6330 Annotations: Issues Raised at Hearing- Levy

Notice of Levy and Right to Hearing: Issues Raised at Hearing

Part 4

[Dec. 55,679(M)] Gregory L. Shireman v. Commissioner.

Dkt. No. 659-03L , TC Memo. 2004-155, June 29, 2004 .

[Appealable, barring stipulation to the contrary, to CA-7]

[Code Sec. 6330]
Collection Due Process hearing: Abuse of discretion: Verification requirements: Duress. --

An IRS Appeal's Officer's decision that an individual taxpayer's waiver of restriction on assessment was not obtained through duress, coercion, fraud, or misrepresentation was not an abuse of discretion. Informing the taxpayer that the IRS would proceed against him and that the IRS could file a lien against or levy his property did not constitute duress but, rather, notice that the IRS would use the lawful means provided by statute to assess and collect taxes. Further, the Code Sec. 6330(c)(1) verification provision did not require that the IRS rely on any particular document to verify that applicable law or administrative procedures had been met. The transcripts of the individual's account contained the necessary information. Finally, because his waiver of restrictions on assessment was valid, the taxpayer could not dispute his underlying tax liability before the court.
[Code Sec. 6673]
Frivolous arguments: Penalties: Good faith belief.

Although an individual had advanced tax-protestor arguments, no penalty was imposed under Code Sec. 6673(a)(1)(B) for maintaining a frivolous or groundless position. There was no evidence that the taxpayer had previously been a litigant in the Tax Court, and he had not brought suit primarily to delay payment of his taxes. Instead, he had instituted the action in good faith.

Gregory L. Shireman, pro se; Jason Anderson, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: The petition in this case was filed in response to the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination).¹ After concessions, the issue for decision is whether there was an abuse of discretion in the determination that collection action could proceed for Federal income tax liabilities for 1996 and 1997.²

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.

At the time he filed the petition, petitioner resided in Wauconda , Illinois .

Petitioner did not file a Federal income tax return for 1996. On April 14, 1998 , petitioner filed a Federal income tax return for 1997, reporting a total income of zero and requesting a refund of $1,365.³ Petitioner attached to his 1997 tax return a 2-page letter that asserted basic tax-protester arguments and a Form W-2, Wage and Tax Statement, for 1997 that reported wages of $38,300 and Federal income tax withheld of $1,365. On May 5, 1998 , respondent filed substitute for returns for petitioner for 1996 and 1997.

On May 2 and 3, 2000, respondent conducted an audit of petitioner's taxable years 1996 and 1997. During the audit petitioner was told that if he did not sign the Form 4549-CG, Income Tax Examination Changes (Form 4549-CG), respondent would follow the proper procedures to assess and collect the tax. The examiner informed petitioner that this could include respondent's filing a lien against or levying petitioner's property. Petitioner told the examiner he wanted to think about it overnight before he signed the Form 4549-CG, and he would give the examiner his answer in the morning.

On May 3, 2000 , petitioner signed a Form 4549-CG accepting respondent's adjustments for 1996 and 1997. Petitioner signed the Form's "Consent to Assessment and Collection," which reads as follows:

Consent to Assessment and Collection - I do not wish to exercise my appeal rights with the Internal Revenue Service or to contest in the United States Tax Court the findings in this report. Therefore, I give my consent to the immediate assessment and collection of any increase in tax and penalties, and accept any decrease in tax and penalties shown above, plus additional interest as provided by law. * * *

After the audit, the examiner stated in his notes:

Despite the numerous frivolous filer information in the back of this case file, the taxpayer, Gregory Shireman, wants to fully cooperate with the IRS in getting his tax returns in order. Since the initial filing of the 1996-1997 Substitute for Returns, he has signed the audit report for these years and now wants to file his 1998-1999 1040's at the time he submits his Offer and Compromise with Collection.

* * * * * * *

Penalties were not assessed since the taxpayer was fully cooperative and wants to eventually file an Offer and Compromise with Collection.

On July 24, 2000 , respondent assessed tax liabilities, including additions to tax and interest, against petitioner in the amounts of $861 and $6,995 for 1996 and 1997, respectively. Respondent sent petitioner a Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing (Final Notice) for 1996 and 1997, on November 10, 2000 .

On December 8, 2000 , respondent received from petitioner a Form 12153, Request for Collection Due Process Hearing. In the Form 12153 petitioner argued that "The numbers are all wrong, you owe me a refund." Petitioner attached to the Form 12153 a 3-page statement that contained tax-protester arguments.

In October 2001, petitioner mailed a document entitled "Notice of Revocation of Signatures and Affidavit in Support Thereof" to Treasury Secretary Paul O'Neill, IRS Commissioner Charles Rossotti, and Attorney General John Ashcroft. Petitioner also mailed a letter entitled "Request for Status Determination" to IRS Commissioner Charles Rossotti. Both of these documents contained tax-protester arguments.

Prior to the section 6330 hearing (hearing), respondent sent petitioner transcripts of account for 1996 and 1997 at petitioner's request.

Petitioner and the Appeals officer held two telephone conversations on July 2, 2001 , and October 23, 2001 . After the telephone conversations petitioner submitted a 50-page document that contained tax-protester arguments.

A face-to-face meeting was held on December 19, 2001 , at which petitioner told the Appeals officer that he believed he had been coerced into signing the Form 4549-CG. Petitioner was allowed to review the Appeals officer's administrative file and was provided copies of documents he requested.

On January 14, 2002 , petitioner submitted a 37-page written document to the Appeals officer. The document contained tax-protester arguments.

In the December 12, 2002 , Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for 1996 and 1997, the Appeals officer found there to be "no credible evidence that any Internal Revenue Service employee procured the taxpayer's waiver of the restrictions on assessment through duress, coercion, fraud, or misrepresentation." The Appeals officer also determined that collection may proceed for 1996 and 1997. In making the determination, the Appeals officer relied on transcripts of petitioner's account to verify the assessments.

On January 10, 2003 , petitioner filed a petition for judicial review of respondent's determination with the Court.

At trial petitioner insisted that he realized he had erred by making arguments during the examination and appeals process that had neither legal nor factual support.

OPINION

Under section 6330, no levy may be made on any property or right to property of a taxpayer unless the Secretary has notified the taxpayer in writing of his right to a hearing held with an impartial officer of the Internal Revenue Service Office of Appeals. Sec. 6330(a) and (b). During the hearing, the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may also raise challenges to the existence or amount of the underlying tax liability for any tax period if he did not have an opportunity to dispute such tax liability. Sec. 6330(c)(2)(B).

Where the underlying tax liability is properly at issue in the hearing, we review the issue de novo. Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000). Petitioner did challenge his underlying tax liability at his hearing with the Appeals officer. However, because we conclude, for the reasons discussed below, that petitioner's waiver of restrictions on assessment is valid, petitioner may not dispute his underlying tax liability before the Court. See Horn v. Commissioner [Dec. 54,847(M)], T.C. Memo. 2002-207. Therefore, we review the Appeals office's determination for an abuse of discretion. Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner [Dec. 54,477], 117 T.C. 117, 120 (2001); see Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).

Petitioner alleges that respondent coerced him into signing the Form 4549-CG, which waived the restrictions on assessment for 1996 and 1997. If a taxpayer signs a waiver under duress or coercion, the waiver is invalid. Diescher v. Commissioner [Dec. 5658], 18 B.T.A. 353, 358 (1929). However, where respondent threatens to take legally authorized actions if a taxpayer does not sign a waiver, neither duress nor coercion exist, and the waiver is valid. See Ballard v. Commissioner [Dec. 44,204(M)], T.C. Memo. 1987-471, affd. 851 F.2d 359 (5th Cir. 1988); Price v. Commissioner [Dec. 38,473(M)], T.C. Memo. 1981-693, affd. without published opinion 742 F.2d 1460 (7th Cir. 1984).

Petitioner claims he felt he had no other choice but to sign the waiver. However, he provided no evidence of duress, coercion, fraud, or misrepresentation in this case. The examining officer's conduct does not approach conduct which we have found to constitute duress. See Diescher v. Commissioner, supra (threat to impose fraud penalties if taxpayer did not sign waiver constituted duress); Robertson v. Commissioner [Dec. 32,136(M)], T.C. Memo. 1973-205 (threat to seize taxpayer's house if he did not sign a form constituted duress). By informing petitioner that respondent would proceed against petitioner and that respondent could file a lien against or levy petitioner's property, the examiner was giving petitioner notice that respondent was going to use the lawful means provided by statute to assess and collect the taxes. See Ballard v. Commissioner, supra; Price v. Commissioner, supra; Narragansett Wire Co. v. Commissioner [Dec. 32,021(M)], T.C. Memo. 1973-135, affd. [74-1 USTC ¶9234] 491 F.2d 371 (1st Cir. 1974).

We agree with respondent and conclude that petitioner did not sign the Form 4549-CG under duress, coercion, fraud, or misrepresentation, and that petitioner's waiver of restrictions on assessment is valid.

Petitioner also argues that respondent erred by concluding that no notices of deficiency were required to be issued for 1996 and 1997. This argument has no merit. By signing Form 4549-CG, petitioner consented to the immediate assessment of the tax liability set forth therein plus any penalties and interest and agreed not to receive any notices of deficiency. Aguirre v. Commissioner [Dec. 54,577], 117 T.C. 324, 327 (2001); see Perez v. Commissioner [Dec. 54,924(M)], T.C. Memo. 2002-274.

Likewise, we reject petitioner's argument that respondent erred by failing to verify that all applicable laws and administrative procedures were met. Under section 6330(c)(1), during a hearing, an Appeals officer is required to obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). However, section 6330(c)(1) does not require the Commissioner to rely on a particular document to satisfy this verification requirement. See Roberts v. Commissioner [Dec. 54,733], 118 T.C. 365, 371 n.10 (2002), affd. [2003-1 USTC ¶50,359] 329 F.3d 1224 (11th Cir. 2003); Weishan v. Commissioner [Dec. 54,704(M)], T.C. Memo. 2002-88, affd. [2003-1 USTC ¶50,512] 66 Fed. Appx. 113 (9th Cir. 2003); Lindsey v. Commissioner [Dec. 54,703(M)], T.C. Memo. 2002-87, affd. [2003-1 USTC ¶50,294] 56 Fed. Appx. 802 (9th Cir. 2003); Tolotti v. Commissioner [Dec. 54,702(M)], T.C. Memo. 2002-86, affd. [2003-2 USTC ¶50,637] 70 Fed. Appx. 971 (9th Cir. 2003); Duffield v. Commissioner [Dec. 54,663(M)], T.C. Memo. 2002-53; Kuglin v. Commissioner [Dec. 54,661(M)], T.C. Memo. 2002-51.

In this case the Appeals officer obtained and reviewed transcripts of petitioner's account. The transcripts contained the information required by section 301.6203-1, Proced. & Admin. Regs., such as the identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment.

Petitioner has not alleged any irregularity in the assessment procedure that would raise a question about the validity of the assessment or the information contained in the transcripts. See Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 41 (2000); Mann v. Commissioner [Dec. 54,658(M)], T.C. Memo. 2002-48. Accordingly, we conclude the Appeals officer satisfied the verification requirement of section 6330(c)(1). See Nicklaus v. Commissioner, supra at 120-121; Cipolla v. Commissioner [Dec. 55,507(M)], T.C. Memo. 2004-6; Weishan v. Commissioner, supra; Lindsey v. Commissioner, supra.

Petitioner has not presented any evidence or persuasive arguments to convince us that respondent abused his discretion. As a result, we hold the issuance of the notice of determination was not an abuse of respondent's discretion and respondent may proceed with collection.

The Court may sua sponte determine whether to impose a penalty under section 6673(a) against petitioner. Pierson v. Commissioner [Dec. 54,152], 115 T.C. 576, 580 (2000); Jensen v. Commissioner [Dec. 55,640(M)], [T.C. Memo.] 2004-120; Frey v. Commissioner [Dec. 55,601(M)], T.C. Memo. 2004-87; Frank v. Commissioner [Dec. 55,096(M)], T.C. Memo. 2003-88; Robinson v. Commissioner [Dec. 55,085(M)], T.C. Memo. 2003-77.

Section 6673(a)(1) authorizes the Court to require a taxpayer to pay the United States a penalty in an amount not to exceed $25,000 whenever it appears to the Court the taxpayer's position in such a proceeding is frivolous or groundless. Sec. 6673(a)(1)(B).

As a pro se litigant, petitioner struggled in making proper arguments. However, we believe petitioner instituted this action in good faith. There is no evidence that petitioner has previously been a litigant in this Court, nor are we persuaded that petitioner maintained this suit primarily to delay payments of his taxes. Therefore, we decline to impose a penalty under section 6673(a), but admonish petitioner that we shall not be inclined to exercise our discretion so favorably in the future if he persists in pursuing frivolous arguments before this Court. See Sides v. Commissioner [Dec. 55,664(M)], T.C. Memo. 2004-141; Kaeckell v. Commissioner [Dec. 54,737(M)], T.C. Memo. 2002-114.

In reaching our holding herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude that they are irrelevant or without merit.

Decision will be entered for respondent.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended.

² The notice of deficiency along with the notice of intent to levy were issued for, and this petition was filed for, 1996, 1997, and 1999. After petitioner's Appeals hearing, the Appeals officer determined that respondent incorrectly assessed petitioner's income tax liability for 1999. Respondent abated the assessment for that year and this case, insofar as it relates to 1999, was dismissed as moot.

³ Amounts are rounded to the nearest dollar.

[2004-1 USTC ¶50,259] David A. Tilley, Plaintiff v. United States of America , Defendant.

U.S. District Court, East. Dist. Pa. ; 03-4579, April 5, 2004 .

[ Code Secs. 6159 and 6330]

Collection Due Process hearing: Abuse of discretion: Collection of taxes: Tax liens: Offer in compromise.

An IRS Appeals officer did not abuse his discretion in declining a delinquent taxpayer's alternative collection offer. The taxpayer proposed paying the IRS $30,000 in cash and entering into an installment agreement in exchange for release of an IRS lien against his business property. Release of the lien would have allowed the taxpayer to sell the property to his brother for $135,000 under its appraisal value. However, the sale price less encumbrances would have yielded significantly less than the IRS was owed and would have deprived the IRS of its security under the lien. In addition, the proposed sale was not an arm's-length transaction and the taxpayer had a history of noncompliance.

