned

above, we find them to be irrelevant or without merit.

To reflect the foregoing,

Decisions will be entered

for respondent.