Section 7206 - An individual's conviction on two counts of filing false income tax returns was vacated as to one count, but affirmed as to another. The indictment was insufficient to support the individual's conviction on one count one because it alleged that the individual filed a false amended tax return based on the false statements contained in a schedule attached to his original return. However, the schedule, which formed an integral part of the original return, was not an integral part of the amended return. By signing the jurat on the amended return, the individual did not expose himself to potential liability for false statements contained in the schedule because he swore to the veracity of only the amended return. However, the government's evidence supported the individual's conviction on the other count by demonstrating that the individual received gross receipts greater than those he reported.


United States of America Plaintiff-Appellee v. Jon Dale Adams Defendant-Appellant.

U.S. Court of Appeals, 5th Circuit; 07-60926, February 17, 2009.

Unpublished opinion affirming in part, vacating in part and remanding, per curiam, an unreported DC Miss. decision.

[ Code Sec. 7206]




Before: Wiener, Garza and DeMoss, Circuit Judges.

PER CURIAM * : Defendant-Appellant Jon Dale Adams was convicted on two counts of filing false income tax returns in violation of 26 U.S.C. § 7206(1). He appeals his conviction, contending that he is entitled to acquittal because the government improperly charged him with one count and, in any event, that there was insufficient evidence to support the jury's verdict. In the alternative, Adams claims that the district court abused its discretion in denying him a new trial. We vacate Adams's conviction as to one count, affirm his conviction as to the other count, and remand for re-sentencing.


I. FACTS AND PROCEEDINGS


Adams is the former owner of Secrets Cabaret strip club and Stardust Oasis bar in Jackson, Mississippi. He filed a federal income tax return for 1999 (the "1999 Form 1040") that failed accurately to reflect at least $450,000, being proceeds of the sale of the strip club in October 1999. Adams signed the inaccurate return and mailed it to the IRS in June 2000. Then, in early 2001, Adams hired accountant and former IRS agent Perry Smith in what Adams's counsel describes as an effort to "get his taxes straight." On February 27, 2001, with Smith's guidance, Adams completed, signed, and mailed a Form 1040X "Amended U.S. Individual Income Tax Return" (the "Form 1040X"), which amended the 1999 Form 1040 to report an additional $450,000 in gross income from the sale of the strip club. The Form 1040X included a jurat signed by Adams, which stated:
Under penalties of perjury, I declare that I have filed an original return and that I have examined this amended return, including accompanying schedules and statements, and to the best of my knowledge and belief, this amended return is true, correct, and complete.

IRS Form 1040X instructs taxpayers to "[a]ttach only the supporting forms and schedules for the items changed." In this case, the supporting form was Adams's Form 4797, which he properly appended to the Form 1040X. In addition, however, Adams also included an unsigned copy of his 1999 Form 1040 together with a copy of his 1999 "Schedule C" --"Profit or Loss From Business" --that had been originally submitted with, and was considered part of, the 1999 Form 1040. The parties agree, and IRS instructions and Treasury regulations confirm, that Adams was under no obligation to submit the 1999 Form 1040 and Schedule C with the Form 1040X. In fact, he was affirmatively instructed not to do so.

In August 2001, again with Smith's assistance, Adams completed, signed, and mailed his 2000 Form 1040 tax return (the "2000 Form 1040"). On that return, he reported gross receipts of $400,423.

In 2002, the IRS assigned Agent Jerry Porter to investigate whether Adams had violated tax statutes in reporting his 1999 and 2000 income. On February 22, 2007, a grand jury indicted Adams, charging him with two counts of filing false income tax returns in violation of 26 U.S.C. § 7206(1). This offense is distinct from tax evasion, which "requires proof of an intention to evade or defeat a tax, whereas § 7206(1) penalizes the filing of a false return even though the falsity would not produce tax consequences." 1

Count I of the indictment relates to the Form1040X. It specifically alleges that Adams did not believe the amended return was true "in that the ... Form 1040X reported gross receipts on Line 1 of Schedule C of the 1999 U.S. Individual Income Tax Return Form 1040 attached thereto as $227,415.21, whereas, as he then and there well knew and believed, he had gross receipts substantially in excess of the amounts reported ... ." The government contends that Adams had continued to understate his 1999 income by omitting $277,551.46 in gross receipts from the Form 1040X.

Count II of the indictment relates to the 2000 Form 1040. It specifically alleges that on this return Adams had "reported gross receipts on Line 1 of Schedule C as $400,423.00, whereas, as he then and there well knew and believed, he had gross receipts in excess of the amounts reported ...." 2 The government contends that the 2000 Form 1040 understated Adams's income by $66,013.

A jury convicted Adams on both counts. He subsequently filed a Rule 29 motion for judgment of acquittal, or in the alternative, for a new trial pursuant to Rule 33. The district court denied the motion and this timely appeal followed.


II. ANALYSIS




A. Standards of Review

We review de novo the district court's denial of a post-trial motion for judgment of acquittal. 3 In reviewing for sufficiency of the evidence, we must affirm the jury's verdict "if a reasonable trier of fact could conclude from the evidence that the elements of the offense were established beyond a reasonable doubt, viewing the evidence in the light most favorable to the verdict and drawing all reasonable inferences from the evidence to support the verdict." 4 Here, however, Adams's challenge to his Count I conviction is an attack on the sufficiency of the indictment. 5 When, as here, the defendant has challenged the sufficiency of the indictment in district court, we review the indictment's sufficiency de novo, 6 taking its allegations as true. 7 We review the district court's denial of a motion for new trial for abuse of discretion. 8



B. Applicable Law

We cannot emphasize too strongly the framework for considering this case: It is not a criminal tax evasion case; 9 it is not a criminal failure-to-file case. 10 It is a perjury case --specifically, the filing of a tax return, under penalty of perjury, that contains false statements, which is criminalized in 26 U.S.C. § 7206(1). 11 Under that section, the government has the burden of proving that: "1) the accused willfully made and subscribed to a tax return, 2) the return contained a written declaration that it was made under penalties of perjury, [ ] 3) the accused did not believe that the return was true as to every material matter[,]" 12 and 4) that the return was false as to a material matter. 13 Here, Count I of the indictment pinpoints precisely the sole material matter that the government, via the grand jury, insists made Adams's Form 1040X false: the amount of gross receipts reported on the copy of the Schedule C from his 1999 income tax return that he included with the Form 1040X. Count II of the indictment also pinpoints precisely the alleged material false statement: the reported gross receipts on the Schedule C from his 2000 income tax return included with that same 2000 return.



C. Motion for Acquittal: Count I - False Form 1040X



1. Relationship of the Form 1040X to the 1999 Schedule C

An amended tax return, Form 1040X, can give rise to liability for filing a false tax return in the same manner as can any other tax return. 14 Additionally, a Schedule C can give rise to liability because "section 7206(1) requires the same duty of honest reporting on schedules as it requires for entries on the Form proper." 15 This liability attaches because "schedules, when appropriate, become integral parts of" the forms to which they relate and "are incorporated therein by reference." 16

A copy of Adams's 1999 Schedule C had been appended to his original 1999 Form 1040. The government, however, did not seek to indict Adams for making false statements on his 1999 Form 1040, nor could it have, because by the time the government indicted Adams, the applicable statute of limitations barred charges of making a false statement on his 1999 Form 1040. 17 But, if Adams had been so indicted, we would first have asked the relatively straight-forward question whether the 1999 Schedule C was an integral part of the 1999 Form 1040. As we have previously answered that question in the affirmative, 18 we know that a falsity on the Schedule C could have served as the basis for a charge of filing a false 1999 return.

The crime charged in Count I, however, was submitting a false Form 1040X, specifically the Form 1040X to correct Adams's return for the 1999 tax year. Moreover, the indictment based this charge only on the falsity of Adams's 1999 Schedule C, a document that IRS instructions and Treasury regulations indicate Adams need not have and should not have submitted with the Form 1040X. 19 The government nevertheless contends that Adams may be held criminally liable for statements on the 1999 Schedule C because, by signing the jurat on his Form 1040X, he swore to the truth of "accompanying schedules." The IRS argues that this includes the 1999 Schedule C that, despite instructions not to attach it to the Form 1040X, Adams had voluntarily attached. Adams counters that the Form 1040X's jurat cannot be read as extending to the 1999 Schedule C, so that, as a matter of law, he cannot be held criminally liable for any false statements that may appear in that attached schedule. Here is why we agree with Adams.

The jurat on the Form 1040X states that Adams swears that he "examined this amended return, including accompanying schedules and statements, and to the best of my knowledge and belief, this amended return [no mention of schedules or statements] is true, correct, and complete." 20 By specifying that the signer's examination extends to the amended return and all attachments while limiting the signer's assurance of truth, correctness, and completeness to just the amended return, the jurat's language makes a clear distinction between that which Adams examined and that which he swore was true --a classic example of the maxim Inclusio unius est exclusio alterius. In the common case, this distinction is insignificant because accompanying schedules and statements are generally considered integral parts of the return to which the jurat applies. 21 In this case, though, Adams's 1999 Schedule C --which did constitute an integral part of his 1999 Form 1040 --does not constitute an integral part of the Form 1040X: It was not a supporting schedule for the item being amended, and it was attached only as a "courtesy." 22 In signing the jurat on the Form 1040X, Adams swore that he had examined, inter alia, the copy of the 1999 Schedule C, but swore to the veracity of only the amended return (and of any accompanying documents integral to the amended return, a set of documents that does not include the Schedule C from his 1999 Form 1040). As the 1999 Schedule C cannot be incorporated by reference into the Form 1040X, 23 it is a leap too far for the government to bootstrap the falsity in the time-barred 1999 Schedule C as the basis for a criminal charge of submitting a false Form 1040X. 24 We again emphasize that this is a perjury case, not a tax-evasion case. In a tax-evasion case, Adams's alleged failure to report taxable receipts would be relevant, irrespective of which form(s) tended to demonstrate the tax deficiency. But, when, as here, the government alleges perjury, the specific false statement charged is the very essence of the offense. In such cases, we must hold the government to proving the particular falsity it alleges even if the evidence should demonstrate that the defendant made other false statements for which liability could have properly attached.

We reject the overly expansive reading that the government would have us give to the jurat. Taking the government's theory to its logical conclusion would result in amending taxpayers incurring liability virtually every time they include a copy of an original tax return with their amended returns. After all, by the time a taxpayer files a Form 1040X, he already knows that his original return is erroneous. Indeed, that is the very reason for filing the amended return. Still, for completeness, taxpayers frequently attach copies of the originals to the amended returns. 25 Under the government's theory that the Form 1040X's jurat extends to the truthfulness of not only the Form 1040X and integral schedules but to any attached copies of previous tax returns as well, the amending taxpayer would be vouching for the accuracy of the very tax return that he is recognizing as erroneous in his voluntary amendment. This result defies all logic: It cannot be the case that the amending taxpayer is swearing to the veracity of each statement contained in the admittedly deficient original return that he is attempting to correct as well as in every attachment to that original return. Thus, the ambit of the amended return's jurat cannot be read so broadly as to cover statements in the original return and its schedules and attachments. 26

Having determined that by signing the jurat of the Form 1040X, Adams did not expose himself to potential liability for false statements contained in the 1999 Schedule C, we next assess the sufficiency of the indictment.



2. Sufficiency of the Indictment
The Federal Rules of Criminal Procedure require that the indictment be "a plain, concise and definite written statement of the essential facts constituting the offense charged." FED. R. CRIM. P. 7(c)(1). The indictment is sufficient if it alleges every element of the crime charged and in such a way as to enable the accused to prepare his defense and to allow the accused to invoke the double jeopardy clause in any subsequent proceeding. When reviewing the indictment, we must keep in mind that the law does not compel a ritual of words and that an indictment's validity depends on practical, not technical, considerations. And the starting place for any determination of whether the charged conduct is proscribed by a criminal statute is a reading of the language of the charging instrument and the statute itself. 27

An indictment that describes the offense by tracking the relevant statute's unambiguous language is generally sufficient; yet, "that general description 'must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged.'" 28

In this case, we interpret Adams's challenge as asserting that the indictment fails to allege an offense under 26 U.S.C. § 7206(1) because it alleges a falsity in a document that cannot serve as the basis for filing a false Form 1040X itself. We agree with Adams: Here, the devil is in the details. The government specifically alleged a falsity only on the 1999 Schedule C, and when the government sets forth "only one particular kind of falsity," it has the burden of convicting on solely that falsity. 29 Thus, the Adams indictment's statement of the "facts and circumstances" of the offense is deficient; it does not adequately or accurately state the element of falsity.

Yet, this determination does not end our inquiry. If an indictment fails to allege an element, we review the failure for harmless error, provided that, as here, the defendant properly raised the issue at the district court. 30 Under the harmless error standard, we ask "whether the error affects substantial rights," that is "whether it appears 'beyond a reasonable doubt that the error complained of did not contribute to the verdict obtained.'" 31 Relevant to this inquiry are the two primary functions of an indictment: "that it (1) provides notice of the crime for which the defendant has been charged, allowing him the opportunity to prepare a defense; and (2) interposes the public into the charging decision, such that a defendant is not subject to jeopardy for a crime alleged only by the prosecution[.]" 32

After careful review, we cannot say that it appears beyond a reasonable doubt that the indictment's error did not contribute to Adams's conviction on Count I. The indictment, on its face, sends the clear message that Adams need only mount a defense against the accusation that he falsely "reported gross receipts on Line 1 of Schedule C of the 1999 U.S. Individual Income Tax Return Form 1040 attached thereto as $227,415.21." Instead, the government apparently meant to accuse Adams of submitting an amended tax return that, in combination with his previous 1999 Form 1040 and accompanying Schedule C, under-reported gross income by continuing to refrain from reporting substantial gross receipts derived from his businesses in 1999. In an indictment sufficient to pursue that theory, the government could have made the straightforward allegation that Line 1, Column C of the Form 1040X, "adjusted gross income," was false because it failed to account for --omitted --significant taxable 1999 receipts. 33 Although the indictment surely put Adams on notice that the government was charging him with willfully under-reporting gross receipts for 1999 in the filing of the 1040X amended return, reasonable doubt exists regarding his opportunity to prepare a defense. It is not difficult to imagine that Adams would defend against an alleged falsity on the 1999 Schedule C in a different manner than he would defend against a falsity on the Form 1040X. For one thing, Adams had completed the 1999 Schedule C without the assistance of a paid tax preparer; accountant Smith prepared Adams's Form 1040X. If Adams had been relieved of the burden of concentrating on the 1999 Schedule C, he might have had an enhanced opportunity to negate the offense's willfulness element by shifting blame to Smith, e.g., "My accountant told me the Form 1040X was fine." This assertion is far more improbable if Adams is under the impression that he must defend the veracity of the 1999 Schedule C, which he completed at a time when he had no one at whom he could point the proverbial finger. This distinction alone is sufficient to hold that it does not appear beyond a reasonable doubt that the error in the indictment did not contribute to the jury's verdict on Count I. We decline to further hypothesize how the error affected Adams's opportunity to prepare for trial, and we do not reach the issue of the error's affect on the indictment's second purpose, that of ensuring that grand jurors, not just prosecutors, make charging decisions based on probable cause. 34

We conclude that the jury convicted Adams on an erroneous indictment, and we cannot say that the error was harmless. Thus, the conviction on Count I must be vacated. 35 Nothing we have stated, however, precludes the government, in its prosecutorial discretion, from re-indicting Adams in the proper form. 36

Furthermore, we would have reached this result regardless whether we (1) focused on the substance of Adams's argument, i.e., assessed the indictment's sufficiency, or (2) took the dissent's more technical approach --glossing over the fact that the government charged Adams with committing a crime for which he could not be convicted --and focused on a sufficiency-of-the-evidence inquiry.

Under the dissent's approach, we would have asked if, when viewing the evidence and drawing all inferences in the light most favorable to the verdict, the record contained evidence on which a reasonable jury could have determined that Adams swore the 1999 Schedule C was "true correct, and complete." Our analysis demonstrates that Adams could not have sworn to the truth of the 1999 Schedule C as a matter of law. For this reason, the district court should never have asked a jury to consider the issue; no reasonable jury could have convicted Adams on Count I.

The dissent, in contrast, would hold that there is sufficient evidence to support Adams's conviction on Count I because he swore that the Form 1040X was complete when in fact it was not because the Form 1040X, combined with the attached copy of the 1999 Form 1040 and accompanying Schedule C, did not represent a full accounting of Adams's 1999 income. Yet, the dissent either ignores or loses sight of the fact that the government has never charged Adams with failing to submit a complete return. The government instead charged that Adams made a specific false statement on line 1 of the Schedule C. The government's election to charge Adams in this manner forecloses our making a post-hoc determination that there is sufficient evidence that Adams's return simply was not complete. If we were to do that, we would affirm a conviction based on how the government wishes it had charged Adams, not on how it did charge him. We cannot be so quick to give the government this break, and we reiterate that when the government alleges "only one particular kind of falsity," it must convict solely on that falsity. 37 We repeat for emphasis that the government had multiple opportunities to charge Adams properly for a section 7206(1) violation. Even a federal court of appeals is in no better position than is the government to conclude that there exists sufficient evidence for a conviction on an uncharged crime.



D. Motion for Acquittal: Count II - False 2000 Form 1040



1. Government's Burden

The government did not present direct proof that Adams's 2000 gross receipts were greater than the $400,423 that he reported. Instead, the government employed an indirect method of proof --one known as the "bank deposits and cash expenditures method." 38
Under this method, all deposits to the taxpayer's bank and similar accounts in a single year are added together to determine the gross deposits. An effort is made to identify amounts deposited that are non-taxable, such as gifts, transfers of money between accounts, repayment of loans and cash that the taxpayer had in his possession prior to that year that was deposited in a bank during that year. This process is called "purification." It results in a figure called net taxable bank deposits.

The government agent then adds the amount of expenditures made in cash, for example, ... cash [a] doctor received from fees, did not deposit, but gave to his wife to buy groceries. The total of this amount and net taxable bank deposits is deemed to equal gross income. 39

The government then compares this gross income figure to the income that the taxpayer reported. "In asking the jury to rely on this analysis, as a basis for deciding that the taxpayer willfully under[stated] his true income, the government necessarily relies on circumstantial evidence." 40

In these cases, courts require the government to meet well-established criteria --in addition to the indirect calculation of gross receipts --without which it fails, as a matter of law, to establish guilt beyond a reasonable doubt. Specifically, a court should not allow a case to reach a jury unless the government establishes "with reasonable certainty" two components designed to ensure that the expenditures and deposits represent taxable income for the year in question. 41 First, the government must demonstrate with reasonable certainty the taxpayer's cash on hand at the beginning of the tax year in question. 42 Second, the government has the burden of proving that the receipts in question were taxable. Supreme Court precedent permits the government to satisfy this second burden in either of two ways: "It can show that there is a likely taxable source of the unreported income, Holland v. United States, 348 U.S. 121, 138 (1954), or it can negate all possible nontaxable sources of income, United States v. Massei, 355 U.S. 595 (1958)." 43 Because of the difficulties associated with proving a negative, the government proves "reasonable certainty" of the lack of non-taxable income sources by demonstrating that it performed an "adequate investigation that did not disclose non-taxable sources." 44

The "government must prove a full and adequate investigation" that "establish[es] a guarantee of essential accuracy in the circumstantial proof at trial as an element of the government's burden of proving guilt beyond a reasonable doubt." 45 The government need not, however, "conjecture about and either prove or negate every conceivable defense once it has met its own burden, explored every reasonable avenue and investigated every lead furnished by the taxpayer." 46 Each investigation's adequacy "necessarily turns on its own circumstances. The critical question is whether the investigation was sufficient to support the inference that the unexplained excess in deposits was in fact attributable to currently taxable income." 47



2. Gross Receipts

We are satisfied that the government provided the jury with sufficient evidence that in 2000 Adams received gross receipts greater than the $400,423 that he reported. Agent Porter testified how his investigation yielded gross receipts of $466,436, and the government introduced the relevant supporting data into evidence. Although on appeal Adams denies having had year-2000 receipts of $466,436, he does not directly attack the government's calculations, concentrating instead on the sufficiency of cash-on-hand and source-of-receipts evidence.



a. Cash on Hand

The government's calculations were based on the assumption that Adams had no cash on hand at the beginning of 2000. Given the government's $466,436 calculation, if Adams had at least $66,013 cash on hand on January 1, 2000, the government would be unable to bear its burden because the unreported deposits could have come from cash on hand rather than from year-2000 receipts. The government advances that it investigated as much as it reasonably could and thus met its duty, particularly given that Adams was in control of key facts. For example, the government learned from Adams that he maintained a safe deposit box which could have contained currency. Accordingly, Agent Porter verified the box's existence and looked at records that reflected the frequency of Adams's visits to the box. Yet, these actions did not provide direct evidence of cash on hand; Agent Porter had no way of knowing what was actually inside the box. When a defendant provides some facts that corroborate a "hoarding" claim, the government cannot sit idle and rely "solely upon a natural disinclination to believe that large sums of money are ever cached away." 48 In this case, the government did not sit idle; it investigated the safe-deposit-box lead. Adams was free to present his own witnesses to testify about his cash hoard, and the jury was free to discredit Agent Porter's testimony. But, requiring anything more of the government's investigation into hoarding would allow defendants to defeat tax prosecutions in virtually every case in which a hoarding defense is mounted. 49

The government set forth at least a dozen factors supporting the conclusion that Adams had no cash on hand. Tracing Adams's financial history from 1996, each factor tended to show that he had no cash on hand in January 2000. For example, in a 1996 bankruptcy petition, he claimed to have only $128.32 in cash; and when Adams updated that figure in 1999, he did not claim any additional cash on hand. Further, Adams filed a motion in the bankruptcy court in 1999 stating that he had no money to obtain counsel in a pending lawsuit.

Adams responds that although these and other factors may be sufficient to establish no cash on hand for the average taxpayer, he is not the average taxpayer because he had just sold Secrets Cabaret for $450,000, and thus was wealthy. Adams asserts that "[h]is actions in bankruptcy court and his dealings with his lawyer cannot make him poor when the numbers show him to be rich." 50 Adams specifically references the $450,000 proceeds from the Secrets Cabaret sale, but this is money that could not have constituted cash on hand because it was used to purchase a certificate of deposit and was no longer held in cash on January 1, 2000. Adams also represents that because he withdrew $87,134 from one of his bank accounts in 1999, that money still could have been on hand in 2000. The government countered with testimony that Adams was spending more money than he made in 1999, and offered evidence sufficient for the jury to conclude that Adams had exhausted the withdrawal in covering his significant ongoing debts.

Agent Porter's investigation was adequate. He took detailed steps, beginning with Adams's 1996 tax returns, to reconstruct Adams's cash-flow for the several years leading up to the tax year covered by his 2000 tax return; and the agent followed relevant leads to the extent possible. On the discrete facts of this case, these actions meet the reasonable-certainty standard for submitting evidence to a jury and provide sufficient support for a finding, beyond a reasonable doubt, of no cash on hand. For Adams's theory to prevail, the jury would have to ignore his bankruptcy filings, previous tax filings, and other evidence that pointed to his having no cash on hand. The jury was under no obligation to do so.



b. Likely Taxable Source / Negating Non-Taxable Sources

Adams insists the government stipulated that lawful activity at the Stardust Oasis was the sole source of his 2000 gross receipts, so that the government had the burden of establishing the Stardust Oasis as the likely source of unreported receipts. Unable to point to an actual stipulation, Adams directs us to (1) the district court's decision to prohibit the government from introducing testimony regarding receipts from a video store that Adams might have owned, and (2) the district court's statement that its "understanding" was that the government had stipulated that Stardust Oasis and Secrets Cabaret were the only sources of Adams's income. Assuming arguendo that it did in fact stipulate that it would not rely on other income sources, the government asserts that (1) it was under no obligation to prove the likely income source because it adequately established the absence of non-taxable sources, and (2) even if it were required to prove the likely source, it did so.

Agent Porter testified that he investigated and found no non-taxable income sources. This investigation included searching for non-taxable sources such as loans, gifts, and inheritances. Agent Porter reviewed Adams's check registers, deposit slips, and other bank documents for any indication of nontaxable receipts, and he found none. Moreover, Adams provided Agent Porter with no non-taxable leads that he neglected to pursue. Adams fails to explain with particularity how Agent Porter's non-taxable source investigation was deficient; and once it conducts a thorough investigation, the government need not "negate all possible non-income sources of the deposits, particularly where the source of the income is uniquely within the knowledge of the taxpayer." 51 We conclude that Agent Porter's investigation into non-taxable sources was sufficiently thorough.

Given this conclusion, the government was under no obligation to demonstrate an adequate investigation into likely income sources. Proving both (1) lack of non-taxable income and (2) lack of cash on hand is sufficient to establish that gross receipts for the year in question were taxable. 52 In so ruling, we are not relieving the government of any portion of its burden. Even after the trial court confirms the adequacy of the government's investigation, the jury still may not find a defendant guilty unless the government establishes each element of the section 7206 offense beyond a reasonable doubt. 53 That is precisely what the jury found in this case, and Adams presents no justification for our disturbing that finding. Accordingly, Adams is not entitled to acquittal on Count II.



E. Motion for New Trial

Adams asserts that the trial court committed reversible error in making rulings of two categories: (1) denial of a mistrial after Agent Porter testified as to Adams's mental state, and (2) evidentiary rulings regarding Agent Porter's investigation report.

A trial court may grant a Rule 33 motion for new trial "if the interest of justice so requires." 54 "[M]otions for new trial are not favored, and are granted only with great caution." 55



1. Rule 704(b): Testifying as to Mental State

Federal Rule of Evidence 704(b) states:
No expert witness testifying with respect to the mental state or condition of a defendant in a criminal case may state an opinion or inference as to whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto. Such ultimate issues are matters for the trier of fact alone.

Soon after Agent Porter took the stand as an expert witness, the following exchange took place:
Q: And after you completed your investigation of the defendant, did you come to a conclusion?

A: Yes, sir.

Q: What was that conclusion?

A: After completing the investigation, I concluded that the defendant, under penalties of perjury, willfully filed a 1999 Form 1040X and a 2000 Form 1040, knowing that it was false in that the --it was false as to a material matter.

Defense counsel immediately objected pursuant to Rule 704(b) and requested a mistrial, insisting that "willfully" is an ultimate issue for the jury. The trial court sustained the objection but denied the motion for mistrial, offering the following curative instruction:
[Y]ou heard testimony from the witness generally stating that he had concluded that the defendant acted willfully in filing a false claim. The rules do not permit an expert witness to give an opinion about what ... a criminal's mental state is. So I'm going to strike that portion of his testimony from the record. I'm going to instruct you not to consider that opinion. Okay? I'm instructing you that you cannot consider the expert's opinion as to what he thinks Mr. Adams' mental state is.

Adams contends that the trial court abused its discretion in refusing to grant a mistrial on this ground. The government responds that Agent Porter's statement was at most "borderline," and that even if the testimony were inappropriate, the court's instruction sufficiently cured the issue.

Agent Porter's statement violated Rule 704(b), but the trial court's curative instruction adequately remedied the error. 56 "A prejudicial remark may be rendered harmless by curative instructions to the jury. Moreover this Court gives great weight to the district court's assessment of the prejudicial effect of an objectionable remark." 57 Here, the district court was satisfied that there was "no significant possibility of a substantial impact on the verdict." The court further noted that given the weight of the evidence, any error was harmless. 58 The district court acted well within its discretion. This was a four-day trial with extensive testimony that would have allowed the jury to reach a decision as to willfulness. Even though it is true that willfulness is inherently not susceptible to proof by direct evidence and that Agent Porter's statement was likely the only direct testimony that the jury heard about Adams's mental state, the court was within the bounds of its discretion in striking the testimony and instructing the jury accordingly.



2. Evidentiary Rulings on Agent Porter's Report

Adams urges that the district court's rulings on Agent Porter's investigation report warrant a new trial. Adams claims that the court erred by (1) refusing to permit defense counsel, on cross-examination, to elicit testimony from Agent Porter that Adams had told him several things beneficial to his case, and (2) failing to require the government to produce the entire report at trial as Jencks Act material. The district court did not abuse its discretion in making these rulings.



a. Cross-Examination of Agent Porter

Agent Porter's report recounts various statements that Adams made during two interviews in 2002. At trial, defense counsel wanted to ask Agent Porter about Adams's statements that (1) he did not operate Secrets Cabaret or the Stardust Oasis in 2000; (2) $400,000 deposited in 2000 represented proceeds generated by the club in previous tax years; and (3) he kept a large amount of cash --totaling at least $200,000 --in a safe deposit box and in a safe at his home. The district court granted the government's motion in limine on this issue, and restricted defense counsel to establishing that Adams told Agent Porter that he had cash on hand at the beginning of 2000.

Adams submits three theories why he should have been able to elicit these hearsay statements. First, Adams contends that without this information, the jury had no way of assessing whether the government satisfied its burden of conducting a full investigation of all leads. 59 Under the circumstances of this case, this argument is unconvincing. Through the testimony of others and the argument of counsel, the jury was aware of Adams's theories that, (1) in 2000, the establishments were non-operational, (2) he maintained a safe deposit box, and (3) the $400,000 was from a different tax year. We reject Adams's contention that, without the benefit of his own hearsay statements, the jury had insufficient information to evaluate the government's investigation.

Second, Adams asserts that under Federal Rule of Evidence 705, he has the right to cross-examine an expert on any information, even hearsay information, that the expert used to reach his opinion. Under this rule, an expert witness may rely on reports that would be inadmissible as evidence, but, on cross-examination, the expert may be required to disclose the facts or data underlying his opinion. 60 "While revealing the basis for an expert's opinion is allowed, such disclosure does not facilitate the admission of otherwise inadmissible evidence." 61 Limitations apply to this disclosure such that "the evidence should be admitted only for the limited purpose of discrediting or impeaching the testifying expert and the jury should be carefully instructed about its restricted use." 62 Further, disclosure on cross-examination is subject to Federal Rule of Evidence 403's prejudice/probative value balancing test. 63 The district court viewed Adams's statements as "unreliable and unredeemable" hearsay that Adams wanted admitted for their truth rather than to discredit Agent Porter or to show that he was on notice of potential leads. This determination --a clear indication that the trial court found that the intended cross-examination did not meet the prejudice/probative value test --did not constitute abuse of discretion.

Third, Adams contends that the "rule of completeness" requires admission of the expert's entire report. The Federal Rule of Evidence addressing completeness, Rule 106, does not apply to a witness's testimony at trial. 64 As the government did not introduce any portion of Agent Porter's report into evidence, Rule 106 is inapplicable. 65 Neither does the common law rule of completeness provide support for Adams. This rule allows "parties to present evidence explaining, varying, or contradicting a witness's portrayal of the conversation"; the rule does not "provid[e] carte blanche to do so by any means desired." 66 Adams had ample opportunity to explain his position, and the trial court was within its discretion in refusing to give Adams such "carte blanche."

We take this opportunity to re-emphasize that "'trial judges retain wide latitude' to limit reasonably a criminal defendant's right to cross-examine a witness 'based on concerns about, among other things, harassment, prejudice, confusion of the issues, the witness'[s] safety, or interrogation that is repetitive or only marginally relevant.'" 67 We reject each of Adams's claims of error relating to his cross-examination of Agent Porter.



b. Jencks Act

"The Jencks Act requires that the government provide the defendant with witness statements that relate to the subject matter on which the witness has testified." 68 Failure to comply with this requirement, coupled with a statement that was "highly useful," even "invaluable," to the defense's cross-examination of a key witness, warrants reversal. 69 At the close of Agent Porter's testimony, the defense asked that the government produce his report as Jencks material. The government asserted that it was under no obligation to produce the report because it consisted of only two classes of items: (1) those unrelated to Agent Porter's testimony and (2) those related but merely duplicative of his testimony and the other material produced.

After an in camera review of the report, the district court required the government to produce a redacted version. 70 Proceeding section by section through Agent Porter's report, the trial court required production of those statements that were (1) within the scope of direct examination and (2) not "merely a summary of what [had] been produced, with no reflection of his analysis." The court also required production of statements with impeachment value and, erring on the side of caution, required production of any statements "if it appeared that there was an intermingling of Agent Porter's analysis" between that which would be discoverable and that which would not.

We have previously approved of a district court's decision to redact an agent's report. In United States v. Medel, also a tax case, we determined that an agent's report could be Jencks material but that the district court did not abuse its discretion in ordering production of only a portion of the report. 71 The Medel court redacted "summaries of summaries," other duplicative information, and portions dealing with the agents' evaluation of the strength of their case and suggestions for rebutting the taxpayer's defenses. 72 According to Adams, the redacted portions of the report here contain a rebuttal of Agent Porter's finding that Adams had no cash on hand. Adams views the report as demonstrating that Agent Porter's actual conclusions were contrary to those he related at trial. Our review satisfies us that the district court's redactions served their intended purpose --the removal of unrelated or duplicative information --and that the district court acted within its discretion. 73 Adams's challenge fails.

We affirm the district court's decision to deny Adams a new trial.


III. CONCLUSION


We vacate Adams's conviction on Count I. We affirm Adams's conviction on Count II, but remand for re-sentencing on that count as the sole count of conviction.

VACATED in part; AFFIRMED in part; and REMANDED.

EMILIO M. GARZA, Circuit Judge, concurring in part and dissenting in part:

Although I concur with the majority's holding affirming Adams' conviction on the second count relating to the 2000 Form 1040, I respectfully dissent from the holding vacating his conviction on the first count relating to the Form 1040X. Because Adams has not raised a sufficiency of the indictment claim, and because the evidence is sufficient to support the jury's verdict on this count, I would affirm the jury's conviction as to the Form 1040X.

The majority admits that Adams frames his appeal in terms of "sufficiency of the evidence," yet makes the significant leap to construe his argument as challenging the sufficiency of the indictment on Count I. One searches in vain to find a sufficiency of the indictment claim in Adams' briefing. Rather, Adams is clearly challenging the district court's denial of his Rule 29 motion for judgment of acquittal. His argument on Count I is framed in terms of his entitlement to an acquittal based on the fact that a "reasonable legal argument" existed that the jurat on the 1040X did not include the 1999 Schedule C. In other words, Adams is arguing that there was insufficient evidence to convict him of making a false statement on his amended tax return because he did not swear to the truth of the Schedule C. He does not argue that the indictment was insufficient as to that claim. Importantly, the Government only responded to the actual claim that Adams made regarding the insufficiency of the evidence to support his conviction; we simply do not know how the Government might have responded to a claim that the indictment was insufficient. Since Adams has not properly challenged the sufficiency of the indictment in his opening brief, this argument is waived. See, e.g., Edwards v. Johnson, 209 F.3d 772, 776 n.1 (5th Cir. 2000); Yohey v. Collins, 985 F.2d 222, 224-25 (5th Cir. 1993); Lindsay v. Prive Corp., 161 F.3d 886, 894 n.5 (5th Cir. 1998). 1

Therefore, rather than reviewing the sufficiency of the indictment de novo, we should review the denial of the motion for judgment of acquittal as Adams has requested. We review the district court's denial de novo, affirming the jury's verdict "if a reasonable trier of fact could conclude from the evidence that the elements of the offense were established beyond a reasonable doubt, viewing the evidence in the light most favorable to the verdict and drawing all reasonable inferences from the evidence to support the verdict." United States v. Ragsdale, 426 F.3d 765, 770-71 (5th Cir. 2005).

To support a conviction for filing a false tax return under 26 U.S.C. § 7206(1), evidence must be sufficient to show that: (1) the defendant wilfully made and subscribed to a materially false tax return; (2) the return contained a written declaration that it was made under penalties of perjury; and (3) the defendant did not believe that the return was true as to every material matter. See United States v. Loe, 262 F.3d 427, 435 (5th Cir. 2001). When Adams filed his Form 1040X he swore it was true, correct, and complete. By swearing to the completeness of the amended return Adams verified that the Form 1040X, combined with the attached 1999 Form 1040, represented the changes necessary to render a full accounting of his income for 1999. Whether Adams was required by the IRS to attach the 1999 Form 1040 is immaterial. The crucial fact is that Adams did attach this return. By doing so he necessarily swore that it, along with the Form 1040X, accounted for his total 1999 income. However, evidence at trial showed Adams continued to omit $277,551.46 in gross receipts. This money should have been reported on Line 1 of Schedule C of the attached 1999 Form 1040. The Form 1040X plus the 1999 Form 1040 could not have reflected his entire 1999 income, and thus when Adams swore that the information was "complete" he wilfully made a false statement. Therefore, there was sufficient evidence for the jury to find that Adams was guilty of violating 26 U.S.C. § 7206(1), and the jury's verdict should be affirmed as to Count I.

Accordingly, I concur with the majority's holdings in Part II.A, B, D, and E, but respectfully dissent from Part II.C.

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

1 United States v. Citron, 783 F.2d 307, 313 (2d Cir. 1986) (citation and internal quotation marks omitted).

2 Unlike in Count I, the Schedule C referred to in Count II was filed as a required part of the tax return in question, not as a part of a prior return.

3 United States v. Bellew, 369 F.3d 450, 452 (5th Cir. 2004).

4 United States v. Ragsdale, 426 F.3d 765, 770-71 (5th Cir. 2005) (citation and internal quotation marks omitted).

5 Although the parties frame their appellate arguments in words of "sufficiency of the evidence," Adams asserts that the government is prohibited from pursuing the charges as stated in Count I of the indictment, i.e., that the indictment was insufficient. Although the dissent disagrees and would rule that Adams waived this argument, we are satisfied that Adams raised it adequately to preserve it. His opening brief focuses on the "argument that the Schedule C to the unsigned original return is not covered by the statement in the 1040X jurat that 'this amended return is true.'" As we explain below, this is the argument that forms the basis of our sufficiency-of-the-indictment holding today. The dissent also cautions that we "simply do not know how the Government might have responded to a claim that the indictment was insufficient." Although this appears to be the type of concern that justifies our waiver doctrine, see, e.g., Edwards v. Johnson, 209 F.3d 772, 776 n.1 (5th Cir. 2000), in the instant case, we need not speculate how the government would reply. In its brief, the government responds to Adams's sufficiency argument, contending that "Adams cannot so easily ignore the significance of the accompanying Schedule C, whose inclusion with the unaltered corresponding figures on the Form 1040X, necessarily meant he was representing that the Schedule C information did not need to be amended."

We will perform a sufficiency-of-the-evidence review only when we first determine that conviction on Count I is possible as a matter of law. Whatever Adams labels his challenge, it is illogical to fast-forward to sufficiency of the evidence if in fact no amount of evidence would be sufficient to convict Adams on Count I. It should be uncontroversial that an indictment sufficient to convict a defendant is a condition precedent to the government's entitlement to offer sufficient evidence at trial to support a conviction.

6 United States v. Fuchs, 467 F.3d 889, 900 (5th Cir. 2006). If, however, Adams had failed to challenge the indictment in the district court for the same reasons advanced on appeal, we would review for plain error. Id. The dissent states that we make a "significant leap" in determining that Adams challenged the indictment's sufficiency in the district court. To the contrary, we reach this conclusion based on a straight-forward reading of Adams's district court filings. For example, Adams's motion to dismiss asserted, inter alia, that (1) "[t]he unsigned copy of the original return cannot support the Section 7206(1) violation charged in Count 1," and (2) "the unsigned original return including its attached Schedule C was superfluous to the charge reported in the 1040X." For these reasons, Adams asked the district court to dismiss Count I because, despite the government's artful drafting, it could not properly prosecute a time-barred claim for a false statement on the Schedule C of the 1999 Form 1040 by phrasing the indictment in terms of submitting a false 1999 Form 1040X. It takes no leap to read this as a challenge to that part of the indictment.

The dissent also notes that Adams technically moved to dismiss based on a statute-oflimitations defense rather than the insufficiency of the indictment. Although this is so, we disagree with the dissent to the extent that it would rely on a "hyper-technical reading" to deprive Adams of our de novo review of this issue. See generally, United States v. Uni Oil, Inc., 710 F.2d 1078, 1080 n.1 (5th Cir. 1983) ( "In the absence of substantial prejudice to a party, it is too late in the day to revive the kind of hyper-technical reading of legal papers that might have prevailed under a nineteenth-century code pleading system." (citing 16 C. WRIGHT, A. MILLER, E. COOPER & E. GRESSMAN, FEDERAL PRACTICE AND PROCEDURE § 3949 (1977 & Supp.1983))); Jacksonville Mar. Ass'n v. Int'l Longshoremen's Ass'n, 571 F.2d 319, 324 (5th Cir. 1978) (warning of the "inappropriateness of a talismanic invocation" of pleading rules).

7 United States v. Ratcliff, 488 F.3d 639, 643 (5th Cir. 2007) (emphasis added).

8 United States v. Robertson, 110 F.3d 1113, 1118 (5th Cir. 1997).

9 See 26 U.S.C. § 7201.

10 See id. § 7203.

11 See United States v. Marashi, 913 F.2d 724, 736 (9th Cir. 1990) ( "Section 7206(1) is a perjury statute ... .").

12 United States v. Loe, 262 F.3d 427, 435 n.5 (5th Cir. 2001) (citing United States v. Mann, 161 F.3d 840, 848 (5th Cir. 1998)).

13 United States v. Fontenot, 628 F.2d 921, 923 (5th Cir. 1980) (requiring the government to prove "both falsity as to a material matter in the tax return and knowledge of such falsity by the accused at the time" the taxpayer signed the return); United States v. Jernigan, 411 F.2d 471, 473 (5th Cir. 1969) (holding that the offense requires that the return be "false as to a material matter").

14 United States v. Clayton, 506 F.3d 405, 411 (5th Cir. 2007).

15 United States v. Taylor, 574 F.2d 232, 237 (5th Cir. 1978).

16 Id.; see United States v. Damon, 676 F.2d 1060, 1064 (5th Cir. 1982) (finding that Schedule Cs were integral parts of their corresponding tax returns and thus incorporated by reference).

17 See 26 U.S.C. § 6531(5) (establishing six-year limitations period for violations of section 7206(1)). In contrast, the government had until February 27, 2007 to bring charges as to the Form 1040X; Adams was indicted five days prior to this deadline.

18 See Damon, 676 F.2d at 1064.

19 See IRS Form 1040X ( "Attach only the supporting forms and schedules for the items changed."); see also 26 U.S.C. § 6011(a) (indicating that taxpayers shall make returns "according to the forms and regulations prescribed by the Secretary").

20 IRS Form 1040X (emphasis added). Of course, the government could have brought charges alleging that an entry on the Form 1040X itself was incomplete. See, e.g., Indictment ¶¶ 10, 12, United States v. Clayton, No. 06-cr-0069, 2006 WL 4968112 (W.D. Tex. Aug. 2, 2006) (alleging false statements made on the Form 1040X). Instead, Count I alleges only a falsity on line one of the 1999 Schedule C.

21 See Damon, 676 F.2d at 1064; Taylor, 574 F.2d at 237.

22 Conceptually, we view Adams's attachment of the 1999 Schedule C as analogous to a taxpayer's attaching a letter of good-character or any other extraneous document to his tax return. They are simply not integral to the amended tax return. This does not mean that unrequested documents can never be integral to an amended tax return. For example, it is not difficult to envision a taxpayer including a letter with his tax return explaining particular items in the return. The inquiry into whether such a letter would be integral is fact-specific. But, when, as here, the taxpayer simply attaches a copy of an old filing as a "courtesy," the copy is not integral to the new filing as a matter of law.

23 We recognize that the issue of materiality of a false statement is one committed to the jury's peculiar competence. United States v. Gaudin, 515 U.S. 506, 512 (1995). The materiality of Adams's allegedly false statement in the Schedule C of his 1999 Form 1040 is irrelevant, however, because, as a matter of law, Adams never swore to the truth of the 1999 Schedule C when executing the 1040X.

24 The government could have avoided its current predicament by either (1) indicting Adams for filing a false Form 1040X based on a false statement on the Form 1040X itself (or on an attached document that was integral to the Form 1040X), or (2) acting within the statute of limitations to indict him for filing a false 1999 Form 1040 based on falsities in the 1999 Schedule C.

25 The IRS represents to this court that forty percent of taxpayers include unsigned copies of their original returns when they file amended returns.

26 The government responds that its theory does not prove too much, assuring us that the government would never prosecute a taxpayer for the specific original falsity that he accurately amended, only for falsities that remain uncorrected and that render the amended return itself materially false. We have no reason to doubt the government on this point, but its reasoning fails to convince us that our interpretation of the jurat's ambit is too narrow. The mere fact that the government promises not to prosecute absurdities does not alter the illogical meaning that it would have us give the jurat --that of swearing to the truthfulness of the copy of the admittedly fallacious original return attached as an exhibit to the amended return.

We note that the IRS has the authority to draft a new version of its jurat if it wishes to make clear to taxpayers that they can be held criminally liable for false statements in any document they submit to the IRS. Such a revised jurat would send a clear message to taxpayers and accountants that they must be cautious when submitting accompanying documents, including those enclosed as a "courtesy."

27 United States v. Ratcliff, 488 F.3d 639, 643 (5th Cir. 2007) (citations and internal quotation marks omitted).

28 United States v. Quinn, 359 F.3d 666, 672-673 (4th Cir. 2004) (quoting Hamling v. United States, 418 U.S. 87, 117-18 (1974)); see Hogue v. United States, 184 F. 245, 248-49 (5th Cir. 1910) (stating, in a perjury case, that "the charge of the offense itself [ ] must be direct and specific, intelligible, and plain" --"reasonable fullness and particularity are required, for [the description of the alleged falsity] pertains to the very gist of the offense").

29 United States v. Chambers, 408 F.3d 237, 243 (5th Cir. 2005) (quoting United States v. Adams, 778 F.2d 1117, 1125 (5th Cir. 1985)).

30 United States v. Dentler, 492 F.3d 306, 310 (5th Cir. 2007) (citing United States v. Robinson, 367 F.3d 278, 286-87 (5th Cir. 2004)).

31 Robinson, 367 F.3d at 286-87 (quoting Chapman v. California, 386 U.S. 18, 23 (1967)).

32 Id. at 287 (citations omitted).

33 We are aware that it is alternatively possible to view this as a constructive amendment case. "[A] constructive amendment of the indictment occurs when the jury is permitted to convict the defendant upon a factual basis that effectively modifies an essential element of the offense charged. In such cases, reversal is automatic, because the defendant may have been convicted on a ground not charged in the indictment." Adams, 778 F.2d at 1123 (citations omitted); see Stirone v. United States, 361 U.S. 212, 217 (1960) (describing a defendant's "substantial right to be tried only on charges presented in an indictment returned by a grand jury"); Chambers, 408 F.3d at 243 (quoting Adams, 778 F.2d at 1125 ( "[W]hen only one particular kind of falsity is charged to have been made ... , a conviction must rest on that charge and not another ... .")). It is conceivable that the government alleged a specific falsity --that regarding gross receipts on the 1999 Schedule C --and that the jury convicted on another, a false statement in Line 1, Column C, on the Form 1040X. As we conclude that conviction on the erroneous indictment requires reversal in this case, we need not determine whether the district court permitted the jury to convict Adams on a factual basis different from that alleged on the essential element of falsity.

34 If we had reached this issue, we would, on appeal "focus[] solely on the question whether, on the basis of the evidence that would have been available to the grand jury, any rational grand jury presented with a proper indictment would have charged that [Adams] committed the offense in question." Robinson, 367 F.3d at 288. Because, our other analysis establishes that we cannot say the erroneous indictment was harmless, we need not make this additional inquiry.

35 Even if our standard of review on this issue were plain error, it would be arguable that the district court plainly erred, viz, (1) the court erred; (2) the error was clear under existing law, and (3) the error affects Adams's substantial rights. See United States v. Salinas, 480 F.3d 750, 756 (5th Cir. 2007). If Adams were to fulfill these three conditions, we could "grant relief if 'the error seriously affects the fairness, integrity, or public reputation of judicial proceedings.'" See id. (quoting United States v. Ibarra-Zelaya, 465 F.3d 596, 606 (5th Cir. 2006)). At a minimum, the public reputation of judicial proceedings is compromised when we permit a jury to convict a defendant on an indictment that alleged no offense.

36 Whenever an indictment or information charging a felony is dismissed for any reason after the period prescribed by the applicable statute of limitations has expired, a new indictment may be returned in the appropriate jurisdiction within six calendar months of the date of the dismissal of the indictment or information, or, in the event of an appeal, within 60 days of the date the dismissal of the indictment or information becomes final ... .

18 U.S.C. § 3288. "[W]here an original indictment is brought within the limitations period, but is dismissed for failure to allege the exact elements of the crime or some other technicality, the savings clause merely allows the government to do what it had a right to do in the first place." United States v. Shipsey, 363 F.3d 962, 970 (9th Cir. 2004) (citation and internal quotation marks omitted). This statute serves the important purpose of "prevent[ing] defendants from reserving legal challenges to indictments until after the applicable statute of limitations has run." United States v. Peloquin, 810 F.2d 911, 912 (9th Cir. 1987), superceded by statute on other grounds, Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, § 7081(a), 102 Stat. 4181, 4407, as recognized in Shipsey, 363 F.3d at 968-69. Here, the government is free to re-indict Adams alleging a falsity on the Form 1040X itself because that charge was not time-barred at the time of Adams's original indictment.

37 Chambers, 408 F.3d at 243 (quoting Adams, 778 F.2d at 1125).

38 See United States v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978).

39 Id. In a tax evasion case, the government next reduces gross income by applicable deductions and exemptions to arrive at "corrected taxable income." Id. This step is unnecessary in prosecutions under section 7206(1). See United States v. Lassiter, 819 F.2d 84, 87-88 (5th Cir. 1987).

40 Boulet, 577 F.2d at 1167; see also Holland v. United States, 348 U.S. 121, 125 (1954) (describing another indirect method, the "net worth method," as "fraught with danger for the innocent").

41 Boulet, 577 F.2d at 1168, 1170.

42 Id. at 1169-70.

43 United States v. Hiett, 581 F.2d 1199, 1201 (5th Cir. 1978); see Massei, 355 U.S. at 595 ( "[S]hould all possible sources of nontaxable income be negatived, there would be no necessity for proof of a likely source."); see also United States v. Abodeely, 801 F.2d 1020, 1025 (8th Cir. 1986) (citing Holland, 348 U.S. at 137-38) ( "Proof of a likely income source necessarily negatives all non-taxable sources."). Both Hiett and Massei were cases in which the government used the net worth method rather than the bank deposits and cash expenditures method used here. Yet, regardless of which indirect method the government uses to determine whether a taxpayer has unreported income, the inquiry into possible non-taxable sources remains the same. Hiett, 581 F.2d at 1201-02; see United States v. Marrinson, 832 F.2d 1465, 1472 (7th Cir. 1987) (allowing the government, in an expenditures case, either to prove a likely source of income or to negate all possible sources of non-taxable income); Abodeely, 801 F.2d at 1025 (finding that "the various safeguards expressed in Holland regarding the use of circumstantial evidence apply equally" regardless of the government's chosen indirect method of proof). But see Boulet, 577 F.2d at 1168 (citing United States v. Bianco, 534 F.2d 501, 507 (2d Cir. 1976) ( "suggesting that, in a cash expenditure case, proof of a likely taxable source does not suffice to relieve the prosecution of its duty to negate probable sources of non-taxable income.")).

44 Boulet, 577 F.2d at 1168.

45 Id. (citation and internal quotation marks omitted).

46 Id. at 1172-73; see Hiett, 581 F.2d at 1201 (noting that the government's burden shall not be construed to "require the government to exhaust the inexhaustible[,] to conduct an absolutely limitless investigation"); id. at 1202 (indicating that once "the government establishes its Prima facie case," if the defendant remains silent, he takes "the risk that the jury would believe the government's witnesses and find him guilty") (citation and internal quotation marks omitted).

47 Boulet, 577 F.2d at 1171 (citation and internal quotation marks omitted).

48 United States v. Bethea, 537 F.2d 1187, 1190 (4th Cir. 1976); see Merritt v. United States, 327 F.2d 820, 823 (5th Cir. 1964) (quoting Holland, 348 U.S. at 135-36) (indicating that the government has the duty to track down leads supplied by the defendant that are "reasonably susceptible of being checked").

49 In Holland v. United States, the Supreme Court had occasion to evaluate a hoarding defense. 348 U.S. 121. There, defendants argued that they had accumulated their cash in prior years and stored over $100,000 at various times in "a canvas bag, a suitcase, and a metal box." Id. at 133. The government could not directly refute this claim, and instead relied on the inference that hoarding that amount of money was inconsistent with defendants' financial difficulties. Id. The Supreme Court found sufficient support for the jury's verdict that defendants had no cash cache. Id. at 133-34. In the instant case, as in Holland, the government could not directly disprove the safe-deposit-box hoarding theory and instead had to rely on other factors that created an inference that Adams did not have cash on hand.

50 Our point of inquiry is not whether Adams was wealthy but rather whether he had cash on hand.

51 Boulet, 577 F.2d at 1168-69.

52 See United States v. Conaway, 11 F.3d 40, 44 (5th Cir. 1993) (stating, in a bank deposits and cash expenditures case, that if the government satisfies the burden of establishing cash on hand while negating non-taxable income sources, the jury may find a defendant guilty).

53 Adams relies on the Second Circuit's opinion in United States v. Grasso for the proposition that once the government recognizes a suggested taxable income source --here, the Stardust Oasis --it must verify that the taxpayer in fact under-reported the income from that source. See 629 F.2d 805, 808 (2d Cir. 1980) (per curiam). The facts of Grasso are distinguishable, however, from those of the current case. There, the taxpayer "apparently kept meticulous records" and any under-reported income from his bonding business would have been easily detected by reference to public records. Id. In sum, that case involved allegedly unreported receipts from "sources suggested but not verified by the government (although apparently verifiable) and which [were] not even plausible much less proved." Id. Additionally, Grasso recognized the general rule that the government can show a likely taxable income source or negate possible non-taxable sources. Id.

