Lemann v. Comm'r

T.C. Memo. 2006-37

UNITED STATES TAX COURT

ARTHUR A. LEMANN III AND ROBERTA A. LEMANN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12857-02L. Filed March 7, 2006.

Arthur A. Lemann III and Roberta A. Lemann, pro sese.

Susan S. Canavello, for respondent.

MEMORANDUM OPINION

GALE, Judge: The petition in this case was filed in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330.1 Respondent has moved

1
Unless otherwise noted, all section references are to the
Internal Revenue Code applicable to the periods at issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
 - 2 -

for summary judgment pursuant to Rule 121. Respondent's motion

is supported by the Declaration of Daniel J. Mazaroli, the

Appeals officer who conducted petitioners' section 6330 hearing,

and relevant documents from the administrative file.

Petitioners' opposition is supported by the Declaration of Arthur

A. Lemann III and an attached exhibit setting forth Mr. Lemann's

interests in certain family corporations.

The only issue before the Court is whether respondent abused

his discretion in determining to proceed to levy with respect to

petitioners' income tax liabilities for the taxable years 1992,

1993, 1994, and 1996. We conclude that no genuine issue as to

any material fact exists and that respondent is entitled to

summary judgment in his favor.

Background

Petitioners are Arthur A. Lemann III, a practicing attorney,

and his wife, Roberta A. Lemann, a clerk. At the time the

petition was filed, petitioners resided in New Orleans,

Louisiana.

Petitioners do not dispute their underlying tax liability.

As of the date the notice of levy was issued, petitioners' unpaid

Federal income tax liabilities were as follows:
 - 3 -

Year Amount

1992 $31,435
1993 50,236
1994 83,218
1996 36,302
Total 201,191

On January 30, 2001, respondent sent petitioners a Letter

1058, Final Notice, Notice of Intent to Levy and Notice of Your

Right to a Hearing. On February 26, 2001, petitioners timely

filed Form 12153, Request for a Collection Due Process Hearing.

By letter dated March 29, 2001, the Appeals officer first

assigned to conduct the section 6330 hearing noted that

petitioners had previously requested an installment payment plan

and asked that petitioners submit a copy of their prior proposal

and updated financial documents. Petitioners promptly provided

copies of their previously submitted installment agreement

proposal to pay $1,500 per month and their Form 433-A, Collection

Information Statement for Individuals. Petitioners indicated

that their financial situation had not changed since the earlier

submission. Their Form 433-A indicated that petitioners had net

equity in their assets of approximately $31,000, monthly income

of $7,423, and monthly expenses of $7,450.2

2
While petitioners' Form 433-A lists total monthly expenses
of $7,450, the sum of the individual expense items identified
therein is $7,455.
 - 4 -

The record shows no further activity with respect to the

hearing until April 8, 2002, when a second Appeals officer

assigned to conduct the hearing sent a letter requesting that

petitioners review and update their previously submitted Form

433-A and provide additional documents related to their financial

condition. Petitioners submitted the requested information on

April 16, 2002. On their revised Form 433-A, petitioners

indicated they had net equity in their assets of approximately

$67,000 (up from $31,000), and monthly gross income of $7,715 per

month (up from $7,423). Petitioners' monthly expenses remained

unchanged.

By letter dated April 19, 2002, the Appeals officer advised

petitioners that their proposed installment agreement of $1,500

per month was not acceptable because it would not result in

payment of all amounts due within the applicable periods of

limitation on collection. The letter informed petitioners that

an offer-in-compromise might serve as an alternative to the

proposed levy and explained that such an approach would require

petitioners to make a payment equal to the net realizable equity

in their assets, which might require borrowing against those

assets.

On April 22, 2002, petitioners submitted a Form 656, Offer

in Compromise, in which they offered to make a one-time payment

of $67,000 to compromise their aggregate unpaid tax liabilities
 - 5 -

of $201,191. Petitioners checked the "Doubt as to

Collectibility" box as the basis on which they believed they were

entitled to be considered for an offer-in-compromise.

