6330 Annotations: Judicial Review of Appeals Determinations; Tax Court Jurisdiction-Levy

Notice of Levy and Right to Hearing: Judicial Review of Appeals Determinations: Tax

Court Jurisdiction

Part 2

[Dec. 55,588]  Don Weber II v. Commissioner.

Docket. No. 15169-03L . 122 TC 258, No. 12. Filed March 22, 2004 . [Appealable, barring stipulation to the contrary, to CA-10]

[Code Secs. 6212, 6320, 6330 and 6682]
[Jurisdiction: Notice of lien filing: Receipt of notice: Statute of limitations: Jurisdiction: Tax Court: Penalties, civil: False withholding allowance.]

On Dec. 19, 2002 , R mailed to P two notices of determination concerning collection action. R issued the first notice with respect to P's liability for unpaid income taxes; R issued the second notice with respect to P's liability for an unpaid civil penalty under sec. 6682, I.R.C. R sent both notices to P by certified mail addressed to him at his last known address. The first notice was returned to R by the U.S. Postal Service marked "unclaimed". By letter dated Aug. 4, 2003 , R's settlement officer sent P courtesy copies of the notices of determination. On Sept. 4, 2003 , P filed a petition for lien or levy action under sec. 6330(d), I.R.C. Thereafter, R filed a motion to dismiss P's petition for lack of jurisdiction on the ground that it was not timely filed. P opposes the granting of R's motion, contending that he did not receive either of the notices of determination until August 2003, at which time he promptly filed his petition with the Court.

Held: The income tax notice of determination that was sent by certified mail to P at P's last known address was sufficient, notwithstanding the fact that P did not receive such notice.

Held, further, the courtesy copy of the income tax notice of determination that R's officer sent P in August 2003 was not a notice of determination under sec. 6320, I.R.C., or sec. 6330, I.R.C., nor did the sending of that copy serve to revive the statutory filing period.

Held, further, because P did not timely file his petition in respect of the income tax notice of determination, this Court lacks jurisdiction to review R's determination to proceed with collection of P's liability for unpaid income taxes.

Held, further, this Court lacks jurisdiction to review R's determination to proceed with collection of P's liability for the unpaid civil penalty under sec. 6682, I.R.C., because it lacks jurisdiction over the underlying liability.

Don Weber II, pro se. James E. Cannon and Julie Jebe, for the respondent.

OPINION

DAWSON, Judge: This case was assigned to Special Trial Judge Robert N. Armen, Jr., pursuant to the provisions of section 7443A(b)(4), and Rules 180, 181, and 182.¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

ARMEN, Special Trial Judge : This collection review case is before the Court on respondent's motion to dismiss for lack of jurisdiction. Respondent contends that the Court lacks jurisdiction on the ground the petition for lien or levy action was not timely filed. As discussed in detail below, we shall dismiss the petition for lack of jurisdiction.

Background

The record reflects and/or the parties do not dispute the following facts:

On December 19, 2002 , respondent mailed to petitioner a Notice Of Determination Concerning Collection Action(s) informing petitioner that respondent would proceed with the collection of petitioner's unpaid Federal income taxes for 1992, 1993, 1994, and 1995 (the income tax notice). On December 19, 2002 , respondent also mailed to petitioner a Notice Of Determination Concerning Collection Action(s) informing petitioner that respondent would proceed with the collection of petitioner's unpaid liability for a civil penalty imposed under section 6682 for the taxable period ending December 31, 1997 (the civil penalty notice).²

Respondent mailed the income tax notice and the civil penalty notice to petitioner by certified mail addressed to him at 3500 W. 95th St., No. 6638, Shawnee Msn., Kansas 66206-2052 (the Kansas address).³ On or about January 13, 2003 , the envelope bearing the income tax notice was returned to respondent by the U.S. Postal Service marked "Unclaimed".⁴ The envelope included notations reflecting that the U.S. Postal Service attempted to deliver the notice to petitioner on certain specific dates.

On August 4, 2003 , respondent mailed a letter to petitioner at the Kansas address that stated in pertinent part as follows: "Per our telephone conversation this morning, enclosed are copies of the determination letters previously mailed to you in December 2002, when the letters were originally issued."

On September 4, 2003 , the Court received and filed a petition for lien or levy action. No notice of determination was attached to the petition, nor did the petition identify the specific notice(s) in dispute. The petition arrived at the Court in an envelope bearing a U.S. Postal Service postmark date of August 27, 2003 . In the petition, petitioner listed the Kansas address as his current address.

Respondent filed a motion to dismiss for lack of jurisdiction on the ground the petition was not filed within the 30-day period prescribed in section 6330(d) or section 7502.

Petitioner filed an objection to respondent's motion, asserting that he did not receive either of the notices in question until August 2003, at which time he promptly filed a petition with the Court. Petitioner also questioned why the copies of the notices that he received in August 2003 were undated.

Respondent filed a response to petitioner's objection asserting that the copies of the notices that were forwarded to petitioner in August 2003 were merely courtesy copies. Respondent further explained that the copies sent to petitioner were undated because petitioner's case file was not immediately available and the copies in question were retrieved from respondent's computer files.

This matter was called for hearing at the Court's motions session in Washington , D.C. Counsel for respondent appeared at the hearing and offered argument in support of respondent's motion to dismiss. Although there was no appearance by or on behalf of petitioner at the hearing, petitioner did file with the Court a written statement pursuant to Rule 50(c).

Discussion

Sections 6320 (pertaining to Federal tax liens) and 6330 (pertaining to levies) establish procedures for administrative and judicial review of certain collection actions. As an initial matter, the Commissioner is required to provide a taxpayer with written notice that a Federal tax lien has been filed and/or that the Commissioner intends to levy; the Commissioner is also required to explain to the taxpayer that such collection action may be challenged on various grounds at an administrative hearing. See Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 37 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 179 (2000). Sections 6320(a)(2) and 6330(a)(2) provide that the written notice described above shall be given in person, left at the person's dwelling or usual place of business, or sent by certified or registered mail to such person's last known address.

When the Appeals Office issues a Notice Of Determination Concerning Collection Action(s) to a taxpayer following an administrative hearing, section 6330(d)(1) provides that the taxpayer has 30 days following the issuance of such notice to file a petition for review with the Tax Court or, if the Tax Court does not have jurisdiction over the underlying tax liability, with a Federal District Court. See Offiler v. Commissioner [Dec. 53,912], 114 T.C. 492, 498 (2000). The procedure established under section 6330(d)(1) is made applicable to a proceeding regarding a Federal tax lien by way of the cross-reference contained in section 6320(c).

We have held that this Court's jurisdiction under sections 6320 and 6330 depends on the issuance of a valid notice of determination and the filing of a timely petition for review. See Sarrell v. Commissioner [Dec. 54,494], 117 T.C. 122, 125 (2001); Moorhous v. Commissioner [Dec. 54,316], 116 T.C. 263, 269 (2001); Offiler v. Commissioner, supra at 498; see also Rule 330(b).⁵

Although section 6330(d) does not specify the means by which the Commissioner is required to give notice of a determination made under sections 6320 and 6330, we conclude that the method that Congress specifically authorized for sending notices of deficiency in section 6212(a) and (b) certainly should suffice. Accordingly, we hold that a notice of determination issued pursuant to sections 6320 and/or 6330 is sufficient if such notice is sent by certified or registered mail to a taxpayer at the taxpayer's last known address. Cf. sec. 6212(b)(1), (3).⁶ It may be that such a notice of determination is also sufficient if it is given in person or left at the taxpayer's dwelling or usual place of business. Cf. sec. 6330(a)(2). However, we need not, and do not, decide this latter matter.

The Income Tax Notice

The notice of determination pertaining to petitioner's unpaid income tax liabilities was mailed by certified mail to the same address that petitioner listed as his current address in the petition for lien or levy action. Petitioner does not contend that such notice was mailed to an incorrect address. Consequently, we conclude that the income tax notice was mailed to petitioner's last known address, which is sufficient for jurisdictional purposes. See, e.g., Sarrell v. Commissioner, supra at 125.

Under the circumstances, the sole issue for decision with regard to the income tax notice is whether the petition was timely filed. The record reflects that the petition was not filed within the 30-day period prescribed in section 6330(d)(1). In particular, the record shows that respondent mailed the notice of determination to petitioner on December 19, 2002 . Taking into account an intervening weekend and Federal holiday, the 30-day filing period expired on Tuesday, January 21, 2003 . See sec. 7503. However, the petition in this case was not mailed to the Court until August 27, 2003 , and was received and filed on September 4, 2003 --more than 8 months after the income tax notice was mailed. It follows that the petition was not timely filed and we are obliged to dismiss this case for lack of jurisdiction. See McCune v. Commissioner [Dec. 53,988], 115 T.C. 114 (2000).

Petitioner's assertion that his petition should be considered timely filed because he did not actually receive the income tax notice until August 2003 is misplaced. Like a notice of deficiency issued pursuant to section 6213(a), a notice of determination made pursuant to sections 6320 and/or section 6330 serves as a person's "ticket" to the Tax Court. Offiler v. Commissioner, supra at 498; see Frieling v. Commissioner [Dec. 40,284], 81 T.C. 42, 52 (1983). In accordance with longstanding principles governing the validity of a notice of deficiency under section 6213(a), and consistent with our conclusion that the income tax notice was sufficient because it was properly mailed to petitioner's last known address by certified mail on December 19, 2002 , we hold that it is immaterial that petitioner did not receive the notice of determination before the expiration of the 30-day filing period. See King v. Commissioner [88-2 USTC ¶9521], 857 F.2d 676, 679 (9th Cir. 1988), affg. [Dec. 43,864] 88 T.C. 1042 (1987); Teel v. Commissioner [57-2 USTC ¶9998], 248 F.2d 749, 751 (10th Cir. 1957), affg. [Dec. 22,040] 27 T.C. 375 (1956); Yusko v. Commissioner [Dec. 44,274], 89 T.C. 806, 810 (1987); Frieling v. Commissioner, supra at 52.

We further hold that the courtesy copy of the income tax notice that respondent sent to petitioner on August 4, 2003 , was not a notice of determination under section 6320 or 6330; therefore, it could not serve to revive the 30-day filing period. See Teel v. Commissioner, supra; Lerer v. Commissioner [Dec. 29,604], 52 T.C. 358, 362-366 (1969); Powell v. Commissioner [Dec. 52,625(M)], T.C. Memo. 1998-108; Schoenfeld v. Commissioner [Dec. 49,145(M)], T.C. Memo. 1993-303, n.2.

Finally, we do not have the authority to extend our jurisdiction in this case notwithstanding the fact that petitioner did not receive the notice of determination within the 30-day filing period. The Court's jurisdiction is statutorily prescribed under sections 6320 and 6330, and we may not extend the 30-day period for filing a petition for lien or levy action. Axe v. Commissioner [Dec. 31,377], 58 T.C. 256, 259 (1972); see Lamont v. Commissioner [Dec. 49,331(M)], T.C. Memo. 1993-469.

Consistent with the preceding discussion, we shall grant respondent's motion to dismiss, in that we lack jurisdiction to review the income tax notice on the ground the petition for lien or levy action was not timely filed.

The Civil Penalty Notice

As previously mentioned, the Court's jurisdiction under sections 6320 and 6330 is limited to cases in which the underlying tax liability is of a type over which the Court normally has jurisdiction. Sec. 6330(d); Van Es v. Commissioner [Dec. 54,080], 115 T.C. 324, 328-329 (2000) (case dismissed for lack of jurisdiction on the ground the Court lacks jurisdiction to review the frivolous return penalty imposed under section 6702); Moore v. Commissioner [Dec. 53,802], 114 T.C. 171, 175 (2000) (case dismissed for lack of jurisdiction on the ground the Court lacks jurisdiction to review the trust fund recovery penalty imposed under section 6672).

The record reflects that the civil penalty notice is based on the assessment of a penalty against petitioner pursuant to section 6682. It is well settled that this Court lacks jurisdiction to redetermine such penalties. Sec. 6682(c); Castillo v. Commissioner [Dec. 41,940], 84 T.C. 405, 411 (1985); Fischer v. Commissioner [Dec. 50,262(M)], T.C. Memo. 1994-586 n.3. Because we lack jurisdiction over the tax liability underlying the civil penalty notice, we are obliged to dismiss the matter for lack of jurisdiction on that ground. See Barnhill v. Commissioner [Dec. 54,739(M)], T.C. Memo. 2002-116; cf. Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 159 (2001).

To reflect the foregoing,

An order will be entered dismissing this case for lack of jurisdiction.

¹ All Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code, as amended.

² Sec. 6682(a) generally provides that an individual shall be liable for a civil penalty if such individual is found to have made a false statement regarding the correct amount of income tax withholding on wages and/or backup withholding.

³ Respondent proved the mailing of the notice of determination through the introduction of a postmarked copy of a certified mail list. Cf. Magazine v. Commissioner [Dec. 44,124], 89 T.C. 321, 326-327 (1987) (holding that for purposes of sec. 6212, the Commissioner must produce direct evidence to establish the fact that a notice of deficiency was mailed).

⁴ The record does not reflect whether the civil penalty notice was returned to respondent undelivered.

⁵ Petitioner did not raise any challenge to the validity of either of the notices of determination in question.

⁶ Sec. 6212(b)(1) and (3) provides in pertinent part as follows:

SEC. 6212. NOTICE OF DEFICIENCY.

* * * * * * *

(b) Address for notice of deficiency. --

(1) Income and gift taxes and certain excise taxes. --* * * notice of a deficiency * * * if mailed to the taxpayer at his last known address, shall be sufficient * * *.

* * * * * * *
(3)Estate tax. --* * * notice of a deficiency * * *, if addressed in the name of the decedent or other person subject to liability and mailed to his last known address, shall be sufficient * * *.

[Dec. 55,602(M)] Dennis Burbridge and Rosemary Burbridge v. Commissioner.

Docket. No. 8415-02L . T.C. Memo. 2004-88. Filed March 26, 2004 . [Appealable, barring stipulation to the contrary, to CA-3]

[Code Sec. 6330]
Notice of levy and right to hearing: Review of Appeals determinations: Tax Court jurisdiction.  

The Tax Court lacked jurisdiction to consider an individual's underlying tax liability. The taxpayer received a notice of deficiency and agreed to a telephone conference with an IRS Appeals officer, which constituted an appropriate hearing for purposes of Code Sec. 6330(b)(1). During the hearing, the taxpayer failed to suggest any collection alternatives or to raise any other valid concerns regarding the notice of intent to levy. Moreover, the IRS properly verified that the requirements of applicable law and administrative procedure were met.

Dennis Burbridge, pro se. Robert Mopsick, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

SWIFT, Judge : Petitioners seek review of respondent's notice of determination sustaining a notice of intent to levy relating to petitioners' 1993 Federal income tax liability.