Here, in contrast, Adams did not keep organized business records, and he filed a sworn statement (which he now disavows) that he derived significant income in 2000 as a bar owner. Proving that the Stardust Oasis was the likely source of Adams's unreported income would have been far more difficult than proving the income source in Grasso. As the government adequately established lack of a non-taxable income source, the government's investigation into the bar's income-generating capacity, an investigation that the record does not reveal as particularly deficient, does not cause us to question whether the government failed to establish an element of its case.

54 FED. R. CRIM. P. 33(a).

55 United States v. O'Keefe, 128 F.3d 885, 898 (5th Cir. 1997); see United States v. Valentine, 401 F.3d 609, 614 (5th Cir. 2005) (stating that a new trial should be granted only in "exceptional cases").

56 In United States v. Dotson, we concluded that the trial court did not abuse its discretion by permitting testimony that a defendant's conduct was "indicative, and based on my experience shows to me, that he willfully and intentionally increased his income knowing full well that he had not reported the taxes due thereon." 817 F.2d 1127, 1132 (5th Cir. 1987), vacated in part on other grounds, 821 F.2d 1034 (5th Cir. 1987). Interpreting the statement in a light most favorable to the government, the testimony may have simply tied facts that the witness recited immediately prior to the statement at issue to the conclusion that the expert thought they indicated. Id. In the instant case, Agent Porter's testimony is less ambiguous.

57 United States v. Reliford, 210 F.3d 285, 305 (5th Cir. 2000), vacated on other grounds by Clinton v. United States, 531 U.S. 920 (2000) (internal citation omitted). But see Bruton v. United States, 391 U.S. 123, 132-37 (1968) (finding a curative instruction an inadequate substitute for a defendant's constitutional right of cross-examination where the jury heard a co-defendant's confession implicating the defendant at a joint trial).

58 See United States v. Gutierrez-Farias, 294 F.3d 657, 663-64 (5th Cir. 2002) (finding error harmless when the statements "constituted only a small portion of an otherwise strong case"); see also id. at 664 (quoting United States v. Williams, 957 F.2d 1238, 1242 (5th Cir. 1992) ( "[U]nless there is a reasonable possibility that the improperly admitted evidence contributed to the conviction, reversal is not required.")).

59 See Grasso, 629 F.2d at 808 (citing Holland, 348 U.S. 121) (requiring exhaustion of all leads as to sources and amounts of income).

60 Polythane Sys., Inc. v. Marina Ventures Int'l, Ltd., 993 F.2d 1201, 1207 (5th Cir. 1993); see Fed. R. Evid. 703, 705.

61 Polythane Sys., 993 F.2d at 1207.

62 Id.

63 See Fed. R. Evid. 703 (indicating that disclosure of otherwise inadmissible facts or data is subject to the court's weighing whether "the probative value in assisting the jury to evaluate the expert's opinion substantially outweighs their prejudicial effect"); see also United States v. A & S Council Oil Co., 947 F.2d 1128, 1134 (4th Cir. 1991) (citing United States v. Gillis, 773 F.2d 549, 553-54 (4th Cir. 1985)).

64 United States v. Garcia, 530 F.3d 348, 353 (5th Cir. 2008).

65 Cf. id. at 354 (discussing, but neither adopting nor rejecting, the Eleventh Circuit's "tantamount" standard in which Rule 106 applies if the agent's statement was tantamount to introducing the written statement).

66 Id. at 356.

67 Michigan v. Lucas, 500 U.S. 145, 149 (1991) (quoting Delaware v. Van Arsdall, 475 U.S. 673, 679 (1986)).

68 United States v. Hodgkiss, 116 F.3d 116, 117 (5th Cir. 1997) (per curiam), vacated on other grounds by 522 U.S. 1012 (1997) (citing 18 U.S.C. §§ 3500(b), (e)(1)); see 18 U.S.C. § 3500(b) (indicating that production occurs on the motion of the defendant once the government's witness has testified on direct examination). We review Jencks Act rulings for clear error. United States v. Brown, 303 F.3d 582, 591 (5th Cir. 2002).

69 United States v. Beasley, 576 F.2d 626, 630 (5th Cir. 1978).

70 After trial, defense counsel received the entire report.

71 592 F.2d 1305, 1315-17 (5th Cir. 1979).

72 Id.

73 For example, the district court deleted a portion of the report that says "ADAMS stated that the unreported gross receipts may have come from cash he had earned from Secret[]s Cabaret or Stardust in prior years." Adams contends that this statement would have allowed him to impeach Agent Porter's testimony that "Mr. Adams did not recall what specific time frames he may have had - alleged to have had cash on hand." The impeachment value here is strained, particularly when (1) the court permitted defense counsel to ask Agent Porter if Adams said that he had cash on hand prior to 2000 and (2) "prior years" is not a "specific time frame."

1 Moreover, even if we could properly construe Adams' challenge to the district court's denial of his motion for acquittal as a challenge to the sufficiency of the indictment, this claim would have to be reviewed for plain error. See United States v. Fuchs, 467 F.3d 889, 900 (5th Cir. 2006). The majority makes another significant leap to find itself "convinced" that Adams challenged the sufficiency of the indictment in the district court, entitling him to a de novo review of this issue. However, it is not enough that Adams may have challenged the indictment in the district court; we must also determine that he challenged it for the same reasons as in this appeal. See id. (reviewing for plain error because a motion to dismiss particular counts of the indictment was made for different reasons than the challenge on appeal to the sufficiency of the indictment) . Although Adams moved to dismiss Count I of the indictment before trial as barred by the statute of limitations, he never claimed that the indictment was insufficient. Moving to dismiss a count of the indictment as barred by the statute of limitations is an affirmative defense, distinct from an allegation that the indictment is insufficient.


SEC. 7206. FRAUD AND FALSE STATEMENTS.
Any person who --

7206(1) DECLARATION UNDER PENALTIES OF PERJURY. --Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

7206(2) AID OR ASSISTANCE. --Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or

7206(3) FRAUDULENT BONDS, PERMITS, AND ENTRIES. --Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed or advises, aids in, or connives at such execution thereof; or

7206(4) REMOVAL OR CONCEALMENT WITH INTENT TO DEFRAUD. --Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or

7206(5) COMPROMISES AND CLOSING AGREEMENTS. --In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully --

7206(5)(A) CONCEALMENT OF PROPERTY. --Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or

7206(5)(B) WITHHOLDING, FALSIFYING, AND DESTROYING RECORDS. --Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax;

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation) or imprisoned not more than 3 years, or both, together with the costs of prosecution.


False statements in return. --Fraud and False Statements: False statements in return

Wilful deduction of personal gambling losses on the return of a corporation owned by the defendant and his wife was a false statement as to a material matter, since the claimed deductions were "material" to computing the tax correctly, even though an audit showed that there was in fact an overpayment of tax for the taxable year in question.

S.R. Rayor, DC, 62-2 USTC ¶9607, 204 FSupp 486.

Taxpayer convicted, or conviction for willfully subscribing to and filing a false income tax return affirmed.

B.B. Conford, CA-10, 64-2 USTC ¶9752, 336 F2d 285.

M.C. Sansone, SCt, 65-1 USTC ¶9307, 380 US 343.

M.J. Fronek, DC, 64-2 USTC ¶9746, 231 FSupp 8.

S. Hoover, CA-5, 66-1 USTC ¶9343, 358 F2d 87. Cert. denied, 385 US 822.

W.A. Spinney, CA-1, 67-2 USTC ¶9738, 385 F2d 908.

D.L. Wilkens, CA-4, 67-2 USTC ¶9739, 385 F2d 465. Cert. denied, 390 US 951.

R. Thomas, CA-5, 67-1 USTC ¶9341, 370 F2d 96.

W.C. Siravo, CA-1, 67-1 USTC ¶9446, 377 F2d 469.

L.E. Bromberg, CA-9, 68-1 USTC ¶9261, 389 F2d 618.

A. Bagdasian, CA-4, 68-2 USTC ¶9501, 398 F2d 971.

K.H. Dolleris, CA-6, 69-1 USTC ¶9289, 408 F2d 918. Cert. denied, 395 US 943.

J.D. McCarty, CA-10, 69-1 USTC ¶9322, 409 F2d 793.

J.W. Jernigan, CA-5, 69-1 USTC ¶9397, 411 F2d 471.

D. Null, CA-4, 69-2 USTC ¶9641, 415 F2d 1178.

M. Stern, CA-2, 70-1 USTC ¶9107, 418 F2d 198.

S.C. Cashio, CA-2, 70-1 USTC ¶9117, 420 F2d 1132. Cert. denied, 397 US 1007.

L.A. Frank, CA-9, 71-1 USTC ¶9208, 437 F2d 452. Cert. denied, 402 US 974.

L.B. Ponder, Jr., CA-5, 71-2 USTC ¶9522, 444 F2d 816. Cert. denied, 405 US 918.

L.L. Levy, CA-2, 71-2 USTC ¶9684, 449 F2d 769.

J.P. Engle, CA-8, 72-1 USTC ¶9390, 458 F2d 1017. Cert. denied, 409 US 875.

S. Ratner, CA-9, 72-2 USTC ¶9526, 464 F2d 101.

N. Pawlak, DC, 72-2 USTC ¶9646, 352 FSupp 794.

J.G. Waller, CA-5, 72-2 USTC ¶9721, 468 F2d 327.

G.S. Rischard, CA-8, 73-1 USTC ¶9151, 471 F2d 105.

A.H. Tager, CA-10, 73-1 USTC ¶9450, 479 F2d 120.

J. DiVarco, CA-7, 73-2 USTC ¶9607, 484 F2d 670.

F. Robertson, CA-6, 73-2 USTC ¶9669.

P. Vario, CA-2, 73-2 USTC ¶9737, 484 F2d 1052.

P. Dawson, CA-5, 73-2 USTC ¶9759, 486 F2d 1326.

D.M. Sarvis, CA-9, 73-2 USTC ¶9787, 488 F2d 526.

A.G. De La Vega, CA-2, 74-1 USTC ¶9181, 489 F2d 761.

M. Catalano, CA-2, 74-1 USTC ¶9204, 491 F2d 268.

W.H. Lowder, CA-4, 74-1 USTC ¶9258, 492 F2d 953.

G.C. Ehmig, CA-5, 74-1 USTC ¶9274, 488 F2d 1074.

P. Perez, CA-5, 74-1 USTC ¶9313.

N. D'Andrea, CA-3, 74-1 USTC ¶9451, 495 F2d 1170.

D.F. Bettenhausen, CA-10, 74-2 USTC ¶9544, 499 F2d 1223.

R.H. Lawhon, CA-5, 74-2 USTC ¶9634, 499 F2d 352.

E.F. Dixon, CA-3, 74-2 USTC ¶9737, 504 F2d 69.

W.A. Lisowski, CA-7, 74-2 USTC ¶9784, 504 F2d 1268.

C. Considine, CA-9, 74-2 USTC ¶9846, aff'g DC, 74-2 USTC ¶9639.

A. Burrell, CA-5, 75-1 USTC ¶9152, 505 F2d 904.

S. Cirami, CA-2, 75-1 USTC ¶9261, 510 F2d 69.

G.B. Parr, CA-5, 75-1 USTC ¶9349, 509 F2d 1381.

L.C. Henderson, DC, 75-1 USTC ¶9363, 399 FSupp 508.

J.A. Lattus, CA-6, 75-1 USTC ¶9367, 512 F2d 352.

F.J. Kuta, CA-7, 75-2 USTC ¶9638, 518 F2d 947. Cert. denied, 423 US 1014.

P.T. Wigoda, CA-7, 75-2 USTC ¶9664. Cert. denied, 424 US 949.

J.D. Leonard, CA-2, 75-2 USTC ¶9695, 524 F2d 1076. Petition for reh'g denied, 75-2 USTC ¶9852. Cert. denied, 425 US 958.

H.J. Ost, DC, 75-2 USTC ¶9821. Aff'd, CA-2, 77-1 USTC ¶9235.

J.H. Fendley, CA-5, 76-1 USTC ¶9110.

C.E. Prevatt, CA-5, 76-1 USTC ¶9180, 526 F2d 400.

K.L. Snow, CA-9, 76-1 USTC ¶9227, 529 F2d 224. Cert. denied, 429 US 821.

M. Stone, CA-8, 76-1 USTC ¶9310, 531 F2d 939. Cert. denied, 429 US 824.

F.C. Hilton, CA-3, 76-1 USTC ¶9345, 534 F2d 556. Cert. denied, 429 US 828.

A.H. Rothstein, CA-5, 76-1 USTC ¶9390, 530 F2d 1275.

J.W. Venditti, CA-5, 76-2 USTC ¶9492, 533 F2d 217.

V.M. Pastore, CA-2, 76-2 USTC ¶9513, 537 F2d 675.

S.R. Poll, CA-9, 76-2 USTC ¶9549, 538 F2d 845.

S.J. Pearlman, DC, 76-2 USTC ¶9586.

R. Carrillo, CA-5, 78-2 USTC ¶9528.

L. Akmakjian, CA-9, 81-2 USTC ¶9562, 647 F2d 12.

V.G. Apodaca, Jr., CA-5, 82-1 USTC ¶9164, 666 F2d 89. Cert. denied, 103 SCt 53.

R. Hebel, CA-8, 82-1 USTC ¶9162, 668 F2d 995. Cert. denied, 456 US 946, 102 SCt 2014.

Ingredient Technology Corp., CA-2, 83-1 USTC ¶9140, 698 F2d 88. Cert. denied, 103 SCt 3111.

B. Kaatz, CA-10, 83-1 USTC ¶9156, 705 F2d 1237.

H.G. Whyte, CA-7, 83-1 USTC ¶9185, 699 F2d 375.

J.L. Doan, Jr., CA-3, 83-2 USTC ¶9437, 710 F2d 124.

J.A. Fitzsimmons, CA-7, 83-2 USTC ¶9498, 712 F2d 1196.

S.M. Moon, CA-2, 83-2 USTC ¶9581. Cert. denied, 104 SCt 2344.

W.J. Scott, CA-7, 81-2 USTC ¶9663, 660 F2d 1145. Cert. denied, 455 US 907, 102 SCt 1252.

H.C. Flomenhoft, CA-7, 83-2 USTC ¶9497, 714 F2d 708.

A.E. Marabelles, CA-9, 84-1 USTC ¶9189.

R.L. Mosel, CA-6, 84-2 USTC ¶9624, 738 F2d 157.

J.B. Carter, CA-11, 84-2 USTC ¶9537.

J. Cody, CA-2, 83-2 USTC ¶9733, 722 F2d 1052.

R.E. Clinkscale, CA-8, 84-1 USTC ¶9339, 729 F2d 940.

G. Olgin, CA-3, 84-2 USTC ¶9933, 745 F2d 263. Cert. denied, 105 SCt 2321.

K.A. Barrilleaux, CA-5, 84-2 USTC ¶9945.

J. Daly, CA-5, 85-1 USTC ¶9404, 756 F2d 1076.

E.A. Tafoya, CA-5, 85-1 USTC ¶9341, 757 F2d 1522.

J.A. Garcia, CA-5, 85-2 USTC ¶9491, 762 F2d 1222.

H.E. Claiborne, CA-9, 85-2 USTC ¶9821, 765 F2d 784.

A.E. Gurtunca a/k/a "Ali-Turk", CA-7, 88-1 USTC ¶9108, 836 F2d 283.

A. Marchini, CA-9, 86-2 USTC ¶9701, 797 F2d 759. Cert. denied 11/18/86.

V.F. Orlowski, CA-8, 87-1 USTC ¶9107, 808 F2d 1283. Cert. denied 6/15/87.

G.T. Lassiter, CA-5, 87-2 USTC ¶9508, 819 F2d 84.

J.J. Boone, DC Pa, 89-2 USTC ¶9412.

L.D. Lamberti, CA-11, 88-2 USTC ¶9614.

R.L. Steele, CA-6, 90-1 USTC ¶50,102, 896 F2d 998.

R.H. Pacheco, CA-9, 90-2 USTC ¶50,458, 912 F2d 297.

C.E. Wilson, CA-5, 89-2 USTC ¶9611, 887 F2d 69.

C.W. Lawrence, Jr., CA-7, 91-2 USTC ¶50,522.

C.T. Wickersham, CA-5, 94-2 USTC ¶50,400, 29 F3d 191.

M. Ismail, CA-4, 96-2 USTC ¶50,510.

G.R. Bennallack, CA-9 (unpublished opinion), 97-1 USTC ¶50,314.

R. Gollapudi, CA-3, 97-2 USTC ¶50,978, 130 F3d 66. Cert. denied, 118 SCt 1190.

R.G. Barakat, CA-11, 98-1 USTC ¶50,114, 130 F3d 1448.

W.H. Irvin, CA-8, 2001-1 USTC ¶50,251, 67 F3d 670.

G. Ahee, CA-6 (unpublished opinion), 2001-1 USTC ¶50,283, aff'g an unreported District Court decision.

J.F. O'Connor, DC Va., 2001-2 USTC ¶50,634.

M.E. Suddreth, CA-4 (unpublished opinion), 2003-1 USTC ¶50,417, aff'g in part, rev'g in part and rem'g, an unreported District Court decision.

Dunkin' Donuts, Inc., DC Fla., 2003-1 USTC ¶50,291.

Taxpayer, a dentist, was found to have wilfully, knowingly, and unlawfully made and subscribed to federal income tax returns which he knew were not correct as to every matter, since he knew such returns substantially understated his taxable income. Although he delegated some of the duties, the taxpayer was in complete control of his record-keeping system and thus knew of such omissions.

J. Harmel, DC, 73-2 USTC ¶9654, 361 FSupp 1143.

A taxpayer, convicted for willfully making and subscribing false income tax returns, cannot argue that the small amount of additional tax liability is only evidence of a negligent state of mind. He could not have known that only a few hundred dollars of additional tax was involved unless he first knew the amount of additional income he failed to report. Consequently, the insubstantial amount of additional tax casts no light on the question of willfulness and the conviction was sustained.

J.L. Silverstein, CA-1, 67-1 USTC ¶9445, 377 F2d 269.

The taxpayer was properly convicted of wilfully making and subscribing a false income tax return; his offer of proof showing that the falsity did not result in a deficiency was properly rejected as irrelevant to the issue raised by the indictment.

M.J. Schepps, CA-5, 68-2 USTC ¶9523, 395 F2d 749.

In an indictment charging the wilful filing of perjurious income tax returns by failure to report specific amounts of income, it is sufficient that the taxpayer be advised by categories of the omitted items which the government expects to show were consciously received but not reported by him.

W.O. Carlson, DC, 65-2 USTC ¶9531.

The government was not barred on the grounds of collateral estoppel from prosecuting the taxpayer for making materially false tax returns. Although the taxpayer was acquitted of the charge of making extortionate loans in a prior trial, he failed to prove that the verdict in the prior trial necessarily resolved the issue of the loan transactions which the present indictment raised. Since the jury could have acquitted the taxpayer on the issue of extortion, while the loan transactions could have been established, the doctrine of collateral estoppel did not apply to the present indictment.

R. Jacobson, CA-2, 77-1 USTC ¶9134, 547 F2d 21. Cert. denied, 97 SCt 1581.

A judgment of conviction entered upon a jury verdict finding the taxpayer guilty on two counts of tax evasion with respect to his own income and on two counts of making false statements on the information returns filed by his corporation was affirmed. There was sufficient evidence to warrant submitting the case to the jury and the verdict was adequately supported. Taxpayer's miscellaneous assignments of error were found to be without merit.

M. Burns, CA-2, 71-2 USTC ¶9695, 449 F2d 271.

The appellate court upheld the taxpayer's conviction for wilfully and knowingly subscribing to a false tax return. The jury could properly infer from the taxpayer's signature on the form that he had read the return and knew its contents.

B. Romanow, CA-1, 74-2 USTC ¶9828, 505 F2d 813.

Similarly.

H.M. Romanow, CA-1, 75-1 USTC ¶9153, 509 F2d 26.

Taxpayer's conviction for subscribing to a false income tax return was affirmed. The court was unimpressed with his argument that he could not be forced to incriminate himself by stating in his tax return that the source of his income was the illegal sale of heroin.

S.J. Mirelez, CA-5, 74-2 USTC ¶9553, 496 F2d 915.

The Court of Appeals reversed the taxpayer's earlier conviction for making false statements on a "Statement of Financial Condition and Other Information." The court agreed that there was ample evidence from which a jury could have concluded that the taxpayer had made false statements on the form, but the court interpreted the provisions of Code Sec. 7206 to apply only to statements or documents required by the Code or by Regulations promulgated thereunder. Since the use of this particular form was not validated either by the Code or by appropriate Regulations, the criminal sanctions imposed by Code Sec. 7206 were not applicable, and the court was compelled to reverse the taxpayer's conviction.

J.B. Levy, CA-5, 76-2 USTC ¶9500, 533 F2d 969.

A delinquent individual was properly convicted of filing a false statement in connection with his Form 433A, Collection Information Statement for Individuals. The court's binding precedent indicated that a Form 433A could not serve as a basis for the conviction; however, the taxpayer failed to raise the issue at trial, he entered into agreements with the IRS that imposed on him an additional obligation to cooperate with collection activities, and his conviction did not seriously affect the fairness or integrity of the judicial system. J.B. Levy, CA-5, 76-2 USTC ¶9500, distinguished.

G.R. Hunerlach, CA-11, 99-2 USTC ¶51,009.

The trial court did not err in refusing to give an instruction that certain items did not constitute taxable income, when it was legally clear that they did. Nor did the government, before trial, withhold any information concerning what it intended to prove at trial.

E. Allen, Jr., CA-8, 77-1 USTC ¶9285, 551 F2d 208.

A conviction for willfully making false statements could not be upheld because the defendant, a bookkeeper for an auto supply company, could not have been expected to know that the funds she embezzled constituted taxable income.

D.A. Middlemiss, DC, 77-1 USTC ¶9363.

The taxpayer was not misled by his employer's failure to issue a Form 1099 to him or by a Form W-2 that reported a partial assignment of his salary to a third party because he knew of the salary he was to receive.

C. Dinnell, DC, 77-2 USTC ¶9490, 428 FSupp 205. Aff'd, CA-9 (unpublished opinion under CA-9 rules 1/6/78).

A conviction was upheld because the defendant had told an investor in his Ponzi scheme that he (the defendant) would keep a low profile and did not have much income through preceding years and was not going to be reporting as income all the money he kept in his safety deposit box.

M. Londe, DC, 78-2 USTC ¶9577, 449 FSupp 590. Aff'd, per curiam, CA-8, 78-2 USTC ¶9771, 587 F2d 18. Cert. denied, 439 US 1130.

The taxpayer's conviction for willfully making and subscribing to false income tax returns under a two-count indictment was affirmed with regard to the 1969 calendar year, but reversed and remanded with regard to the 1970 calendar year, because the failure of the District Court judge to instruct the jury that income meant gross receipts less cost of goods sold may have materially prejudiced him.

J. Ballard, CA-8, 76-1 USTC ¶9378, 535 F2d 400. Cert. denied, 429 US 918.

A judgment by the Court of Appeals for the Fifth Circuit affirming the taxpayer's conviction by a jury for filing a fraudulent return was vacated and remanded on certiorari by the U.S. Supreme Court. The Solicitor General's recommendation that certiorari be granted because the government failed to disclose written or recorded statements or reports of its witnesses in its possession was followed.

N.C. Beasley, SCt, 76-2 USTC ¶9555, 425 US 956, vacating and rem'g CA-5, 75-2 USTC ¶9725, 519 F2d 233.

Pursuant to the Supreme Court decision above, the Court of Appeals for the Fifth Circuit remanded the case to the District Court with instructions to consider the issues raised by the Solicitor General's investigation.

N.C. Beasley, CA-5, 76-2 USTC ¶9556, 535 F2d 293, on remand from SCt, 76-2 USTC ¶9555, 425 US 956.

On appeal, after the remand, it was held that the government's failure, albeit in good faith, to produce pre-trial statements given by a key prosecution witness violated the Jencks Act. The violation, however, constituted reversible error as to only one of the two charges.

N.C. Beasley, CA-5, 78-2 USTC ¶9586, 576 F2d 626. Defendant's petition for rehearing denied, CA-5, 79-1 USTC ¶9107, 585 F2d 796.

A conviction for willfully and knowingly filing false returns was upheld. The government's use of the bank deposits-expenditures method of reconstructing income was proper because the defendant had destroyed his gambling records. Miscellaneous assertions of error were rejected.

F.A. Tempesta, III, CA-8, 78-2 USTC ¶9844.

A corporation was acquitted of filing false returns. The prosecution was based on an alleged scheme whereby the company furnished automobiles to executives, then required those persons to reimburse it for over one-half the cost of the automobiles and used the reimbursements to make campaign contributions. If the payments were made they were income to the company and could not have been chargeable to the capital account. Nor could the automobiles be viewed as something other than automobiles for depreciation purposes. They could not, for example, be viewed as political contributions.

Fairchild Industries, Inc., DC, 79-2 USTC ¶9427.

A false return conviction was upheld. Funds that should have gone into a corporate account were diverted to personal use, the defendant had directed that checks be made out to him personally rather than the corporation and he had given conflicting stories to government investigators.

J.H. Greer, Jr., CA-9, 79-2 USTC ¶9574, 607 F2d 1251.

Evidence of a taxpayer's consistent pattern of diverting corporate funds into her personal accounts and making corporate expenditures for her personal benefit was sufficient to support the jury's verdict convicting her of making false statements on her tax returns.

F.L. Peters, CA-7, 98-2 USTC ¶50,650, 153 F3d 445.

The court affirmed the conviction of the defendant, an attorney, on two counts of filing false returns and two counts of tax evasion. The court held that the prosecution was not barred by the six-year period of limitations because the limitation period ran from the date of filing an amended return. Certain expert testimony as to his gross receipts offered by the defendant was properly excluded by the district court, and the defense claims of judicial and prosecutorial misconduct were without merit. The court found that substantial evidence supported the jury's verdict, that the false statements were made willfully and the attempt to evade was willful.

C. Samara, CA-10, 81-1 USTC ¶9220, 643 F2d 701. Cert. denied, 454 US 829, 102 SCt 122.

The government carried its burden of presenting evidence proving that the taxpayer willfully filed a fraudulent return.

G.S. Drape, CA-1, 82-1 USTC ¶9145, 668 F2d 22.

A reading to the jury of the indictment, the applicable statute, and two instructions on willfulness did not cure omitting to instruct explicitly that, in order to convict for a violation of section 7206(1), the government is required to prove that the defendant falsely subscribed the return(s) willfully with the specific intent to violate the law. Willfulness is an essential element of the crime to be proved. The conviction was, thus, reversed and the case was remanded for a new trial.

J. Brooksby, CA-9, 82-1 USTC ¶9210, 668 F2d 1102.

An inmate in the Florida State Prison committed mail fraud by filing false income tax refund claims from the prison. The trial court did not err in instructing the jury that an explanation tending to show a defendant's innocence, which is later shown to be false, may be used as evidence of consciousness of guilt, since the instruction did not bear on the facts of this case. Taxpayer's own statements to an IRS agent were incriminating.

R. Minshew, CA-5, 82-2 USTC ¶9593, 686 F2d 250.

An individual who presented a false income tax return to a tax return discounter in exchange for about one-half the amount of the refund shown on the return was guilty (under 18 U.S.C. §287) of willfully causing another to file a fraudulent refund claim. The evidence established that, at the time of the sale, the individual was aware that the discounter intended to file the return and claim the refund, and the jury instructions properly set forth the burden of proof.

J. Murph, CA-6, 83-1 USTC ¶9378, 707 F2d 895.

Defendants who failed to truthfully identify their foreign bank accounts, as required on their returns, could be prosecuted for filing false returns even though the disclosure requirement was sanctioned by a non-Code provision.

R.D. Franks, CA-10, 84-1 USTC ¶9118.

Conviction for making false and fraudulent statements in tax returns was reversed where there was a fatal variance between the pleading and the proof.

P.S. Poonian, CA-9, 61-2 USTC ¶9647, 294 F2d 74.

A criminal defendant was properly convicted of underreporting his income from marijuana sales. The government presented sufficient evidence and did not otherwise fail to investigate leads relating to his cash-hoard defense. The jury was not required to be instructed on issues that were not supported by the evidence. The defendant was not unduly hampered in his effort to present a defense. In addition, the indictment was sufficient, it gave adequate notice, and it was returned before the statute of limitations had run.

D.F. Marrinson, CA-7, 87-2 USTC ¶9610, 832 F2d 1465.

Motion to sever RICO/Hobbes Act counts from tax counts for purposes of trial was denied. The taxpayer did not show that he had important testimony to give concerning one count and strong need to refrain from testifying on the other.

J.J. McDonnell, DC Ill., 89-2 USTC ¶9443.

Understatements of gas purchases by the owner of gas stations on his individual and corporate income tax returns were properly deemed material where they made it more difficult for the IRS to verify the individual's income tax returns. A misstatement of the source of income is material in itself because without it, the IRS cannot verify the reporting of individuals and corporations. Thus, convictions for willfully filing false returns were sustained.

J. Fawaz, CA-6, 89-2 USTC ¶9654, 881 F2d 259.

Convictions and sentences for conspiracy to defraud the United States in violation of 18 U.S.C. §371 and for signing a false return were upheld against two individuals who failed to report the sale proceeds from "land flips," in which a buyer agreed to purchase land at an inflated price in return for a share of the seller's profits on the sale. Substantial evidence supported the trial court's determination of the amount of the resulting tax losses and its conclusions that the payments were kickbacks and that the individuals did not make full disclosure on their returns or to their tax advisers and did not rely in good faith on their advisers' recommendations. Finally, each of the individuals was responsible for both the tax loss that he caused and the tax loss that the other caused.

R.W. Charroux, CA-5, 93-2 USTC ¶50,628, 3 F3d 827.

The shareholder/president of two wholly owned companies was properly convicted of signing fraudulent corporate tax returns because he knowingly disguised political contributions as business expenses and failed to report substantial amounts of income on the returns. His claim that a large sum transferred to him by a business associate was a loan that he expected to repay was not credible in light of conflicting evidence concerning the purpose of the transfer and his considerable experience with banking and loan documents. The trial court did not err in admitting evidence of similar acts since the probative value of the evidence as to the individual's knowledge was not substantially outweighed by the danger of unfair prejudice.

D.C. Owen, CA-10, 94-1 USTC ¶50,281, 15 F3d 1528.

A corporate officer of a drugstore chain who failed to report funds he embezzled was properly convicted of filing false personal income tax returns. Since he did not contest the sufficiency of the evidence at trial, the issue was not preserved on appeal. Furthermore, an IRS agent's testimony that the officer was taxable on the embezzled amounts did not invade the province of the jury because he did not offer a legal opinion as to the officer's guilt.

M.I. Monus, CA-6, 98-2 USTC ¶50,488, 128 F3d 376.

An individual who concealed his ownership interest in several stores to avoid paying taxes and nominees who held themselves out as the store owners and underreported store income were properly convicted of tax fraud and conspiring to defraud the government under 18 U.S.C. §371. The indictment properly charged several nominees with filing false returns since they claimed ownership of the businesses on the returns. Also, sufficient evidence supported the conspiracy convictions of two nominees since they concealed income that was attributable to the true store owner.

R.E. Ladum, CA-9, 98-1 USTC ¶50,345, 141 F3d 1328.

An accountant was properly convicted of willfully filing a false return in connection with her failure to report as income funds that she embezzled from her employer. The evidence established that she was an educated and experienced accountant, she knew or had reason to know that embezzled income was taxable, and she attempted to conceal the embezzlement from the government, as well as from her employer.

A.L. Guidry, CA-10, 2000-1 USTC ¶50,118, 199 F3d 1150.

A return preparer was properly convicted of filing false returns after she overstated her husband's deductions on their joint return, and filed a second return in which she claimed married-filing-jointly status with another man.

B.K. Scarberry, CA-10 (unpublished opinion), 2000-1 USTC ¶50,272, 208 F3d 228.

An alleged drug dealer's conviction for filing false income tax returns during the tax years in issue was affirmed because his contention that a 5-6% understatement was not material as a matter of law was rejected. The amount of income involved was not relevant to the issue of whether he willfully filed false returns. Moreover, the exclusion of evidence regarding his ex-wife was not an abuse of discretion because only his actions were relevant in determining whether a violation under Code Sec. 7206 occurred.

D.R. Peiker, CA-8 (unpublished opinion), 2001-1 USTC ¶50,290, aff'g, per curiam, an unreported District Court decision.

The prosecution of a return preparer for procuring the presentation of tax returns containing false statements by fraudulently inflating taxpayers' deductions was not barred by the statute of limitations. The six-year limitations period under Code Sec. 6531(3) applied because the preparer's actions constituted acts furthering the presentation of false returns. The application of Code Sec. 6531(3) to offenses under Code Sec. 7206(2) was appropriate, notwithstanding that Code Sec. 6531 neither expressly refers to Code Sec. 7206(2) nor incorporates all of the elements of a Code Sec. 7206(2) offense.

W.M. Hayes, CA-4, 2003-1 USTC ¶50,312.

Tax shelter promoters willfully aided clients in filing false or fraudulent tax returns in violation of Code Sec. 7206(2). The promoters charged hundreds of clients to set up and manage trusts known as Unincorporated Business Organizations (UBOs), which purportedly avoided taxes on income streamed into them. The government sufficiently proved that the returns were fraudulent or false as to a material matter. While the income could have been reported elsewhere, the failure to report it at all made the file returns false and fraudulent.

D.L. Smith, CA-9, 2005-2 USTC ¶50,565, 424 F3d 992.

The evidence was sufficient to support a married couple's conviction for making false statements on tax documents and aiding in the preparation of tax documents containing false and fraudulent statements. The husband, who was the accountant for the nonprofit organization for which his wife was the executive director, failed to prepare Forms 1099 for himself. Although the wife owned property leased to the organization, she signed the organization's Form 990, prepared by her husband, which stated that the organization was not involved in any related-party real estate transactions.

W.D. Madison, CA-6 (unpublished opinion), 2007-1 USTC ¶50,495, aff'g in part, rev'g and rem'g in part an unreported DC Tenn. decision.

The prosecution of two individuals for filing false tax returns and for providing false responses regarding the activities of their exempt organization did not violate their right to the free exercise of religion. They concealed the fact that the organization funded Islamic holy war. The individuals' exercise of their First Amendment rights to express political or religious views did not extend to concealing information from the IRS that was material to its determination of the organization's exempt status. They were on notice that the information was material because the forms they submitted clearly instructed them to provide a detailed description of all the activities of the organization.

M. Mubayyid, DC Mass., 2007-2 USTC ¶50,527.

An individual's conviction and sentence for willfully underreporting his taxable income over a three-year period was proper. The individual failed to report income he received from an off-shore trust. HIs contention that he did not possess the required mens rea for tax evasion when he signed his tax returns was rejected. Various statements made by the individual to an undercover IRS agent were evidence of his intent to evade taxes. A two-level enhancement of his sentence for use of sophisticated means to conceal his tax evasion was also proper and his sentence was within the statutory range prescribed for his conduct.

M.E. Diesel, CA-10 (unpublished opinion), 2007-2 USTC ¶50,595, aff'g an unreported DC Kan. decision.

An individual's convictions and sentence for submitting a false declaration under oath was proper. However, the case was remanded for an explanation regarding fines in excess of the guidelines' recommended range.

M.D. Greene, CA-10 (unpublished opinion), 2007-2 USTC ¶50,634, aff'g in part, rem'g in part, an unreported DC Okla. decision.

F. Roman, CA-7, 2007-2 USTC ¶50,672.

An art broker was properly convicted of filing a false tax return because he willfully reported proceeds from the consignment sale of three paintings as long-term capital gain rather than ordinary income. The broker conceded that his original return should not have categorized the proceeds from the paintings' sale as long-term capital gain. Moreover, the broker could not attribute the mistake to good faith reliance on his accountant's advice because he told his accountant that he "owned" the paintings for more than one year before the sale when in fact the paintings belonged to another art dealer and the sale proceeds were actually a commission on the sale.

R.P. DeSimone, CA-1, 2007-2 USTC ¶50,681.

An individual was properly convicted of willfully aiding and assisting in the preparation of fraudulent income tax returns. Evidence established that the individual personally prepared tax returns for his clients containing materially false information claiming dependent exemptions and earned income tax credits to which his clients were not entitled. Since the individual personally interviewed his clients, he knew, or should have known, that the individuals he listed as his clients' foster children did not qualify as such for purposes of the earned income tax credits.

T.J. Gena, CA-4 (unpublished opinion), 2008-1 USTC ¶50,120, aff'g, per curiam, an unreported DC S.C., decision.

An individual was properly convicted and sentenced for making false statements and for willfully attempting to evade taxes. The evidence at trial demonstrated that the individual submitted documents purporting to be tax forms showing zero income despite receiving significant income for the tax years at issue and had signed those forms under penalty of perjury.

B.M. Parker, CA-4 (unpublished opinion), 2008-1 USTC ¶50,276, aff'g, per curiam, an unreported DC Texas decision.

A tax preparer was properly convicted and sentenced for willfully preparing false or fraudulent income tax returns. The evidence at trial clearly established that the individual willfully prepared returns containing materially false statements. Further, the court's instruction to the jury was not in error and did not affect the jury's verdict.

G.D. Goosby, CA-6, 2008-1 USTC ¶50,331.

An individual was properly convicted for concealment and making false statements concerning the activities of an exempt organization to the IRS. He did not disclose on the Forms 990 that he signed that the organization published a newsletter promoting "jihad" during the year. He also did not disclose that he was in charge of the organization's website, which contained direct solicitations for financial support for "mujahideen" activities.

M. Mubayyid, DC Mass., 2008-2 USTC ¶50,504.

An individual could not circumvent his conviction for filing false tax returns by claiming that the addition of the words "without prejudice" above the jurat and signature line in the tax returns voided the jurat. Although the IRS can not process returns without a proper jurat, the additional words did not materially alter the jurat or negate it. The returns were still signed under the penalty of perjury. Furthermore, the individual admitted that he had no idea what the additional words meant.

R.D. Davis, DC Tex., 2009-1 USTC ¶50,140.

Tax liability: Levy: Principal residence: Judicial approval. --
A levy on an individual's principal residence to satisfy his unpaid tax liabilities was judicially approved because the individual did not show good cause to deny approval of the levy. The individual conceded the validity of the tax liabilities and did not dispute the government's presumptively correct tax assessments. His efforts towards satisfaction of his tax liability, including partial payment and attempts to obtain a loan, were insufficient to show good cause. Back reference: ¶38,225.141.


nited States of America, Petitioner v. Robert A. Peterson, Respondent.

U.S. District Court, No Dist. Calif., San Jose Div.; C-08-04709 RMW, February 9, 2009.

[ Code Sec. 6334]






Thomas M. Newmanm Counsel for United States.





ORDER GRANTING THE UNITED STATES' PETITION FOR JUDICIAL APPROVAL OF LEVY ON A PRINCIPAL RESIDENCE


WHYTE, United States District Judge: The Untied States petitions the court for judicial approval of a levy on the principal residence of Respondent Robert A. Peterson. The court issued an order to Mr. Peterson to show cause as to why the levy should not be approved. Mr. Peterson has not filed a response, but appeared at a hearing on December 12, 2008. The court has considered the papers filed by the United States and the arguments of counsel and Mr. Peterson. For the foregoing reasons, the court approves the levy.




I. BACKGROUND


Robert A. Peterson maintains his principal residence at 217 4th Avenue, Santa Cruz, California 95062. Pet. ¶ 4. The Internal Revenue Service has made assessments against Mr. Peterson for unpaid federal income taxes, penalties, and interest. Pet. ¶ 5. As of August 5, 2008, these assessments totaled $249,450.99. Newman Decl., Ex. 1 (levy); see id. Exs. 2-8 (certificates of assessments). The IRS has attempted to collect Mr. Peterson's liabilities from his other assets, but no reasonable alternatives exist. Accordingly, the IRS petitions this court for judicial approval of a levy against Mr. Peterson's principal residence. See 26 U.S.C. § 6334(e).

The court issued an order to Mr. Peterson to show cause as to why the court should not approve the levy. See Docket No. 11 (Oct. 28, 2008). The order to show cause required Mr. Peterson to appear before the court on December 12, 2008. See id. at 1. The order required that a copy of the order, the petition, and its supporting declarations "be served" upon Mr. Peterson at least 35 days prior to the hearing. Id. at 2. The order then required Mr. Peterson to file any written response at least 21 days before the hearing, i.e., by November 21, 2008, and instructed that the court would only consider issues raised in Mr. Peterson's written response to the government's petition. Id. at 2. IRS Revenue Officer Greg Yarborough personally served on Mr. Peterson copies of the United States' petition and the order to show cause at Mr. Peterson's principal residence on November 5, 2008. See Docket No. 12 (Nov. 28, 2008).

Mr. Peterson appeared at the show cause hearing. He agreed that he owes the taxes and penalties, and that he is trying to pay them off. He stated that he has paid over $80,000 toward his tax liability in the past 20 months. He also stated that he is trying to obtain a loan on the home to permit him to pay his tax debt.




II. ANALYSIS


The law authorizes the government to levy the property subject to a tax lien of any person that refuses to pay a tax. See 26 U.S.C. § 6331(a). The law exempts various categories of a person's property. See 26 U.S.C. § 6334. Pertinent to this petition, a person's principal residence is exempt from levy unless a court "approves" the levy in writing. 26 U.S.C. § 6334(a)(13)(B); (e)(1)(A).

Section 6334(e)(1)(A) does not instruct the court as to what standard it should apply in approving such levies. See id. However, in collection cases the burden is normally on the respondent to dispute the government's presumptively correct assessment when, as here, the government's assessments have a foundation and are admissible. See United States v. Janis, 428 U.S. 433, 440-41 (1976). 1 Moreover, the Treasury Department's regulations regarding levy proceedings state that, "Unless the taxpayer files a timely and appropriate objection, the court would be expected to enter an order approving the levy of the principal residence property." 26 C.F.R. § 301.6334-1(d)(2).

Mr. Peterson failed to file anything in response to the order to show cause. His statements in court indicate that the tax liabilities are valid and that there is no reason why the government's request for approval of its levy should be denied. However, Mr. Peterson appears to be working hard to pay the government and the circumstances he described make it sound as though he might be able to keep his home. The government maintained its request for approval of the levy, but stated that it will try to work with Mr. Peterson to avoid a forced sale of the home. The court is hopeful that the parties will be able to reach an accord. Nevertheless, Mr. Peterson has shown no good cause as to why the court should deny the request for approval of the levy.




III. ORDER


For the foregoing reasons, the court grants the government's petition for approval of a levy on Mr. Peterson's principal residence, 217 4th Avenue, Santa Cruz, California 95062. The Internal Revenue Service may levy upon Robert A. Peterson's interest in the property located at 217 4th Avenue to satisfy part or all of Mr. Peterson's unpaid tax liabilities for the tax years in question. Such levy may be executed by any authorized officer of the Internal Revenue Service. The Clerk shall close the file.

The government shall serve a copy of this order on Mr. Peterson.

1 The IRS's certificates of assessment are admissible. Hughes v. United States, 953 F.2d 531, 540 (9th Cir. 1992). Moreover, they are "probative evidence in and of themselves and, in the absence of contrary evidence, are sufficient to establish that notices and assessments were properly made." Id.

Bankruptcy: Chapter 11 plan: IRS collection action: Postpetition liability: Prepetition deficiency: Confirmation order: Discharge of debt: Discharge injunction. --

The IRS's postpetition efforts to collect a Chapter 11 debtor's prepetition tax liabilities did not violate the discharge injunction because the liabilities were nondischargeable in bankruptcy. The Bankruptcy Code specifically provides that income tax liabilities are excepted from discharge whether or not a claim is filed or allowed. The confirmation of the debtor's plan did not have any binding effect on the debts that were excepted from discharge, even if the debts were provided for in the plan.








In re Clayton Samuel Newman, Debtor. Clayton Samuel Newman, Plaintiff v. The United States of America, Defendant.

U.S. Bankruptcy Court, Mid. Dist. Fla., Tampa Div.; 8:08-ap-150-PMG, November 25, 2008.

[ Code Sec. 6871]


ORDER ON UNITED STATES' MOTION FOR SUMMARY JUDGMENT


GLENN, Chief Bankruptcy Judge: THIS CASE came before the Court for hearing to consider the Motion for Summary Judgment filed by the United States of America, Internal Revenue Service (IRS).

The Debtor, Clayton Samuel Newman, commenced this proceeding by filing a Complaint for (i) Violation of 11 U.S.C. §524(a); (ii) Contempt Pursuant to 11 U.S.C. §105; and (iii) Declaratory Relief Pursuant to Rule 7001 of the Federal Rules of Bankruptcy Procedure.

Generally, the Debtor asserts that he made all payments owed to the IRS pursuant to his confirmed Chapter 11 Plan, and that the prepetition claims of the IRS are therefore satisfied. According to the Debtor, however, the IRS has attempted to collect additional tax liabilities related to the 1993, 1994, 1995, and 1996 tax years, and has thereby violated the discharge injunction provided by §524(a) of the Bankruptcy Code.

In response, the IRS contends that the tax liabilities at issue were nondischargeable in the Debtor's Chapter 11 case pursuant to §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code. Consequently, the IRS asserts that its efforts to collect the nondischargeable debts do not violate the discharge injunction contained in §524(a).




Background


The Debtor filed a petition under Chapter 13 of the Bankruptcy Code on July 13, 1998.

On July 10, 2000, the IRS filed its final amended Proof of Claim in the Debtor's Chapter 13 case. (Claim No. 20). The Claim consisted of a secured component in the amount of $8,519.00, an unsecured priority component in the amount of $157,913.79, and a general unsecured component in the amount of $41,416.82, for a total claim in the amount of $207,849.61.

The Claim was based on income tax liabilities arising from the 1993, 1994, 1995, and 1996 tax years. Specifically, the Claim included income tax liabilities for the 1993 tax year that had been assessed on February 9, 1998; income tax liabilities for the 1994, 1995, and 1996 tax years that were claimed "pending examination," or "pending the outcome" of the IRS's review of the Debtor's returns; and an additional income tax liability for the 1996 tax year that was assessed on August 31, 1998.

On May 1, 2001, the Debtor's Chapter 13 case was converted to a case under Chapter 11.

On May 22, 2001, the Debtor filed a Chapter 11 Plan of Reorganization. (Main Case, Doc. 85). The Plan provided that the priority portion of the IRS's Claim would be paid in full with interest at the rate of 9% per annum. The Debtor was to pay the priority Claim by making a lump sum payment at confirmation, followed by equal monthly installments to be completed within six years of the date of assessment. The Plan further provided that the secured portion of the IRS's Claim would be paid in full at confirmation, with interest at the rate of 9% per annum. Finally, the Plan provided that the Debtor would pay the IRS an amount equal to fifty percent of its unsecured claim with interest at the rate of 6% per annum. The unsecured claim was to be paid in monthly installments, after payment in full of the priority and secured claims.

On December 7, 2001, the Court entered an Order Confirming the Debtor's Chapter 11 Plan.

In 2002 and 2003, during the life of the Plan, the IRS assessed additional income tax liabilities against the Debtor for the 1994, 1995, and 1996 tax years. (Doc. 18, p. 4). For each of the three tax periods, the liabilities assessed included late filing penalties, "additional taxes assessed by examination," and interest. (Doc. 18, pp. 11, 16. and 21 of Composite Exhibit.).

The parties agree that the Debtor "made the payments required under the Chapter 11 Plan." (Doc. 11, ¶ ¶3, 6). In other words, the Debtor made the payments relating to the IRS's final amended Proof of Claim as provided in his confirmed Plan. The Debtor did not pay the additional tax liabilities that were assessed by the IRS in 2002 and 2003 for the 1994, 1995, and 1996 tax years.

On September 30, 2004, a Final Decree was entered in the Chapter 11 case, and the case was closed.

On September 12, 2006, the IRS issued a Notice of Federal Tax Lien against the Debtor. The Notice of Tax Lien related to the Debtor's income taxes for the 1993, 1994, 1995, and 1996 tax years. (Doc. 1, Composite Exhibit).

On February 13, 2008, the IRS issued a Notice of Levy on the Debtor's Wages, Salary, and Other Income. (Doc. 1, Composite Exhibit). The Notice of Levy relates to income taxes claimed by the IRS for the 1993, 1994, 1995, 1996, and 2005 tax years.

Following receipt of the Notice of Levy, the Debtor reopened his Chapter 11 case and filed the Complaint that commenced this adversary proceeding.




Discussion


The Debtor contends that his tax liabilities for the 1993, 1994, 1995, and 1996 tax years were dealt with in his Chapter 11 Plan, and satisfied upon his completion of the Plan. Consequently, the Debtor asserts that the IRS violated the permanent injunction provided in §524(a) of the Bankruptcy Code by issuing the Notice of Lien and Notice of Levy in an effort to collect the prepetition tax liabilities.

The IRS contends that it did not violate the permanent injunction by issuing the Notice of Lien and Notice of Levy, because the tax liabilities that it seeks to collect were not dischargeable in the Debtor's Chapter 11 case. According to the IRS, the tax liabilities are nondischargeable pursuant to §523(a)(1) and §507(a)(8) of the Bankruptcy Code, and therefore were not fixed by the Chapter 11 Plan.



A. The tax claims are nondischargeable under §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code.

Section 523(a)(1) of the Bankruptcy Code provides:


11 USC §523. Exceptions to discharge



(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt --



(1) for a tax or a customs duty --



(A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed.


11 U.S.C. §523(a)(1)(A)(Emphasis supplied).

Section 507(a)(8) of the Bankruptcy Code provides:


11 USC § 507. Priorities



(a) The following expenses and claims have priority in the following order:



...



(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for --



(A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition --



(i) for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;



(ii) assessed within 240 days before the date of the filing of the petition, exclusive of --




(I) any time during which an offer in compromise with respect to that tax was pending or in effect during that 240-day period, plus 30 days; and



(II) any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days.


11 U.S.C. § 507(a)(8)(Emphasis supplied).

Pursuant to §523(a)(1)(A) and §507(a)(8), therefore, "an individual debtor's debt to a governmental unit for an income tax is excepted from discharge if it pertains to a taxable year the return due date of which is three years or less before the date the debtor filed a bankruptcy petition." In re Jackson, 253 B.R. 570, 573 (M.D. Ala. 2000). Additionally, pursuant to §523(a)(1)(A) and §507(a)(8), an individual debtor's debt for an income tax liability that was assessed within 240 days of the bankruptcy petition is also excepted from discharge. See In re Parker, 199 B.R. 792 (Bankr. M.D. Fla. 1996).

The purpose of §523(a)(1) and §507(a)(8) is to render recent prepetition tax claims nondischargeable, but to allow the discharge of certain old or "stale" tax claims. In re Shin, 306 B.R. 397, 409-10 (Bankr. D.D.C. 2004)(citing Young v. United States, 535 U.S. 43, 47 (2002)).

In this case, the tax liabilities claimed by the IRS fall within the exception to dischargeability set forth in §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code.

The Debtor filed his original bankruptcy petition on July 13, 1998.

The Debtor's 1993 tax liabilities were initially assessed on February 9, 1998, within 240 days of the filing of the petition. (Doc. 18, p. 2 of Composite Exhibit). Accordingly, the Debtor's 1993 tax liabilities are nondischargeable under §523(a)(1)(A) and §507(a)(8)(A)(ii) of the Bankruptcy Code.

Further, the Debtor received an extension to file his 1994 tax return until August 15, 1995, and his 1995 and 1996 tax returns were originally due on April 15, 1996, and April 15, 1997, respectively. (Doc. 18, pp. 10, 15, 20 of Composite Exhibit). Consequently, the returns for 1994, 1995, and 1996 were last due within three years of the filing of the Debtor's bankruptcy petition, and the tax liabilities for those years are nondischargeable under §523(a)(1) and §507(a)(8)(A)(i) of the Bankruptcy Code.

The IRS filed its final amended Proof of Claim in the Debtor's bankruptcy case on July 10, 2000. The Proof of Claim, which was filed in the total amount of $207,849.61, was based on income tax liabilities arising from the 1993, 1994, 1995, and 1996 tax years. With respect to the 1994, 1995, and 1996 tax periods, the Claim expressly stated that the amounts were being claimed "pending the outcome of" the IRS's review of the Debtor's returns.

In 2002 and 2003, after the Debtor's Chapter 11 Plan had been confirmed, the IRS assessed additional tax liabilities against the Debtor for the 1994, 1995, and 1996 tax years. The liabilities consisted of additional taxes "assessed by examination - audit deficiency," late filing penalties, and interest. (Doc. 18, pp. 11, 16, 21 of Composite Exhibit).

The IRS issued a Notice of Lien against the Debtor on September 12, 2006, and a Notice of Levy against the Debtor on February 13, 2008. The Notices relate to income taxes for the 1993, 1994, 1995, and 1996 tax years. According to the Notice of Levy, the Debtor owes the IRS the total amount of $132,950.96 as the "unpaid balance of assessment" and "statutory additions" for the listed tax years. (Doc. 1, Composite Exhibit).

Based on the record, therefore, the Court concludes that the tax liabilities that are the subject of the Notice of Lien and Notice of Levy are nondischargeable taxes pursuant to §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code. The tax liability for 1993 was assessed within 240 days of the bankruptcy filing, and the tax returns for 1994, 1995, and 1996 were last due within three years of the date of the Debtor's bankruptcy petition. The liabilities were not "stale" when the Debtor filed his bankruptcy petition, but were instead the type of recent tax debts that are intended to be nondischargeable under §523(a)(1). In re Shin, 306 B.R. at 409-10. Consequently, the tax liabilities associated with those taxable years are nondischargeable, "whether or not a claim for such tax was filed or allowed." 11 U.S.C. § 523(a)(1)(A).

The liabilities described in the Notice of Lien and Notice of Levy represent "debt" arising from a "tax" that is "of a kind" specified in §507(a)(8). In re Gust, 197 F.3d 1112, 1115-16 (11 th Cir. 1999). The tax liabilities are nondischargeable. The IRS is permitted to audit, assess, and assert additional claims for nondischargeable taxes during a bankruptcy case, even if they have previously filed a claim arising from the same tax year. In re DePaolo, 45 F.3d 373, 376-77 (10 th Cir. 1995). The taxes described in the Notice of Lien and Notice of Levy were not dischargeable debts under §523(a)(1) and §507(a)(8) of the Bankruptcy Code.