ORDER

RUFE, District Judge: AND NOW, this 5th day of April, 2004, upon consideration of Defendant's Motion for Summary Judgment [Doc. #9], and in the absence of any response thereto, ¹ and it appearing that:

1. Plaintiff initiated this action pro se on August 7, 2003, alleging only that "Defendant failed to give a fair due process hearing to Plaintiff regarding a federal tax levy" in violation of 26 U.S.C. §6330. [Doc. #1 and Civil Cover Sheet]

2. Based on the uncontroverted facts of record as recounted in the affidavit of Darryl Lee, Internal Revenue Service ("IRS") Settlement Officer, and exhibits thereto:

(a) The IRS made assessments against Plaintiff for the trust fund portion of unpaid employment taxes after a company owned by Plaintiff, Pennco Machines, Inc., failed to collect, account for, and pay over amounts it was required to withhold from its employees' paychecks for employment taxes from the last quarter of 1999 through the fourth quarter of 2000. As of December 31, 2002, the balance due was $134,841.00. [Lee Aff. ¶3]

(b) On August 20, 2002, the IRS sent Plaintiff a Notice of Intent to Levy, which proposed a levy to collect the trust fund portion of federal employment taxes (Form 941) for periods up to and including the fourth quarter of 2000. [Lee Aff. ¶4]

(c) On September 23, 2002, Plaintiff filed a timely request for hearing under 26 U.S.C. §6330. Plaintiff did not dispute his tax liability. Rather, he stated therein, "Underpayment was caused by a slow-down in business. I would like to enter into a payment plan as cash flow has improved." [Lee Aff. ¶5 & Ex. B]

(d) IRS Settlement Officer Darryl Lee was assigned to conduct the hearing. Mr. Lee had no prior involvement with the determination of Plaintiff's outstanding taxes that were the subject of the proposed levy. Mr. Lee was provided with verification that all statutory, regulatory and administrative requirements were met before the Notice of Intent to Levy was issued and that the liability on the Notice of Intent to Levy was properly assessed. [Lee Aff. ¶ ¶6-7]

(e) Plaintiff met with Mr. Lee on May 12, 2003. During the hearing, Plaintiff did not dispute his liability for the amounts assessed. Instead, Plaintiff proposed a collection alternative. Plaintiff requested that federal tax liens filed against property he owned be released in exchange for $30,000.00 and an installment agreement. Plaintiff provided an appraisal valuing the property at $440,000.00. Plaintiff also provided a proposed agreement of sale to his brother for $305,000.00. The property was subject to a judgment in favor of the mortgagee in the amount of $269,552.00 and property taxes that exceeded $12,000.00. [Lee Aff. ¶ ¶8-9]

(f) As of May 12, 2003, Plaintiff's company was not current with its federal tax deposits. In addition, Plaintiff had previously sent checks to the IRS that were dishonored for lack of sufficient funds. [Lee Aff. ¶10]

(g) After considering Plaintiff's proffered collection alternative, Plaintiff's financial status, and Plaintiff's history of non-compliance with his tax obligations, Mr. Lee "determined that the issuance of a notice of levy balanced the need for efficient tax collection with legitimate concern that any collection action be no more intrusive than necessary." [Lee Aff. ¶11] Mr. Lee prepared an Appeals Case Memorandum providing his recommendation. [Lee Aff., Ex. C]

(h) On July 9, 2003, the IRS Appeals Office issued its Notice of Determination Concerning Collection Actions Under Section 6320 and/or 6330. Based on Mr. Lee's recommendation and evaluation at the May 12, 2003 hearing, the IRS sustained the collection in full. [Lee Aff., Ex. D].

3. Section 6330 of the Internal Revenue Code provides for a pre-levy hearing and judicial review of the administrative determination made following that hearing. The appeals officer's decision is reviewed for an abuse of discretion. STA Painting Co. v. I.R.S. [ 2004-1 USTC ¶50,174], No. Civ. A. 02-CV-7133, 2004 WL 257393, at *2 (E.D. Pa. Feb. 11, 2004). Under this standard, the Court must determine whether the IRS considered relevant factors, whether there was a clear error of judgment, and whether the IRS articulated a rational connection between the facts found and the choice made. Id. at *3. The Court's task is not to second-guess the IRS or reach its own opinion that an installment agreement would best serve the IRS and the taxpayer, but "to determine whether there is an adequate basis in law for the officer's conclusion that it did not." Id. (quoting MCRA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], 145 F.Supp.2d 194, 1999 (D. Conn. 2000)).

4. Under 26 U.S.C. §6330(b), Plaintiff was entitled to a hearing held by the IRS Office of Appeals before an impartial officer, defined as "an officer or employee who has had no prior involvement with respect to the unpaid tax...." Plaintiff's hearing before Mr. Lee satisfied this requirement. See Lee Aff. ¶ ¶1-2, 6, 8.

5. Under 26 U.S.C. §6330(c)(1), Mr. Lee was required to obtain verification from the IRS that the requirements of any applicable law or administrative procedure have been met. Mr. Lee met this obligation. See Lee Aff. ¶7.

6. Under 26 U.S.C. §6330(c)(2), Plaintiff was entitled to raise at the hearing "any relevant issue relating to the unpaid tax or the proposed levy, including ... challenges to the appropriateness of collection actions ... and ... offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise." Defendant permitted Plaintiff to offer a collection alternative. There is no evidence that Defendant refused to allow Plaintiff to raise any relevant issues at the May 12, 2003 hearing. See Lee Aff. ¶9.

7. Under 26 U.S.C. §6330(c)(3), in making a determination the hearing officer must consider the verification, see supra ¶5, the issues raised by Plaintiff at the hearing, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action may be no more intrusive than necessary." Defendant met this obligation. See Lee Aff. ¶ ¶9-12. Mr. Lee considered relevant factors and articulated a rational basis for his determination. The IRS determined that Plaintiff's proposed collection alternative was not reasonable. Plaintiff offered to pay $30,000.00 and enter into an installment agreement in exchange for a release of the IRS lien so that he could sell property to his brother for an amount $135,000 less than the appraisal value. After discounting for encumbrances, sale of the property would have yielded only approximately $23,000 in cash while depriving the United States of its existing security under its tax lien. Moreover, the proposed sale was not an arms-length transaction and Plaintiff had a history of non-compliance with his tax liabilities. See Owens Motor Coach, Inc. v. United States [ 2003-2 USTC ¶50,720], Civ. A. No. 03-682, 2003 U.S. Dist. LEXIS 20883, at *4 (W.D. Pa. Oct. 14, 2003) ("Where an employer is not in current compliance with its federal employment tax obligations, a settlement officer does not abuse his or her discretion by declining to consider settlement alternatives.") (citation omitted). Accordingly, Defendant rejected Plaintiff's offer, concluding that the arrangement would not facilitate collection of Plaintiff's tax liability. See 26 C.F.R. §301.6159-1(b) (IRS district director has discretion to accept or reject proposed installment agreements). Based on the foregoing, the Court cannot conclude that Defendant committed an abuse of discretion. Accordingly, there is no genuine issue as to any material fact, and Defendant is entitled to judgment as a matter of law.

It is hereby ORDERED that Defendant's Motion is GRANTED and judgment is hereby entered in favor of Defendant United States of America and against Plaintiff David A. Tilley. ²

The Clerk of Court shall close this case for administrative purposes.

It is so ORDERED.

¹ The familiar summary judgment standard applies, subject to the following observations:

[A] party's failure to file a response to a summary judgment motion is not, by itself, a sufficient basis on which to enter judgment against the party. The district court must make the additional determination that judgment for the moving party is "appropriate" under Rule 56. Summary judgment is appropriate only if the moving party demonstrates that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. By failing to file a response within the time specified by the local rule, the nonmoving party waives the right to respond to or to controvert the facts asserted in the summary judgment motion. The court should accept as true all material facts asserted and properly supported in the summary judgment motion. But only if those facts entitle the moving party to judgment as a matter of law should the court grant summary judgment.

Reed v. Nellcor Puritan Bennett, 312 F.3d 1190, 1195 (10th Cir. 2002). See also Anchorage Assoc. v. Virgin Islands Bd. of Tax Review, 922 F.2d 168, 175-76 (3d Cir. 1990) (stating same approach).

² Defendant seeks an award of its attorneys' fees and costs, arguing that Plaintiff improperly used the collection hearing process as a tool to delay imposition of the levy. However, the Court cannot conclude that Plaintiff pursued this case in bad faith. Plaintiff has failed to formally present his arguments in written pleadings, so the Court cannot evaluate their merit. Compare Carroll v. United States [ 2002-2 USTC ¶50,500], 217 F.Supp.2d 852, 858 (W.D. Tenn. 2002) (awarding fees and costs "based upon the frivolous nature of plaintiff's arguments" and where plaintiff maintained lawsuit in bad faith). The record is otherwise devoid of evidence of intentional delay or bad faith. Accordingly, an award of fees and costs is inappropriate.

[2003-1 USTC ¶50,360] Stop 26-Riverbend, Inc., et al., Plaintiffs v. United States of America , Defendant.

U.S. District Court, So. Dist. Ohio , East. Div.; C2-02-0285, March 12, 2003 .

[ Code Secs. 6159 and 6330]

Assessment and collection: Collection Due Process hearing: Abuse of discretion by Appeals Office: Installment agreements: Evidence. --

The IRS Appeals Office did not abuse its discretion in denying a radio broadcasting corporation's request for an installment agreement during the course of its Collection Due Process hearing. The taxpayer had an employment tax liability in excess of $1 million, was not current on its tax obligations, was having financial problems, and was faced with an escalating tax liability. The taxpayer failed to support its proposed installment agreement with financial information showing that it would be able to repay both the delinquent amounts and the current taxes as they became due. Additionally, the Appeals officer properly refused to delay the collection proceedings pending a sale or refinancing absent proof that such a transaction could be accomplished within a reasonable period of time.

ORDER

GRAHAM, District Judge: Plaintiff Stop 26-Riverbend, Inc. ("Stop 26") is an Ohio Sub-chapter S Corporation, engaged in the business of radio broadcasting. Stop 26 owns or operates five radio stations in Youngstown and Columbus , Ohio . Plaintiffs Percy Squire ("Squire") and Frank Halfaker ("Halfaker") are officers of Stop 26, and each is a forty-two percent shareholder of the corporation.

Stop 26 requested and received an IRS collection due process hearing with respect to a notice of federal tax lien filing and notice of intent to levy arising out of its unpaid employment tax liabilities for the years 1996 through 2000, which total in excess of $1 million. Stop 26 did not contest its underlying liability, rather it proposed an installment agreement as a collection alternative in lieu of the IRS lien and levy.

In their complaint for declaratory and injunctive relief, plaintiffs allege that prior to the enactment of the Telecommunications Act of 1996, Stop 26 was current on its payroll taxes, but that the passage of the Act resulted in the rapid consolidation of the radio broadcasting industry with disastrous consequences for small, independent companies, such as Stop 26. Plaintiffs further allege that Stop 26 has recently improved its cash position and has prospects for acquiring new investment, and that it proposed to enter into an installment agreement with the IRS to liquidate its tax liability as provided under 26 U.S.C. §6330(c)(2)(A)(iii). Plaintiffs allege that they are entitled to this consideration from the government by reason of the impact of the Telecommunications Act of 1996, and its impact on minority-owned companies. Plaintiffs allege that it was an abuse of discretion for the United States to deny plaintiffs' request for an installment agreement.

A taxpayer who receives notice of a federal tax lien has the right to request a collection due process hearing. At the hearing, the taxpayer may propose collection alternatives. See 26 U.S.C. §6320(c) and §6330(c)(iii). These collection alternatives may include posting a bond, substitution of other assets, installment agreements, and offers in compromise. Id. These sections also provide for a limited judicial review of the collection due process hearing. See 26 U.S.C. §6330(d). While §6230 is silent on the standard of review, the courts that have addressed the issue have been guided by the legislative history of §6330 which states:

[w]here the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard of review.

H. Rep. No. 105-599 at 266 (1988). Thus, most courts agree that the standard of review of the appeals officer's determination in a collection due process hearing where, as here, the taxpayer is not challenging the underlying liabilities, is whether the appeals officer abused his discretion in deciding the issue before him. See Jon H. Berkey, P.C. v. Dep't of Treasury [ 2001-2 USTC ¶50,708], No. 00-75149, 2001 WL 1397680, at *3 (E.D. Mich. Sept. 20, 2001); AJP Mgmt. v. United States [ 2001-1 USTC ¶50,130], No. 99-1541, 2000 WL 33122693, at *1 (C.D. Cal. Nov. 27, 2000); Mesa Oil v. United States [ 2001-1 USTC ¶50,184], No. 00-851, 2000 WL 1745280, at *2 (D. Colo. Nov. 21, 2000); TKK [TTK] Mgmt. v. United States [ 2001-1 USTC ¶50,185], No. 99-1542, 2000 WL 33122706, at *1 (C.D. Cal. Nov. 21. 2000); Konkel v. Comm'r [ 2001-2 USTC ¶50,520], No. 99-1026, 2000 WL 1819417, at *3 (M.D. Fla. Nov. 6, 2000); Goza v. Comm'r [ CCH Dec. 53,803], 114 T.C. 176, 181-82 (2000); Sego v. Comm'r [ CCH Dec. 53,938], 114 T.C. 604, 609-10 (2000). Under this standard, the court cannot substitute its judgment for that of the appeals officer. See generally, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971); Cellnet Communications, Inc. v. Federal Communications Comm'r, 149 F.3d 429 (6th Cir. 1998). Instead, the issue is whether there is an adequate basis in law or fact for the appeals officer's decision. See MRCA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], No. 99-1360, 2000 WL 33320199, at *4 (D. Conn. Aug. 1, 2000). Accordingly, the court will review the decision of the IRS appeals officer for an abuse of discretion.