All section references are to the Internal Revenue Code in effect for the year in issue.

Unless otherwise specified, references to petitioner in the singular are to petitioner Dennis Burbridge.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

At the time the petition was filed, petitioners resided in Cranford , New Jersey .

Prior to her death on May 27, 1993 , petitioner's mother maintained with AIG Life Insurance Co. (AIG) a nonqualified single premium annuity. Petitioner was the beneficiary of the annuity.

In 1993, after the death of petitioner's mother, AIG distributed to petitioner the total $109,737 payable under the annuity. AIG reflected the total $109,737 distribution on a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which Form 1099-R was mailed by AIG to petitioner and to respondent. On the Form 1099-R, $44,741 of the total distribution was shown as taxable income.

As of July 1995, respondent's records indicated that petitioner had not yet filed a Federal income tax return for 1993, and on July 5, 1995 , respondent prepared for petitioner a substitute 1993 individual Federal income tax return (substitute return),¹ on which respondent treated the above $44,741 shown on the Form 1099-R as taxable income to petitioner. On July 13, 1995 , respondent mailed to petitioner a 30-day letter, Proposed Individual Income Tax Assessment, treating the $44,741 as taxable income to petitioner.

On July 27, 1995 , in response to the above 30-day letter, petitioners untimely filed with respondent a Form 1040, U.S. Individual Income Tax Return, which petitioners purported to be their 1993 joint Federal income tax return. On such Form 1040, petitioners reflected petitioner's receipt of the total $109,737 annuity distribution, but petitioners also treated the total $109,737 as nontaxable income to petitioner. Also on the Form 1040, petitioners showed no tax due and claimed a refund of $377.²

On September 17, 1996 , respondent mailed to petitioner a notice of deficiency for 1993, on which respondent determined an income tax deficiency against petitioner of $9,285 based on the taxability to petitioner of the $44,741 shown as taxable on the Form 1099-R. Respondent's notice of deficiency was mailed only to, and received only by, petitioner.

Petitioner did not file a petition in this Court with regard to the above notice of deficiency. On February 24, 1997 , respondent assessed the $9,285 income tax deficiency set forth in the notice of deficiency against both petitioners.

On June 16, 2000 , respondent mailed to both petitioners a notice of intent to levy relating to the above 1993 tax assessment. On July 14, 2000 , petitioner submitted to respondent a request for a section 6330 hearing.

On January 24, 2002 , respondent's Appeals officer mailed to petitioners a letter notifying petitioners that respondent had received petitioners' request for a hearing. On January 29, 2002 , petitioner contacted the Appeals officer and scheduled a hearing. On February 5, 2002 , petitioner and the Appeals officer discussed the notice of intent to levy over the telephone (telephone conference).³

During the telephone conference, petitioner attempted to challenge the underlying tax liability by claiming that the total $109,737 annuity distribution had been included on his deceased mother's Federal estate tax return that had been filed with respondent. During the telephone conference, respondent's Appeals officer informed petitioner that petitioner's underlying tax liability could not be challenged at the hearing because petitioner had received a notice of deficiency with regard thereto. In connection with the hearing, the Appeals officer also informed petitioner that respondent had no record indicating that a Federal estate tax return had been filed on behalf of petitioner's deceased mother, and petitioner failed to provide to the Appeals officer any proof that such a return had been filed.

Also in connection with the hearing, the Appeals officer reviewed petitioner's case file and verified that all applicable collection laws and administrative procedures were satisfied.

On April 2, 2002 , respondent issued to petitioners the notice of determination sustaining the proposed levy.⁴

OPINION

In the context of a section 6330 hearing, a challenge to the taxpayer's underlying tax liability will be considered only if the taxpayer did not receive a notice of deficiency or otherwise have a prior opportunity to dispute the underlying tax liability. Sec. 6330(c)(2)(B); Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 609 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 180-181 (2000).

If the underlying tax liability is not at issue, we review respondent's notice of determination under an abuse of discretion standard. Sec. 6330(d)(1); Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002); Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 185 (2001); Sego v. Commissioner, supra at 609-610; Goza v. Commissioner, supra at 181-182 (citing H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B. 755, 1020).

An abuse of discretion by respondent may be defined as an action that is unreasonable, arbitrary, or capricious, clearly unlawful, or lacking sound basis in law, taking into account all the facts and circumstances. See, e.g., Thor Power Tool Co. v. Commissioner [79-1 USTC ¶9139], 439 U.S. 522, 532-533 (1979); Ewing v. Commissioner [Dec. 55,519], 122 T.C. 32, 39-40 (2004); Swanson v. Commissioner [Dec. 55,280], 121 T.C. 111, 119 (2003).

In a section 6330 hearing, respondent is required to verify whether the requirements of all applicable laws and administrative procedures have been met, to consider issues raised by a taxpayer, and to determine whether the proposed collection action is more intrusive than necessary. Sec. 6330(c)(3).

Petitioner primarily argues that respondent erred by not allowing petitioner to challenge the merits of the underlying tax liability and by not conducting a face-to-face hearing.

As stated, however, because petitioner received a notice of deficiency, we do not have jurisdiction herein to consider petitioner's underlying tax liability.⁵ Sec. 6330(d)(1).

The February 5, 2002 , telephone conference between petitioner and respondent's Appeals officer was agreed to by petitioner and constituted an appropriate hearing for purposes of section 6330(b)(1). See Day v. Commissioner [Dec. 55,534(M)], T.C. Memo. 2004-30; Leineweber v. Commissioner [Dec. 55,518(M)], T.C. Memo. 2004-17; Dorra v. Commissioner [Dec. 55,517(M)], T.C. Memo. 2004-16; sec. 301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs.

During the hearing, petitioner failed to suggest any collection alternatives or to raise any other valid concerns regarding the notice of intent to levy.

Respondent properly verified that the requirements of applicable law and administrative procedures were met, and respondent balanced the need for efficient collection of taxes with the legitimate concern of petitioner that the collection action be no more intrusive than necessary.

Petitioner makes various other arguments, equally without merit.

Respondent did not abuse his discretion in sustaining the notice of intent to levy as to petitioner.

To reflect the foregoing,

An order dismissing petitioner Rosemary Burbridge will be issued, and decision will be entered for respondent as to petitioner Dennis Burbridge.

¹ We make no finding as to whether the substitute return meets the requirements of sec. 6020(b). See McCarthy v. Commissioner [Dec. 45,998(M)], T.C. Memo. 1989-479 (citing Roat v. Commissioner [88-1 USTC ¶9364], 847 F.2d 1379, 1381-1382 (9th Cir. 1988), affg. an Order of this Court).

² Petitioners' Form 1040 for 1993 has not been accepted by respondent as a valid tax return because, contrary to the Form 1099-R, it reflected no portion of the $109,737 annuity distribution as taxable income to petitioner.

³ Originally, the Appeals Office hearing was scheduled to be held in respondent's office on Feb. 5, 2002, but, on the morning of Feb. 5, petitioner called the Appeals officer and stated that he could not attend the hearing at respondent's office. The Appeals officer suggested that they could discuss the notice of intent to levy over the telephone, to which petitioner agreed and which they proceeded to do.

⁴ Respondent concedes that the assessment, the notice of intent to levy, and the notice of determination mailed to petitioners erroneously included petitioner Rosemary Burbridge.

⁵ Petitioner argues that, if the $109,737 annuity distribution was properly included on petitioner's deceased mother's Federal estate tax return under sec. 2039(a), no portion of the annuity distribution would be taxable to petitioner as the beneficiary of the annuity. We note that the validity of this argument depends on a number of facts not in evidence, nor relevant, for purposes of the issue in this collection case. If petitioner believes that he can produce evidence that establishes that the $109,737 annuity distribution was taxable to the estate of petitioner's deceased mother, petitioner's remedy, if any, would seem to lie in a claim for refund after full payment.

[Dec. 55,662] Marty J. Meehan v. Commissioner.

Dkt. No. 219-02L , 122 TC 396, No. 23, June 14, 2004 .

[Appealable, barring stipulation to the contrary, to CA-2]

[Code Sec. 6330]
Levy: Judicial review: Appellate jurisdiction: Continuing wage levy.

The Tax Court lacked jurisdiction to review the IRS's continuing wage levy on an individual's severance pay because the collection action was initiated before the January 19, 1999 , effective date of Code Sec. 6330. Because the continuing wage levy was served before that date, amounts collected pursuant to that levy were not subject to the requirements of Code Sec. 6330 (Reg. §301.6330-1(a)(4)).

[Code Sec. 6331]
Levy: Judicial review: Appellate jurisdiction: Continuing wage levy.

An individual's severance pay fell within the definition of "wages" for purposes of a continuing wage levy served on his employer and was, therefore, not a separate asset that should have been subject to a separate levy. The term "salary or wages" has been construed broadly in the past. Further, the severance pay was a form of compensation, was computed by reference to the employee's base salary and length of service, and was treated in the same manner as salary and wages for federal income tax and withholding purposes.

Daniel J. Arno, for petitioner; Anne D. Melzer, for respondent.

Before the effective date of sec. 6330, I.R.C., R served a continuing wage levy on P's employer. After the effective date of sec. 6330, I.R.C., R levied P's severance pay pursuant to the continuing wage levy.

Held: P's severance pay constitutes "salary or wages" within the meaning of sec. 6331(e), I.R.C. Because the continuing wage levy was initiated before the effective date of sec. 6330, I.R.C., this Court lacks jurisdiction to review R's levy of P's severance pay.

OPINION

THORNTON, Judge: Pursuant to sections 6320(c) and 6330(d), petitioner filed a petition for review of an Appeals Office determination sustaining a notice of Federal tax lien filing.¹ The primary issue is whether petitioner is entitled to a section 6330 Appeals Office hearing with respect to his challenge of a levy of his severance pay that occurred after the effective date of section 6330 pursuant to a continuing wage levy that was served on petitioner's employer before the effective date of section 6330.

Background

The parties submitted this case fully stipulated pursuant to Rule 122. When petitioner filed his petition, he resided in Oswego , New York .

Petitioner's 1988-94 Tax Liabilities

Petitioner failed to pay Federal income taxes that he owed for taxable years 1988, 1989, 1990, 1991, 1992, 1993, and 1994. Respondent filed various Notices of Federal Tax Lien with respect to these unpaid taxes.² On or about October 21, 1997 , respondent served a continuing wage levy (the continuing wage levy) on petitioner's employer, the City of Oswego . Pursuant to the continuing wage levy, petitioner's employer regularly remitted payments to respondent. These remittances were applied against petitioner's 1988, 1989, 1991, 1992, and 1993 income tax liabilities. At all times, petitioner was aware of the continuing wage levy.

In December 2000, shortly before laying petitioner off, his employer offered him $17,116 of severance pay, based on his years of service, current wages, merit, and a waiver of any discrimination claim that he might have had against his employer. Pursuant to the continuing wage levy, petitioner's employer remitted $10,068 of the severance pay to respondent.³ His employer then applied $3,048 to petitioner's current payroll withholdings and paid petitioner the $4,000 balance.⁴

Petitioner's 1996-99 Tax Liabilities

Petitioner failed to file timely Federal income tax returns for 1996, 1997, 1998, and 1999. These returns have since been filed. On December 1, 2000 , respondent made assessments against petitioner for taxable years 1996, 1997, and 1999, apparently on the basis of amounts shown as tax on petitioner's late-filed returns. On December 8, 2000 , respondent sent petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under I.R.C. §6320, relating to petitioner's 1996, 1997, and 1999 income tax liabilities. On December 12, 2000 , respondent sent petitioner a Final Notice, Notice of Intent to Levy, and Notice of Your Right to a Hearing, relating to petitioner's 1996, 1997, and 1999 income tax liabilities. On or about December 29, 2000 , in response to these notices, petitioner filed a timely Form 12153, Request for a Collection Due Process Hearing, challenging the legality of the continuing wage levy and raising issues relating to financial hardship.

Notice of Determination

On November 27, 2001 , after a hearing, respondent's Appeals Office issued petitioner a notice of determination sustaining the notice of Federal tax lien filing for petitioner's 1996, 1997, and 1999 income tax liabilities but determining that petitioner's 1996, 1997, and 1999 income tax liabilities were not currently collectible through a levy.⁵ The Appeals Office also determined that petitioner's challenge to the continuing wage levy was "not relevant to the collection of the tax shown on the due process hearing notice to the taxpayer [i.e., petitioner's 1996, 1997, and 1999 income tax liabilities] and may not be considered in this due process hearing."

Discussion

The primary issue is whether the Appeals Office erred in failing to consider petitioner's challenge to the levy of his severance pay that was made in or about December 2000, pursuant to a continuing wage levy that was served on petitioner's employer before the effective date of section 6330.⁶

Statutory and Regulatory Framework

Under section 6331(a), if any person liable to pay any tax neglects or refuses to pay the tax within 10 days after notice and demand, the Commissioner is authorized to collect the tax by levy upon all property and rights to property belonging to such person or on which there is a lien for payment of the tax. Section 6331(d) provides that at least 30 days before a levy of a taxpayer's property, the Commissioner must provide the taxpayer with notice of intent to levy.

Section 6330 was added to the Code by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3401, 112 Stat. 746, to provide taxpayers with the right to an Appeals Office hearing to challenge the propriety of a proposed levy. See Parker v. Commissioner [Dec. 54,464], 117 T.C. 63, 65 (2001). If dissatisfied with the Appeals Office's determination, the taxpayer can appeal it to the Tax Court or a Federal district court, as appropriate. Sec. 6330(d).

Section 6330 is effective for collection actions that are initiated on or after January 19, 1999 ; i.e., 180 days after its July 22, 1998 , enactment. RRA 1998 sec. 3401(d), 112 Stat. 750. Thus, if a collection action is initiated before January 19, 1999 , section 6330 is inapplicable and this Court has no jurisdiction to review the propriety of the collection action. See Parker v. Commissioner, supra.

The applicable regulation indicates that if a continuing wage levy is served on the taxpayer's employer before the effective date of section 6330, any amounts collected pursuant to such a levy, including amounts collected after the effective date of that section, are not subject to the requirements of section 6330. Section 301.6330-1(a)(4), Example (1), Proced. & Admin. Regs., provides:

Prior to January 19, 1999 , the IRS issues a continuous levy on a taxpayer's wages and a levy on that taxpayer's fixed right to future payments. The IRS is not required to release either levy on or after January 19, 1999 , until the requirements of section 6343(a)(1) are met. The taxpayer is not entitled to a CDP [Collection Due Process] Notice or a CDP hearing under section 6330 with respect to either levy because both levy actions were initiated prior to January 19, 1999 .⁷

Petitioner's Contentions

Petitioner does not dispute the validity of the above-quoted regulation. Petitioner suggests, however, that the severance pay in issue constituted neither "wages" nor a "fixed right to future payments" within the meaning of the regulation. Rather, petitioner contends, the severance pay "should be considered a separate asset, like a bank account, and subject to a separate levy and thus a separate Collection Due Process Hearing."⁸ Accordingly, petitioner concludes, this Court should exercise jurisdiction and hold that he is entitled to an Appeals Office hearing on the merits of his challenge to the levy on his severance pay.⁹

As explained below, we conclude that petitioner's severance pay constituted "wages" within the meaning of the above-quoted regulation. Accordingly, because the continuing levy on petitioner's wages predated the effective date of section 6330, we lack jurisdiction to review respondent's collection action with respect to the severance pay.