The Appeals officer forwarded the offer-in-compromise to an

offer specialist for review. By letter dated May 7, 2002, the

offer specialist informed petitioners that an acceptable offer

amount would consist of both equity in assets and some portion of

"future income" available to pay taxes; i.e., gross income less

necessary living expenses. The offer specialist further advised

that her preliminary calculations showed a reasonable collection

potential significantly higher than the offer petitioners had

made. The offer specialist's administrative file notes of the

same day indicate that she had preliminarily computed

petitioners' future income as $2,713 per month for 48 months, or

$130,224.

The offer specialist's notes record that on May 3, 2002, she

discussed with Mr. Lemann the monthly credit card expense of

$1,600 reported by him on the revised Form 433-A, and advised him

that this expense was not allowable in computing future income.

On May 7, 2002, the offer specialist sent Mr. Lemann her

preliminary income and expense computations in which she noted

that, for purposes of evaluating petitioners' offer-in-
 - 6 -

compromise, petitioners' future income was $2,713 for 48 months,3

or $130,224. In a letter to her dated May 14, 2002, Mr. Lemann

responded:

It seems to me that the future income calculation
overlooks two important facts:

1. I am now 60 years of age and may very well not
have 4 more years of productivity;

2. Converting that future income potential into a
$130,224.00 lump sum is impossible given my
financial circumstances.

The offer specialist's notes record that she received this

letter on May 21, 2002, and that on May 23, 2002, she discussed

with Mr. Lemann the special circumstances that would give rise to

a departure from the standard computation of future income and

gave examples. The offer specialist's notes further record that

Mr. Lemann did not provide her with any information that

constituted special circumstances.

On May 24, 2002, the offer specialist forwarded her final

computations of petitioners' reasonable collection potential to

the Appeals officer. In computing petitioners' net realizable

equity in assets, the specialist accepted petitioners' $125,000

estimate of the value of their residence as reported on their

3
Under Internal Revenue Manual (IRM) guidelines, for
purposes of evaluating "cash" offers-in-compromise such as
petitioners', future income for 48 months is considered, whereas
future income for 60 months is generally used when deferred
payment offers-in-compromise (which may include both a lump-sum
payment and an installment agreement) are evaluated. IRM, sec.
5.8.5.4 (Nov. 2000).
 - 7 -

revised Form 433-A. The offer specialist reduced that amount to

a "quick sale" value4 of $100,000, which she offset with

petitioners' reported $60,000 of indebtedness encumbering the

residence, yielding net realizable equity of $40,000. Similarly,

the offer specialist accepted petitioners' $2,000 estimate of the

value of their two automobiles and discounted it to a $1,600

quick sale value. Overall, the offer specialist's final

computation of petitioners' net realizable equity was $41,600.

With respect to future income, the offer specialist adjusted

petitioners' reported monthly gross income and necessary living

expenses as follows. She increased reported monthly wages by

$412 to reflect the amounts included on petitioners' Forms W-2,

Wage and Tax Statement, for 2001, and added monthly dividend

income of $200 to reflect dividend income reported on

petitioners' 2001 joint Federal income tax return. Thus,

petitioners' gross monthly income was increased from $7,715 to

$8,327.

Regarding monthly necessary living expenses, the offer

specialist followed Internal Revenue Manual (IRM) guidelines and

reduced petitioners' reported monthly transportation expenses

from $680 to $289 and disallowed petitioners' claimed $1,600

monthly expense for credit cards. She also increased

4
Quick sale value is defined as the estimate of the price a
seller could get for an asset in a situation where financial
pressures motivate a sale in a short time, usually 90 days or
less. IRM, sec. 5.8.5.3.1 (Nov. 2000).
 - 8 -

petitioners' reported monthly expense for housing and utilities

by $50. The net effect of the offer specialist's adjustments to

petitioners' monthly necessary living expenses was to reduce them

from $7,455 to $5,514.

Overall, the offer specialist determined that petitioners

had $2,813 in monthly future income available to pay off their

tax liabilities, as compared to petitioners' reported figure of

$265. The offer specialist further determined that petitioners

could pay this amount for 59 months, resulting in aggregate

payments out of future income of $165,967.

