LOUIS A. AND CHRISTINE COX, PETITIONERS v. RESPONDENT Docket Nos. 21733-03L, 14693-04L. Filed May 3, 2006. Ps' 1999 and 2000 taxable years became the subject of IRS collection activity through issuance of notices of intent to levy. Appeals Officer S thereafter conducted a simultaneous equivalent hearing with respect to 1999 and collection hearing pursuant to sec. 6330, I.R.C., with respect to 2000. A principal focus during that proceeding was the availability of collection alternatives. The Appeals Office sustained the proposed collection activity in November of 2003. Meanwhile, Ps' 2001 and 2002 taxable years had likewise become the subject of a notice of intent to levy. Ps' request for a hearing regarding these years was assigned to S, who began his consideration thereof in early 2004. Collection alternatives were again a primary issue raised. Following a hearing with S, a notice of determination sustaining the proposed levy action was issued in July of 2004. Held, the administrative record and notices of determination underlying these cases are sufficient to support meaningful judicial review. Held, further, the Appeals officer was not disqualified from conducting the collection hearing for 2001 and 2002 on account of prior involvement within the meaning of sec. 6330(b)(3), I.R.C., nor does the record otherwise call into question his impartiality. Held, further, because the record does not show any abuse of discretion, R's determinations to proceed with collection action, except to the extent modified by settlements between the parties, are sustained. Theodore H. Merriam and Kevin A. Planegger, for petition ers. Frederick J. Lockhart, Jr., for respondent. OPINION WHERRY, Judge: These consolidated cases arise from petitions for judicial review filed in response to Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.1 The issue for decision is whether respondent may proceed with collection of income tax liabilities for years 2000, 2001, and 2002. 1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, and Rule references are to the Tax Court Rules of Practice and Procedure. Background These cases were submitted fully stipulated pursuant to Rule 122. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference. Petitioners are husband and wife. Petitioner Louis A. Cox (Mr. Cox) is a consulting engineer and software developer. Throughout the years in issue, he operated a sole proprietorship providing engineering and software services under the name of Cox Associates. In addition, in 2001 and 2002, Mr. Cox also provided consulting services through Cox Associates, Inc., an S corporation. Mr. Cox and petitioner Christine Cox (Mrs. Cox) each held a 50-percent stock ownership interest in this corporation. Generally, the corporation handled larger projects involving subcontractors and/or government contracts. Smaller projects were handled through the sole proprietorship. Mrs. Cox provided accounting, bookkeeping, and administrative services for the businesses. Following an extension of time, petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for 1999 in October of 2000. They reported adjusted gross income of $325,748, taxable income of $276,971, total tax of $101,094, total payments of $1,000, and an amount owed (after an addition of $4,222 from Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts) of $104,316. The return was not accompanied by payment. The Internal Revenue Service (IRS) assessed the reported amounts for 1999, as well as further additions to tax and interest, on November 11, 2000, and sent petitioners a notice of balance due. Petitioners apparently entered into an installment agreement in December of 2000 and made a number of payments, but an assessed balance remained at the termination of the agreement. On March 14, 2002, a Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing, was issued to petitioners for 1999. Petitioners filed a joint Form 1040 for 2000 on April 12, 2002. They reported adjusted gross income of $442,932, taxable income of $381,450, total tax of $145,393, no payments, and an amount owed (with addition as in 1999) of $151,954. Again no payment accompanied the return. Assessment of the reported amounts, along with additions to tax and interest, was made on May 20, 2002, and a notice of balance due was sent on that date. On October 31, 2002, the IRS issued to petitioners a Final Notice-Notice of Intent To Levy and Notice of Your Right to a Hearing, with respect to their 2000 liability. On November 27, 2002, petitioners' representative, Theodore H. Merriam (Mr. Merriam), submitted to the IRS two Forms 12153, Request for a Collection Due Process Hearing, one pertaining to 1999 and the other to 2000. With each he enclosed an attachment explaining petitioners' disagreement with the proposed levy. Cover materials from Mr. Merriam communicated an understanding that the Form 12153 for 1999 would be treated as a request for an "equivalent” hearing. With respect to both years, petitioners sought less intrusive methods of collection, "including but not limited to *** an installment agreement or an offer in compromise" and requested abatement of delinquency additions to tax. By a letter dated May 23, 2003, Bruce H. Skidmore (Mr. Skidmore), the Appeals officer to whom petitioners' case had been assigned, scheduled a hearing for June 18, 2003, and provided general information concerning the requisites for an installment agreement or offer-in-compromise. The letter noted that consideration of collection alternatives required taxpayers to be in current compliance with filing and payment obligations and