B. The IRS's post-confirmation collection efforts did not violate the injunction contained in §524(a) of the Bankruptcy Code.

The Debtor does not assert that the tax liabilities described in the Notice of Lien and Notice of Levy fall outside of the exceptions to discharge set forth in §523 of the Bankruptcy Code. Instead, the Debtor contends that his Plan provided for payment of the liabilities, and that he made all payments owed to the IRS under the Plan. Accordingly, the Debtor asserts that the liabilities have been satisfied and discharged pursuant to §1141 of the Bankruptcy Code.



1. An Order Confirming Plan does not discharge debts that are nondischargeable under §523 of the Bankruptcy Code.

Generally, the entry of an order confirming a Chapter 11 plan binds the debtor and all creditors of the debtor, regardless of whether the creditors' claims are impaired under the plan, and regardless of whether the creditors accepted the plan. 11 U.S.C. §1141(a).

Additionally, the confirmation of a plan generally discharges the debtor from any debt that arose before the date of confirmation, regardless of whether a claim has been filed or allowed with respect to the debt. 11 U.S.C. §1141(d)(1).

Section 1141(d)(2) of the Bankruptcy Code, however, creates an exception to the general rule regarding the effect of confirmation in Chapter 11 cases. Section 1141(d)(2), as in effect in 2001, provided:


11 USC §1141. Effect of confirmation



...



(d)(2) The confirmation of a plan does not discharge an individual debtor from any debt excepted from discharge under section 523 of this title.


11 U.S.C. §1141(d)(2). Section 1141(d)(2) currently provides:


11 USC §1141. Effect of confirmation



...



(d)(2) A discharge under this chapter does not discharge a debtor who is an individual from any debt excepted from discharge under section 523 of this title.


11 U.S.C. §1141(d)(2).

"The Bankruptcy Code makes clear under 11 U.S.C. §1141(d)(2) that the confirmation of a plan of reorganization does not fix tax liabilities made nondischargeable under 11 U.S.C. §523. Moreover, the Code states that these taxes are nondischargeable 'whether or not a claim for such tax was filed or allowed.' Section 523(a)(1)(A)." In re Gurwitch, 794 F.2d 584, 585 (11 th Cir. 1986). If a debtor's prepetition tax liabilities are excepted from discharge under §523(a)(1)(A) and §507(a)(8), the liabilities are not discharged by confirmation of the debtor's plan. In re Wood, 341 B.R. 804, 811 (Bankr. S.D. Fla. 2006). See also In re Gill, 343 B.R. 732 (Bankr. M.D. Fla. 2006).

A confirmed plan may not "extinguish or discharge an otherwise nondischargeable debt, even where the creditor fails to participate in the confirmation process." In re Artisan Woodworkers, 225 B.R. 185, 190 (9 th Cir. BAP 1998). Section 1141(d)(2) represents congressional policy favoring the collection of nondischargeable taxes over a debtor's fresh start following completion of his plan. In re McConahey, 192 B.R. 187, 191 (Bankr. S.D. Ill. 1996). See also In re Gill, 343 B.R. at 739.



2. An Order Confirming Plan does not discharge otherwise nondischargeable debts, even if the debts were provided for in the Plan.

In this case, the Debtor appears to acknowledge that the confirmation of a Chapter 11 plan does not discharge debts that are nondischargeable under §523 of the Bankruptcy Code. The Debtor contends, however, that the exception to dischargeability should not apply if the nondischargeable debts are "dealt with" in the plan. (Transcript, pp. 5, 9-10, 21).

The Debtor's contention is inconsistent with the express language of §1141(d)(2). The decisions that have addressed §1141(d)(2) establish that creditors holding nondischargeable claims may pursue post-confirmation collection efforts outside of bankruptcy, even if their claims were provided for in the plan.

In In re Bartleson, 253 B.R. 75 (9 th Cir. BAP 2000), for example, certain creditors had obtained a stipulated judgment of nondischargeability against the debtor, and the debtor's plan provided for payment of the total debt owed to the creditors. In re Bartleson, 253 B.R. at 77. Despite the payment terms set forth in the confirmed plan, the creditors initiated an action to collect the nondischargeable debt outside of the Chapter 11 case.

The Court concluded that the confirmed plan did not preclude the creditors from collecting their nondischargeable claim outside the bankruptcy case. Id. at 84. In reaching this conclusion, the Court determined that a confirmed plan does not have binding effect as to nondischargeable debts, in part because such nondischargeable debts are expressly "carved out" of the general provisions regarding the effect of confirmation.

Section 1141(a), for example, provides that a confirmed plan binds the debtor and the debtor's creditors, "except as provided in subsections (d)(2) and (d)(3)." Section 1141(c) provides that the property dealt with by the plan is free and clear of creditors' claims after confirmation, "except as provided in subsections (d)(2) and (d)(3)." Subsection (d)(2), of course, provides that the confirmation of a plan does not discharge an individual debtor from debts that are nondischargeable under §523 of the Bankruptcy Code. Id. at 80. Consequently, the Court in Bartleson concluded that a party holding a nondischargeable debt has the right to collect the debt outside of bankruptcy, regardless of the payment provisions contained in the plan. Id. at 84. (See also In re Brotby, 303 B.R. 177 (9 th Cir. BAP 2003)(The Court was unequivocal in its conclusion that a Chapter 11 plan may not affect the nondischargeability of a debt, even if the debtor proposed to pay the debt during the life of the plan.).

Further, and perhaps more significantly, in In re McConahey, 192 B.R. 187, 189-90 (Bankr. S.D. Ill. 1996), the IRS filed a Proof of Claim, and the debtor paid the full amount of the claim as provided in her plan. The IRS subsequently asserted a tax lien to collect additional prepetition taxes, and the debtor sought a determination that her prepetition tax liabilities were satisfied by her completion of payments under a confirmed Chapter 11 plan. In re McConahey, 192 B.R. at 189-90.

The Court concluded that confirmation of the debtor's Chapter 11 plan did not fix the amount of her liability for the nondischargeable prepetition taxes.


[T]hese taxes were excepted from discharge under §523(a)(1)(A), and they retained this status regardless of the government's filing of a proof of claim. Because the United States and the State of Illinois held nondischargeable claims that could be enforced outside of bankruptcy, confirmation of the debtor's plan in this case did not fix the amount of the debtor's tax liability to these creditors. In re DePaolo, 45 F.3d 373, 375-76 (10 th Cir. 1995); In re Gurwitch, 794 F.2d 584, 585 (11 th Cir. 1986).



... By expressly providing that the described taxes are not discharged "whether or not a claim for such taxes was filed or allowed," 11 U.S.C. §523(a)(1)(A)(emphasis added), Congress has determined that the government may make a claim for taxes for a particular year in a bankruptcy proceeding, accept the judgment of the bankruptcy court, and then make additional claims for that same year even though such conduct may seem inequitable or may impair the debtor's fresh start. DePaolo, at 376.


Id. at 190-91. Consequently, the Court concluded that the IRS was permitted to collect the additional nondischargeable taxes after the Chapter 11 case was concluded, notwithstanding the debtor's payment of the IRS's claim under her confirmed plan. Id. at 193.

Based on these authorities, it is clear that creditors holding nondischargeable claims may pursue post-confirmation collection efforts, even if their claims were provided for in the plan. In this case, the IRS's tax claims are "of the kind and for the periods" that are nondischargeable under the Bankruptcy Code. Consequently, the Court finds that the confirmed Plan did not "fix" the Debtor's tax liabilities, and the IRS was permitted to proceed with its efforts to collect the nondischargeable debts post-confirmation.




Conclusion


The issue in this case is whether the IRS violated the discharge injunction contained in §524(a) of the Bankruptcy Code by issuing a post-confirmation Notice of Lien and Notice of Levy in an effort to collect prepetition tax liabilities.

The tax liabilities set forth in the Notice of Lien and Notice of Levy are nondischargeable debts pursuant to §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code. Pursuant to §1141(d)(2) of the Bankruptcy Code, therefore, the debts were not discharged upon confirmation of the Debtor's Plan, and the IRS is permitted to proceed with its post-confirmation collection efforts outside of the bankruptcy case. The Order confirming the Debtor's Plan had no binding effect with respect to the nondischargeable debts asserted by the IRS, even though the Plan may have "dealt with" or provided for payment of the IRS's Proof of Claim.

Accordingly, the IRS did not violate the discharge injunction contained in §524(a) by issuing the post-confirmation Notice of Lien and Notice of Levy.

In view of the Court's determination that the IRS did not violate the discharge injunction, it is not necessary to consider whether the Debtor exhausted his administrative remedies before filing the Complaint that commenced this adversary proceeding.

Finally, this Order does not establish the amount of any tax liabilities that remain due and owing to the IRS. The Court determines only that tax liabilities claimed by the IRS for the 1993, 1994, 1995, and 1996 tax years are nondischargeable debts under §523(a)(1)(A) and §507(a)(8) of the Bankruptcy Code. The Order is without prejudice to any right that the Debtor may have under the Internal Revenue Code to seek an accounting of the amount of the tax liabilities claimed by the IRS.

Accordingly:

IT IS ORDERED that:

1. The Motion for Summary Judgment filed by the United States of America is granted as set forth in this Order.

2. The United States of America did not violate the injunction contained in §524(a) of the Bankruptcy Code by issuing the Notice of Lien on September 12, 2006, or the Notice of Levy on February 13, 2008.

3. A separate Final Summary Judgment shall be entered consistent with this Order.

DATED this 25 day of November, 2008.

No Abuse of Discretion in Refusal to Accept Offer-In-Compromise or to Grant Equitable Innocent Spouse Relief (Martino, TCM) The IRS did not abuse its discretion in rejecting a married couple's offer-in-compromise due to their failure to make current estimated tax payments. Also the wife's request for equitable innocent spouse relief was denied because she failed to proved she was entitled to such relief.

The taxpayers had requested a Collection Due Process hearing to consider settling deficiencies from a number of years. Prior to the hearing, the IRS Appeals officer informed the taxpayers that they were in arrears for the years following the deficiency notice. Further, their financial statements showed sufficient assets to satisfy the outstanding tax liability. Therefore, she rejected the offer-in-compromise. Upon review by the Tax Court, which found the taxpayers were still not current with their taxes, concluded that the IRS did not abuse its discretion in refusing to enter into an offer-in-compromise. The wife also filed a petition for innocent spouse relief under Code Sec. 6015(b) and (c). Since she failed to qualify for relief under those sections, she requested equitable innocent spouse relief under Code Sec. 6015(f). Although she met the threshold conditions to be considered for relief, she failed to provide sufficient evidence that such relief was in order. A review of all factors by the Tax Court demonstrated that the IRS did not abuse its discretion in refusing to grant equitable innocent spouse relief.


A.J. Martino, Jr., TC Memo. 2009-43, Dec. 57,746(M)

Anthony Martino, Jr. and Mikelin Martino v. Commissioner.

Dkt. No. 13912-06L, 8524-07L , TC Memo. 2009-43, February 24, 2009.



MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: These cases are before the Court consolidated for purposes of trial, briefing, and opinion. Respondent mailed petitioner Anthony Martino, Jr. (Mr. Martino), and petitioner Mikelin Martino (Mrs. Martino) (collectively, petitioners), a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for 1998, 1999, 2000, 2001, and 2002 (first notice of determination), and for 2003 and 2004 (second notice of determination). Petitioners seek review under sections 6320 and 6330 of respondent's determinations. 1

The parties' controversy poses the following issues for our consideration: (1) Whether respondent abused his discretion by rejecting petitioners' collection alternatives because of petitioners' failure to remain in compliance with their tax obligations; (2) whether respondent abused his discretion by determining that petitioners possessed sufficient funds to fully pay their tax liability; and (3) whether respondent abused his discretion in denying the requests of Mrs. Martino for innocent spouse relief under section 6015(f) for the 1998 through 2004 tax liabilities.


FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, together with the attached exhibits, is incorporated herein by this reference. At the time petitioners filed their petitions, they resided in Pennsylvania.

Mr. Martino is an attorney. From 1998 through 2004 petitioners derived their income from Mr. Martino's partnership interest and employment in a small law firm that focused on civil and criminal litigation.



I. Collection Alternatives

OPINION




I. Collection Alternatives
Petitioners make two arguments regarding respondent's rejection of their collection alternatives: (1) Petitioners lack sufficient assets to satisfy the tax liabilities; and (2) respondent abused his discretion by basing his determination to reject petitioners' collection alternatives on petitioners' failure to establish that they made estimated tax payments.

When a lien is filed or levy is proposed to be made on any property or right to property, a taxpayer is entitled to a notice of lien or of intent to levy and notice of the right to a fair hearing before an impartial officer of the Appeals Office. Secs. 6320(a) and (b), 6330(a) and (b), 6331(d). If the taxpayer requests a hearing, he may raise in that hearing any relevant issue relating to the unpaid tax, the lien, or the proposed levy, including challenges to the appropriateness of the collection action and "offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise". Sec. 6330(c)(2)(A). A determination is then made which takes into consideration those issues, the verification that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(C).

Petitioners dispute respondent's rejection of their proposed offer-in-compromise and installment agreements. We review the determinations for abuse of discretion because the underlying tax liabilities are not at issue. See Lunsford v. Commissioner, 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner, 117 T.C. 117, 120 (2001).

A. Compliance With Tax Obligations

Respondent rejected petitioners' collection alternatives for their 1998 through 2002 tax liabilities because the Appeals Office determined that petitioners had accrued additional unpaid tax liabilities in 2003 and 2004. Respondent similarly denied petitioners' collection alternatives for their 2003 and 2004 tax liabilities because the Appeals Office determined that petitioners had failed to make estimated tax payments for 2005 and 2006. Petitioners argue that respondent abused his discretion in rejecting petitioners' collection alternatives for the above reasons.

Ms. Stanton's consideration and rejection of petitioners' collection alternatives in two separate hearings was reasonable and not an abuse of discretion. With regard to the first notice of determination, a taxpayer's history of noncompliance is a valid basis for the Commissioner's rejection of a collection alternative. See Londono v. Commissioner, T.C. Memo. 2003-99. With regard to the second notice of determination, estimated tax payments, intended to ensure that current taxes are paid, are a significant component of the Federal tax system. Cox v. Commissioner, 126 T.C. 237, 258 (2006), revd. 514 F.3d 1119 (10th Cir. 2008). In fact, petitioners' circumstances illustrate the primary reason for requiring current compliance before granting collection alternatives; namely, "the risk of pyramiding tax liability." See Schwartz v. Commissioner, T.C. Memo. 2007-155; see also Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005), affg. 123 T.C. 1 (2004). Accordingly, we conclude that respondent's rejection of petitioners' collection alternatives was not an abuse of discretion. 5

B. Insufficient Funds

Petitioners argue that respondent erred in rejecting petitioners' offer-in-compromise because petitioners lack sufficient assets to satisfy their tax liabilities. 6 Respondent's determination not to enter into an offer-in-compromise agreement with petitioners was not an abuse of discretion. Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. The regulations set forth three grounds for the compromise of a liability: (1) Doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.; see sec. 7122(c)(1). Doubt as to liability is not at issue in this case.

The Secretary may compromise a liability on the ground of doubt as to collectibility when "the taxpayer's assets and income are less than the full amount of the liability." Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Additionally, the Secretary may compromise a liability on the ground of "effective tax administration" when: (1) Collection of the full liability will create economic hardship; or (2) exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers; and (3) compromise of the liability will not undermine compliance by taxpayers with tax laws. Sec. 301.7122-1(b)(3), Proced. & Admin. Regs.; see 2 Administration, Internal Revenue Manual (CCH), pt. 5.8.11.2, at 16,385-15 (Sept. 1, 2005) (taxpayer's liability may be eligible for compromise to promote effective tax administration if not eligible for compromise based on doubt as to liability or doubt as to collectibility and taxpayer has exceptional circumstances to merit the offer).

Ms. Stanton reviewed petitioners' submitted financial information at the hearing and determined that an offer-in-compromise was not appropriate. We received as exhibits the financial information presented to respondent and find that Ms. Stanton could have reasonably concluded that there are sufficient income and assets to satisfy the tax liabilities. Accordingly, we conclude that respondent's refusal to enter into an offer-in-compromise was not an abuse of discretion.



II. Relief From Joint and Several Liability
If a husband and wife file a joint Federal income tax return, they generally are jointly and severally liable for the tax due. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). However, a spouse may qualify for relief from joint and several liability under section 6015(b) or (c) if various requirements are met. The parties agree that petitioner does not qualify for relief under section 6015(b) or (c). If relief is not available under section 6015(b) or (c), the Commissioner may relieve an individual of liability for any unpaid tax if, taking into account all the facts and circumstances, it would be inequitable to hold the individual liable. Sec. 6015(f). This Court has jurisdiction to determine whether a taxpayer is entitled to equitable relief under section 6015(f). Sec. 6015(e); see also Farmer v. Commissioner, T.C. Memo. 2007-74; Van Arsdalen v. Commissioner, T.C. Memo. 2007-48.

Petitioner bears the burden of proving that she is entitled to equitable relief under section 6015(f). See Rule 142(a). The Commissioner analyzes petitions for section 6015(f) relief using the procedures set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296. See Banderas v. Commissioner, T.C. Memo. 2007-129. The parties have not disputed the application of the conditions and factors listed in the revenue procedure.

The Commissioner generally will not grant relief unless the taxpayer meets seven threshold conditions. Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297. Respondent concedes that petitioner meets these conditions. If a taxpayer meets the threshold conditions, the Commissioner considers several factors to determine whether a requesting spouse is entitled to relief under section 6015(f). Id. sec. 4.03, 2003-2 C.B. at 298. We consider all relevant facts and circumstances in determining whether the taxpayer is entitled to relief. Sec. 6015(e) and (f)(1). The following factors are relevant to our inquiry.

A. Petitioner's Marital Status

Mrs. Martino and Mr. Martino were still married when Mrs. Martino sought relief. This factor is neutral.

B. Significant Benefit

Receipt by the requesting spouse, either directly or indirectly, of a significant benefit in excess of normal support from the unpaid liability or the item giving rise to the deficiency weighs against relief. Lack of a significant benefit beyond normal support weighs in favor of relief. Normal support is measured by the circumstances of the particular parties. Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989). The record does not indicate whether Mrs. Martino received a significant benefit from the unpaid liability. This factor is neutral.

C. Compliance With Tax Laws

The record indicates that petitioners accrued unpaid liabilities from 1997 through 2004. Additionally, petitioners were unable to show proof of estimated tax payments from 2005 and 2006. This factor favors respondent.

D. Economic Hardship

A factor treated by the Commissioner as weighing in favor of relief under section 6015(f) is that paying the taxes owed would cause the requesting spouse to suffer economic hardship. Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298. The Commissioner considers the taxpayer to suffer economic hardship if paying the tax would prevent the taxpayer from paying reasonable basic living expenses. Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.; Rev. Proc. 2003-61, secs. 4.02(1)(c), 4.03(2)(a)(ii), 2003-2 C.B. at 298. As the record does not indicate that Mrs. Martino would experience hardship from paying the tax, this factor favors respondent.

E. Knowledge or Reason To Know

In the case of a properly reported but unpaid liability we are less likely to grant relief under section 6015(f) if the requesting spouse knew or had reason to know when the returns were signed that the tax would not be paid. Washington v. Commissioner, 120 T.C. 137, 151 (2003). If the requesting spouse did not know or have reason to know, we are more likely to grant relief.

Mrs. Martino has not alleged that she was unaware that the taxes reported on her Federal income tax returns would be left unpaid, and the record does not indicate that she was unaware. Accordingly, this factor favors respondent.

F. Whether the Underpayment of Tax Is Attributable to the Nonrequesting Spouse

Respondent concedes that the underpayment of tax was solely attributable to Mr. Martino's business activities. This factor favors relief.

The only factor favoring relief is that the underpayment of tax was attributable to Mr. Martino's business activities. This factor is strongly outweighed by Mrs. Martino's failure to demonstrate economic hardship, her failure to demonstrate she was unaware the taxes would not be paid, and petitioners' history of noncompliance with Federal tax laws. On the basis of the above, we find that Mrs. Martino has failed to carry her burden of showing that she is entitled to relief from joint and several liability under section 6015(f).

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

To reflect the foregoing,

Decisions will be entered for respondent.

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. Amounts are rounded to the nearest dollar.

2 In docket No. 13912-06L, respondent filed a motion to dismiss taxable year 1997 for mootness because petitioners had already paid the liability due for that year. Respondent also filed a motion to dismiss for lack of jurisdiction as to taxable year 1997 as to the sec. 6015 determination and to strike. We granted both motions on Oct. 5, 2007.

3 Mr. Martino is also a shareholder in a real estate holding company established by the partnership.

4 Respondent determined petitioners' collection potential using the published guidelines of Internal Revenue Manual pt. 5.15.1.3, 5.15.1.8, and 5.15.1.9 (May 1, 2004). These guidelines establish certain national and local allowances for basic living expenses and treat income and assets in excess of those needed for basic living expenses as available to satisfy Federal income tax liabilities.

5 In Martino v. Commissioner, T.C. Memo. 2009-1, a case involving the instant petitioners unsuccessfully contesting a levy for 2005, we found that petitioners had not paid the taxes due on their returns for 2005, 2006, and 2007. With a 10-year record of noncompliance, petitioners give every indication of being recidivists whose strategy is delay.

6 Respondent's first notice of determination specifies that petitioners' offer-in-compromise was rejected because petitioners had accrued unpaid tax liabilities for 2003 and 2004. However, respondent's Form 5402-c, Appeals Transmittal and Case Memo., specifies that respondent rejected the offer in part because petitioners were determined to be capable of fully paying their liability. Because both parties spent the lion's share of their briefs addressing this issue, we shall consider it here.

No Abuse of Discretion in Refusal to Accept Offer-In-Compromise or to Grant Equitable Innocent Spouse Relief (Martino, TCM) The IRS did not abuse its discretion in rejecting a married couple's offer-in-compromise due to their failure to make current estimated tax payments. Also the wife's request for equitable innocent spouse relief was denied because she failed to proved she was entitled to such relief.

The taxpayers had requested a Collection Due Process hearing to consider settling deficiencies from a number of years. Prior to the hearing, the IRS Appeals officer informed the taxpayers that they were in arrears for the years following the deficiency notice. Further, their financial statements showed sufficient assets to satisfy the outstanding tax liability. Therefore, she rejected the offer-in-compromise. Upon review by the Tax Court, which found the taxpayers were still not current with their taxes, concluded that the IRS did not abuse its discretion in refusing to enter into an offer-in-compromise. The wife also filed a petition for innocent spouse relief under Code Sec. 6015(b) and (c). Since she failed to qualify for relief under those sections, she requested equitable innocent spouse relief under Code Sec. 6015(f). Although she met the threshold conditions to be considered for relief, she failed to provide sufficient evidence that such relief was in order. A review of all factors by the Tax Court demonstrated that the IRS did not abuse its discretion in refusing to grant equitable innocent spouse relief.


A.J. Martino, Jr., TC Memo. 2009-43, Dec. 57,746(M)

Anthony Martino, Jr. and Mikelin Martino v. Commissioner.

Dkt. No. 13912-06L, 8524-07L , TC Memo. 2009-43, February 24, 2009.



MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: These cases are before the Court consolidated for purposes of trial, briefing, and opinion. Respondent mailed petitioner Anthony Martino, Jr. (Mr. Martino), and petitioner Mikelin Martino (Mrs. Martino) (collectively, petitioners), a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for 1998, 1999, 2000, 2001, and 2002 (first notice of determination), and for 2003 and 2004 (second notice of determination). Petitioners seek review under sections 6320 and 6330 of respondent's determinations. 1

The parties' controversy poses the following issues for our consideration: (1) Whether respondent abused his discretion by rejecting petitioners' collection alternatives because of petitioners' failure to remain in compliance with their tax obligations; (2) whether respondent abused his discretion by determining that petitioners possessed sufficient funds to fully pay their tax liability; and (3) whether respondent abused his discretion in denying the requests of Mrs. Martino for innocent spouse relief under section 6015(f) for the 1998 through 2004 tax liabilities.


FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, together with the attached exhibits, is incorporated herein by this reference. At the time petitioners filed their petitions, they resided in Pennsylvania.

Mr. Martino is an attorney. From 1998 through 2004 petitioners derived their income from Mr. Martino's partnership interest and employment in a small law firm that focused on civil and criminal litigation.



I. Collection Alternatives

OPINION




I. Collection Alternatives
Petitioners make two arguments regarding respondent's rejection of their collection alternatives: (1) Petitioners lack sufficient assets to satisfy the tax liabilities; and (2) respondent abused his discretion by basing his determination to reject petitioners' collection alternatives on petitioners' failure to establish that they made estimated tax payments.

When a lien is filed or levy is proposed to be made on any property or right to property, a taxpayer is entitled to a notice of lien or of intent to levy and notice of the right to a fair hearing before an impartial officer of the Appeals Office. Secs. 6320(a) and (b), 6330(a) and (b), 6331(d). If the taxpayer requests a hearing, he may raise in that hearing any relevant issue relating to the unpaid tax, the lien, or the proposed levy, including challenges to the appropriateness of the collection action and "offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise". Sec. 6330(c)(2)(A). A determination is then made which takes into consideration those issues, the verification that the requirements of applicable law and administrative procedures have been met, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(C).

Petitioners dispute respondent's rejection of their proposed offer-in-compromise and installment agreements. We review the determinations for abuse of discretion because the underlying tax liabilities are not at issue. See Lunsford v. Commissioner, 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner, 117 T.C. 117, 120 (2001).

A. Compliance With Tax Obligations

Respondent rejected petitioners' collection alternatives for their 1998 through 2002 tax liabilities because the Appeals Office determined that petitioners had accrued additional unpaid tax liabilities in 2003 and 2004. Respondent similarly denied petitioners' collection alternatives for their 2003 and 2004 tax liabilities because the Appeals Office determined that petitioners had failed to make estimated tax payments for 2005 and 2006. Petitioners argue that respondent abused his discretion in rejecting petitioners' collection alternatives for the above reasons.

Ms. Stanton's consideration and rejection of petitioners' collection alternatives in two separate hearings was reasonable and not an abuse of discretion. With regard to the first notice of determination, a taxpayer's history of noncompliance is a valid basis for the Commissioner's rejection of a collection alternative. See Londono v. Commissioner, T.C. Memo. 2003-99. With regard to the second notice of determination, estimated tax payments, intended to ensure that current taxes are paid, are a significant component of the Federal tax system. Cox v. Commissioner, 126 T.C. 237, 258 (2006), revd. 514 F.3d 1119 (10th Cir. 2008). In fact, petitioners' circumstances illustrate the primary reason for requiring current compliance before granting collection alternatives; namely, "the risk of pyramiding tax liability." See Schwartz v. Commissioner, T.C. Memo. 2007-155; see also Orum v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005), affg. 123 T.C. 1 (2004). Accordingly, we conclude that respondent's rejection of petitioners' collection alternatives was not an abuse of discretion. 5

B. Insufficient Funds

Petitioners argue that respondent erred in rejecting petitioners' offer-in-compromise because petitioners lack sufficient assets to satisfy their tax liabilities. 6 Respondent's determination not to enter into an offer-in-compromise agreement with petitioners was not an abuse of discretion. Section 7122(a) authorizes the Secretary to compromise any civil case arising under the internal revenue laws. The regulations set forth three grounds for the compromise of a liability: (1) Doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122-1(b), Proced. & Admin. Regs.; see sec. 7122(c)(1). Doubt as to liability is not at issue in this case.

The Secretary may compromise a liability on the ground of doubt as to collectibility when "the taxpayer's assets and income are less than the full amount of the liability." Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Additionally, the Secretary may compromise a liability on the ground of "effective tax administration" when: (1) Collection of the full liability will create economic hardship; or (2) exceptional circumstances exist such that collection of the full liability will be detrimental to voluntary compliance by taxpayers; and (3) compromise of the liability will not undermine compliance by taxpayers with tax laws. Sec. 301.7122-1(b)(3), Proced. & Admin. Regs.; see 2 Administration, Internal Revenue Manual (CCH), pt. 5.8.11.2, at 16,385-15 (Sept. 1, 2005) (taxpayer's liability may be eligible for compromise to promote effective tax administration if not eligible for compromise based on doubt as to liability or doubt as to collectibility and taxpayer has exceptional circumstances to merit the offer).

Ms. Stanton reviewed petitioners' submitted financial information at the hearing and determined that an offer-in-compromise was not appropriate. We received as exhibits the financial information presented to respondent and find that Ms. Stanton could have reasonably concluded that there are sufficient income and assets to satisfy the tax liabilities. Accordingly, we conclude that respondent's refusal to enter into an offer-in-compromise was not an abuse of discretion.



II. Relief From Joint and Several Liability
If a husband and wife file a joint Federal income tax return, they generally are jointly and severally liable for the tax due. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). However, a spouse may qualify for relief from joint and several liability under section 6015(b) or (c) if various requirements are met. The parties agree that petitioner does not qualify for relief under section 6015(b) or (c). If relief is not available under section 6015(b) or (c), the Commissioner may relieve an individual of liability for any unpaid tax if, taking into account all the facts and circumstances, it would be inequitable to hold the individual liable. Sec. 6015(f). This Court has jurisdiction to determine whether a taxpayer is entitled to equitable relief under section 6015(f). Sec. 6015(e); see also Farmer v. Commissioner, T.C. Memo. 2007-74; Van Arsdalen v. Commissioner, T.C. Memo. 2007-48.

Petitioner bears the burden of proving that she is entitled to equitable relief under section 6015(f). See Rule 142(a). The Commissioner analyzes petitions for section 6015(f) relief using the procedures set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296. See Banderas v. Commissioner, T.C. Memo. 2007-129. The parties have not disputed the application of the conditions and factors listed in the revenue procedure.

The Commissioner generally will not grant relief unless the taxpayer meets seven threshold conditions. Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297. Respondent concedes that petitioner meets these conditions. If a taxpayer meets the threshold conditions, the Commissioner considers several factors to determine whether a requesting spouse is entitled to relief under section 6015(f). Id. sec. 4.03, 2003-2 C.B. at 298. We consider all relevant facts and circumstances in determining whether the taxpayer is entitled to relief. Sec. 6015(e) and (f)(1). The following factors are relevant to our inquiry.

A. Petitioner's Marital Status

Mrs. Martino and Mr. Martino were still married when Mrs. Martino sought relief. This factor is neutral.

B. Significant Benefit

Receipt by the requesting spouse, either directly or indirectly, of a significant benefit in excess of normal support from the unpaid liability or the item giving rise to the deficiency weighs against relief. Lack of a significant benefit beyond normal support weighs in favor of relief. Normal support is measured by the circumstances of the particular parties. Estate of Krock v. Commissioner, 93 T.C. 672, 678-679 (1989). The record does not indicate whether Mrs. Martino received a significant benefit from the unpaid liability. This factor is neutral.

C. Compliance With Tax Laws

The record indicates that petitioners accrued unpaid liabilities from 1997 through 2004. Additionally, petitioners were unable to show proof of estimated tax payments from 2005 and 2006. This factor favors respondent.

D. Economic Hardship

A factor treated by the Commissioner as weighing in favor of relief under section 6015(f) is that paying the taxes owed would cause the requesting spouse to suffer economic hardship. Rev. Proc. 2003-61, sec. 4.03(2)(a)(ii), 2003-2 C.B. at 298. The Commissioner considers the taxpayer to suffer economic hardship if paying the tax would prevent the taxpayer from paying reasonable basic living expenses. Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs.; Rev. Proc. 2003-61, secs. 4.02(1)(c), 4.03(2)(a)(ii), 2003-2 C.B. at 298. As the record does not indicate that Mrs. Martino would experience hardship from paying the tax, this factor favors respondent.

E. Knowledge or Reason To Know

In the case of a properly reported but unpaid liability we are less likely to grant relief under section 6015(f) if the requesting spouse knew or had reason to know when the returns were signed that the tax would not be paid. Washington v. Commissioner, 120 T.C. 137, 151 (2003). If the requesting spouse did not know or have reason to know, we are more likely to grant relief.

Mrs. Martino has not alleged that she was unaware that the taxes reported on her Federal income tax returns would be left unpaid, and the record does not indicate that she was unaware. Accordingly, this factor favors respondent.

F. Whether the Underpayment of Tax Is Attributable to the Nonrequesting Spouse

Respondent concedes that the underpayment of tax was solely attributable to Mr. Martino's business activities. This factor favors relief.

The only factor favoring relief is that the underpayment of tax was attributable to Mr. Martino's business activities. This factor is strongly outweighed by Mrs. Martino's failure to demonstrate economic hardship, her failure to demonstrate she was unaware the taxes would not be paid, and petitioners' history of noncompliance with Federal tax laws. On the basis of the above, we find that Mrs. Martino has failed to carry her burden of showing that she is entitled to relief from joint and several liability under section 6015(f).

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

To reflect the foregoing,

Decisions will be entered for respondent.

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. Amounts are rounded to the nearest dollar.

2 In docket No. 13912-06L, respondent filed a motion to dismiss taxable year 1997 for mootness because petitioners had already paid the liability due for that year. Respondent also filed a motion to dismiss for lack of jurisdiction as to taxable year 1997 as to the sec. 6015 determination and to strike. We granted both motions on Oct. 5, 2007.

3 Mr. Martino is also a shareholder in a real estate holding company established by the partnership.

4 Respondent determined petitioners' collection potential using the published guidelines of Internal Revenue Manual pt. 5.15.1.3, 5.15.1.8, and 5.15.1.9 (May 1, 2004). These guidelines establish certain national and local allowances for basic living expenses and treat income and assets in excess of those needed for basic living expenses as available to satisfy Federal income tax liabilities.

5 In Martino v. Commissioner, T.C. Memo. 2009-1, a case involving the instant petitioners unsuccessfully contesting a levy for 2005, we found that petitioners had not paid the taxes due on their returns for 2005, 2006, and 2007. With a 10-year record of noncompliance, petitioners give every indication of being recidivists whose strategy is delay.

6 Respondent's first notice of determination specifies that petitioners' offer-in-compromise was rejected because petitioners had accrued unpaid tax liabilities for 2003 and 2004. However, respondent's Form 5402-c, Appeals Transmittal and Case Memo., specifies that respondent rejected the offer in part because petitioners were determined to be capable of fully paying their liability. Because both parties spent the lion's share of their briefs addressing this issue, we shall consider it here.

Fraudulent Transfer Case

An individual's transfer of property to his wife in exchange for her marital interest in a limited liability company constituted constructive fraud because the exchange was not for reasonably equivalent value. The value of the wife's interest in the company was considerably less than the value of the property that she received in return; therefore, she wrongfully received the property, to which federal tax liens had attached. Moreover, to the extent that the equity in the transferred property was insufficient to satisfy the husband's tax debts, a constructive trust was imposed on property she purchased with funds obtained by mortgaging the transferred property. Four elements must be satisfied in order that the transfer be considered one that is fraudulent under the law. It must be shown that "1) the debtor made a voluntary transfer; 2) at the time of the transfer, the debtor had incurred obligations elsewhere; 3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and 4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness." Gen. Elec. Capital Corp., 128 F.3d at 1079.




United States of America, Plaintiff v. Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William F. Schaudt, as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, Defendants.

U.S. District Court, No. Dist. Ill., East. Div.; 07 C 0895, January 21, 2009, Altering and amending 2008-2 USTC ¶50,609.






MEMORANDUM OPINION AND ORDER


KEYS, United States District Court: Pursuant to Federal Rule of Civil Procedure 59(e), Plaintiff United States of America timely moves this Court to alter and amend its Memorandum Opinion and Order of October 8, 2008. Also before the Court is the United States' Motion to Compel Production of Documents Regarding the Zeus Trust and Defendants' Objections and Motion to Strike Plaintiff's Proposed Order Regarding Motion to Compel. For the reasons set forth below, Plaintiff's motion to alter and amend is granted. Plaintiff's motion to compel and Defendants' motion to strike are therefore denied as moot.


Background


The facts of this case are presented in the Court's October 8, 2008 Memorandum Opinion and Order. See United States v. Schaudt, No. 07 C 0895, 2008 U.S. Dist. LEXIS 8056 (N.D. Ill. Oct. 8, 2008). Consequently, they will not be outlined in great detail here.

In its Order, the Court addressed, inter alia, whether there was sufficient evidence to hold that Robert Schaudt (Robert) fraudulently transferred the Northbrook property to Joann Schaudt (Joann). Specifically, the Court analyzed the transfer under the Illinois Uniform Fraudulent Transfer Act (UFTA) and considered whether there were adequate, undisputed facts indicating that either the transfer was made with the actual intent to defraud or the transfer was one which the law deems fraudulent. The Court opined that there remained a number of key, disputed facts crucial to a finding of actual fraud (i.e., whether the transfer of the Northbrook property to Joann in exchange for her marital interest in Zeus Concepts, LLC (Zeus) was for reasonably equivalent value, whether Robert retained possession or control of the Northbrook property even after the transfer to Joann); therefore, it declined to make such a determination. Similarly, the Court evaluated the Government's right to recovery under a fraud in law theory and found that it could not grant summary judgment on this claim, as the actual value of Zeus Concepts was in dispute, as well as whether Robert received reasonably equivalent value for the transfer. Having found neither actual nor constructive fraud, the Court declined to impose a constructive trust upon Joann's Antioch property.


Standard of Review


Federal Rule of Civil Procedure 59(e) allows a party, within ten days of the entry of judgment, to file a motion to alter or amend the judgment. To be successful, the moving party must either present newly discovered evidence or establish a manifest error of law or fact. Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996). A Rule 59(e) motion is not the appropriate vehicle by which to rectify procedural errors or present new arguments or evidence "that could and should have been presented to the district court prior to the judgment." Id.


Discussion


Plaintiff asks the Court to reconsider: 1) whether, in light of the value of Joann's marital interest in Zeus, Robert fraudulently transferred the property located in Northbrook, Illinois, to her, and 2) whether a constructive trust should be placed upon Joann's property located in Antioch, Illinois.



I. Fraudulent Transfer

Plaintiff argues that this Court committed error in its Memorandum Opinion and Order dated October 8, 2008, by failing to grant summary judgment on the issue of whether Robert fraudulently transferred the Northbrook property to Joann. Specifically, the Government contends that Joann's alleged marital interest was no more than one percent of a company worth - by Defendants' own admission - $4,231,000. As such, Joann's interest was worth a mere $42,310 at the time of transfer. This amount, the Government argues, is "dwarfed" by what Joann received in return - a house valued at $539,000. The Court agrees.

The Illinois UFTA protects against two types of fraudulent transfers, those involving actual fraud and those which the law considers fraudulent (i.e., constructive fraud or fraud in law). 740 ILL. COMP. STAT. 160/5; Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997). As the Court opined on October 8, 2008, a determination that Robert possessed the actual intent to defraud the Government would require the Court to "consider material facts that are currently in dispute, and then ... make certain factual determinations." Schaudt, 2008 U.S. Dist. LEXIS 8056, at *13. At this juncture in the proceedings, this is not permissible. Consequently, the Court declines to alter or amend its decision with respect to Robert's actual intent to defraud. Upon further consideration, however, the Court finds that the transfer of the Northbrook property is one deemed fraudulent under the law.

Four elements must be satisfied in order that the transfer be considered one that is fraudulent under the law. It must be shown that "1) the debtor made a voluntary transfer; 2) at the time of the transfer, the debtor had incurred obligations elsewhere; 3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and 4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness." Gen. Elec. Capital Corp., 128 F.3d at 1079. In the case at bar, however, only the presence of one element is in dispute. Specifically, the parties challenge whether the transfer of the Northbrook property to Joann in exchange for her marital interest in Zeus was an exchange for reasonably equivalent value. The Court finds that it was not.

At Defendants' request, Coleman Joseph Blitstein & Stuart LLC (Coleman), an accounting and consulting firm, prepared limited scope estimates of the value of a 100% interest in the equity of Zeus under three scenarios. (Def.'s Prop. Stat. Facts Supp. Def.'s Mot. Summ. J. Purs. Local Rule 56.1, Ex.12 at 67). These estimates, effective as of December 31, 2005, ranged from a minimum of $492,000 to a maximum value of $4,231,000. Id. Defendants alleged that it was in exchange for Joann's interest in this company that she was transferred the Northbrook property by Robert. But while Defendants submitted Coleman's report to the Court in an effort, presumably, to bolster their claims, they subsequently asserted that "the Defendant's [sic] appraisal cannot be used by the Government to prove its case in chief." However, Defendants' argument is misplaced. Indeed, the Court can consider Defendants' expert report. To be sure, in ruling on a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party. See Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th Cir. 1999). As Defendants were the non-moving parties, the standard requires the Court to accept the highest value placed on Zeus - an estimate provided by Defendants' own expert. Consequently, the value of Zeus is not truly in dispute. The Court's prior finding that it is, was made in error.

Defendants' expert determined the maximum value of Zeus to be $4,231,000 - a value that the Court hereby adopts. However, as stated earlier, this presumes a 100% interest. But by Defendants' own admission, Joann did not have a 100% interest in Zeus. To be sure, Robert admitted that the Zeus Trust owned 98% of Zeus. (Pl.'s Resp. Def.'s Prop. Stat. Facts Supp. Def.'s Mot. Summ. J. Purs. Local Rule 56.1, Ex. 2. Pt. 2 at 67.) Consequently, Joann's interest in Zeus was at most 2% - worth a mere $84,620. 1 This amount is considerably less than the $539,000 house that Joann received in return. So much so that the Court finds that the exchange was not for reasonably equivalent value.

Defendants raise the possibility that Joann may have had an interest in the Zeus Trust. However, as this would not be considered a marital interest, the Court is strained to understand its relevance. Similarly, the presence of potential minority discounts fails to persuade the Court, as Defendants owned at most, 2% of Zeus, while a single entity, the Zeus Trust, possessed the remaining 98%.



II. Constructive Trust

The Government asserts that, to its detriment, Joann mortgaged the Northbrook property and used the proceeds to make a down payment on the Antioch property. Consequently, it urges the Court to impose a constructive trust on the Antioch Property to prevent Joann's unjust enrichment.

"A constructive trust is an equitable remedy imposed by a court to prevent ... unjust enrichment." In re Liquidation of Sec. Cas. Co., 537 N.E.2d 775, 782 (Ill. 1989) (citations omitted). Generally, courts impose constructive trusts in instances of "actual fraud or breach of a fiduciary duty." Id. However, wrongdoing is not always required. Smithberg v. Ill. Mun. Ret. Fund, 735 N.E.2d 560, 565 (Ill. 2000) (citations omitted). Except in situations involving a bona fide purchaser for value, "a constructive trust may be imposed even though the person wrongfully receiving the benefit is innocent of collusion [citation]. By accepting the property, he adopts the means by which it was procured." Id. at 566.

Defendants argue that fraud is a required element for the imposition of a constructive trust. Indeed, the Court has determined that the transfer at issue was one which the law considers fraudulent. As such, the imposition of a constructive trust is an appropriate remedy. However, Defendants' argument that fraud is a required element, is misplaced. And in adopting said reasoning in its October 8, 2008, opinion, the Court committed error. To be sure, even had the Court not found the transfer to be constructively fraudulent, imposing a constructive trust would still be the proper course of action, as Joann wrongfully received the Northbrook property. Robert transferred the Northbrook property to Joann, who subsequently executed a mortgage, the proceeds of which she used to purchase the property in Antioch. All the while, federal tax liens resulting from Robert's tax debts had attached to the property. Allowing Joann to keep the Antioch property is certainly not a result that "equity and good conscience" dictates. Joann would be unjustly enriched to the detriment of the Government, to whom the debt is owed. Were the Court not to impose a constructive trust on the Antioch property, surely others seeking to evade tax responsibilities would be encouraged to follow the same course of conduct. Consequently, the Court, having determined that fraud is not a requisite, imposes a constructive trust on the Antioch property to the extent that the equity in the Northbrook property is not sufficient to satisfy Robert's tax debts that are the subject of this litigation, and in so doing, both alters and amends its Opinion of October 8, 2008.


Conclusion


For the reasons and to the extent set forth above, the Court grants the United States' Motion to Alter and Amend This Court's Order on Motion for Summary Judgment. Plaintiff's motion to compel and Defendants' motion to strike are denied as moot. A status hearing is set on this matter for February 6, 2009 at 9:00 a.m.

1 The Court makes no determination as to whether Joann's interest in Zeus was separate or marital property. Instead, the Court based its calculation on a best-case scenario - one in which the property was separate rather than marital, and thus, Joann owned the entire 2% interest. It will be of no consequence, therefore, should the interest subsequently be found to be marital property, in which Joann's interest would be 1% or $42,310.

United States of America, Plaintiff v. Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William F. Schaudt, as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, Defendants.

U.S. District Court, No. Dist. Ill., East Div.; 07 C 0895, October 8, 2008.

[ Code Sec. 6321]

Tax liens: Foreclosure: Real property: Property interests. --
The government was entitled to foreclose federal tax liens against a trustee's property interests in two parcels of real property in order to recoup taxes owed by him. The trustee's transfer of his rights in the property to his wife pursuant to their divorce did not affect the government's right to foreclose because the wife took the property subject to the taxes assessed against her husband, prior to the date of that transfer. Under the terms of the trust, the individual held an equitable right to the property as a beneficiary, and thereafter, held legal title to the property as a trustee. Under state (Illinois) law, the individual, as a beneficiary, could alienate, assign or transfer his interest and could also sell or mortgage it. Hence, his equitable interest qualified as "property" under federal law. Any liens the government had pertaining to the taxes assessed, attached to the property on the day the assessments were made, and not upon the filing of the notices of federal tax liens. Back reference: ¶38,136.66.



[ Code Sec. 6323]

Tax liens: Foreclosure: Real property: Property interests: Transfer: Priority: Notice not required. --
The government was entitled to foreclose federal tax liens against a trustee's property interests in two parcels of real property in order to recoup taxes owed by him. The trustee's transfer of his rights in the property to his wife pursuant to their divorce did not affect the government's right to foreclose because the wife took the property subject to the taxes assessed against her husband, prior to the date of that transfer. The federal tax liens took priority over the wife's interest in the transferred property regardless of whether she had notice. The government was not required to file notices of the liens because the wife's interest in the property was not that of a purchaser, holder of a security interest, mechanic lienor, or a judgment lien creditor. Rather, she gained rights to the property pursuant to a marital settlement agreement arising out of a divorce proceeding. She also had notice of her husband's tax problems. Back reference: ¶38,160.24.




MEMORANDUM OPINION AND ORDER


KEYS, District Court: This action was instituted by the United States of America, against Defendants for unpaid taxes. Currently before the Court are both Defendants' Motion For Summary Judgment and Plaintiff's Cross-Motion For Summary Judgment, filed pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Defendants' motion is denied, except as to William E. Schaudt, and Plaintiff's cross-motion is granted in part and denied in part.


FACTUAL & PROCEDURAL BACKGROUND


On or about December 26, 1986, the parents of Robert F. Schaudt, William G. and Evelyn M. Schaudt, formed The William G. and Evelyn M. Schaudt Family Trust (the "Schaudt Family Trust") and appointed themselves as co-trustees. Under the terms of the trust, real property located at 2283 Brentwood Road, Northbrook, Illinois, was to be held in trust, and upon the death of the last surviving trustee, William G. Schaudt or Evelyn M. Schaudt, the Northbrook property would be distributed to their son, Robert F. Schaudt ("Robert") 1 . (Def.'s Ex. 6, p. 16). In addition, the Trust instrument also provided that, upon the death of the last surviving trustee, Robert and his brother, William E. Schaudt 2 , would be appointed co-trustees of the Schaudt Family Trust. Id. Robert and his wife Joann Schaudt ("Joann"), resided in the Northbrook property from at least 1979 and continued to live there after the passing of both his parents (William G. Schaudt died on May 8, 1994, and Evelyn M. Schaudt died on May 1, 1996). In addition, while Robert and Joann resided at the Northbrook property, Robert's brother, William E. Schaudt, resigned as co-trustee on approximately July 10, 1996. However, after residing in the property together for many years, Joann Schaudt filed for divorce, and less than three weeks later, on December 5, 2005, a Judgment for Dissolution of Marriage was entered in Cook County.

The Judgment for Dissolution of Marriage incorporated a "Marital Settlement Agreement," under which Robert was to pay Joann Schaudt, monthly maintenance payments of $8,000, and Robert was to quitclaim the Northbrook Property to Joann Schaudt. 3 Pl.'s Ex. 1, Part. 2, p. 6, 8. Among various other items, the agreement also named "Zeus Concepts LLC" ("Zeus Concepts"), giving Robert all right, title and interest to the company, and absolved Joann of liability for all debts and liabilities associated with that business. 4 Id. at 9. After gaining title to the Northbrook Property, on May 31, 2006, Joann purchased another property located in Antioch, Illinois, by executing a mortgage against the Northbrook Property, in which she currently resides.

It appears, however, that during their marriage and after, Robert had failed to pay numerous tax assessments made against him. From 1996 to 2006, the IRS made several assessments against Robert for unpaid federal taxes, both personally and as the owner of Zeus Concepts. 5

The United States of America (hereinafter the "government" or the "IRS"), by its attorney, Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, filed a complaint on February 15, 2007 against Robert F. Schaudt, Joann Schaudt, Robert F. Schaudt and William E. Schaudt as co-trustees of the William G. Schaudt & Evelyn M. Schaudt Family Trust, (collectively the "defendants"), seeking to recover unpaid federal taxes in the amount of $585,267.04. The complaint alleged that, between 1997 and 2006, several Notices of Federal Tax Liens were recorded with the Cook County Recorder of Deeds, pertaining to Robert's tax liabilities in the name of Robert F. Schaudt and the William G. and Evelyn M. Schaudt Family Trust, as nominee of Robert F. Schaudt.

The government seeks the following forms of relief: (1) to reduce to judgment assessments made against Robert F. Schaudt, for unpaid income taxes, employment taxes, unemployment taxes, a civil penalty, and a trust fund recovery penalty; (2) to foreclose federal tax liens against interests held by Robert F. Schaudt or his nominee Joann Schaudt in two parcels of real property, with one located in Northbrook, Illinois (the "Northbrook property") and the other in Antioch, Illinois (the "Antioch property"); (3) to deem Robert F. Schaudt's conveyance of the Northbrook property to Joann Schaudt as fraudulent and consequently set it aside; (4) to obtain a money judgment against Joan Schaudt, as transferee, for the value of the Northbrook property; and finally (5) to establish that Joann Schaudt was unjustly enriched to the detriment of the United States, via the "fraudulent" transfer by Robert F. Schaudt and to impose a constructive trust in favor of the United States.


STANDARD OF REVIEW


Summary judgment will be granted where the pleadings and supporting documents show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. FED.R.CIV.P 56(c); Lewis v. City of Chicago et al, 496 F.3d 645, 650 (7th Cir. 2007). Whether a fact is material to the dispute is established by the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue as to one of these material facts exists if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id.

In a summary judgment proceeding, the Court will disregard all facts not properly supported by the record. Brasic v. Heinemann's, Inc., 121 F.3d 281, 284 (7th Cir. 1997). Additionally, at this juncture, it is not the role of the Court to make "credibility determinations nor choose between competing inferences." Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1041 (7th Cir. 1993); See also Paz v. Wauconda Healthcare and Rehab. Ctr., LLC, 464 F.3d 659, 664 (7th Cir. 2006). However, in determining whether a genuine issue of material fact exists, the Court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in the non-moving party's favor. Shank v. William R. Hague, Inc., 192 F.3d 675, 681 (7th Cir. 1999). In addition, the moving party initially bears the burden of showing that no genuine issue of material fact exists in the record. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1985). On the other hand, if the moving party meets it's burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial, and the non-moving party "may not rest upon the mere allegations or denials of the adverse party's pleading ... ." Anderson, 477 U.S. at 257.

In addition to adhering to Rule 56 of the Federal Rules of Civil Procedure, parties must be in strict compliance with Northern District of Illinois Local Rule 56.1. Under Local Rule 56.1, the party moving for summary judgment must submit a statement of material facts, written in short numbered paragraphs, along with citations to admissible evidence. Loc. R. 56.1(a); Smith v. Lamz, 321 F.3d 680, 682 (7th Cir. 2003). The opposing party must respond to each paragraph by either admitting or denying the allegations, and specifically citing to supporting materials showing the existence of a genuine factual dispute. Loc. R. 56.1(b)(3)(A). The parties must support all disputed facts with "specific references to ... parts of the record." Courts need not "scour the record in an attempt to locate the relevant information supporting the Rule 56.1 claims. Waldridge v. American Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994). The Seventh Circuit has repeatedly "sustained the entry of summary judgment when the nonmovant has failed to submit a factual statement in the form called for by the pertinent rule and thereby conceded the movant's version of the facts." Id.; see also Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 871 (7th Cir. 2000) (All relevant facts denied without supporting documentation must be accepted as true provided the facts are "properly supported by references to the record or other evidentiary materials.") If the party opposing summary judgment fails to identify supporting material in the record, the moving party's statements will be deemed admitted, assuming these statements are properly supported in the record. Loc. R. 56.1(b)(3(B); Garrison v. Burke, 165 F.3d 565, 567 (7th Cir. 1999).


DISCUSSION


The government claims that Robert's transfer of the Northbrook Property to Joann amounted to fraud under Illinois state law, and therefore, should be set aside, allowing the government to foreclose on the property and recoup unpaid taxes owed by Robert. The government also argues that, irrespective of whether the transfer of the Northbrook Property to Joann was fraudulent, the federal taxes assessed against Robert attached to the Northbrook Property at the time they were assessed, and not when the notices of the liens were filed; hence, those liens assessed prior to the transfer to Joann take priority over any interest Joann may have. The defendants naturally argue the opposite - that the transfer of the property to Joann did not amount to fraud under Illinois law and that any taxes assessed by the government, but not filed in accordance with Illinois state law before the transfer to Joann, are inferior to Joann's claim to the Northbrook Property. The Court will consider these arguments in turn, but will first address the issue of William E. Schaudt, named as a defendant in this case.