The foregoing calculations produced a reasonable collection

potential of $207,567; i.e., $41,600 in net realizable equity

plus $165,967 in future income. In her final report, the offer

specialist noted that petitioners also had some interests in

family corporations, interest in real property referred to as the

B. Lemann Building, and possibly life insurance. She did not

assign any value to these assets or rely upon them in determining

petitioners' reasonable collection potential.5 The offer

specialist concluded that petitioners had failed to demonstrate

any special circumstances that would justify calculating their

reasonable collection potential outside the prescribed

guidelines. Because the reasonable collection potential of

5
The offer specialist also noted that petitioners had
previously entered into an installment agreement on which they
had defaulted.
 - 9 -

$207,567 exceeded petitioners' outstanding tax liabilities, the

offer specialist recommended that petitioners' offer-in-

compromise of $67,000 be rejected.

The Appeals officer accepted the offer specialist's

recommendations. On June 10, 2002, the Appeals officer sent

petitioners a letter explaining that their $67,000 offer-in-

compromise would not be accepted because review indicated the

entire outstanding balance of their tax liabilities could be

collected over time. The letter explained that, in such

circumstances, an installment agreement was the available

collection alternative.

Based on the offer specialist's calculations, the Appeals

officer proposed that petitioners make an initial lump-sum

payment of $40,000,6 and monthly payments of $2,8207 commencing

July 26, 2002. The letter further advised petitioners that,

because their case had been under consideration since 2000, and

an installment agreement had been determined to be the available

alternative to a levy, their failure to accept the terms of the

6
The Appeals officer's case memorandum indicates that he
disregarded the $1,600 equity in petitioners' automobiles
postulated by the offer specialist, concluding that their net
realizable equity consisted only of the $40,000 equity in their
residence as found by the offer specialist.
7
The offer specialist had computed petitioners' monthly
future income as $2,813. While the record does not disclose the
basis on which the Appeals officer increased this figure to
$2,820 for purposes of the installment agreement he proposed, we
conclude that the difference is immaterial.
 - 10 -

proposed installment agreement by June 20, 2002, would result in

the issuance of a determination letter sustaining the proposed

levy.

On June 18, 2002, Mr. Lemann sent a letter to the Appeals

officer acknowledging and rejecting the proposed installment

agreement. The letter read: "I simply cannot afford the payments

you propose." The letter offered no further collection

alternatives to the levy.

On July 16, 2002, a Notice of Determination was issued to

petitioners which determined that the proposed levy was

appropriate. The determination concluded: (1) That all

requirements of applicable law and administrative procedures had

been met; (2) that petitioners' proposed collection alternative

of monthly installment payments of $1,500 was not acceptable

because it would not result in full payment of the outstanding

tax liabilities within the applicable periods of limitation on

collection; (3) that petitioners' $67,000 offer-in-compromise

based on doubt as to collectibility was unacceptable given that

their net equity in assets and future income were sufficient to

pay their outstanding tax liabilities in full;8 and (4) that, in

light of petitioners' refusal to accept the installment agreement

8
The Appeals officer's case memorandum indicates that he,
like the offer specialist, reached his conclusions regarding
petitioners' ability to pay without relying on petitioners'
interests in any family corporations or in the B. Lemann
Building.
 - 11 -

proposed by the Appeals officer that would have resulted in full

payment of their outstanding liabilities, the levy was an

appropriate balance between the need for efficient collection of

taxes and petitioners' legitimate concern that the collection

action be no more intrusive than necessary.

Petitioners timely sought review in this Court pursuant to

section 6330(d).

Discussion

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law." Rule 121(a) and (b); Sundstrand

Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965

(7th Cir. 1994). The moving party bears the burden of proving

that no genuine issue of material fact exists, and factual

inferences are drawn in a manner most favorable to the party

opposing summary judgment. Dahlstrom v. Commissioner, 85 T.C.

812, 821 (1985); Jacklin v. Commissioner, 79 T.C. 340, 344

(1982).
 - 12 -

Section 6331(a) authorizes the Secretary to levy against

property and property rights where a taxpayer liable for taxes

fails to pay those taxes within 10 days after notice and demand

for payment is made. Section 6331(d) requires the Secretary to

send written notice of an intent to levy to the taxpayer, and

section 6330(a) requires the Secretary to send a written notice

to the taxpayer of his right to a section 6330 hearing at least

30 days before any levy is begun.