Whether Severance Pay Is Subject to a Continuing Wage Levy

Generally, a levy extends only to property possessed and obligations existing at the time levy is made.¹⁰ Sec. 6331(b). As an exception to this general rule, section 6331(e) provides for a continuing levy on "salary or wages".¹¹ The continuing levy attaches to salary or wages earned but not yet paid at the time of levy, advances on salary or wages made after the date of levy, and salary or wages earned and becoming payable after the date of levy, until the levy is released pursuant to section 6343. Sec. 301.6331-1(b)(1), Proced. & Admin. Regs.¹²

Section 6331(e) does not specify the types of remuneration that are covered by the term "salary or wages". The applicable regulations provide, however, that the term "salary or wages" includes "compensation for services paid in the form of fees, commissions, bonuses, and similar items." Sec. 301.6331-1(b)(1), Proced. & Admin. Regs. The regulations provide no further explanation or illustration of these "similar items" of compensation and do not explicitly address whether the term "salary or wages" includes severance pay. Thus, the language of section 6331(e) and the regulations interpreting that Code section are ambiguous as to whether the term "salary or wages" includes severance pay.¹³

For the reasons described below, we believe that section 6331(e) is properly construed to include petitioner's severance pay within the meaning of "salary or wages".

First, severance pay is itself a form of compensation. It is paid by the taxpayer's employer as compensation for termination of the employer-employee relationship. In re W.T. Grant Co., 620 F.2d 319, 321 (2d Cir. 1980); Straus-Duparquet, Inc. v. Local Union No. 3, IBEW, 386 F.2d 649, 651 (2d Cir. 1967). In fact, on occasion this Court has characterized severance pay as a replacement or substitute for salary or wages. See, e.g., Collins v. Commissioner [Dec. 54,738(M)], T.C. Memo. 2002-115; Gross v. Commissioner [Dec. 54,110(M)], T.C. Memo. 2000-342.

Second, severance pay is computed generally by reference to the employee's base salary and the employee's length of service or tenure. See Webster's Tenth Collegiate Dictionary 1073 (1997) (defining severance pay as "an allowance usually based on length of service that is payable to an employee on termination of employment").¹⁴ For example, in Kroposki v. Commissioner [Dec. 52,410(M)], T.C. Memo. 1997-563, we held that certain payments constituted severance pay because they were determined under a schedule generally applicable to laid-off employees, based on years of service and base salary. Likewise, in Webb v. Commissioner [Dec. 51,152(M)], T.C. Memo. 1996-50, we held that an amount a terminated employee received was severance pay because it was made on the basis of tenure. See also Broedel v. Commissioner [Dec. 54,363(M)], T.C. Memo. 2001-135.

Third, for Federal income tax and withholding purposes, severance pay is treated in the same manner as salary and wages. Under section 61(a), which defines gross income, compensation for services includes salaries, wages, as well as termination or severance pay. Sec. 1.61-2(a)(1), Income Tax Regs. Under the employment tax provisions, employers are required to withhold Federal income tax from severance payments in the same manner as salary or wages: "Any payments made by an employer to an employee on account of dismissal, that is, involuntary separation from the service of the employer, constitute wages regardless of whether the employer is legally bound by contract, statute, or otherwise to make such payments." Sec. 31.3401(a)-1(b)(4), Employment Tax Regs.; see Driscoll v. Exxon Corp. [74-1 USTC ¶9440], 366 F. Supp. 992 (S.D.N.Y. 1973). But see United States v. Jefferson-Pilot Life Ins. Co. [95-1 USTC ¶50,263], 49 F.3d 1020 (4th Cir. 1995) (rejecting an argument that Congress intended the term "salary or wages" in section 6331(e) to have the same meaning as the term "wages" in the employment tax provisions). In addition, for purposes of the Federal Insurance Contributions Act (FICA) tax under section 3121, the term "wages" has been construed to include severance pay. See, e.g., McCorkill v. United States [99-1 USTC ¶50,269], 32 F. Supp. 2d. 46 (D. Conn. 1999); see also Rev. Rul. 71-408, 1971-2 C.B. 340 (treating dismissal payments as "wages" for FICA, Federal Unemployment Tax Act, and Federal income tax withholding purposes).

Fourth, the term "salary or wages" in section 6331(e) has been construed broadly. For example, in United States v. Jefferson-Pilot Life Ins. Co., supra, the U.S. Court of Appeals for the Fourth Circuit concluded that the term "salary or wages" in section 6331(e) includes commissions paid to independent contractors. In doing so, the Court of Appeals went beyond the employer-employee relationship that we normally associate with salary and wages. We believe that a similarly broad construction applies in the case of severance pay, which is paid by an employer to an employee as a form of compensation for termination and, in effect, as a substitute for wages.

We recognize that the right to severance pay accrues, if at all, upon the occurrence of the one-time event of an individual's termination from employment. Consequently, it is arguable whether severance pay, if paid in a lump sum, raises the same types of administrative problems as are associated with the types of recurring payments (e.g., salary, wages, and commissions) that the Court of Appeals for the Fourth Circuit identified in United States v. Jefferson-Pilot Life Ins. Co., supra at 1022. Nonetheless, although an employee's rights to severance pay come into being only upon termination, and although some employees may receive a lump-sum severance payment, see Kroposki v. Commissioner, supra, in some cases severance is paid over a period of time, see, e.g., Gross v. Commissioner, supra (severance payments were made over a period of 18 months in amounts equal to the taxpayer's salary before he was terminated).¹⁵ In these cases, taxes are withheld in the same manner as salary and wages. See, e.g., id. Because severance pay is paid by an employer to an employee and is often paid as a substitute for, and in a similar manner to, salary or wages, we believe that including severance amounts in a continuing salary or wage levy is warranted.

Petitioner argues that his severance pay is not covered by section 6331(e) because he was required to affirmatively waive any claim for discrimination to receive his severance pay. Petitioner contends that this affirmative act distinguishes his severance pay from the "salary or wages" that are covered by section 6331(e). We are unpersuaded by petitioner's argument. Receipt of any remuneration from an employer, whether it be in the form of severance pay or other salary or wages, presumably requires some affirmative act on the employee's part, usually in the form of work up until the time of termination. In any event, we are unpersuaded that petitioner's waiver of discrimination claims was anything more than a general release. There is no evidence showing what portion, if any, of the severance package was paid on account of the waiver.¹⁶

Conclusion

We hold that petitioner's severance pay constituted "salary or wages" within the meaning of section 6331(e) and was properly levied upon pursuant to the continuing wage levy that was served on his employer in October 1997, before the effective date of section 6330. Inasmuch as the collection action with respect to petitioner's severance pay was initiated before the effective date of section 6330, see sec. 301.6330-1(a)(4), Example (1), Proced. & Admin. Regs., this Court lacks jurisdiction to review respondent's levy upon petitioner's severance pay.

An order and decision will be entered.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

² In 1991, respondent filed a Notice of Federal Tax Lien for petitioner's 1988 and 1989 income tax liabilities. In 1994, respondent filed a second Notice of Federal Tax Lien for petitioner's 1990, 1991, 1992, and 1993 income tax liabilities. In 1995, respondent filed a third Notice of Federal Tax Lien for petitioner's 1994 income tax liability.

³ As far as the record reveals, it would appear that this amount was applied to petitioner's 1988, 1989, 1991, 1992, or 1993 income tax liabilities, which were the subject of the continuing wage levy.

⁴ Petitioner administratively protested the levy of his severance pay with the Taxpayer Advocate's Office. On or about Mar. 7, 2001, petitioner filed Form 911, Application for Taxpayer Assistance Order to Relieve Hardship, wherein he requested that respondent's levy be released and that the $10,068 be returned. On Mar. 29, 2001, the Taxpayer Advocate's Office denied petitioner's request for relief on the ground that petitioner had failed to establish that the levy had caused a hardship.

⁵ The notice of determination also concluded that petitioner's 1998 income tax liability was not currently collectible through a levy.

⁶ In the notice of determination, the Appeals officer determined that petitioner's 1996, 1997, and 1999 income tax liabilities were not currently collectible and that no levy action will take place to collect these income tax liabilities so long as petitioner's financial condition makes it impossible for him to pay these taxes voluntarily. On the basis of this determination, the parties agree that there is no collection issue regarding respondent's proposed levy of petitioner's 1996, 1997, and 1999 income tax liabilities. The parties also agree that there is no collection issue regarding petitioner's 1998 income tax liability.

In the Appeals Office hearing, petitioner contended that the filing of the notice of Federal tax lien for his 1996, 1997, and 1999 income tax liabilities caused him hardship by impairing his credit. Petitioner raised no issues in his petition or on brief relating to this contention. We deem petitioner to have conceded this issue. See, e.g., Rule 331(b); Nicklaus v. Commissioner [Dec. 54,477], 117 T.C. 117, 120 n.4 (2001). Petitioner raises no appropriate spousal defenses, challenges to the appropriateness of the notice of Federal tax lien filing, or offers of collection alternatives. Secs. 6320(c), 6330(c)(2)(A). We likewise deem petitioner to have conceded these matters.

⁷ The final regulations were issued on Jan. 17, 2002, and are effective for any levy that occurs on or after Jan. 19, 1999. Sec. 301.6330-1(j), Proced. & Admin. Regs. The parties rely on the temporary regulations, which are effective with respect to any levy occurring on or after Jan. 19, 1999, and before Jan. 22, 2002. Sec. 301.6330-1T(j), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 3413 (Jan. 22, 1999). The temporary regulations contain the same example provided in the final regulations that is quoted in the text above.

⁸ Petitioner's argument seems to be premised on sec. 301.6330-1(a)(4), Example (2), Proced. & Admin. Regs., which indicates that a non-fixed, separate asset, like a bank account, is not covered by a continuous levy on a taxpayer's wages or a levy on the taxpayer's fixed right to future payments. For the reasons discussed in this Opinion, we conclude that petitioner's severance pay is covered by the continuing wage levy.

⁹ Generally, this Court's jurisdiction under secs. 6320 and 6330 is predicated upon a written notice of determination and a timely filed petition. See Lunsford v. Commissioner [Dec. 54,552], 117 T.C. 159, 164 (2001); Offiler v. Commissioner [Dec. 53,912], 114 T.C. 492, 498 (2000). Respondent issued petitioner no notice of determination for his 1988, 1989, 1990, 1991, 1992, 1993, and 1994 income tax liabilities. Petitioner contends that the levy on his severance pay was a separate collection action from the continuing wage levy that applied to his 1988-94 income tax liabilities and that respondent's written notice of determination with respect to his 1996, 1997, and 1999 income tax liabilities, wherein respondent refused to consider the merits of his challenge to the levy on his severance pay, provides an adequate jurisdictional predicate for this Court. Respondent disagrees. It is unnecessary for us to resolve this issue; as explained in the text above, we conclude that we lack subject-matter jurisdiction to review the levy of petitioner's severance pay because this collection action was initiated prior to the effective date of secs. 6320 and 6330.

¹⁰ Whenever any property or right to property upon which levy has been made is insufficient to satisfy the claim for which levy is made, the Commissioner may, thereafter, and as often as may be necessary, proceed to levy in like manner upon any other property subject to levy of the person against whom such claim exists, until the amount due from him, together with all expenses, is fully paid. Sec. 6331(c).

¹¹ Sec. 6331(h) also provides for a continuing levy that attaches up to 15 percent of any "specified payment" due to the taxpayer. The term "specified payment" includes certain Federal payments, certain exempt amounts under sec. 6334, and certain annuity or pension payments. Sec. 6331(h)(2).

¹² Sec. 6334(a)(9) exempts from levy certain amounts payable to or received by an individual as salary or wages for personal services.

¹³ The legislative history provides little illumination as to whether severance pay should be considered "salary or wages" for this purpose. Before 1976, a levy extended only to obligations that existed at the time of levy. S. Rept. 94-938, at 388 (1976), 1976-3 C.B. (Vol. 3) 49, 426. Consequently, the Commissioner was required to make successive levies in cases involving salaries and wages. S. Conf. Rept. 94-1236, at 489-490 (1976), 1976-3 C.B. (Vol. 3) 807, 893-894; see also United States v. Long Island Drug Co. [41-1 USTC ¶9140], 115 F.2d 983 (2d Cir. 1940). In 1976, sec. 6331(e) was added to the Code by the Tax Reform Act of 1976, Pub. L. 94-455, sec. 1209, 90 Stat. 1709, to provide that "a levy on salary or wages of a taxpayer is to be continuous from the date the levy is first made until the tax liability with respect to which it is made is satisfied or becomes unenforceable because of the lapse of time." S. Rept. 94-938, supra at 389, 1976-3 C.B. (Vol. 3) at 427; see H. Rept. 94-658, at 306 (1975), 1976-3 C.B. (Vol. 2) 695, 998. "The underlying purpose of the provision [section 6331(e)] is to provide a means of levying upon remuneration payable to a taxpayer on a recurring basis for personal services performed for the payor." United States v. Jefferson-Pilot Life Ins. Co. [95-1 USTC ¶50,263], 49 F.3d 1020, 1022 (4th Cir. 1995).

¹⁴ The Court of Appeals for the Second Circuit has defined "severance pay" as:

"a form of compensation for the termination of the employment relation, for reasons other than the displaced employees' misconduct, primarily to alleviate the consequent need for economic readjustment but also to recompense him for certain losses attributable to the dismissal." [Straus-Duparquet, Inc. v. Local Union No. 3, IBEW, 386 F.2d 649, 651 (2d Cir. 1967) (quoting Adams v. Jersey Cent. Power & Light Co., 120 A.2d 737, 740 (N.J. 1956)).]

¹⁵ We point out that bonuses, which typically are paid as lump sums, are treated as salary or wages for purposes of continuing levies under sec. 6331(e). Sec. 301.6331-1(b)(1), Proced. & Admin. Regs.

¹⁶ Petitioner makes no allegation that his severance package was in the nature of a settlement agreement for personal physical injuries. See sec. 104(a)(2).

[Dec. 55,675(M)] Wanda P. Chocallo v. Commissioner.

Dkt. No. 12695-02L , T.C. Memo. 2004-152, June 28, 2004 .