1. Claim against William E. Schaudt

In it's original filing of the complaint, the government named William E. Schaudt, as co-trustee of the Schaudt Family Trust, a defendant in this case. However, it appears that the government now concedes that William E. Schaudt resigned as co-trustee of the above trust prior to the events that have given rise to this motion for summary judgment. ( See Pl.'s Resp. at 12). Therefore, summary judgment is granted in favor of William E. Schaudt, dismissing him as a party to this case. The request for an award of costs to William E. Schaudt is denied.



2. Fraudulent Transfer Theory Under Illinois Law

The government seeks to set aside the transfer of the Northbrook Property to Joann as fraudulent pursuant to two theories under the Illinois Uniform Fraudulent Transfer Act ("UFTA"). The UFTA "protects against two kinds of fraudulent transfers: transfers with an actual intent to defraud and transfers which the law considers fraudulent (i.e., constructive fraud or fraud in law)." General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir. 1997). In this case, in order to prove actual intent to defraud under the UFTA, the government must show that the transfer was made with the intent to hinder, delay, or defraud the IRS, or that Robert failed to receive reasonably equivalent value in exchange for the transfer to Joann. In determining actual intent, the fact-finder may consider, among other things, whether, (1) the transfer or obligation was disclosed or concealed; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer was substantially all the debtor's assets; (4) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; and (5) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. 740 ILL.COMP.STAT. 160/5(a)(1).

In order to make a determination under this theory, the Court would need to consider material facts that are currently in dispute, and would then need to make certain factual determinations. For example, it is hotly contested whether the value of the consideration received by Robert was reasonably equivalent to the value of the asset transferred under the marital settlement agreement and whether Robert retained possession or control of the Northbrook Property after it was transferred to Joann. These sort of fact-based inquiries should be left for the finder-of-fact and the Court declines to make those determinations here.

The government also seeks recovery under a fraud in law theory, in which it must prove four elements: (1) the debtor made a voluntary transfer; (2) at the time of the transfer, the debtor incurred obligations elsewhere; (3) the debtor received less than a reasonably equivalent value for the transafer; and (4) after the transfer, the debtor did not retain sufficient property to pay for his indebtedness. General Elec. Capital Corp., 128 F.3d at 1079. Central to this claim is whether Robert received reasonably equivalent value for the transfer of the Northbrook Property. As explained above, the parties take opposite positions; the government, of course, argues that Robert failed to receive reasonably equivalent value and the defendants argue that he did. Additionally, the actual value of Zeus Concepts itself remains in dispute. The Court finds this to be a factual determination that cannot be properly handled through summary judgment. 6



3. Property Rights Under Federal Tax Statute

The Schaudts claim that Robert did not hold title to the Northbrook Property when the tax lions against Robert were assessed, an argument they claim is furthered by the fact that no title to the property was recorded with the Recorder of Deeds under Illinois law, which would evidence Robert's right to title. They claim, therefore, that the government's liens could not attach to the Northbrook Property prior to the transfer to Joann on December 20, 2005. The defendants also argue that, because the government failed to file notice of the assessed liens against Robert, they could not attach to the property, and therefore, they are not superior to Joann's interest. The government, on the other hand, argues that the federal tax liens assessed against Robert Schaudt existed upon their date of assessment, and not upon the filing of Notices of Federal Tax Liens. Further, the government argues that the reason the IRS files Notices of Federal Tax Liens is so that the underlying tax liens listed in such notices can take priority over purchasers, holders of security interests, mechanics lienors, and judgment lien creditors who might otherwise claim an interest in the property to which the federal tax liens have been assessed against. Otherwise, the government argues, federal tax liens take priority over all other interested parties who might claim an interest in the property regardless of whether such parties had notice. The Court agrees with the government on the issue.

Under Section 6321 of the Internal Revenue Code (the "IRC"), "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." (Emphasis added). In other words, if a taxpayer has a right to property and fails to pay any tax as assessed against him or her, a lien may be placed on that property right in favor of the United States. However, the Court must look to state law in order to determine whether one has a right to property. See Aquilino v. United States [ 60-2 USTC ¶9538], 363 U.S. 509, 513 (1960) (quoting Morgan v. Commissioner [ 40-1 USTC ¶9210], 309 U.S. 78, 82 (1940)).

Under Illinois state law, a trustee holds "legal title" to items under a trust, while a beneficiary under a trust holds "equitable Litle". In re Estate of Mendelson, 298 Ill.App.3d 1, 3, 697 N.E.2d 1210, 232 Ill.Dec. 280 (1998) ("In a conventional trust, the trustee holds the legal title and the beneficiary holds the equitable title.") (citing Parkway Bank & Trust Co. v. Northern Trust Co., 213 Ill.App.3d 444, 448, 157 Ill.Dec. 591, 572 N.E.2d 1055 (1991)). In the present case, the Schaudt Family Trust, created on December 29, 1986, called for the distribution of the Northbrook Property to Robert upon the death of the survivor of his parents. The trust also named him and his brother as trustee, upon the death of his last surviving parent. Hence, under the terms of the trust, before the death of his mother on May 1, 1996 (his last surviving parent), Robert held an equitable right to the Northbrook Property as a beneficiary under the trust, and thereafter, held legal title to the property as trustee (both as co-trustee with his brother, and as sole trustee after his brother's resignation on July 10, 1996). 7

While the initial inquiry of what rights a taxpayer has in specific property is one of state law, after that determination is made, "state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States." Drye, Jr., et al v. United States [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. 49, 52 (1999); see also United States v. National Bank of Commerce, 472 U.S. 713, 727 (1985) (citing United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 56-57 (1958)). Rather, it is federal law that determines whether a state-law right to property, constitutes "property" or "rights to property" that can be levied upon to recoup unpaid taxes.

The law is clear; "in determining whether a federal taxpayer's state-law rights constitute 'property' or 'rights to property,' '[t]he important consideration is the breadth of the control the [taxpayer] could exercise over the property." Drye v. United States [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. 49, 61 (1999) (citing Morgan v. Commissioner [ 40-1 USTC ¶9210], 309 U.S. 78, 83 (1940)). Under Illinois law, Robert, as beneficiary under the trust, could alienate, assign or transfer his interest and could even sell or mortgage it. See 35 Ill. Law and Prac. Trust § 65. Hence, it is clear that Robert's right as beneficiary is "property" under federal law. Additionally, if Robert's right to the Northbrook Property vested immediately upon the death of his last surviving parent, this clearly would be considered property under federal law.

Section 6331(a) of the IRC provides that, "[i]f any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." However, that lien attaches to the property on the date the unpaid taxes are assessed, as the Code provides that "[u]nless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed ... is satisfied or becomes unenforceable by reason of lapse of time." 26 U.S.C. §6322. The Supreme Court has held the language in sections 6321 and 6331(a) to be broad as it "reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." Drye [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. at 56 (citing United States v. National Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 719-720 (1985)); see also Glass City Bank v. United States [ 45-2 USTC ¶9449], 326 U.S. 265, 267 (1945) ("Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.") The Supreme Court has further expressed that Congress' broad use of the term "property" reveals the Legislature's aim to reach "'every species of right or interest protected by the law and having an exchangeable value'." Drye [ 99-2 USTC ¶51,006; 99-2 USTC ¶60,363], 528 U.S. at 56.

It is clear that Robert's equitable interest in the Northbrook Property qualifies as "property" under federal law, as the Supreme Court has unequivocally held that, without question, the federal tax lien statute reaches equitable interests owned for the benefit of the taxpayer. United States v. Towne [ 2006-1 USTC ¶50,189], 406 F.Supp.2d 928, 937 (N.D. Ill. 2005). While the parties disagree as to whether, under the terms of the trust, the Northbrook Property transferred immediately to Robert upon his mother's death on May 1, 2006 or whether more action was required by Robert as beneficiary and as trustee in order for his right to the property to vest, the Court finds it unnecessary to consider this inquiry. Whether Robert acquired title to the Northbrook Property on the date of the death of his last surviving parent or whether he continued to be a beneficiary under the trust (as the defendants appear to be arguing), under both scenarios, Robert had a property interest which the government could levy upon, and any lien the government had pertaining to the taxes assessed against Robert Schaudt, attached to the Northbrook Property on the day the assessments were made.

Section 6334(a) further supports Congress' intent to reach all property interests as it lists property exempt from levy. The list includes 13 categories of exemptions, including, necessary "wearing apparel" and school books and books and tools necessary for trade, business, or profession. There is no doubt, however, that the enumeration contained in Section 6334(a) is exclusive, as subsection (c) of section 6334 states that, "[notwithstanding any other law of the United States, no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." However, the IRS must be mindful that a lien imposed by section 6321 will not be valid against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice of the lien (meeting the requirements of the Code) has been filed by the Secretary. 26 U.S.C. §6323(a).

In this case, the Northbrook property was transferred to a third party, however, that person happens to be Robert's wife, Joann, who gained rights to the property pursuant to the terms of a marital settlement agreement, arising out of divorce proceedings between the two. Hence, she is not a purchaser, holder of a security interest, mechanic lienor, nor a judgment lien creditor that would be protected against any tax lien imposed by the assessment of unpaid taxes, that has not been filed by the Secretary. In other words, the government was not required to file a notice of the assessments made against Robert in order for them to stand up against a subsequent taker of the property, who did not acquire the property through any of the four ways listed above.

Although it is not of much consequence to the finding of this Court thus far, Joann does admit to having had notice of Robert's tax problems as of at least February 24, 2000, as she received a notice from the IRS, finding her to be an innocent spouse relative to the income and federal employment tax liabilities of her then husband, Robert Schaudt, for the Lax periods ending prior to 1998. (Aff. of Def. Joann Schaudt, Def.'s Ex. 1, 3:5); see Application of County Collector, 48 Ill.App.3d 572, 6 Ill.Dec. 415, 362 N.E.2d 1335 (1977) (One having knowledge of facts which would put a reasonable man on inquiry is chargeable with knowledge of other facts which would have been discovered on diligent inquiry); see also Villapiano v. Better Brands of Illinois, Inc., 26 Ill.App.3d 512, 325 N.E.2d 722 (1975) ("If it appears a party having knowledge or information of facts sufficient to put a prudent man upon inquiry wholly neglects to make any inquiry, the inference of actual notice is necessary and absolute.") The law certainly cannot be interpreted to protect someone who had actual notice of Robert's tax problems, especially not a law that has been written with such painstaking specificity as this one has; clearly denoting who shall be protected from the government's unrecorded tax lien.

Therefore, when Robert transferred title of the property to Joann on December 20, 2005, she took the property subject to the taxes that were assessed against Robert, prior to the date of that transfer. See Lapp v. United States [ 70-2 USTC ¶9685], 316 F.Supp. 386, 388 (S.D. Fla. 1970) ("This federal tax lien attaches not only to property interests of the taxpayer at the time the lien arises, but attaches instander to all property rights acquired by the taxpayer during the life of the lien.") (citing Seaboard Surety Co. v. United States [ 62-2 USTC ¶9653], 306 F.2d 855 (9th Cir. 1962)); see also Harris v. United States [ 84-2 USTC ¶9594], 588 F.Supp. 835, 838 (N.D. Texas 1984), aff'd [ 85-2 USTC ¶9511] 764 F.3d 1126 (5th Cir. 1985) ("[S]ince the federal tax lien attached to the residence prior to the Judgment of Divorce, it takes priority over Plaintiff's interest."); Lapp [ 70-2 USTC ¶9685], 316 F.Supp. at 388 ("Once the lien attaches to property of the taxpayer, it follows that property into the hands of any transferee.") (citing United States v. Bess [ 58-2 USTC ¶9595], 357 U.S. 51, 78 (1958)). Under these facts, the government is entitled to foreclose on the Northbrook Property in order to recoup the taxes owed by Robert ( See United States v. Denlinger [ 93-1 USTC ¶50,040], 982 F.2d 233, 235 (7th Cir. 1992)). But, any taxes assessed against Robert after the transfer of the Northbrook property to Joann (assuming the transfer of the property was not fraudulent), cannot attach as Robert would have ceased to have any property interest.

The government is, therefore, entitled to recoup any taxes assessed against Robert F. Schaudt prior to December 20, 2005 (the date he conveyed the Northbrook Property to Joann Schaudt) through foreclosure proceedings of the Northbrook Property. 8


CONCLUSION


For the reasons set forth above, IT IS HEREBY ORDERED that summary judgment be, and the same hereby is, granted in favor of William E. Schaudt. IT IS FURTHER ORDERED that the government's cross-motion for summary judgment is granted in part and denied in part. The motion is granted as to all liens assessed against Robert F. Schaudt before December 20, 2005, to be satisfied through the foreclosure sale of the Northbrook Property. The motion is denied as to any taxes assessed after December 20, 2005. If the government wishes to proceed against the Defendants for taxes assessed after December 20, 2005, pursuant to the UFTA, it may do so, but those claims cannot be resolved on summary judgment. IT IS ALSO ORDERED that Robert F. Schaudt and Joann Schaudt's motion for summary judgment be, and the same hereby is, denied.

1 Because there are several parties with the sur name "Schaudt", in order to avoid confusion, the Court will refer to the parties in this case by their given names.

2 The Court notes that there appears to be some confusion regarding the middle initial of William Schaudt, the brother of Robert F. Schaudt; therefore, although in some of the defendants' pleadings they have represented his middle initial to be "F", the Court will refer to him as "William E. Schaudt", as written in the initial pleadings of the parties (the complaint and answer), and as in other reliable documents, such as, "The William G. And Evelyn M. Schaudt Family Trust".

3 Under section 4.3 of the Marital Settlement Agreement, entitled "Marital Residence", it states that Mr. Schaudt represented that his brother had conveyed to him all right, title and interest in the Northbrook Property in trust; hence, Mr. Schaudt agreed to record the quit claim deed provided to him by his brother and provide a fully executed quit claim conveying all right, title and interest in Northbrook to Joann Schaudt. Pl.'s Ex. 1, Part. 2, p. 9. Subsequently, on December 20, 2006, Mr. Schaudt, individually, and as Co-trustee of the Schaudt Family Trust, quit claimed the Northbrook Property to Joann Schaudt.

4 It appears that, for some period of time (which is in dispute) after his divorce from Joann, Robert continued to reside at the Northbrook Property.

5 The jurisdiction of this Court is not an issue in the case as the defendants argue, because the taxes owed relating to Zeus Concepts was assessed against Robert himself as the sole proprietor of the company (who had the duty to see to it that the funds were remitted to the government) and not against the company itself. 26 U.S.C. §6672 provides that, "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." The term "person" under section 6672 includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. 26 U.S.C. §6671(b); see also Monday v. United States, 421 F.2d 1210, 1218 (7th Cir. 1970) ( "personal liability imposed upon the individual taxpayer by Section 6672 is separate and distinct from that imposed upon the [company] under Section 3403 of the Code", which holds an employer liable for the payment of the tax required to be deducted and withheld.)

6 The Court notes that although the government failed, and is now precluded, to offer expert testimony to rebut those of the defendants' who has put forth an estimated worth of Zeus Concepts (which is what Robert received by way of the marital settlement agreement), that does not preclude the government from offering other evidence to counter those claims, as the defendants suggest. Hence, there remains a genuine dispute as to whether Robert received reasonably equivalent value in exchange for his transfer of the Northbrook Property to Joann.

7 Although the parties disagree as to whether, under the terms of the trust, Robert's interest in the Northbrook property vested on May 1, 1996, or whether further action needed to be taken in order for Robert to hold title to the property, the Court does not find this contention material. It is clear that, if the property vested automatically on May 1, 1996, Robert thereafter had property. Likewise, if further action was required in order for Robert to take title to the property under the trust, then he remained a beneficiary until such action was taken, and hence, had a right to property under the law. Therefore, under both scenarios, Robert had rights to the Northbrook Property under Illinois state law.

8 The Court notes that the government remains free to pursue any assessed tax amounts that were assessed prior to the transfer of the Northbrook Property and any liens that were not perfected prior to the subsequent mortgagor's perfected interest, under UFTA, but they cannot be decided through summary judgment, as already discussed above.

Fraudulent conveyances. --Tax Liens: Property Subject to Tax Liens: Fraudulent conveyances

Property was fraudulently conveyed to a third party in an attempt to defeat the U.S.'s interest as a creditor.

Canadian American Co., Inc., CA-2, 53-1 USTC ¶9286, 202 F2d 751.

W.C. Graham, CA-9, 57-1 USTC ¶9645, 243 F2d 919.

Hyde Properties, CA-6, 75-1 USTC ¶9470, 507 F2d 301.

F.D. Duncan, CA-5, 79-2 USTC ¶9431, 597 F2d 51.

R.C. Fernon, Jr., CA-5, 81-1 USTC ¶9287, 640 F2d 609.

M.A. Wurdemann, CA-8, 81-2 USTC ¶9757, 663 F2d 50.

Carr Enterprises, Inc., CA-8, 83-1 USTC ¶9202, 698 F2d 952.

D.M. Pilla, CA-8, 83-2 USTC ¶9455, 711 F2d 94.

B.J. Chapman, CA-5, 85-1 USTC ¶9337, 756 F2d 1237.

Commonwealth Commercial State Bank, DC Mich., 39-1 USTC ¶9385, 27 FSupp 787.

W.M. Leach, DC Fla., 40-1 USTC ¶9399.

C.L. Hunter, DC Fla., 40-1 USTC ¶9400.

E.F. Shoemaker, DC Ark., 53-1 USTC ¶9209, 110 FSupp 898.

H. Kaplan, DC N.Y., 54-2 USTC ¶9532.

J.A. Schofield, 3rd, DC Pa., 60-2 USTC ¶9729.

H. Milloff, DC D of C, 62-2 USTC ¶9538, 306 F2d 783.

H. Schroeder, DC Iowa, 63-2 USTC ¶9608.

I. Prather, DC Ga., 66-2 USTC ¶9769.

R.N. Ream, DC Pa., 67-2 USTC ¶9703.

J.A. Wiltse, DC Calif., 68-1 USTC ¶9415.

J.D. Dobbelmann, DC Minn., 69-2 USTC ¶9591.

G. Barnes, DC Okla., 71-2 USTC ¶9638.

M.E. St. Mary, DC Pa., 72-1 USTC ¶9319, 334 FSupp 799.

W.F. Biddle, DC Fla., 73-1 USTC ¶9354.

L.F. Livingstone, DC Mass., 75-1 USTC ¶9242, 381 FSupp 607.

A.J. Werner, DC Wis., 75-2 USTC ¶9672.

T.J. Piscopo, DC Mass., 75-2 USTC ¶9691.

W.C. Briggs, DC Va., 76-2 USTC ¶9543.

H.B. Ressler, DC Fla., 77-1 USTC ¶9459, 433 FSupp 459. Aff'd on another issue, CA-5, 78-2 USTC ¶9571, 576 F2d 650.

H.G. Steiner, DC Wis., 77-2 USTC ¶9716, 441 FSupp 1069.

S.A. Dryden, DC Ga., 78-1 USTC ¶9108.

P.A. Gant, DC Ga., 78-2 USTC ¶9789.

W. Cox, DC S.C., 79-2 USTC ¶9434.

E. Bretz, DC Mont., 80-2 USTC ¶9675.

J.E. Wilson, DC Tex., 80-2 USTC ¶9824, 500 FSupp 831.

G.C. Stophel, DC Tenn, 81-2 USTC ¶9669, aff'd CA-6, in unpublished opinion, 5/17/82.

M.F. Kennedy, DC N.H., 82-1 USTC ¶9239.

L.C. Brown, DC Iowa, 81-2 USTC ¶9649.

M.F. Estes, DC Tenn., 82-1 USTC ¶9388.

B.H. Grice, DC Ala., 83-1 USTC ¶9399, 567 FSupp 113.

J.E. Morgan, DC Colo., 83-2 USTC ¶9535.

G.L. Turner, DC Fla., 83-2 USTC ¶9703.

S.L. Ambrose, DC Ohio, 84-2 USTC ¶9858.

Indiana National Bank, DC Ill., 84-2 USTC ¶9884.

E.L. May, DC Calif., 84-2 USTC ¶9970.

R.H. Schock, DC Calif., 85-1 USTC ¶9330.

B.G. Braswell, DC Ala., 85-2 USTC ¶9685.

L. Wodtke, DC Iowa, 86-2 USTC ¶9669.

I.R. Hoffman, DC Wis., 86-2 USTC ¶9733, 634 FSupp 346.

W.D. Gascock, DC Ala., 86-2 USTC ¶9794, 631 FSupp 383.

R. Jones, Sr., DC Mo., 86-2 USTC ¶9832.

W.E. Drexler, Sr., DC Okla., 87-2 USTC ¶9493.

J.A. Course, DC Ill., 87-2 USTC ¶9553.

W.E. Drexler, Jr., DC Okla., 87-2 USTC ¶9575.

Dardanelle Co. Trust, DC Minn., 88-1 USTC ¶9260 and 9261.

D. Morton, DC Mo., 88-1 USTC ¶9334, 682 FSupp 999.

M. Jack, DC Va., 88-1 USTC ¶9274.

D.W. Freeman, DC W.Va., 89-1 USTC ¶9127. Aff'd, CA-4 (unpublished opinion 1/11/90).

J.R. Montgomery, DC Tex., 89-1 USTC ¶9212. Aff'd, CA-5 (unpublished opinion 12/21/89).

J.W. Hart, DC Ill., 89-1 USTC ¶9255.

L. Simpson, DC Fla., 89-1 USTC ¶9285.

L.W. Berman, CA-6, 89-2 USTC ¶9524, 884 F2d 916.

Harris Bank/Glencoe-Northbrook, N.A., DC Ill., 89-2 USTC ¶9567.

J. Rode, DC Mich., 90-2 USTC ¶50,383, 749 FSupp 1483. Aff'd, CA-6 (unpublished opinion 8/30/91).

E.L. Denlinger, CA-7, 93-1 USTC ¶50,040, 982 F2d 233.

G.D. Sellner, DC Mont., 90-2 USTC ¶50,452.

E.D. Christensen, DC Utah, 90-2 USTC ¶50,543, 751 FSupp 1532. Dism'd, CA-10 (unpublished opinion 4/8/92).

M.E. Parks, DC Utah, 91-1 USTC ¶50,263.

E.K. Troyer, DC Ind., 91-2 USTC ¶50,401. Aff'd, CA-7 (unpublished opinion 12/16/92).

C. Murphy, Jr., DC Miss., 92-1 USTC ¶50,165.

Red Stripe, Inc., DC N.Y., 92-1 USTC ¶50,277, 792 FSupp 1338.

L. Scherping, DC Minn., 92-2 USTC ¶50,345.

W.B. Freeman, DC N.J., 93-1 USTC ¶50,296. Aff'd, CA-3 (unpublished opinion 12/28/93).

T.C. Brown, DC Ill., 93-2 USTC ¶50,375, 820 FSupp 374.

R. Mantarro, DC Ohio, 94-1 USTC ¶50,229.

W.J. McCullough, DC Ill., 94-1 USTC ¶50,280.

J.P. Veigle, DC Fla., 94-2 USTC ¶50,589, 873 FSupp 623.

A.M. Mayfield, DC Ind., 95-1 USTC ¶50,066.

A. Alden, DC Calif., 94-2 USTC ¶50,610. Aff'd, CA-9 (unpublished opinion), 97-2 USTC ¶50,604.

F.A. Wright, DC Calif., 96-1 USTC ¶50,005. Aff'd, CA-9 (unpublished opinion), 96-2 USTC ¶50,377, 90 F3d 473. Cert. denied, 4/21/97.

R.E. Hatfield, DC Ill., 96-2 USTC ¶50,342.

W.H. Zuhone, Jr., DC Ill., 96-2 USTC ¶50,366.

R.A. Sherlock, DC La., 96-2 USTC ¶50,462. Aff'd, per curiam, CA-5 (unpublished opinion), 98-1 USTC ¶50,139.

T.E. O'Day, DC Fla., 97-1 USTC ¶50,250.

R.M. Odd, CA-9 (unpublished opinion), 96-2 USTC ¶50,497.

W.E. Smith, DC Ind., 96-2 USTC ¶50,668.

D.D. Fitzgerald, DC Fla., 97-1 USTC ¶50,238.

R.L. Bodwell, DC Calif., 96-2 USTC ¶50,592. Aff'd, CA-9 (unpublished opinion), 98-1 USTC ¶50,172.

L.K. Hudnall, DC Fla., 96-2 USTC ¶50,609.

M. Carlin, DC N.Y., 97-1 USTC ¶50,302.

F.A. Brickman, DC Ill., 97-1 USTC ¶50,350.

R.P. Upton, DC Conn., 97-1 USTC ¶50,366.

E.S. Dubey, DC Calif., 97-1 USTC ¶50,392.

P. Marguglio, DC N.J. (unpublished opinion), 97-2 USTC ¶50,662.

T.P. Sheridan, CA-7 (unpublished opinion), 97-2 USTC ¶50,677, aff'g an unreported District Court case.

N. Nirelli, DC N.Y., 97-2 USTC ¶50,751.

G.J. Landsberger, DC Ariz., 97-2 USTC ¶50,822. Aff'd, CA-9 (unpublished opinion), 99-1 USTC ¶50,318.

H.E. Wilfley, DC Ore., 97-2 USTC ¶50,825.

R.S. Waltman, DC Ind., 97-2 USTC ¶50,760.

C.A. Cody, DC Ind., 98-1 USTC ¶50,205.

S.G. Hansel, DC N.Y., 98-1 USTC ¶50,293.

S.G. Hansel, DC N.Y., 99-1 USTC ¶50,432.

H.I. Green, CA-3, 2000-1 USTC ¶50,151, 201 F3d 251.

J.A. Kudasik, DC Pa., 98-2 USTC ¶50,535.

R. Dahmer, DC Mo., 99-1 USTC ¶50,482. Aff'd, per curiam, CA-8 (unpublished opinion), 2000-2 USTC ¶50,680.

E.L. LaBine, DC Ohio, 99-1 USTC ¶50,448.

U. Freudenberg, DC Tenn., 99-2 USTC ¶50,623.

L. Scherping, CA-8, 99-2 USTC ¶50,758, 187 F3d 796. Cert. denied, 2/22/2000.

Stretch-O-Rama, DC Tex., 99-2 USTC ¶50,847.

M.W. Simmons, CA-9 (unpublished opinion), 99-2 USTC ¶50,894, aff'g DC Calif., 98-1 USTC ¶50,418.

M.J. Stalker, DC Fla., 2000-2 USTC ¶50,632.

S.J. Tracy, DC Mo., 2000-2 USTC ¶50,708.

J.W. Marsh, DC Hawaii, 2000-2 USTC ¶50,726, 114 FSupp2d 1036.

M.K. Turner, DC Hawaii, 2000-2 USTC ¶50,815.

P. LaMontagne, DC N.Y., 2000-2 USTC ¶50,821.

A.C. Reid, DC Wash., 2001-1 USTC ¶50,250. Aff'd on other issues, CA-9 (unpublished opinion), 2002-1 USTC ¶50,333.

C.D. Schaut, DC Ill., 2002-1 USTC ¶50,184.

L.D. Wight, DC Calif., 2002-1 USTC ¶50,287.

D. Parkinson, DC Ida., 2001-2 USTC ¶50,462.

A. Patej, DC Mich., 2002-2 USTC ¶50,792. Motion for reconsideration denied, DC Mich., 2003-1 USTC ¶50,250.

P. Labato, DC Fla., 2002-2 USTC ¶50,541.

Audio Investments, DC S.C., 2002-2 USTC ¶50,757, 203 FSupp2d 555. Aff'd, per curiam, CA-4 (unpublished opinion), 2003-1 USTC ¶50,531

Sequoia Property and Equipment Ltd., DC Calif., 2002-2 USTC ¶50,773.

S.B. Doyle, DC Pa., 2003-2 USTC ¶50,619.

H. Engh, CA-7, 2003-1 USTC ¶50,500.

M. Dieter, DC Minn., 2003-1 USTC ¶50,439

T.L. Nipper, DC Okla., 2003-1 USTC ¶50,408.

T.D. Davenport, DC Okla., 2006-1 USTC ¶50,167.

Cal Fruit International, Inc., DC Calif., 2006-2 USTC ¶50,600.

The IRS was denied summary judgment on its motion to set aside certain transfers of property as fraudulent conveyances. The IRS had not established that, as a matter of law, actual fraud or constructive fraud had taken place because the taxpayer had introduced issues of fact that could only have been resolved at trial.

G.S. Sitka, DC Conn., 94-1 USTC ¶50,283.

The testimony in a taxpayer's deposition was insufficient to reopen a case in which it was decided that the IRS failed to establish that the taxpayer fraudulently conveyed property. Although the taxpayer testified that he was aware of his failure to file taxes for the years at issue, he was unaware at the time he transferred the property of his tax liability. Accordingly, the taxpayer did not have the intent to avoid a tax liability. Additionally, the taxpayer's testimony did not establish that the transfer of the property rendered the taxpayer insolvent.

R.A. Ward, DC Vt., 93-2 USTC ¶50,553.

The imposition of liens and wage garnishment on a married couple could not be challenged on the basis of the failure of the IRS to promulgate regulations. The Internal Revenue Code constitutes enforceable law even without specific regulations. Moreover, regulations exist governing the authority of the IRS to impose levies. These regulations detail the means of enforcement to be used to create and release liens. Therefore, the taxpayers' arguments were without merit, and the liens and wage garnishment were not released.

R. Reid, DC Colo., 94-1 USTC ¶50,088.

A real estate conveyance between an individual taxpayer (against whom the IRS assessed tax deficiencies) and his wife after the deficiencies arose was not valid under state (Pennsylvania) law. The taxpayer did not show that he was solvent at the time of the transfer or that the transfer was made for fair consideration. As such, the transfer was set aside as fraudulent even without an intent to defraud. Alternatively, the court held that the transfer was also fraudulent with an actual intent to defraud.

T.W. Purcell, DC Pa., 93-2 USTC ¶50,648.

Individuals who received real property by deed of gift from their tax-delinquent parents failed to show that the IRS could not establish its claim that a lien could attach to the property because the parents had fraudulently conveyed it under state (North Carolina) law to the individuals or that the lien attached prior to the transfer.

M.D. Ross, DC N.C., 94-2 USTC ¶50,372.

A husband's fraudulent conveyance to his wife of a principal residence held with his wife as tenants by the entirety was set aside. However, the IRS could not force a sale of the property. Instead, the wife was required to make monthly payments in satisfaction of her husband's outstanding tax liability. Each payment was equal to one-half of the monthly rental value of the property.

H.C. Jones, DC N.J., 95-1 USTC ¶50,190, 877 FSupp 907. Aff'd, CA-3, 96-1 USTC ¶50,056.

The IRS properly filed notices of federal tax liens on a farm that was owned by an individual who was assessed with deficiencies, penalties and interest even though he transferred his interest in the farm to his son. Under the Uniform Fraudulent Conveyance Act, which was adopted by the state (Wyoming) where the property is located, the transfer was set aside as fraudulent. The taxpayer received no consideration for the transfer and he continued to live on and farm the property after the transfer. His son had no input or control over the farm's operations. Since the transferee was the taxpayer's son, the taxpayer had a close relationship with him. The taxpayer admitted that he transferred the property to his son after he learned that a creditor planned to sue him. Moreover, the transfer rendered him insolvent. The taxpayer's son was also his nominee.

D.L. Jessen, DC Wyo., 96-2 USTC ¶50,449.

Although the IRS's cause of action under state (California) law for fraudulent conveyance had been extinguished by expiration of the statute of limitations, it was not precluded from asserting that a partnership was the alter ego and/or the nominee of its partners. The fraudulent conveyance, nominee and alter ego theories were discrete, despite the similar factual basis necessary to establish each theory. The partnership had transferred real property, which was subject to a federal nominee tax lien, to its general partners.

Sequoia Property & Equipment Ltd. Partnership, DC Calif., 98-1 USTC ¶50,460.

A corporation's transfer of assets to its officers without consideration, and the officers' subsequent contribution of those assets to a partnership that continued the corporation's business, was void as a fraudulent conveyance under state (Tennessee) law. Although no deficiencies had been assessed at the time of the transfer, the government qualified as the corporation's creditor because the tax liabilities had accrued, the corporation was under examination, and its officers expected significant assessments. The transfer liquidated and dissolved the corporation and, thus, rendered it insolvent and incapable of paying its assessments, despite the partnership's purported assumption of its liabilities. The evidence also indicated that the transfer was intended to hinder, delay or defraud the government.

L.A. Westley, DC Tenn., 98-2 USTC ¶50,545. Aff'd, CA-6 (unpublished opinion), 2001-1 USTC ¶50,340.

Genuine issues of material fact remained regarding whether the conveyance of a residence from an individual to his former wife was fraudulent; therefore, the IRS's motion for summary judgment was denied. Affidavits by the husband and wife stated that the conveyance was made in recognition of the husband's obligation to support his wife and minor children, which qualified as fair consideration under state (New York) law. Moreover, the burden of proving fair consideration did not shift to the husband since there was no showing that the transaction was clandestine or designed to conceal the nature and value of the consideration. Finally, despite the existence of an intrafamily transfer, there was no determination as a matter of law that the couple acted with actual intent to hinder, delay or defraud creditors since they did not have notice of the tax claims at the time of the conveyance.

D. Laronga, DC N.Y., 98-1 USTC ¶50,154.

The issue of whether the taxpayer was insolvent when he conveyed the property to his former wife was a question of material fact that precluded summary judgment that the conveyance was fraudulent. The taxpayer testified that, at the time he made the conveyance, the value of his assets exceeded his tax obligations; and, under state (Illinois) law, a property owner is competent to render an opinion as to the value of his property.

J.C. Dunkel, DC Ill., 98-2 USTC ¶50,610.

The IRS was denied summary judgment on the issue of whether a delinquent taxpayer fraudulently conveyed his interest in real estate to a church. It failed to establish that the transfer of the property rendered him insolvent or that he intended to defraud his creditors.

J.W. Noble, DC Mich., 98-2 USTC ¶50,642. Appeal dism'd, CA-6 (unpublished opinion), 99-1 USTC ¶50,173.

In a case related to J.W. Noble, above, proceeds from the sale of levied real property, after expenses, were to be divided equally between the government and a church to whom the taxpayer had conveyed his interest. Because the government sought to collect unpaid federal income taxes from the taxpayer's interest in the property, the government and the church were equally entitled to the proceeds from the sale of the property, as the third party still held title to the property subject to the rights of the government, as the taxpayer's creditor.

J.W. Noble, CA-6 (unpublished opinion), 2001-1 USTC ¶50,226, aff'g an unreported District Court decision.

Conveyances of real property by married taxpayers to trusts that qualified, under state (California) law, as alter ego and nominee trusts were set aside as fraudulent. As a result, the properties were subject to federal tax liens. The trusts paid no consideration for the transfers, and the taxpayers maintained possession and control of the properties after the conveyances. Moreover, a trustee of three of the four trusts at issue was a sibling of one taxpayer, and another trustee admitted to having no trust duties.

E.S. Dubey, DC Calif., 98-2 USTC ¶50,851.

Married taxpayers, through their failure to respond to the IRS's requests for admissions, were deemed to have fraudulently conveyed under state (Washington) law real property to their alter ego for the purpose of preventing the IRS from seizing and selling the property. Accordingly, the mortgage on the property was set aside as a fraudulent conveyance.

E. Butts, DC Wash., 98-2 USTC ¶50,896.

The existence of material issues of fact precluded entry of summary judgment for an individual in the government's action to set aside a fraudulent conveyance and foreclose on federal tax liens. Although the individual's previously executed prenuptial agreement required him to promptly convey the property at issue to his new wife, he did not make the conveyance until years later, after his net worth declined and his tax liabilities skyrocketed. Thus, a genuine issue of fact existed as to whether, at the time of the transfer, he knew or should have known that he was about to incur debts beyond his ability to pay. The four-year state (Florida) statute of limitations on fraudulent transfer actions did not bar the government's suit because, absent a congressional enactment, a government action is not subject to any time limitation.

S.J. Dellaquila, DC Fla., 99-1 USTC ¶50,196.

The government was not entitled to summary judgment that federal tax liens attached to property transferred by married taxpayers to a family trust. Genuine issues of material fact existed as to whether the taxpayers' transfers were fraudulent under state (New Hampshire) law.

G.T. Kattar, DC N.H., 99-2 USTC ¶50,834.

The primary transferee of real property rebutted the presumption of fraud with her allegation that the transfers were made in consideration of the dissolution of her common-law marriage to the taxpayer and pursuant to a related decree.

J.E. Kaiser, DC Ohio, 99-2 USTC ¶50,861.

The government was entitled to foreclose a tax lien on real property that a corporate officer fraudulently conveyed to his corporation. Under state (Illinois) law, the transfer was a sham because the taxpayer resided at the property before and after the conveyance, the corporation paid obviously inadequate consideration, and the transfer occurred shortly after the Tax Court ruled that the taxpayer owed a substantial tax liability.

P. Stout, DC Ill., 2000-1 USTC ¶50,294.

The existence of genuine issues of material fact precluded summary judgment regarding whether tax liens attached to real property and funds that were transferred by a delinquent taxpayer to his wife before the liens arose. Although the taxpayer conveyed the assets to his wife without fair consideration, it was not clear that he was insolvent at the time.

M. Mazzeo, DC N.Y., 99-2 USTC ¶50,901.

Tax liens attached to a taxpayer's interest in funds and property that he fraudulently transferred to a trust that qualified as his alter ego under state (New York) law. He used the trust to pay his personal expenses, he continued to act as the owner of real property that he purportedly transferred to the trust, and there was no documentation that the transfers were loans, as he alleged.

J. Letscher, DC N.Y., 99-2 USTC ¶50,947.

A valid IRS tax lien attached to two parcels of property that a debtor fraudulently conveyed to family members prior to filing for bankruptcy protection. The lien arose at the time of assessment, which preceded both the recording of the deed for the first parcel and the fraudulent transfer and recording of the deed for the second parcel. Following the bankruptcy trustee's recovery of the two properties and his sale of one of the parcels, the tax lien transferred to the debtor's interest in the sale proceeds.

J. McGhee, BC-DC Ky., 2000-1 USTC ¶50,275.

An individual's property conveyances and transfers to various family members were found to be fraudulent under state (Georgia) law and were consequently set aside. However, the transfers of the taxpayer's interest in his home to his former wife and children, even though fraudulent, involved factors that prevented the transfers from being set aside.

C.A. Reid, Jr., DC Ga., 2000-2 USTC ¶50,748, 127 FSupp2d 1361.

A father-son relationship, alone, was insufficient to support foreclosure on a nominee theory. The son testified credibly that his father no longer paid the property taxes, and that he and his mother, who is no longer married to his father, exercised exclusive control over the property. Further, there was insufficient evidence to determine whether the father actually intended to defraud the IRS or merely wanted to reward or make a gift to his son.

R.L. Turk, DC Mont., 2000-2 USTC ¶50,834, 127 FSupp2d 1165.

Conveyances by married taxpayers of three parcels of real property first to a sham church that they had created for tax-evasion purposes and then to their son were properly set aside as fraudulent under state (New Mexico) law. The state limitations period did not apply to an action brought by the federal government to vindicate public rights or interests.

R.N. Spence, CA-10 (unpublished opinion), 2000-2 USTC ¶50,849, 242 F3d 392, aff'g an unreported District Court decision. Cert. denied, 5/14/2001.

The government was entitled to foreclose a tax lien on a debtor and his wife's real property in connection with the unpaid employment taxes of two corporations. Under the state (Illinois) fraudulent transfer statute, it was undisputed that the couple voluntarily conveyed the property for inadequate consideration while aware of the tax debt and retained insufficient property to satisfy the debt.

N. Paradise, DC Ill., 2001-1 USTC ¶50,113, 127 FSupp2d 951.

Similarly.

A. Langrehr, DC Neb., 2001-1 USTC ¶50,253.

State (Ohio) law's recognition of the alter ego doctrine and the doctrine of equitable ownership was essentially a recognition of the nominee doctrine, in which the domination and control over an entity is so complete that the entity has no separate mind, will, or existence of its own, rendering it subject to the equitable ownership of another. Thus, the government could assert tax liens on various parcels of property that were, in name, owned by different businesses

Nantucket Village Development Co., DC Ohio, 2001-1 USTC ¶50,202.

The government failed to present evidence that an individual received no consideration for a transfer of real property to a trust, or that he was insolvent at the time of, or as a result of, such transfer. It also failed to present sufficient evidence of the five alleged badges of fraud with respect to the transfer. Accordingly, the government's motion for summary judgment on its fraudulent conveyance claim was denied.

D. Billheimer, DC Ohio, 2002-1 USTC ¶50,424, 197 FSupp2d 1051.

The government failed to present evidence that a taxpayer received insufficient consideration for the transfer of real property to his parents, or that he was insolvent at the time of, or as a result of, such transfer. As such, issues of material fact remained as to whether sufficient badges of fraud existed to support a finding that the conveyance was fraudulent. Additionally, a finding of constructive fraud was denied as question of fact existed as to the value of the property at the time of the transfer and whether any payments changed hands.

R. Smith, DC Ohio, 2002-2 USTC ¶50,657.

Summary judgment to recover a taxpayer's house to satisfy trust fund recovery penalties assessed against her parents was denied. There was no proof that the conveyance of funds from the parents to the taxpayer for purchase of the house was fraudulent. A discrepancy between the taxpayer's reported income and income reported on a mortgage application failed to establish fraudulent intent. Also, there was no proof that the conveyance left the parents unable to satisfy the tax penalties. The application of the nominee theory was rejected.

S. Snyder, DC Conn., 2002-2 USTC ¶50,660, 233 FSupp2d 293.

Conveyance of real property by an individual taxpayer to his father prior to the assessment of tax liability against the taxpayer was not a fraudulent attempt to evade tax liability. There was no evidence that the conveyance was intended to defraud the IRS. Rather, the conveyance was given in consideration of the father's significant financial contribution to the purchase price of the property and in forgiveness of a loan, and neither the taxpayer nor his father had contributed to the ten-year delay in the filing of the action by the IRS.

F.O. McGuire, DC S.C., 2004-1 USTC ¶50,267.

The statute of limitations period set forth in the Federal Debt Collections Procedures Act of 1990 (FDCPA) did not bar the government's fraudulent conveyance claims against limited partnerships that were deemed nominees and alter egos of the taxpayers. The government based its claim on Code Secs. 7401 --7403, which was permissible under the FDCPA. The district court relied on state law only to set aside the fraudulent transfer of residences to the partnerships.

Sequoia Property and Equipment, Limited Partnership, DC Calif., 2002-2 USTC ¶50,773. Aff'd, CA-9 (unpublished opinion), 2005-1 USTC ¶50,182.

The government was entitled to summary judgment against an individual where he owed back taxes and fraudulently conveyed his interests in several real properties to third parties. The taxpayer failed to respond to the government's motion and, therefore, failed to demonstrate the arbitrariness or inaccuracy of the assessments against him. His wholly conclusory and facially frivolous "vow of poverty/ministerial expenses" position was insufficient to meet his burden of proof and did not create an issue of fact concerning his tax liability. In addition, the government established that it would suffer prejudice if the individual was permitted to withdraw his admissions. The court held that the case presented unusual circumstances warranting departure from the general rule proscribing "re-serving" the complaint in the form of a request for admissions.

K. Persaud, DC Fla., 2006-1 USTC ¶50,104.

Property fraudulently conveyed to an individual was subject to a tax lien for payroll taxes unpaid by her former husband. At the time of the transfer, the husband had willfully failed to collect, truthfully account for, and pay employment taxes. The transfer was fraudulent conveyance under the state's (New York) debtor and creditor law because it was made without fair consideration. In the absence of evidence that, following the couple's divorce, the individual would forego maintenance and/or child support as consideration for the transferred property, the transfer did not satisfy the husband's antecedent debt to support his wife and children.

E. Hirko, DC N.Y., 2006-1 USTC ¶50,278.

The government could not seize assets of an irrevocable trust created by an individual in order to help satisfy the individual's tax liability. Although the individual had mixed motives when establishing and funding the trust, the government did not establish that he was insolvent at the time. Thus, it failed to meet its burden of proving actual or constructive fraud under state (New York) law. Moreover, the trust was not the individual's alter ego. It was set up primarily to aid the individual in his estate planning; the individual apparently had sufficient funds at the time to satisfy the amount owed; and, ever since, he respected the rental agreement with the trust and left the trust money untouched. Although the individual may have been partially motivated by concerns about tax collection, that, alone, was not a sufficient reason to pierce the trust to satisfy the individual's tax debts.

J. Evseroff, DC N.Y., 2007-1 USTC ¶50,222. Vac'd and rem'd, CA-2 (unpublished opinion), 2008-1 USTC ¶50,240.

The government was entitled to summary judgment reducing a married couple's tax liability to judgment and foreclosing on federal tax liens. Although the government failed to prove that the couple's transfer of their residence to their son was fraudulent under state (California) law, the evidence indicated that the son was their nominee. The government's nominee theory was supported by the fact that the son paid no consideration for the property, the parties had a close relationship and the couple retained possession of the property and continued to enjoy its benefits even after the transfer.

A.B. Secapure, DC Calif., 2008-1 USTC ¶50,277.

An individual's bankruptcy discharge of debt was revoked; consequently, federal tax liens filed against his property were valid, and the government was entitled to foreclose on the properties subject to the liens. The discharge of debt was revoked because the individual fraudulently failed to disclose the full extent of his assets, intentionally made numerous false statements and attempted to transfer and/or conceal assets by means of several nominees. The properties were ordered sold, subject to his wife's valid homestead interest in one of those properties.

A.R. Harrison, DC Texas, 2008-1 USTC ¶50,274. Aff'd, per curiam, CA-5 (unpublished opinion), 2008-1 USTC ¶50,279.

Federal tax liens attached to properties an individual had transferred because the transfers were made with the intent to defraud the government and to evade his tax liability. Under state (Arkansas) law, his conveyances were fraudulent because inadequate consideration was paid for the transfers, he continued to control the property after the transfers, subsequent transfers were made to entities that were under his control and all transfers were made after he became aware of his tax liabilities. Even if the transfers were not fraudulent, the government could levy against the properties held by the entities because they were his alter egos.

L. Muncy, DC Ark., 2008-1 USTC ¶50,341.

See also, ¶38,136.65 and ¶38,136.71.

The existence of triable issues of material fact precluded summary judgment on the issue of whether an individual had fraudulently conveyed a joint tenancy ownership interest in certain real property to his daughter and whether the daughter held the property as his nominee. Disputed facts existed regarding whether the individual made the transfer with the intent to defraud the IRS under state (California) law. While the daughter did not pay any consideration for the property, the individual retained the keys to the property and returned to the property to recuperate from an accident, the extent to which the individual lived on the property after the transfer and paid its expenses, the degree to which he retained possession of the property and continued to enjoy its benefits after the transfer, as well as the amount of his total assets at that time, were disputed.

W.C. Beretta, DC Calif., 2008-2 USTC ¶50,674.

An individual's transfer of real property to his parents was set aside as fraudulent. The government's evidence supported a finding of fraud under state (Ohio) law. The individual routinely sought to conceal his assets and transferred property with the intent to hinder collection of, or altogether avoid paying, federal income taxes. The individual also failed to refute the government's evidence or demonstrate that the transaction was not fraudulent. Since the individual was the beneficial or equitable owner of the property,and the government's tax liens attached to that property, the government was entitled to judgment, requiring that the property be sold and one hundred percent of the sale proceeds be applied against the individual's income tax liability.

R. Smith, DC Ohio, 2008-2 USTC ¶50,682.

Chief Counsel Notice CC-2009-10

February 23, 2009

Chief Counsel Notice : CC-2009-10 : Collection Due Process : Procedures .

Department of the Treasury

Internal Revenue Service

Office of Chief Counsel


Notice

CC-2009-010

February 13, 2009

Subject: Collection Due Process Cases
Cancel Date : May 15, 2009



Purpose :

This Notice updates and replaces CC-2006-019, the Collection Due Process (CDP) Handbook, which provided guidance on the handling of CDP cases arising under I.R.C. §§ 6320 (liens) and 6330 (levies). Those sections are a codification of section 3401, the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. No. 105-206, 112 Stat. 685 (1998). The CDP provisions became effective January 19, 1999. Final regulations became effective January 18, 2002, and apply to liens and levies on or after January 19, 1999. Amendments to the final regulations became effective November 16, 2006, and apply to requests for CDP or equivalent hearings made on or after November 16, 2006. The text that follows will appear as an item on the Procedure and Administration Website. Significant new cases will be digested on the Procedure and Administration Website. This Notice also incorporates and supersedes CC-2007-006, Application of the Ex Parte Communication Rules to Remanded CDP Cases; and CC-2007-001, Jurisdiction of Tax Court Over Collection Due Process Cases.

This Notice is not binding legal authority and should never be used or cited as precedent. It is intended to assist Chief Counsel attorneys handling CDP cases. It is not a substitute for doing legal research. In addition, please note that after May 15, 2009, the CDP Handbook will cease to exist in its current form. All procedural aspects of the current Handbook will be incorporated into the CCDM. A more concise version of the Handbook will be posted on the Procedure and Administration Website. The attorneys in Procedure and Administration are available to assist you when questions arise in particular cases.


________________
Distribute
to: X All Personnel


____
X Electronic Reading Room


________________________________________________________________________
Filename: CC-2009-010 File copy in: CC:FM:PF





TABLE OF CONTENTS

I. Background Material and Legislative Changes

II. Coordination of CDP Cases with the National Office

III. Working with Appeals
A. Assisting Appeals

B. Remand of CDP Cases

C. Processing CDP Administrative Files

IV. Sections 6320 and 6330
A. CDP Notice Requirements

1. Notice of federal tax lien --section 6320

2. Prior to levy --section 6330

3. Jeopardy levies and state income tax refunds

4. Disqualified employment tax levies

5. Notice issuance

6. Nominees and other third parties

7. General partners in partnerships

8. Owners of single-member LLCs

B. Collection Due Process Hearing

1. One hearing opportunity per tax and period

2. Procedures for requesting a CDP hearing

3. Equivalent hearing

4. Effect of requesting a CDP hearing

a. Statute of limitations

b. Levy action and injunctive relief

c. Permitted collection actions

5. Hearing requirements

a. CDP hearings are informal

b. Face-to-face conference not required

c. When face-to-face conference is not offered

d. Recording of CDP hearings under section 7521(a)(1)

e. Impartial appeals officer

f. Prohibition of ex parte communications

i. Appeals and Collection

ii. Appeals and Counsel

6. Matters considered at hearing

a. Section 6330(c)(1) verification

i. Computer transcripts

ii. Invalid assessments

b. Relevant issues under section 6330(c)(2)(A)

i. Appropriate spousal defenses

ii. Challenges to appropriateness of collection action

(A) Taxes discharged in bankruptcy

(B) Criminal restitution cases

iii. Offers of collection alternatives

(A) Consideration of collection alternatives

(B) TIPRA requirements for offers-in-compromise

(C) Doubt as to liability offer-in-compromise

(D) Reconsideration of a previously rejected offer-in-compromise during the CDP hearing

(E) Review of a terminated offer-in-compromise during the CDP hearing

(F) Partial payment installment agreements

iv. Consideration of non-CDP years during CDP hearing

v. Conscience-based objections to use of TIN raised during the CDP hearing

c. Section 6330(c)(2)(B) liability challenges

i. Self-reported taxes

ii. Taxpayer must raise issues at administrative hearing

iii. Receipt of a statutory notice of deficiency

(A) Presumptions of official regularity and delivery

(B) Rebuttal of presumptions

(C) Frivolous challenges to liability

iv. Other opportunity to dispute liability

(A) Appeals hearing

(1) 30-day letter in deficiency case

(2) Other pre-assessment letters

(3) Letter disallowing refund claim

(4) Prior CDP notice

(5) Audit reconsideration

(6) Not opportunities to dispute liability

(a) Receipt of math or clerical error notice

(b) Penalties and interest

(B) Judicial proceedings

(1) Waiver of receipt of notice of deficiency

(2) Bankruptcy proceedings

(3) District court cases

(C) TEFRA proceedings

v. Challenges to the unpaid tax outside the scope of sections 6320(c) and 6330(c)(2)(B)

d. The balancing analysis of section 6330(c)(3)(C)

e. Section 6330(c)(4)

f. Consideration of precluded issues by Appeals

7. Department of Justice jurisdiction

C. Determination by Appeals

1. Notice of determination

2. Retained jurisdiction

D. Judicial Review

1. Subject matter jurisdiction

a. Overpayment jurisdiction

b. Jurisdiction over non-CDP years

c. Equitable jurisdiction

d. Jurisdiction over section 6015(f) issues

e. Improper court

2. Notice of determination required

a. No notice of determination

b. Invalid notice of determination

c. Post-levy review

3. Timely petition

a. Section 6015(e) exception

b. Section 6404(h) exception

4. Standard and scope of review

a. Abuse of discretion standard of review

i. Determination with respect to the collection action

ii. Conduct of CDP hearing

iii. Abuse of discretion defined

iv. Questions of law

v. Harmless error

vi. Taxpayer precluded from raising issues not raised during CDP hearing

b. Abuse of discretion scope of review

i. District court

ii. Tax Court

iii. CDP administrative record

iv. Exceptions to record rule

c. De novo standard and scope of review

d. Determinations under section 6015

E. Effect of Bankruptcy Filings on CDP

1. Notice of Intent to Levy and Notice of Federal Tax Lien Filing

2. CDP Hearing and notice of determination

a. General rule

i. Notice of determination - levy case

ii. Notice of determination - lien case

3. Tax Court practice

a. Bankruptcy filed before notice of determination

i. Levy cases

ii. Lien cases

b. Bankruptcy filed after notice of determination

c. Bankruptcy filed after Tax Court petition

4. Jurisdiction over bankruptcy discharge issues

a. Tax Court jurisdiction

b. Bankruptcy Court jurisdiction

V. CDP Litigation Practice in Tax Court
A. Tax Court Rules

B. Applicability of Small Case Procedures

C. Motion to Change Caption

D. Answers

E. Replies

F. Additional Pleading in Cases Involving Section 6015

G. T.C. Rule 331(b)(4) --Issues Not Raised

H. Issues Not Raised in the CDP Hearing

I. Pretrial Motions

1. Motion to dismiss on the ground of mootness

a. Liability is fully paid

b. Assessment has been abated

2. Motion to dismiss for lack of jurisdiction

a. No notice of determination for all or some taxes at issue

b. Invalid notice of determination

c. Late-filed petition

d. Taxpayer-initiated motions to dismiss

3. Motion to dismiss for failure to state a claim upon which relief can be granted

4. Motion to remand

a. Grounds for remand

b. Remand not appropriate

c. Remand procedure

d. Application of ex parte rules to remanded CDP cases

5. Motion for summary judgment

a. General matters

b. Grounds for summary judgment

c. Declaration

6. Section 6673(a)(1) penalties

7. Levy during CDP levy cases in Tax Court

a. Section 6330(e)(2) motions (Motions to Permit Levy)

b. Levy to collect non-CDP periods included in collection alternative rejected in CDP hearing

J. Trial Preparation

1. Discovery

2. Stipulation of facts

3. Submission of the administrative record at trial

K. Trial

1. Objections to evidence not in the administrative record

2. Appeals testimony

L. Stipulated Decision Documents

1. Nonliability issues

2. Liability issues

3. Section 6404 and 6015 issues

M. Appeal of Tax Court CDP Decision

VI. Exhibits
A. Joint Motion to Change Caption

B. Motion to Remove Small Tax Case Designation

C. Motion to Dismiss for Mootness

D. Motions to Dismiss for Lack of Jurisdiction

1. No CDP notice of determination (and no notice of deficiency or other determination issued)

2. Petition includes taxes and/or periods not included in CDP notice of determination (and not included on any notice of deficiency or any other determination)

3. Invalid notice of determination (because of late-filed request for hearing)

4. Invalid notice of determination (because no CDP lien or levy notice was issued for certain taxes and periods listed in notice of determination, and no notice of deficiency or other determination has been issued for such taxes and periods)

5. Late-filed petition

E. Motion to Remand

F. Motions for Summary Judgment and Declaration

1. Motion for summary judgment (for issues subject to abuse of discretion review)

2. Motion for summary judgment (section 6330(c)(2)(B))

a. Receipt of statutory notice of deficiency

b. Other "opportunity to dispute" liability: trust fund recovery penalty

3. Declaration

G. Motion to Permit Levy

H. Stipulation of Facts Attaching Administrative Record

I. Motion in Limine

J. Stipulated Decision Documents

1. Notice of determination addresses only tax liability or collection issues (CDP issues)

2. Notice of determination addresses CDP issues and interest abatement

3. Notice of determination addresses CDP issues and innocent spouse relief



I. Background Material and Legislative Changes

The Treasury Regulations implementing sections 6320 and 6330 are at Treas. Reg. § 301.6320-1 and Treas. Reg. § 301.6330-1. The Congressional report explaining the final version of sections 6320 and 6330 is Conf. Rep. No. 105-599, 105 Cong., 2d Sess., 263-267 (1998). The Internal Revenue Manual (IRM) provisions addressing sections 6320 and 6330 are at IRM sections 5.1.9 and 5.19.8 (Collection Appeal Rights), and 8.22 (Collection Due Process).

