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operation of his business, but is otherwise not employed outside
the home. Petitioners filed joint Forms 1040, U.S. Individual
Income Tax Return, for the taxable years 1994, 1996, and 1997.
As of October 28, 2003, petitioners’ total unpaid income tax
liability, plus penalties and interest, for the foregoing taxable
years was $221,372.
On February 29, 2000, petitioners offered to settle their
tax liabilities for $4,650. Following submission of their
settlement offer, petitioners purchased two new automobiles and
took out additional life insurance on Mr. Alaniz. These
transactions increased petitioners’ monthly expenses by
approximately $1,000. Petitioners also transferred their 1964
Ford Thunderbird to a son-in-law for below market value. On
February 20, 2001, respondent rejected the settlement offer.
On March 11, 2002, respondent issued to petitioners a letter
entitled “Final Notice of Intent to Levy and Notice of Your Right
to a Hearing” relating to petitioners’ unpaid income tax
liabilities for the taxable years at issue. Thereafter, on March
21, 2002, petitioners sent a Form 12153, Request for a Collection
Due Process Hearing, to respondent’s Appeals Office. Petitioners
indicated they were unable to pay their tax liabilities because
they could not meet basic living expenses. On August 14, 2002,
petitioners filed Form 656, Offer in Compromise (OIC), which
proposed to compromise petitioners’ liabilities for $2,000.
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