[Code Sec. 6330]
Tax Court: Jurisdiction: Pre-levy Collection Due Process hearing: Sanctions.

The Tax Court lacked jurisdiction to consider the taxpayer's request for sanctions against the IRS as part of the review of a pre-levy Collection Due Process (CDP) hearing determination under Code Sec. 6330. The taxpayer provided no statutory basis for the motion for sanctions. Jurisdiction under Code Sec. 6330 is limited to review of the proposed levy action. The IRS had levied against the taxpayer's bank account prior to the pre-levy CDP hearing. Pursuant to court order, the IRS had returned the amount with interest. The IRS subsequently determined that the taxpayer had been improperly assessed and there was, in fact, no deficiency. Additional amounts erroneously collected were also returned to the taxpayer with interest. Since there was no unpaid tax, the levy issue was moot and the IRS's motion to dismiss was granted. The IRS's previous motion to dismiss for lack of jurisdiction was denied since the Tax Court found that the taxpayer had received a notice of determination following a pre-levy CDP hearing and, therefore, the Tax Court had jurisdiction to review the determination.

Wanda P. Chocallo, pro se; Russell K. Stewart, for respondent.

MEMORANDUM OPINION

RUWE, Judge: The issues before the Court concern respondent's motion to dismiss this section 6330 case as moot and petitioner's "Motion For Sanctions, Contempt and For Other Relief", as supplemented.

Background

Petitioner filed an action under section 6330(a) contesting a levy wherein respondent had collected $21,411.27 for petitioner's purported 1998 unpaid tax liability.¹ Pursuant to section 6330, the Commissioner is required to send a written notice to the taxpayer of her right to a hearing² before a levy is made upon a taxpayer's property "not less than 30 days before the day of the first levy with respect to the amount of the unpaid tax for the taxable period."³ Sec. 6330(a)(2). The notice, inter alia, informs the taxpayer that she is entitled to "request a hearing" prior to the proposed levy. Sec. 6330(a)(3)(B). Upon timely request, the hearing is to be held by an impartial officer with the Commissioner's Appeals Office. Sec. 6330(b). The statute articulates those matters to be considered at the hearing, including the requirement that the Appeals officer obtain verification that the procedural requirements "of any applicable law or administrative procedure" have been met. Sec. 6330(c)(1). Thereafter, the Appeals officer is to make a determination whether to proceed with the proposed levy action and embodies that determination in a notice sent to the taxpayer. Sec. 6330(c); sec. 301.6330-1(e), Proced. & Admin. Regs. Within 30 days of the determination, the taxpayer may seek judicial review with either this Court or the District Court, whichever is appropriate. Sec. 6330(d); sec. 301.6330-1(f), Proced. & Admin. Regs. During the proceedings, as provided in section 6330, the Commissioner is precluded from making the proposed levy absent a jeopardy determination. Secs. 6330(e)(1) and (f), 6331(a).⁴ Furthermore, if this Court has jurisdiction, we are empowered to enjoin any such levy actions. Sec. 6330(e)(1).

Respondent moved to dismiss for lack of jurisdiction on the basis of respondent's allegation that he had not issued a notice of determination. We denied respondent's motion to dismiss for lack of jurisdiction in an Order dated November 12, 2003 . In that Order we found that petitioner had received a "determination" within the contemplation of section 6330 and had filed a timely petition. We noted various discrepancies in respondent's transcript of petitioner's account for her 1998 tax year and concluded that the determination was issued and the levy had been made prior to giving petitioner an opportunity to contest the propriety of the levy before an Appeals officer. We ordered that the amount collected by levy be returned to petitioner with interest. On December 4, 2003 , respondent complied with this Order by reimbursing petitioner for $21,411.27 that had been collected by levy from petitioner's bank account plus interest thereon of $1,524.72.⁵

In our Order of November 12, 2003 , we also ordered that petitioner be given a hearing before an Appeals officer in order to determine whether the levy that respondent wanted to make was appropriate. In so doing, we suggested that the Appeals officer review certain facts that were presented during the previous hearings regarding respondent's motion to dismiss for lack of jurisdiction. These facts suggested the possibility that the 1998 tax liability that respondent was trying to collect by levy had been improperly assessed.

On or around December 9, 2003 , respondent reported that he had determined that the 1998 income tax liability that he was trying to collect by levy had been improperly assessed and that he would not pursue any levy action against petitioner for any unpaid income taxes for 1998. Respondent also reported that he was returning additional amounts previously collected from petitioner for her 1998 liability that had been improperly assessed. These amounts were refunded to petitioner in the following amounts:

Date                                                   Amount

1/23/04
                                          1  $23,626.88

1/29/04
                                              2,041.31

  1  Respondent calculated this amount as follows:                                 

                Description                                  Amount

                Petitioner's payment with 1998 return        $40,286.59

                Less: 1998 tax assessed on return            (7,450.00)

                Less: 1998 late payment penalty              (223.50)

                Less: 1998 interest                          (304.86)

                Less: Amount applied to 1995 outstanding     (7,937.81)

              liability                                           

                Less: Amount applied to 1994 outstanding     (4,639.77)

              liability                                           

                                                           ________

                  Subtotal                                   19,730.65

                Additional payment by petitioner 
11/9/01
     667.40

                1999 overpayment credit                      368.64

                                                           ________

                  Subtotal                                   20,766.69

                Less: Amount applied to 2000 outstanding     (753.10)

              liability                                           

                Less: Amount applied to 2001 outstanding     (829.56)

              liability                                           

                                                           ________

                  Total                                      19,184.03

In his initial processing of petitioner's refund check of Jan. 23, 2004 , respondent failed to consider the interest of $1,524.72 paid to petitioner when the levy proceeds were refunded on Dec. 4, 2003 . Thus, respondent made an additional deduction of $1,524.72 from the principal amount of $19,184.03 to be paid, so that the final amount of the check issued to petitioner on Jan. 23, 2004 was $23,626.88, $17,659.31 of principal and $5,967.57 of accrued interest.

As a result of respondent's determinations and actions, respondent moved to dismiss this section 6330 case as being moot. Petitioner then filed her "Motion For Sanctions, Contempt and For Other Relief". On April 1, 2004 , petitioner filed a "Supplemental Motion for Sanctions, Contempt and For Other Relief".

Discussion

Our jurisdiction under section 6330 is generally limited to reviewing whether a proposed levy action is proper.⁶ Respondent has stated that the levy he proposed (and improperly made) is no longer being pursued. The amounts that respondent collected by levy have been returned with interest. In addition, amounts previously collected regarding petitioner's 1998 income tax liability have been refunded or credited.⁷ Our jurisdiction under section 6330 is limited to reviewing the proposed levy action regarding petitioner's 1998 income tax liability. Since respondent now agrees that there is no unpaid 1998 income tax liability upon which a levy could be based, we agree with respondent that the issue regarding the levy is moot.

The gravamen of petitioner's motion, as supplemented, is that she "has been the victim of IRS tyranny, terrorism, thievery, fraud, deceit, cunning craft and dishonesty." Petitioner requests that respondent's employees who handled her case be criminally prosecuted for various alleged offenses. We have no jurisdiction to consider such actions. Petitioner also claims other monetary compensation including damages in the sum of $1 million for alleged wrongs committed by respondent's employees. Petitioner does not cite or rely upon any specific statute as a basis for these claims, and we generally have no jurisdiction over such matters.⁸ If petitioner's $1 million claim for damages were meant to be predicated upon section 7433, which provides for up to $1 million in civil damages for certain unauthorized collection actions, we note that such claims must be brought in a district court of the United States .

Since petitioner has received all the relief to which she is entitled under section 6330, we shall grant respondent's motion to dismiss this case as moot. We shall also deny petitioner's "Motion For Sanctions, Contempt and For Other Relief", as supplemented.

An appropriate order and order of dismissal will be entered granting respondent's Motion to Dismiss on the Ground of Mootness and denying petitioner's Motion for Sanctions, Contempt and For Other Relief, as supplemented.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code currently in effect, and all Rule references are to the Tax Court Rules of Practice and Procedure.

² Respondent refers to the notice of intent to levy as the "Collection due process hearing notice" or CDP notice, the terminology which respondent uses in his regulations. See sec. 301.6330-1(a)(1), Proced. & Admin. Regs.

³ Generally, the CDP notice is sent to a taxpayer by certified or registered mail, return receipt requested, to the taxpayer's "last known address". Sec. 6330(a)(2).

⁴ No jeopardy determination was made in this case.

⁵ See infra p. 5, table note 1.

⁶ Our jurisdiction is predicated upon sec. 6330(d)(1)(A). See Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 37 (2000); Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 179 (2000).

⁷ Petitioner appears to argue that she was entitled to funds that respondent credited to other outstanding tax liabilities. Sec. 6402(a) permits the Secretary to credit any overpayment "against any liability in respect of an internal revenue tax on the part of the person who made the overpayment" and requires the Secretary to refund any balance to that taxpayer.

⁸ Petitioner has not explicitly claimed administrative or litigation costs pursuant to sec. 7430 even though she was specifically advised by the Court that if she wished to make such claim she would have to provide the facts and information required by Rule 231. Petitioner has not provided the information required by Rule 231.

[Dec. 55,698] James M. Robinette v. Commissioner.

Dkt. No. 12052-01L , 123 TC 85, No. 5, July 20, 2004 .

[Appealable, barring stipulation to the contrary, to CA-8]

[Code Sec. 6330]
Collection Due Process hearing: Revocation of offer-in-compromise: Abuse of discretion: Standard of review.

The failure of an individual taxpayer to file a return for one of five years specifically required by the terms of an offer-in-compromise was not a material breach of the terms of the offer-in-compromise. Since the offer-in-compromise was not in default, the IRS Appeals officer in a Collection Due Process (CDP) hearing abused his discretion in voiding the offer-in-compromise and determining that it was proper to proceed with the collection of the taxpayer's pre-compromise tax liability. A de novo standard of review did not apply since the underlying tax liability was not at issue. Furthermore, neither the Administrative Procedure Act nor the Federal Rules of Evidence operated to limit the court's review to the documents and testimony that were part of the administrative record.

Thomas L. Overbey and Laurie M. Boyd, for petitioner; Martha J. Weber, for respondent.

On Oct. 31, 1995 , P and R entered into an offer-in-compromise. The terms of the offer-in-compromise required P to, among other things, timely file his 1995 through 1999 tax returns. On the morning of Oct. 15, 1999 , the day P's 1998 return was due, P's accountant (A) prepared P's return. That afternoon, A drove to P's office to obtain P's signature on P's return. A returned to his office. Thereafter, A affixed postage to the envelope containing P's return using a private postage meter. A deposited the envelope containing P's return in a U.S. Postal Service mailbox in his office building.

R's records indicate that R received all of P's returns except for P's 1998 return. R declared P's offer-in-compromise in default. After a hearing in which P raised the issue of compliance with the terms of the offer-in-compromise, R issued a notice of determination in which R determined to proceed with collection of the unpaid tax liabilities.

Held: Pursuant to sec. 6330(c), I.R.C., abuse of discretion is the applicable standard of review.

Held, further, When reviewing R's determination for an abuse of discretion under sec. 6330, I.R.C., we may consider evidence presented at trial which was not included in the administrative record.

Held, further, R abused his discretion in determining to proceed with collection.

VASQUEZ, Judge: This case was commenced in response to a Notice of Determination Concerning Collection Action(s) Under Sections 6320¹ and/or 6330. The issue is whether respondent may proceed with collection of petitioner's 1983, 1984, 1985, 1986, 1987, 1988, 1989, 1990, and 1991 tax liabilities.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, first supplemental stipulation of facts, second supplemental stipulation of facts, and the attached exhibits are incorporated herein by this reference. At the time he filed the petition, petitioner resided in Jonesboro , Arkansas .

Since approximately 1990, Douglas W. Coy has served as petitioner's accountant. Mr. Coy has prepared petitioner's tax returns for all the tax years in which he has represented petitioner.

Petitioner's Offer-in-Compromise

On October 31, 1995 , petitioner and respondent entered into an offer-in-compromise. The offer-in-compromise related to income tax liabilities for 1983, 1984, 1985, 1986, 1987, 1988, 1989, 1990, and 1991, and trust fund recovery penalties for unpaid employment taxes for periods ending March 31, June 30, and September 30, 1988 , June 30 and December 31, 1989 , and March 31, June 30, and September 30, 1990 . The offer-in-compromise was submitted on the basis of doubt as to collectibility. The amount of individual income tax and statutory additions compromised totaled $989,475.² Petitioner offered to pay $100,000 to compromise the outstanding liabilities and penalties.³ Petitioner paid $1,000 with the submission of the offer and the remaining $99,000 with borrowed funds within 60 days after acceptance of the offer.

Petitioner agreed to the following terms and conditions:

(d) I * * * will comply with all the provisions of the Internal Revenue Code related to filing my * * * returns * * * for five (5) years from the date IRS accepts the offer.

* * * * * * *

(j) I * * * understand that I * * * remain responsible for the full amount of the tax liability unless and until IRS accepts the offer in writing and I * * * have met all the terms and conditions of the offer. IRS won't remove the original amount of the tax liability from its records until I * * * have met all the terms and conditions of the offer.

* * * * * * *

(o) If I * * * fail to meet any of the terms and conditions of the offer, the offer is in default, and IRS may:

* * * * * * *

(iv) file suit or levy to collect the original amount of tax liability, without further notice of any kind.

Petitioner's 1998 Individual Income Tax Return

Petitioner received an extension to file his 1998 individual income tax return (petitioner's 1998 return) on or before October 15, 1999 . On the morning of October 15, 1999 , Mr. Coy received via facsimile petitioner's Schedule K-1, Shareholder's Share of Income, Credits, Deductions, etc., for Professional Acres Leasing Group from the accounting firm of Osborne & Osborne. Upon receipt of the Schedule K-1 on October 15, 1999 , Mr. Coy completed petitioner's 1998 return. For 1998, petitioner was entitled to a refund of $3,300.

At approximately 3:45 to 4 p.m. on October 15, 1999 , Mr. Coy left his office in Little Rock , Arkansas , en route by car to three other cities in Arkansas in order to review State and Federal income tax returns with four of his clients, including petitioner, and to obtain his clients' signatures on their returns. First, Mr. Coy drove to Mount Pleasant , Arkansas , to deliver the returns of Howard and Jane Lamb for review and signatures. After the Lambs signed their tax returns, Mr. Coy drove to Melbourne , Arkansas , to deliver the returns of David and Theresa Sharp for review and signatures. After the Sharps signed their tax returns, Mr. Coy delivered the returns of Fred Lamb, also in Melbourne , Arkansas , for review and signature. After Mr. Lamb signed his tax returns, Mr. Coy drove to Jonesboro , Arkansas , to deliver the returns of petitioner for review and signature.