Treasury Regulation sections 301.6320-1 and 301.6330-1 (previously issued by Treasury Decisions 8979 and 8980, respectively, on January 17, 2002) have been updated by Treasury Decisions 9290 and 9291, published at 71 F.R. 60835 (Oct. 17, 2006) and 71 F.R. 60827 (Oct. 17, 2006), respectively. These amendments are effective for all hearing requests made on or after November 16, 2006. Some of the more important changes are as follows:
 The written request for a CDP hearing must include a statement of the reasons for disagreement with the notice of federal tax lien or proposed levy. Treas. Reg. §§ 301.6320-1(c)(2) Q&A C1; 301.6330-1(c)(2) Q&A C1.

 A face-to-face conference will not be granted to a taxpayer who raises solely frivolous arguments, who proposes only collection alternatives for which such taxpayer is ineligible, or who fails to provide the reasons why the taxpayer disagrees with the lien or levy action. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8; 301.6330-1(d)(2) Q&A D8.

 For a taxpayer to obtain judicial review of any issue, including a challenge to the underlying liability, that issue must be raised during the CDP hearing and the taxpayer must submit evidence with respect to that issue after being given a reasonable opportunity to do so. Treas. Reg. §§ 301.6320-1(f)(2) Q&A F3; 301.6330-1(f)(2) Q&A F3.

 A definition of what constitutes the administrative record for purposes of judicial review of a CDP determination. Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4; 301.6330-1(f)(2) Q&A F4.

 A taxpayer must be notified of the right to have an equivalent hearing in all cases when a tardy CDP hearing request is received. The request for an equivalent hearing must be in writing and made within one year commencing the day after the end of the five-business-day period following the filing of the notice of federal tax lien or within one year commencing the day after the date of the CDP levy notice. Treas. Reg. §§ 301.6320-1(c)(2) Q&A C7 and (i)(2) Q&A I7; 301.6330-1(c)(2) Q&A C7 and (i)(2) Q&A I7.

 The amended final regulations also remove all references to district court review of CDP cases, in accordance with the enactment of the Pension Protection Act of 2006, which eliminated district court jurisdiction to review CDP determinations issued on or after October 17, 2006.

On December 6, 2006, Congress passed the Tax Relief and Health Care Act of 2006 (TRHCA), Pub. L. 109-432, 120 Stat. 2922 (2006). Section 407 of TRHCA made revisions to sections 6320, 6330 and 6702 to help the Service combat the problems associated with the submission of frivolous documents. These provisions provide that the Service may disregard frivolous CDP hearing requests, and may impose a penalty on such requests. These revisions are addressed in further detail in section IV.B.2 of this Notice.

On May 25, 2007, Congress passed the Small Business and Work Opportunity Act of 2007, Pub. L. 110-28, Title VIII, 121 Stat. 200. Section 8243 of this act included an amendment to section 6330(f). Generally, this amendment provides that the Service may levy to collect certain employment taxes without providing pre-levy CDP rights, if the taxpayer (or taxpayer's predecessor) has requested a CDP levy hearing with respect to unpaid employment taxes arising in the 2-year period before the beginning of the taxable period with respect to which the levy is served. The taxpayer will instead receive a post-levy CDP hearing. The amendment is effective with respect to levies served on or after September 22, 2007. These revisions are addressed in section IV.A.4 of this Notice.



II. Coordination of CDP Cases with the National Office

Pre-review is required for only those briefs, motions, other Tax Court documents (including motions for summary judgment) and defense letters raising novel or significant issues. See CCDM Exhibit 35.11.1-1(18). Issues that may be considered novel or significant include (but are not limited to):
 administrative record rule ( i.e. , the rule that court review for abuse of discretion is limited to the administrative record);

 underlying tax liability involves a TEFRA partnership;

 nonroutine bankruptcy issues;

 nonroutine issues involving the standards for acceptance, rejection, and termination of offers in compromise and installment agreements;

 nonroutine issues involving the conduct of the administrative hearing;

 issues involving whether an opportunity for an Appeals conference, without judicial review rights, is a prior opportunity under section 6330(c)(2)(B);

 issues involving whether the tax was satisfied by payment of criminal restitution;

 issues involving whether validity of an assessment or application of payments are "liability" issues under section 6330(c)(2)(B) subject to de novo review;

 issues involving whether an assessment is invalid because there is insufficient proof of the issuance of a notice of deficiency;

 issues involving whether the taxpayer can raise entitlement to credits or overpayments from non-CDP years, and whether the Tax Court has jurisdiction over such matters, under Freije v. Commissioner , 125 T.C. 14 (2005);

 issues involving ex parte contacts;

 issues involving prior involvement under section 6330(b)(3);

 issues involving whether the Tax Court has general equitable authority to order the Service to take or refrain from taking certain collection actions; and

 issues involving whether a Notice of Determination was issued in violation of the automatic stay.

Pre-review is also required for documents requesting sanctions against opposing counsel under section 6673(a)(2) and for responses to requests for sanctions against Chief Counsel attorneys. Stipulated decision documents require review only where there is a significant departure from the sample decision documents shown in section VI.J, infra .

Field attorneys seeking legal advice regarding CDP may contact Branch 3 or 4 of the Office of the Associate Chief Counsel (Procedure & Administration) (P&A), at 202-622-3600 or 202-622-3630. In the event it appears that a taxpayer may be able to challenge an underlying employment tax liability in a CDP proceeding, Counsel attorneys should discuss the underlying tax issue with TEGE Area Counsel. Pursuant to such discussion, coordination with the National Office for review of briefs, motions, and other Tax Court documents discussing novel or significant substantive employment tax issues will be required.



III. Working with Appeals



A. Assisting Appeals

Each SB/SE Associate Area Counsel designates experienced attorneys to be available to provide prompt oral or written legal advice to Appeals in resolving CDP issues. SB/SE Division Counsel, in turn, coordinates complicated or novel issues with National Office CDP experts. In order to ensure the uniformity of advice being given, SB/SE Division Counsel and Appeals should identify recurring legal issues, and SB/SE Division Counsel should forward copies of any advice given on such issues to P & A Branch 3 or 4.



B. Remand of CDP Cases --see section V.I.4.



C. Processing CDP Administrative Files

When a Tax Court decision becomes final and the case is closed, Field Counsel should return the CDP administrative file to Appeals. CDP administrative files should be returned to the Appeals Processing Section (APS) in either the Memphis or Fresno Campus, according to the taxpayer's state of residence on Transmittal Form 1734. Place the Tax Court decision document, and opinion if applicable, on top of the CDP Administrative file. If the Tax Court decision was appealed to a circuit court of appeals, place a copy of the court of appeals decision and opinion on top of the Tax Court decision.

To identify the Campus to which the CDP administrative files should be returned, Please check the current Appeals organization chart. For taxpayers residing in APS East states, the CDP administrative file should be returned to the Memphis Campus APS. For taxpayers residing in APS West states, the CDP administrative file should be returned to the Fresno Campus APS.

The address for the Memphis Campus APS is:
Memphis Appeals Campus Office

5333 Getwell Rd

Stop 86

Memphis, TN 38118

The address for the Fresno Campus APS is:
Fresno Appeals Campus Office

5045 E. Butler

Stop # 55202

Fresno, CA 93727-5136



IV. Sections 6320 and 6330



A. CDP Notice Requirements



1. Notice of federal tax lien - section 6320

Prior to January 19, 1999, there was no requirement in the Code that the Service notify the taxpayer when a Notice of Federal Tax Lien (NFTL) was filed against that taxpayer's property. RRA 1998, section 3401 added section 6320 to the Code, which requires the Service to provide written notification (CDP notice) to the taxpayer of the first filing of a NFTL for a specific tax period and of that taxpayer's right to a CDP hearing not more than five business days after the filing of the NFTL. In practice, this notification is given by Letter 3172 - Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320.



2. Prior to levy - section 6330

Prior to January 19, 1999, taxpayers had no statutory hearing rights in connection with the section 6331(d) requirement that the Service provide the taxpayer with a notice of intent to levy 30 days before levy. RRA 1998, section 3401 added section 6330 to the Code, which requires the Service (except in the case of jeopardy levies or levies on State income tax refunds) to provide written notification (CDP notice) of its intent to levy on any property or right to property of any taxpayer at least 30 days prior to the levy and inform the taxpayer of the right to a CDP hearing. In practice, this notification is given by either Letter 1058 - Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing, or LT 11 - Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing. The Letter 1058 is issued by field collection, in cases assigned to a Revenue Officer. The LT-11 is the culminating notice in a series of collection notices issued from a Service Center by the Automated Collection System (ACS). Most delinquent tax accounts are handled by ACS. Cases meeting certain dollar criteria are handled by field collection.

In practice, a taxpayer is usually given a non-CDP notice of intent to levy under section 6331(d) (usually referred to on Forms 4340 as the "statutory" notice of intent to levy) prior to being given a CDP notice of intent to levy and right to a hearing under section 6330. The taxpayer can only request a CDP hearing from the section 6330 CDP notice.



3. Jeopardy levies and state income tax refunds

For jeopardy levies or levies on state income tax refunds, the requirement that the taxpayer be given a pre-levy hearing is not applicable. Instead, the taxpayer shall be given the opportunity for a CDP hearing "within a reasonable period of time after the levy." Section 6330(f). Thus, if the taxpayer has not previously been given CDP levy rights at the time of the levy, the taxpayer has a right to a hearing after the levy. If Appeals sustains the levy in the post-levy hearing, the taxpayer may appeal that determination to the Tax Court. Bussell, et al. v. Commissioner , 130 T.C. No. 13 (2008); Clark v. Commissioner , 125 T.C. 108 (2005).

With respect to jeopardy levies, hearing rights may be available under section 7429, as well as under section 6330(f), depending upon the timing of the jeopardy levy. A jeopardy levy subject to section 7429 appeal rights includes a levy made in connection with a jeopardy assessment, and also a levy made before the requirements of sections 6331(a) and (d) are satisfied (requiring ten days to pass after notice and demand, and thirty days to pass after the giving of a notice of intent to levy). See Treas. Reg. § 301.7429-1. Hearing rights for such jeopardy levies are available under sections 7429 and 6330(f). If the prerequisites for levy under section 6331 have been met, and levy is made either before the section 6330(a) CDP notice has been issued, or before the 30-day period for requesting a CDP hearing has passed, no review rights are available under section 7429. However, the taxpayer will be entitled to a post-levy CDP notice and hearing. If the jeopardy levy is made after the CDP hearing has been requested but while the hearing is still pending or on appeal, the taxpayer is not entitled to any additional notice or hearing under sections 6330(f) or 7429.



4. Disqualified employment tax levies

The "Small Business and Work Opportunity Act of 2007" amended I.R.C. § 6330(f) to permit (but not require) levy to collect employment taxes without first giving a taxpayer a pre-levy CDP notice if the levy is a "disqualified employment tax levy" (DETL). If a DETL is served, then the taxpayer shall be given an opportunity for CDP hearing "within a reasonable period of time after the levy." The taxpayer may seek judicial review in the Tax Court of the determination resulting from the section 6330(f) post-levy hearing. This amendment is effective for DETLs served on or after September 22, 2007. This change was intended to address the problem of taxpayers who pyramid employment tax liabilities and use the CDP process to delay collection, by limiting their opportunity for pre-levy CDP hearings.

A "disqualified employment tax levy," as described in new section 6330(h), is a levy to collect a taxpayer's employment tax liability if that taxpayer or a predecessor requested a CDP hearing under section 6330 for unpaid employment taxes arising in the two-year period prior to the beginning of the taxable period for which the levy is served.

The prior request for a CDP hearing refers to a timely CDP hearing request. Even if the request is subsequently withdrawn, it qualifies as a prior hearing request. Requests for an equivalent hearing or untimely requests for CDP hearings do not satisfy the prior-hearing-request requirement. Thus, if the taxpayer requests an equivalent hearing or submits an untimely request for a CDP hearing, those requests cannot be used as a basis for a DETL. A timely post-levy request for a CDP hearing made in response to a post-levy CDP notice, however, may constitute a prior CDP hearing request for the purposes of determining the availability of a DETL.

If appropriate, a DETL may be served during a CDP hearing or judicial review of such hearing to collect employment tax liabilities subject to the hearing. In other words, after the IRS serves the first levy for a DETL period and the taxpayer requests a CDP hearing, the IRS may serve subsequent levies on different levy sources for the same period while the CDP case is pending before Appeals or in the Tax Court.



5. Notice issuance

A CDP notice must be given in person, left at the taxpayer's dwelling or usual place of business, or delivered to the taxpayer's last known address by certified or registered mail. Buffano v. Commissioner , T.C. Memo. 2007-32 (case dismissed for lack of jurisdiction where CDP notice not mailed to taxpayer's last known address). The CDP levy notice must also be sent return receipt requested. If the CDP notice is not properly sent, the 30-day period for requesting a hearing is not started, and the taxpayer is entitled to a substitute notice. Treas. Reg. §§ 301.6320-1(a)(2) Q&A-A12, 301.6330-1(a)(3) Q&A-A10. Graham v. Commissioner , T.C. Memo. 2008-129. See also Haag v. United States , 485 F.3d 1 (1 st Cir. 2007) (affidavits describing Service's computer records showing normal method of sending certified CDP notices, in absence of contrary evidence, established proper mailing). A CDP lien notice (Letter 3172) is valid even if given before the NFTL is actually filed, and the validity of the section 6320 notice does not depend on the validity of the related NFTL. Graham , supra . Failure to provide an explanation of the appeals and collection process with the CDP notice is not harmful or prejudicial if the taxpayer knows of and pursues the taxpayer's right to administrative and judicial review. Klawonn v. Commissioner , T.C. Memo. 2002-27. A taxpayer's agreement with the appeals officer to address a non-CDP tax year in his CDP proceeding is not a substitute for the express CDP notice requirements prior to levy for the non-CDP period. Karara v. Commissioner , T.C. Memo. 2004-133.



6. Nominees and other third parties

A CDP lien notice will only be given to the person described in section 6321 who is named on the NFTL. Treas. Reg. § 301.6320-1(a)(2) Q&A-A1. A CDP levy notice will only be given to the person described in section 6331(a). Treas. Reg. § 301.6330-1(a)(3) Q&A-A1. In other words, CDP rights are only available to the delinquent taxpayer --the person liable to pay the tax due after notice and demand who refuses or neglects to pay. A nominee of, or person holding property of, the taxpayer is not entitled to CDP rights. Treas. Reg. §§ 301.6320-1(a)(2) Q&A-A7, 301.6330-1(a)(3) Q&A-A2; 301.6320-1(b)(2) Q&A B5, 301.6330-1(b)(2) Q&A B5; Kendricks v. Commissioner , 124 T.C. 69, 71 n.3 (2005); Forman v. United States Dept. of Treasury , 2005-1 USTC ¶ 50,418 (N.D. Ill.).



7. General partners in partnerships

Under state law, general partners in partnerships are liable for taxes assessed against the partnership. The Supreme Court in United States v. Galletti , 541 U.S. 114 (2004), held that the Service's assessment against a partnership serves to make the general partner liable for the tax. While the Supreme Court in Galletti did not address administrative collection, Galletti is consistent with the Service's long-standing legal position that it can enforce a tax lien and take administrative levy action against a general partner based on the assessment, notice and demand directed to the partnership. See Chief Counsel Notice 2005-003.

After the Service files a NFTL identifying a general partner as being liable for a partnership's employment taxes, a CDP notice must be given to the partner. Section 6320(a)(1) requires that written notice of the right to a CDP hearing be given to the person described in section 6321; that is, any person liable to pay the tax who is described in the NFTL. Treas. Reg. § 301.6320-1(a)(2) Q&A A1. Because general partners are liable to pay the partnership tax liabilities, separate CDP notices should be given to the partnership and to all general partners listed on the NFTL.

A CDP levy notice must also be given to a general partner prior to levying on that partner's property or rights to property. Section 6330(a)(1) requires that written notice of the right to a CDP hearing be given to a person liable to pay the tax prior to any levy on the person's property or rights to property. See Treas. Reg. § 301.6330-1(a)(3) Q&A A1. If the Service intends to levy on the property or rights to property of a general partner, separate CDP notices should be given to the partnership and the general partner whose property the Service intends to levy.



8. Owners of single-member LLCs

The court in Littriello v. United States , 484 F.3d 372 (6 th Cir. 2007), upheld a proposed levy against an owner of a single-member LLC for employment taxes with respect to employees of the LLC where the owner was made liable for the taxes under the "check the box" regulations disregarding the LLC. Accord , McNamee v. Dept. of Treasury , 99 AFTR 2d 2871 (2 d Cir. 2007); Stearn & Co., L.L.C. v. United States , 2007 U.S. Dist. LEXIS 47242 (E.D. Mich. 2007). The regulations were amended on August 16, 2007, to make the disregarded entity liable for employment taxes in these situations. For employment taxes on employees of disregarded entities incurred after January 1, 2009, the owner is no longer liable.



B. Collection Due Process Hearing



1. One hearing opportunity per tax and period

Sections 6320(b)(2) and 6330(b)(2) each provide that a taxpayer is entitled to only one CDP hearing with respect to the tax and tax period(s) covered by the CDP notice. This means that a taxpayer may have an opportunity for one CDP lien hearing, see Investment Research Associates, Inc. v. Commissioner , 126 T.C. 183 (2006) (upholds regulations only allowing hearing from filing of first NFTL), and one CDP levy hearing for each tax and tax period. Section 6320(b)(4) provides that, to the extent practicable, CDP hearings with respect to liens shall be held in conjunction with CDP hearings with respect to levies under section 6330. A taxpayer may receive more than one CDP hearing with respect to the same tax and period when there has been an additional assessment of tax (not including interest or penalty accruals) for that period or an additional accuracy-related or filing-delinquency penalty has been assessed. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D1, 301.6330-1(d)(2) Q&A-D1; Freije v. Commissioner , 131 T.C. No. 1 (2008). In CDP cases when the Tax Court has imposed a penalty under section 6673(a)(1), for proceedings instituted primarily for delay, etc., such penalty is collected in the same manner as a tax. I.R.C. § 6673(b)(2). Thus, sections 6330(a)(1) and (3) require a new CDP notice be given to a taxpayer when the Service intends to levy to collect the section 6673(a)(1) penalty.



2. Procedures for requesting a CDP hearing

A Form 12153, Request for a Collection Due Process or Equivalent Hearing, is included with the CDP notice sent to the taxpayer. Use of a Form 12153 to request a CDP hearing is not required, but if the form is not used, the request must still be in writing and include the taxpayer's name, taxpayer identification number (e.g., SSN, ITIN or EIN), address, and daytime telephone number, and be dated and signed by either the taxpayer or the taxpayer's authorized representative. The request must also specify the type of tax and tax periods at issue, include a statement that the taxpayer requests a hearing with Appeals with respect to the lien or proposed levy, and provide a reason or reasons why the taxpayer disagrees with the notice of lien or proposed levy. Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C1, 301.6330-1(c)(2) Q&A-C1.

If a timely written request for a CDP hearing is submitted that does not contain all of the required information, the IRS will make a reasonable attempt to contact the taxpayer and request that the taxpayer comply with the unsatisfied requirements, within a reasonable time period. Treas. Reg. §§ 301.6320-1(c)(2) Q&A C1; 301.6330-1(c)(2) Q&A C1. A taxpayer may also affirm any timely written request which is signed or alleged to have been signed on that taxpayer's behalf by the taxpayer's spouse or other unauthorized representative by filing, within a reasonable period of time after a request by the IRS, a signed, written affirmation that the request was originally submitted on the taxpayer's behalf. Id .

The Tax Relief and Health Care Act of 2006 (TRHCA) amended sections 6320(b)(1) and 6330(b)(1) to provide that the CDP hearing request must state the grounds for requesting the hearing. The TRHCA also amended section 6330(g) to provide that the Service may disregard any portion of a section 6320 or 6330 hearing request that is based upon a position identified as frivolous by the IRS in a published list or that reflects a desire to delay or impede tax administration. Such portion shall not be subject to any further administrative or judicial review. If the entire hearing request meets one or both of these criteria, the hearing request will be denied. The TRHCA also amended section 6702 to allow imposition of a $5,000 penalty for specified frivolous submissions, including CDP hearing requests, where any portion of the submission meets one or both of these criteria. If the Service intends to impose the penalty, it must advise the taxpayer that the Service considers the submission to be a specified frivolous submission and allow the taxpayer 30 days to withdraw it. These amendments are effective for CDP hearing requests made after March 15, 2007, the publication date of Notice 2007-30, 2007-14 I.R.B. 1, identifying the list of frivolous positions.

The section 6320 hearing request must be submitted no later than 30 days after the expiration of five business days after the date the NFTL is filed. Treas. Reg. § 301.6320-1(b)(1). See Newsome v. Commissioner , T.C. Memo. 2007-111. The date the NFTL is filed is the date the NFTL is received by the recording office to be added to the public index, not the act of indexing it in the local records. See, e.g., Tracey v. United States , 394 B.R. 635 (BAP 1 st Cir. 2008). Because the Service does not ordinarily obtain this date from the recording office, the Service uses an estimated filing date on the Letter 3172 to provide the taxpayer with a "must file" date (the date by which the section 6320 hearing request must be submitted). The estimated filing date is calculated by adding 3 business days to the NFTL mailing date. In other words, the Service assumes that the recording office will receive the NFTL 3 business days after it is mailed. The "must file" date is then determined by adding 5 business days plus 30 calendar days to the estimated filing date.

The section 6330 hearing request must be submitted no later than 30 days from the date of the CDP notice (provided the notice was mailed on or before that date). Treas. Reg. § 301.6330-1(b)(1). Premature requests for a CDP hearing (e.g., requests made before the Service has issued a CDP notice) are not valid. Andre v. Commissioner , 127 T.C. 68 (2006).

Any written request for a CDP hearing should be filed at the address indicated on the notice. If an address does not appear on the CDP notice, the taxpayer can obtain the address by calling, toll-free, 1-800-829-1040, and providing the taxpayer's identification number. Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C6, 301.6330-1(c)(2) Q&A-C6. If this address (or other address authorized in the regulations) is used and the written request is postmarked within the applicable 30-day response period, then in accordance with section 7502, the request will be considered timely even if it is not received until after the 30-day period. Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C4, 301.6330-1(c)(2) Q&A-C4. Section 7503 applies if the last day of the 30-day response period falls on a weekend or legal holiday. Id. If the request is not sent to the correct address ( e.g. , if it is sent to Appeals instead), it must be received by the correct office within the 30-day period in order to be timely. I.R.C. § 7502(a)(2). On the other hand, a request that is hand-carried to a local Taxpayer Assistance Center will be timely if delivered within the 30-day period pursuant to Treas. Reg. §301.6091-1(b)(1) and (2). The 30-day period is not extended for taxpayers residing outside the United States. Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C5, 301.6330-1(c)(2) Q&A-C5; Sarrell v. Commissioner , 117 T.C. 122 (2001).



3. Equivalent hearing

A taxpayer whose hearing request is untimely is not entitled to a CDP hearing, but may receive an "equivalent hearing." Treas. Reg. §§ 301.6320-1(i)(1), 301.6330-1(i)(1). A taxpayer must make a written request for an equivalent hearing that contains all of the same information required for a CDP hearing request. Treas. Reg. §§ 301.6320-1(i)(2) Q&A I1, 301.6330-1(i)(2) Q&A I1. The same rules with respect to perfecting incomplete CDP hearing requests, and affirming improperly signed CDP hearing requests, also apply to equivalent hearing requests. Treas. Reg. §§ 301.6320-1(i)(2) Q&A I1(iii) and (iv), 301.6330-1(i)(2) Q&A I1(iii) and (iv). A taxpayer who submits an untimely written CDP hearing request will be offered and may obtain an equivalent hearing without having to submit an additional written request. Treas. Reg. §§ 301.6320-1(c)(2) Q&A C7, 301.6330-1(c)(2) Q&A C7.

A taxpayer must request an equivalent hearing within the one-year period commencing after the date of a CDP levy notice or, with respect to a CDP lien notice, within the one-year period commencing the day after the end of the five-business-day period following the filing of the NFTL. Treas. Reg. §§ 301.6320-1(i)(2) Q&A I7, 301.6330-1(i)(2) Q&A I7.

A taxpayer may not appeal to a court any decision (issued in the form of a decision letter) made by an appeals or settlement officer ("appeals officer") as a result of an equivalent hearing. Treas. Reg. §§ 301.6320-1(i)(2) Q&A-I6, 301.6330-1(i)(2) Q&A-I6; Orum v. Commissioner , 123 T.C. 1 (2004); Moorhous v. Commissioner , 116 T.C. 263 (2001); Johnson v. Commissioner , 2000-2 USTC ¶ 50,591 (D. Ore. 2000). Cf. Craig v. Commissioner , 119 T.C. 252 (2002) (decision letter issued following taxpayer's timely CDP hearing request was appealable "determination" for purposes of section 6330(d)(1)). The Tax Court has accepted the use of USPS Form 3877, certified mailing list, as direct evidence of both the fact and date of mailing in cases when the issue of timeliness is raised in litigation. Magazine v. Commissioner , 89 T.C. 321, 327 n.8 (1987), nonacq. at 1988-2 C.B. 1 (non-acquiescence on separate issue); Figler v. Commissioner , T.C. Memo. 2005-230.



4. Effect of requesting a CDP hearing



a. Statute of limitations

The limitation periods under section 6502 (relating to collection after assessment), section 6531 (relating to criminal prosecutions), and section 6532 (relating to other suits) with respect to the taxes and periods listed on the CDP notice are suspended beginning on the date the Service receives a timely hearing request. I.R.C. § 6330(e)(1); Treas. Reg. §§ 301.6320-1(g)(2) Q&A-G1, 301.6330-1(g)(2) Q&A-G1; Boyd v. Commissioner , 117 T.C. 127 (2001). The suspension period ends either on the date the Service receives a written withdrawal of the hearing request, when the determination resulting from the CDP hearing becomes final by expiration of the time for seeking review, or upon the exhaustion of any right of appeal. Boyd v. Commissioner, supra.

Section 6330(e)(1) further provides that, in no event shall any of the limitation periods expire before the 90th day after the day on which there is a final determination with respect to such hearing. If there are fewer than 90 days left in any limitations period after the suspension ends, the remaining limitations period will be 90 days. Treas. Reg. §§ 301.6320-1(g)(3), 301.6330-1(g)(3). This means that if less than 90 days remain on the limitations period after the suspension ends, the difference between the number of remaining days and 90 days will be added to the limitations period. There is no automatic 90-day addition to the period.



b. Levy action and injunctive relief

A timely CDP levy hearing request generally suspends any levy action to collect liabilities listed on the CDP notice for the period during which the hearing and appeals therein are pending. I.R.C. § 6330(e)(1). There are no restrictions on filing a NFTL, however, under either section 6320 or 6330. Treas. Reg. §§ 301.6320-1(g)(2) Q&A G3, 301.6330-1(g)(2) Q&A G3. A levy will not be suspended while an appeal is pending before the Tax Court or Court of Appeals if the underlying tax liability is not at issue and the court determines that the Service has shown good cause not to suspend the levy. I.R.C. § 6330(e)(2). See section V.I.7, infra . The Service must file a motion with the court requesting a good cause determination before proceeding with the levy. A motion to permit levy should be considered in any CDP case involving a taxpayer who raises solely frivolous arguments. These cases represent an abuse of the CDP process and the suspension of the Service's levy authority in these cases serves no legitimate purpose. See Burke v. United States , 121 T.C. 189 (2005); Howard v. United States , T.C. Memo. 2005-100. See also Polmar Int'l, Inc. v. United States , 2002-2 USTC ¶ 50,636 (W.D. Wash.) (court found "good cause" when taxpayer corporation repeatedly failed to pay employment taxes on time).

The Anti-injunction Act, section 7421, generally prohibits suits to restrain the assessment and collection of any tax. The beginning of a levy or proceeding, however, may be enjoined by the proper court, including the Tax Court, during the time the suspension under section 6330(e)(1) is in force. The Tax Court cannot enjoin any action or proceeding unless a timely appeal of a notice of determination has been filed with the Tax Court and then only with respect to the unpaid tax subject to proposed levy. I.R.C. § 6330(e)(1); Davis v. Commissioner , T.C. Memo. 2008-238. As a result, only district courts have jurisdiction over injunction suits for tax years that are not properly before the Tax Court in a levy review case.

The amendment to section 6330(d)(1) by the Pension Protection Act of 2006 to eliminate district court jurisdiction in CDP cases, discussed further in section IV.D.1, does not affect district court injunction jurisdiction under section 6330(e)(1).



c. Permitted collection actions

Section 6330(e)(1) only prohibits levy if a proposed levy is the basis of the CDP hearing. Therefore, the Service may levy for taxes covered by a CDP lien notice if the section 6330 notice requirement for those taxes and periods has been satisfied. Treas. Reg. §§ 301.6320-1(g)(2) Q&A-G3, 301.6330-1(g)(2) Q&A-G3. As a matter of policy, however, the Service generally suspends any levy action pending the Appeals determination on the lien in CDP cases, and pending the Appeals determination in lien or levy equivalent hearings. Exceptions to this general policy include cases where the taxpayer is dissipating assets, making only frivolous arguments, or seeking solely to delay collection. IRM 5.1.9.3.5(5) and (8). In addition, nothing in section 6320 or 6330 prohibits the filing of a NFTL. See Beery v. Commissioner , 122 T.C. 184 (2004). If a taxpayer requests a CDP hearing under section 6320 or 6330, the Service may file a NFTL for the same tax and periods at another recording office or a NFTL for tax periods or taxes not covered by the CDP notice. Other permitted nonlevy collection actions include initiating judicial proceedings, offsetting overpayments from other periods, and accepting voluntary payments of the tax. Id. ; see also Boyd v. Commissioner , 451 F.3d 8 (1 st Cir. 2006), aff'g 124 T.C. 296 (2005) (no CDP rights for offsets); Davis v. Commissioner , T.C. Memo. 2008-238 (no CDP rights for lock-in letter instructing taxpayer's employer to adjust taxpayer's withholding); Bullock v. Commissioner , T.C. Memo. 2003-5; Karara v. United States , 2002-2 USTC ¶ 50,667 (M.D. Fla.).



5. Hearing requirements



a. CDP hearings are informal

A CDP hearing is informal and the formal hearing requirements of the Administrative Procedure Act (APA), 5 U.S.C. § 551 et seq ., do not apply. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D6, 301.6330-1(d)(2) Q&A-D6. See also Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006); Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621 (6 th Cir. 2005); Davis v. Commissioner , 115 T.C. 35 (2000). Accordingly, recordings of telephone or face-to-face conferences are not required. Living Care Alternatives , 411 F.3d at 625; Rennie v. Internal Revenue Service , 216 F. Supp. 2d 1078, 1079 n. 1 (E.D. Cal. 2002). Contra Mesa Oil, Inc. v. United States , 2001-1 USTC ¶ 50,130 (D. Colo. 2000) (suggests that CDP hearings must be recorded verbatim), nonacq. at AOD-2001-5, 2001-34 I.R.B. 174 (non-acquiescence on this point). While recording of all CDP conferences is not required, the taxpayer does have the right to record a face-to-face CDP conference in accordance with section 7521(a)(1). Keene v. Commissioner , 121 T.C. 8 (2003).

Taxpayers do not have the right to subpoena and examine witnesses at the hearing. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D6, 301.6330-1(d)(2) Q&A-D6; Robinette v. Commissioner , 123 T.C. 85, 98 (2004), rev'd on other grounds , 439 F.3d 455 (8 th Cir. 2006). The appeals officer is not required to give the taxpayer a set of procedures governing the hearing. Lindsay v. Commissioner , T.C. Memo. 2001-285. Taxpayers do not have the right to subpoena documents, Barnhill v. Commissioner , T.C. Memo. 2002-116; Konkel v. Commissioner , 2001-2 USTC ¶ 50,520 (M.D. Fla. 2000), or examine them, Watson v. Commissioner , T.C. Memo. 2001-213. Section 6330(c)(1) does not require the appeals officer to provide the taxpayer with copies of the documents the appeals officer obtains to verify that the requirements of any applicable law or administrative procedure were met. Robinette v. Commissioner , supra ; Nestor v. Commissioner , 118 T.C. 162 (2002). Appeals gives a MFTRA-X (literal) transcript to each taxpayer who requests one.

Despite the informality of the hearing and the lack of a transcript and formal record, there must be a sufficient record, stating the appeals officer's findings and rationale, to permit review for abuse of discretion. The notice of determination must discuss all issues raised and should state why arguments and collection alternatives raised by the taxpayer were rejected. See Robinette v. Commissioner , 439 F.3d 455, 461-62 (8 th Cir. 2006); Living Care Alternatives , 411 F.3d 621, 629 (6 th Cir. 2005); Cavanaugh v. United States , 93 AFTR 2d 1522 (D.N.J. 2004); Cox v. Commissioner , 126 T.C. 237 (2006), rev'd on other grounds , 514 F.3d 1119 (10 th Cir. 2008). There must be sufficient documentation in the record to show what happened at the administrative hearing. Cox , supra, 126 T.C. at 247 (the administrative file "provides a singularly clear portrayal of administrative developments as they occurred.") If the record is insufficient to permit abuse of discretion review, the case may need to be remanded to Appeals. See section V.I.4.a., infra .

The appeals officer has discretion regarding when to conclude a CDP hearing. In Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd, 469 F.3d 27 (1 st Cir. 2006), the Tax Court held that the appeals officer did not prematurely conclude the CDP hearing when the determination was made eight months after the hearing commenced. Cf . Industrial Investors v Commissioner , T.C. Memo. 2007-93 (appeals officer abused his discretion by allowing petitioner only 18 business days to assemble documentation required in support of offer-in-compromise, during part of which time petitioner's representative was under subpoena to appear in court).

While there is no period of time by which Appeals must conduct the hearing or issue the Notice of Determination, Appeals will attempt to conduct the hearing and issue the Determination as expeditiously as possible under the circumstances. Treas. Reg. § 301.6330(e)(3), Q&A-E9. Appeals does not have to wait for the outcome of an audit reconsideration, where liability is barred from consideration at the CDP hearing, before concluding the CDP hearing. Baltic v. Commissioner , 129 T.C. 178 (2007).



b. Face-to-face conference not required

The regulations provide that a CDP hearing may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications, or some combination thereof. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D6, 301.6330-1(d)(2) Q&A-D6. See Olsen v. United States , 414 F.3d 144 (1 st Cir. 2005); see also Katz v. Commissioner , 115 T.C. 329 (2000) (combination of telephone calls and written letters); Konkel v. Commissioner , 2001-2 USTC ¶ 50,520 (M.D. Fla. 2000) (solely written correspondence if the taxpayer consents). Therefore, all communications between the taxpayer and the appeals officer between the time of the request for the hearing and the issuance of the notice of determination are part of the CDP hearing. See TTK Management v. United States , 2001-1 USTC ¶ 50,185 (C.D. Cal. 2000).

A taxpayer who presents in the CDP hearing request relevant, non-frivolous reasons for disagreement with the proposed levy or lien will ordinarily be offered an opportunity for a face-to-face conference at the Appeals office closest to the taxpayer's residence or, if the taxpayer is a corporation, at the Appeals office closest to its principal place of business. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D7, 301.6330-1(d)(2) Q&A-D7. See also Parker v. Commissioner , T.C. Memo. 2004-226 (court remanded for new appeals hearing when CDP hearing was scheduled at appeals office 180 miles from taxpayer's residence, and there was a closer appeals office); Katz v. Commissioner , 115 T.C. 329 (2000).

The regulations do not require Appeals to offer the taxpayer a face-to-face or telephone conference in the absence of a request. Loofbourrow v. Commissioner , 208 F. Supp. 2d 698, 707 (S.D. Tex. 2002). But see Meyer v. Commissioner , 115 T.C. 417 (2000) (appeals officer erred in failing to offer a conference either in person or by telephone). Nevertheless, Appeals generally offers taxpayers a face-to-face or telephone conference in a nonfrivolous CDP hearing. Taxpayers who fail to avail themselves of an offered face-to-face or telephone conference cannot complain that they were denied the opportunity for such conference. A determination to proceed with collection can be made on the basis of Appeals' review of the case file. Maxton v. Commissioner , T.C. Memo. 2007-95. But cf. Cox v. United States , 345 F. Supp. 2d 1218 (W.D. Okla. 2004) (hearing inadequate when taxpayer was not provided with notice that the telephone conference with Appeals constituted the CDP conference); Cavanaugh v. United States , 93 AFTR 2d 1522 (D.N.J. 2004) (court remanded to Appeals for new face-to-face CDP conference when taxpayer had requested a face-to-face conference and it was unclear whether taxpayer was advised that the telephone conference received instead constituted the CDP conference).



c. When face-to-face conference is not offered

The face-to-face conference contemplated by the regulations is a conference for the purpose of addressing issues relevant to the taxpayer's CDP case --e.g. , the issues listed in section 6330(c)(2). A face-to-face conference serves no useful purpose if the taxpayer has no intention of discussing relevant issues, or if the taxpayer wishes to use the conference as a forum to espouse only frivolous and groundless arguments.

Accordingly, a face-to-face CDP conference concerning a taxpayer's underlying liability will not be granted if the request for a hearing or other taxpayer communication indicates that the taxpayer wishes to raise only irrelevant or frivolous issues concerning that liability. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8, 301.6330-1(d)(2) Q&A D8. A face-to-face conference need also not be granted if the taxpayer does not provide in the CDP hearing request reasons why the taxpayer disagrees with the levy or NFTL filing.
Note : The TRHCA amended sections 6320 and 6330 to provide that a taxpayer must provide reasons for the hearing request, and the Service may disregard any portion of a hearing request that is based upon a position identified as frivolous by the IRS in a published list or reflects a desire to delay or impede tax administration. See section IV.B.2, supra . Accordingly, in cases where the TRHCA amendments are applicable, a taxpayer raising no issues or only frivolous issues may not only be ineligible for a face-to-face conference but may be denied a CDP hearing.

A face-to-face CDP conference concerning a collection alternative, such as an installment agreement or offer-in-compromise, will not be granted unless other taxpayers would be eligible for the alternative under similar circumstances. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8, 301.6330-1(d)(2) Q&A D8. For example, a taxpayer who proposes an offer-incompromise as the only issue to be addressed at the hearing, who has failed to file all required returns and is, therefore, ineligible for an offer-incompromise, will not be granted a face-to-face CDP conference.

Appeals may, however, in its discretion, grant a face-to-face conference where it determines it is appropriate to explain the requirements to become eligible for a collection alternative. The taxpayer will have the opportunity to demonstrate eligibility for a collection alternative, or become eligible for a collection alternative, in order to obtain a face-to-face conference. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8, 301.6330-1(d)(2) Q&A D8.

If the taxpayer is not offered a face-to-face conference, the taxpayer will receive a hearing by telephone, correspondence, or some combination thereof (except as noted above, where the TRHCA amendments are effective and preclude the taxpayer from receiving any CDP hearing).

The Tax Court has held in cases when a taxpayer raising only frivolous issues contests being denied a face-to-face conference that such denial was not an abuse of discretion and that it would not be necessary or productive to remand the case to an appeals office for a new face-to-face hearing, citing Lunsford v. Commissioner , 117 T.C. 183, 189 (2001). See, e.g., Clough v. Commissioner , T.C. Memo. 2007-106. See also Hinman v. Grzesiowski , 96 AFTR 2d 6788 (N.D. Ind. 2005) (mandamus relief improper to compel a face-to-face CDP hearing, when taxpayer did not appeal the Appeals determination).

The regulations further provide that, if a taxpayer would ordinarily be offered a face-to-face conference with Appeals, but all of the Appeals officers at the location where that conference would normally be held have had prior involvement with respect to the unpaid tax and tax period involved in the hearing, the taxpayer will be offered a face-to-face conference at another Appeals office. Treas. Reg. §§ 301.6320-1(d)(2) Q&A D8, 301.6330-1(d)(2) Q&A D8. The face-to-face meeting may be held at the normal location if the taxpayer waives the requirement that the hearing be conducted by an appeals officer without prior involvement. Id . The meaning of "prior involvement" with respect to the unpaid tax and tax period is discussed in Section IV.B.5.e.



d. Recording of CDP hearings under section 7521(a)(1)

The Tax Court has held that if a taxpayer is offered a face-to-face conference and requests to record the face-to-face CDP conference, in accordance with section 7521(a)(1), such recording must be allowed. Keene v. Commissioner , 121 T.C. 8 (2003). However, when a taxpayer is improperly denied the right to record, the court will not remand to Appeals for a new recorded hearing when such a remand would be unnecessary or unproductive. Lunsford v. Commissioner , 117 T.C. 183, 189 (2001). See , e.g. , Carrillo v. Commissioner , T.C. Memo. 2005-290. .

In Calafati v. Commissioner , 127 T.C. 219 (2006), the Tax Court held that the taxpayer had no right to audio record a telephone CDP conference, as section 7521 only applied to "in-person interviews," meaning face-to-face meetings between the interviewer and interviewee.



e. Impartial appeals officer

Sections 6320(b)(3) and 6330(b)(3) require that the hearing be conducted by an officer or employee who has had no prior involvement with respect to the same unpaid tax. Prior involvement includes participation or involvement in a matter (other than a prior CDP hearing) that the taxpayer may have with respect to the tax and tax period shown on the CDP notice. Prior involvement exists only when the taxpayer, the tax and the tax period at issue in the CDP hearing also were at issue in the prior non-CDP matter, and the Appeals officer or employee actually participated in the prior matter. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-D4; 301.6330-1(d)(2) Q&A-D4. Where separate CDP hearings were conducted for the lien and levy for the same tax period, prior involvement does not include the prior CDP hearing. The prior involvement restriction only applies to the officer conducting the hearing, not the officer's manager who signs the notice of determination.

Prior involvement includes participation in examination and collection activities (other than CDP appeals hearings) with respect to the same taxpayer, type of tax, and tax period. For example, an appeals officer has prior involvement under sections 6320(b)(3) and 6330(b)(3) if he served as a mediator during the examination of the same tax liability or was the revenue officer assigned to collect the same tax liability subject to the CDP hearing.

In Cox v. Commissioner , 514 F.3d 1119 (10 th Cir. 2008), rev'g 126 T.C. 237 (2006), the Tenth Circuit held that prior involvement includes conducting a CDP hearing involving an earlier tax period where the existence of the tax liability for the later years was a material factor in the decision involving the earlier year. Thus, where an officer conducted a CDP hearing for the 2000 income tax liability, and considered the taxpayer's noncompliance for 2001 and 2002 incomes taxes at that hearing, he was precluded from conducting a subsequent CDP hearing for 2001 and 2002. The court reversed the opinion of the Tax Court that merely reviewing the compliance history of the 2001 and 2002 years in a CDP proceeding involving 2000 is not disqualifying prior involvement. Cases involving this issue must be coordinated with P&A Branch 3 or 4.

In MRCA Information Services, Inc. v. United States , 145 F. Supp. 2d 194 (D. Conn. 2000), the court held that an appeals officer who was assigned to hear a CDP case involving a corporation's employment tax liability was not impartial because he had presided at a hearing involving the section 6672 penalty assessed against the sole shareholder of that corporation for the same tax periods. MRCA does not take into account that a section 6672 penalty and employment taxes are separate and distinct liabilities. Treas. Reg. §§ 301.6320-1(d)(2) examples 3 and 4; 301.6330-1(d)(2) examples 3 and 4. See also Harrell v. Commissioner , T.C. Memo. 2003-271 (appeals officer is not rendered impartial for purposes of section 6330(b)(3) just because another employee in the same appeals office was involved with the same taxpayer, type of tax, and tax years at issue in CDP).



f. Prohibition of ex parte communications



i. Appeals and Collection

RRA 1998, section 1001(a) directed the Service to develop a plan to prohibit ex parte communications between Appeals employees and other employees of the Service. To ensure an independent Appeals function, ex parte communications between Appeals employees and other IRS employees are prohibited to the extent that such communications appear to compromise the independence of the appeals officers. Rev. Proc. 2000-43, 2000-2 C.B. 404. The term "ex parte communications" is defined in Rev. Proc. 2000-43 as the communications between Appeals and other Service functions without the participation of the taxpayer or the taxpayer's representative. Rev. Proc. 2000-43, Q&A 1. The following examples are not considered prohibited ex parte communications:
 Communications between appeals officers and other appeals employees. Rev. Proc. 2000-43, sec. 3, Q&A-3. Intra-Appeals communications during the deliberation process do not compromise or appear to compromise the independent Appeals function. Id .

 The transfer of the administrative file to Appeals by the office that made the determination that is subject to the appeals process. Rev. Proc. 2000-43, Q&A-4.

 Communications between Appeals and the originating function (such as Collection in a CDP case) that are limited to ministerial, procedural, or administrative matters. Appeals and the originating function cannot discuss the relative strengths and weaknesses of a case. Rev. Proc. 2000-43, Q&A-5 and 6.

In Drake v. Commissioner , 125 T.C. 201 (2005), the Tax Court ordered a remand to Appeals for a new CDP hearing when an ex parte communication occurred between an Appeals employee and an IRS bankruptcy advisor that was not shared with the taxpayer, in violation of Rev. Proc. 2000-43. The subject communication was a memorandum from the bankruptcy advisor that questioned the credibility and motives of the taxpayer's counsel in a prior bankruptcy proceeding.

In Moore v. Commissioner , T.C. Memo. 2006-171, nonacq . at AOD 2007-02, the Tax Court held that improper ex parte communications among an appeals officer, offer specialist, and revenue officers previously involved in collection of the tax at issue could not be remedied by sharing the contents of the communications with the taxpayer and allowing the taxpayer an opportunity to respond. The court ordered a remand to Appeals for the purpose of identifying an appropriate remedy to avoid prejudicing the taxpayer as a result of the ex parte communications. The court further ordered that, if the appropriate remedy was a new CDP hearing before a new appeals officer, all references to the prohibited ex parte communications and any copy of the opinion should be deleted from the administrative file.

As explained in AOD 2007-02, we disagree that the violations in Moore warranted a remand to Appeals and the deletions from the administrative record. The court should have invoked the harmless error rule and found that the appeals officer did not abuse her discretion. Even though the information was received through prohibited ex parte communications, the appeals officer cured the violations of the ex parte communications by disclosing the information to the taxpayer and giving the taxpayer adequate opportunity to respond during the hearing. The violation of the ex parte communications rules, therefore, constituted harmless error and a remand to Appeals was unnecessary.

In Industrial Investors v. Commissioner , T.C. Memo. 2007-93, the court held that a cover memo from a revenue officer with the file submitted to Appeals putting the revenue officer's "spin" on the case and advocating a decision adverse to the taxpayer was a prohibited ex parte communication.



Issues involving ex parte contacts during a CDP administrative hearing should be coordinated with Branch 3 or 4, P&A.



ii. Appeals and Counsel

Rev. Proc. 2000-43, Q&A 11 addresses communications between Appeals and Counsel attorneys in nondocketed cases. Generally, Appeals may contact a Counsel attorney (other than a Counsel attorney who provided guidance on the same issue to the originating function) for advice on a legal issue during the course of the CDP hearing. Since Appeals is responsible for independently evaluating the strengths and weaknesses of the case, however, it would be inappropriate to discuss those aspects with Counsel --e.g. , for Counsel to propose a settlement range.

Pursuant to Q&A-11 of Rev. Proc. 2000-43, the following communications between Appeals employees and Counsel attorneys are prohibited:
 Communications between Appeals and a Counsel field attorney who previously provided guidance to the originating function on the same issue in the same case that Appeals is reviewing. In this situation, a different Counsel attorney should be assigned to provide advice to Appeals regarding the issue.

 Communications regarding settlement ranges for an issue in a case pending before Appeals or for the case as a whole.

Communications involving ministerial, administrative, or procedural matters are not prohibited. Rev. Proc. 2000-43, Q&A-5. See Planes v. United States , 98 A.F.T.R. 2d 2006-7044 (M.D. Fla. 2006) (settlement officer's communications with IRS counsel about the scope of his authority to reinstate an offer-in-compromise were not prohibited ex parte communications).

Revenue Procedure 2000-43 does not subject remanded CDP cases to the ex parte rules because the cases remain docketed with the Tax Court. Rev. Proc. 2000-43, Q&A 11. When a CDP case is remanded, however, the Appeals employee resumes the role of an independent officer. Therefore, it is imperative that guidelines similar to those stated in Rev. Proc. 2000-43 be applied to these cases. See section V.I.4.d for further discussion of application of the ex parte rules to remanded CDP cases.



6. Matters considered at hearing



a. Section 6330(c)(1) verification

Sections 6320(c) and 6330(c)(1) require the appeals officer to obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Verification can be obtained at any time prior to the issuance of the determination by Appeals. Treas. Reg. §§ 301.6320-1(e)(1), 301.6330-1(e)(1). The requirements the appeals officer are verifying are those things that the Code, Treasury Regulations, and the IRM require the Service to do before collection can take place. See, e.g ., Trout v. Commissioner , 131 T.C. No. 16 (2008) (Marvel, concurring) (where OIC was terminated, appeals should verify that IRM administrative procedures for terminating the OIC were followed).

Section 6330(c)(1) does not require the appeals officer to rely on any particular document for verification. Craig v. Commissioner , 119 T.C. 252, 261-262 (2002). Verification is obtained by the appeals officer from the Service through its computer records and paper administrative files. The ACS or Field Compliance is responsible for providing Appeals with all the information necessary to conduct the verification required by section 6330(c)(1).



i. Computer transcripts

Most (but not necessarily all) of the legal and administrative procedural requirements can be verified by reviewing computer transcripts. The Form 4340 and TXMOD-A transcripts currently provide verification of assessment of the liability and the sending of collection notices. The current version of the MFTRA-X (literal) transcript provides verification of the assessment but not the sending of collection notices.

Generally, it is not an abuse of discretion for an appeals officer to rely on a Form 4340 to verify that legal and administrative requirements have been satisfied. Craig v. Commissioner , 119 T.C. 252, 261-263 (2002); Roberts v. Commissioner , 118 T.C. 365 (2002). An appeals officer may rely on a Form 4340 to verify the validity of an assessment, unless the taxpayer can identify an irregularity in the assessment procedure or other procedures. Nestor v. Commissioner , 118 T.C. 162 (2002). An appeals officer may rely on a Form 4340 to verify that a notice and demand for payment has been sent to the taxpayer in accordance with section 6303. Craig , 119 T.C. at 262-263.