The collection due process hearing was held on February 1, 2002. At the time of the hearing, Stop 26's outstanding liabilities were in excess of $1 million, and it was continuing to accrue unpaid federal tax liabilities. The IRS appeals officer denied Stop 26's request for an installment agreement and, on February 25, 2002, the IRS issued a notice of determination which included the following summary of determination

I have determined that no relief is to be granted in this case. Your request to work out an arrangement to satisfy the tax liability cannot be granted as the company is not current with respect to employment taxes. In addition, you indicate that you are attempting to sell a radio station or stations and full [sic] pay the tax liability. You have been attempting to sell a station or stations since 1998 or 1999 and no sale has materialized. Accordingly, it is not in the Government[']s interests to withhold or suspend collection action. Appeals believes that the need for efficient collection of taxes has been balanced with your concerns.

Attached to the notice of determination was a document entitled "Attachment 3194", which included the following:

Relevant Issues Presented

The sole issue raised on the Form 12153 is that the company would like to satisfy the tax liability at issue with an installment agreement.

This argument was considered but not accepted due to the amount of the tax liability and the fact that the company is not current on its tax obligations.

Appeals believes that the need for efficient collection of taxes as [sic] been balanced with the intrusiveness of the proposed levy and lien action.

Doc. 8, Exh. B. Attached to attachment 3194 was a document entitled Summary Of Issue, which contains further information about the IRS hearing officer's analysis of the issues and the reasons for his decision. This document indicates that Squire spoke to the appeals officer on several occasions in January, 2002, about the possibility of obtaining funds to pay Stop 26's tax liability by selling one or all of its radio stations or obtaining additional financing. Squire also told the appeals officer that, on February 1, 2002 , he would know conclusively whether the sale and/or loan refinancing was successful. The hearing officer scheduled the due process hearing for February 1, 2002 , and it is apparent that Squire had not succeeded in consummating a sale or refinancing. It is also noted in the summary of issue that Stop 26 had continued to accrue unpaid liability for employment taxes for several periods in 2001, which were not included in the proposed federal tax lien.

Decisions by appeals officers to reject collection alternatives may be based upon a number of factors, including, but not limited to:

(1) whether the taxpayer had previously agreed to a collection alternative, but failed to fulfill the obligations under the alternative; (2) whether the taxpayer supported a collection alternative with relevant financial information to show that payments could be made under the alternative; (3) whether the taxpayer is current on its tax obligations; (4) the escalating amount of the outstanding tax liability; and (5) the IRS's need to collect the tax liability.

See Treas. Reg. §301.6330-1(e)(1); Kitchen Cabinets, Inc. v. United States [ 2001-1 USTC ¶50,287], No. 00-599, 2001 WL 237384, at *3 (N.D. Tex. March 6, 2001); MRCA Info. Servs. [ 2000-2 USTC ¶50,683], 2000 WL 33320199, at *5. Here, Stop 26 had an employment tax liability in excess of $1 million, was not current on its tax obligations, was having financial problems, and its outstanding tax liability was escalating. There is nothing in the record to suggest that the taxpayer supported its proposed installment agreement with financial information to show that the payments could be made. Congress, in allowing for installment agreements for past due tax liabilities, did so on the theory that they would be allowed only when the taxpayer has paid its current tax liabilities. It was noted in the Conference Report accompanying the original enactment of 26 U.S.C. §6159 ¹ , that "[t]he IRS is not required to enter into installment payment agreements with taxpayers, but generally does so if a taxpayer who is unable to pay the delinquency in full is able to make payments on the delinquency and pay current taxes as they become due." H.R. Conf. Rep. 105-599, at 289 (1989) (emphasis supplied).

The appeals officer determined that an installment agreement was not appropriate here given "the amount of the tax liability and the fact that the company is not current on its tax obligations." The decision of the appeals officer was not an abuse of discretion. See AJP Mgmt. v. United States [ 2001-1 USTC ¶50,184], No. 99-1541, 2000 WL 33122693 (C.D. Cal. Nov. 27, 2000); see also Jon H. Berkey, P.C. v. Dep't. of Treasury [ 2001-2 USTC ¶50,708], No. 00-75149, 2001 WL 1397680 (E.D. Mich. Sept. 20, 2001); and TTK Mgmt. v. United States [ 2001-1 USTC ¶50,185], No. 99-1542, 2000 WL 33122706, at *1 (C.D. Cal. Nov. 21, 2000).

The appeals officer was also justified in rejecting the taxpayer's suggestion that the IRS withhold collection proceedings pending a sale or refinancing. Stop 26 was unable to provide the appeals officer with any assurances that a sale or refinancing could be accomplished within a reasonable period of time. Stop 26 provided no evidence that it had entered into a contract to sell one or more of its stations, or that an application for refinancing had been approved, or that Stop 26 had received commitments for additional capital investments. Squire's statements to the appeals officer regarding a sale or additional financing were expressions of his hopes, which have not been fulfilled even to this day.

The Government's motion for summary judgment is granted. The Clerk shall enter final judgment in favor of the defendant United States of America , and against the plaintiffs, denying plaintiffs claims for injunctive and declaratory relief.

It is so ORDERED.

¹ Section 6159 of the Internal Revenue Code authorizes "[t]he Secretary to enter into written agreements with any taxpayer under which such taxpayer is allowed to satisfy the liability for payment of any tax in installment payments if the Secretary determines that such agreement will facilitate collection of such liability." 26 U.S.C. §6159(a).

[Dec. 54,963(M)] Carol A. Black and William R. Adams, Jr. v. Commissioner.

Docket No. 6443-01L , T.C. Memo. 2002-307, 84 TCM 656, Filed December 17, 2002 . [Appealable, barring stipulation to the contrary, to CA-3]

[Code Sec. 6330]

Collection due process: Installment payments: Abuse of discretion.

The IRS was entitled to proceed with a levy against taxpayers following their Collection Due Process (CDP) hearing. The taxpayers presented neither evidence nor argument that an installment agreement was an appropriate alternative to the levy; thus, the IRS Appeals Officer's refusal to accept their proposal for an installment agreement was not an abuse of discretion.

[Code Sec. 6651]

Penalties, civil: Failure to file tax return.

Taxpayers were liable for additions to tax assessed for late filing, failure to pay tax and failure to make estimated tax payments. The Court was unpersuaded that illness was the cause of their continuing delinquency.

Carol A. Black and William R. Adams, Jr., pro sese. Jack T. Anagnostis, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, 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. The issues for decision are whether the Appeals officer conducting the hearing abused his discretion in refusing to accept petitioners' proposal for an installment agreement and whether petitioners are liable for additions to tax under section 6651(a) that had been assessed as a result of petitioners' late-filed returns. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue.

FINDINGS OF FACT

Petitioners were both lawyers who resided in Philadelphia , Pennsylvania , when they filed the petition in this case. Petitioner William R. Adams, Jr. ( Adams ), operated his own law firm from 1982. For 1991 through 1994, Adams incurred tax liabilities of $163,583.49, including additions to tax for late filing, late payment, and failure to pay estimated tax. These liabilities were paid in September 1996.

Adams kept his own business records and entered information from them into a computer software program to generate printouts that he provided to his accountant to prepare tax returns. Adams kept the records at his place of business.

Petitioners filed joint Federal income tax returns, Forms 1040, U.S. Individual Income Tax Return, for 1995, 1996, and 1997 between 2 and 12 months after extended filing dates. Petitioners did not fully pay the tax shown as due on the returns filed for 1995, 1996, and 1997. On Schedules C, Profit or Loss From Business, for Adams 's law practice, attached to the Forms 1040, petitioners reported gross receipts of $435,206 for 1995, $345,550 for 1996, and $416,364 for 1997.

Respondent assessed the tax liabilities shown on petitioners' Forms 1040 for 1995, 1996, and 1997 and assessed additions to tax under section 6651(a)(1) for late filing, section 6651(a)(2) for failure to pay tax, and section 6654(a) for failure to make estimated tax payments for each year. As of June 9, 1999 , petitioners still owed tax for each year. On that date, respondent sent to petitioners a notice of intent to levy that advised petitioners of their right to a hearing under section 6330. Petitioners requested the hearing.

At the hearing conducted by an Appeals officer, petitioners requested that they be permitted to enter into an installment agreement as an alternative to collection by levy. Petitioners also requested abatement of the additions to tax based on Adams 's illness from diabetes during the years in which the returns were due. To determine whether petitioners were financially able to make monthly payments under the installment agreement to pay fully their outstanding tax liabilities, the Appeals officer requested, and petitioners provided, Form 433-A, Collection Information Statement for Individuals, dated March 1, 2000 . According to petitioners' statement, their monthly expenses exceeded their total income. To support their request for abatement of penalties, petitioners submitted the medical file of Adams concerning his diabetes that petitioners claimed disabled him from October 1996 through March 20, 2000 .

On April 25, 2001 , the Appeals officer sent a notice of determination to petitioners. The notice determined that petitioners had not provided a financial statement showing that they could make monthly payments to support their request for an installment agreement. Accordingly, the Appeals officer determined that the proposed levy was appropriate. The notice of determination did not mention the requested abatement of additions to tax. The Appeals officer did, however, consider petitioners' request for abatement of the additions to tax and declined to abate the amounts because he saw no link between the medical condition and either the late filings or the failure to pay the tax shown on the returns.

OPINION

Petitioners requested and received a hearing conducted under section 6330. Section 6330(c)(2) provides:

(2) Issues at hearing. --

(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

(B) Underlying liability. --The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

With respect to petitioners' proposed installment agreement, we review the settlement officer's determination for abuse of discretion. Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner [Dec. 54,477], 117 T.C. 117, 120 (2001). To the extent that petitioners' underlying liability is an issue, we review the Appeals officer's determination de novo. Landry v. Commissioner [Dec. 54,224], 116 T.C. 60, 62 (2001).

Petitioners presented neither evidence nor argument that would persuade us that an installment agreement was an appropriate alternative to enforced collection. A fortiori, they have not presented any evidence or persuasive argument that the settlement officer abused his discretion in refusing to accept an installment agreement. Compare Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129, in which we considered in detail the financial information submitted to the settlement officer and concluded that there was no abuse of discretion when the settlement officer declined an installment agreement sought by the taxpayers.

Petitioners presented extensive testimony concerning Adams 's physical limitations due to diabetes. Petitioners' delinquencies, however, continued over a period of years that cannot be excused by reference to Adams 's illness. Petitioners' accountant testified that he advised Adams that one of the options to assure that his returns were properly prepared and timely filed was to pay a bookkeeper to put the information in a form that would allow the accountant to prepare the return. Adams testified that he did not want to incur the additional expense to hire and employ a bookkeeper. The accountant and Adams made a deliberate choice to file the returns late and then to seek to abate the penalties that they knew would result from late filing.

Petitioners argue that illness of a taxpayer may constitute reasonable cause for late-filed returns and late payment of tax. We are unpersuaded that illness is the cause of petitioners' continuing delinquency. Petitioners cite no case where the taxpayers' delinquency continued over a period of years while the taxpayers failed to take steps necessary, and readily taken, to cause their tax returns to be filed on time. Petitioners are educated, intelligent, and able to sustain a business that produced substantial income. Their failure to comply with their annual duty to file tax returns is unexcused. There is no basis for concluding that they are not liable for the statutory additions to tax that follow those delinquencies.

Decision will be entered for respondent.

[2001-1 USTC ¶50,287] Kitchen Cabinets, Inc., Plaintiff v. United States of America , Defendant

U.S. District Court, No. Dist. Tex. , Dallas Div., Civ. 3:00-CV-0599-M, 3/6/2001 , 2001 U.S. Dist. LEXIS 2388.

[Code Secs. 6159 and 6330 ]

Liens and levies: Corporate assets: Request by taxpayer: Installment plan: Abuse of discretion.--The IRS was entitled to proceed with a levy on the assets of a corporation for taxes due. There was no evidence that the Appeal Officer abused his discretion in denying the taxpayer's request for an installment agreement. The taxpayer was given adequate notice of the collection due process hearing and no discussion regarding an installment agreement occurred during or after the hearing. Furthermore, the taxpayer failed to make any showing of an ability to pay the monthly installments it proposed. Even if the taxpayer was able to show that it could pay the installments, the IRS was not obligated to accept its proposal in lieu of a levy.

Raymond E. McCain, Jr., Law Office of Raymond E. McCain Jr., Dallas , Tex. , for plaintiff. Cynthia E. Messersmith, Department of Justice, Dallas , Tex. , for defendant.

MEMORANDUM OPINION AND ORDER

LYNN, District Judge:

This is a suit brought by Plaintiff under 26 U.S.C. §6330, appealing and seeking review of the determination by Robert Jones, an Appeal Officer of the Internal Revenue Service ("IRS"), sustaining a proposed levy action, rather than an installment agreement, which Plaintiff claims it requested. The Defendant United States has moved for summary judgment to sustain the Appeal Officer's determination. Having considered the motion, the response, the appendices supporting the motion and response, and the applicable authorities (including Mesa Oil, Inc. v. United States [2001-1 USTC ¶50,130], 87 A.F.T.R.2d (RIA) 486 (D. Colo. Dec. 14, 2000 )), for the following reasons, this Court concludes that the Defendant's Motion for Summary Judgment is meritorious and should be GRANTED.

The Court notes that it has not considered the Appendix filed on January 22, 2001 by the United States in support of its Reply, as such cannot properly be filed at that stage of a summary judgment proceeding. Further, the Court has not considered evidence regarding the status of Plaintiff's payments of tax obligations accruing after the Notice of Determination sent on February 18, 2000 . Whether those payments were made or not is irrelevant to this Court's review of the decision of the Appeal Officer.

The essence of Plaintiff's Complaint is that the IRS wrongfully refused to consider Plaintiff's request to pay its delinquent employment taxes by an extended installment agreement, instead of a levy upon the assets of Kitchen Cabinets, Inc. Although the Plaintiff's Request for a Collection Due Process ("CDP") hearing (Defendant's App. Ex. 27, pp. 55-56) requested an extended installment payment, such a request apparently was never alluded to at the CDP hearing held pursuant to 26 U.S.C. §6330. That statute, entitled "Notice and opportunity for hearing before levy," was adopted in 1998 as part of the IRS Restructuring Act, to provide notice of a right to a hearing, before a taxpayer's assets could be subjected to a tax levy. If the taxpayer requests a CDP hearing, except under limited circumstances inapplicable here, the IRS cannot levy upon the taxpayer's property until the determination by the Appeal Officer becomes final. During the CDP hearing, the taxpayer may raise issues relating to the IRS's proposed collection alternatives, including proposing an installment agreement. The IRS, in its discretion, is entitled to accept an installment agreement in cases involving the amount and type of tax owed by Plaintiff. After the CDP hearing, the Appeal Officer sends a Notice of Determination to the taxpayer. Within thirty days, the taxpayer may appeal, as Plaintiff has done here.