Mr. Coy arrived at petitioner's office between 8:45 and 9 p.m. Petitioner signed the returns in the presence of Mr. Coy and Frances Robinette, petitioner's wife and office manager.

After the clients signed their tax returns, Mr. Coy took the signed returns from his clients so that he could mail them from his office in Little Rock , Arkansas .

Mr. Coy returned to his office in Little Rock , Arkansas , sometime after 11 p.m., but before midnight. Mr. Coy made a copy of the signature page of petitioner's 1998 return. Mr. Coy affixed postage to the envelope containing petitioner's 1998 return using a private postage meter. The postage from the private postage meter displayed a postmark of October 15, 1999 . Before midnight, Mr. Coy placed the envelope containing petitioner's 1998 return in a U.S. Postal Service mailbox in the building where his office is located.

At this same time, Mr. Coy mailed the returns of Mr. Sharp. Mr. Sharp was not assessed late filing penalties or late payments by the Internal Revenue Service (IRS) with respect to his 1998 individual income tax return.

Petitioner's 1995, 1996, 1997, 1999, and 2000 Individual Income Tax Returns

Petitioner received extensions to file his 1995 individual income tax return on or before October 15, 1996 . Petitioner's 1995 individual income tax return was prepared by Mr. Coy on October 15, 1996 . For 1995, petitioner paid the $2,593 shown as owed on his return.

Petitioner received extensions to file his 1996 individual income tax return on or before October 15, 1997 . Petitioner's 1996 individual income tax return was received by the IRS on October 20, 1997 . For 1996, petitioner was entitled to a refund of $14,435.

Petitioner received extensions to file his 1997 individual income tax return on or before October 15, 1998 . Petitioner's 1997 individual income tax return was prepared by Mr. Coy on October 14, 1998 , and received by the IRS on October 19, 1998 . For 1997, petitioner was entitled to a refund of $5,644.

Petitioner received extensions to file his 1999 individual income tax return on or before October 15, 2000 . Petitioner's 1999 individual income tax return was prepared by Mr. Coy on October 15, 2000 , and received by the IRS on October 19, 2000 . For 1999, petitioner was entitled to a refund of $2,631.

Petitioner received extensions to file his 2000 individual income tax return on or before October 15, 2001 . Petitioner's 2000 income tax return was received by the IRS on October 17, 2001 .

Each of the aforementioned years, including 1998, on or about October 15, Mr. Coy, or a person from Mr. Coy's office, delivered to petitioner at petitioner's office his original individual income tax return, and petitioner would sign it.

IRS Collection Efforts

On February 21, 2000 , the IRS sent petitioner a "Request for Your Tax Return" for 1998. Petitioner received this letter. On March 17, 2000 , the IRS notified petitioner that it had received his required Statement of Annual Income for 1998 but needed a copy of his 1998 Form 1040, U.S. Individual Income Tax Return. On April 17, 2000 , the IRS sent petitioner a letter stating: "Your Tax Return is Overdue --Contact us Immediately" for 1998. The letter also stated:

*** OFFER IN COMPROMISE ***

Our records indicate that we've accepted an offer in compromise from you. You agreed to file and pay all your federal taxes for the five (5) year period after we accepted this offer. If you don't file the requested delinquent return, we may reinstate the amount you owe that we previously compromised.

Petitioner forwarded to Mr. Coy by fax all notices from the IRS concerning his 1998 return and offer-in-compromise, as he was "scared to death" of these notices.

The Austin , Texas , Service Center monitored petitioner's offer-in-compromise. Revenue Officer Kathy Santino of the Oklahoma City , Oklahoma , office was assigned to examine whether petitioner's offer-in-compromise was in default. She examined petitioner's offer-in-compromise "as a courtesy to the Austin Service Center [because] they were overloaded in potentially-defaulted offers". Ms. Santino knew of the 5-year filing requirement, but she did not know what years were covered by petitioner's offer-in-compromise. In her courtesy investigation of petitioner's offer-in-compromise, she did not look at the transcripts for 1995, 1996, or 1997. She did not consider petitioner's pattern of filing his returns on or about October 15. Ms. Santino never spoke with petitioner or Mr. Coy.

On July 13, 2000 , Ms. Santino sent petitioner a letter declaring petitioner's offer-in-compromise in default. The basis for the default was that the IRS had not received petitioner's Form 1040 for 1998.

On September 28, 2000 , the IRS issued a Final Notice --Notice of Intent to Levy and Your Right to a Hearing.

On October 6, 2000 , petitioner, through his authorized representative Mr. Coy, filed a Form 12153, Request for a Collection Due Process Hearing. Petitioner stated the basis for the appeal as: "We do not believe the taxpayer owes the amounts stated in the Notice of Intent to Levy and would like the opportunity to resolve these matters at a Collection Due Process Hearing."

On January 10, 2001 , Appeals Officer Troy C. Talbott of the Oklahoma City, Oklahoma, office sent Mr. Coy a letter identifying the options available for resolution of petitioner's tax liability (such as full payment, installment agreement, offer-in-compromise, or determination that petitioner's account is currently not collectible) and asking for more details as to why petitioner did not owe the amount stated in the notice of intent to levy. Mr. Talbott also requested and reviewed the IRS administrative file related to the default of the offer-in-compromise. On January 24, 2001 , Mr. Talbott looked at petitioner's transcript of account for 1998. Mr. Talbott's case activity record states: "Per research on IDRS, no record of 98 1040 being filed. * * * Per IRP information, TP had a filing requirement, but may have been due a refund." Mr. Talbott concluded that petitioner had defaulted on the offer-in-compromise.

On January 29, 2001 , in a telephone section 6330 hearing (the hearing), Mr. Coy stated to Mr. Talbott that he mailed petitioner's 1998 return on October 15, 1999 . Specifically, Mr. Coy told Mr. Talbott that he prepared petitioner's return, took the return to petitioner, obtained petitioner's signature, and mailed the return on October 15, 1999 .

The only evidence Mr. Talbott would consider for proof of mailing was a certified mail or registered mail receipt. Mr. Talbott did not consider petitioner's pattern of filing returns on October 15, despite having looked at the transcripts for 1995, 1996, 1997, and 1999.

Mr. Talbott believed he had no authority to reinstate petitioner's offer-in-compromise. He believed only the National Office could reinstate the offer-in-compromise. He stated: "The National Office would still have to do the reinstatement by itself" and the "National Office would have the call". Mr. Talbott reviewed the Internal Revenue Manual. The manual was silent as to whether an Appeals officer has authority to reinstate an offer-in-compromise.

Mr. Coy sent Mr. Talbott a copy of petitioner's 1998 return. Mr. Talbott received the copy of petitioner's 1998 return on February 16, 2001 . Mr. Talbott forwarded it to the Austin Service Center , where it was processed by the IRS as an original return. Petitioner's transcript of account for 1998 states "return filed and tax assessed" on April 2, 2001 .

Petitioner never personally met with, or spoke to, Mr. Talbott.

The Appeals settlement memorandum prepared by Mr. Talbott concluded that the notice of intent to levy was appropriate. Mr. Talbott's evaluation concluded:

The Offer in Compromise was defaulted because the IRS did not have a record of the taxpayer filing Form 1040 for 1998. The taxpayer's representative claimed to have timely mailed the tax return for 1998 on October 15, 1999 , but the tax return was not sent by certified mail and the representative does not have any evidence to prove that the return was mailed. The taxpayer did not respond to the IRS's requests to file the tax return, which resulted in the offer being defaulted.

On August 21, 2001 , the IRS issued to petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 determining to proceed with collection. Petitioner timely filed a petition with the Court.

OPINION

I. Section 6330

Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to do so within 10 days after notice and demand, the Secretary can collect such tax by levy upon property belonging to such person. Pursuant to section 6331(d), the Secretary is required to give the taxpayer notice of his intent to levy and within that notice must describe the administrative review available to the taxpayer, before proceeding with the levy. See also sec. 6330(a).

Section 6330(b) describes the administrative review process, providing that a taxpayer can request an Appeals hearing with regard to a levy notice. At the Appeals hearing, the taxpayer may raise certain matters set forth in section 6330(c)(2), which provides, in pertinent part:

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

* * * * * * *

(2) Issues at hearing. --

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

Pursuant to section 6330(c)(2)(A), a taxpayer may raise at the section 6330 hearing any relevant issue with regard to the Commissioner's collection activities, including spousal defenses, challenges to the appropriateness of the Commissioner's intended collection action, and alternative means of collection. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 609 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 180 (2000).

Pursuant to section 6330(d)(1), within 30 days of the issuance of the notice of determination, the taxpayer may appeal that determination to this Court if we have jurisdiction over the underlying tax liability. Van Es v. Commissioner [Dec. 54,080], 115 T.C. 324, 328 (2000).

II. Standard of Review

The parties dispute the standard of review to be applied in this case. Although section 6330 does not prescribe the standard of review that the Court is to apply in reviewing the Commissioner's administrative determinations, we have stated that where the validity of the underlying tax liability is properly at issue, the Court will review the matter de novo. Where the validity of the underlying tax liability is not properly at issue, however, the Court will review the Commissioner's administrative determination for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181.

Generally, under section 6330(c)(2)(B), issues that are reviewed de novo include those such as a redetermination of the tax on which the Commissioner based the assessment, provided that the taxpayer did not have an opportunity to seek such a redetermination before assessment. See, e.g., Landry v. Commissioner [Dec. 54,224], 116 T.C. 60, 62 (2001) ("Because the validity of the underlying tax liability, i.e., the amount unpaid after application of credits to which petitioner is entitled, is properly at issue, we review respondent's determination de novo."). Whether the Commissioner's assessment was made within the limitation period also constitutes a challenge to the underlying tax liability. Hoffman v. Commissioner [Dec. 54,882], 119 T.C. 140, 145 (2002).

Under an abuse of discretion standard, "we do not interfere unless the Commissioner's determination is arbitrary, capricious, clearly unlawful, or without sound basis in fact or law." Ewing v. Commissioner [Dec. 55,519], 122 T.C. 32, 39 (2004); see also Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). Review for abuse of discretion includes "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" such as offers in compromise. Sec. 6330(c)(2)(A). Questions about the appropriateness of the collection action include whether it is proper for the Commissioner to proceed with the collection action as determined in the notice of determination, and whether the type and/or method of collection chosen by the Commissioner is appropriate. See, e.g., Swanson v. Commissioner [Dec. 55,280], 121 T.C. 111, 119 (2003) (challenge to appropriateness of collection reviewed for abuse of discretion).

Abuse of discretion is the proper standard of review in this case. The introductory language of section 6330(c)(2)(A) encompasses the situation at bar. Mr. Talbott's conclusion that respondent had acted properly in declaring petitioner's offer-in-compromise in default and that issuing a notice of determination was proper is a "relevant issue relating to the unpaid tax or the proposed levy". Further, offers in compromise are a specifically mentioned collection alternative. Sec. 6330(c)(2)(A)(iii). Additionally, whether respondent may proceed with collection of petitioner's unpaid liability is a challenge to the appropriateness of collection. See sec. 6330(c)(2)(A)(ii); Swanson v. Commissioner, supra.

Petitioner argues that a de novo standard of review is appropriate because he "put forth the argument of the validity of the underlying taxes --i.e. the petitioner does not owe the tax, nor the additions to the tax, since the tax was previously discharged by an Offer in Compromise which was improperly defaulted by the respondent". We view petitioner's argument as a challenge to the appropriateness of collection, rather than as a challenge to the underlying tax liability. See Swanson v. Commissioner, supra.

III. Evidentiary Issue

A. The Parties' Contentions

At trial, respondent moved to strike "all documents and testimony not part of the administrative record on the ground that the trial record should be limited to the agency administrative record." Documents and testimony not part of the administrative record include: (1) Petitioner's testimony; (2) petitioner's tax returns for 1995, 1996, 1997, 1999, 2000, and other stipulated facts relating to the date these returns were received by the IRS; (3) Mr. Coy's private postage meter log, cellular telephone records, credit card records, and daily calendar for October 15, 1999 ; (4) Frances Robinette's testimony; and (5) all statements made by Mr. Coy at trial that he did not make to Mr. Talbott. Respondent contends that this evidence is not relevant because it is not part of the administrative record.

Petitioner contends that this evidence is relevant. Petitioner argues that on account of the informal nature of section 6330 hearings, as there is no formal record, it is impossible to determine the actual statements made at the hearing. Further, petitioner argues that the tax returns for 1995, 1996, 1997, 1999, and 2000 show his pattern and practice of filing returns on or about October 15.

The Court reserved decision on this issue. For the following reasons, we hold that, when reviewing for abuse of discretion under section 6330(d), we are not limited by the Administrative Procedure Act (APA) and our review is not limited to the administrative record. The evidence in this case pertains to issues raised at the hearing. The evidence in this case is relevant and admissible.

B. Applicability of the APA Judicial Review Provisions to Tax Court Proceedings Commenced Under Section 6330(d)

1. Established Practice and Procedure

Since the enactment of section 6330, the Court has applied our traditional de novo procedures in deciding whether an Appeals officer abused his or her discretion in determining to proceed with collection. At trials under section 6330 when reviewing for abuse of discretion, the Court has received into evidence testimony and exhibits that were not included in the administrative record. See, e.g., Wells v. Commissioner [Dec. 55,257(M)], T.C. Memo. 2003-234 (taxpayer's testimony admissible at trial when he was represented by counsel and taxpayer was not present at hearing); Maloney v. Commissioner [Dec. 55,158(M)], T.C. Memo. 2003-143 (taxpayers presented numerous letters sent to Commissioner asking him to recalculate their FICA taxes as evidence of claimed overpayments), affd. 94 Fed. Appx. 969 (3d Cir. 2004); Black v. Commissioner [Dec. 54,963(M)], T.C. Memo. 2002-307 (extensive testimony as to taxpayer's physical limitations due to diabetes and testimony of taxpayer's accountant considered when, at hearing, taxpayers raised issue of illness from diabetes and presented Appeals officer with medical files), affd. 94 Fed. Appx. 968 (3d Cir. 2004); Gougler v. Commissioner [Dec. 54,824(M)], T.C. Memo. 2002-185 (Court considered two documents at trial that were not presented to Appeals officer); Holliday v. Commissioner [Dec. 54,678(M)], T.C. Memo. 2002-67 (Commissioner permitted to present documents, records, and testimony at trial that was not part of administrative record), affd. [2003-1 USTC ¶50,358] 57 Fed. Appx. 774 (9th Cir. 2003) ("Holliday's contention that the Tax Court erred by admitting into evidence documents that were not produced at the * * * [section 6330] hearing fails because the `record review' provisions of the Administrative Procedure Act * * * do not apply to the Tax Court." (Emphasis added.)), cert. denied 124 S. Ct. 1038 (2004).⁴

2. The Court's Specific Statutory Review Provisions

The APA has never governed proceedings in the Court (or in the Board of Tax Appeals). Ewing v. Commissioner [Dec. 55,519], 122 T.C. at 50 (Thornton, J., concurring). It is well established that "The Tax Court, rather than being a `reviewing court' within the meaning of Sec. 10(e) [of the APA] reviewing the `record', is a court in which the facts are triable de novo". O'Dwyer v. Commissioner [59-1 USTC ¶9441], 266 F.2d 575, 580 (4th Cir. 1959), affg. [Dec. 22,434] 28 T.C. 698 (1957). The "Tax Court is not subject to the Administrative Procedure Act." Id. In Nappi v. Commissioner [Dec. 31,384], 58 T.C. 282, 284 (1972), we reasoned that the APA provisions "apply to an `agency' of the Government of the United States, but specifically exclude `the courts of the United States.' * * * the United States Tax Court is established as a court of record under article I of the Constitution of the United States. Being a court of the United States , it is excluded from the provisions of the * * * [APA]."