Similarly, courts have found that it is not an abuse of discretion for an appeals officer to rely on computer transcripts other than the Form 4340 for verification, unless the taxpayer can identify an irregularity in the assessment procedure or other procedures. See, e.g., Cipolla v. Commissioner , T.C. Memo. 2004-6 (citing Standifird v. Commissioner , T.C. Memo. 2002-245, and other cases). The appeals officer may rely on computer transcripts to verify the validity of an assessment, as long as the transcript relied upon contains the information required in Treas. Reg. § 301.6203-1. See, e.g., Williams v. Commissioner , T.C. Memo. 2005-94 (citing Schroeder v. Commissioner , T.C. Memo. 2002-190); Hoffman v. United States , 209 F. Supp. 2d 1089, 1094 (W.D. Wash. 2002). An appeals officer may rely on a computer transcript to verify that a notice and demand for payment has been sent to the taxpayer in accordance with section 6303. See, e.g., Kun v. Commissioner , T.C. Memo. 2004-209 (citing Schaper v. Commissioner , T.C. Memo. 2002-203, among other cases).



ii. Invalid assessments

Sections 6320(c) and 6330(c)(1) require that the appeals officer determine whether the assessment was properly made. If the tax liability was incorrectly assessed under the math error procedures, the resulting tax assessment is invalid and must be abated. See I.R.C. § 6213(b)(1). Similarly, if the statutory notice of deficiency was not sent to the taxpayer's last known address, the resulting assessment is invalid. Cf . Blocker v. Commissioner , T.C. Memo. 2005-279 (assessment following return of undelivered notice of deficiency valid because sent to last known address). Such issues will often require the appeals officer to examine underlying documents in addition to the tax transcripts, such as the taxpayer's return, a copy of the notice of deficiency, and the certified mailing list for the notice of deficiency. See Hoyle v. Commissioner , 131 T.C. No. 13 (2008) (remanding to appeals to clarify the record as to what it relied upon in determining that the notice of deficiency was properly sent). In Clough v. Commissioner , T.C. Memo. 2007-106, the Tax Court held that an appeals officer did not properly verify the validity of the assessment for one of the years at issue because he did not confirm that a statutory notice of deficiency was sent for the 2000 year, even though the taxpayer did not contest the validity of the 2000 assessment. The taxpayer had attached a copy of the statutory notice of deficiency for the other years at issue to his CDP hearing request. The case record contained statements that the appeals officer was unable to verify a statutory notice of deficiency for the 2000 year. The court noted that there was nothing in the Form 4340 transcript showing that a statutory notice of deficiency was sent for the 2000 year, nor was there a copy of such notice in the record. Under these facts, the court held that the appeals officer did not properly verify issuance of a statutory notice of deficiency before the 2000 year was assessed.
Note : As exemplified by the Hoyle and Clough cases, verification requires independent confirmation of the validity of assessments, including determining whether the notice of deficiency was properly issued and whether penalties were properly imposed. This is the case even in the absence of specific, nonfrivolous issues being raised by the taxpayer in this regard.

In Butti.v. Commissioner , T.C. Memo. 2008-82, the court held that collection could not proceed because respondent failed to prove that a notice of deficiency was issued to the taxpayer prior to the assessment. Even though respondent introduced a certified mailing list showing that the notice of deficiency was properly mailed, a copy of the notice of deficiency was missing and so could not be introduced into evidence The court held, in reliance on Pietenza v. Commissioner , 92 T.C. 729 (1989), aff'd without published opinion , 935 F.2d 1282 (3d Cir. 1991), that where a taxpayer challenges the existence of the notice of deficiency, the certified mailing list will not by itself establish the existence of the notice of deficiency. See AOD 1992-05, 1991 WL 771260 (nonacquiescence in Tax Court's holding in Pietenza ). Any cases involving proving the issuance of the notice of deficiency under Butti and Pietenza should be coordinated with Branch 3 or 4, P&A.
Note : Although the issuance of the notice of deficiency is often addressed in connection with establishing receipt of the notice for purposes of determining whether the taxpayer can raise liability under section 6330(c)(2)(B), where there are problems in proving issuance of the notice of deficiency, counsel should consider whether the validity of the assessment might be in question.



b. Relevant issues under section 6330(c)(2)(A)

Sections 6320(c) and 6330(c)(2)(A) provide that the taxpayer may raise during the hearing any relevant issue relating to the unpaid tax. Taxpayers will be expected to provide any relevant information requested by Appeals, such as financial statements, for its consideration of the facts and issues involved in the hearing. Treas. Reg. §§ 301.6320-1(e)(1), 301.6330-1(e)(1). Relevant issues including the following:



i. Appropriate spousal defenses

A taxpayer may raise any appropriate spousal defense during a CDP hearing. I.R.C. § 6330(c)(2)(A)(i). A taxpayer is precluded from requesting relief under sections 66 and 6015 if the Commissioner has already made a final determination as to spousal defenses in a statutory notice of deficiency or final determination letter. Treas. Reg. §§ 301.6320-1(e)(2), 301.6330-1(e)(2); Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E4, 301.6330-1(e)(3) Q&A-E4. If the taxpayer had raised a spousal defense under section 66 or 6015 and meaningfully participated in a prior administrative or judicial proceeding that has become final, section 6330(c)(4) prevents the taxpayer from raising the defense in a subsequent CDP hearing or judicial review proceeding. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E5, 301.6330-1(e)(3) Q&A-E5. Further, section 6015(g)(2) bars a taxpayer who meaningfully participated in a judicial proceeding from raising relief under section 6015 for any tax year for which the court has rendered a final decision on the taxpayer's tax liability if section 6015 relief was available at the time of the decision. The taxpayer also may not raise any factual issues decided by the court that are relevant to relief under section 6015. Treas. Reg. § 1.6015-1(e).



ii. Challenges to appropriateness of collection action

Pursuant to section 6330(c)(2)(A)(ii), a taxpayer may challenge whether the collection action is appropriate.



(A) Taxes discharged in bankruptcy

If a taxpayer has received a bankruptcy discharge and that taxpayer's tax liabilities are dischargeable, the taxpayer is no longer personally liable for the taxes and the Service is enjoined from collecting the liability from the taxpayer personally. See 11 U.S.C. § 524(a); see also In re Rivera Torres , 309 B.R. 643, 647 (1st Cir. B.A.P. 2004). If, however, the Service filed a NFTL before the bankruptcy petition date, then after the bankruptcy the lien continues to attach to prepetition property of the taxpayer that was exempt or abandoned from the estate. 11 U.S.C. § 522(c)(2)(B). See Isom v. United States , 901 F.2d 744 (9th Cir. 1990); see also Johnson v. Home State Bank , 501 U.S. 78 (1991). A lien remains attached to property excluded from the estate, such as an ERISAqualified pension plan, even if a NFTL was not filed before the petition date.



(B) Criminal restitution cases

In Creel v. Commissioner , 419 F.3d 1135 (2005), the Eleventh Circuit affirmed the Tax Court's unpublished Order and Decision holding that it was inappropriate to collect the tax because it was satisfied by criminal restitution payments.

The Eleventh Circuit held that there was no outstanding liability because the restitution payments, satisfaction of judgment for restitution, and release of the judgment lien meant that these years were fully paid. The Eleventh Circuit recognized the general rule that satisfaction of criminal tax liability does not include satisfaction of civil tax liability. The government can seek restitution through criminal proceedings and pursue recovery of excess civil tax liability in subsequent civil proceedings. The court, nevertheless, found that the "unique facts and the nuances" of the case dictated a departure from this general rule.

See Chief Counsel Notice 2007-008 for the details on how to address restitution issues that arise in CDP cases.



iii. Offers of collection alternatives

Section 6330(c)(2)(A)(iii) and Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E6 and 301.6330-1(e)(3) Q&A-E6 list the following as examples of collection alternatives:
 posting of a bond;

 substitution of other assets;

 an installment agreement;

 an offer-in-compromise; and

 withholding collection action to facilitate future payment.

In addition, Treas. Reg. § 301.6320-1(e)(3) Q&A E6 provides that specific collection alternatives in lien cases include a proposal to withdraw the NFTL in circumstances that will facilitate the collection of the tax liability, subordination of the NFTL, and discharge of specific property from the NFTL.
Note : Acceptance of collection alternatives in CDP lien cases does not necessarily affect the NFTL filing. For example, even if an installment agreement is accepted as a collection alternative during a CDP lien hearing, the NFTL will generally remain filed.



(A) Consideration of collection alternatives

In rejecting a proposed collection alternative, Appeals must consider all relevant evidence provided by the taxpayer, give the taxpayer reasonable time to submit requested documentation, follow statutory and regulatory requirements, and explain in detail in the notice of determination why collection alternatives offered by the taxpayer were rejected. See generally Olsen v. United States , 414 F.3d 144, 154 (1st Cir. 2005). Acceptance of collection alternatives is generally within the discretion of the IRS and Appeals acts within its discretion when it follows guidelines in the IRM in evaluating the collection alternative. For example, an offerin-compromise will be returned as no longer processable if all tax returns for which the taxpayer has a filing requirement are not filed within the time required by the Service. It is accordingly not an abuse of discretion for Appeals to return an offer-in-compromise if the taxpayer has not filed all required tax returns.

Six circuit courts have affirmed Appeals' return or rejection of proposed collection alternatives during the CDP hearing. In Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621 (6 th Cir. 2005), the court held that it was not an abuse of discretion to return an offer-in-compromise when the taxpayer had not filed an actual offer, was not in compliance with employment tax deposits at the time of the hearing, and had defaulted on a previous installment agreement. In Olsen v. United States , 414 F.3d 144, 154 (1st Cir. 2005), the court held that it was not an abuse of discretion to reject an offer-in-compromise when the taxpayer failed to provide necessary financial information during the CDP hearing. In Orum v. Commissioner , 412 F.3d 819, 820 (7th Cir. 2005), the court held that it was not an abuse of discretion to reject an installment agreement when the taxpayer had failed to make required monthly payments on a previous installment agreement and because the taxpayer failed to provide additional financial information requested by the appeals officer. In Fargo v. Commissioner , 447 F.3d 706 (9 th Cir. 2006), the court held that it was not an abuse of discretion to reject an offer based on "effective tax administration" grounds when large amounts of interest accrued on a liability arising out of a tax shelter. See also Christopher Cross, Inc. v. United States , 461 F.3d 610 (5 th Cir. 2006); Speltz v. Commissioner , 454 F.3d 782 (8 th Cir. 2006); Kindred v. Commissioner , 454 F.3d 688 (7 th Cir. 2006).

For examples of favorable Tax Court decisions regarding rejection of offers-in-compromise, see, e.g. , Salazar v. Commissioner , T.C. Memo. 2008-38 (appeals did not abuse discretion in rejecting offerin-compromise that would risk collecting bankruptcy distribution); Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006) (appeals did not abuse discretion by rejecting offerin-compromise where computations as to collection potential were reasonably based upon income and expense information provided by taxpayer); Ertz v. Commissioner , T.C. Memo. 2007-15, appeal pending (9 th Cir.) (appeals properly rejected doubt as to collectability/effective tax administration offer in Hoyt partnership case where taxpayer did not demonstrate special circumstances and acceptance would undermine voluntary compliance).

For examples of favorable Tax Court decisions regarding rejection of proposed installment agreements, see, e.g. , Giamelli v. Commissioner , 129 T.C.107 ("Reliance on a failure to pay current taxes in rejecting a collection alternative does not constitute an abuse of discretion."), Schwartz v. Commissioner , T.C. Memo. 2007-155 ("petitioners' circumstances illustrate one of the reasons for requiring current compliance before granting collection alternatives ... namely, the risk of pyramiding tax liability.").

For adverse Tax Court decisions when the court found an abuse of discretion, see, e.g. , Samuel v. Commissioner , T.C. Memo. 2007-312 (appeals erred in not giving taxpayer opportunity to revise offer in compromise); Lites v. Commissioner , T.C. Memo. 2005-206 (abuse of discretion when appeals officer in rejecting installment agreement found without explanation taxpayers' disposable income to be higher than the financial information submitted by the taxpayers).

In Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006), the Tax Court rejected the taxpayer's argument that section 7122 requires the Service to provide administrative appeal rights within a CDP hearing from the rejection of an offer in compromise. The court noted that there was administrative review as part of the CDP process and that the taxpayer had the right to appeal the CDP determination by seeking judicial review.
Note : Under section 7122(e)(2), review by Appeals is only required when the offer in compromise or installment agreement is rejected by a function of the IRS other than Appeals.



(B) TIPRA requirements for offers-in-compromise

Section 509 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), Pub. L. No. 109-222, amended section 7122 to require down payments for offers in compromise. These amendments apply to offers in compromise submitted on or after July 16, 2006.

As amended, section 7122(c)(1)(A) provides that a lump-sum offer (one payable in five or fewer installments) must be accompanied by the payment of 20 percent of the amount of the offer. Section 7122(c)(1)(B) also provides that a periodic payment offer (one payable in six or more installments) must be accompanied by the payment of the amount of the first proposed installment and additional installments must be paid while the offer is being evaluated by the Service. Section 7122(d)(3)(C) provides that if the offer does not meet one of the above down payment requirements, the offer may be returned to the taxpayer as unprocessable. Neither the 20 percent down payment for a lump-sum offer nor the installment payments on a periodic payment offer are refundable.

Section 7122(c)(2)(B) further provides that the assessed tax or other amounts shall be reduced by any user fee imposed with respect to the taxpayer's offer in compromise. The applicable regulations provide that a $150 user fee is generally charged for processing an offer in compromise, but no fee is charged if the offer is based solely on doubt as to liability or is made by a low-income taxpayer. Treas. Reg. § 300.3(b)(1).

Section 7122(f) provides that if an offer in compromise is not rejected within 24 months after submission of the offer, the offer shall be deemed to be accepted. Any period during which any tax liability which is the subject of the offer is in dispute in any judicial proceeding is not taken into account in determining the expiration of the 24-month period. See Notice 2006-68, 2006-31 I.R.B. 105, for further information on the TIPRA amendments to section 7122.

Because the payments made with the offer are not refundable, taxpayers may seek assurance from Appeals or other Service personnel regarding whether the proposed offer amount is acceptable. An appeals or settlement officer should be careful about telling the taxpayer an acceptable offer amount before an offer is submitted. Otherwise, a taxpayer can in essence obtain consideration of an offer without making the required down payment. The appeals or settlement officer should make very clear that any suggested range is only an estimate and that an offer will not be considered until the taxpayer submits the Form 656 with the required payments. The appeals or settlement officer can assist an unrepresented taxpayer in calculating his reasonable collection potential (RCP) for purposes of determining the offer amount, by helping him fill out the Form 656 worksheet, using financial information submitted by the taxpayer on the Form 433. The taxpayer should be advised, however, that the only way to determine the actual RCP and acceptable offer amount is by formally submitting an offer with the required down payment. While it is acceptable to tell a taxpayer that the worksheet will assist him in deciding how much to offer, the taxpayer should never be told to offer his estimated RCP or any other amount. A taxpayer should never be told that a suggested offer amount is acceptable or unacceptable.

If the taxpayer never submits a processable offer, the case should be defended on the grounds that no collection alternative was proposed. The Tax Court should not be reviewing the appropriateness of a ballpark settlement range for abuse of discretion. The only issue for the court's review would be whether the taxpayer was given sufficient time to submit a processable offer.



(C) Doubt as to liability offer-in-compromise

When a taxpayer files an offer-in-compromise based on doubt as to liability, the taxpayer challenges the existence or amount of the liability. Therefore, under section 6330(c)(2)(B), the taxpayer does not have the legal right to consideration of a doubt as to liability offer submitted as part of the CDP proceeding if the taxpayer previously received a notice of deficiency or otherwise had an opportunity to dispute the liability. Kindred v. Commissioner , 454 F.3d 688, 699-700 (7 th Cir. 2006); Baltic v. Commissioner , 129 T.C. 178 (2007). Contra Siquieros v. United States , 2005-1 USTC ¶ 50,244 (W.D.Tex. 2004) (finding that the taxpayer's offer based on doubt as to liability was not synonymous with a challenge to the underlying liability).



(D) Reconsideration of a previously rejected offer-in-compromise during the CDP hearing

If a taxpayer previously requested an offer-in-compromise that was rejected by Appeals prior to the taxpayer's request for a CDP hearing, the taxpayer must submit a new offer-in-compromise as a collection alternative during the CDP hearing. Appeals may review the prior rejection for procedural compliance, but the prior offer may not be considered as a collection alternative during the CDP hearing. If the taxpayer resubmits a collection alternative, the taxpayer must demonstrate that there are changed circumstances and must submit updated financial information before Appeals can consider the resubmitted offer. See generally Cavanaugh v. United States , 93 AFTR 2d 1522 (D.N.J. 2004).



(E) Review of a terminated offer-in-compromise during the CDP hearing

In Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006), rev'g 123 T.C. 85 (2004), the Eighth Circuit held that the failure to file one return (including a refund return) during the 5-year compliance period after an offer-in-compromise is accepted provides a legal basis for terminating the offer. The Eighth Circuit held that the Tax Court erred in reaching the question of "materiality" of breach, as the taxpayer's failure to file a timely income tax return was a breach of an express condition of the offer. Pursuant to the Eighth Circuit's decision, the taxpayer must strictly comply with the terms and conditions of the offer-in-compromise. In Trout v. Commissioner , 131 T.C. No. 16 (2008), the Tax Court adopted the express conditions analysis of the Eighth Circuit, holding that the IRS properly terminated an offer after the taxpayer failed to file his returns and the IRS sent warning letters to him.



(F) Partial payment installment agreements

The American Jobs Creation Act of 2004 amended section 6159(a) to provide the authority for the Service to enter into partial payment installment agreements (PPIAs). This is a new category of collection alternative that a taxpayer may propose in a CDP hearing. PPIAs are installment agreements that do not provide for full payment of the liabilities. Section 6159(d) was also added to require the Service to review all PPIAs at least once every two years. PPIAs are thus similar to deferred payment offers in compromise, but without the finality of offers in compromise. The amendments to section 6159 apply to all agreements entered into on or after October 22, 2004.

Section 6502(a)(2)(A) provides that the collection statute expiration date (CSED) may be extended in connection with granting installment agreements. It is the policy of the Service that collection statute extensions are permitted only in conjunction with PPIAs and only in certain situations. See IRM 5.14.2.2.3. It is the policy of the Service that CSED extensions are limited to 5 years beyond the original CSED for each tax account (plus up to one year --see IRM 5.14.2.1(7)).



iv. Consideration of non-CDP Years during CDP hearing

The Tax Court has held that it has jurisdiction under section 6330(d)(1)(A) to consider facts and issues in non-CDP years when the facts and issues are relevant in evaluating a claim that all or part of the tax for a CDP year has been paid. See Freije v. Commissioner , 125 T.C. 14, 27 (2005). Taxpayers may attempt to raise issues involving non-CDP years at the administrative hearing in reliance on Freije. Please contact Branch 3 or 4, P&A, if the issue of Tax Court jurisdiction over overpayments due for non-CDP years arises. See also, Perkins v. Commissioner , T.C. Memo. 2008-103 (remanding for consideration of whether taxpayer is entitled to credit for non-CDP years).

A taxpayer is permitted to seek review of a non-CDP year if such review is necessary to determine an adjustment to the liability subject to the CDP hearing. For example, review of a non-CDP year would be permissible if the taxpayer is seeking the application of a net operating loss or credit carryover from a non-CDP year to a CDP year. This inquiry is necessary to determine the "existence or amount" of the liability subject to the hearing under section 6330(c)(2)(B). See section IV.D.1.b for a discussion about Tax Court review on these subjects.



v. Conscience-based objections to use of TIN raised during the CDP hearing

In a CDP hearing, if the taxpayer raises any conscience-based objections to the use of a dependent's taxpayer identification number (TIN) to claim an exemption under section 151, coordinate with Branch 1 or 2, P&A . Objections on religious or constitutional grounds, which may include references to the TIN as the "mark of the beast," are not necessarily frivolous. See CCDM Exhibit 35.11.1-1.



c. Section 6330(c)(2)(B) liability challenges

Under section 6330(c)(2)(B), a taxpayer may challenge the existence or amount of the underlying tax liability in a CDP hearing under sections 6320 and 6330 if the taxpayer did not receive a statutory notice of deficiency for the tax liability or did not otherwise have an opportunity to dispute the tax liability. The term "underlying tax liability" means the total amount of tax (including interest and penalties) assessed for a particular tax period, including tax assessed under the deficiency procedures, tax reported on a tax return, or a combination of both. Callahan v. Commissioner , 130 T.C. 44 (2008); Montgomery v. Commissioner , 122 T.C. 1, 7-8 (2004).

If a taxpayer is barred from challenging the existence or amount of the underlying tax liability in a CDP hearing, the taxpayer is also precluded from raising the validity of the liability as an issue in a judicial review proceeding under section 6330(d). Goza v. Commissioner , 114 T.C. 176 (2000).
Note : In cases where a taxpayer is barred from challenging the existence or amount of the underlying liability pursuant to section 6330(c)(2)(B), but the taxpayer is raising a legitimate liability issue, Appeals and Counsel should make every attempt to resolve that issue, either within or outside of the CDP proceeding. For example, if the taxpayer files a return which shows a clear error in the amount assessed from the statutory notice of deficiency, Appeals should resolve this issue or ensure that Examination will address the matter before issuing its determination. Similarly, Counsel should not seek summary judgment under these facts without also ensuring that the Service will address the liability issue. Processing of returns and audit reconsiderations should not be delayed just because a CDP tax court petition has been filed. The goal of Appeals and Counsel should always be to ensure that the correct amount of tax liability is being fairly collected even if consideration of liability is precluded under section 6330(c)(2)(B). On the other hand, Appeals and Counsel should vigorously rely on section 6330(c)(2)(B) where the taxpayer is raising only frivolous issues or was uncooperative at the Appeals hearing.



i. Self-reported taxes

In Montgomery v. Commissioner , 122 T.C. 1 (2004), the Tax Court construed the term "underlying tax liability" under section 6330(c)(2)(B) to encompass tax liability reported due on a tax return and held that the taxpayers, who had not received a notice of deficiency or any other opportunity to dispute their underlying tax liability for the taxable year 2000, could challenge the amount of the tax reported on their 2000 return in the CDP proceeding.

Even under Montgomery , a taxpayer may not challenge the existence or amount of self-reported tax liability for a taxable year if the taxpayer received a notice of deficiency with respect to that year or had some other prior opportunity to dispute the tax liability. The fact that the taxpayer disputes items on the return that were not adjusted by the Service in the notice of deficiency is immaterial. Of course, if the Tax Court entered a decision involving the same tax liability in a deficiency proceeding, the doctrine of res judicata would preclude the taxpayer from disputing that liability in the CDP proceeding. Goodman v. Commissioner , T.C. Memo. 2006-220 (prior tax court stipulated decision is res judicata precluding taxpayer from disputing liability in CDP); Golden v. Commissioner , 548 F.3d 487 (6 th Cir. 2008). The Tax Court held in Greene-Thapedi v. Commissioner , 126 T.C. 1 (2006), that section 6330 does not give the court jurisdiction to determine an overpayment or order a refund or credit of taxes paid. Therefore, the court cannot order a credit or refund if the court determines an amount of underlying tax liability for a taxable year that is less than the taxpayer's withholding, estimated tax, and other tax payments paid or credited for that year. A judicial determination of the amount of the underlying tax liability in a CDP case may, however, estop both parties from contesting the amount of that same liability in a subsequent refund action (subject to section 6511 limitations on filing refund claims).



ii. Taxpayer must raise issues at administrative hearing

A taxpayer is precluded from disputing the underlying tax liability in a CDP judicial review proceeding if the taxpayer failed to properly raise the merits of the underlying tax liability as an issue during the CDP hearing. Giamelli v. Commissioner , 129 T.C. 107 (2007). The merits are not properly raised if the taxpayer challenges the underlying tax liability, but fails to present Appeals with any evidence with respect to that liability after being given a reasonable opportunity to present such evidence. Treas. Reg. §§ 301.6320-1(f)(2) Q&A-F3, 301.6330-1(f)(2) Q&A-F3. A taxpayer would be precluded from challenging a selfreported tax liability when, prior to issuing the notice of determination, the appeals officer gave the taxpayer a reasonable opportunity to file an amended return and/or provide requested information substantiating his liability challenge but the taxpayer failed to do so. See Montgomery v. Commissioner , 122 T.C. at 19-20 (2004) (Marvel, J. and Goeke, J., concurring); Newstat v. Commissioner , T.C. Memo. 2005-262; Abu-Awad v. United States , 294 F. Supp. 2d 879, 889 (S.D. Tex. 2003). Cf. Sherer v. Commissioner , T.C. Memo. 2006-29 (failure to file tax return does not preclude raising liability when taxpayer provided evidence substantiating deductions).



iii. Receipt of a statutory notice of deficiency

Receipt of a statutory notice of deficiency under section 6320(c) or 6330(c)(2)(B) means receipt in time to petition the Tax Court for a redetermination of the deficiency. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E2, 301.6330-1(e)(3) Q&A-E2; Lee v. Commissioner , 129 T.C. 77 (2007) (receipt within 12 days of filing date insufficient time to petition court). Respondent has the burden of proving by a preponderance of the evidence that the receipt requirement has been satisfied. Sego v. Commissioner , 114 T.C. 604 (2000). Such proof may be obtained by asking the taxpayer about receipt through the discovery and admissions process.



(A) Presumptions of official regularity and delivery

Absent direct evidence that the taxpayer actually received the notice of deficiency or refused its delivery (s ee, e.g ., Thompson v. Commissioner , T.C. Memo. 2004-73; Baxter v. Commissioner , T.C. Memo. 2001-300), respondent must rely on the presumptions of official regularity and delivery to meet his burden of proof. See Sego v. Commissioner , 114 T.C. 604, 610 (2000) (holding that "presumptions of official regularity and of delivery justify the conclusion that the statutory notice was sent and that attempts to deliver were made in the manner contended by respondent") (citations omitted); Bailey v. Commissioner , T.C. Memo. 2005-241 (noting that there is "a strong presumption in the law that a properly addressed letter will be delivered, or offered for delivery, to the addressee") (citations omitted).

The presumptions of regularity and delivery arise if the record reflects that the notice of deficiency was properly mailed to the taxpayer. See , e.g ., Sego v. Commissioner , 114 T.C. 604 (2000); Bailey v. Commissioner , T.C. Memo. 2005-241. See also, generally , United States v. Ahrens , 530 F.2d 781, 785 (8th Cir. 1976) (presumption of regularity supports official acts of public officials and, in absence of contrary evidence, courts presume they have properly discharged duties).

"Proper mailing" of the notice of deficiency under sections 6320(c) and 6330(c) means mailing by certified mail to the taxpayer's last known address. Sego v. Commissioner , 114 T.C. 604 (2000). The notice of deficiency is properly mailed if the taxpayer received the notice, even if the Service failed to provide a copy of the notice to the taxpayer's representative. Bond v. Commissioner , T.C. Memo. 2007-240. In determining whether a deficiency notice has been properly mailed, the Tax Court has looked to the cases under section 6212(a) for guidance. See the discussions in Sego v. Commissioner , id. , Bailey v. Commissioner , T.C. Memo. 2005-241 and Figler v. Commissioner , T.C. Memo. 2005-230.

The act of mailing is established by evidence of compliance with the Service's IRM mailing procedures, corroborated by direct testimony or documentary evidence of mailing. See Coleman v. Commissioner , 94 T.C. 82, 91 (1990); Pietanza v. Commissioner , 92 T.C. 729, 746 (1989) (Ruwe, J. dissent), aff'd , 935 F.2d 1282 (3rd Cir. 1991) (table); Spivey v. Commissioner , T.C. Memo. 2001-29.

A properly prepared USPS Form 3877 or IRS certified mail list bearing a USPS date stamp or the initials of a postal employee is proof of compliance with the Service's established procedures for mailing deficiency notices and constitutes direct documentary evidence of the date and fact of mailing. If the existence of the deficiency notice itself is not disputed, and absent evidence to the contrary, the Form 3877 or certified mail list by itself is sufficient to establish that the deficiency notice was properly mailed to the taxpayer. See Coleman v. Commissioner , 94 T.C. 82, 90-91 (1990); Figler v. Commissioner , T.C. Memo. 2005-230; Virgin v. Commissioner , T.C. Memo. 1991-63 (certified mail list performs same function as USPS Form 3877). Cf . Pietanza v. Commissioner , 92 T.C. 729, 738-39 (1989), aff'd , 935 F.2d 1282 (3 rd Cir. 1991) (table), non-acq . at AOD- 1992-05, 1991 WL 771260 (respondent produced a properly completed USPS Form 3877 but failed to produce or corroborate the existence of the notice of deficiency; court concluded respondent failed to prove the mailing of the deficiency notice and dismissed the deficiency case for lack of jurisdiction.)

In Magazine v. Commissioner , 89 T.C. 321, 324-26 (1987), nonacq . at 1988-1 C.B. 1, the Tax Court held that respondent could not prove mailing a notice of deficiency based solely on evidence of respondent's mailing customs and practices. The court concluded that while "habit evidence" was admissible, respondent also had to present direct testimony or documentary evidence of mailing to show that the notice was in fact mailed. Id . at 326. It further noted that Form 3877 is often the only direct evidence of the mailing of a notice of deficiency. Id. at 327, n. 8.

The Service's failure to strictly comply with its mailing procedures is not fatal if the record contains evidence otherwise sufficient to prove proper mailing of the deficiency notice. See, e.g., Massie v. Commissioner , T.C. Memo. 1995-173 (postal clerk did not initial certified mail list but respondent submitted credible evidence in the form of a manager's testimony regarding respondent's mailing procedures); Bobbs v. Commissioner , T.C. Memo. 2005-272 (USPS clerk did not initial certified mail list but address reflected on the list was taxpayer's undisputed last known address and taxpayer did not argue respondent failed to follow his established mailing procedures).



(B) Rebuttal of presumptions

If the presumptions of official regularity and delivery arise, then the burden shifts to the taxpayer to rebut the presumptions. See Conn v. Commissioner , T.C. Memo. 2008-186 (taxpayer rebutted presumption of receipt by establishing that he was in prison when statutory notice of deficiency mailed to his last known address). The presumptions of official regularity and delivery may be rebutted if the notice of deficiency is returned to the Service marked "undeliverable." Cf. Lehmann v. Commissioner , T.C. Memo. 2005-90 (liability challenge precluded where taxpayer deliberately provided bad address to prevent delivery of IRS correspondence). If the notice is returned unclaimed, the presumptions may be rebutted by credible testimony denying receipt. See , e.g. , Tatum v. Commissioner , T.C. Memo. 2003-115. In Tatum , a denial of receipt of USPS Form 3849 (Notice of Attempted Delivery), combined with evidence that the Postal Service returned the notice of deficiency after only one attempt at delivery, was sufficient to rebut the presumptions.

If the notice of deficiency is returned to the Service unclaimed, the presumptions are not rebutted by testimony denying receipt if sufficient contrary evidence exists that the taxpayer refused to accept delivery or took deliberate steps to thwart delivery of the deficiency notice. See Sego v. Commissioner , 114 T.C. 604 (2000); Lehmann v. Commissioner , T.C. Memo. 2005-90. The presumptions are also not rebutted when the taxpayer admits to receiving the USPS Form 3849 but fails to pick up the certified mail. See Baxter v. Commissioner , T.C. Memo. 2001-300.

If the notice of deficiency is not returned to the Service, the presumptions generally are not rebutted if the taxpayer fails to deny receipt of the deficiency notice and there is no other evidence indicating nonreceipt. See Bailey v. Commissioner , T.C. Memo. 2005-241 (finding presumption of delivery not rebutted when only evidence to rebut presumption was taxpayer's testimony that he did not recall receiving notice of deficiency but taxpayer admitted he received other mail at address on the notice). See also Gilligan v. Commissioner , T.C. Memo. 2004-194. Even when the taxpayer denies receipt of the notice of deficiency, the denial alone may not be sufficient to rebut the presumptions if the record contains evidence impairing the taxpayer's credibility. See , e.g ., Figler v. Commissioner , T.C. Memo. 2005-230 (respondent produced evidence that the taxpayer had refused delivery of other IRS documents and lied at his prior divorce proceeding).

In Calderone v. Commissioner , T.C. Memo. 2004-240, the Tax Court permitted the taxpayer to challenge his underlying tax liability where respondent was unable to prove proper mailing and the taxpayer denied receipt. Although it was undisputed that the taxpayer's tax representative received a copy of the notice of deficiency in time to file a timely petition challenging the notice, the court found the representative had failed to properly represent the taxpayer and refused to impute the tax representative's receipt to the taxpayer.



(C) Frivolous challenges to liability

If the taxpayer is making only frivolous challenges to liability and it is questionable whether respondent can prove actual or constructive receipt of the deficiency notice, Counsel should consider not raising section 6330(c)(2)(B) because defeating the frivolous challenge on the merits may be easier than proving receipt.



iv. Other opportunity to dispute liability

Other than receipt of a notice of deficiency, the Code does not define what constitutes an "opportunity to dispute" the underlying tax liability. We generally interpret this to mean an opportunity to challenge the merits of the liability in an administrative hearing before Appeals or in a judicial proceeding.



(A) Appeals hearing

An opportunity to dispute a liability includes a prior opportunity for a conference with Appeals offered either before or after assessment of the liability. Treas. Reg. §§ 301.6320-1(e)(3) Q&AE2, 301.6330-1(e)(3) Q&A-E2. See also, e.g., Bailey v. Commissioner , T.C. Memo. 2005-241; Pelliccio v. United States , 253 F. Supp. 2d 258, 261-62 (D. Conn. 2003). But see Perkins v. Commissioner , 129 T.C. 58 (2007) (prior opportunity does not include appeals conference that was pending when the CDP notice was issued).

The taxpayer (or the taxpayer's representative) must have received a letter offering a hearing with Appeals or must have actually participated in such a hearing to bar the taxpayer from challenging the underlying tax liability in the subsequent CDP hearing.
Note : An opportunity for a conference with Appeals prior to assessment of a tax subject to deficiency procedures is not a prior opportunity under section 6330(c)(2)(B). Treas. Reg. §§ 301.6320-1(e)(3) Q&A E2, 301.6330-1(e)(3) Q&A E2.

In Lewis v. Commissioner , 128 T.C. 48 (2007), the Tax Court held that a prior opportunity to dispute the underlying tax liability for purposes of section 6330(c)(2)(B) includes a prior conference conducted with Appeals, even where a taxpayer has no right of judicial review of the prior Appeals determination. The court held that the taxpayer was not permitted to contest his liability in the CDP hearing and in the Tax Court because he had previously contested the same liability in a hearing before Appeals, seeking abatement of late filing and late payment penalties. In the process of reaching this decision, the court upheld the validity of the CDP regulations as a reasonable interpretation of section 6330(c)(2)(B).

The Tax Court limited its holding in Lewis to situations in which the taxpayer has actually had a conference with Appeals about the liability in question. The court reserved judgment on the question of whether the mere opportunity to contest a liability in Appeals is sufficient to prevent the taxpayer from raising the liability during CDP. Please coordinate with Branch 3 or 4, P&A, if you have a case raising this issue . Regarding the use of section 6330(c)(4) as an alternative basis for precluding a taxpayer from raising underlying liability, please see section IV.B.6.e.



(1) 30-day letter in deficiency case

Receipt of a 30-day letter preceding a notice of deficiency is not an opportunity to dispute underlying tax liability under section 6330(c)(2)(B). If it were, the rule that a taxpayer who received a notice of deficiency is barred from challenging the underlying tax liability in a CDP hearing would be meaningless.



(2) Other pre-assessment letters

An opportunity to dispute a tax liability under section 6330(c)(2)(B) includes an opportunity to dispute in Appeals taxes to which deficiency procedures do not apply, e.g. , employment tax, excise tax (except those in Chapters 41-44), and the trust fund recovery penalty. Each of the following is an example of an opportunity to dispute the liability because the notice received by the taxpayer informs the taxpayer of the right to go to Appeals.
 notice of a proposed excise tax assessment (Letter 955). Lee v. Internal Revenue Service , 2002-1 USTC ¶ 50,365 (M.D. Tenn.)

 notice of a proposed trust fund recovery penalty assessment (Letter 1153(DO)). Jackling v. IRS , 352 F. Supp. 2d 129, 132 (D.N.H. 2004); Pelliccio v. United States , 253 F. Supp. 2d 258, 261-62 (D. Conn. 2003); cf. Planes v. United States , 98 A.F.T.R. 2d 2006-7044 (M.D. Fla. 2006) (settlement officer properly allowed taxpayer to challenge trust fund recovery penalty when he did not receive notice of proposed assessment)

 notice that a section 6682 penalty will be assessed. Adams v. United States , 2002-1 USTC ¶ 50,295 (D. Nev.)

 notice of proposed employment tax assessment (Letter 950)

 notice of proposed return preparer penalty assessment (Letter 1125(DO))



(3) Letter disallowing refund claim

A letter ( e.g. , Letter 105C) notifying a taxpayer that the taxpayer's refund claim is disallowed would be a prior opportunity to dispute the tax if the letter gives the taxpayer an opportunity to dispute the disallowance in Appeals. See, e.g ., Farley v. Commissioner , T.C. Memo. 2004-168.



(4) Prior CDP notice

If the taxpayer received a prior CDP notice under section 6320 or 6330 for the same tax and taxable period, whether or not the taxpayer requested a CDP hearing, the taxpayer has had an opportunity to dispute the existence and amount of that liability and may not challenge it in a subsequent CDP hearing. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E7, 301.6330-1(e)(3) Q&A-E7. See Bell v. Commissioner , 126 T.C. 356 (2006) (CDP notice of determination provided prior opportunity to dispute liability by giving taxpayer the opportunity to file a petition in Tax Court, even where Appeals in prior CDP hearing erroneously determined that taxpayer was precluded from disputing liability).



(5) Audit reconsideration

An audit reconsideration conducted prior to the CDP hearing will preclude a challenge to the underlying tax liability under section 6330(c)(2)(B) only if the taxpayer was offered the opportunity for a conference with Appeals to dispute the results of the reconsideration. Cf . Bailey v. Commissioner , T.C. Memo. 2005-241 (audit reconsideration with appeal rights one of several factors indicating taxpayer had a prior opportunity to challenge liability).



(6) Not opportunities to dispute liability



(a) Receipt of a math or clerical error notice under section 6213(b)(1)

If upon receipt of the notice, the taxpayer timely challenges an assessment resulting from a math or clerical error on the taxpayer's return, the Service is required to immediately abate the assessment and any reassessment of the tax is subject to the deficiency procedures. The Service does not offer the taxpayer an opportunity for an Appeals hearing prior to issuance of the notice of deficiency under these circumstances.



(b) Penalties and interest

Issues involving accrued interest and penalties that were not at issue in the notice of deficiency or prior proceedings are not generally barred by section 6330(c)(2)(B). See , e.g ., Callahan v. Commissioner , 130 T.C. 44 (2008) (taxpayer can challenge liability for frivolous return penalty); Ertz v. Commissioner , T.C. Memo. 2007-15, appeal docketed , No. 07-71719 (9 th Cir. April 23, 2007) (challenge to section 6621(c) interest on tax motivated transactions); Pomeranz v. United States , 96 AFTR 2d 6767 (S.D. Fla. 2005); Light v. United States , 2002-2 USTC ¶ 50,483 (D. Nev.) (challenge to frivolous return penalties); Francis P. Harvey & Sons, Inc. v. IRS , 2005-1 USTC ¶ 50,154 (D. Mass. 2004) (challenge to late payment penalties). However, an opportunity for a prior penalty Appeals hearing after denial of a penalty abatement request is a prior opportunity under section 6330(c)(2)(B). See Lewis v. Commissioner , 128 T.C. 48 (2007) (participation in prior penalty Appeals hearing after denial of a penalty abatement request is a prior opportunity under section 6330(c)(2)(B)).



(B) Judicial proceedings

An opportunity to dispute the underlying tax liability may include the opportunity to contest the liability in a prior judicial proceeding.



(1) Waiver of receipt of notice of deficiency

If a taxpayer signed a form ( e.g. , Form 4549, Form 870) consenting to the immediate assessment and collection of a tax liability, the taxpayer made a choice not to receive a notice of deficiency and, therefore, is precluded from contesting the underlying tax liability. Aguirre v. Commissioner , 117 T.C. 324 (2001) (Form 4549); A-Z Optics, Inc. v. Commissioner , T.C. Memo. 2007-27 (Form 870); Perez v. Commissioner , T.C. Memo. 2002-274 (Form CP-2000); see also Sillavan v. United States , 2002-1 USTC ¶ 50,236 (N.D. Ala.).



(2) Bankruptcy proceedings

If the Service filed a proof of claim regarding an unpaid tax liability in a bankruptcy proceeding, the debtor could have filed an objection to the proof of claim. 11 U.S.C. § 502. If the bankruptcy court had jurisdiction to determine the liability, the taxpayer is precluded from challenging the underlying tax liability in a subsequent CDP hearing (without regard to whether the debtor or Trustee actually filed an objection to the proof of claim). See Salazar v. Commissioner , T.C. Memo. 2008-38; Kendricks v. Commissioner , 124 T.C. 69, 77 (2005). The facts of a particular case should be examined to determine if the taxpayer had standing to object to the proof of claim ( e.g. , perhaps no standing if the tax is dischargeable) and if the taxpayer had an actual opportunity to raise liability in the bankruptcy case ( e.g. , perhaps no opportunity if the case was dismissed soon after the claim was filed).The section 6330(c)(2)(B) bar should not be asserted when the taxpayer is disputing a tax liability for which the Service did not file a proof of claim in a no-asset Chapter 7 case. That argument would be inconsistent with our position that a bankruptcy court should abstain from determining a tax liability if there is no need to determine the tax for purposes of administering the bankruptcy estate. See , e.g ., In re Stevens , 210 B.R. 200 (Bankr. M.D. Fla. 1997); In re Williams , 190 B.R. 225 (Bankr. W.D. Pa. 1995).



(3) District court cases

A tax lien foreclosure suit or a suit to reduce assessments to judgment involving the tax liability included on a CDP notice would be a prior opportunity under section 6330(c)(2)(B), because the taxpayer would be entitled to challenge the liability in the suit. See MacElvain v. Commissioner , T.C. Memo. 2000-320.



(C) TEFRA proceedings

Under the Code's TEFRA provisions (sections 6221 to 6234), adjustments to partnership items are determined in administrative and judicial proceedings conducted at the partnership level and the adjustments flow through to the tax returns of the individual partners. If a dispute over partnership items reported on a partnership return cannot be resolved administratively, the Service issues a final partnership administrative adjustment (FPAA), which is the functional equivalent of a notice of deficiency insofar as both permit access to the Tax Court to challenge the determination by the Service. Although only the tax matters partner and other notice partners (who may be fewer than all the partners, depending on the size of the partnership) receive the FPAA (section 6223) and have the opportunity to file a petition seeking a readjustment of partnership items with the appropriate court (section 6226), the final decision of the court is binding on all partners (section 6226(c)). Under section 6226(c), every partner is deemed to be a party to the readjustment action and is allowed to participate in the litigation. See Kaplan v. United States , 133 F.3d 469, 473 (7 th Cir. 1998); Chef's Choice Produce, Ltd. v. Commissioner , 95 T.C. 388 (1990). The tax matters partner is obligated to keep each partner informed of all administrative and judicial proceedings (section 6223(g)), but section 6230(f) provides that if the tax matters partner fails to provide actual notice of a judicial proceeding to any partner, the proceeding is nevertheless applicable to that partner.

In cases when no valid readjustment petition was filed in response to an FPAA, the partners entitled to notice under section 6223 would have had an opportunity to dispute the liability if they actually received a copy of the FPAA in time to file a timely petition. See , generally , Hudspath v. Commissioner , T.C. Memo. 2005-83, aff'd without published opinion , 177 Fed. Appx. 326 (4 th Cir. 2006) (holding that section 6330(c)(2)(B) precludes a tax matters partner from challenging in his CDP case those partnership items covered in the FPAA issued to him previously).

By complying with the notice requirements of section 6223, the IRS gives any partner in a TEFRA proceeding an opportunity to dispute within the meaning of section 6330(c)(2)(B). By virtue of sections 6226(c) and 6230(f), every partner has or is deemed to have an opportunity to challenge the partnership items in response to an FPAA, and therefore is precluded from challenging the partnership item adjustments in a subsequent CDP hearing involving the partner's individual income tax liability. If the partner has not received a notice of deficiency or had any other prior opportunity to challenge his underlying tax liability, however, that partner would not be barred from contesting partnership affected items or the partner's nonpartnership related liability. See also Ertz v. Commissioner , T.C. Memo. 2007-15, appeal docketed , No. 07-71719 (9 th Cir. April 23, 2007) (holding that the court lacks jurisdiction at the partner level CDP proceeding to determine "taxmotivated" character of partnership's transactions, for purpose of imposition of section 6621(c) increased interest rate).



v. Challenges to the unpaid tax outside the scope of sections 6320(c) and 6330(c)(2)(B)

A taxpayer's underlying tax liability should be distinguished from assessed tax and from unpaid tax. The term "underlying liability" refers to the validity of the tax and not to a request that payment be excused. Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621, 627 (6 th Cir. 2005). "Underlying tax liability" has been interpreted by the Tax Court to include "the tax on which the Commissioner based his assessment." Robinette v. Commissioner , 123 T.C. 85, 93 (2004), rev'd , 439 F.3d 455 (8 th Cir. 2006). The Tax Court has also characterized this term to include the expiration of statutes of limitations and the application of payments and credits. Olender v. Commissioner , T.C. Memo. 2008-205 (contention that assessment was made after period of limitations lapsed is an underlying liability challenge that is barred by section 6330(c)(2)(B)). See Hoffman v. Commissioner , 119 T.C. 140 (2002) (claim that assessment statute of limitations expired is a liability challenge subject to de novo review); Boyd v. Commissioner , 117 T.C. 127 (2001) (claim that collection statute of limitations has expired is a liability challenge subject to de novo review, as is the claim that the taxpayer had already paid the liabilities at issue); Landry v. Commissioner , 116 T.C. 60 (2001) (dispute as to IRS application of credits is a liability challenge subject to de novo review); Blocker v. Commissioner , T.C. Memo. 2005-279 (challenge to validity of notice of deficiency is a challenge to underlying liability). See also C&W Mechanical Contractors, Inc. v. United States , 2007 U.S. Dist. LEXIS 23059 (U.S.D.C. N.D. Ga.) (dispute as to IRS application of credits is a liability challenge subject to de novo review).

In Kindred v. Commissioner , 454 F.3d 688 (7 th Cir. 2006), the Seventh Circuit states that it is "well settled law" that a challenge to the statute of limitations for making an assessment under section 6501 constitutes a challenge to the underlying liability, citing numerous Tax Court decisions including Hoffman . But see Golden v. Commissioner , 548 F.3d 487 (6 th Cir. 2008) (declining to address Commissioner's position that the statute of limitations for assessment does not involve an underlying liability issue). Counsel attorneys should contact Branch 3 or 4, P&A if the issue of the definition of "underlying liability" arises in one of their cases.

Section 6330(c)(2)(B) does not preclude claims for spousal relief under sections 66 or 6015 because these claims do not dispute the existence of the liability but rather seek relief from the liability. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E3, 301.6330-1(e)(3) Q&A-E3. Claims for interest abatement under section 6404 are also not disputes about the existence of liability, because they seek relief from liability for interest.



d. The balancing analysis of section 6330(c)(3)(C)

Appeals must decide whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. I.R.C. § 6330(c)(3)(C). Trout v. Commissioner , 131 T.C. No. 16 (2008). Reviewing courts generally show deference to Appeals' conclusion regarding the balancing analysis. Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621, 627 (6 th Cir. 2005). Additionally, the IRS is not required to consider in its balancing analysis whether there is sufficient equity in property to levy, whether it will receive any revenue from levy and sale, or whether the taxpayer's business will have to close down due to the levy and sale. Id . at 628-29. See also Jackling v. IRS , 352 F. Supp. 2d 129 (D.N.H. 2004); Elkins v. United States , 2004 WL 3187094 (M.D.Ga. 2004). In Johnson Home Care Services, Inc. v. United States , 96 AFTR 2d 6085 (E.D.N.Y. 2005), the court found no abuse of discretion in conducting the balancing analysis because the appeals officer expressly considered the taxpayer's financial situation and tax history, and gave reasoned explanations for the rejection of various payment options proposed by the taxpayer in lieu of the levy.



e. Section 6330(c)(4)

Sections 6320(c) and 6330(c)(4) provide that an issue may not be raised during a CDP hearing if: (1) the issue was raised and considered at a previous CDP hearing or in any other previous administrative or judicial proceeding; and (2) the person seeking to raise the issue participated meaningfully in such hearing or proceeding. See also Treas. Reg. §§ 301.6320-1(e)(1), 301.6330-1(e)(1); McIntosh v. Commissioner , T.C. Memo. 2003-279. If an issue is precluded under section 6330(c)(4), it may not be raised in judicial review proceedings. Magana v. Commissioner , 118 T.C. 488 (2002).

"Previous administrative proceeding" in section 6330(c)(4) is limited to a hearing with Appeals. This interpretation is consistent with the definition of "opportunity" for purposes of section 6330(c)(2)(B). See Treas. Reg. §§ 301.6320-1(e)(3) Q&A E2; 301.6330-1(e)(3) Q&A E2. For example, a taxpayer who appealed the rejection of an offer-in-compromise to Appeals, and participated meaningfully in that Appeals hearing, would be precluded from contesting that rejection in a subsequent CDP proceeding. If the taxpayer participated meaningfully in a proceeding at the exam level, however, but did not appeal the rejection of the offer to Appeals, section 6330(c)(4) would not apply.

Section 6330(c)(4) may be asserted as a basis for issue preclusion with respect to both liability and non-liability issues. In Lewis v. Commissioner , 128 T.C. 48 (2007), the Tax Court held that a prior opportunity to dispute the underlying tax liability, for purposes of section 6330(c)(2)(B), includes participation in a prior conference conducted with Appeals. In footnote 4 of its opinion, the court questioned why respondent did not argue that the taxpayer was also precluded from raising liability under section 6330(c)(4). See Westby v. Commissioner , T.C. Memo. 2007-194 (holding that sections 6330(c)(2)(B) and 6330(c)(4) precluded reconsideration of liability determined in prior tax court deficiency case). Please contact Branch 3 or 4, P&A, if you have a case involving use of section 6330(c)(4) to preclude raising a liability issue in CDP.

The TRHCA amended section 6330(c)(4) to provide that the taxpayer is also precluded from raising during a CDP hearing any position identified as frivolous by the IRS in a published list or that reflects a desire to delay or impede tax administration. The list of frivolous positions was released in Notice 2007-30, 2007-14 I.R.B. 1. This amendment is effective for CDP hearing requests made after March 15, 2007.



f. Consideration of precluded issues by Appeals

An appeals officer may, in that appeals officer's sole discretion, consider issues precluded under sections 6330(c)(2)(B) or 6330(c)(4), or any spousal defense under sections 66 or 6015 for which the Service made a final determination and/or which was raised and considered in a prior judicial proceeding that has become final. Any determination, however, made by the appeals officer with respect to such precluded issue shall not be treated as part of the Notice of Determination issued by Appeals and will not be subject to judicial review. Even if a decision concerning a precluded issue is referenced in a Notice of Determination, it is not reviewable by the Tax Court. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E11, 301.6330-1(e)(3) Q&A-E11; Behling v. Commissioner , 118 T.C. 572 (2002); Swanson v. Commissioner , 121 T.C. 111, 118 (2003); Francis P. Harvey & Sons, Inc. v. IRS , 2005-1 USTC ¶ 50,154 (D. Mass. 2004).



7. Department of Justice jurisdiction

Once a case is referred to the Department of Justice for defense or prosecution, only the Department of Justice has the authority to compromise the case, including the collection of the underlying liabilities. I.R.C. § 7122(a). If a CDP hearing is held while a suit involving the same liabilities is pending, Appeals cannot consider any issue (such as the existence of the tax liability) that is part of the suit. Appeals may proceed with those issues that are not part of the suit ( e.g. , compliance with all legal and administrative requirements with respect to the lien or proposed levy), or choose to suspend the CDP hearing until the suit is concluded. If Counsel attorneys believe that continuing the CDP hearing could in any way adversely affect the ongoing litigation, Counsel attorneys should ensure that Appeals suspends the CDP hearing. If a liability has been reduced to judgment by the Department of Justice, Appeals must get the Department of Justice's approval of any offerin-compromise submitted to resolve collection of the liability. If a case ends in a final judgment that does not determine a taxpayer's liability (e.g ., a CDP case where liability is not at issue), however, the Department of Justice's settlement authority ends when the litigation is final --e.g. , the decision of a court of appeals can no longer be challenged in the Supreme Court. If there has been significant litigation over a legitimate legal issue, however, the Department of Justice should be given the opportunity to comment on a proposed settlement offer that will resolve issues addressed in the litigation. When the Department has referred a judgment to the Service for collection, no Department of Justice approval is required for Appeals to enter into an installment agreement under section 6159 providing for full payment of the liability.



C. Determination by Appeals



1. Notice of determination

Delegation Order No. App 8-a authorizes appeals officers, settlement officers, and Appeals Account Resolution Specialists to make determinations under sections 6320 and 6330, and appeals team managers to approve these determinations. In making a CDP determination under section 6320(c) or 6330(c)(3), an appeals officer is required to take into consideration: (A) verification that the requirements of any applicable law or administrative procedure have been met; (B) issues raised at the hearing under section 6330(c)(2); and (C) whether the proposed collection action balances the need for efficient collection of taxes with the taxpayer's legitimate concern that the collection action be no more intrusive than necessary. S ee also Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E1, 301.6330-1(e)(3) Q&A-E1.

The determination, sent by certified or registered mail and entitled "Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330," is issued as a dated letter, Letter 3193, which informs the taxpayer of the right to judicial review by the Tax Court. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E8, 301.6330-1(e)(3) Q&A-E8. The notice of determination should be sent to the taxpayer's last known address, consistent with the requirements for sending notices of deficiency. Weber v. Commissioner , 122 T.C. 258 (2004); Sebastian v. Commissioner , T.C. Memo. 2007-138 (notice of determination sent to taxpayer's last known address valid; erroneous zip code was inconsequential error because it did not adversely affect proper delivery of notice). The letter provides a summary of the determination and includes an enclosure containing a complete description by the appeals officer of the basis of his or her determination.