In this case, on January 26, 1999 , IRS Revenue Officer Charles Yahne sent Plaintiff a Form 1058, "Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing," for unpaid employment taxes for various quarters in 1994-98, and for unpaid unemployment taxes for the years 1995-97 (Defendants's App. Ex. 25, pp. 51-52) ¹. Plaintiff did not request a CDP hearing in connection with that notice. On March 8, 1999 , Yahne sent Plaintiff a second Final Notice for employment taxes for other quarters in 1995, 1997 and 1998 (Defendant's App. Ex. 26, pp. 53-54). On March 18, 1999 , Plaintiff timely filed a Request for a CDP Hearing ("Request"), referencing only the periods described in the March 8, 1999 notice, and stating that the taxpayer would attempt to borrow funds to pay at least a part of the liability, but "should be able to make monthly installments" of $5000, and projecting twenty-four months to pay (Defendant's App. Ex. 27, pp. 55-56). It would take roughly that amount of time to pay the taxes referenced in the March 18, 1999 Final Notice. An additional $117,389.95 was the subject of the January 26, 1999 Final Notice, for a total due of $236,338.00, not including additionally accruing interest and penalties.

A CDP hearing occurred on May 21, 1999 . Appeal Officer Jones met with Chris Dellinges, Plaintiff's accountant. Mr. Dellinges requested time to obtain a loan for Plaintiff of approximately $236,000. The Appeal Officer agreed to provide the Plaintiff time to obtain the loan, on the condition that certain specified information be provided. No discussion regarding an extended monthly installment payment occurred during or after the hearing. See Defendant's A pp. Ex. 29, p. 62. On May 21, 1999 , Appeal Officer Jones sent Dellinges a letter confirming the proposal for Plaintiff to borrow the funds and pay the full debt in a short period. See Defendant's App. Ex. 29, p. 62. Plaintiff made no response correcting anything in Mr. Jones's letter.

Appeal Officer Jones provided Plaintiff several extensions to deadlines he had established for receipt of the information Plaintiff was to supply. Finally, on September 1, 1999 , since the information he required had not been delivered, Mr. Jones advised Mr. Dellinges he was closing the CDP hearing case. On February 18, 2000 , Mr. Jones sent Plaintiff a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or Section 6330" ("Notice of Determination"). He concluded that the proposed levy on Plaintiff's assets "balances the need for efficient collection of taxes with concerns of intrusiveness of the action." (Defendant's App. Ex. 34, pp. 68-70.)

In the view of this Court, the relevant issue for its consideration is whether the Appeal Officer abused his discretion. See generally H. R. CONF. REP. 105-599 (1998); Sego v. Comm'r [CCH Dec. 53,938], 114 T.C. 603, 114 T.C. No. 37 (2000); Mesa Oil, Inc. v. United States [2001-1 USTC ¶50,130], No. 00- B-851, 2000 WL 1745280 (D. Colo. Nov. 21, 2000 ). Although the parties spend a significant portion of their briefs on the issue of whether Plaintiff appropriately urged an extended installment payment by merely referencing it in the Request for a CDP hearing, but not otherwise raising it until this suit was filed, this Court does not consider that issue critical to the disposition of this matter. Even if Plaintiff's Request were sufficient to raise the extended installment proposal, that Request covered only the second Final Notice and thus in effect proposed to pay by the extended installment method only about half of the overdue taxes. Except for a vague allusion to implementation of certain unspecified "cost cutting measures," the Request provided no detail about how Plaintiff would make even those proposed payments, since its net monthly income was more than $2100 short of what Plaintiff proposed to pay. The Collection Information Statement, Form 433-B (Defendant's App. Ex. 36, pp. 72-78), showed that Plaintiff had net assets sufficient to pay the tax liability using those assets. Under all of such circumstances, the Appeal Officer had the discretion to reject the proposed extended installment payments. See 26 U.S.C. §6159; 26 C.F.R. §301.6159-1.

There is no evidence that the Appeal Officer abused his discretion, a phrase which the Fifth Circuit equates to "arbitrary and capricious." See Matassarin v. Lynch, 174 F.3d 549, reh'g denied, 189 F.3d 471 (5th Cir. 1999), cert. denied, 528 U.S. 1116, 145 L.Ed.2d 813, 120 S.Ct. 934 (2000). Plaintiff made no showing of its ability to pay $5000 per month and never proposed an installment payment for those taxes referenced in the January 26, 1999 Final Notice. Even if the Plaintiff had been able to pay $5000 monthly (and the only financial evidence, the Form 433B, demonstrates otherwise), and even if that proposal had applied to the entire amount of tax owed as reflected in both Final Notices, the IRS was not obligated to accept Plaintiff's proposal in lieu of a levy. Plaintiff's position is, in its essence, an argument that the IRS is always obligated to accept a proposal for an extended installment payment in lieu of a levy, when there is an indication that a levy may lead to the demise of the Plaintiff's business. Plaintiff so contends even in the face of undisputed evidence that at the time of the CDP hearing and the Notice of Determination, Plaintiff was not paying its current tax obligations. See Defendant's App., Dellinges Depo., at pp. 94-96.

In this Court's view, such facts do not establish that the Appeal Officer's decision constitutes an abuse of discretion. As was the case in Mesa Oil, Inc. v. United States [2001-1 USTC ¶50,130], No. 00-B-851, 2000 WL 1745280 (D. Colo. Nov. 21, 2000 ), here there was no record made of the CDP hearing, but the parties do not dispute that an extended installment plan was not discussed, that Plaintiff provided no support for its ability to make $5000 monthly payments, that Plaintiff's own financial information indicated it could not make such payments, and that it never proposed such an installment plan for the obligations reflected in the January 26, 1999 Final Notice. If the impact of Mesa Oil is that rejection of an installment payment under such circumstances is an abuse of discretion by the Appeal Officer, then this Court disagrees with the holding in Mesa Oil. The Court thus finds that Defendant's Motion for Summary Judgment is well taken and should be GRANTED. Plaintiff's appeal is, therefore, DISMISSED, and the IRS may proceed to levy for the taxes due. Taxable court costs are imposed against the Plaintiff.

SO ORDERED.

¹ In its brief, Defendant asserts that the January 26, 1999 Final Notice was for unpaid Form 941 employment taxes and unpaid Form 940 unemployment taxes. The tax calculation included with the Final Notice does not clearly describe the overdue amounts by type of tax owed. Instead, the dollar amounts are listed after IRS codes which do not directly reference 940 or 941 taxes. However, because Plaintiff's Response does not dispute the types of taxes, or the applicable periods, described in the Defendant's brief, the Court assumes the January 26, 1999 Final Notice relates to both unpaid 940 and 941 taxes. See Plaintiff's Resp. pp. 4-6.

[Dec. 55,747(M)] Robert Newstat v. Commissioner.

Dkt. No. 16989-02L , TC Memo. 2004-208, September 16, 2004 .

[Appealable, barring stipulation to the contrary, to CA-3]

[Code Sec. 6330]
Levy for taxes: Collection after assessment: Res judicata: Stipulated decision: Collection Due Process hearing: Opportunity for hearing: Issues considered: Abuse of discretion.

The IRS could proceed with collection activities against a delinquent taxpayer with respect to one tax year, but its levy with respect to a subsequent tax year was remanded for a Collection Due Process (CDP) hearing. The doctrine of res judicata prevented the court from considering the taxpayer's challenge to his assessment for the first tax year at issue, because a prior judicial proceeding had ended with a stipulated decision that the tax liability reflected on his return was correct. The taxpayer received an adequate CDP hearing with respect to the first year at issue when an IRS Appeals officer met with his representative. The taxpayer understood that the meeting was the appropriate venue for him to raise any issues relevant to his assessment and IRS collection efforts, even though the meeting was prompted by his request for records under the Freedom of Information Act. Further, there was no abuse of discretion in the IRS decision to proceed with the levy, especially in light of the taxpayer's continuing failure to provide information about his financial situation and proposed collection alternatives. With respect to the deficiency for the second year at issue, however, there was no indication that the IRS had ever given the taxpayer an opportunity to present his claims. The Appeals officer's correspondence with the taxpayer and his representative referenced only the first year at issue.

Robert Newstat, pro se; Jack T. Anagnostis, for respondent.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate for the taxable years 1985 and 1999.

Held: With respect to 1985, R's determination to proceed with collection action is sustained. With respect to 1999, the case is remanded for further consideration by the Internal Revenue Service Office of Appeals.

MEMORANDUM OPINION

WHERRY, Judge: This case was filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330.¹ The issue for decision is whether respondent may proceed with collection as so determined.

Background

This case was submitted fully stipulated pursuant to Rule 122. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference.

Petitioner requested and obtained extensions of time until October 15, 1986 , to file his 1985 Form 1040, U.S. Individual Income Tax Return. On that date, petitioner filed his 1985 return reporting total tax of $187,911; total payments, through withholding, of $66,747; and an amount owed of $127,151.² No payment was submitted with the return. At the time, petitioner was involved in a pending bankruptcy, which he had filed in May or June of 1986.

On November 17, 1986 , respondent assessed the total tax shown on petitioner's return, plus additions to tax and interest, and applied the reported payments. Notices of balance due were also sent on November 17 and December 22, 1986 . Respondent thereafter examined petitioner's return and on October 14, 1992 , issued to petitioner a notice of deficiency with respect to 1985. The notice reflected determinations by respondent of a deficiency based on unreported income and of additions to tax under sections 6653(b) and 6661.

Petitioner filed a petition with this Court disputing respondent's determinations on January 12, 1993 , at docket No. 974-93. The case was resolved by entry of a stipulated decision on December 20, 1995 . The decision document provided: "That there is no deficiency in income tax due from, nor overpayment due to, the petitioner for the taxable year 1985" and that there were no additions to tax due from petitioner.

On October 6, 1999 , respondent issued to petitioner a Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing with respect to, among other liabilities, his Federal income taxes for 1985.³ As of that date, the amount owed by petitioner for 1985, including additions to tax and interest, totaled $477,912.76. In response to the notice, petitioner's representative, Douglas A. Fendrick (Mr. Fendrick), timely submitted a Form 12153, Request for a Collection Due Process Hearing, received by respondent on November 4, 1999 . The Form 12153 contained the following explanation of petitioner's disagreement with the notice of levy as it pertained to the 1985 liabilities: "Statute of limitation may have expired".

On February 14, 2001 , petitioner filed a joint Form 1040 with his wife for the taxable year 1999 reporting a tax liability of $19,748. No prepayments had been made for 1999, nor was any payment submitted with the return. The reported tax liability was assessed on April 2, 2001 , along with additions to tax and interest. A notice of balance due was also sent on that date.

Respondent issued to petitioner and his spouse a Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing on September 7, 2001 , with respect to the 1999 year. The notice reflected a total assessed balance and statutory additions of $29,191.87. In response, a timely Form 12153, signed only by petitioner, was received by respondent on October 9, 2001 . Petitioner attached to the Form 12153 an explanation of his disagreement, communicating why he believed the amount requested for payment was incorrect. Petitioner represented that he noted on the 1999 return that: (1) The income reported on the Schedule C, Profit or Loss From Business, for his sole proprietorship was gross income, not taxable income; (2) the reason for this manner of reporting was that records concerning his business expenses were lost at the time he filed the return; and (3) he would file an amended return when he recovered materials to support Schedule C deductions. Although petitioner never filed an amended 1999 return, the attachment to his Form 12153 expressed interest in being allowed to make installment payments based on net, rather than gross, income.

Petitioner's collection case for 1985 was assigned to Appeals Officer Joan R. Carter (Ms. Carter), of the Internal Revenue Service (IRS) Office of Appeals in Newark , New Jersey . Following her receipt of the case, Ms. Carter sent a letter dated February 5, 2002 , to Mr. Fendrick responding to the concerns expressed in petitioner's Form 12153. The letter opened with the following statement: "Since my efforts to contact you by telephone have not been very successful the last few attempts, this letter summarizes how the collection statute expiration date was determined for each of periods listed above." With respect to 1985, the letter then provided:

  Assessment Date                        
11-17-1986
                                 

  Original Collection Statute            
11-17-1996
                                 

Date                                                                                

  Bankruptcy Petition TC 520               
6-9-1986
                                 

  Bankruptcy Lifted TC 521                
9-22-1989
  (Statute Suspended 

                                              3yrs. 3mos. 14days)                          

  Original Collection Statute            
11-17-1996
                                 

Date                                                                                

  Plus: Suspension Period               3yrs. 3mos.                                 

                                             14days                                 

 New Collection Statute Date             
3-23-2000
                                 

 Collection Due Process Appeal           
11-8-1999
  (Statute Suspended 

                                              While in Appeals)                         

In closing, the letter stated:

I have enclosed Form 433-A for Mr. Newstat to complete so that I may evaluate collection alternatives. Please return completed Form 433-A to me by February 25, 2002 .

In addition, please call me by February 25, 2002 at the telephone number shown above to discuss any questions you may have regarding the computation of the collection statute expiration dates and collection alternatives.

Petitioner received a copy of the foregoing letter in mid-March of 2002.

At some point after receipt of the February 5, 2002 , letter, Mr. Fendrick advised Ms. Carter by a voice mail message⁴ that he no longer represented petitioner, that petitioner was in the process of retaining a new attorney, and that he expected that Ms. Carter would be hearing from the new counsel within 2 weeks. Ms. Carter responded with a letter dated March 28, 2002 , sent directly to petitioner and explaining that "Approximately one month has passed since Mr. Fendrick informed me of this change [of representatives], and no one has contacted me on your behalf regarding this matter." In the letter, the heading of which referenced the 1985 income tax, Ms. Carter scheduled an in-person appointment for April 9, 2002 , and advised petitioner that if he did not appear for the meeting or call beforehand to cancel, she would close his case based upon the information available in the case file.