Although section 6330 postdates the APA, the APA judicial review provisions are not applicable. The APA does not "limit or repeal additional requirements imposed by statute or otherwise recognized by law." 5 U.S.C. sec. 559 (2000). The Court's de novo procedures for reviewing IRS functions were well established and "recognized by law" at the time of the APA's enactment. Ewing v. Commissioner, supra at 52 (Thornton, J., concurring); see also Phillips v. Commissioner [2 USTC ¶743], 283 U.S. 589, 598, 600 (1931); Blair v. Oesterlein Mach. Co. [1927 CCH ¶7053], 17 F.2d 663, 665 (D.C. Cir. 1927); Barry v. Commissioner [Dec. 68], 1 B.T.A. 156, 157 (1924). The Court's de novo procedures provide a stricter scope of review of the Commissioner's determinations than would be obtained under APA judicial review procedures. Ewing v. Commissioner, supra at 52-53 (Thornton, J., concurring).

The APA does not supersede specific statutory provisions for judicial review, as it is a statute of general application. 5 U.S.C. secs. 703, 704 (2000); Ewing v. Commissioner, supra at 50 (Thornton, J., concurring). "The legislative history of APA section 703 makes clear that where there is a special statutory review proceeding relevant to the subject matter, that special statutory review `shall not be disturbed'." Ewing v. Commissioner, supra at 50 (Thornton, J., concurring); see also S. Comm. on the Judiciary, 79th Cong., Administrative Procedure Act (Comm. Print 1945), reprinted in Administrative Procedure Act Legislative History, 1944-46, at 11, 37 (1946); see also H. Rept. 1980, 79th Cong., 2d Sess. (1946), reprinted in the Administrative Procedure Act Legislative History, 1944-46, at 233, 276 (1946). "When Congress enacted the APA to provide a general authorization for review of agency action in the district courts, it did not intend that general grant of jurisdiction to duplicate the previously established special statutory procedures relating to specific agencies." Bowen v. Massachusetts , 487 U.S. 879, 903 (1988).

The Internal Revenue Code has long provided a specific statutory framework for reviewing determinations of the Commissioner. Section 6330 is part and parcel of this statutory framework. The Court's de novo review procedures emanate from this framework. The APA judicial review procedures do not supplant the Court's longstanding de novo review procedures. Thus, the Court's de novo procedures are not limited by the APA.

3. Section 6330 Hearings Are Not Formal Adjudications

Section 6330 hearings do not take the form of the formal adjudicative hearings under the APA. Indeed, the Commissioner's regulations describe the hearing as informal and not subject to the APA:

Q-D6. How are * * * [section 6330] hearings conducted?

A-D6. The formal hearing procedures required under the Administrative Procedure Act, 5 U.S.C. 551 et seq., do not apply to * * * [section 6330] hearings. * * * [Section 6330] hearings are much like Collection Appeal Program (CAP) hearings in that they 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 * * * [section 6330] hearing may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between an Appeals officer or employee and the taxpayer or the taxpayer's representative, or some combination thereof. A transcript or recording of any face-to-face meeting or conversation between an Appeals officer or employee and the taxpayer or taxpayer's representative is not required. The taxpayer or the taxpayer's representative does not have the right to subpoena and examine witnesses at a * * * [section 6330] hearing. [Sec. 301.6330-1(d)(2), Proced. & Admin. Regs.]

The Commissioner vigorously litigated, and we agreed, that hearings are informal. In Davis v. Commissioner [Dec. 53,969], 115 T.C. 35 (2000), we held that taxpayers had no right to subpoena witnesses to appear at a hearing. We stated:

When Congress enacted section 6330 and required that taxpayers be given an opportunity to seek a pre-levy hearing with Appeals, Congress was fully aware of the existing nature and function of Appeals. Nothing in section 6330 or the legislative history suggests that Congress intended to alter the nature of an Appeals hearing so as to compel the attendance or examination of witnesses. When it enacted section 6330, Congress did not provide either Appeals or taxpayers with statutory authority to subpoena witnesses. The references in section 6330 to a hearing by Appeals indicate that Congress contemplated the type of informal administrative Appeals hearing that has been historically conducted by Appeals and prescribed by section 601.106(c), Statement of Procedural Rules. The nature of the administrative Appeals process does not include the taking of testimony under oath or the compulsory attendance of witnesses. * * * [ Id. at 41-42; fn. ref. omitted; emphasis added.]

In Katz v. Commissioner [Dec. 54,081], 115 T.C. 329, 337 (2000), we held that the Appeals officer may conduct the hearing by telephone. In Nestor v. Commissioner [Dec. 54,655], 118 T.C. 162, 166-167 (2002), we held that the IRS was not required to provide assessment records to the taxpayer at the hearing. In some instances, we have affirmed the Appeals officer's determination when no hearing was conducted. See Lunsford v. Commissioner [Dec. 54,553], 117 T.C. 183, 189 (2001). In Keene v. Commissioner [Dec. 55,213], 121 T.C. 8 (2003), we held that while the IRS is not required to record the hearing, the taxpayer may make an audio record.

The "administrative record" compiled at the hearing is quite limited. It is nowhere near as comprehensive as the record required to be compiled at a formal APA hearing. See 5 U.S.C. sec. 556(e) ("The transcript of testimony and exhibits, together with all papers and requests filed in the proceeding, constitutes the exclusive record for decision in accordance with * * * [5 U.S.C. section 557]"). Section 6330 hearings were not intended to provide a detailed factual record for judicial review. Rather, they allow for the taxpayer to informally raise matters relevant to the collection actions at hand, such as spousal defenses, propriety of IRS collection activities, and alternatives to collection actions proposed by the IRS. See sec. 6330(c)(2)(A).

4. Legislative History

Nothing in the legislative history of section 6330 or 6320 indicates that the APA applies or that the Court's review is limited to the administrative record. Congress was well aware when it enacted section 6330 that the Court is a trial court which has historically resolved cases by taking evidence and has never been governed by the APA. Section 6330 expanded the Court's jurisdiction. The conference agreement states: "The determination of the appeals officer may be appealed to the Tax Court or, where appropriate, the Federal district court." H. Conf. Rept. 105-559, at 266 (1998), 1998-3 C.B. 747, 1020. The report specifies that where "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." Id. Reference to the APA or the administrative record, however, is absent.

5. Other Instances Where the Court Reviews for Abuse of Discretion

"The mere fact that judicial review is for abuse of discretion * * * does not trigger application of the APA record rule or preclude this Court from conducting a de novo trial. * * * [This] Court has a long tradition of providing trials when reviewing the Commissioner's determinations under an abuse of discretion standard." Ewing v. Commissioner [Dec. 55,519], 122 T.C. at 53 (Thornton, J., concurring). In Ewing , we held that when reviewing the Commissioner's determination for an abuse of discretion under section 6015, we may consider evidence presented at trial which was not included in the administrative record. Id. at 44. Our review of section 6330 cases for abuse of discretion is similar to our review of section 6015(f) cases --which are reviewed for an abuse of discretion. Id. at 39; Sego v. Commissioner [Dec. 53,938], 114 T.C. at 610; Goza v. Commissioner [Dec. 53,803], 114 T.C. at 181; Cheshire v. Commissioner [Dec. 54,028], 115 T.C. 183, 198 (2000), affd. [2002-1 USTC ¶50,222] 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner [Dec. 53,869], 114 T.C. 276, 293 (2000).

The APA does not apply to challenges of the Commissioner's denials of requests to abate interest under section 6404, which are reviewed for abuse of discretion. See Beall v. United States [2003-2 USTC ¶50,551], 336 F.3d 419, 427 n.9 (5th Cir. 2003) ("review under the APA is accordingly available only where `there is no other adequate remedy in a court' "). The Court has consistently conducted trials on the issue of whether the Commissioner's denial of a request to abate interest under section 6404 was an abuse of discretion. See, e.g., Goettee v. Commissioner [Dec. 55,049(M)], T.C. Memo. 2003-43; Jacobs v. Commissioner [Dec. 53,840(M)], T.C. Memo. 2000-123.

Additionally, other cases the Court has decided under the abuse of discretion standard include waiver of additions to tax, Krause v. Commissioner [Dec. 48,383], 99 T.C. 132, 179 (1992), affd. sub nom. Hildebrand v. Commissioner [94-2 USTC ¶50,305], 28 F.3d 1024 (10th Cir. 1994); reallocation of income or deduction under section 482, Bausch & Lomb v. Commissioner [91-1 USTC ¶50,244], 933 F.2d 1084, 1088 (2d Cir. 1991), affg. [Dec. 45,547] 92 T.C. 525 (1989); declaratory judgment, Fujinon Optical, Inc. v. Commissioner [Dec. 37,797], 76 T.C. 499, 506-507 (1981); tax-exempt status, Lowry Hosp. Association v. Commissioner [Dec. 33,971], 66 T.C. 850 (1976); and change of accounting method, Thor Power Tool Co. v. Commissioner [79-1 USTC ¶9139], 439 U.S. 522, 532-533 (1979); Bank One Corp. v. Commissioner [Dec. 55,138], 120 T.C. 174 (2003). In none of these types of cases have we held that the APA applies or that we are limited to the administrative record.

For the reasons set forth supra, we conclude that our review under section 6330(d) of an Appeals officer's determination is not limited to the administrative record.

C. Whether the Evidence Presented at Trial Relates to Issues Raised at the Hearing

Respondent, citing Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002), contends that "only `arguments, issues and other matter' presented to Appeals are relevant to the determination whether an appeals officer abused his or her discretion." Further, respondent argues that "judicial review of respondent's exercise of discretion in this case should be based solely on the information presented to, and considered by, the appeals officer." We disagree with respondent's interpretation of Magana.

In a review for abuse of discretion of the Commissioner's determination under section 6330(d)(1), "generally we consider only arguments, issues, and other matter that were raised at the collection hearing or otherwise brought to the attention of the Appeals Office." Magana v. Commissioner, supra at 493 (emphasis added). "We did not say in Magana that the taxpayer would be limited to the administrative record or that the taxpayer may not offer evidence in the proceeding in this Court." Ewing v. Commissioner, supra at 41.

In Magana, the issue for decision on the Commissioner's motion for summary judgment was whether the Court "shall consider a new issue that was not raised by the petitioner at his collection hearing with respondent's Appeals Office." Magana v. Commissioner, supra at 489 (emphasis added). In the taxpayer's request for a collection hearing and at the hearing, the only issue raised was whether the period of limitations had expired under section 6502. The taxpayer did not raise the issue of hardship. See id. at 490, 491.

In his petition to the Court, the taxpayer "for the first time, raised hardship as an objection to respondent's lien filings (namely, petitioner's physical illness and the resulting cloud on title to petitioner's residence, petitioner's only significant asset)." Id. At the oral argument on the Commissioner's motion for summary judgment, the taxpayer's counsel "acknowledged that * * * [the taxpayer's] ill health was not recent but had extended over 20 years." Id. at 492. In response to the Court's questioning, the taxpayer's counsel "acknowledged that he had had an opportunity at the collection hearing to raise hardship but that he had chosen not to do so." Id.

In the discussion section of the Opinion, under the heading "New Issue", we reasoned:

In this case, because petitioner's alleged longstanding illness and hardship were not raised as an issue and were not otherwise brought to respondent's attention in connection with petitioner's collection hearing with respondent's Appeals Office, petitioner may not now raise hardship for the first time before this Court. * * * [ Id. at 493-494.]

The cases cited for support of the holding in Magana were issue preclusion cases. See, e.g., McCoy Enters., Inc. v. Commissioner [95-2 USTC ¶50,332], 58 F.3d 557, 563 (10th Cir. 1995) (Court does not have to rule on an issue when taxpayer "cannot point to a single time at which it presented the * * * issue to the Commissioner to be ruled upon"), affg. [Dec. 48,672(M)] T.C. Memo. 1992-693; Miller v. Commissioner [Dec. 54,164], 115 T.C. 582, 589 n.2 (2000) ("we would not consider petitioner's alternative request * * * because the record does not establish that he raised that issue at his Appeals Office hearing" (Emphasis added.)), affd.[2001-2 USTC ¶50,713] 21 Fed. Appx. 160 (4th Cir. 2001); Inner Office, Inc. v. United States, No. 3:00-CV-2576-L, ("Plaintiff has produced no evidence that the IRS Hearing Officer's determination is legally incorrect or that the IRS Hearing Officer abused his discretion. * * * In seeking district court review of a Notice of Determination, the taxpayer can only ask the court to consider an issue that was raised in the taxpayer's * * * [section 6330] hearing." (Emphasis added.)), adopted on this issue 89 AFTR 2d 2002-1311, 2003-1 USTC par. 50,185 (N.D. Tex. 2002).

Unlike the taxpayer in Magana, petitioner is not raising a new issue in his petition. At the hearing, petitioner raised the issue of compliance with the terms of the offer-in-compromise. Mr. Coy asked Mr. Talbott to reinstate the offer-in-compromise. Mr. Coy brought to the attention of Mr. Talbott the fact that he mailed petitioner's 1998 return on October 15, 1999 . Mr. Talbott's notes in his case activity record indicate that Mr. Coy raised the issue and brought to his attention that Mr. Coy mailed the return on October 15, 1999 . Shortly after the hearing, Mr. Coy wrote Mr. Talbott stating: "As I had mentioned, I prepared the return for [petitioner], obtained his signature, and mailed the return to the Service Center on the evening of October 15, 1999 ." This was brought to the attention of Mr. Talbott.

Accordingly, we may consider evidence regarding this issue at trial, if it is otherwise admissible under the Federal Rules of Evidence.