If a section 6330 hearing is requested, the hearing is to be

conducted by the Commissioner's Office of Appeals and, at the

hearing, the Appeals officer conducting it must verify that the

requirements of any applicable law or administrative procedure

have been met. Sec. 6330(b)(1), (c)(1). The taxpayer may raise

at the hearing any relevant issue relating to the unpaid tax or

the proposed levy, including challenges to the appropriateness of

collection actions or offers of collection alternatives, such as

an installment agreement or an offer-in-compromise. Sec.

6330(c)(2)(A). The taxpayer may contest the existence or amount

of the underlying tax liability at the hearing if the taxpayer

did not receive a statutory notice of deficiency with respect to

the underlying tax liability or did not otherwise have an

opportunity to dispute that liability. Sec. 6330(c)(2)(B). At

the conclusion of the hearing, the Appeals officer must determine

whether and how to proceed with collection, taking into account,
 - 13 -

among other things, collection alternatives proposed by the

taxpayer and whether any proposed collection action balances the

need for the efficient collection of taxes with the legitimate

concern of the taxpayer that the collection action be no more

intrusive than necessary. See sec. 6330(c)(3).

We have jurisdiction to review the Appeals officer's

determination where we have jurisdiction over the type of tax

involved in the case. Sec. 6330(d)(1)(A); see Iannone v.

Commissioner, 122 T.C. 287, 290 (2004). Generally, in reviewing

the Appeals officer's determination for abuse of discretion we

may consider only those issues that the taxpayer raised during

the section 6330 hearing. See sec. 301.6330-1(f)(2), Q&A-F5,

Proced. & Admin. Regs.; see also Magana v. Commissioner, 118 T.C.

488, 493 (2002). Where the underlying tax liability is properly

at issue, we review the determination de novo. E.g., Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000). Where the underlying

tax liability is not at issue, we review the determination for

abuse of discretion. Id. Whether an abuse of discretion has

occurred depends upon whether the exercise of discretion is

without sound basis in fact or law. See Freije v. Commissioner,

125 T.C. 14, 23 (2005); Ansley-Sheppard-Burgess Co. v.

Commissioner, 104 T.C. 367, 371 (1995).

The issues raised by petitioners with the Appeals officer

and herein concern only collection alternatives. Petitioners
 - 14 -

contend that respondent arbitrarily refused to accept their

proposed installment agreement and subsequent offer-in-

compromise, opting instead to proceed with a levy. They contend

that they could not agree to the Appeals officer's proposed

installment agreement because they lacked the financial resources

and borrowing capacity to fulfill the terms of that agreement.

Moreover, they contend that the formula used by respondent to

determine the acceptable amount of an installment agreement or an

acceptable offer-in-compromise failed to account adequately for

petitioners' age, earning capacity, and poor financial

circumstances. Finally, they assert that respondent's

determination to proceed with a levy does not balance the need

for efficient collection with their legitimate concern that the

collection action be no more intrusive than necessary, see sec.

6330(c)(3)(C), and accordingly is arbitrary and capricious.9

As petitioners have not challenged the validity of the

underlying tax liability, we review respondent's determination to

proceed with collection for abuse of discretion. Jones v.

9
In the petition, petitioners also assert that respondent's
actions were "unduly punitive" in violation of petitioners'
Eighth Amendment rights. They do not mention this claim in their
opposition to respondent's motion for summary judgment, and we
deem it abandoned. See Bradley v. Commissioner, 100 T.C. 367,
370 (1993); Sundstrand Corp. v. Commissioner, 96 T.C. 226, 344
(1991); Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988). In
any event, petitioners have not cited, and we are unaware of, any
authority suggesting that, where a taxpayer concedes that unpaid
taxes are due, the Commissioner's decision to collect those taxes
by means of his power to levy may violate the Eighth Amendment.
 - 15 -

Commissioner, 338 F.3d 463, 466 (5th Cir. 2003); Sego v.

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

supra.