to submit current financial information; i.e., Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433–B, Collection Information Statement for Businesses. The hearing was twice rescheduled at petitioners' request, on grounds of needing more time to prepare and submit returns for 2001 and 2002 and Forms 433-A and B. A telephone conference was eventually set for August 12, 2003. Meanwhile, on July 24, 2003, petitioners filed a Form 1040 for 2001. The return reported adjusted gross income of $190,054, taxable income of $104,746, total tax of $38,175, total payments of $6,000, and an amount owed (after a $1,511 Form 2210 addition) of $33,686. No payment was made with the return. Amounts due, with further additions to tax and interest, were assessed on September 8, 2003, at which time a notice of balance due was sent. The scheduled telephone conference for 1999 and 2000 was conducted on August 12, 2003. The participants discussed the changing nature of petitioners' business and their financial circumstances. To wit, Mr. Cox's consulting endeavors had previously focused on the telecommunications industry, where work had since "dried up" due to the economic downturn. He was at that time soliciting a more diversified clientele, but contracts were smaller and income reduced. It was agreed that petitioners would provide Forms 433 by the end of August for the consideration of collection alternatives, and options discussed included an offer-in-compromise or currently not collectible status. On August 28, 2003, Mr. Merriam telephoned Mr. Skidmore to request 3 more weeks to submit financial information and to communicate that petitioners' 2002 Form 1040 had been mailed. The return for 2002 was timely filed, pursuant to extensions, when it was received on August 29, 2003. The return reported adjusted gross income of $464,889, taxable income of $423,722, total tax of $146,460, total payments of $487, and an amount owed (again including a $1,569 Form 2210 addition) of $147,542. No payment was submitted with the return. Amounts due, with additions to tax and interest, were assessed on October 6, 2003, and a notice of balance due was sent. On September 19, 2003, Kevin A. Planegger (Mr. Planegger), another representative of petitioners' employed at the same firm as Mr. Merriam, sent two letters to Mr. Skidmore. One presented explanation and reasoning with respect to petitioners' request that additions to tax for 2000 be abated. The other asked that petitioners be granted a further extension to October 3, 2003, to provide financial and collection information. Mr. Planegger also called on October 1, 2003, and requested still more time. Mr. Skidmore then sent a letter dated October 16, 2003, setting a deadline of October 27, 2003, for "full and complete financials" from petitioners and addressing the arguments that petitioners had proffered concerning the additions to tax. On October 27, 2003, Mr. Planegger sent to Mr. Skidmore a completed Form 433-A for petitioners and Form 433-B for Cox Associates, Inc., each signed on October 24, 2003, as well as a letter discussing certain of the income and expense items reflected thereon. The Form 433-A showed monthly income of $14,457 and expenses of $14,648. The expenses included housing and utility costs of $7,081, attrib utable to multiple mortgages overencumbering petitioners' residence (valued at $900,000 in the Form 433-A), and life insurance costs of $2,959. The cover letter explained that the home secured indebtedness obtained to finance petitioners' business activities and that the life insurance on Mr. Cox's life was a condition for such financing. The Form 433-B incorporated an attached profit and loss statement for January through July of 2003 showing total income of $139,261 and expenses of $137,361.10, resulting in net income of $1,899.90. Mr. Skidmore reviewed the information submitted and documented his analysis in extensive notes. By a letter dated October 31, 2003, he communicated to petitioners his preliminary conclusions and underlying concerns with respect to current compliance, to claimed expenses and his inability to reconcile amounts on the Forms 433 with bank and financial statements provided, and to collection alternatives. Mr. Planegger spoke with Mr. Skidmore by telephone on November 10, 2003, and requested to have until the end of the month to prepare a response to the letter. Mr. Skidmore indicated that with the delays to date he was inclined to proceed but would look at anything received while the case was still in his hands. Mr. Skidmore completed his consideration and calculated monthly net income of $8,550 (total income of $14,457 less allowable expenses of $5,907), for a collection potential from petitioners' future income over 60 months of $513,000, plus net realizable equity in assets of $34,161. In this computation, Mr. Skidmore allowed only standard housing expenses of $1,299 as documentation relating to the $7,081 was unclear and the cost of maintaining a home was not converted to a business expense merely by use as security for alleged business loans. He also disallowed the life insurance expenses as nothing showed that it was not a personal asset benefiting petitioners and completely under their control. Mr. Skidmore did not find that any collection alternatives were appropriate on the record presented, but he did conclude that the addition to tax for failure to file timely for 1999 should be abated. On November 17, 2003, petitioners sent a letter to Mr. Skidmore responding to the conclusions in his October 31, 2003, letter. Therein they presented further argument |