D. Whether the Evidence Is Admissible Under the Federal Rules of Evidence

While we are not limited by the APA's judicial review provisions in our proceedings arising under section 6330(d), our review of materials not included in the Commissioner's administrative record is subject to the Federal Rules of Evidence. Section 7453 and Rule 143(a) provide that the Court's proceedings are to be conducted in accordance with the rules of evidence applicable in trials without a jury in the U.S. District Court for the District of Columbia . Consistent with section 7453 and Rule 143(a), we must decide whether evidence in this case which was not included in the administrative record is admissible under the Federal Rules of Evidence in our proceedings arising under section 6330(d).

Respondent moved to strike the evidence on the ground of relevancy. "All relevant evidence is admissible. * * * Evidence which is not relevant is not admissible." Fed. R. Evid. 402. Relevant evidence "means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed. R. Evid. 401. Therefore, we must determine whether the evidence presented at trial that respondent characterizes as "outside of the administrative record" has any tendency to make the existence of any fact that is of consequence in determining whether the Appeals officer abused his discretion more probable or less probable than it would be without the evidence. We find that the evidence does have a tendency to show the Appeals officer abused his discretion in determining to proceed with collection.

Petitioner's testimony is relevant. Petitioner was not present at the hearing. Petitioner's testimony shows that he signed the 1998 return on October 15, 1999 . Petitioner's testimony shows that he had filed his returns for 1995, 1996, 1997, 1999, and 2000 on or about October 15 in the same pattern and practice as he did for 1998. Petitioner's testimony shows that he acted in good faith in complying with the terms of the offer-in-compromise.

Petitioner's tax returns for 1995, 1996, 1997, 1999, and 2000 are relevant. They show a pattern and practice of petitioner's filing his returns on or about October 15. They show petitioner generally received refunds for the period in issue. While the Appeals officer reviewed petitioner's transcripts for 1995, 1996, 1997, and 1999, he did not consider petitioner's pattern and practice of timely filing. After reviewing petitioner's transcripts, the Appeals officer concluded petitioner was probably entitled to a refund for 1998. These facts, however, were of no consequence to him when he reviewed whether the offer-in-compromise should have been defaulted.

Mr. Coy's private postage meter log, cellular telephone records, credit card records, and daily calendar for October 15, 1999 , are relevant. They corroborate Mr. Coy's statements regarding mailing. The Appeals officer, however, refused to consider any evidence of mailing, other than a certified or registered mail receipt.

Frances Robinette's testimony is relevant. Under Davis v. Commissioner [Dec. 53,969], 115 T.C. 35 (2000), taxpayers are not entitled to call witnesses at the hearing. Mrs. Robinette's testimony corroborates petitioner's good faith and compliance with the terms of the offer-in-compromise.

Mr. Coy's statements at trial that he did not make to Mr. Talbott are relevant. Mr. Coy's testimony indicates the Appeals officer's unwillingness to consider in depth certain issues that he raised at the hearing.

Accordingly, respondent's motion to strike will be denied.

IV. Whether Respondent Abused His Discretion

Where, as here, the validity of the underlying tax liability is not at issue, we review the determination for abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. at 610; Goza v. Commissioner [Dec. 53,803], 114 T.C. at 181-182. In doing so, we review whether the Appeals officer's determination was arbitrary, capricious, or without sound basis in fact or law. Woodral v. Commissioner [Dec. 53,206], 112 T.C. at 23. Having observed the appearance and demeanor of the witnesses testifying for petitioner at trial, including petitioner, we find them to be honest, forthright, and credible.

Taking into account all the facts and circumstances, we conclude that on the basis of the record before us, respondent abused his discretion in determining to proceed with collection.

A. Whether Petitioner's Return Was Timely Filed

We note at the outset that contrary to petitioner's contentions, we find that petitioner's return was not timely filed. Filing, generally, "is not complete until the document is delivered and received". United States v. Lombardo, 241 U.S. 73, 76 (1916). Section 7502 provides an exception to this rule. Section 7502(a)(1) provides that, in certain circumstances, a timely mailed document will be treated as though it were timely filed. Section 7502(a)(2) provides that the timely mailing/timely filing rule applies if the postmark date on an envelope falls within the prescribed period or on or before the prescribed date.

In the case of postmarks not made by the U.S. Postal Service, the timely mailing/timely filing rule applies "only if and to the extent provided by regulations prescribed by the Secretary". Sec. 7502(b). The postmark in this case was made by a private postage meter. Section 301.7502-1(c)(1)(iii)(b), Proced. & Admin. Regs., provides:

If the postmark on the envelope or wrapper is made other than by the United States Post Office, (1) the postmark so made must bear a date on or before the last date, or the last day of the period, prescribed for filing the document, and (2) the document must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document contained in an envelope or other appropriate wrapper which is properly addressed and mailed and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the United States Post Office on the last date, or the last day of the period, prescribed for filing the document. However, in case the document is received after the time when a document so mailed and so postmarked by the United States Post Office would ordinarily be received, such document will be treated as having been received at the time when a document so mailed and so postmarked would ordinarily be received, if the person who is required to file the document establishes (i) that it was actually deposited in the mail before the last collection of the mail from the place of deposit which was postmarked (except for the metered mail) by the United States Post Office on or before the last date, or the last day of the period, prescribed for filing the document, (ii) that the delay in receiving the document was due to a delay in the transmission of the mail, and (iii) the cause of such delay. If the envelope has a postmark made by the United States Post Office in addition to the postmark not so made, the postmark which was not made by the United States Post Office shall be disregarded, and whether the envelope was mailed in accordance with this subdivision shall be determined solely by applying the rule of (a) of this subdivision. [Emphasis added.]

Mr. Coy testified that he placed petitioner's return in the mail between 11 p.m. and midnight. Petitioner presented no evidence that this was before the last collection for that mailbox. Petitioner presented no evidence as to a delay in the transmission of the mail. Petitioner presented no evidence as to the cause of a delay. Petitioner has failed to meet the requirements of the regulation. See Fishman v. Commissioner [70-1 USTC ¶9166], 420 F.2d 491, 492 (2d Cir. 1970), affg. [Dec. 29,474] 51 T.C. 869 (1969); cf. Jones v. Commissioner [Dec. 52,721(M)], T.C. Memo. 1998-197 (the taxpayer met requirements of non-U.S.-postmark regulation when evidence established, in part, that he deposited the envelope in the mail before the last collection).

Petitioner argues that Estate of Wood v. Commissioner [90-2 USTC ¶50,488; 90-2 USTC ¶60,031], 909 F.2d 1155 (8th Cir. 1990), affg. [Dec. 45,604] 92 T.C. 793 (1989), and not the regulation, controls this issue. In Estate of Wood, the Court of Appeals for the Eighth Circuit, the court to which an appeal of this case would lie, discussed section 7502 in the situation where the taxpayer's return was not received by the IRS. Petitioner's reliance on Estate of Wood is misplaced. The presumption of delivery discussed in Estate of Wood is raised only when a timely mailing occurs. As petitioner's return was not timely mailed, the presumption of delivery discussed in Estate of Wood has not been raised.

On the basis of the foregoing, we hold that petitioner has not proven that he filed his return on October 15, 1999 . Mr. Coy sent Mr. Talbott a copy of petitioner's 1998 return. On February 16, 2001 , Mr. Talbott received the copy of petitioner's 1998 return, which he forwarded to the Austin Service Center and which was then processed by the IRS as an original return. Petitioner's transcript of account for 1998 states: "return filed and tax assessed" on April 2, 2001 . Thus, petitioner's return was late filed.

B. Whether Petitioner Materially Breached the Offer-in-Compromise

Despite the late filing of petitioner's return, under the facts and circumstances of this case, respondent abused his discretion in determining to proceed with collection. The Appeals officer acted arbitrarily and without sound basis in law and had a closed mind to the arguments presented on petitioner's behalf. He failed to consider the facts and circumstances of this case. He determined to proceed with collection even though the breach in the contract was not material and under contract law the contract remained in effect.

1. Jurisdiction To Consider Petitioner's Offer-in-Compromise

Respondent contends that the Court has no jurisdiction to determine whether petitioner's offer-in-compromise was properly terminated. Respondent contends that only the Court of Federal Claims or a U.S. District Court may review this determination. We disagree.

In Roberts v. United States [2001-1 USTC ¶50,306], 242 F.3d 1065 (Fed. Cir. 2001), the Court of Appeals for the Federal Circuit reversed and remanded the order of the U.S. District Court for the Eastern District of Missouri transferring the case to the Court of Federal Claims for lack of jurisdiction. The Court of Appeals held that the U.S. District Court did have jurisdiction over the taxpayer's claim for refund, even though the tax liability resulted from an offer-in-compromise that the IRS had defaulted. The Court of Appeals reasoned:

Roberts is not requesting, for example, damages from the government for breach of contract, which would constitute a claim based purely upon a government contract. Certainly, the district court does not have jurisdiction over additional contract claims Roberts may wish to assert against the government under the terms of the OIC * * *.

Instead, Roberts has paid taxes that he alleges were illegally or erroneously collected. Tax cases heard in the district courts often involve offers in compromise * * *. The fact that the alleged collection error stems from the cancellation of Roberts's OIC contract with the IRS does not negate the fact that the monies at issue were paid pursuant to the internal-revenue laws. [ Id. at 1069.]

The Court of Appeals found that the taxpayer had satisfied the jurisdictional requirements for a tax refund suit. Thus, the U.S. District Court could review whether the taxpayer's offer-in-compromise had been properly defaulted. See id. ⁵

In this case, petitioner is not asserting a cause of action under contract law. See id. at 1068-1069. Petitioner seeks a finding from the Court that respondent abused his discretion in determining to proceed with collection, which is within our jurisdiction under section 6330. Respondent's determination to proceed with collection arises from defaulting petitioner's offer-in-compromise. Whether the offer-in-compromise was properly defaulted is a relevant issue relating to the unpaid tax or proposed levy. Sec. 6330(c)(2)(A). Respondent issued petitioner a notice of intent to levy on the basis of petitioner's unpaid tax liability.

2. Whether the Breach of the Offer-in-Compromise Was Material

a. Applicable Law

"An accepted offer in compromise is properly analyzed as a contract between the parties." Dutton v. Commissioner [Dec. 55,542], 122 T.C. 133, 138 (2004). Offers in compromise are governed by "general principles of contract law." Id. "If the plaintiff's breach is material and sufficiently serious, the defendant's obligation to perform may be discharged. * * * Not so, however, if the plaintiff's breach is comparatively minor." TXO Prod. Corp. v. Page Farms, Inc., 698 S.W.2d 791, 793 ( Ark. 1985).

In determining whether a failure to perform is material, the following five circumstances are significant:

In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. [1 Restatement, Contracts 2d, sec. 241 (1981).]

Arkansas law adopts this analysis. See TXO Prod. Corp. v. Page Farms, Inc., supra; see also DHC Resort, LLC v. Razorback Entertainment Corp., 329 F.3d 974, 976 (8th Cir. 2003) (citing TXO Prod. Corp. v. Page Farms, Inc., supra, and section 241 of 1 Restatement, Contracts 2d when applying Arkansas law). The standard of materiality "is to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances." 1 Restatement, supra, sec. 241, comment a.

Cases in which courts have found offers in compromise materially breached, and thus in default, generally involve taxpayers who either fail to make payments agreed to in the offer-in-compromise to pay off the amount compromised, or fail to pay taxes owed during the 5-year period after the offer has been accepted. See United States v. Feinberg [67-1 USTC ¶9176], 372 F.2d 352, 356 (3d Cir. 1965) (decedent's installment payments of less than the amount due and estate's complete failure to make payments on offer constituted material breach of offer-in-compromise); United States v. Lane [62-1 USTC ¶9467], 303 F.2d 1, 3-4 (5th Cir. 1962) (taxpayer's failure to comply with terms of collateral agreement by refusing to file annual statements and pay additional money constituted breach of offer-in-compromise); Roberts v. United States [2002-1 USTC ¶50,173], 225 F. Supp. 2d 1138, 1148 (E.D. Mo. 2001) (taxpayer's delay in paying his 1995 tax liability of $246,354 was a material breach of the offer-in-compromise); Fortenberry v. United States, 49 AFTR 2d 82-1027, 82-1 USTC par. 9191 (S.D. Miss. 1981) (taxpayer's failure to pay additional amounts under collateral agreement was breach of the terms of the offer-in-compromise); United States v. Wilson [60-1 USTC ¶9400], 182 F. Supp. 567, 570 (D.N.J. 1960) (taxpayer's failure to pay weekly installments caused IRS to terminate offer-in-compromise).

b. Analysis

Loss of benefit to injured party. In petitioner's late filing of his 1998 return, in which he was due a refund, the extent of the benefit that respondent was deprived of was not significant. Inherent in the requirement that taxpayers comply with the provisions of the Internal Revenue Code for 5 years is the IRS expectation that the taxpayer will pay the taxes owed on time. See Roberts v. United States [2002-1 USTC ¶50,173], 225 F. Supp. 2d at 1148. In this case, however, petitioner was due a refund.

As stated supra, petitioner's return was not timely filed. Not every delay, however, constitutes a material breach. There must also be a causal connection between the delay and the damages suffered by respondent, in order for a material breach to be found on the basis of the delay. 23 Williston on Contracts, sec. 63:18 (4th ed. 2002). Respondent suffered no monetary damage from petitioner's late filing of the 1998 return. Under the facts of this case, the late filing, by itself, is not sufficient basis for a material breach of the contract.

Adequacy of compensation for loss. The IRS was adequately compensated for its "loss". Respondent suffered minimal, if any, damages, as he held petitioner's refund as security.

Forfeiture by party who fails. Under this factor, the comments in the Restatement explain: "[A] failure is less likely to be regarded as material if it occurs late, after substantial preparation or performance, and more likely to be regarded as material if it occurs early, before reliance." 1 Restatement, supra, sec. 241, comment d. In this case, petitioner had substantially performed under the terms of the offer-in-compromise at the time the offer was declared in default. Petitioner's untimely mailing of the return occurred in the fourth year of a 5-year agreement. Petitioner had already paid the full amount of the offer-in-compromise, with borrowed funds, within 60 days after the offer had been accepted. Petitioner had complied with the filing requirements for the first 3 years of the agreement. Further, at the time the Appeals officer determined to proceed with collection, petitioner had filed his 1998 return and complied with all other terms of the offer-in-compromise.

Uncertainty. Under this factor, the comments in the Restatement note:

To the extent that expectation is already reasonably secure, in spite of the failure, there is less reason to conclude that the failure is material. The likelihood that the failure will be cured is therefore a significant circumstance in determining whether it is material * * *. The fact that the injured party already has some security for the other party's performance argues against a determination that the failure is material. [1 Restatement, supra, sec. 241, comment e.]