Petitioners' Proposed Installment Agreement

The Appeals officer rejected petitioners' initial proposal

to pay $1,500 per month to satisfy the liabilities at issue on

the grounds that such an installment agreement would not result

in satisfaction of the liabilities within the applicable periods

of limitation on collection. Section 6159(a) gives the Secretary

discretionary authority to enter into installment agreements to

satisfy tax liabilities where he determines that it will

facilitate collection. Under the statute and regulations

applicable in 2002, generally only installment agreements that

allowed a taxpayer to fully satisfy a tax liability before

expiration of the applicable period of limitation on collection

were authorized.10 See sec. 6159(a); sec. 301.6159-1(a), Proced.

& Admin. Regs. Petitioners' proposal to pay $1,500 per month was

insufficient to satisfy their outstanding tax liabilities in full

before the collection period expiration dates, the latest of

which was July 21, 2007.11 Accordingly, it cannot be said that

10
Sec. 6159(a) was amended by the American Jobs Creation
Act of 2004, Pub. L. 108-357, sec. 843(a)(1)(B), 118 Stat. 1600,
to authorize the Secretary to enter into installment agreements
that do not fully satisfy a tax liability, effective for
agreements entered into on or after Oct. 22, 2004.
11
This proposition is self-evident. Petitioners'
(continued...)
 - 16 -

the Appeals officer's rejection of petitioners' proposed

installment agreement was an abuse of discretion.

Petitioners' Offer-in-Compromise

The Appeals officer also rejected petitioners' second

proposed collection alternative, their $67,000 offer-in-

compromise. In doing so, the Appeals officer essentially adopted

the recommendation of the offer specialist that petitioners did

not qualify for an offer-in-compromise based on doubt as to

collectibility because they were capable of paying the entire

amount of the outstanding liabilities (by making an initial

payment of $40,000 and monthly installments of $2,820 thereafter

for 59 months).

11
(...continued)
outstanding liabilities when the notice of intent to levy was
issued on Jan. 30, 2001, totaled $201,191. The aggregate
payments under a $1,500 per month installment plan running
through July 21, 2007 (the expiration date of the latest period
of limitations) would have fallen substantially short of that
figure, whether measured from the time when the Appeals officer
preliminarily rejected it in Apr. 2002 ($96,000) or finally
rejected it in the notice of determination in July 2002
($91,500).
Sec. 6502(a)(2)(A) allows the taxpayer and the Commissioner
to extend the period for collection in connection with entering
into an installment agreement. The Commissioner's policy
generally limits such extensions to no more than 5 years beyond
the original expiration of the limitations period. IRM, sec.
5.14.2.1 (Mar. 2002). While there is no evidence that the
Appeals officer considered such an extension, this issue is
immaterial, as an addition of 5 years to the applicable periods
of limitation would still not have resulted in full satisfaction
of petitioners' liabilities; i.e., $1,500 per month for an
additional 60 months would amount to another $90,000, which, when
added to the $91,000 petitioners would pay before the expiration
date, would still be less than petitioners' total unpaid tax
liabilities.
 - 17 -

Section 7122 authorizes the Secretary to compromise any

civil case arising under the internal revenue laws and requires

him to prescribe guidelines for officers and employees of the

Internal Revenue Service to determine whether an offer-in-

compromise is adequate and should be accepted to resolve a

dispute. Sec. 7122(a), (c)(1). These guidelines must include

published schedules of national and local allowances designed to

ensure that taxpayers entering into a compromise will have

adequate means to provide for basic living expenses and must also

provide for a determination, based on the facts and circumstances

of each taxpayer, that use of the published schedules will not

result in the taxpayer's lacking adequate means to provide for

basic living expenses. Sec. 7122(c)(2).

The contemplated guidelines and schedules have been

published. See sec. 301.7122-1T(b)(3)(ii), Temporary Proced. &

Admin. Regs., 64 Fed. Reg. 39020 (July 21, 1999); IRM, exh.

5.15.1-4 and -5 (Oct. 1999); IRM, exh. 5.15.1-10 and -11 (Oct.