Meanwhile, petitioner had been notified by a letter dated January 2, 2002 , that his collection case with respect to 1999 had been assigned to the IRS Office of Appeals in Oklahoma City , Oklahoma , due to a heavy workload in the New Jersey office. The letter informed petitioner that if he preferred a face-to-face conference, his case would be returned to the New Jersey office upon request. By a facsimile sent in early February of 2002, petitioner represented that he had previously communicated such a preference for an in-person hearing and further cited his intention to have a representative appear with him at the meeting. At some point thereafter, not otherwise revealed by the record, petitioner's collection case for 1999 was reassigned to Ms. Carter.

By a letter dated April 2, 2002 , Robert W. Lynch (Mr. Lynch) advised Ms. Carter that he had been retained to represent petitioner. His letter referenced the proposed April 9, 2002 , appointment and informed Ms. Carter: "Neither Mr. Newstat nor I will be able to attend that day. I will call you after my meeting with Mr. Newstat [when Mr. Lynch would obtain the case file] to discuss this matter in detail, and to reschedule a meeting, if appropriate."

In a subsequent letter to Ms. Carter dated April 22, 2002 , Mr. Lynch made a request under the Freedom of Information Act (FOIA) and section 6103 for all records pertaining to the determination of petitioner's 1985, but not 1999, liability. Mr. Lynch asked that the administrative file first be made available at the IRS office in Cherry Hill , New Jersey , in order to determine which documents should be copied, and that collection action "remain suspended pending production of the requested documents and our meeting." Mr. Lynch also enclosed with the letter a Form 2848, Power of Attorney and Declaration of Representative, authorizing his representation of petitioner regarding income taxes from Form 1040 for the years 1985, 1999, and 2000.⁵

Thereafter, by a letter dated April 24, 2002 , Mr. Lynch confirmed a telephone conversation with Ms. Carter of that date during which he "agreed to withdrawal [sic] my document request as a Freedom of Information Act and Internal Revenue Code §6103 Request, provided my request can be reinstituted without prejudice as a FOIA request upon my subsequent written notice to you." A further letter of May 30, 2002 , from Mr. Lynch to Ms. Carter confirmed a meeting scheduled for June 13, 2002 , as well as Mr. Lynch's understanding that "a six or seven inches high stack of records concerning Mr. Newstat and his federal tax liabilities" would be available at the meeting for his review.

However, by letter dated June 11, 2002 , Mr. Lynch asked that Ms. Carter contact him to reschedule the planned meeting. The basis for this request was that petitioner wished to be present when the records were reviewed but would be unable to attend the June 13, 2002 , conference because of health problems. Mr. Lynch also enclosed with the letter a new Form 2848 authorizing his representation of petitioner for "All tax periods 1980 through 2001, inclusive" on grounds that "there may be issues for years other than those set forth on my previously submitted power of attorney".

Per Mr. Lynch's request, the meeting was rescheduled for June 26, 2002 . A letter from Mr. Lynch to Ms. Carter dated June 13, 2002 , confirmed this date and communicated the following:

Both Mr. Newstat and I will attend to review his file. I will provide Mr. Newstat with forms 433-A and 433-B. I need to first confirm there are outstanding tax liabilities. I understand if Mr. Newstat does not submit the financial disclosure forms during our meeting, you will permit Mr. Newstat to review and copy portions of his file but will likely close the appeal file concerning this matter and the Service will resume collection activity.

Mr. Lynch provided petitioner with a copy of this letter.

On June 26, 2002 , Mr. Lynch, but not petitioner, attended the scheduled meeting with Ms. Carter. At the meeting, Mr. Lynch reviewed the files made available to confirm petitioner's liabilities and asked Ms. Carter to photocopy and provide selected documents from those files. Mr. Lynch concurred with Ms. Carter that he would submit petitioner's Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, within 2 weeks so that collection alternatives could be considered. Approximately 2 months later,⁶ Mr. Lynch advised Ms. Carter by letter dated August 28, 2002 , that petitioner had been hospitalized several times over the summer but that a meeting had been scheduled with petitioner for September 3, 2002 , to complete the Form 433-A.

Thereafter, a letter dated September 27, 2002 , and referencing in the heading both the 1985 and 1999 tax periods,⁷ was sent by Ms. Carter to Mr. Lynch. The letter stated:

Enclosed you will find the documents you requested during our conference with respect to the above referenced matter. According to your letter dated August 28, 2002 , you were to call me after you met with Mr. Newstat to finalized [sic] Form 433-A on September 3, 2002 . I have not heard from you to date nor have I received Form 433-A as requested. Therefore, a determination has been made to uphold the collection action proposed with respect to the above periods.

You and Mr. Newstat will be receiving the determination letters issued discussing the basis for my findings.

On that September 27, 2002 , date, respondent also issued to petitioner the aforementioned Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The notice expressly pertained to the 1985 and 1999 taxable years⁸ and sustained the proposed levy action. An attachment to the notice recounted the administrative history of petitioner's case and concluded with the following:

The liability at issue for tax years 1985 and 1989 [sic] resulted from self-filed income tax returns that have gone unpaid to date. Mr. Newstat failed to submit Form 433-A and without this information I am unable to evaluate your ability to pay. Since we were unable to fully pursue collection alternatives because of your lack of interest, collection alternatives could not be achieved. Thus, the notice of intent to levy is necessary and the least intrusive means of collection.

Petitioner's petition challenging this notice of determination was filed with the Tax Court on October 31, 2002 , at which time petitioner resided in Mt. Laurel , New Jersey . The petition focused on petitioner's contention that he was denied a "Due Process Hearing" and prayed that the Court issue an order that he be provided with such a hearing.

Petitioner's case was initially calendared for trial in Philadelphia , Pennsylvania , on October 20, 2003 , but was continued to February 9, 2004 , on petitioner's motion, which motion relied principally on his assertions of poor health. Respondent on December 8, 2003 , then filed a motion for summary judgment. After an extension of time, again requested on claims of poor health, petitioner filed a response opposing the motion. Petitioner reiterated his position that he never received a "due process hearing" and also, for the first time, alleged that the original assessment of the 1985 liabilities in November of 1986 was prohibited by the bankruptcy law then in effect (and that the period of limitations for a proper assessment had since expired).⁹

Respondent's motion for summary judgment was denied, and the parties ultimately agreed to submit this case fully stipulated under Rule 122. Both parties filed opening and reply briefs, although petitioner did so only after being granted extensions of time on account of further assertions of health problems.

Discussion

I. General Rules

Section 6331(a) authorizes the Commissioner to levy upon all property and rights to property of a taxpayer where there exists a failure to pay any tax liability within 10 days after notice and demand for payment. Sections 6331(d) and 6330 then set forth procedures generally applicable to afford protections for taxpayers in such levy situations. Section 6331(d) establishes the requirement that a person be provided at least 30 days' prior written notice of the Commissioner's intent to levy before collection may proceed. Section 6331(d) also indicates that this notification should include a statement of available administrative appeals. Section 6330(a) expands in several respects upon the premise of section 6331(d), forbidding collection by levy until the taxpayer has been furnished notice of the opportunity for administrative review of the matter in the form of a hearing before the IRS Office of Appeals. Section 6330(b) grants a taxpayer who so requests the right to a fair hearing before an impartial Appeals officer.

Section 6330(c) addresses the matters to be considered at the hearing:

SEC. 6330(c). Matters Considered at Hearing. --In the case of any hearing conducted under this section --

(1) Requirement of investigation. --The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.

(2) Issues at hearing. --

(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

(B) Underlying liability. --The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

Once the Appeals officer has issued a determination regarding the disputed collection action, section 6330(d) allows the taxpayer to seek judicial review in the Tax Court or a District Court, depending on the type of tax involved. In considering whether taxpayers are entitled to any relief from the Commissioner's determination, this Court has established the following standard of review:

where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. However, where the validity of the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion. [Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).]

II. Analysis

A. 1985

1. Appeals Hearing

The petition focuses on petitioner's contention that he was not afforded a "Due Process Hearing" and requests that this case be remanded for such a hearing. Petitioner acknowledges that a meeting between his representative and Ms. Carter took place on June 26, 2002 , but he argues that this meeting was merely for review of documents in lieu of his FOIA request concerning the 1985 year and was not a "Due Process Hearing". He thus does not dispute that the June 26, 2002 , meeting pertained to 1985 but claims that it was not the hearing provided for in section 6330. Relevant caselaw precedent and regulatory authority, however, indicate that the circumstances here are not such as to render remand appropriate for further consideration of 1985.

Hearings conducted under section 6330 are informal proceedings, not formal adjudications. Katz v. Commmissioner [Dec. 54,081], 115 T.C. 329, 337 (2000); Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 41 (2000). There exists no right to subpoena witnesses or documents in connection with section 6330 hearings.¹⁰ Roberts v. Commissioner [Dec. 54,733], 118 T.C. 365, 372 (2002), affd.[2003-1 USTC ¶50,359] 329 F.3d 1224 (11th Cir. 2003); Nestor v. Commissioner [Dec. 54,896(M)], 118 T.C. 162, 166-167 (2002); Davis v. Commissioner, supra at 41-42. Taxpayers are entitled to be offered a face-to-face hearing at the Appeals Office nearest their residence. Where the taxpayer declines to participate in a proferred face-to-face hearing, hearings may also be conducted telephonically or by correspondence. Katz v. Commissioner, supra at 337-338; Dorra v. Commissioner [Dec. 55,517(M)], T.C. Memo. 2004-16; sec. 301.6330-1(d)(2) Q&A-D6 and D7, Proced. & Admin. Regs. Furthermore, once a taxpayer has been given a reasonable opportunity for a hearing but has failed to avail himself or herself of that opportunity, we have approved the making of a determination to proceed with collection based on the Appeals officer's review of the case file. See, e.g., Taylor v. Commissioner [Dec. 55,528(M)], T.C. Memo. 2004-25; Leineweber v. Commissioner [Dec. 55,518(M)], T.C. Memo. 2004-17; Armstrong v. Commissioner [Dec. 54,865(M)], T.C. Memo. 2002-224; Gougler v. Commissioner [Dec. 54,824(M)], T.C. Memo. 2002-185; Mann v. Commissioner [Dec. 54,658(M)], T.C. Memo. 2002-48. Thus, a face-to-face meeting is not invariably required.

Regulations promulgated under section 6330 incorporate many of the foregoing concepts, as follows:

Q-D6. How are CDP hearings conducted?

A-D6. * * * CDP hearings * * * are informal in nature and do not require the Appeals officer or employee and the taxpayer, or the taxpayer's representative, to hold a face-to-face meeting. A CDP hearing may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between the Appeals officer or employee and the taxpayer or the taxpayer's representative, or some combination thereof. * * *

Q-D7. If a taxpayer wants a face-to-face CDP hearing, where will it be held?

A-D7. The taxpayer must be offered an opportunity for a hearing at the Appeals office closest to taxpayer's residence or, in the case of a business taxpayer, the taxpayer's principal place of business. If that is not satisfactory to the taxpayer, the taxpayer will be given an opportunity for a hearing by correspondence or by telephone. If that is not satisfactory to the taxpayer, the Appeals officer or employee will review the taxpayer's request for a CDP hearing, the case file, any other written communications from the taxpayer (including written communications, if any, submitted in connection with the CDP hearing), and any notes of any oral communications with the taxpayer or the taxpayer's representative. Under such circumstances, review of those documents will constitute the CDP hearing for the purposes of section 6330(b). [Sec. 301.6330-1(d)(2) Q&A-D6 and D7, Proced. & Admin. Regs.]

This Court has cited the above regulatory provisions with approval. See, e.g., Taylor v. Commissioner, supra; Leineweber v. Commissioner, supra; Dorra v. Commissioner, supra; Gougler v. Commissioner, supra.

With respect to the instant case, petitioner was initially provided with an opportunity for a face-to-face hearing by means of Ms. Carter's March 28, 2002 , letter scheduling a conference for April 9, 2002 . The letter referenced the 1985 tax year and clearly explained that the purpose of the conference was to accomplish objectives outlined in section 6330; i.e., to address the issues raised in petitioner's appeal request and to discuss collection alternatives. The letter also warned that failure to appear or to make alternative arrangements would result in closing of the matter based on information in the case file.

Petitioner declined to meet with Ms. Carter on April 9th, and his representative sent a letter stating that he would call Ms. Carter "to reschedule a meeting, if appropriate." A conference was eventually scheduled, after delay attempting to accommodate petitioner, for June 26, 2002 . Although it is apparent that document review precipitated by the FOIA request was to be a part of the meeting, the record does not support petitioner's claim that the conference was entirely separate and otherwise divorced from petitioner's broader collection appeal for 1985. Mr. Lynch explicitly stated in his letter of June 13, 2002 , discussing the scheduled appointment: "I understand if Mr. Newstat does not submit the financial disclosure forms during our meeting, you will permit Mr. Newstat to review and copy portions of his file but will likely close the appeal file concerning this matter and the Service will resume collection activity."

The above-quoted language evidences an awareness that the June 26, 2002 , meeting was also to be petitioner's forum for advancing issues such as collection alternatives. Furthermore, a copy of the letter was sent to petitioner, such that he should have been alerted if this scenario differed from his own understanding.

When petitioner was unable personally to attend the June 26, 2002 , meeting, Ms. Carter met with his representative and even waited 3 more months for any additional information from petitioner before closing the case. Mr. Lynch apparently attempted to meet with petitioner during that time to obtain completed financial forms. Petitioner recites in his petition:

The reason Newstat did not respond to Appeal Officer request for production of form 433-A- was that between April to September 2002 and continuing at this time his income was in disarray. * * * He wanted to have a grasp of his income before he gave out Form 433-A. Newstat had read section 6330 and believed presenting and explaining his financial condition at due process hearing in person was his right and he did not lose that right by waiting until due process hearing to present and explain himself in person.

A difficulty with this posture is that respondent cannot be expected to wait indefinitely until a taxpayer is ready to submit information germane to his or her collection case.¹¹ In addition, with regard to his desire to submit information in person, petitioner had been unable to attend any of the previously proposed conferences and at no time communicated to Ms. Carter a readiness or willingness to meet after the June 26, 2002 , date. Moreover, the above-quoted regulations confirm that a conference between an Appeals officer and a taxpayer's representative, not the taxpayer himself, may fulfill the statutory directive for a hearing.