If the case is remanded to Appeals by the Tax Court, the Tax Court retains jurisdiction over the case and Appeals, after holding a supplemental hearing, will issue a supplemental notice of determination (Letter 3978). The supplemental notice of determination does not inform the taxpayer of his right to judicial review because the case is already docketed with the Tax Court. Counsel should submit the supplemental notice to the court with a status report.



2. Retained jurisdiction

Section 6330(d)(2) dictates that the "Office of Appeals shall retain jurisdiction with respect to any determination made under [section 6330]." The statute sets forth two specific instances in which Appeals may exercise retained jurisdiction:
 With respect to collection actions taken or proposed with respect to the determination reached by Appeals (section 6330(d)(2)(A)); or

 With respect to consideration of a person's "change in circumstances" that affects the determination reached by Appeals (section 6330(d)(2)(B)).

Retained jurisdiction is available only when the person has first exhausted all other administrative remedies. Id . Treas. Reg. §§ 301.6320-1(h)(2) and 301.6330-1(h)(2) emphasize that Appeals' authority to exercise retained jurisdiction is separate and distinct from Appeals' more general authority to conduct CDP proceedings. The regulations provide that exercise of retained jurisdiction does not constitute a continuation of the original CDP proceeding, such that limitations periods suspended during the original CDP hearing are not similarly suspended under retained jurisdiction review. Treas. Reg. §§ 301.6320-1(h)(2) Q&A H1, 301.6330-1(h)(2) Q&A H1. Similarly, the regulations provide that since a taxpayer is entitled to only one hearing under section 6320 and section 6330 per tax period, decisions resulting from retained jurisdiction consideration cannot be appealed to the Tax Court. Treas. Reg. §§ 301.6320-1(h)(2) Q&A H2, 301.6330-1(h)(2) Q&A H2. See also IRM 8.7.2.3.15.

The regulations follow from the plain language and structure of section 6330(d). Section 6330(d)(1) provides that a taxpayer may appeal a determination by Appeals made after the hearing described in section 6330(d). Section 6330(d)(2) provides that Appeals shall retain jurisdiction with respect to any determination made by Appeals pursuant to the original CDP hearing, and authorizes Appeals to conduct subsequent hearings in exercise of this authority. The statute does not provide for judicial review from such subsequent hearings. The judicial appeal rights allowed by section 6330(d)(1) relate only to the determination that concludes the original CDP hearing. Consequently, hearings conducted under the authority of section 6330(d)(2) occur subsequent to and are separate from the original hearing (and any judicial review of the original hearing) and are solely administrative in nature.

Accordingly, section 6330(d)(2) retained jurisdiction is not an appropriate basis for remand --a court should not order a remand for further hearing to consider a taxpayer's changed circumstances, while expressly finding no abuse of discretion on the part of Appeals. See TTK Management v. United States , 2001-1 U.S.T.C. ¶ 50,185 (C.D. Cal. 2000). Remand authority should be limited to instances of abuse of discretion by the appeals or settlement officer. The requirement in section 6330(d)(2) that persons experiencing changed circumstances first exhaust all administrative remedies prior to invoking Appeals' retained jurisdiction underscores this. By requiring administrative exhaustion, the statute contemplates that matters involving collection alternatives be first raised with Collection rather than with Appeals. This language clearly forecloses a remand directly to Appeals for consideration of changed circumstances without prior administrative exhaustion.



D. Judicial Review



1. Subject matter jurisdiction

A taxpayer has 30 days from the date of the notice of determination in which to appeal the determination to the Tax Court. Sections 6320(c), 6330(d)(1); Treas. Reg. §§ 301.6320-1(f)(1), 301.6330-1(f)(1).

The Pension Protection Act of 2006, Pub. L. No. 109-280, § 855(a), 120 Stat. 780, enacted on August 17, 2006, amended section 6330(d)(1) to provide the Tax Court with exclusive jurisdiction to review CDP determinations. This amendment applies to all CDP determinations issued on or after October 17, 2006, regardless of the type of underlying tax. Prior to amendment, section 6330(d)(1) provided for judicial review in district court in cases where "... the Tax Court does not have jurisdiction of the underlying tax liability... .", e.g . employment tax cases and the frivolous return penalty. See, e.g., Wagenknecht v. United States , 533 F.3d 412 (6 th Cir. 2008).

Pursuant to the amendment, the Tax Court now has jurisdiction over cases previously within the sole jurisdiction of the district courts. Callahan v. Commissioner , 120 T.C. 44 (2008) (frivolous return penalty); Salazar v. Commissioner , T.C. Memo. 2008-38 (employment taxes). If a district court remands to appeals in a pre-amendment case over which it properly had jurisdiction, and appeals issues a supplemental notice of determination after October 17, 2006, the district court still retains jurisdiction since the supplemental notice relates back to the original notice, and so a Tax Court petition filed from the supplemental notice will be dismissed. Ginsberg v. Commissioner , 130 T.C. 88, 92-93 (2008). See also Livingston v. Commissioner , T.C. Memo. 2008-260 (2008) (Tax Court petition filed from supplemental notice dismissed for lack of jurisdiction, even though it was erroneously captioned as a notice of determination and instructed the taxpayer to petition the Tax Court). Prior to amendment, section 6330(d)(1) further provided a 30-day period to refile an appeal filed in the incorrect court. This refiling provision was also eliminated by the amendment.

Tax Court review in a CDP case pertains to the collection of the assessment listed in the NFTL filing or notice of intent to levy. Accordingly, CDP jurisdiction is distinguishable from deficiency jurisdiction in that it does not resolve all issues pertaining to a tax year or period. Unlike in deficiency cases, therefore, CDP litigation with respect to a particular tax liability does not preclude the Service from making an additional assessment for that same tax period. Freije v. Commissioner , 131 T.C. No. 1 (2008).



a. Overpayment jurisdiction

The Tax Court only has jurisdiction over the unpaid tax liability the Service is trying to collect. The court has no jurisdiction in CDP to determine an overpayment for the tax year at issue or to order a refund of any amounts paid. Greene-Thapedi v. Commissioner , 126 T.C. 1 (2006). However, if the CDP case involves innocent spouse relief or interest abatement, and the notice of determination addresses and rejects innocent spouse relief or interest abatement, the Tax Court has overpayment jurisdiction with respect to such relief or abatement under sections 6015(g)(1) and 6404(h)(2)(B), subject to the rules provided by sections 6511 and 6512(b).



b. Jurisdiction over non-CDP years

In some cases, the taxpayer may claim that the liability for a tax year not in suit is less than the amount paid, and that taxpayer is entitled to an overpayment that could be credited toward the liability at issue. The Tax Court has stated that it can consider such issues regarding nonsuit years insofar as the tax liability for the nonsuit years may affect the appropriateness of the collection action for the suit year. In exercising that jurisdiction, the court does not determine whether any collection with respect to the nonsuit year may proceed, but only whether collection may proceed for the suit year. Freije v. Commissioner , 125 T.C. 14, 27 (2005). See section IV.B.6.b.iv, supra . Please contact Branch 3 or 4, P&A, if the issue of the Tax Court's jurisdiction under Freije arises.

The Tax Court has jurisdiction to determine the existence and amount of an adjustment (such as a net operating loss carryover or credit carryover) from a non-CDP year that may be used to reduce the taxable income for the period subject to the CDP hearing. Because the adjustment affects the amount of tax imposed by the Internal Revenue Code for the CDP tax period, determination of the adjustment is part of the determination of the liability subject to the CDP hearing under section 6330(c)(2)(B). The Tax Court therefore may determine the existence and amount of the adjustment de novo.



c. Equitable jurisdiction

The Tax Court has exercised equitable authority to order the Service to return property to the taxpayer that was improperly levied upon, and to credit the taxpayer with the value of property that was seized but not sold as required by section 6335(f). See Chocallo v. Commissioner , T.C. Memo. 2004-152; Zaparra v. Commissioner , 124 T.C. 223 (2005), reconsideration denied , 126 T.C. 215 (2006), appeal pending (9 th Cir.); Greene-Thapedi v. Commissioner , 126 T.C. 1, n. 13 (2006). Please coordinate any cases in which issues arise involving the court's general equitable authority with Branch 3 or 4, P&A.



d. Jurisdiction over section 6015(f) issues

The Ninth Circuit in Commissioner v. Ewing , 439 F.3d 1009 (9 th Cir. 2006), rev'g Ewing v. Commissioner , 118 T.C. 494 (2002), held that in a "standalone" section 6015(f) case the Tax Court lacks jurisdiction to review a section 6015(f) determination when no deficiency has been asserted. After it was overruled by the Ninth Circuit, the Tax Court reversed its position on this issue. Billings v. Commissioner , 127 T.C. 7 (2006).

Section 6015(e)(1) was subsequently amended by the Tax Relief and Health Care Act of 2006 to confer jurisdiction on the Tax Court to review the Service's denial of relief in cases when taxpayers have requested equitable relief under section 6015(f), without regard to whether the Service has determined a deficiency. The amendments to section 6015(e)(1) apply to any taxable year when (1) a liability for tax arose after December 20, 2006, or (2) a liability for tax arose on or before December 20, 2006, but remained unpaid as of that date. For further guidance on these amendments, see Chief Counsel Notice 2007-13. Any dispositive motions, or other documents concerning jurisdiction under section 6015(f), must be coordinated with Procedure and Administration Branch 1 or 2.

With respect to cases in which the amendments to section 6015(e)(1) are not applicable, the Tax Court lacks jurisdiction in a stand-alone section 6015(f) case. See Bock v. Commissioner , T.C. Memo. 2007-41. The Tax Court does have independent jurisdiction under section 6330(d), however, to review appeals' findings regarding section 6015(f) relief, when such issue was raised by the taxpayer at the CDP hearing and was addressed by the appeals officer in the notice of determination.



e. Improper court

Pursuant to the amendment to section 6330(d)(1) by the Pension Protection Act of 2006, if a taxpayer files an appeal to the district court from a notice of determination dated on or after October 17, 2006, counsel attorneys should draft a defense letter requesting the Tax Division to file a motion to dismiss the case for lack of jurisdiction. Section 6330(d)(1) no longer contains a 30-day period to refile in the Tax Court.



2. Notice of determination required

Jurisdiction under section 6320 or 6330 is contingent upon both the issuance a "valid notice of determination" and the filing of a timely petition. Boyd v. Commissioner , 451 F.3d 8, 11 (1 st Cir. 2006); Offiler v. Commissioner , 114 T.C. 492, 498 (2000). A notice of determination includes a written notice that embodies a determination to uphold the proposed levy or sustain the NFTL filing. Salazar v. Commissioner , T.C. Memo. 2006-7 (rejection of an offer-incompromise not a notice of determination). In determining the validity of the notice of determination for jurisdictional purposes, the court does not look behind the notice to see whether taxpayers were afforded a proper hearing. If the notice of determination is valid on its face, the court has jurisdiction. Lunsford v. Commissioner , 117 T.C. 59 (2001). But see Wilson v. Commissioner , 131 T.C. No. 5, n. 8 (2008) (limiting Lunsford to nonjurisdictional defects in the hearing). See also Ballard v. Commissioner , T.C. Memo. 2007-159 (letter instructing taxpayer's employer to change taxpayer's withholding status is not notice of determination subject to judicial review).



a. No notice of determination

If a notice of determination has not been issued to the taxpayer, a motion to dismiss for lack of jurisdiction should be filed. Kennedy v. Commissioner , 116 T.C. 255 (2001). See, e.g., Davis v. Commissioner , T.C. Memo. 2008-238 (lock-in letter instructing taxpayer's employer to adjust taxpayer's withholding is not a notice of determination within the meaning of sections 6320 and 6330). Similarly, if a particular tax and period listed in the petition is not included in the notice of determination, a motion to dismiss for lack of jurisdiction should be filed as to that tax and period, unless the taxpayer properly requested a CDP hearing for that tax and period and it was merely inadvertently not listed in the determination. See Lister v. Commissioner , T.C. Memo. 2003-17.

A motion to dismiss should be filed if the taxpayer appeals a decision letter (which is issued following an equivalent hearing), because courts lack jurisdiction to review a decision letter. Orum v. Commissioner , 123 T.C. 1 (2004); Moorhous v. Commissioner , 116 T.C. 263 (2001); Johnson v. Commissioner , 2000-2 USTC ¶ 50,592 (D. Ore.). If a taxpayer shows that he was entitled to a CDP hearing because the taxpayer's hearing request was timely, the decision letter will be treated as a notice of determination for the purpose of granting jurisdiction. Craig v. Commissioner , 119 T.C. 252 (2002). On the other hand, a decision letter will not be treated as a determination if the hearing was not in fact equivalent to a CDP hearing. Graham v. Commissioner , T.C. Memo. 2008-129 (court held that appeals failed to consider accuracy of assessment).

Where no notice of determination was issued, the question will arise whether a proper CDP notice was ever mailed to the taxpayer. If a proper CDP notice was not mailed, the court will dismiss the case for lack of jurisdiction on that ground rather than because no notice of determination was issued. See , e.g ., Buffano v. Commissioner , T.C. Memo. 2007-32 (respondent sought dismissal of appeal from decision letter; however, court dismissed for lack of jurisdiction on grounds that CDP notice was invalid because it was not mailed to taxpayer's last known address); Graham v. Commissioner , T.C. Memo. 2008-129. It is therefore important in such cases to prove through transcripts and certified mailing lists that CDP notices were properly issued and that taxpayer was given a CDP hearing if requested.



b. Invalid notice of determination

A motion to dismiss for lack of jurisdiction should also be filed if a notice of determination is invalid or void. For example, the Tax Court has held that a notice of determination sustaining a proposed levy that was issued during the automatic stay in bankruptcy is void and the court does not have jurisdiction to review such determination. Smith v. Commissioner , 124 T.C. 36 (2005); but see Beverly v. Commissioner , T.C. Memo. 2005-41 (holding that the court has jurisdiction to review a notice of determination even though the CDP levy notice was void because it was issued during the automatic stay in bankruptcy). See section IV.E, infra .

Additionally, a notice of determination mistakenly issued to a taxpayer who filed a late request for a CDP hearing is invalid. Wilson v. Commissioner , 131 T.C. No. 5 (2008). But see Soo Kim v. Commissioner , T.C. Memo. 2005-96 (court will not look behind facially valid notice of determination). In Wilson , Appeals inadvertently issued a notice of determination, rather than a decision letter, following an equivalent hearing. The attached appeals case memorandum stated that the taxpayer had received an equivalent hearing because of his untimely hearing request and could not petition the Tax Court. The Tax Court held that, based on this internal inconsistency, the document was not a notice of determination for purposes of the jurisdictional requirements of section 6330(d)(1) and granted the government's motion to dismiss for lack of jurisdiction. The opinion expressly did not overrule Soo Kim v. Commissioner , supra , and address whether the court would treat a notice of determination as invalid where the hearing request was untimely, a Notice of Determination was issued, but the document was not internally inconsistent ( e.g ., there is no indication in the Notice that the hearing request was untimely and that an equivalent hearing was given). If you have questions or need assistance in cases presenting issues similar to Wilson or Soo Kim , please contact Branch 3 or 4, P&A .

The portion of a notice of determination with respect to taxes and periods for which no valid CDP notice was ever issued would also not be valid. If a taxpayer includes in the request for hearing taxes and periods that are not listed on the CDP notice, only the portion of the notice of determination making a determination under section 6320 or 6330 with respect to collection of the liabilities listed on the CDP notice is valid. Any determination with respect to the liabilities not listed on the CDP notice is not subject to judicial review. Finally, a notice of determination that is undated or sent to the wrong address may not be valid. Cf. King v. Commissioner , 857 F.2d 676 (9th Cir. 1988) (notice of deficiency invalid if it was sent to the incorrect address and not actually received by the taxpayer). However, a notice of determination sent to an address other than the taxpayer's last known address would be valid if received in sufficient time to file a petition for review by the Tax Court.



c. Post-levy review

Courts have jurisdiction to review a notice of determination issued after a levy pursuant to section 6320(c) or 6330(f) when collection of tax is in jeopardy or the levy is on a state income tax refund. Treas. Reg. §§ 301.6320-1(f)(1), 301.6330-1(f)(1). Section 6330(f), stating "this section shall not apply," means that the section 6330(a) prelevy notice is not required, not that the court is divested of jurisdiction. See Bussell, et al. v. Commissioner , 130 T.C. No. 13 (2008) (levy where collection of tax is in jeopardy) and Clark v. Commissioner , 125 T.C. 108 (2005) (levy on state income tax refund).



3. Timely petition

A petition seeking review of a notice of determination must be filed within 30 days from the notice date. Sections 6320(c), 6330(d)(1); Treas. Reg. §§ 301.6320-1(f)(1), 301.6330-1(f)(1). Stein v. Commissioner , T.C. Memo. 2004-124, n. 7. The 30 days are 30 calendar days, not 30 business days, and an appeal filed beyond the 30-calendar-day period will be dismissed for lack of jurisdiction. Guerrier v. Commissioner , T.C. Memo. 2002-3; Guy v. United States , 2002-2 USTC ¶ 50,633 (E.D.N.Y.). The statutory period cannot be extended by the filing of a request for reconsideration with Appeals or the taxpayer's failure to pick up the taxpayer's mail. McCune v. Commissioner , 115 T.C. 114 (2000). An untimely filing cannot be excused because the taxpayer is pro se. McNeil v. United States , 2002-1 USTC ¶ 50,415 (W.D. Mich.). An untimely filing in an incorrect court does not extend the time to file in the correct court. McCune v. Commissioner , 115 T.C. 114 (2000) (because the complaint was untimely and improper in the district court, the petition is untimely in the Tax Court) .

If the Tax Court petition, as reflected by the postmark, is mailed within 30 days from the notice date, the "timely mailing/timely filing" rule set forth in section 7502(a) applies, and the petition is timely even if filed after the 30-day period. See, e.g ., Montgomery v. Commissioner , 122 T.C. 1, 4 n.2 (2004); but see Sarrell v. Commissioner , 117 T.C. 122 (2001) (barring application of "timely mailing/timely filing" rule in the case of foreign postmarks).



a. Section 6015(e) exception

If a taxpayer seeks review of a notice of determination that includes a denial of relief under section 6015, the taxpayer must file an appeal within 30 days if the taxpayer also seeks review of other issues raised in the CDP hearing. Treas. Reg. §§ 301.6320-1(f)(2) Q&A-F2, 301.6330-1(f)(2) Q&A-F2. If, however, a taxpayer seeks review of only the section 6015 determination, Tax Court jurisdiction can be established under section 6015(e) and the taxpayer must file an appeal with the Tax Court within 90 days of the notice of determination. Id. ; Section 6015(e)(1)(A).



b. Section 6404(h) exception

Similarly, if a taxpayer seeks review of a notice of determination which includes a determination not to abate interest under section 6404(e), the taxpayer must file an appeal within 30 days if the taxpayer also seeks review of other issues raised in the CDP hearing. If, however, a taxpayer seeks review only of the denial of the request for abatement of interest, the taxpayer must file an appeal with the Tax Court within 180 days after the notice of determination is mailed. See Section 6404(h)(1).



4. Standard and scope of review

The standard of review applicable to an agency's decision determines how closely a reviewing court will scrutinize the decision for correctness. The standard applied depends upon the function the court is performing. If the underlying liability is properly at issue, the court reviews the liability de novo and the other administrative determinations for an abuse of discretion. Jones v. Commissioner , 338 F.3d 463, 466 (5th Cir. 2003). If liability is not at issue, the court reviews the determination for an abuse of discretion. Olsen v. United States , 414 F.3d 144, 150 (1st Cir. 2005).

The scope of review defines what a court is permitted to examine when applying a particular standard of review. The scope of review for the de novo standard of review in CDP cases is also de novo; the court may hold a trial and take evidence. The Tax Court has held that its review, as a general rule, is not limited to the administrative record, although as discussed infra , this position has been called into question and Counsel should continue to advocate limiting review to the administrative record.



a. Abuse of discretion standard of review

Two aspects of the CDP hearing process are reviewed for an abuse of discretion: (1) the appeals officer's determination with respect to the collection action, and determinations subsidiary to it; and (2) the procedures employed by the appeals officer in conducting the CDP hearing. The burden is on the taxpayer to show abuse of discretion. Carter v. Commissioner , T.C. Memo. 2007-25. Cf . Nuvio Corp. v. F.C.C. , 473 F.3d 302 (D.C. Cir. 2006).



i. Determination with respect to the collection action

The court reviews the appeals officer's determination regarding the collection action for abuse of discretion. Olsen v. United States , 414 F.3d 144, 150 (1 st Cir. 2005); H.R. Conf. Rep. No. 105-599, 105th Cong. 2d Sess., at p. 266 (1998).

In reaching the ultimate determination to sustain the proposed levy or NFTL filing, the appeals officer will make a number of subsidiary determinations, some legal, some factual and some judgmental. Each of these determinations subsidiary to the determination sustaining the collection action is also reviewed under an abuse of discretion standard. For example, the appeals officer will make the factual determination that the requirements of applicable law and administrative procedure have been met. See, e.g., Nestor v. Commissioner , 118 T.C. 162, 166 (2002) (not an abuse of discretion to rely on Form 4340 for purposes of verifying validity of assessment). The appeals officer may have to decide whether the tax debt has been discharged by a bankruptcy court order, which may involve factual and legal determinations. See, e.g., Swanson v. Commissioner , 121 T.C. 111, 119 (2003) (appeals officer's conclusion that the taxpayer had not received a bankruptcy discharge of the unpaid tax was subject to abuse of discretion review). The appeals officer may have to determine if the taxpayer qualifies for a collection alternative, such as an offer-in-compromise, which may involve factual and judgmental decisions. See, e.g., Olsen v. United States , 414 F.3d 144, 153 (1 st Cir. 2005) (denial of offer-in-compromise subject to abuse of discretion review). The appeals officer will have to make the judgment whether the collection action balances the need for efficiency with the taxpayer's legitimate concerns with intrusion. See, e.g., Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621, 627-628 (6 th Cir. 2005) (balancing analysis subject to abuse of discretion review).

In reviewing the rejection of an offer-in-compromise for abuse of discretion, the court does not conduct an independent review of what would be an acceptable offer. The extent of the court's review is to determine whether the appeals officer's decision was arbitrary, capricious, or without sound basis in fact or law. Salazar v. Commissioner , T.C. Memo. 2008-38. Although the Secretary has discretion as to whether to accept or reject an offer-in-compromise, the Secretary's discretion is not unfettered because the IRS must follow statutory and regulatory criteria in exercising its discretion. The Eighth Circuit has, accordingly, rejected the argument that the Secretary's discretion is unreviewable, and we concur with the Eighth's Circuit's opinion. Speltz v. Commissioner , 454 F.3d 782 (8 th Cir. 2006).



ii. Conduct of CDP hearing

Decisions made by the appeals officer relating to the conduct of the CDP hearing ( i.e. , procedural decisions) are subject to abuse of discretion review. Cavanaugh v. United States , 93 A.F.T.R.2d 1522 (D.N.J. 2004) (appeals officer's refusal to grant taxpayer's request for face-to-face CDP conference was abuse of discretion); See also Reid & Reid, Inc. v. United States , 366 F. Supp.2d 284, 289 (D. Md. 2005); Lindsay v. Commissioner , T.C. Memo. 2001-285. Questions about whether certain procedures are legally required are legal issues determined de novo by the reviewing court. See, e.g. , Keene v. Commissioner , 121 T.C. 8 (2003) (holding that section 7521(a)(1) authorizes taxpayers to audio record in-person CDP conferences); Cox v. United States , 345 F. Supp.2d 1218, 1220 n. 1 (W.D. Okla. 2004) (issues of sufficiency of CDP telephone conference and impartiality of appeals officer under section 6330(b)(3) are procedural issues reviewed de novo).



iii. Abuse of discretion defined

Review by a court of a CDP determination under the abuse of discretion standard is deferential. Fifty Below Sales & Marketing, Inc. v. United States , 497 F.3d 828 (8 th Cir. 2007); Kindred v. Commissioner , 454 F.3d 688 at n.16 (7 th Cir. 2006); Robinette v. Commissioner , 439 F.3d 455, 459 (8 th Cir. 2006); Olsen v. United States , 414 F.3d 144, 150 (1 st Cir. 2005); Orum v. Commissioner , 412 F.3d 819, 821 (7 th Cir. 2005) ("[T]he Judicial Branch does not instruct the Executive Branch how to make executive decisions."); Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621, 631 (6 th Cir. 2005) (standard is "clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS, as contemplated by Congress...").

In Fifty Below Sales & Marketing, Inc. , the Eighth Circuit stated that "...we can say with assurance that where the IRS followed the statutes and regulations governing grants of relief ... and the appeals officer took into account the taxpayer's proposed alternative and the statutory balancing test, followed the prescribed procedures, gave a reasoned decision, and did not rely on any improper criteria or facts that are contrary to the evidence, we may not reverse simply because we would have weighed the equities differently than the appeals officer did." 497 F.3d at 830. In Robinette , the Eighth Circuit held that CDP hearings should be accorded more deferential review than more formal agency proceedings, and such review should be for "... a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS ... ." 439 F.3d at 459.

The Tax Court has described the abuse of discretion standard in CDP cases as "arbitrary, capricious, clearly unlawful, or without sound basis in fact or law." Robinette v. Commissioner , 123 T.C. 85, 93 (2004), rev'd , 439 F.3d 455 (8 th Cir. 2006). In Blondheim v. Commissioner , T.C. Memo. 2006-216, the Tax Court stated that, in consideration of Appeals' determination to reject an offer-in-compromise, it does not substitute its judgment for that of Appeals, nor does it decide independently what would be an acceptable offer amount. See also Murphy v. Commissioner , 125 T.C. 301, 320 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006); Salazar v. Commissioner , T.C. Memo. 2008-38.



iv. Questions of law

A reviewing court owes no deference to an appeals officer's legal conclusions made in connection with determinations reviewed for an abuse of discretion. Kendricks v. Commissioner , 124 T.C. 69, 75 (2005). If a determination is based on an erroneous legal conclusion (and the error is not harmless), then it must be rejected as an abuse of discretion. Swanson v. Commissioner , 121 T.C. 111, 119 (2003).



v. Harmless error

The harmless error rule applies to abuse of discretion review of CDP determinations. See, e.g., Borchardt v. United States , 338 F. Supp.2d 1040, 1045 (D. Minn. 2004); Nestor v. Commissioner , 118 T.C. 162 (2002) (Halpern, J., concurring) (observing that the majority applied the harmless error rule in making its decision). The harmless error rule provides that a reviewing court should not find an abuse of discretion if the agency mistake causes no prejudice or does not affect the ultimate determination. The harmless error rule has been applied often when Appeals would not permit the taxpayer to record a face-to-face CDP conference. Although the Tax Court has held that section 7521(a)(1) gives taxpayers the right to record a face-to-face CDP conference, the court has frequently decided a remand to allow recording is unnecessary if the taxpayer only makes frivolous arguments because it would not change the CDP determination under review. See, e.g., Brandenburg v. Commissioner , T.C. Memo. 2005-249.



vi. Taxpayer precluded from raising issues not raised during CDP hearing

The taxpayer may only raise issues, including challenges to the underlying liability, that were properly raised in the CDP hearing. Giamelli v. Commissioner , 129 T.C. 107 (2007) (holding that the court does not have authority to consider liability issues that were not raised before the Office of Appeals). An issue is not properly raised if the taxpayer fails to request consideration of the issue by Appeals, or if consideration is requested but the taxpayer fails to present to Appeals any evidence with respect to that issue after being given a reasonable opportunity to present such evidence. Treas. Reg. §§ 301.6320-1(f)(2) Q&A-F3, 301.6330-1(f)(2) Q&A-F3. The court will not consider issues reviewable for abuse of discretion that were not raised during the CDP hearing process, because the court cannot find an abuse of discretion where there is no evidence that the appeals officer exercised any discretion at all. Magana v. Commissioner , 118 T.C. 488 (2002). However, the court will review whether appeals verified compliance with applicable law under section 6330(c)(1) without regard to whether the taxpayer raised the issue at the administrative hearing. Hoyle v. Commissioner , 131 T.C. No. 13 (2008).



b. Abuse of discretion scope of review



i. District court

As discussed, supra , district courts no longer have jurisdiction to review CDP determinations. Historically, however, district court review of CDP determinations for an abuse of discretion has been limited to the administrative record. Olsen v. United States , 414 F.3d 144, 155-156 (1 st Cir. 2005).

Except in unusual circumstances, the court is not permitted to hear testimony or receive evidence outside the record. Camp v. Pitts , 411 U.S. 138, 142 (1973) ("the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court"). The administrative record may be supplemented, (1) if there is a "strong showing of bad faith or improper behavior" by agency decision makers ( Overton Park , 401 U.S. at 420), (2) to include an additional explanation or clarification of the reasons for the agency decision, if it merely explains the existing record and does not add any new rationalizations ( Camp v. Pitts , supra ; Envir. Defense Fund v. Costle , 657 F.2d 275, 285 (D.C. Cir. 1981)), or (3) to include documents adverse to the agency's position that were excluded from the record submitted by the agency ( Kent County v. E.P.A. , 963 F.2d 391, 395-396 (D.C. Cir. 1992)).



ii. Tax Court

Unlike district courts, the Tax Court has held that it is not required to limit its abuse of discretion review in CDP cases to the administrative record. Robinette v. Commissioner , 123 T.C. 85, 93 (2004), rev'd , 439 F.3d 455 (8 th Cir. 2006). See also Murphy v. Commissioner , 125 T.C. 301, at n.6 (2005), aff'd on different grounds , 469 F.3d 27 (1 st Cir. 2006). The Tax Court in Robinette held that general administrative law principles and the APA do not apply to Tax Court proceedings, so the court is permitted to conduct a trial de novo in connection with its abuse of discretion review.

Two circuit courts have disagreed with the Tax Court and held that the administrative record rule does apply in Tax Court CDP cases. First, the Tax Court's decision in Robinette was reversed by the Eighth Circuit. Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006). The Eighth Circuit held that abuse of discretion review in Tax Court CDP cases must be limited to the administrative record (the record rule). The First Circuit has also held that judicial review in Tax Court CDP cases must generally be limited to a review of the administrative record. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), affirming on different grounds , 125 T.C. 301 (2005).

The Tax Court has not yet ruled whether it will change its position in light of the First and Eighth Circuit opinions in Murphy and Robinette . It has, however, distinguished section 6330 from section 6015(f) in holding that the record rule does not apply to review of determinations under section 6015(f). The court noted that section 6015(f) gives it the authority to "determine," section 6330 provides for appeal of the agency's determination. The court was careful to state that no inference should be drawn, however, that it was changing its position with respect to CDP cases. Porter v. Commissioner , 130 T.C. No. 10, n. 6 (2008). See also Cox v. Commissioner , 126 T.C. 237 (2006), rev'd on other grounds , 513 F.3d 1119 (10 th Cir. 2008) (Tax Court held that comprehensive administrative record was adequate for proper judicial review, expressly declining to address or reconsider the issue of whether its review was limited to the administrative record); Giamelli v. Commissioner , 129 T.C. 107 (2007) (Wherry, concurring) (stating that Robinette was correctly decided) and (Vasquez, dissenting) (stating that legislative history establishes that the court can consider evidence beyond the administrative hearing).

Note that the Tax Court in Murphy , while rejecting the argument that the record rule was applicable, held that it would not admit testimony with respect to facts that were not presented to the appeals officer, since such testimony would not be relevant to the issue of whether the appeals officer abused her discretion. The taxpayer in Murphy had the opportunity to present the appeals officer with such information but failed to do so. See also Speltz v. Commissioner , 124 T.C. 165, 176-177 (2005); Blondheim v. Commissioner , T.C. Memo. 2006-216. Counsel should raise relevancy as an alternate ground for exclusion of evidence or testimony, where applicable.

Please coordinate with Branch 3 or 4, P&A, when issues involving the record rule arise.



iii. CDP administrative record

The Treasury Regulations provide that the administrative record for Tax Court review is the case file, including the taxpayer's request for hearing, any other written communications and information from the taxpayer or the taxpayer's authorized representative submitted in connection with the CDP hearing, notes made by an Appeals officer or employee of any oral communications with the taxpayer or the taxpayer's authorized representative, memoranda created by the Appeals officer or employee in connection with the CDP hearing, and any other documents or materials relied upon by the Appeals officer or employee in making the determination under section 6330(c)(3). Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4, 301.6330-1(f)(2) Q&A F4.



iv. Exceptions to record rule

There are limited exceptions to the record rule permitting the submission of evidence outside the administrative record: .(1) If the record does not adequately describe the basis for the determination, or (2) if there is a dispute over what happened during the hearing process, the reviewing court is permitted to supplement the administrative record with testimony or other evidence outside the record. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), affirming on different grounds , 125 T.C. 301 (2005) (evidence outside administrative record permissible if there is a failure to explain administrative action so as to frustrate effective judicial review); Robinette v. Commissioner , 439 F.3d 455, 461 (8 th Cir. 2004) ("Of course, where a record created in informal proceedings does not adequately disclose the basis for the agency's decision, then it may be appropriate for the reviewing court to receive evidence concerning what happened during the agency proceedings.") (citations omitted). See also James Madison Ltd. By Hecht v. Ludwig , 82 F.2d 1085,1096 (D.C. Cir. 1996) (courts may "need to resolve factual issues regarding the process the agency used in reaching its decision. ... Although these facts are usually established by the administrative record or are otherwise undisputed, parties may occasionally raise an issue requiring district courts to engage in independent fact-finding.")

In cases where the agency's reasoning is unclear or incomplete, the remedy should ordinarily be to remand rather than to take new evidence into the record. See discussion at section V.I.4.a. The exception to the record rule should generally apply only to a situation where the court needs to hear evidence regarding what happened during the hearing process. Examples of factual disputes about the hearing process include a claim by a taxpayer that he requested a collection alternative despite the appeals officer's contrary finding in the notice of determination, and the taxpayer's claim that the appeals officer failed to inform him that the CDP hearing would be concluded if he failed to submit additional information by a certain date.



c. De novo standard and scope of review

When review is not precluded under section 6330(c)(2)(B), the court will determine the underlying tax liability de novo. Jones v. Commissioner , 338 F.3d 463, 466 (5 th Cir. 2003); H.R. Conf. Rep. No. 105-599, 105th Cong. 2d Sess., at p. 266 (1998). See section IV.B.6.c.v, for a discussion of what constitutes "underlying tax liability." When the underlying liability is properly at issue, the court is not bound by the administrative record, but may conduct a trial. Although the parties may introduce evidence that was not submitted to the appeals officer, a court should not consider a challenge to liability if it was not raised during the CDP hearing. Treas. Reg. §§ 301.6320-1(f)(2) Q&A-F3, 301.6330-1(f)(2) Q&A-F3; Giamelli v. Commissioner , 129 T.C. 107 (2007).

Similar to liability determinations, a reviewing court also applies a de novo standard of review to Appeals' determination that a taxpayer is precluded under section 6320(c) or 6330(c)(2)(B) from challenging the underlying liability. Sego v. Commissioner , 114 T.C. 604 (2000); Render v. Internal Revenue Service , 389 F. Supp.2d 808 (E.D. Mich. 2005). The court is not limited to the administrative record when deciding whether the taxpayer is precluded from challenging liability under section 6330(c)(2)(B). See Sego v. Commissioner , supra .



d. Determinations under section 6015

Section 6330(c)(2)(A)(i) specifically permits the taxpayer to raise "appropriate spousal defenses" at the CDP hearing. See section IV.B.6.b.i, supra . The appeals officer's determination concerning relief from joint and several liability is reviewed in the same manner as a section 6015 determination by the Service outside the CDP context. Denial of relief under section 6015(b) or (c) is reviewed de novo and the court is not bound by the administrative record. I.R.C. § 6015(e)(1)(A). The Service's denial of "equitable relief" under section 6015(f) is reviewed for abuse of discretion, and such review should accordingly be limited to the administrative record . In Porter v. Commissioner , 130 T.C. No. 10 (2008), however, the Tax Court held, consistent with its holding in Robinette , that it is not limited to the administrative record in reviewing denials of relief under section 6015(f). Please coordinate with Branch 1 or 2, P&A, when issues arise involving the administrative record rule as applied to section 6015(f) cases.



E. Effect of Bankruptcy Filings on CDP



1. Notice of Intent to Levy and Notice of Federal Tax Lien Filing

When a taxpayer files for bankruptcy, the automatic stay prohibits many types of proceedings against the debtor and collection of pre-bankruptcy petition tax debts with respect to the taxpayer's property. See 11 U.S.C. § 362(a). The statute of limitations on collection is suspended during the pendency of the automatic stay, while the Service is prohibited from collecting the tax, and for six months after the stay terminates. See I.R.C. § 6503(h). Generally, the stay begins when the bankruptcy petition is filed and terminates when a discharge is granted or denied. See 11 U.S.C. § 362(c). For bankruptcy cases governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) (filed on or after October 17, 2005), the automatic stay may not go into effect if the debtor filed two or more bankruptcy cases that were dismissed within one year before the current case was filed, or may terminate within 30 days if the debtor filed one bankruptcy case that was dismissed within one year before the instant case was filed. See 11 U.S.C. § 362(c)(3) and(4).

While the automatic stay is in effect, a NFTL for prepetition taxes should not be filed. Likewise, no levies should be proposed or made. These actions are precluded under section 362(a)(6) of the Bankruptcy Code, which prohibits any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the bankruptcy case. (Refiling a NFTL is not considered a violation of the automatic stay.) See Beverly v. Commissioner , T.C. Memo. 2005-41 (issuance of CDP levy notice violated the automatic stay); In re Parker , 279 B.R. 596, 602-603 (Bankr. S.D. Ala. 2002) (same); In re Covington , 256 B.R. 463, 465-466 (Bankr. D.S.C. 2000) (issuance of final notice of intent to levy violated automatic stay). If a NFTL is filed in violation of the automatic stay, it should be withdrawn and the CDP lien notice rescinded. If a CDP levy notice is sent while the automatic stay is in effect, it should be rescinded and any levies made in violation of the stay should be released.

After the termination of the automatic stay, the Service may file NFTLs and issue CDP notices for taxes excepted from discharge under 11 U.S.C. § 523. Even if the taxes are discharged, the IRS may collect from pre-bankruptcy petition property to which the tax lien still attaches after discharge. See Isom v. United States , 901 F.2d 744 (9 th Cir. 1990); Miles v. Commissioner , T.C. Memo. 2007-208 (discharge from personal liability in Chapter 7 bankruptcy case does not extinguish prepetition tax lien). A lien does not continue to attach to exempt property unless a NFTL was filed before the bankruptcy petition. A lien remains attached to property excluded from the estate, such as an ERISA-qualified pension plan, even if a NFTL was not filed before the petition date.



2. CDP Hearing and notice of determination



a. General rule



i. Notice of determination --levy case

Continuing CDP proceedings and issuing a notice of determination while a taxpayer is in bankruptcy may violate the automatic stay. The Tax Court has held that the issuance of a notice of determination in a CDP levy case is the continuation of an administrative collection action against the petitioner that was or could have been commenced pre-petition and, thus, a violation of the automatic stay under section 362(a)(1) that renders the notice void. Smith v. Commissioner , 124 T.C. 36 (2005). Therefore, when the taxpayer files for bankruptcy prior to issuance of the notice of determination, and then files a Tax Court petition, the Tax Court will dismiss the case for lack of jurisdiction on the ground that the notice of determination is void rather than because the Tax Court petition was filed in violation of 11 U.S.C. § 362(a)(8). Counsel should contact P&A Branch 5 when it is learned that the notice of determination was issued during the automatic stay and Smith cannot be distinguished.



ii. Notice of determination --lien case

The Tax Court has not yet decided whether issuance of a notice of determination in a CDP lien case violates the stay. In a lien case, the collection action against the debtor, the filing of a NFTL, is complete before the CDP case and the bankruptcy commence. Thus, the Smith holding, that a notice of determination is a continuation of a proceeding against the debtor barred under section 362(a)(1), is inapplicable in a lien case.



3. Tax Court practice



a. Bankruptcy filed before notice of determination



i. Levy cases

If the notice of determination in a CDP levy case is issued during the pendency of the automatic stay, and it does not satisfy the exception which allows such issuance, and the taxpayer subsequently files a Tax Court petition, Counsel should contact P&A Branch 5 for advice on how to proceed. If the Tax Court dismisses the case on the ground that the notice of determination violates the automatic stay under 11 U.S.C. § 362(a)(1) and is void pursuant to the authority of Smith v. Commissioner , 124 T.C. 36 (2005), the case should be returned to Appeals for continuation of the appeals hearing.



ii. Lien cases

The Tax Court did not address lien cases in Smith . A notice of determination sustaining the filing of a NFTL is not by itself a collection action that violates the automatic stay nor is it a continuation of an administrative proceeding against the debtor in violation of 11 U.S.C. § 362(a)(1). If a notice of determination in a CDP lien case is issued during the pendency of the automatic stay, the notice is not void. If the taxpayer subsequently files a Tax Court petition also during the pendency of the automatic stay, counsel should file a motion to dismiss for lack of jurisdiction pursuant to 11 U.S.C. § 362(a)(8).



b. Bankruptcy filed after notice of determination

11 U.S.C. § 362(a)(8) prohibits the commencement or continuation of a Tax Court proceeding while the stay is in effect (for individual debtors, the prohibition only extends to pre-bankruptcy petition taxes for bankruptcy cases filed on or after October 17, 2005 and subject to BAPCPA). See Prevo v. Commissioner , 123 T.C. 326 (2004) (automatic stay bars petition for review of section 6320 determination). Note that where the taxpayer files bankruptcy after issuance of a notice of determination but before filing a Tax Court petition, the taxpayer has fallen into a trap for the unwary: filing a Tax Court petition is barred while the automatic stay is in effect and there is no tolling provision that would allow for the filing of a timely Tax Court petition after the automatic stay is lifted or is no longer in effect. Thus, the period for filing a Tax Court petition may run while the automatic stay is in effect. Id. , 123 T.C. at 331. See CCDM for procedures for filing motions to lift the stay under 11 U.S.C. § 362(a)(8).
Note : Remember that for individual taxpayers filing a bankruptcy case on or after October 17, 2005, the automatic stay of 11 U.S.C. § 362(a)(8) does not extend to post-bankruptcy-petition taxes



c. Bankruptcy filed after Tax Court petition

If the bankruptcy petition is filed after the Tax Court petition is filed, then continuation of the Tax Court proceeding is prohibited by 11 U.S.C. § 362(a)(8). Counsel should prepare a Notice of Proceeding in Bankruptcy as detailed in CCDM 35.3.9.2.2, so the Tax Court will stay the proceeding. After the bankruptcy proceedings are concluded, further collection may be unnecessary or inappropriate. If the taxes have been paid, or if they have been discharged and the underlying assessments have been abated and there is no prebankruptcy property encumbered by the tax lien, counsel should move to dismiss on the ground of mootness. If the underlying assessments have not yet been abated, a stipulated decision document should instead be used. See sample at section VI.I.1.a. Even if the case is not moot, conditions may have changed so that settlement is appropriate. If the case cannot be settled, counsel should generally argue that the notice of determination be sustained based on the status of the case at the time of the CDP hearing; since the bankruptcy occurred after the CDP hearing, the Tax Court should not address any issues arising from the bankruptcy.



4. Jurisdiction over bankruptcy discharge issues



a. Tax Court jurisdiction

If a discharge has been entered in the bankruptcy case, the Tax Court has held it has jurisdiction to determine whether the tax liability at issue in the CDP hearing is excepted from discharge. Washington v. Commissioner , 120 T.C. 114 (2003); Woods v. Commissioner , T.C. Memo. 2006-38. But see Meadows v. Commissioner , 405 F.3d 949 (11 th Cir. 2005) (holding that the Tax Court did not abuse its discretion in declining to exercise its jurisdiction over a complex bankruptcy issue involving whether tax payments violated automatic stay and the appropriate remedies for the violation thereof).
Note : The court reviews a CDP determination concerning collection issues, including dischargeability, for abuse of discretion. Swanson v. Commissioner , 121 T.C. 111, 119 (2003) (appeals officer's conclusion that the taxpayer had not received a bankruptcy discharge of the unpaid tax was subject to abuse of discretion review). The question for the court, then, is not whether the debtor's tax was discharged, but whether the appeals officer abused her discretion in determining the tax was discharged. The distinction may be of limited consequence, since if the appeals officer applied an erroneous interpretation of the law, the court will find that she abused her discretion. Id . While the Tax Court applied the abuse of discretion standard to the issue of dischargeability in Swanson , as well as in Washington v. Commissioner , 120 T.C. 114 (2003), at least one memorandum decision has stated that the court has not resolved the proper standard of review for dischargeability issues. See Miles v. Commissioner , T.C. Memo. 2007-208.



b. Bankruptcy Court jurisdiction

In In re Otto , 311 B.R. 43 (Bankr. E.D. Pa. 2004), the court held it would not exercise its discretion to reopen a no-asset chapter 7 bankruptcy case to determine dischargeability of tax debts because the taxpayer had an alternative CDP forum to address those issues. Contrary to Otto , reopening a bankruptcy case to determine dischargeability should not generally be opposed by the Government just because the taxpayer can raise the discharge issue in CDP administrative and judicial proceedings (although there may be other grounds to oppose reopening). Judicial review of the CDP administrative determination is for abuse of discretion based on the administrative record and so is not the equivalent of the de novo consideration of the issue in bankruptcy court.



V. CDP Litigation Practice in Tax Court



A. Tax Court Rules

Title XXXII of the Tax Court Rules of Practice and Procedure, which encompasses T.C. Rules 330 through 334, applies to petitions brought under sections 6320 and 6330.



B. Applicability of Small Case Procedures

Section 7463(a) provides that a case concerning a redetermination of a deficiency is eligible for small tax case treatment if the amount in dispute does not exceed $50,000 for any one taxable year or period. In contrast, section 7463(f)(2) provides that a CDP case may be conducted under "S case" procedures with respect to "a determination in which the unpaid tax does not exceed $50,000." Therefore, unlike the "for any one year" rule for deficiency cases, section 7463(f)(2) requires that the total unpaid tax, not just the amount of tax in dispute, for all tax periods at issue as of the date of the determination must not exceed $50,000.00 for a CDP case to qualify for small case status. See Leahy v. Commissioner , 129 T.C. 71 (2007); Schwartz v. Commissioner , 128 T.C. 6 (2007). Cf. Petrane v. Commissioner , 129 T.C. 1 (2007) ($50,000.00 limit under section 7463(f)(1) for stand-alone section 6015(e) case refers to the total amount of relief sought in the petition, as of the date the petition is filed, rather than the amount of relief sought for each individual year). In this context, the term "tax" includes all accrued and unassessed interest and penalties on the underlying tax liability, as well as all assessed interest and penalties. See Schwartz v. Commissioner , 128 T.C. 6, n.1 (2007); see also I.R.C. §§ 6601(e)(1) and 6665(a)(2). Amounts paid, credited, or assessed after the date of the determination should not be considered in determining eligibility.

When a field attorney receives a CDP case with a small tax case designation, the attorney must verify that the CDP case is actually eligible for the designation. If the field attorney determines that the case is not eligible for the designation because the amount of the total unpaid tax, interest and penalties, including all accruals, exceeded $50,000 as of the date of the determination, then the field attorney should file a motion to remove the small tax designation as soon as possible. See sample at section VI.B.



C. Motion to Change Caption

If a petition seeking review of a notice of determination is not marked with either an "L" or an "S," and the notice of determination was not attached to the petition, the notice of determination should be attached to the answer. If the filing of the answer does not cause the court to add the letter "L" to the case docket number, a joint motion to change the caption should be filed. See sample at Section VI.A.

D. Answers

T.C. Rule 333(a) provides that the Commissioner will file an answer or move with respect to the petition within the periods specified in T.C. Rule 36. If petitioner was previously involved in a judicial proceeding involving the same tax liabilities and years that are listed in the taxpayer's petition, the answer should raise the defense of res judicata or collateral estoppel, as appropriate, pursuant to T.C. Rule 39. Since the Commissioner generally has the burden to prove that liability is (or other issues are) precluded under sections 6330(c)(2)(B) or 6330(c)(4), issue preclusion under these provisions should also be affirmatively pleaded. Any other avoidance or affirmative defense should also be pled in the answer, in accordance with T.C. Rule 39.

The provisions of sections 6330(c)(2)(B) and 6330(c)(4) are similar to the doctrines of res judicata (claim preclusion) or collateral estoppel (issue preclusion), respectively. These doctrines are independent of the statutory provisions and should be affirmatively pleaded, if appropriate (in addition to the statutory provisions), when answering an appeal of a notice of determination. Section 6330(c)(2)(B) does not displace the doctrine of res judicata as to liability determinations. See Goodman v. Commissioner , T.C. Memo. 2006-220 (res judicata and section 6330(c)(2)(B) both apply to preclude relitigation of liability determined in prior stipulated tax court decision); Sparks v. United States , 2000-1 USTC ¶ 50,338 (Bankr. N.D. Ok.). See also Golden v. Commissioner , 548 F.3d 487 (6 th Cir. 2008) (res judicata precludes raising statute of limitations on assessment).

If the tax liability is properly at issue and respondent has the burden of proof under T.C. Rule 36(b), the answer should include affirmative allegations as to every ground on which respondent relies.

If the CDP case has an "S" designation, field attorneys will now need to file an answer as T.C. Rule 173(b) was amended. Rule 173(b) now requires the filing of answers in all small tax cases brought pursuant to section 7463 in which the petition is filed after March 13, 2007. See Chief Counsel Notice 2007-009.



E. Replies

T.C. Rule 333(b) refers to T.C. Rule 37 for provisions relating to the filing of a reply and is applicable only if respondent makes an affirmative allegation under T.C. Rule 36(b). T.C. Rule 37(c) provides that where a reply is filed, every affirmative allegation set out in the answer and not expressly admitted or denied in the reply, shall be deemed to be admitted.



F. Additional Pleading in Cases Involving Section 6015

In any Tax Court proceeding, including a CDP case, in which petitioner seeks review of respondent's determination under section 6015, respondent, on or before 60 days from the date of the service of the petition, must serve notice of the filing of the petition on any nonparty spouse who filed the joint return for the years at issue and shall simultaneously file with the court a copy of the notice with an attached certificate of service. T.C. Rule 325. See CCDM 35.2.2.12.2 for further guidance.



G. T.C. Rule 331(b)(4) - Issues Not Raised

The Tax Court will address only those issues raised in the petition to the court and in the trial memorandum, and issues not raised will be deemed conceded. T.C. Rule 331(b)(4); Lunsford v. Commissioner , 117 T.C. 183 (2001). General allegations are not sufficient to raise an issue under T.C. Rule 331(b)(4). See Poindexter v. Commissioner , 122 T.C. 280 (2004) (taxpayer disagrees with income tax liability but fails to specify the basis of the disagreement); Davis v. Commissioner , T.C. Memo. 2001-87 (taxpayer claims only that she was denied due process); Lindsay v. Commissioner , T.C. Memo. 2001-285 (petition states only that the determination was not complete and was erroneous). T.C. Rule 331(b)(4) has been most strictly applied in cases involving frivolous arguments. See , e.g ., Stephens v. Commissioner , T.C. Memo. 2005-183.



H. Issues Not Raised in the CDP Hearing

The Tax Court generally considers only issues that were raised at the administrative hearing. Giamelli v. Commissioner , 129 T.C. 107 (2007). Treas. Reg. §§ 301.6320-1(f)(2) Q&A F3, 301.6330-1(f)(2) Q&A F3.; Robinette v. Commissioner , 123 T.C. 85 (2004), rev'd on other grounds, 439 F.3d 455 (8 th Cir. 2006); Magana v. Commissioner, 118 T.C. 488, 493 (2002). However, the court will review whether appeals verified compliance with applicable law under section 6330(c)(1) without regard to whether the taxpayer raised the issue at the administrative hearing. Hoyle v. Commissioner , 131 T.C. No. 13 (2008) (taxpayer can, for the first time in court, raise whether notice of deficiency was properly sent).



I. Pretrial Motions

Many CDP cases should be resolved by pretrial motion without trial, unless the taxpayer is properly contesting the underlying tax liability. It is therefore critical that Counsel attorneys file appropriate motions sufficiently in advance of the trial date.
Note : It is particularly important for Counsel attorneys to consider filing motions to permit levy under section 6330(e)(2) in cases involving a taxpayer who raises solely frivolous issues and in other appropriate cases whenever possible. See section V.I.7, below.

Note : As further discussed below, the Tax Court frequently requests certified Form 4340 transcripts in cases seeking summary judgment and in cases seeking dismissal for failure to state a claim upon which relief may be granted For this reason, we recommend that counsel attorneys include certified Form 4340 transcripts for all relevant periods with all dispositive motions. The Form 4340 should be reviewed thoroughly and any issues raised by entries on the Form 4340, or inconsistencies with other documents, should be explained in the motion. For example, the Tax Court has raised questions in a number of cases where the section 6651(a)(2) failure to pay penalty was shown on the Form 4340 as assessed following use of section 6020(b) substitute for return procedures, but did not appear on the statutory notice of deficiency . See CC Notice N(35)000-169, Application of Failure to Pay Addition to Tax to Returns Prepared Under IRC § 6020(b).

Note : In cases where Appeals indicates in the notice of determination that all or a portion of the underlying tax liability will be abated, Counsel attorneys should ensure that the abatement is made and reflected on the transcript prior to filing a pre-trial motion. Counsel attorneys will need to ask Appeals to input this adjustment manually.