As stated supra, respondent was reasonably secured. Respondent had possession of petitioner's 1998 refund, making it likely that petitioner would perform under the agreement by filing his 1998 return. Respondent also had received $100,000 within 60 days of his acceptance of the offer, which was the amount offered and accepted as payment of petitioner's outstanding tax liabilities from 1983 to 1991. Additionally, before the Appeals officer determined to proceed with collection, petitioner had cured the defect. Petitioner submitted his 1998 return to the Appeals officer, at the request of the Appeals officer, to be filed as an original return.

Absence of good faith or fair dealing. Petitioner acted in good faith. Petitioner signed his 1998 return on the due date and gave it back to Mr. Coy for mailing. This was the pattern and practice petitioner had used in filing the returns prepared by Mr. Coy. He paid the full amount of the offer-in-compromise within 60 days after acceptance of the offer, with borrowed funds. He timely filed his returns for 1995, 1996, 1997, 1999, and 2000.⁶ Except for 1995, petitioner's returns indicate that petitioner was entitled to refunds. For 1998, petitioner was entitled to a refund. Before respondent issued the notice of determination, petitioner had filed his 1998 return. Indeed, when petitioner received the notices from the IRS, he called Mr. Coy to discuss them and also forwarded the notices by fax to Mr. Coy, as he was "scared to death".

Additionally, Mr. Talbott did not have an open mind to the issues Mr. Coy presented at the hearing. He did not consider that petitioner had acted in good faith. Mr. Talbott did not consider petitioner's pattern of filing of returns on or about October 15, despite having looked at the transcripts for 1995, 1996, 1997, and 1999.

Mr. Talbott did not have an open mind regarding reinstatement. Moreover, he failed to independently analyze whether the terms of the offer-in-compromise had been materially breached. Mr. Talbott believed he had no authority to reinstate petitioner's offer-in-compromise. He believed only the National Office could reinstate the offer-in-compromise. Neither the Internal Revenue Code nor the Internal Revenue Manual, however, states that he could not reinstate the offer-in-compromise. Mr. Talbott reviewed the Internal Revenue Manual. The manual was silent as to whether he could reinstate the offer-in-compromise.

On the basis of the facts and circumstances of this case, we conclude that petitioner did not materially breach the terms of the offer-in-compromise. As the offer-in-compromise was not in default, it was an abuse of discretion for respondent to determine to proceed with collection of petitioner's tax liability.

In reaching all of our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit.

To reflect the foregoing,

An appropriate order and decision will be entered.

Reviewed by the Court.

GERBER, COHEN, SWIFT, WELLS, and LARO, JJ., agree with this majority opinion.

CHIECHI, J., dissents.

WELLS, J., concurring: I respectfully write separately to express my belief that the majority opinion may have unnecessarily focused its analysis on contract law to decide whether respondent abused his discretion in the instant case. Section 6330(c)(3)(C) requires the Appeals officer to consider "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 be no more intrusive than necessary." This provision requires the Appeals officer, when conducting a hearing under section 6330, to carry out a balancing of competing considerations between the Government and the person against whom the collection action is instituted. Given this balancing requirement, I do not believe the Appeals officer should be required to rigidly apply contract law in determining whether the Government should proceed with collection of a liability where that liability, as in the instant case, has been compromised in an agreement between the Government and the person against whom the collection action has been instituted.¹ Such a requirement would detract from the flexibility and discretion Congress granted the Appeals officer in section 6330(c)(3)(C) to balance competing interests between the Government and those persons. Consequently, I believe the focus of the analysis in the instant case should be on whether respondent failed to undertake the balancing required under section 6330(c)(3)(C).

On the basis of the trial Judge's findings set out in the majority opinion in the instant case it is clear to me that respondent failed to balance the relatively slight harm to respondent of receiving an hours-late² return against the great harm to petitioner of reinstating and collecting a large tax liability. The abuse of discretion in failing to undertake the required balancing becomes apparent when taking into account that petitioner had timely filed his other returns as agreed in the offer-in-compromise agreement, had made a good faith effort to timely file the 1998 return, and had paid all the tax due in that return and was due a refund. See majority op. pp. 4-7. Despite petitioner's technical³ failure to timely file the 1998 return, respondent should have allowed petitioner to present evidence that favored petitioner's position and should have taken those facts into account in balancing the competing interests between the Government and petitioner. Respondent should have considered that evidence, and on the basis of such evidence, should have determined not to proceed with collection. Respondent's failure to do so under these circumstances is an abuse of discretion.

Regarding Magana v. Commissioner [Dec. 54,765], 118 T.C. 488 (2002), I question whether that case has any application to the instant case. The majority opinion properly distinguishes Magana on the grounds that petitioner is not raising a new issue. See majority op. p. 29. However, even if Magana could be read to exclude relevant and admissible evidence not raised during an Appeals Office hearing, it would have no application to the instant case. During the Appeals Office hearing in the instant case, petitioner attempted to present evidence relevant to his position, and respondent refused to consider it. If the Tax Court had no authority to develop a factual record in the instant case, there would not have been a sufficient record to determine whether respondent had abused his discretion. This is important because there are no formal procedures available for Appeals Office hearings. See sec. 301.6330-1(d)(1), Q&A-D6, Proced. & Admin. Regs. As this Court has stated, Appeals Office hearings historically have been informal, and in enacting section 6330, Congress did not intend to alter the nature of Appeals Office hearings. Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 41 (2000). Thus, if the parties were not allowed to make a record in the trial before this Court, they could be precluded from presenting all of the evidence in support of their respective positions. Even the Commissioner has routinely sought to add evidence to the record in trials before this Court in order to bolster his determination in collection cases. See Chase v. Commissioner [Dec. 54,709(M)], T.C. Memo. 2002-93, affd. [2003-1 USTC ¶50,199] 55 Fed. Appx. 717 (5th Cir. 2002); 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); Holliday v. Commissioner [Dec. 54,678(M)], T.C. Memo. 2002-67, affd. [2003-1 USTC ¶50,358] 57 Fed. Appx. 774 (9th Cir. 2003).

Regarding this issue, I also do not believe that allowing petitioner to present evidence in the instant case would mean that in other cases where a person refuses to comply with an Appeals officer's reasonable request for relevant evidence at the hearing, we would be required to receive that evidence in a trial in this Court. In the instant case, petitioner attempted to present a wide array of evidence to support his position, and the Appeals officer refused to receive it. Thus, the case where a person refuses to furnish relevant evidence requested at the Appeals Office hearing is not before us and raises an issue the Court has not addressed and need not address.

Accordingly, I agree with the conclusion of the majority opinion that respondent should be prevented from proceeding with collection in the instant case.

GERBER, FOLEY, MARVEL, and WHERRY, JJ., agree with this concurring opinion.

THORNTON, J., concurring: I agree with the majority opinion's holding that the Administrative Procedure Act (APA), 5 U.S.C. secs. 551-559, 701-706 (2000), does not apply to our proceedings under section 6330. Since its enactment in 1946, the APA has never governed proceedings in this Court (or in its predecessor, the Board of Tax Appeals), and there is no indication that, in enacting section 6330, Congress intended to change this general inapplicability of the APA. See Ewing v. Commissioner [Dec. 55,519], 122 T.C. 32, 50 (2004) (Thornton, J., concurring); see also O'Dwyer v. Commissioner [59-1 USTC ¶9441], 266 F.2d 575, 580 (4th Cir. 1959) ("The Tax Court * * * is a court in which the facts are triable de novo * * *. We agree that the Tax Court is not subject to the Administrative Procedure Act"), affg. [Dec. 22,434] 28 T.C. 698 (1957).

I also agree with the majority opinion's holding that, under the circumstances of this case, we may consider relevant evidence presented at trial which was not included in respondent's administrative record. As discussed in my concurring opinion in Ewing , this Court traditionally has applied de novo trial procedures when reviewing the Commissioner's determinations, including in cases that we review for an abuse of discretion.

The majority opinion should not be construed, however, to hold that the administrative record has no significance in our review of determinations under sections 6320 and 6330. Indeed, the administrative record takes on added significance under these sections given the statutory requirement of an Appeals Office hearing, and we often have relied on the administrative record in reviewing Appeals Office determinations. Moreover, in appropriate circumstances, we might restrict ourselves to the administrative record --for instance, where the taxpayer has failed to cooperate in presenting relevant evidence at the Appeals Office hearing. In the instant case, petitioner attempted to introduce relevant evidence at the Appeals Office hearing, but the Appeals officer refused to consider that evidence and failed to include it in the administrative record. In these circumstances, I agree with the majority opinion that we are not limited to evidence in the administrative record.

Section 6330(c)(2) provides that a taxpayer may raise at the Appeals Office hearing "any relevant issue relating to the unpaid tax or the proposed levy". Section 6330(c)(3) requires that the determination by an Appeals officer shall take into consideration the relevant issues raised by the taxpayer in the Appeals Office hearing. In this case, Judge Vasquez, as the trial Judge, has found that issues relating to whether petitioner defaulted on the offer-in-compromise are relevant issues that petitioner raised in the Appeals Office hearing and which should have been considered by the Appeals officer in his determination, but were not. I defer to Judge Vasquez, as the trial Judge, in identifying the issues raised at the Appeals Office hearing and whether those issues are relevant. I also defer to his conclusions that the Appeals officer failed to consider those relevant issues in his determination. On that basis, I agree with the majority opinion that "it was an abuse of discretion for respondent to determine to proceed with collection of petitioner's tax liability." Majority op. p. 45.

A taxpayer's express agreement to file timely tax returns is an integral condition to the Commissioner's acceptance of an offer-in-compromise, and a reasonable one-it merely confirms an obligation that is statutorily imposed (even in cases where the taxpayer is entitled to a refund), see secs. 6011(a) and 6012, and that is fundamental to our income tax system. Consequently, a taxpayer's failure to honor this obligation is not to be lightly regarded. With that being said, however, I agree with the majority opinion that it was an abuse of discretion to proceed with collection of petitioner's tax liability without considering relevant issues relating to petitioner's offer-in-compromise. I shall defer to Judge Vasquez's judgment in fashioning an appropriate remedy to address that abuse of discretion.

GERBER, COHEN, SWIFT, LARO, FOLEY, GALE, HAINES, GOEKE, WHERRY, and KROUPA, JJ., agree with this concurring opinion.

MARVEL, J. concurring: I agree that the Administrative Procedure Act does not apply and we are not limited to the administrative record, and with the majority's conclusion that the Appeals officer abused his discretion in this case, but I question the majority's reliance on principles of contract law to reach its conclusion. The Appeals officer's failure to refer the case to the National Office for guidance regarding the reinstatement of petitioner's offer-in-compromise before making his determination in this case is more than sufficient to support the conclusion that the Appeals officer abused his discretion in upholding the proposed collection action.

In his brief, petitioner asserted several errors that he contended established an abuse of discretion. One of those errors was that the Appeals officer "did not fully investigate the method of reinstating a revoked Offer in Compromise." The Appeals officer testified at trial that he did not believe that he had the authority to reinstate the offer-in-compromise. He also testified, however, that he could have referred the case to the National Office for guidance concerning the reinstatement of an offer-in-compromise.¹ Given the importance of the reinstatement issue in determining whether the collection action could proceed, the Appeals officer should have obtained the guidance he needed from the National Office before he made his determination in this case.

An Appeals officer is required by section 6330(c)(3) to consider "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 be no more intrusive than necessary." Until the Appeals officer had fully explored whether and under what circumstances he had authority to reinstate petitioner's offer-in-compromise, it was impossible for the Appeals officer to conduct the balancing analysis that section 6330(c)(3) requires. Coupled with the Appeals officer's reluctance to fully explore the facts regarding petitioner's compliance with the terms and conditions of the offer-in-compromise, which the majority discusses at length, the failure to obtain the necessary guidance from the National Office supports a conclusion that the balancing required by section 6330(c)(3) did not occur and that the Appeals officer abused his discretion in upholding the proposed collection action.

LARO and WHERRY, JJ., agree with this concurring opinion.

HAINES, J., concurring: I concur with the result reached by the majority that we are not limited by the Administrative Procedure Act in this case, our review is not limited to the administrative record, and respondent abused his discretion in his determination to proceed with collection of petitioner's 1998 tax liability. I write separately to make two points.

First, we have held that an offer-in-compromise is governed by general principles of contract law. Dutton v. Commissioner [Dec. 55,542], 122 T.C. 133, 138 (2004); majority op. p. 39. We have not extended that holding to mean that the general principles of contract law must be determined by application of the law of the State where the taxpayer resides.

The majority opinion uses the Restatement of Contracts to provide the circumstances in which a failure to perform is "material". Majority op. p. 39 (citing 1 Restatement, Contracts 2d, sec. 241 (1981)). The majority opinion further states that " Arkansas law adopts this analysis." Majority op. p. 40. Readers of this Opinion should not infer that the use of State law of a taxpayer's residence, rather than general contract principles, is necessary to reach the majority's result. Given the number of offers-in-compromise negotiated and overseen by the Commissioner, if the terms of each offer-in-compromise had to be analyzed on the basis of the State law of a taxpayer's residence, the result would be an administrative nightmare for the Commissioner. General contract principles as expressed in the Restatement of Contracts should control these determinations.

Second, an offer-in-compromise is an agreement between the taxpayer and the Government which settles a tax liability for payment of less than the full amount owed. 2 Administration, Internal Revenue Manual (CCH), sec. 5.8.1.1.1, at 16,253. In the case at bar, petitioner paid $100,000 to compromise individual income tax and statutory additions totaling $989,475. Majority op. p. 3. By defaulting petitioner, respondent now seeks to collect the remaining sums previously compromised.

Noncompliance with the terms of the offer-in-compromise does not automatically result in the offer's being defaulted. As 2 Administration, Internal Revenue Manual (CCH), sec. 5.19.7.3.22, at 18,507 (Defaults) states:

(1) When a taxpayer fails to meet any term of an offer, the offer may be defaulted and all liabilities reinstated. Any of the following may result in a default of the offer.

* * * * * * *

l Failure to timely file subsequent tax returns and pay all taxes due during the compliance period.

The Internal Revenue Manual further states that "If the taxpayer does not comply with the provisions of the offer in compromise, the offer may be considered in default." 4 Administration, Internal Revenue Manual (CCH), sec. 8.13.2.5.4, at 27,581 (Actions on Defaulted Offers) (emphasis added).

Compromises are favored in the law, Big Diamond Mills Co. v. United States [2 USTC ¶791], 51 F.2d 721, 724 (8th Cir. 1931), and, thus, the Commissioner is under an obligation to be clear on the circumstances before making a default determination. In the case at bar, the Appeals officer failed to consider petitioner's pattern of filing his tax returns on or about October 15, did not speak with petitioner, and failed to independently analyze whether the terms of the offer-in-compromise had been materially breached. Majority op. p. 10. Failure to consider these facts constitutes an abuse of discretion.

GOEKE and WHERRY, JJ., agree with this concurring opinion.