Hence, at the time respondent issued the notice of determination, Ms. Carter had addressed in writing the sole statute of limitations issue raised by petitioner for 1985 in his Form 12153¹² and had held a face-to-face conference with petitioner's representative, the consequences of which Mr. Lynch clearly understood and had communicated to petitioner. In these circumstances, the Court is satisfied that, with respect to 1985, petitioner was offered and received a full and fair hearing which complied with the requirements of section 6330.

2. Review of Underlying Liabilities

As previously indicated, the petition filed in this case focused solely on the contention that petitioner had not been afforded a proper hearing for purposes of section 6330. Petitioner's opposition to respondent's motion for summary judgment and his posttrial briefs, however, raise the argument that the assessment of his 1985 liabilities was invalid on account of his then-pending bankruptcy, with the corresponding implication that the statute of limitations on assessment has now expired.

This Court has held that claims regarding whether assessments were made within the limitations period constitute challenges to the underlying tax liabilities. Hoffman v. Commissioner [Dec. 54,882], 119 T.C. 140, 145 (2002); Rodriguez v. Commissioner [Dec. 55,168(M)], T.C. Memo. 2003-153; MacElvain v. Commissioner [Dec. 54,083(M)], T.C. Memo. 2000-320. Respondent advances several arguments as to why petitioner is not entitled to so challenge his underlying 1985 liabilities in this proceeding. Respondent's principal assertions in this regard are that petitioner is precluded from raising the validity of the 1985 assessment here either by res judicata or by the fact that petitioner failed to raise the issue during the collection hearing process.

The U.S. Supreme Court in Commissioner v. Sunnen [48-1 USTC ¶9230], 333 U.S. 591, 597 (1948), summarized the judicial doctrine of res judicata, i.e., claim preclusion, in the following oft-quoted pronouncement:

The general rule of res judicata applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Cromwell v. County of Sac , 94 U.S. 351, 352. The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment. * * *

The Supreme Court also addressed application of the foregoing principles in the particular context of tax litigation:

These same concepts are applicable in the federal income tax field. Income taxes are levied on an annual basis. Each year is the origin of a new liability and of a separate cause of action. Thus if a claim of liability or non-liability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same tax year. * * * [ Id. at 598.]

The Tax Court and other courts have since interpreted the Supreme Court's directives specifically as they pertain to decisions of this Court. We, for instance, have stated: "As a general rule, * * * where the Tax Court has entered a decision for a taxable year, both the taxpayer and the Commissioner (with certain exceptions) are barred from reopening that year." Hemmings v. Commissioner [Dec. 50,468], 104 T.C. 221, 233 (1995). Likewise, "the Tax Court's jurisdiction, once it attaches, extends to the entire subject of the correct tax for the particular year." Erickson v. United States [62-2 USTC ¶9806], 159 Ct. Cl. 202, 309 F.2d 760, 767 (1962).

Here, respondent issued to petitioner a notice of deficiency on October 14, 1992 , with respect to his 1985 taxable year, and petitioner instituted a case for redetermination in this Court. That case was concluded without trial by entry of a stipulated decision on December 20, 1995 . The decision provided that there was "no deficiency in income tax due from, nor overpayment due to, the petitioner for the taxable year 1985".

Now, however, petitioner in essence seeks to argue that he overpaid his taxes for 1985. If petitioner's reported liability of $187,911 was never validly assessed, then the taxes would not, as a legal matter, be considered owed by or due from petitioner. As a result, the $66,747 paid by petitioner for 1985 through withholding and credited to that liability would constitute an overpayment. For tax purposes, "overpayment" is typically defined in its usual sense as "any payment in excess of that which is properly due." Jones v. Liberty Glass Co. [48-1 USTC ¶9113], 332 U.S. 524, 531 (1947); see also Estate of Smith v. Commissioner [Dec. 55,687], 123 T.C. 15, 21 (2004). Petitioner could have made this challenge during the earlier Tax Court proceeding and did not do so. This Court has jurisdiction to determine overpayments in the context of deficiency proceedings, and the cause of action or claim in a deficiency proceeding thus encompasses the amount of tax, if any, that a party is required to pay for the taxable period under consideration. Sec. 6512(b); Barton v. Commissioner [Dec. 47,740], 97 T.C. 548, 552-554 (1991).

The validity of the assessment is therefore a matter that could have been raised and litigated in connection with the deficiency proceeding, which involved the identical parties and the same tax year. Accordingly, because the decision in that case was not appealed and has since become final, res judicata precludes petitioner from now disputing the validity of the underlying 1985 assessment in this collection action.

Petitioner's sole argument on brief with respect to res judicata rests on his complaint that the 1985 case was concluded by a stipulated decision. Petitioner states in this regard: "There are no details presented to Court as to what was considered to reach that stipulation between the parties; res judicata depends upon judgment on the merits. In that case the judgment was entered by practice, and or [sic] procedure which is distinguished from judgment on merits."

Contrary to petitioner's position, however, it is well-settled, blackletter law that "For res judicata purposes, an agreed or stipulated judgment is a judgment on the merits." Baker v. IRS, 74 F.3d 906, 910 (9th Cir. 1996); see also United States v. Intl. Bldg. Co. [53-1 USTC ¶9366], 345 U.S. 502, 503-506 (1953) (upholding res judicata effect of stipulated Tax Court decisions, regardless of whether the underlying agreement reached the "merits" of the controversy); Erickson v. United States, supra at 768 (same); Krueger v. Commissioner [Dec. 28,600], 48 T.C. 824, 828-829 (1967) (same).

The Court concludes that the circumstances of the instant case meet all prerequisites for application of res judicata and that petitioner is precluded under the doctrine from challenging his underlying liability for 1985 in this proceeding. Hence, petitioner's challenge to the validity of the assessment provides no defense to the proposed collection action, and we need not reach respondent's alternative contention that failure to raise the issue during the Appeals hearing process would likewise foreclose its consideration before this Court.¹³

3. Review for Abuse of Discretion

In light of the Court's conclusions supra regarding challenges to the underlying liabilities, disposition of this case as to 1985 rests upon whether the record reflects an abuse of discretion on the part of respondent in determining to proceed with collection efforts in the form of levy. Action constitutes an abuse of discretion under this standard where it is arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). The Court considers whether the Commissioner committed an abuse of discretion in rejecting a taxpayer's position with respect to any relevant issues, including those items enumerated in section 6330(c)(2)(A); i.e., spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives.

Here, to the extent that petitioner's apparent interest in a collection alternative such as an installment agreement or offer in compromise might pertain to 1985 as well as 1999, the record reflects no abuse of discretion by respondent in deciding instead to proceed with levy. To enable the Commissioner to evaluate a taxpayer's qualification for an installment agreement or offer in compromise, and particularly in the face of allegations of economic hardship, the taxpayer must submit complete financial data.

Petitioner, however, has never supplied a completed Form 433-A or other financial information to respondent, despite requests from respondent and the efforts and warnings of his own representative. Mr. Lynch's June 13, 2002 , letter, of which a copy was sent to petitioner, expresses clearly that petitioner would be expected to provide relevant financial disclosure forms at the June 26, 2002 , meeting in order to prevent closure of his case and resumption of collection activity. In light of this admonition, petitioner's continued recalcitrance after the conference with regard to supplying the necessary data is not well taken.

Consequently, although the Court is sympathetic to difficulties petitioner may have encountered in connection with his health and economic situation, it cannot be said that respondent acted arbitrarily or capriciously in determining to proceed with levy for 1985 when petitioner submitted no documentation, during or after a proper hearing, of his financial circumstances. The Court shall sustain respondent's collection action with respect to 1985.

B. 1999

With respect to 1999, petitioner's submissions to this Court focus solely on his contention that he did not receive a "due process hearing". Specifically, petitioner states on brief that "after petitioner requested his 1999 case be returned to New Jersey, from Oklahoma City OK.[sic], the record is blank and respondents [sic] did not address that case; there was no due process hearing concerning that case and it cannot be included in Notice of determination as after thought [sic]."

As previously indicated, the record for 1985 reveals that a conference concededly pertaining to petitioner's 1985 year was held on June 26, 2002 , and that petitioner's representative understood, and communicated to petitioner, that the outcome of the meeting could lead to closure of the collection case and resumption of collection activity. Concerning 1999, in contrast, the record is essentially silent from the time of petitioner's February 7, 2002 , request for transfer to New Jersey until the issuance of the notice of determination addressing both 1985 and 1999 on September 27, 2002 .

The notice of determination supports that the 1999 case was at some point assigned to Ms. Carter, but there is no indication as to when the assignment occurred or whether the assignment was ever communicated to petitioner or his representative. None of the interim letters reference 1999 or the contentions raised by petitioner in his Form 12153 for that year. Rather, the only explicit mention of 1999 is on the power of attorney submitted by Mr. Lynch on April 22, 2002 , which authorized his representation of petitioner in connection with income taxes for 1985, 1999, and 2000. That year was also included by reference to the taxable years 1980 through 2001 specified in the power of attorney submitted by Mr. Lynch on June 11, 2002 . These documents fall short of establishing an understanding that 1999 was presently before Ms. Carter and that any upcoming meeting would pertain to 1999. Any such implications are further weakened by the fact that no evidence indicates that the years 1980, 1981, 1984, 1987, 2000, and 2001, likewise listed on one or both of the Forms 2848, were the subject of any collection proceeding.

Given the overall state of the record, the Court cannot conclude from the evidence that either petitioner or Mr. Lynch was aware that Ms. Carter was simultaneously handling the 1985 and 1999 years and that communications during the spring of 2002 and the June 26, 2002 , conference were to represent petitioner's opportunity to be heard with respect to his 1999 year. In these circumstances, the Court holds that petitioner has not been afforded a hearing within the meaning of section 6330 for the 1999 year.

The foregoing conclusion does not, however, end the inquiry. As this Court has indicated, remand to Appeals, even in cases where a proper section 6330 hearing was not held, is appropriate only when "necessary or productive". Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 189 (2001); see, e.g., Harrell v. Commissioner [Dec. 55,298(M)], T.C. Memo. 2003-271 (concluding that circumstances justified remand). Conversely, for instance, we do not remand cases where the only arguments advanced are based on previously rejected legal propositions or where the existing record allows for disposition of all issues raised without need for further development before Appeals. E.g., Keene v. Commissioner [Dec. 55,213], 121 T.C. 8, 19-20 (2003); Lunsford v. Commissioner, supra at 189; Kemper v. Commissioner [Dec. 55,214(M)], T.C. Memo. 2003-195.

Here, because the assessments at issue for 1999 were based upon the amounts reported on petitioner's filed tax return, and petitioner never received a notice of deficiency or other opportunity to dispute those amounts, he would be entitled to challenge his underlying liabilities in this collection proceeding. Montgomery v. Commissioner [Dec. 55,501], 122 T.C. 1, 9 (2004). The Form 12153 submitted by petitioner indicates a desire to claim business expenses not shown on his original return. In light of our conclusion regarding the lack of a hearing for 1999, we believe that petitioner should be afforded a final opportunity to supply relevant documentation. Petitioner will also have a further chance to raise relevant issues reviewed for abuse of discretion, such as collection alternatives.

We caution petitioner, however, that were it not for the unusual circumstances of this case, his history of delay and failure to supply information would give us pause. We remind petitioner that section 6330 does not afford him an unlimited right to present information in person and at a time or place of his choosing. If petitioner cannot promptly meet with an Appeals officer to submit documentation and other pertinent data, we would expect him to do so through a representative or by written or telephonic communication. Otherwise, respondent will be in a position to close petitioner's 1999 case on the existing record.

In conclusion, with respect to 1985, the Court will sustain respondent's determination to proceed with collection action. With respect to 1999, the Court will remand the case for further proceedings, in the form of a section 6330 hearing, before Appeals.

To reflect the foregoing,

An appropriate order will be issued.

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.

² The parties have stipulated that the amount owed should have been $121,164, calculated by crediting $66,747 against the reported liability of $187,911. The difference resulted from petitioner's inclusion in the amount owed shown on his return of a $5,987 "penalty" computed by petitioner on the Form 2210, Underpayment of Estimated Tax by Individuals, accompanying his 1985 return.

³ The Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing also reflected trust fund recovery penalties for various quarterly periods in 1982, 1983, and 1986, which are not at issue in this proceeding.

⁴ An attachment to the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 gives Mar. 26, 2002, as the date this message was left. That date, however, is difficult to reconcile with the letter sent by Ms. Carter in response, described infra in text.

⁵ The power of attorney authorized representation with respect to employment taxes for certain quarterly periods in 1982, 1983, and 1986, as well.

⁶ The stipulation of facts filed by the parties incorrectly refers to the Aug. 28, 2002, letter as being sent approximately 1 month after the June 26, 2002, meeting.

⁷ The heading likewise listed the various period in 1982, 1983, and 1986 germane to the trust fund recovery penalties.

⁸ A separate notice of determination was issued regarding the trust fund recovery penalties.

⁹ Petitioner has at no time contended, nor does the record support, that the point raised in his Form 12153, Request for a Collection Due Process Hearing, regarding expiration of the period of limitations for 1985 was intended to refer to other than, as interpreted by respondent, the statute of limitations on collection. Respondent's subsequent communications clearly expressed and addressed this understanding of the issue, and neither petitioner nor his representatives ever sought to alter that understanding or otherwise to focus discussion on any perceived problem with the assessment.

¹⁰ To the extent that certain of petitioner's statements raise the complaint that respondent failed to produce a "certificate of assessments" for 1985 until after the petition was filed in this case, sec. 6330 imposes no requirement that the taxpayer be provided with such documentation. Nestor v. Commissioner [Dec. 54,896(M)], 118 T.C. 162, 166-167 (2002). Furthermore, in light of the Court's conclusions infra regarding res judicata, petitioner would lack grounds for arguing that he was prejudiced in raising any available issues concerning assessment validity by the alleged delay.

¹¹ Considerations of both practicality and fairness are implicated in this premise. Indefinite delay in the payment of tax is the equivalent of nonpayment. The Government, upon which all citizens depend, cannot function if tax revenues are not collected. Unjustified delay by some is unfair to those who shoulder their burden to pay timely.