2000). Under this administrative guidance, the Commissioner will

generally compromise a liability on the basis of doubt as to

collectibility only if the liability exceeds the taxpayer's

reasonable collection potential. Cf. Murphy v. Commissioner, 125

T.C. 301, 308-310 (2005). A taxpayer's reasonable collection

potential is determined, in part, using published guidelines for

certain national and local allowances for basic living expenses,
 - 18 -

and essentially treating income and assets in excess of those

needed for basic living expenses as available to satisfy Federal

income tax liabilities. The foregoing formulaic approach is

disregarded, however, upon a showing by the taxpayer of special

circumstances including, but not limited to, advanced age, poor

health, history of unemployment, disability, dependents with

special needs, or medical catastrophe, that may cause an offer to

be accepted notwithstanding that it is for less than the

taxpayer's reasonable collection potential. Sec. 301.7122-

1(c)(3), Proced. & Admin. Regs.; IRM, secs. 5.8.5.4 (Nov. 2000),

5.8.11.2.1 (Nov. 2001).

A taxpayer's reasonable collection potential is calculated

by determining, then adding together: (1) The taxpayer's "net

realizable equity"; i.e., quick sale value less amounts owed to

secured lien holders with priority over Federal tax liens; and

(2) his "future income"; i.e., the amount collectible from the

taxpayer's expected future gross income after allowing for

necessary living expenses. IRM, sec. 5.8.5.4 (Nov. 2000).

Here, the offer specialist followed published guidelines in

computing petitioners' net realizable equity. The net realizable

equity from their residence was computed by accepting

petitioners' estimate of value ($125,000), reducing it to a quick

sale value of $100,000 as prescribed by IRM, sec. 5.8.5.3.1 (Nov.

2000), and offsetting that figure by their claimed mortgage
 - 19 -

indebtedness of $60,000. The resulting $40,000 figure was less

than the $67,000 of equity in the residence reported by

petitioners. Similarly, the offer specialist accepted

petitioners' estimate of their equity in their automobiles

($2,000) and reduced it to quick sale value ($1,600), resulting

in total net realizable equity of $41,600. In accepting the

offer specialist's recommendations, the Appeals officer made a

further concession to petitioners by disregarding the equity in

their automobiles to conclude that their net realizable equity

equaled $40,000.

The offer specialist likewise followed published guidelines

in computing petitioners' future income. Following standard

procedure, she increased the monthly income petitioners reported

on their Form 433-A by $612 to conform with their 2001 Forms W-2

and dividend income reported on their 2001 Federal income tax

return. See IRM, sec. 5.8.5.2.1 (Nov. 2001). She made

adjustments to the expenses claimed by petitioners on the Form

433-A in accordance with the applicable procedures contained in

the IRM.12 Those procedures allow taxpayers the lesser of the

12
The IRM sets forth procedures for evaluating both
proposed installment agreements and offers-in-compromise. See
IRM, secs. 5.15.1-5.15.1.4 (Mar. 2000). Those procedures contain
guidelines for allowable necessary and conditional expenses.
Necessary expenses are those that provide for the health and
welfare of the taxpayer and his or her family, and for the
production of income. These expenses must be reasonable in
amount, and are generally based on national or local standards.
Necessary expenses include such things as: (1) Food, housekeeping
supplies, clothing, personal care expenses and services (based on
(continued...)
 - 20 -

