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hearing, and Appeals held the hearing with petitioners on May 23,
2002. Petitioners subsequently submitted an offer in compromise.
On December 10, 2003, Appeals issued to petitioners a notice
of determination stating that the proposed levy was appropriate.
The notice stated that petitioners had raised two issues as to
the levy: (1) Whether the liability sought by respondent was
correct, and (2) whether respondent should have accepted their
offer in compromise. As to the first issue, Appeals determined
that respondent had correctly determined the amount of the
liability. As to the second issue, Appeals determined that
petitioners did not qualify for an offer in compromise because
they had not filed Form 943, Employer’s Annual Tax Return for
Agricultural Employees, and Form 1040, U.S. Individual Income Tax
Return, as required for 2002.
In their petition to this Court, petitioners challenged the
amount of tax remaining unpaid as a result of the bankruptcy case
and requested that the Court review their payment history and
respondent’s assessments of interest and penalties. Petitioners
alleged that the amount of tax set forth in the notice of
determination was based on the following errors: (1) Respondent
incorrectly assessed penalties and interest during the pendency
of petitioners’ bankruptcy proceeding; (2) respondent misapplied
payments made during the proceeding to interests and penalties
rather than to principal; and (3) respondent failed to consider
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