¹² See supra note 9.

¹³ Additionally, the Court notes that petitioner's stated contention that, pursuant to sec. 6330(c)(1), it was the responsibility of the Appeals officer to determine whether relevant law and procedure had been complied with in the assessment and collection process does not here warrant a departure from application of res judicata. First, since petitioner has at no time throughout the administrative proceeding or this litigation produced any evidence establishing the specific dates or circumstances of his bankruptcy action, to accept his contention as sufficient to invalidate the determination would work a significant broadening of the verification requirement beyond the parameters suggested in this Court's prior jurisprudence. See Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 186-188 (2001) (upholding use of IRS transcripts for purposes of complying with the verification requirement until the taxpayer provides evidence of irregularity in assessment process). Second, although the Secretary retained authority to abate the challenged assessment in these circumstances if he concluded it was procedurally defective, that authority is discretionary, not mandatory. Given petitioner's earlier opportunity to raise this challenge in his deficiency case and his signing of a stipulated decision to the contrary, the Court would be hard pressed to declare that an abuse of discretion was committed in relying on the outcome of the previous litigation.

[Dec. 55,759(M)] Joseph A. and Carol DelVecchio v. Commissioner.

Dkt. No. 6893-03L , TC Memo. 2004-218, September 27, 2004 .

[Appealable, barring stipulation to the contrary, to CA-11]

[Code Secs. 6330 and 6501]
Notice of determination: Judicial review: Assessment: Period of limitations: Fraud.

The IRS did not abuse its discretion in finding an assessment against married taxpayers to be valid and in sustaining a proposed levy. Although the taxpayers had signed Form 872, Consent to Extend the Time to Assess Tax, which gave the IRS until December 31, 1992 , to assess tax, and the assessment was not made until November 13, 2001 , fraud was present, which has an indefinite period of limitations. Therefore, Form 872 ceased to apply, and the IRS could assess taxes at any time. Also, the IRS's alleged error in making a first assessment during the 90-day period during which the taxpayers could file a petition in response to the notice of deficiency was de minimis and harmless and did not invalidate a later, correct assessment.

Joseph A. DelVecchio and Carol DelVecchio, pro sese; Leonard T. Provenzale, for respondent.

MEMORANDUM OPINION

LARO, Judge: Petitioners, while residing in Stuart, Florida, petitioned the Court under section 6330(d) to review respondent's determination as to his proposed levy upon petitioners' property.¹ Respondent proposed the levy to collect Federal income taxes from petitioner Joseph A. DelVecchio of approximately $189,137.62 for 1987 and $177,448.78 for 1988, and from petitioner Carol DelVecchio of approximately $129,600.27 for 1987 and $110,905.53 for 1988.² The case is before the Court on respondent's motion for summary judgment under Rule 121. Petitioners filed a response.

We shall grant respondent's motion for summary judgment.

Background

Petitioners filed Federal income tax returns for 1987 and 1988. Upon audit, all parties signed Form 872, Consent to Extend the Time to Assess Tax, allowing respondent until December 31, 1992 , to assess "The amount of any Federal Income tax due on any returns made by or for the above taxpayer(s)" for 1987 and 1988. A notice of deficiency was issued for those years on January 20, 1994 , and trial was held in this Court on April 21, 1999 , in Miami , Florida . An opinion was issued, holding for respondent. See DelVecchio v. Commissioner [Dec. 54,358(M)], T.C. Memo. 2001-130.³ Decision was entered for respondent on August 9, 2001 , and assessment was made on November 13, 2001 . The decision was affirmed by the Court of Appeals for the Eleventh Circuit on May 29, 2002 .

On May 29, 2002 , respondent mailed to petitioners a Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing (final notice). On June 28, 2002 , petitioners elected to exercise their right under section 6330 to a hearing with respondent's Office of Appeals. Petitioners attached to the form an explanation of their disagreement with the proposed levy, stating:

Taxpayers Joseph DelVecchio and Carol DelVecchio do challenge the IRS Final Notice of Intent to Levy based on the fact that the federal statutes cited in the Notice as authorizing the actions in the Notice do not grant the legal authority for the IRS to Levy any assets of the two taxpayers named in each of the two Notices.

Additionally, petitioner Carol DelVecchio claimed relief from joint liability under section 6015 as to the liability underlying both the lien and levy.

Both petitioners elected correspondence hearings. On October 1, 2002 , respondent faxed Carol DelVecchio's certified transcripts of assessments to her attorney. On November 5, 2002 , respondent sent a letter to Joseph DelVecchio outlining respondent's position and attaching Joseph DelVecchio's certified transcripts of assessments.

Extensive correspondence was exchanged between respondent and both petitioners, culminating in a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for 1987 and 1988 mailed on April 16, 2003 . This notice sustained the proposed levy, found the assessment legally supported and timely made, and denied Carol DelVecchio's request for relief from joint liability.

The petition followed.

Discussion

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner [Dec. 44,689], 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 [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994).

The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences are drawn in a manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner [Dec. 42,486], 85 T.C. 812, 821 (1985); Jacklin v. Commissioner [Dec. 39,278], 79 T.C. 340, 344 (1982).⁴ In responding to a motion for summary judgment, the nonmoving party must do more than merely allege or deny facts. It must "set forth [in its response] specific facts showing that there is a genuine issue for trial. If the * * * [nonmoving] party does not so respond, then a decision, if appropriate, may be entered against such party." Rule 121(d); accord Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

Summary judgment may also be granted if evidence submitted by the nonmoving party is merely colorable or not significantly probative. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Petitioners have failed to raise any genuine issue of material fact, and summary judgment is appropriate.

Section 6331(a) provides that if a person who is liable to pay any tax refuses to pay such tax within 10 days after notice and demand for payment, the Secretary may collect such tax by levy on the person's property. Section 6330 provides that the Commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for administrative review and, if dissatisfied, with judicial review of the administrative determination. Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 37 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 179 (2000). The Court reviews nonliability administrative determinations for abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000). The Court reviews determinations of underlying tax liability de novo. Hoffman v. Commissioner [Dec. 54,882], 119 T.C. 140, 144-145 (2002).

Petitioners concede in their response that the sole issue for the Court to decide is whether there was an irregularity in the assessment shown in the transcripts. Where, as here, the issue is whether a valid assessment was made, non-master-file transcripts which identify the taxpayers, the character of the liability assessed, the taxable period, and the amount of the assessment establish the validity of an assessment, absent a showing of irregularity. See, e.g., Nestor v. Commissioner [Dec. 54,655], 118 T.C. 162 (2002).

Section 6330(d) and the rule of res judicata act as an absolute bar to our consideration of collateral issues which have already been, or should have been, argued before this Court in DelVecchio v. Commissioner [Dec. 54,358(M)], T.C. Memo. 2001-130. Following the mandate of section 6330, we will not consider any of petitioners' arguments which do not, at least on some arguable basis, address whether there might have been an irregularity in assessment within the narrow and precise meaning of section 6330.

Petitioners put forth two arguments to support their conclusion that the assessment was "irregular" and improper. First, they argue that Form 872 is a "written agreement" and therefore precluded respondent from assessing taxes once the agreement set forth therein lapsed. Petitioners contend that assessment of the liability found in DelVecchio v. Commissioner, supra, was improper in that it was made after the period agreed upon in the Form 872. Second, petitioners argue that respondent made a nonjeopardy assessment in this case within the prohibited 90-day window following the notice of deficiency. Petitioners conclude that this alleged improper prior assessment invalidates all subsequent assessments.⁵

A. Form 872 Does Not Preclude Assessment

Petitioners argue that respondent is precluded from making any assessments because all parties signed Form 872 and thereby extended to December 31, 1992 , the time to assess any Federal income tax due for 1987 and 1988. Petitioners urge that Form 872 constitutes a written agreement with the Commissioner and that respondent was bound to assess all taxes (including any fraud penalty) before December 31, 1992 . We disagree.

Form 872 is a unilateral waiver by the taxpayer of the 3-year period of limitations of section 6501(a). See, e.g., Stange v. United States [2 USTC ¶638], 282 U.S. 270, 276 (1931); Schulman v. Commissioner [Dec. 46,181], 93 T.C. 623, 639 (1989). Petitioners confuse the general 3-year period of limitations specified in section 6501(a) with the longer period of limitations in section 6501(c)(1) (fraud). In the liability case, petitioner Joseph DelVecchio was held to have filed fraudulent returns for both years. Thus, the indefinite period of limitations for fraud provided for in section 6501(c)(1) applies to both petitioners. See Vannaman v. Commissioner [Dec. 30,109], 54 T.C. 1011, 1018 (1970).

Form 872 does not affect the operation of section 6501(c)(1); it operates solely to extend the period of limitations with respect to the general 3-year period of limitations in section 6501(a). Once this Court found there was fraud (with the attending indefinite period of limitations), Form 872 became inapplicable and assessment could be made at any time.

B. Any Prior Assessment Errors Were Harmless

Petitioners allege that respondent made his first assessment on April 7, 1994 , while the 90-day period for filing a petition in response to the notice of deficiency was still open. Petitioners argue that this procedural gaffe invalidates the assessment of November 13, 2001 . We disagree.

Even assuming arguendo that petitioners are correct on the facts, no relief is available since a correct assessment was made within the appropriate period of limitations. We therefore hold any errors in assessments to be de minimis harmless error. Had this issue been presented in the initial proceeding and had respondent attempted to assess or collect a tax before this Court's decision became final, the remedy available to petitioners would have been an injunction against collection or refund of any tax so collected. See sec. 6213(a). A premature assessment, if any occurred, would not taint this proposed levy, which seeks to collect an assessment that was timely and validly made.

C. Conclusion

We hold that: (1) The assessments were valid, see Kuglin v. Commissioner [Dec. 54,661(M)], T.C. Memo. 2002-51; see also Duffield v. Commissioner [Dec. 54,663(M)], T.C. Memo. 2002-53, (2) the Appeals officer satisfied the verification requirement of section 6330(c)(1), see Yacksyzn v. Commissioner [Dec. 54,716(M)], T.C. Memo. 2002-99, and (3) petitioners have not demonstrated in this proceeding any irregularity in the assessment procedure which would raise a question about the validity of the assessment. See Mann v. Commissioner [Dec. 54,658(M)], T.C. Memo. 2002-48.

To reflect the foregoing,

An appropriate order and decision will be entered for respondent.

¹ Unless otherwise noted, section references are to the applicable versions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.

² We say "approximately" as these amounts were computed before the present proceeding and have since increased on account of interest.

³ In part, the Court decided that petitioners are liable for certain deficiencies and that Joseph DelVecchio is liable for additions to tax for fraud.

⁴ Petitioners urge respondent's motion for summary judgment must be denied because the parties have not entered into any stipulations. The Court disagrees. Rule 121 does not require stipulations as a prerequisite to the granting of a motion for summary judgment.

⁵ Petitioners put forward other arguments, trying to assert wrongdoing by respondent such as alteration of official documents. We have considered all other arguments and have found those not discussed to be meritless.

[Dec. 55,783(M)] Geoffrey K. Calderone, Sr. v. Commissioner.

Dkt. No. 3563-03L , TC Memo. 2004-240, October 19, 2004 .

[Appealable, barring stipulation to the contrary, to CA-11]

[Code Sec. 6330]
Collection Due Process: Notice of deficiency: Proof of delivery.

The IRS had the burden of showing that an individual received a notice of deficiency or otherwise had an opportunity to dispute the deficiency. However, the IRS failed to introduce any evidence that the notice of deficiency addressed to the taxpayer was actually submitted to the United States Postal Service (USPS) for delivery or that the USPS attempted delivery of the notice. Further, the receipt of the notice of deficiency by the taxpayer's attorney-in-fact could not be imputed to the taxpayer. According to the taxpayer's testimony, his attorney-in-fact did not forward the notice to him, discuss it with him, or file a Tax Court petition on his behalf, although the taxpayer trusted and relied upon the attorney-in-fact to handle matters for him before the IRS. Therefore, the taxpayer was entitled to contest his underlying tax liability at a Collection Due Process hearing.

John T. Mulhall III and Thomas E. Redding , for petitioner; John T. Lortie and Kenneth A. Hochman, for respondent.

MEMORANDUM OPINION

GERBER, Chief Judge: Petitioner, pursuant to section 6330(d),¹ seeks review of respondent's determination to proceed with collection (by means of levy) of petitioner's unpaid 1995 Federal income tax liability. The issue for our consideration is whether, in the context of a section 6330 proceeding, petitioner is entitled to challenge the underlying tax liability for 1995. The resolution of this issue depends upon whether petitioner received a statutory notice of deficiency for his 1995 tax year or otherwise had an opportunity to dispute such tax liability. The parties agree that if we conclude that petitioner is entitled to challenge the underlying tax liability, we should remand this case to respondent's Appeals Office to conduct a hearing under the provisions of section 6330.

Background

The parties' stipulation of facts is incorporated by this reference. At the time of the filing of the petition in this case, petitioner resided in Fort Lauderdale , Florida . Beginning in the mid-1980s, petitioner employed Arthur F. Jacob (Mr. Jacob), a certified public accountant and attorney, to handle his tax and certain financial matters. Mr. Jacob, through 2002, had a power of attorney from petitioner. Petitioner trusted Mr. Jacob and relied on him exclusively with respect to all tax matters. For the tax years 1993, 1994, and 1996 specifically, Mr. Jacob represented petitioner before the Internal Revenue Service on many occasions. Any time petitioner received any document from respondent, he would immediately contact Mr. Jacob to find out what needed to be done. In addition, petitioner and Mr. Jacob often socialized together and had common friends.

Respondent, by means of a September 17, 1998 , certified letter, sent a statutory notice (the notice) to petitioner and his former wife, Mary Elizabeth Connor (Ms. Connor), determining a 1995 income tax deficiency and additions to tax. Respondent produced a copy of the notice addressed to petitioner, but no further proof of delivery. Mr. Jacob received a copy of the notice. At the time the notice was mailed, petitioner and Ms. Connor did not reside at the same address. Although respondent contends that the notice was mailed to petitioner's home, petitioner claims to have never received it. Petitioner claims to have seen it only years later in his attorney's office. Thus, he did not petition this Court for a redetermination of the deficiency.

