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to reconsider petitioners’ seventh offer. Mr. Marine agreed to
do so.
On February 12, 1997, Mr. Marine rejected petitioners’
seventh offer on the ground that the amount of the offer was
inadequate. In this regard, Mr. Marine determined that
petitioners could afford to pay more, at least for offer in
compromise purposes, than what they had offered to pay. Mr.
Marine based this conclusion on his determination of the
differential between petitioners’ monthly income and petitioners’
necessary living expenses. In determining petitioners’ necessary
living expenses, Mr. Marine considered, inter alia, costs for
housing and utilities, educational costs for petitioners’
children, and costs for life insurance.
Mr. Marine determined costs for housing and utilities by
reference to “local standards” that were developed by
respondent’s National Office, based on data provided by the
Census and the Bureau of Labor Statistics, and published in the
Internal Revenue Manual on November 2, 1995. IRM, sec.
5323.433(3)(a). Because petitioners’ actual costs for housing
and utilities exceeded the maximum allowance set forth in the
local standards for Orange County, California, Mr. Marine
utilized the local standards.7
7 In discussing the purpose behind the local standards,
Internal Revenue Manual, sec. 5323.433(3)(a)(1)-(3) (Nov. 2,
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