local standard or the amount actually paid for transportation

expense. IRM, exh. 5.15.1-11 (Oct. 2000). On that basis, the

specialist reduced petitioners' claimed monthly expense of $680

for transportation to the local standard of $289. Likewise,

conditional expenses like credit card debt, i.e., expenses

charged to a credit card that were not for basic living expenses,

are not allowable where the tax liability would not be paid

within 5 years. IRM, sec. 5.15.1.3 (Mar. 2000). On that basis,

the offer specialist disregarded petitioners' claimed monthly

credit card expense of $1,600.13

The foregoing calculations of the offer specialist produced

monthly future income of $2,813, which the offer specialist

estimated petitioners could pay for 59 months; i.e., until

12
(...continued)
national standards); (2) housing, utilities, and transportation
(based on local standards); and (3) other expenses like health
care. Other expenses, so-called conditional expenses, are
allowable only if the tax liability, including projected
accruals, can be fully paid within five years. Credit card
payments and repayments on other unsecured debts are examples of
conditional expenses. See, e.g., Schulman v. Commissioner, T.C.
Memo. 2002-129 n.6.
As noted in our findings, the offer specialist increased
petitioners' claimed monthly expense for housing and utilities by
$50. The basis on which the offer specialist made this
adjustment is not clear from the record. In any event, it
constitutes a concession by respondent.
13
Minimum payments on unsecured debts like credit cards are
allowed if a taxpayer substantiates and justifies the expense as
necessary for either the health and welfare of the taxpayer
and/or his or her family, or for the production of income. IRM,
sec. 5.15.1.3.2.4 (Mar. 2000). Petitioners do not allege that
their credit card expense was incurred for either of these
reasons.
 - 21 -

expiration of the latest period of limitation on collection

applicable to petitioners' unpaid tax liabilities. The offer

specialist therefore concluded that petitioners had a reasonable

collection potential of $207,567, consisting of net realizable

equity of $41,600 and future income of $165,967 ($2,813 per month

for 59 months). The offer specialist's notes indicate that she

considered Mr. Lemann's claim that he was 60 and might not work 4

more years and, noting that he had identified no health or other

reasons why he would become unemployed, concluded that there were

no special circumstances that would warrant a departure from the

IRM guidelines in determining petitioners' reasonable collection

potential, as required under section 7122(c)(2)(B). See sec.

301.7122-1(c)(3), Proced. & Admin. Regs.; IRM, secs. 5.8.5.4

(Nov. 2000), 5.8.11.2.1 (Nov. 2001).

Petitioners' Arguments

With respect to the net realizable equity found by the offer

specialist, petitioners make averments in the petition to the

effect that they were unable to borrow and were

"undercreditworthy". We assume for purposes of the pending

motion that they made a similar claim in connection with the

section 6330 hearing, including a claim that they were unable to

borrow against the equity in their residence (which equity

constitutes the net realizable equity found by the Appeals

officer). Given that petitioners had previously offered to make
 - 22 -

a lump-sum payment of $67,000 to satisfy their tax liabilities,

we do not believe it was an abuse of discretion for the Appeals

officer to disregard this claim in concluding that they had net

realizable equity of $40,000.

We also find no abuse of discretion in the Appeals officer's

acceptance of the offer specialist's computation of future

income. The offer specialist's increase in monthly income as

reported by petitioners followed guidelines, given petitioners'

Forms W-2 and Federal income tax return for 2001. Her decreases

in reported monthly expenses likewise conformed to respondent's

published guidelines. Petitioners offer no specific dispute with

these adjustments. Instead, Mr. Lemann wrote in connection with

the hearing that "I am now 60 years of age and may very well not

have 4 more years of productivity" and that the future income

calculated by the offer specialist was "impossible given my

financial circumstances". Similarly, the petition avers that

"application of the formula used by the Commissioner to determine

the acceptable amount of an installment agreement or Offer in

Compromise failed to adequately take into account Petitioners'

age, earning capacity, and poor financial circumstances".

We interpret petitioners' statements as claims that the

Appeals officer's determination failed to take into account their

special circumstances, as required by section 7122(c)(2)(B) and

IRM sections 5.8.5.4 (Nov. 2000) and 5.8.11.2.1 (Nov. 2001). We
 - 23 -

disagree, because we are satisfied that petitioners have not

identified any condition sufficient to constitute special

circumstances as contemplated by the regulations and IRM

guidelines. The offer specialist's case notes record that

petitioners did not identify special circumstances, even after

she explained the concept and solicited them. Being age 60 is

not a special circumstance under the guidelines, which refer to

being "elderly" as a potential special circumstance. See IRM,

sec. 5.8.5.4 (Nov. 2001). Beyond the statements noted above,

petitioners have not identified any facts in their petition or in

their opposition to the motion for summary judgment that might

constitute special circumstances, such as poor health,

disability, advanced age, or dependents with special needs. We

accordingly do not believe it was an abuse of discretion for the

Appeals officer to conclude that no special circumstances

existed. Stated differently, the Appeals officer's use of the

premise that Mr. Lemann would be able to work until the

traditional retirement age of 65 and generate approximately the

same income over that period was not arbitrary or unreasonable in

these circumstances. The Appeals officer's decision to adhere to

the guidelines was therefore not an abuse of discretion.