Ms. Connor received the notice of deficiency in or around September 1998. Her affidavit states that she immediately spoke about the matter with petitioner and that petitioner indicated Mr. Jacob "had things under control", though petitioner and Mr. Jacob claim they did not speak about the notice during this period.

On September 22, 1998 , however, Mr. Jacob did protect himself with respect to Ms. Connor by sending her a letter advising that his office had received a certified letter from the Internal Revenue Service (IRS). Mr. Jacob's letter informed Ms. Connor that the certified letter contained "a proposed Notice of Deficiency for tax year 1995" for petitioner and Ms. Connor, but that he would not be representing her. Mr. Jacob also sent a copy of his letter to petitioner. Petitioner, however, has no recollection of receiving the letter, and both petitioner and Mr. Jacob deny discussing it. On her own, Ms. Connor petitioned this Court seeking a redetermination of the 1995 deficiency determination.

With respect to petitioner, Mr. Jacob did not file a petition on his behalf or take any other action to advise him of his available options with respect to the 1995 notice of deficiency. Mr. Jacob attempted to convince the Court that it was not his normal practice to file petitions without being asked by the client, and the receipt of a copy of a notice of deficiency regarding a client for whom he held a power of attorney did not "obligate [him] to do anything".

Thus, the 1995 tax liability was never challenged by petitioner, and on February 4, 1999 , respondent assessed the amount of income tax due for 1995 against petitioner. Respondent's internal documents show several unsuccessful attempts in 1999 and 2000 to try to reach Mr. Jacob regarding collection actions. On June 27, 2001 , respondent issued a Final Notice of Intent to Levy (which petitioner did receive), advising petitioner of the proposed collection of his outstanding 1995 income tax liability. On July 9, 2001 , respondent received a Form 12153, Request for a Collection Due Process Hearing, which was submitted by Mr. Jacob, for petitioner's 1995 tax year.

In early 2002, Mr. Jacob told petitioner that he had been successful in resolving petitioner's income tax matters before respondent and that he owed no tax liability. Mr. Jacob had not in fact achieved such success, and, in or around May or June 2002, petitioner and petitioner's current wife began questioning the notices they were still receiving pertaining to the collection hearings. On September 9, 2002 , petitioner contacted an Appeals officer at the IRS claiming this was the first time he knew the case was in Appeals. Petitioner discontinued Mr. Jacob's representation and retained Rutherford Mulhall, P.A., to represent him in further proceedings. In addition, petitioner filed suit against Mr. Jacob asserting various theories of negligence and malpractice.

Discussion

The parties agree that this case should be remanded for further consideration of the underlying merits of petitioner's 1995 tax liability if we hold that petitioner did not receive a 1995 notice of deficiency or otherwise have the opportunity to dispute the 1995 tax liability. This case presents a curious factual situation, because it appears that petitioner's representative (who held a power of attorney and upon whom petitioner relied for financial and tax matters) failed to contest the notice or advise petitioner of the notice or his rights in regard thereto. The effect of this, according to petitioner, was that he did not receive a notice of deficiency or have the opportunity to dispute his 1995 income tax liability.

I. Legal Background

Section 6331(a) authorizes the Commissioner to levy on property and property rights of a taxpayer liable for taxes who fails to pay them within 10 days after notice and demand for payment. Sections 6331(d) and 6330(a), however, require the Secretary to send written notice to the taxpayer of the intent to levy and of the taxpayer's right to a hearing prior to the collection activity.

Section 6330(c)(1) requires that the Appeals officer obtain verification that the requirements of any applicable law or administrative procedure have been met. Section 6330(c)(2)(A) provides that the taxpayer may raise at the hearing "any relevant issue relating to the unpaid tax or the proposed levy" including spousal defenses, challenges to the appropriateness of collection actions, and alternatives to collection.

The underlying tax liability may be questioned if the taxpayer "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Sec. 6330(c)(2)(B). For purposes of section 6330(c)(2)(B), receipt of a statutory notice of deficiency means receipt in time to petition this Court for redetermination of the deficiency asserted in such notice. Sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. Section 6330(c)(2)(B) contemplates actual receipt of the notice of deficiency by the taxpayer. See Tatum v. Commissioner [Dec. 55,125(M)], T.C. Memo. 2003-115.

The parties agree that respondent has the burden of showing that petitioner either received the notice of deficiency or otherwise had an opportunity to dispute the tax liability.

II. Analysis

A. Receipt of the Notice of Deficiency

Respondent argues that the notice of deficiency was sent to petitioner's last known address and that petitioner failed to produce any evidence showing that he did not receive the notice of deficiency in a timely manner. However, petitioner points out that respondent has failed to produce any evidence that the U.S. Postal Service (USPS) attempted to deliver the notice of deficiency or that petitioner refused delivery.

Respondent also argues that petitioner's allegations are insufficient to override the "presumption of receipt" or delivery as described in Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 611 (2000). Absent clear evidence to the contrary, USPS employees are presumed to properly discharge their official duties, justifying the conclusion that the statutory notice was sent and that attempts to deliver were made in the manner contended by respondent. Id. Further, in the context of a section 6330 proceeding, taxpayers cannot defeat "actual receipt" by deliberately refusing delivery of a notice of deficiency. Id. ; see also Hochschild v. Commissioner [Dec. 54,834(M)], T.C. Memo. 2002-195 (raising presumption of delivery when several attempts at delivery were made, and the notice went unclaimed).

However, the facts we consider here are more analogous to those in Tatum v. Commissioner [Dec. 55,125(M)], T.C. Memo. 2003-115. In that case, this Court found it significant that the USPS made only one attempt at delivery and that the taxpayer did not intentionally refuse delivery, distinguishing the case from Sego where there were multiple attempts to deliver and the taxpayer intentionally refused delivery. Id. Moreover, the taxpayers in Tatum credibly testified that they did not receive a notice or know the USPS was attempting to deliver one. Id.

In this case, even though it was shown that the notice was addressed to petitioner, respondent has not introduced evidence showing that the notice was submitted to the USPS for delivery at all. Unlike Sego, where it was shown that delivery was attempted several times, respondent has not shown a single attempt at delivery. If Postal Service employees properly discharged their official duties, respondent would have received a signed certified mail receipt or a returned notice of deficiency. Respondent has not offered evidence of certified mail or of an attempt to deliver the notice of deficiency. Moreover, respondent has produced no evidence that petitioner intentionally refused delivery. Finally, petitioner's uncontroverted testimony states that he did not receive a notice of deficiency or know that the USPS was attempting to deliver one to him.

In light of (1) the absence of evidence of any attempted delivery by the USPS, a certified mail receipt, or an unclaimed or refused notice of deficiency, or (2) the uncontradicted testimony that petitioner did not receive the notice of deficiency, respondent has not shown that petitioner actually received the notice, despite the presumption of regularity in delivery.

B. Otherwise Had an Opportunity To Dispute

Respondent contends that petitioner had the opportunity to dispute the liability because Mr. Jacob timely received the notice of deficiency and could have filed a Tax Court petition on petitioner's behalf. Respondent also contends that petitioner was sent a copy of correspondence from Mr. Jacob to Ms. Connor regarding the notice. Further, respondent claims petitioner communicated with Ms. Connor after she timely received the notice.

Petitioner contends that Mr. Jacob's receipt of a copy of the notice of deficiency cannot be imputed to petitioner because Mr. Jacob did not forward it to petitioner, discuss it with petitioner, or file a petition with this Court. Petitioner also contends that there is no evidence showing that Ms. Connor specifically informed petitioner that she had received the notice of deficiency.

Regardless of whether petitioner was sent a copy of the letter that Mr. Jacob wrote to Ms. Connor, the evidence does not support a finding that petitioner actually received notification of the deficiency notice. Ms. Connor's claim that petitioner told her Mr. Jacob was taking care of the matter was presented in an affidavit, and respondent did not call her as a witness to provide petitioner the opportunity to cross-examine her testimony. Therefore, respondent has not adequately shown that petitioner knew about the notice.

The cases respondent relies upon in support of the position that a taxpayer can be held liable for an agent's act or failure to act are situations in which the principal claimed that the agent acted without authority or approval, but where the court ultimately found that the agent acted with such authority or approval. See Adams v. Commissioner [Dec. 42,334], 85 T.C. 359 (1985); Kraasch v. Commissioner [Dec. 35,318], 70 T.C. 623 (1978). However, these cases do not focus on the question of whether the taxpayer has the opportunity to dispute an underlying tax liability when the agent fails to act or acts in a manner contrary to what is appropriate in the principal-agent relationship.

We find it curious that Mr. Jacob would notify the client's ex-wife stating he was not representing her and then never discuss the notice with the client. It would also be odd for the client, whose established practice was to contact his trusted adviser after receiving tax correspondence (and who socializes with that adviser), not to discuss the deficiency notice mentioned in a letter to his ex-wife.

Although Mr. Jacob testified that it was not his normal practice to file a petition in the Tax Court on behalf of a client without being asked by the client, we find his testimony to be inconsistent with facts indicating that Mr. Jacob exclusively represented petitioner before the IRS before the 1995 tax year. Moreover, Mr. Jacob's statement is self-serving and entitled to less weight, considering that at the time of the trial in this case, Mr. Jacob continued to be embroiled in litigation with petitioner. We also find incredible Mr. Jacob's contention that even though he had a power of attorney on file with the IRS, he was not obligated to act on behalf of his client when he received correspondence from the IRS, particularly when he knew that petitioner relied on him exclusively to resolve all tax matters.

Moreover, in 2002, Mr. Jacob advised petitioner that his 1995 tax liability had been resolved when in fact he had done nothing to resolve the underlying tax liability and knew that the matter was set for a collection due process hearing. While this deception in 2002 does not directly show that petitioner was prejudiced by Mr. Jacob's conduct (or lack thereof) in the period during which petitioner had the opportunity to dispute the underlying liability, it does demonstrate that Mr. Jacob was not forthright in handling petitioner's affairs and confirms that Mr. Jacob realized that he had an obligation to act on the matter sooner.

Under all of these circumstances, respondent's argument relying on petitioner's knowledge imputed from others is insufficient to show that petitioner had an opportunity to dispute the 1995 liability. Petitioner trusted and relied exclusively on Mr. Jacob to handle matters before the IRS while Mr. Jacob kept information from petitioner and was intentionally not representing petitioner's interest. Accordingly, petitioner did not otherwise have an opportunity to dispute the 1995 liability.

III. Conclusion

Respondent has not met his burden of showing that petitioner received the notice of deficiency or otherwise had the opportunity to dispute the tax liability. Thus, petitioner is entitled to challenge the underlying tax liability. As such, it is unnecessary to decide the remaining issue of whether respondent abused his discretion by denying petitioner's request to consider the underlying merits of the 1995 tax liability. In accordance with the parties' agreement, this case will be remanded to respondent's Appeals Office to conduct a hearing in accordance with section 6330.

To reflect the foregoing,

An appropriate order will be issued.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times.

[2005-1 USTC ¶50,154] Francis P. Harvey & Sons, Inc., Plaintiff v. Internal Revenue Service, Defendant.

U.S. District Court, Dist. Mass. ; Civ. 03-40097-FDS, December 2, 2004 .

[ Code Sec. 6330]

District court: Jurisdiction: Collection Due Process hearing: Issues raised at hearing. --

District Court jurisdiction in review of Collection Due Process (CDP) hearing was limited to unpaid amounts relating to the periods covered in the notices of intent to levy. The hearing officer's consideration of the earlier periods was entirely discretionary and not reviewable. In addition, the penalties for the earlier periods had been paid, so that they could only be challenged in a refund suit, not in a review of a CDP hearing.

[ Code Secs. 6651 and 6656]

Penalties, civil: Failure to timely file or pay tax: Reasonable cause: Lack of funds. --

An employer was not entitled to abatement of the penalties imposed for its late payment of employment taxes because the failure to pay the taxes was not due to reasonable cause. Although financial difficulties can create reasonable cause for a failure to pay employment taxes on time, the employer did not make the necessary showing in this case. The employer's financial crisis, while genuine, was not caused by a recent event, and it did not appear that the employer was unable to make payments during the period at issue or that making payments to the IRS would have forced the employer to go out of business.

[ Code Sec. 6672]

Penalties, civil: Failure to timely file or pay tax: Application of tax payments. --

A construction company was not entitled to abatement of the penalties to which the IRS had already applied payments; such penalties could be only be challenged in a claim for refund. The employer produced no evidence for its claim that its payments were earmarked for taxes and interest, rather than penalties.

[ Code Sec. 7422]

District court: Suit for refund: Collection Due Process hearing. --

An employer could not obtain a refund of paid penalties in an appeal from a notice of determination issued after a Collection Due Process (CDP) hearing, even if the hearing officer considered the penalties at the CDP hearing. A suit for refund was the taxpayer's sole remedy.

MEMORANDUM AND ORDER

SAYLOR, District Judge: This action involves an appeal by plaintiff Francis Harvey & Sons, Inc. ("Harvey"), from an Internal Revenue Service Notice of Determination. Harvey seeks abatement of penalties imposed on it by the IRS pursuant to 26 U.S.C. §§6651(a)(2), 6656(a) for late payment of employment taxes.

Harvey is a construction company based in Worcester , Massachusetts . Beginning in 1993, and for the following ten and a half years, Harvey withheld taxes from its employees but failed to pay over those amounts to the IRS. Instead, Harvey used those funds to pay creditors and otherwise to finance its business. Harvey does not contest its obligation to pay the taxes, with interest. It contends only that the penalties imposed by the IRS should be abated. Harvey and the IRS also dispute which such penalties are subject to judicial review.

At an IRS collection due process hearing ("CDP Hearing") in November 2002, Harvey claimed that the penalties should be abated because the company had reasonable cause for its late employment tax payments. The IRS rejected this claim in a Notice of Determination issued on April 23, 2003 . On May 15, 2003 , pursuant to 26 U.S.C. §6330(d), Harvey petitioned the Court for a de novo review of the Notice of Determination. Pending before the Court is the motion of the IRS for summary judgment on grounds that (1) the Court lacks jurisdiction over certain of the tax penalties contested by Harvey , and (2) there is not reasonable cause, as a matter of law, to abate the tax penalties over which the Court has jurisdiction.

Factual Background