Generally, where an Appeals officer has followed

respondent's guidelines to ascertain a taxpayer's reasonable

collection potential and rejected the taxpayer's collection
 - 24 -

alternative on that basis, we have found no abuse of discretion.

See Schulman v. Commissioner, T.C. Memo. 2002-129; see also Etkin

v. Commissioner, T.C. Memo. 2005-245; Schenkel v. Commissioner,

T.C. Memo. 2003-37.

Balancing Efficient Collection and Intrusiveness

Petitioners also argue that the Appeals officer failed to

balance the need for efficient collection of taxes with

petitioners' legitimate concern that any collection action be no

more intrusive than necessary, as required under section

6330(c)(3)(C). We disagree. In the case of installment

agreements and offers-in-compromise, respondent has established

relatively detailed guidelines for his employees to follow in

considering these collection alternatives. The Appeals officer

and offer specialist did so in this case; indeed, the undisputed

record indicates that both conducted extensive discussions with

Mr. Lemann, offered suggestions regarding how petitioners might

avoid levy, and solicited evidence of any special circumstances.

The two collection alternatives petitioners offered fell

substantially short of their ability to pay as determined under

respondent's prescribed guidelines. Upon learning this,

petitioners offered no others. Their delinquent tax liabilities

are likewise substantial, and they have previously defaulted on

an installment agreement. We are satisfied that the Appeals

officer struck the appropriate balance, especially given the
 - 25 -

abuse of discretion standard under which his actions are to be

reviewed.

Genuine Issues of Material Fact

Finally, petitioners oppose respondent's motion for summary

judgment on the grounds that genuine issues of material fact

remain in this case. The alleged issues are: (1) Petitioners did

not fail to provide evidence in support of their financial

statement; (2) petitioners do not own a partial interest in the

"Lehman" building; (3) petitioners' interest in certain family

corporations has no market or collateral value; and (4)

petitioners do not have excess income of $2,813 per month.

Regarding any failure of petitioners to provide evidence in

support of their financial statement, we see no genuine issue

here. The offer specialist did not modify any of the income or

expense items reported by petitioners on their Form 433-A for

lack of substantiation. Her adjustments to income were based on

petitioners' 2001 Federal income tax return. Her adjustments to

reported expenses were dictated by respondent's published

guidelines.

Regarding any interest petitioners held in the "Lehman"

building (B. Lemann Building) or family corporations, both the

offer specialist's analysis and the Appeals officer's

determination make clear that neither the value of the B. Lemann

Building nor any family corporation was relied upon in
 - 26 -

calculating petitioners' reasonable collection potential. These

issues are therefore not material, even if disputed.

Regarding the issue of whether petitioners have monthly

excess income of $2,813, petitioners' claim that this is a

disputed issue of fact merely restates their challenge to the

analysis and conclusions reached by the offer specialist and

Appeals officer concerning their future income, which we have

fully considered and addressed above.

Conclusion

We note that we are not called upon to decide in this case

what would have been an acceptable offer-in-compromise or

installment agreement. Rather, we must decide whether the

Appeals officer's rejection of the collection alternatives

offered by petitioners was an abuse of discretion. See Speltz v.

Commissioner, 124 T.C. 165, 179-180 (2005); Fowler v.

Commissioner, T.C. Memo. 2004-163. As noted, the only collection

alternatives offered by petitioners were substantially below

their reasonable collection potential as estimated under

respondent's published guidelines. Accordingly, we hold that it

was not an abuse of discretion to reject them, that there are no

genuine issues of material fact that would preclude summary

judgment, and that respondent is entitled to a decision in his

favor that he may proceed with the proposed collection by levy.
 - 27 -

We shall therefore grant respondent's motion for summary

judgment.

To reflect the foregoing,

An appropriate order and

decision will be entered for

respondent.