1. Motion to dismiss on the ground of mootness



a. Liability is fully paid

If subsequent to the Appeals hearing the tax, including all interest and penalty accruals, is fully paid and the assessment abated, generally the case should be dismissed as moot. There is no tax liability to collect, the NFTL will be or has been released, the proposed levy will be abandoned, and there is therefore no case or controversy for the Tax Court to adjudicate. The Tax Court's jurisdiction under section 6330(d) is generally limited to reviewing whether the NFTL should remain filed or the proposed levy should proceed, and the court will dismiss as moot cases in which there is no unpaid tax liability upon which the lien or the proposed levy could be based. Greene-Thapedi v. Commissioner , 126 T.C. 1 (2006); Gerakios v. Commissioner , T.C. Memo. 2004-203; Chocallo v. Commissioner , T.C. Memo. 2004-152. Counsel attorneys should ensure that the NFTL is released prior to filing this motion. See sample motion at section VI.C. Where only some of the tax years at issue are fully paid and so the court retains jurisdiction with respect to one or more tax periods, the court can enter a decision addressing the unpaid years and declaring the paid years as moot. See Kelby v. Commissioner , 130 T.C. 79 (2008).
Note: Counsel attorneys should ensure that the underlying tax liability, including accruals, has been fully satisfied. The Form 4340 transcript may show a zero tax balance while there is still outstanding tax liability because it does not reflect unassessed interest accruals. See IRM 25.6.9.4.2 (explaining how the Service is not required to make a separate assessment of interest on an assessed liability in order to collect that interest and that the Service allows interest to accrue unassessed because the computer systems do not have the capacity to continually assess all interest accruals).

If the taxpayer is raising liability and requesting a refund, the CDP case is not the appropriate forum to resolve such issues because the Tax Court does not have refund jurisdiction in the CDP case and can only address the legality or appropriateness of the NFTL or proposed levy. Greene-Thapedi v. Commissioner , 126 T.C. 1 (2006).

When the tax has been fully paid, a motion to dismiss for mootness is inappropriate if the notice of determination rejected interest abatement or spousal relief and the taxpayer would be entitled to a refund if interest abatement or spousal relief is granted, since the Tax Court has independent overpayment jurisdiction under sections 6404(h) and 6015(e). The case should proceed with only the interest abatement or spousal relief issues addressed.



b. Assessment has been abated

A motion to dismiss for mootness is also appropriate if subsequent to the Appeals hearing the assessment has been abated because it is invalid ( e.g. , invalid notice of deficiency) or the IRS has decided to forgo collection after a bankruptcy discharge. If the assessment has not actually been abated yet, a stipulated decision would be appropriate in these situations. See sample Stipulated Decision at section VI.J.1.a.
Note : Not all bankruptcy discharge situations justify a motion to dismiss for mootness or a stipulated decision. If a taxpayer has received a bankruptcy discharge and the taxpayer's tax liabilities are dischargeable, the taxpayer is no longer personally liable for the taxes and the Service is enjoined from collecting the liability from the taxpayer personally. However, the Service may collect a discharged liability from prebankruptcy assets if a NFTL was filed before the taxpayer's bankruptcy. Iannone v. Commissioner , 122 T.C. 287 (2004). The Service may also collect a discharged liability from pension assets excluded from the bankruptcy estate, even if a NFTL is not on file prepetition. See section IV.E, supra .



2. Motion to dismiss for lack of jurisdiction



a. No notice of determination for all or some taxes at issue

See discussion at IV.D.2, supra . Sample motions are attached at section VI.D.1 and 2.



b. Invalid notice of determination

See discussion at IV.D.2.b, supra . Sample motions are attached at section VI.D.3 and 4.



c. Late-filed petition

See discussion at IV.D.3, supra . A sample motion is attached at section VI.D.5.
Note : In order to establish the date on which a CDP lien or levy notice, or a notice of determination, was issued for purposes of a motion to dismiss for lack of jurisdiction, both a copy of the notice (if available) and a document proving mailing should be attached to the motion. Proof of mailing generally requires for ACS notices a copy of the IRS certified mailing list (or the USPS Form 3877), and for notices issued by field collection staff a stamped certified mail receipt (Postal Service Form 3800) or domestic return receipt (the "green card," Postal Service Form 3811). See generally Fong v. Commissioner , T.C. Memo. 2007-137. Certified mail lists for LT 11s and other CDP levy notices issued by ACS can be located by contacting the appropriate CDP coordinator. A list of ACS CDP coordinators can be found on SERP under the "Who/Where" tab. The certified mail lists for Letters 3172 are all retained at the Centralized Lien Unit at the Cincinnati Campus. To obtain a certified mail list for a Letter 3172, go to the "Automated Lien System (ALS) Units - Contacts" tab under SERP and send a secure e-mail request to the e-mail address listed for the state in which the NFTL is filed or contact the INTERNAL ONLY 1-800 number. The certified mail lists for notices of determination are located at the Appeals Processing Section units in the Fresno and Memphis Campuses.



d. Taxpayer-initiated motions to dismiss

Relying on Lunsford v. Commissioner , 117 T.C. 159 (2001), the Tax Court will deny taxpayers' motions to dismiss for lack of jurisdiction when the basis for the motion is that the taxpayers were not provided with a procedurally-valid CDP hearing. See, e.g., Stoewer v. Commissioner , T.C. Memo. 2002-167.

In Wagner v. Commissioner , 118 T.C. 330 (2002), the Tax Court held that a CDP case may be dismissed without prejudice upon motion by the taxpayer, distinguishing CDP cases from cases holding that taxpayers may not withdraw a petition under section 6213 to redetermine a deficiency. See Estate of Ming v. Commissioner , 62 T.C. 519 (1974); I.R.C. § 7459(d). Accordingly, if a taxpayer wishes to withdraw her CDP petition and have the case dismissed without prejudice, counsel attorneys should file a Notice of No Objection indicating that if the case is dismissed, the Service will take any appropriate collection action as provided by law. Upon dismissal of the case, counsel attorneys should make sure the case is immediately closed and returned to Collection to proceed with collection.



3. Motion to dismiss for failure to state a claim upon which relief can be granted

T.C. Rule 40 provides for the filing of a motion to dismiss for failure to state a claim upon which relief can be granted. Such motion must be filed within 45 days after the date of service of the petition. If such a motion is not filed within this 45-day period, then the attorney should consider a motion for judgment on the pleadings. The Tax Court's review of these motions is limited to the pleadings and any documents attached thereto. T.C. Rule 333(a) and T.C. Rule 36(a). Examples of when a motion to dismiss for failure to state a claim should be filed include: (1) taxpayer makes only frivolous arguments, and (2) taxpayer challenges only the existence or amount of the underlying liability, and admits in the petition that he received the statutory notice of deficiency for the liability. When the taxpayer states a nonfrivolous claim that can be properly raised in the CDP case (such as he was denied the right to a face-to-face conference, or the hearing was not otherwise conducted properly), a motion for summary judgment should be filed instead of a motion to dismiss for failure to state a claim, even if frivolous arguments are also made. Responses to frivolous arguments can be found on the P&A web page through the Developing Issues link under the heading "The Truth about Frivolous Tax Arguments."

While Tax Court review of these motions is limited to the pleadings, Counsel attorneys should also submit a certified copy of an updated Form 4340 transcript with all motions to dismiss for failure to state a claim. The Tax Court has been frequently requesting Form 4340 transcripts be filed in these cases. We disagree with the court's requests insofar as review of the Form 4340 requires going beyond the pleadings, which is not appropriate for a motion to dismiss for failure to state a claim. In view of the Tax Court's repeated request for these transcripts, however, we nevertheless recommend submitting them with each dispositive motion.



4. Motion to remand



a. Grounds for remand

When Appeals has abused its discretion or the taxpayer was not given a proper hearing, the Tax Court will remand the case to the Office of Appeals to hold a new hearing if a new hearing is necessary or will be productive. Kelby v. Commissioner , 130 T.C. 79 (2008); Lunsford v. Commissioner , 117 T.C. 183, 189 (2001). If counsel determines that the appeals officer's exercise of discretion in conducting the hearing or making a determination on a nonliability issue can not be defended, and reconsideration of the case by Appeals is required because the error is not harmless, counsel should file a Motion for Remand to require Appeals to hold a supplemental hearing (if necessary) and issue a Supplemental Notice of Determination (Letter 3978). Informal consideration or reconsideration of an issue by Appeals while the case is pending in the Tax Court can lead to confusion as to whether and how the Tax Court should review the determination made as a result of the informal consideration or reconsideration, and should be avoided .

Review for abuse of discretion requires an adequate administrative record including clear findings by the appeals officer on relevant issues so the court can determine whether the record supports the appeals officer's findings. The court should not be making findings but instead should be reviewing the appeals officer's findings for abuse of discretion and should give deference to those findings. See Olsen v. United States , 414 F.3d 144, 156 (1st Cir. 2005) ("In the event the administrative record is found inadequate for judicial review, 'the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation.'") (citing Florida Power & Light Co. v. Lorian , 470 U.S. 729, 744 (1985); Robinette v. Commissioner , 439 F.3d 455, 459 (8 th Cir. 2006) ("... in providing for CDP hearings on what is ordinarily a scant record, Congress ... must have been contemplating a more deferential review of these tax appeals than of more formal agency decisions. ...") (citing Olsen , Id .); see also Living Care Alternatives of Utica, Inc. v. United States , 411 F.3d 621, 626 (6 th Cir. 2005) ("Congress must have been contemplating a more deferential review of these tax appeals than of more formal agency decisions.").

Accordingly, instead of trying to defend an erroneous or insufficient notice of determination at trial, Counsel attorneys should consider asking the court to remand the case to Appeals for a supplemental determination if (1) the appeals officer failed to address a relevant issue; (2) the appeals officer failed to make necessary findings of fact; (3) the appeals officer failed to perform an analysis that is necessary in making the determination; (4) the administrative record contains no indication of the documents or evidence the appeals officer considered in making the determination or the reasons for the determination; (5) the appeals officer's conduct of the hearing deprived the taxpayer of a procedural right granted by statute or regulation, such as the right to an impartial appeals officer under section 6320(b)(3) or 6330(b)(3); or (6) the appeals officer did not give the petitioner an adequate opportunity to present evidence or arguments in support of relevant issues raised during the CDP hearing process.

Specific examples of cases when remand would be appropriate are: (1) taxpayer requested abatement of interest but the appeals officer failed to address this issue; (2) although taxpayer has a colorable argument for abatement of interest based on evidence that could show unreasonable delays by the IRS, the appeals officer summarily rejected abatement without any explanation; (3) the appeals officer rejected the taxpayer's offer-in-compromise without consideration of relevant financial information that was provided by the taxpayer; (4) the appeals officer's findings are confusing or contradictory ( e.g. , a low installment agreement amount is rejected as not adequate, while a higher amount is rejected because the taxpayer cannot afford it); and (5) the appeals officer closed the hearing and issued the notice of determination prior to the expiration of the agreed upon deadline for the taxpayer to submit financial documentation.
Note : Inadequate findings or discussion in the notice of determination do not always require remand. There might be sufficient explanation in the appeals officer's case activity notes or letters to the taxpayer, or the appeals officer may be able to clarify his findings in a Declaration or through testimony.

If Appeals erroneously failed to consider an underlying liability issue, remand is not necessary to develop an administrative record because the issue will be reviewed de novo by the court. On the other hand, if the taxpayer is raising nonfrivolous issues the case may be able to be resolved on remand without the necessity for trial. Furthermore, the Tax Court held in Giamelli v. Commissioner , 129 T.C. 107 (2007), that the court will not consider liability issues that are not raised at the administrative hearing before Appeals, stating that the "judicial consideration of such liabilities without some prior review by the Commissioner would frustrate the administrative review process created by section 6330." This suggests that the court will be receptive to remand where Appeals erroneously failed to consider liability. Unless the taxpayer's arguments are frivolous or the liability issue can be easily resolved before the court, counsel should consider remand for consideration of liability where it was not properly considered by Appeals.

When the court remands a case to Appeals, the further hearing is a supplement to the taxpayer's original section 6330 hearing. It is not a new hearing. Kelby v. Commissioner , 130 T.C. 79 (2008).



b. Remand not appropriate

In the absence of error by Appeals, counsel should not agree to a remand to Appeals for the consideration or reconsideration of any issue, including a collection alternative. For example, remand is not appropriate when a taxpayer wishes to submit a collection alternative during the Tax Court proceeding after having failed to take advantage of the opportunity to submit an alternative during the CDP hearing. This failure includes the failure to become eligible for a collection alternative ( e.g. , by filing required returns) during the CDP hearing after being given an opportunity to become eligible.

If Appeals has not made an error requiring remand, counsel should not generally agree to have an issue considered by Collection, Examination or other IRS function to facilitate settlement of a case. However, there may be situations where consideration by an IRS function other than Appeals is necessary for the fair treatment of taxpayers or failure to settle the issue will result in undesirable legal precedent. For example, (1) there is a substantial adverse change in taxpayer's circumstances since the CDP hearing which if known would likely have altered Appeals' determination (e.g., offer in compromise may be acceptable because taxpayer's future income amount has become substantially lower after the taxpayer is diagnosed with life-threatening illness); (2) taxpayer did not respond to Appeals during the CDP hearing due to illness or travel; (3) taxpayer offers credible evidence affecting the amount of liability but Appeals did not consider liability because a liability challenge was precluded or if Appeals did consider liability the credible evidence was not discovered until after the notice of determination was issued; and (4) the taxpayer completes a bankruptcy case and receives a discharge for one or more periods subject to the CDP hearing --see sections IV.E.3.c and V.I.1.b. The Counsel attorney should notify the appeals officer who made the determination that the issue is being considered by Collection, Examination or other IRS function.

The court should uphold a determination where the appeals officer erred if the error does not affect the outcome of the case. As a consequence, any error should be evaluated to determine whether it is harmless. The harmless error rule is often applied where the taxpayer is only making frivolous arguments. For example, if the taxpayer was denied the right to record his conference but relies on frivolous or groundless arguments, the Tax Court will not remand the case. Frey v. Commissioner , T.C. Memo. 2004-87; Kemper v. Commissioner , T.C. Memo. 2003-195.

Some errors by Appeals on nonliability issues may not require reconsideration even if the error was not harmless, because the issue involves the application of law to uncontested facts. These issues may include whether the unpaid tax was discharged in bankruptcy, whether the statute of limitations has expired, or whether a notice of deficiency was properly issued. If an issue that was wrongly decided by Appeals does not require further fact-finding or a determination by Appeals, in appropriate cases the notice of determination can be conceded in a stipulated decision. See section VI.J.1.



c. Remand procedure

A Motion for Remand should be filed as early as possible in the proceeding after the petition is answered. If the case is calendared, the Motion for Remand should be filed with a separate motion for continuance. If the case is not calendared, only a Motion for Remand should be filed. The Motion for Remand should explain the error in the determination or hearing that is to be remedied on remand. A sample motion is attached at section VI.E.

Prior to filing a Motion for Remand, attorneys should consult with Appeals and advise the appeals officer of the reasons for remand. After the case is remanded, the appeals officer should not issue a standard notice of determination using Letter 3193. Instead, a Letter 3978, Supplemental Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, should be issued to the taxpayer. This supplemental notice should not have the standard language concerning the right to file a petition with the court to appeal the determination, as the case is already docketed with the court. Following the issuance of the supplemental notice, a status report should be filed with the court attaching the supplemental determination. See discussion in the next section below for more information.

When a supplemental notice has been issued by Appeals after remand, the court will review only the supplemental notice, not prior determinations, if issuance of the supplemental notice makes it unnecessary for the court to review the Commissioner's position taken before the determination was supplemented. Kelby v. Commissioner , 130 T.C. 79 (2008).



d. Application of ex parte rules to remanded CDP cases

As further discussed in section IV.B.5.f, care should be taken in remanded cases to ensure that the appeals officer maintains the role of an independent officer. Therefore, it is imperative that guidelines similar to those stated in Rev. Proc. 2000-43, 2000-2 C.B. 404 (providing rules limiting ex parte communications in nondocketed cases) be applied in remanded cases. The following specific guidelines apply:
i. The Counsel attorney working the docketed case should prepare a written memorandum addressed to the Office of Appeals explaining the reasons why the court remanded the case to Appeals, any special requirements in the order ( e.g. , whether and to what extent a new conference should be held, and whether the case must be assigned to a new appeals officer), and what issues the court has ordered Appeals to address on remand in its supplemental notice of determination. A copy of the memorandum should be provided to the taxpayer or the taxpayer's representative.


A memorandum of this nature is not a prohibited ex parte communication because it merely furnishes instructions and legal advice regarding the court's order, and does not address the substance of the issues to be considered by the appeals officer on remand. Communications that are ministerial, administrative, or procedural in nature are also not prohibited ex parte contacts. For example, counsel may send the appeals officer an e-mail which sets forth time deadlines imposed by the Tax Court for conducting a further hearing.


The memorandum should not discuss the credibility of the taxpayer or the accuracy of the facts presented by the taxpayer. For example, the memorandum should not state that counsel believes that the taxpayer was not providing truthful testimony at trial.

ii. A request by an appeals officer for legal advice in connection with the remanded CDP case may be handled by the Counsel attorney who is handling the docketed Tax Court case, so long as that attorney did not give legal advice to an originating function ( e.g., Collection) concerning the same issue in the same case. If the Counsel attorney provided such advice, the request should be assigned to another Counsel attorney who has not provided advice to a Service office concerning the same issue in the same case. Any legal advice should be carefully tailored to answer the legal questions posed by Appeals and should not opine on the ultimate issues to be addressed by Appeals in the Supplemental Notice of Determination. Requests for advice that raise novel collection issues should be coordinated with Branch 3 or 4, P&A. Consistent with Q&A 11 of Rev. Proc. 2000-43, the advice does not have to be shared with the taxpayer or his representative at the time it is rendered. Also, neither the taxpayer nor his representative has a right to participate in any discussions between Appeals and counsel with respect to the advice. In the course of such discussions, counsel should also not address the credibility of the taxpayer or accuracy of the facts presented by the taxpayer.

iii. The Counsel attorney who is handling the docketed case should review the supplemental notice of determination before it is issued to the taxpayer. This review is for the limited purpose of ensuring compliance with the Tax Court's order.


Any questions concerning these issues should be addressed to Branch 3 or 4, P&A.



5. Motion for summary judgment



a. General matters

T.C. Rule 121(b) permits the court to grant summary judgment if the "pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with affidavits, if any, show that there is no genuine issue of material fact and that a decision may be rendered as a matter of law." Even if a summary judgment motion will not dispose of all of the issues, a motion for partial summary judgment may help narrow the issues for trial.

A summary judgment motion may be submitted at any time beginning 30 days after the pleadings have closed, but not within such time so as to delay trial. T.C. Rule 121(a). A summary judgment motion should not be submitted later than 30 days before trial. It is recommended that the motion be filed no later than 75 days prior to the call of the calendar.

When appropriate, counsel should consider filing a motion to permit levy under section 6330(e)(2) in connection with a motion for summary judgment. See section V.I.7, infra . As discussed in section V.I.7, a section 6330(e)(2) motion should generally be filed in all cases involving frivolous taxpayers and in all cases in which we are seeking to impose a section 6673(a)(1) penalty. A summary judgment motion and section 6330(e)(2) motion must be filed as separate motions and not joined together. T.C. Rule 54.

Also when appropriate, counsel should consider requesting the court to impose a section 6673(a)(1) penalty in connection with a motion for summary judgment. The penalty can be requested as part of the summary judgment motion.



b. Grounds for summary judgment

If the taxpayer is only raising frivolous or groundless arguments, and there is no need to go beyond the pleadings, a motion to dismiss for failure to state a claim upon which relief can be granted should be filed within 45 days after service of the petition or a motion for judgment on the pleadings should be filed beyond that time. In such cases, if the respondent needs to go outside the pleadings, a motion for summary judgment should generally be filed. A summary judgment motion should also be filed where the only issues raised by the taxpayer are precluded by section 6330(c)(2)(B) (preclusion of liability) or (c)(4) (preclusion due to prior proceedings) and there is no dispute as to material fact with respect to the facts supporting the preclusion. A sample summary judgment motion where section 6330(c)(2)(B) preclusion is at issue is attached at section VI.E.2. A full or partial summary judgment motion should also be considered if the petitioner raises an issue not raised in the administrative hearing. See Magana v. Commissioner , 118 T.C. 488, 493 (2002).

Additionally, many cases involving nonfrivolous issues can be decided through summary judgment where there are no genuine issues of material fact. This is especially the case where the only issues in the case are reviewable for abuse of discretion. In such cases, the Tax Court should resolve the case based on the administrative record, and should be reviewing the appeals officer's findings for abuse of discretion rather than finding its own facts, see IV.D.4, supra. However, all non-frivolous factual and legal issues raised by the taxpayer must specifically be addressed and resolved in the motion. For example, if the taxpayer disputes the dollar amount that Appeals concluded must be paid under an offer in compromise, the motion must explain in detail the evidence Appeals relied upon and why the taxpayer's proposed amount was rationally rejected. It is not sufficient to summarily state that the appeals officer addressed all issues raised by the taxpayer and did not abuse his discretion. If the taxpayer denies receipt of a notice of deficiency, the motion must explain how the record evidence conclusively establishes receipt. Furthermore, all issues and problems raised by the transcripts or other record evidence must be addressed and explained (e.g., was a notice of deficiency properly issued? Did the appeals officer make reasonable attempts to contact the taxpayer? Were payments properly applied?). The court is unlikely to grant summary judgment in factually complex cases where there exists any doubt or question as to the correctness of the Notice of Determination or whether the taxpayer was fairly dealt with by the Service. The court is also unlikely to grant summary judgment where factual issues are raised that cannot be decided as a matter of law (e.g., taxpayer denies receipt of the notice of deficiency and the record evidence is insufficient to prove receipt).

In abuse of discretion cases, the fact that petitioner plans to introduce evidence at trial that was not presented to the appeals officer should not preclude summary judgment because the court must confine its review to the administrative record. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006); Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006). The Tax Court has not held that it will follow Murphy and Robinette , so in cases not appealable to the First or Eighth Circuit Courts of Appeal, the Tax Court's position is that its abuse of discretion review is not limited to the administrative record. Robinette v. Commissioner , 123 T.C. 85 (2004). However, in a number of these cases, the court has excluded evidence not submitted to the appeals officer because it was not relevant. See, e.g., Murphy v. Commissioner , 125 T.C. 301 (2005). A sample motion for summary judgment, where only claims subject to abuse of discretion review are at issue, is attached at section VI.F.1.

In some cases, the court may also hear evidence where the taxpayer raises an issue as to how the administrative hearing was conducted. For example, the Tax Court may resolve issues of material fact with respect to whether the appeals officer was impartial, refused to accept the submission of evidence, failed to consider issues raised by the taxpayer, or properly communicated to the taxpayer deadlines for the submission of evidence. Such issues are generally treated as involving exceptions to the record rule. See generally Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006); Murphy v. Commissioner , 469 F.3d 27, 31 (1 st Cir. 2006). See also section IV.D.4.b.iv. As a result, a summary judgment motion will probably not be successful if the taxpayer disputes facts concerning the conduct of the CDP hearing, unless the taxpayer offers no support for the alleged factual dispute or respondent can demonstrate that the taxpayer's allegations are irrelevant.



c. Declaration

A declaration from the appeals officer making the determination should be filed with the summary judgment motion. The declaration should be filed with its own certificate of service (not as an attachment to the summary judgment motion). The declaration should authenticate and attach the documents that support the motion for summary judgment, i.e. , all documents which establish that no material facts are in dispute and the Commissioner is entitled to judgment as a matter of law. The entire administrative record does not need to be submitted to the court with a summary judgment motion and declaration, however all documents relied upon by the appeals officer and relevant to the issues to be resolved pursuant to the motion should be included. See sample at section VI.E.3.

The documents that support a motion for summary judgment in a CDP case will vary depending upon the facts and issues in each case. Section 6330(c)(3) requires that the notice of determination address the verification requirement, all issues raised by the taxpayer, and whether the collection action balances the need for efficient collection with the taxpayer's concern that the collection action be no more intrusive than necessary. Examples of documents relevant to these issues that should generally be attached to the declaration of the appeals officer in support of a motion for summary judgment are:
 The CDP lien or levy notice. Copies of levy notices sent by the ACS are not retained by the IRS and so they will generally not be in the administrative record unless the appeals officer can obtain a copy from the taxpayer. If Appeals cannot obtain a copy of the notice, the transcript relied upon to confirm the issuance of the notice should be attached.

 The CDP hearing request.

 The transcript of the taxpayer's account that was reviewed by the appeals officer ( e.g. , TXMOD-A, Form 4340).

Note: A certified copy of an updated Form 4340 transcript should also be submitted with all summary judgment motions. The Form 4340 transcript has been consistently requested by Tax Court judges in summary judgment cases. Even though this transcript is prepared after the issuance of the notice of determination, submission of the Form 4340 is not a violation of the record rule because it generally contains the same information originally reviewed by the appeals or settlement officer in making the CDP determination. See Bowman v. Commissioner , T.C. Memo. 2007-114. The court should not consider, however, transactions reflected on the Form 4340 which occurred after the CDP hearing because these transactions are not part of the administrative record subject to abuse of discretion review. Because the Form 4340 is self-authenticating, it does not need to be attached to the declaration.

 The statutory notice of deficiency and any supporting documents the appeals officer relied upon to establish the notice of deficiency was sent to the taxpayer's last known address, and/or was received by the taxpayer, when these issues are raised by the taxpayer.

 Correspondence between the taxpayer and the appeals officer.

Note : This includes e-mail correspondence. Attorneys should secure copies of e-mail correspondence from Appeals if these are not already printed out and placed in the CDP file.

 Copies of the taxpayer's bankruptcy petition and schedules and order of discharge (when the impact of the bankruptcy on the tax due is raised as an issue).

 A Form 656, Offer-in-Compromise, submitted by the taxpayer along with the taxpayer's supporting financial documents.

 Form 1040, Individual Income Tax Return, for the tax years at issue (if the taxpayer disputes the liability).

 The history notes of the appeals officer included in the Appeals case activity record.

 The Appeals Transmittal and Case Memo, and the Notice of Determination with attachments.

Among the documents that the appeals officer may rely upon are the printouts from Integrated Collection System or ACS screens; documents pertaining to the evaluation of collection alternatives, such as financial statements; and documents that establish that an issue raised in the CDP proceeding was previously raised in an administrative or judicial proceeding in which the taxpayer participated meaningfully, for purposes of section 6330(c)(4).

Additionally, if any face-to-face or telephone conference between the appeals officer and the taxpayer was recorded, a copy of the tape or a transcript of the recording, made by accepted means by a licensed transcription agency (the latter is not required to be made) and authenticated by the appeals officer, should be submitted as part of the administrative record. If the taxpayer submits a transcript of the recorded conference, the appeals officer should authenticate the taxpayer's transcript only after comparing it to the tape recording made by the appeals officer.

The declaration should set forth the appeals officer's job position, that the appeals officer was assigned responsibility to handle the taxpayer's hearing request, and that, pursuant to this assignment, the appeals officer made the determination required under section 6330(c)(3). If any of the materials require interpretation ( e.g. , transaction codes) or authentication, the declaration should include appropriate paragraphs.
Note : When the appeals officer failed to consider an issue raised or information submitted by the taxpayer, when the facts or reasoning relied upon by the appeals officer do not fully support the determination, or the reasoning in support of the determination is unclear or incomplete, a declaration is ordinarily not appropriate. A motion to remand is usually appropriate in such cases. See discussion at V.I.4.a.



6. Section 6673(a)(1) penalties

Section 6673(a)(1) authorizes the Tax Court to impose a penalty, not in excess of $25,000, on a taxpayer if the Tax Court finds that the taxpayer has instituted or maintained a CDP proceeding primarily for delay, or that the taxpayer's position in the proceeding is frivolous or groundless. Burke v. Commissioner , 124 T.C. 189 (2005); Pierson v. Commissioner , 115 T.C. 576 (2000); Forbes v. Commissioner , T.C. Memo. 2006-10 ($20,000 penalty imposed). Ordinarily, the penalty is asserted against taxpayers who take frivolous positions, and should be requested by counsel where appropriate in motions or at trial. When requesting the penalty, Counsel attorneys should advise the court about all prior communications with the taxpayer where the Service warned the taxpayer about the possibility of the imposition of the section 6673 penalty if the taxpayer continued to pursue frivolous or groundless arguments. For example, upon assignment of a CDP case, Appeals issues a form letter (Letter 3846) to taxpayers raising only frivolous claims which contains standard warning language. The Tax Court has, in some cases, declined to impose the section 6673 penalty where the taxpayer was not given a prior warning that the penalty may be imposed. See Olmos v. Commissioner , T.C. Memo. 2007-82; Belmont v. Commissioner , T.C. Memo. 2007-68 (same).

If a Counsel attorney wishes to ask for a section 6673(a)(1) penalty against a taxpayer who instituted the proceeding primarily for delay but who is not making frivolous arguments, the attorney should be prepared to put forth substantial evidence to support the penalty.

The Chief Counsel Sanctions Officer must approve a motion or request for imposing a section 6673(a)(2)(A) penalty against an attorney or person admitted to practice before the Tax Court. Contact Branch 1 or 2, P&A, to obtain approval of the Sanctions Officer in such situations.



7. Levy during CDP levy cases in Tax Court



a. Section 6330(e)(2) motions (Motions to Permit Levy)

In CDP levy cases, Counsel attorneys should file motions to permit levy pursuant to section 6330(e)(2), generally in conjunction with dispositive motions such as motions for summary judgment or to dismiss for failure to state a claim. See, e.g ., Schneller v. Commissioner , T.C. Memo. 2008-196. See sample at section VI.G. In general, a motion to permit levy should be considered in all CDP cases involving a taxpayer who raises solely frivolous arguments . Suspension of the Service's levy authority in such cases serves no legitimate purpose. Even if the motion is not granted until the court enters its decision, it will have served a purpose because the Service will be able to levy immediately without having to wait for the expiration of the period for appeal, and for any appellate litigation to conclude.

Section 6330(e)(2) contains two criteria for obtaining relief from the suspension of levy. First, the underlying tax liability must not be at issue in the appeal. Second, there must be a showing of "good cause."

The underlying tax liability is not "at issue" merely because the taxpayer challenges it. Liability is not at issue, for example, if a taxpayer challenges underlying liability in the petition, but the court is precluded from considering that liability, pursuant to section 6330(c)(2)(B). Burke v. United States , 124 T.C. 189 (2005). Liability is also not at issue if the petition makes only frivolous arguments. Unless the challenge to liability is both allowed under section 6330(c)(2)(B) and bona fide, a motion to permit levy may be appropriate. Note that if the notice of determination contains multiple tax years and periods, but a taxpayer disputes only the tax liabilities (or interest or additions) for some of the periods, a section 6330(e)(2) motion may be brought with respect to the undisputed tax liabilities.

The primary focus of a section 6330(e)(2) motion should be the required showing of "good cause" not to suspend the levy during the pendency of the judicial review period. A showing of good cause may be made in any case in which a taxpayer is using the CDP provisions in a manner inconsistent with or inappropriate to their purpose. The purpose of the CDP statutes, sections 6320 and 6330, is to provide taxpayers with a forum to raise relevant issues with respect to a proposed levy or NFTL. I.R.C. § 6330(c)(2)(A); H.R. Conf. Rep. No. 105-599, 105 Cong., 2d Sess., 263-267 (1998). A section 6330(e)(2) motion should be considered in all CDP levy cases which are not brought for this purpose, but are used solely as a forum for frivolous arguments or otherwise to delay collection action. Generally, good cause will be proven as part of the summary judgment or other dispositive motion filed with the motion to permit levy.

While good cause to permit levy during appeal will exist primarily in cases when a taxpayer raises solely frivolous issues, there may also be good cause for relief in other types of cases in the Tax Court, district courts, or appellate courts. For example, a section 6330(e)(2) motion may be appropriate in some cases involving the pyramiding of tax liabilities. See Polmar Int'l, Inc. v. United States , 2002-2 USTC ¶ 50,636 (W.D. Wash) (court found "good cause" where taxpayer corporation repeatedly failed to pay employment taxes on time).

Section 6330(e)(2) motions filed with the Tax Court should be captioned as "Respondent's Motion to Permit Levy." The opening paragraph should state that respondent moves, pursuant to Tax Court Rule 50(a) and section 6330(e)(2), that the court remove the suspension of the levy under section 6330(e)(1) because the underlying liability is not at issue and respondent has shown good cause for the removal of the suspension of the levy. The body of the motion should set forth the background of the case and establish that the two criteria for relief from the stay have been met. The motion should conclude by requesting expedited handling by the court to minimize further unnecessary collection delays.

The section 6330(e)(2) motion may be filed at any point at which the court retains jurisdiction over the case. Of course, the motion and the accompanying dispositive motion should be filed as early in the case as possible to minimize delays in resuming collection. When filed with a summary judgment or other dispositive motion, two separate motions must be filed, in accordance with T.C. Rule 54.
Note : Counsel attorneys should, as a general rule, consider filing section 6330(e)(2) motions in all cases involving taxpayers raising solely frivolous issues in which we are filing summary judgment motions and/or seeking imposition of the section 6673(a)(1) penalty. While these motions may be made up to the time a final decision is entered, Counsel attorneys should file these motions as soon as possible in all applicable cases. In the absence of an order permitting levy, a litigious taxpayer making frivolous arguments may delay collection for a significant period by appealing the tax court's decision to the court of appeals.

Generally, the Tax Division of the Department of Justice will not file a section 6330(e)(2) motion with a court of appeals unless IRS counsel has filed the motion in the first instance with the Tax Court. In some limited circumstances, however, it may be appropriate to file a section 6330(e)(2) motion for the first time in the court of appeals where there are new circumstances justifying seeking relief. For example, we may discover after a case has been appealed to a court of appeals that a taxpayer is dissipating assets, placing collection in jeopardy. Please contact the attorney in Branch 3 or 4, P&A, who is handling the case if there are grounds for requesting filing of a section 6330(e)(2) motion for the first instance with a court of appeals.

Finally, since the purpose of a section 6330(e)(2) motion is to permit immediate levy, alert the Service before filing the motion, and immediately after the motion is granted, so that it will be prepared to proceed promptly with a levy. For cases which originate from the field, contact the group manager of the Revenue Officer who referred the case to Appeals. For cases that originate from ACS, contact the CDP coordinator for the state of taxpayer's residence.



b. Levy to collect non-CDP periods included in collection alternative rejected in CDP hearing

Taxpayers frequently submit offers-in-compromise or installment agreements as proposed collection alternatives during CDP hearings which not only include liabilities listed on the CDP notice which are properly part of the CDP hearing (CDP periods), but also include all other outstanding tax liabilities (non-CDP periods) due to the IRS requirement that all delinquent periods be included. If such an offer or agreement is rejected by Appeals, and the taxpayer contests the rejection upon appeal to the Tax Court, the Tax Court's jurisdiction only extends to the CDP periods.

In reviewing the notice of determination, however, the court may consider facts relating to non-CDP periods that are relevant to the offer or agreement. Sullivan v. Commissioner , T.C. Memo. 2009-4.

Consequently, when a taxpayer seeks judicial review of the rejection of an offer or installment agreement in a CDP proceeding, there is no prohibition under section 6331(k) on levy for the collection of tax periods included in the offer or installment agreement but not subject to the CDP hearing. We interpret the word "appeal" in the clause "during the period that such appeal is pending" in section 6331(k)(1)(B) and (k)(2)(B) to refer to the administrative appeal under section 7122(e)(2). Because the taxpayer has no right to administrative appeal with respect to the rejection of the offer or installment agreement under section 7122(e)(2), the levy prohibition is lifted 30 days after the offer or installment agreement has been rejected in the CDP determination. At this point (30 days after the notice of determination is issued), the offer or installment agreement is no longer pending and the Service is free to collect the non-CDP periods, provided the taxpayer has been previously sent the required section 6331 and 6330 notices for those periods. The same reasoning applies to offers and installment agreements submitted in equivalent hearings and rejected in decision letters.

The levy prohibition in section 6330(e)(1) also does not apply in CDP levy cases to the non-CDP tax periods included in the offer or installment agreement. The prohibition only applies to the tax periods that are subject to the hearing. Treas. Reg. § 301.6330-1(g)(2) Q&A G3.

Based on this analysis, there is no legal preclusion from levying non-CDP periods included on a rejected offer or installment agreement that is at issue in a CDP levy case pending before the Tax Court. Should the court find that rejection of the offer or installment agreement was an abuse of discretion, and order a remand to Appeals for reconsideration of the offer or installment agreement, the court's decision would nullify Appeals' rejection of the offer or the installment agreement as of the date the decision is entered, and the offer or installment agreement is revived as of that date. Once the offer or installment agreement is revived, the levy prohibition will again apply to both CDP and non-CDP periods.



J. Trial Preparation



1. Discovery

Unless the taxpayer is raising only frivolous arguments, informal discovery should be conducted at a Branerton conference. The taxpayer should be provided with a copy of the complete administrative record. In addition, request for admissions and all formal discovery procedures are available in a CDP case. However, if the taxpayer is only disputing determinations that are reviewed for abuse of discretion, the need for formal discovery (interrogatories or requests for admission) should generally be limited to cases when there is a factual dispute over the contents of the administrative record ( e.g. , taxpayer asserts he submitted financial documentation that was not considered by Appeals) or the conduct of the administrative hearing ( e.g. , taxpayer disputes statement in notice of determination that he did not request a face-to-face conference, or did not request collection alternatives).

For determinations subject to trial de novo ( i.e. , liability determination or section 6015(b) or (c) relief), the full range of formal discovery tools may be used.

Any requests by the taxpayers to depose appeals officers or their managers should be opposed. Appeals officers and their managers are nonparty witnesses. Therefore, T.C. Rule 75(b) applies to their depositions. The rule states that depositions of nonparty witnesses are permitted only in extraordinary circumstances where the information sought is not available through other, less extraordinary means. Additionally, anything the taxpayer wishes to know about the Appeals determinations can be found in the administrative record or obtained through interrogatories or requests for admission.

In the event the court permits a deposition, the scope of the testimony should be limited to circumstances where the court can review relevant evidence outside the administrative record. See section IV.D.4. In addition, inquiry into the mental processes of the agency decision maker is not permissible, except for the limited purpose of determining if the decision was a result of bad faith. Citizens to Preserve Overton Park v. Volpe , 401 U.S. 402, 420 (1971). The taxpayer, however, must make a "strong showing of bad faith or improper behavior" before any such inquiry will be permitted. Id.



2. Stipulation of facts

The stipulation should include facts and documents relevant to issues subject to trial de novo. The stipulation of facts should also attach the documents comprising the administrative record as discussed in section V.J.3, supra . If the taxpayer will not cooperate with the Counsel attorney on the stipulation of facts, the attorney should file, at least 45 days before trial, a motion under T.C. Rule 91(f) to compel stipulation.

If a stipulation of facts cannot be agreed to within sufficient time to file a motion to compel, Counsel should still prepare a stipulation of facts for submission to the Tax Court at the trial calendar call. Additionally, Counsel should prepare a declaration of the appeals officer who made the CDP determination to authenticate the administrative record. This is similar to the declaration that is prepared for a summary judgment motion. The Counsel attorney should send a copy of the declaration to the taxpayer, informing the taxpayer of respondent's plan to offer the documents into evidence. Under Fed. R. Evid. 902(11), the declaration permits the documents comprising the administrative record to be self-authenticating, provided written notice of respondent's intention to use the documents is given to the taxpayer and the records and declaration are made available for inspection sufficiently in advance to provide the taxpayer a fair opportunity to challenge them. By using this declaration, the appeals officer's live testimony is not necessary to authenticate the administrative record at trial. The hearsay exception for business records found in Fed. R. Evid. 803(6) also applies to permit admission of the declaration into evidence. In a non-CDP case, the Tax Court has approved the use of a declaration to admit a certified mail list into evidence, citing Fed. R.s Evid. 902(11) and 803(6). Clough v. Commissioner , 119 T.C. 183 (2002).



3. Submission of the administrative record at trial

Counsel should submit the administrative record to the Tax Court as part of the stipulation of facts, as outlined below. Submission of a standardized and comprehensive administrative record should decrease the need for testimony of the appeals officer in CDP cases and reduce the court's need to go beyond the administrative record. Although the Tax Court held in Robinette v. Commissioner , 123 T.C. 85 (2004), rev'd , 439 F.3d 455 (8 th Cir. 2006), that it would consider evidence outside of the administrative record in CDP cases, the Tax Court was reversed by the Eighth Circuit. In addition, the First Circuit Court of Appeals has also held that abuse of discretion review in CDP cases should be limited to the administrative record. Murphy v. Commissioner , 469 F.3d 27, 31 (1 st Cir. 2006), aff'g on different grounds , 125 T.C. 301 (2005). The Tax Court has not yet indicated that it will follow the First and Eighth Circuits' adoption of the record rule in other circuits. See also Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4, 301.6330-1(f)(2) Q&A F4.

Under well-settled principles of administrative law, the administrative record consists of the information an agency reviews when making its determination. James Madison Ltd. by Hecht v. Ludwig , 82 F.3d 1085, 1095 (D.C. Cir. 1996). In CDP cases, the administrative record consists of all of the documents in the case file. Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4, 301.6330-1(f)(2) Q&A F4. If a case is remanded to the Appeals office, additional materials, including documents submitted by the taxpayer and the supplemental notice of determination, become part of the administrative record.

The administrative record attached to the stipulation of facts should generally include the items described above that should be attached to a declaration filed with a motion for summary judgment. See section V.I.5.c, supra , which lists the minimum items which should comprise every administrative record.

When preparing the stipulation of facts, the Counsel attorney should place the items comprising the administrative record in the categories and order described in section V.I.5.c. If there is more than one document within a category, the items should be listed in chronological order ( e.g. , the taxpayer's bankruptcy petition, the taxpayer's bankruptcy schedules, the bankruptcy court's order of discharge).

The stipulation should contain a paragraph stating that the specifically enumerated exhibits constitute the entire administrative record. Each item, labeled with a separate exhibit number, should be attached to the stipulation. If the item contains more than one page and is not otherwise numbered, the item should be paginated sequentially. A sample stipulation of facts attaching the administrative record is at section VI.H.



K. Trial



1. Objections to evidence not in the administrative record

As more fully discussed in section IV.D.4.b.ii, the Eighth Circuit in Robinette v. Commissioner , and the First Circuit in Murphy v. Commissioner , held that when reviewing issues in a CDP case for an abuse of discretion, the Tax Court must limit its review to the administrative record. The Tax Court has not yet held that it will follow Murphy and Robinette outside the First and Eighth Circuits. See Porter v. Commissioner , 130 T.C. No. 10, n. 6 (2008).

In those cases in which a trial of nonliability issues cannot be avoided by a motion for summary judgment, counsel should argue that the court should not consider either an issue or evidence that was not presented to Appeals during the administrative hearing. In the alternative, counsel should argue that evidence not in the administrative record is not relevant to the issue of whether Appeals abused its discretion because such evidence could not have had any bearing on Appeals' determination. See Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006); Barnes v. Commissioner , T.C. Memo. 2006-150. See also Fed. R. Evid. 401, 402; Morlino v. Commissioner , T.C. Memo. 2005-203.
Note : Presentation of evidence as to what happened during the CDP hearing may be permissible as an exception to the record rule. See section IV.D.4.b.iv.

In order to preserve the record rule issue for possible appeal in cases outside of the First and Eighth Circuits, counsel should make an evidentiary objection if the taxpayer attempts to testify as to matters not in the administrative record or otherwise offers evidence that was not made available to Appeals.

Attorneys should also consider filing a motion in limine objecting to the admission of the testimony or evidence. If the taxpayer will not stipulate to the administrative record, the motion in limine can be accompanied by a declaration of the appeals officer so as to place the administrative record before the court without calling the appeals officer to testify. The motion can seek to both affirmatively place the administrative record before the court and to prohibit admission of any evidence not presented to the appeals officer. A sample motion in limine is attached at section VI.I.

If the court denies the evidentiary objection or motion, or if the court reserves ruling on the objection or motion until after the trial, only then would it be appropriate to present any additional evidence not reviewed by the appeals officer that strengthens the respondent's case. With this evidence an alternative argument on brief can be made that the appeals officer's determination is not an abuse of discretion, even if the court allows evidence not available to Appeals during the administrative proceeding.



2. Appeals testimony

Appeals testimony should be kept at a minimum. On issues subject to abuse of discretion review, the general rule is that an appeals officer's live testimony is unnecessary because the court's review is limited to the administrative record. If the taxpayer will not stipulate to the administrative record, the record can be authenticated and admitted by declaration as described supra . In Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd on different grounds , 469 F.3d 27 (1 st Cir. 2006), the Tax Court excluded appeals officer testimony that was not relevant to the appeals officer's determination. The Tax Court also excluded testimony with respect to the appeals officer's rejection of the taxpayer's offer-in-compromise, when such testimony was unnecessary as the record evidence provided adequate basis for the rejection.

In some cases an issue may arise involving the accuracy of the administrative record or whether the appeals officer conducted the hearing correctly. When these types of issues are present, the administrative record may be detailed enough so that Appeals testimony is unnecessary. For example, the notice of determination and supporting Case Activity Records may contain detailed summaries of the appeals officer's attempts to schedule a face-to-face conference. However, if the record is inaccurate, unclear or incomplete, counsel may determine that appeals officer testimony is necessary. See Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd on different grounds , 469 F.3d 27 (1 st Cir. 2006) (appeals officer testimony is necessary and admissible to explain notations and abbreviations in case activity report). As discussed at section IV.D.4.b.iv, supra , the record rule does not generally apply to issues involving the accuracy of the administrative record or the conduct of the hearing. Appeals testimony may also occasionally be necessary to rebut the taxpayer's evidence where the court permits the taxpayer to introduce evidence outside the administrative record over respondent's objection.

Appeals has agreed to permit Appeals employee testimony in these limited situations, but not on a routine basis. A joint memorandum from the Director, Technical Services and the Division Counsel SBSE dated March 23, 2005, details the circumstances under which Appeals employees will testify. All decisions to allow an Appeals employee to testify are made by the Appeals Area Director. Counsel should make requests for Appeals personnel to testify well in advance of the trial date, i.e. , soon after the first calendar call status report meeting or as soon as the taxpayer raises an issue necessitating the testimony. Pursuant to the March 23, 2005, memorandum, Appeals will pay for its personnel to testify at trial in those few cases where the testimony is necessary.



L. Stipulated Decision Documents

Based on common situations presented in CDP cases, sections VI.J.1 through 3 are sample stipulated decision documents. Individual cases will vary, of course, and the sample stipulated decision documents will need to be adapted to fit the particular facts of each case.

Issues in CDP cases can be grouped under two headings: nonliability issues, which are reviewed by the courts for abuse of discretion, and liability issues, which are reviewed de novo. "Liability" refers to the proper amount of tax imposed by the Internal Revenue Code. Nonliability issues include those involving the Service's compliance with applicable law and administrative procedures, the conduct of the administrative hearing, collection alternatives, and the appeals officer's determination to proceed with collection. Additionally, all issues relating to the "unpaid tax" ( e.g. , application of payments, discharge in bankruptcy, timeliness of assessment and whether procedural requirements for assessment were met) are nonliability issues.
Note : Where decision documents contain language indicating that the taxpayer waives restrictions in section 6330(e) prohibiting collection until the decision of the Tax Court becomes final, the suspension of the collection statute of limitations in section 6330(e) is also no longer in effect as of the date the decision is entered.



1. Nonliability issues

When, with respect to a nonliability issue, the appeals officer abused his discretion in conducting the hearing or in making the determination, and reconsideration of the case by Appeals is required because the error is not harmless, the attorney should generally file a Motion for Remand to Appeals to allow the appeals officer to correct the error and issue a supplement to the notice of determination. However, if the error was harmless, the notice of determination should be defended.

On the other hand, some nonliability issues may not require reconsideration by Appeals even if the error was not harmless, because the issue involves the application of law to uncontested facts. These issues may include whether the unpaid tax was discharged in bankruptcy, whether the statute of limitations has expired, or whether a notice of deficiency was properly issued. If an issue does not require further fact finding or a determination by Appeals, and the case is to be conceded and the tax abated, the decision document should state that the notice of determination is not sustained as in the sample decision at section VI.J.1.a. When the assessment is conceded as invalid but the assessment period is still open, the sample paragraph stating that respondent's right to reassess the tax liability is preserved should be included.

A motion to dismiss on ground of mootness, rather than a stipulated decision document, should be filed if the tax liability has been paid in full and no issues have been raised that would invoke the Tax Court's overpayment jurisdiction under sections 6404(h) or 6015(e). Similarly, a motion to dismiss on the ground of mootness should be filed if the assessment has been abated. Counsel attorneys should also ensure that the lien has been, or will be, released or the proposed levy will be abandoned before filing the motion. See section V.I.1, supra . If the Service has agreed to abate the assessment but the abatement has not been completed, a motion to dismiss on ground of mootness should not be filed. Instead, a stipulated decision document setting forth the basis for the abatement should be filed. (Sample decision in section VI.J.1.a.) If some, but not all, tax periods at issue have been paid or abated, a stipulated decision can be filed stating that the issues associated with the pertinent tax periods are moot, and then separately addressing the unpaid periods.

If the taxpayer is conceding the case in full and the underlying tax liability is not at issue, then a stipulated decision document stating that the determinations are sustained in full should be filed. (Sample decision in section VI.J.1.b). If the taxpayer is conceding the case in full but a collection alternative has been agreed to outside CDP (in one of the circumstances described in section V.I.4.b), then the collection alternative should be referenced below the judge's signature as in Sample decision in section VI.J.1.c. An example would be when Appeals properly rejected an offer-incompromise but after the notice of determination was issued the taxpayer experienced a substantial adverse change in circumstances making the offer in compromise acceptable. While the appeal to Tax Court is pending, the taxpayer submits financial documentation and this is forwarded with taxpayer's offer-in-compromise to the Collection function, which accepts the offer. The acceptance of the offer should not be referenced above the line because the offer was accepted outside of the CDP hearing and the court has no jurisdiction in connection with the offer. Note that if Appeals had erred in concluding that the financial documentation was not submitted, a motion for remand should generally be filed rather than a document not sustaining the determination.



2. Liability issues

When the taxpayer challenges the underlying tax liability ( i.e. , the proper amount of tax imposed by the Internal Revenue Code), the attorney must first determine whether the challenge is precluded under section 6330(c)(2)(B). If the challenge to the underlying tax liability is not precluded, then the stipulated decision document must set forth the amount of the underlying tax liability, which is referred to in the decision document as the amount of tax imposed by the Internal Revenue Code. See sample at section VI.J.1.d. The amounts of the liability and additions to tax should be calculated as of the date the decision is entered. Stipulations as to interest should generally be below the line and state that interest accrues in accordance with law. If the amount of interest that accrued on the tax liability was specifically at issue, the amount of interest agreed to can be put above the line. Any stipulation as to overpayments should be placed below the line, because the Tax Court does not have jurisdiction under the CDP provisions to determine an overpayment or order its refund (unless the overpayment arises under section 6404(h) or 6015(e)). If the underlying tax liability is not properly at issue but adjustments are agreed to, the amount of the underlying tax liability should be set forth below the Judge's signature. See sample at section VI.J.1.e.



3. Sections 6404 and 6015 issues

CDP cases may involve claims for interest abatement under section 6404 or relief from joint and several liability under section 6015. For sample decisions for cases in which the notice of determination addresses both CDP issues and interest abatement, see section VI.J.2 a and b. For sample decisions in which the notice of determination addresses both CDP issues and relief from joint and several liability, see section VI.J.3.a through d.



M. Appeal of Tax Court CDP Decision

Section 7482(b)(1) provides that a Tax Court decision is appealable to the Court of Appeals for the District of Columbia Circuit unless the decision is listed in one of the categories specified in section 7482(b)(1)(A)-(F). Although none of subparagraphs (A)-(F) expressly mentions a decision in a CDP case, we should not object to venue when a taxpayer appeals a CDP decision to the circuit court of appeals of the taxpayer's residence or principal place of business, which is the rule for deficiency cases. It is reasonable to believe that Congress intended the rules of section 7482(b)(1)(A)-(F) to apply to the appeal of CDP decisions, because section 6330(d)(1)(A) contemplates that the Tax Court should exercise jurisdiction over taxes being collected in the same manner as it exercises jurisdiction over deficiency cases.

Section 7485(a), requiring a taxpayer to post an appeal bond in order to stay collection, does not apply to CDP cases. By its terms, section 7485 applies only to the collection (and assessment) of deficiencies, not assessed liabilities that are the subject of a CDP case. In a CDP levy case, levy is suspended during the pendency of appeals, unless the IRS obtains a lifting of the suspension pursuant to section 6330(e)(2).

Please contact Procedure & Administration Branch 3 or 4, at 202-622-3600 or 202-622-3630 respectively, for assistance with any questions that arise in CDP cases.
_______/s/ ____________________

Deborah A. Butler

Associate Chief Counsel

(Procedure and Administration)



VI. Exhibits

Note: The following are only sample motions. Your motion should reflect the specific facts and issues in your case and any new or more pertinent case law applicable to your case .



A. Joint Motion to Change Caption


JOINT MOTION TO CHANGE CAPTION


RESPONDENT MOVES that the Court enter an order correcting the caption in the above-entitled case by changing the docket number to read [ insert docket number ]"L" and designating this case as a Lien or Levy Action provided for in I.R.C. § 6320(c) or 6330(d) and T.C. Rules 330 through 334.

IN SUPPORT THEREOF, respondent states:

1. [ Describe something in the petition from which it appears that petitioner is challenging a Notice of Determination under Section 6320 and/or 6330, such as a reference to lien or levy or collection or section 6320 or 6330. ]

2. The petition appears to be an appeal of a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 issued by respondent on _____, 200_, a copy of which is attached as Exhibit A.

3. The copy of the petition served on respondent does not include an "L" in the docket number.

4. Petitioner informed respondent that he/she intended to seek review of the Notice of Determination as a levy [lien] action brought under section 6330(d) [6320(c) and 6330(d)].

WHEREFORE, it is prayed that this motion be granted.



B. Motion to Remove Small Tax Case Designation


MOTION TO REMOVE SMALL TAX CASE DESIGNATION


RESPONDENT MOVES, pursuant to Tax Court Rules 50 and 171(c), that the Court enter an order removing the small case designation from this case and that these proceedings be conducted under the Court's regular case procedures.

IN SUPPORT THEREOF, respondent respectfully states:

1. On or about _____________, respondent sent petitioner a (select the applicable letter) [ A Final Notice-Notice of Intent to Levy and Notice of Your Right to Request a Hearing under I.R.C. § 6330 ] [ Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320 ] (CDP Notice). A copy of the CDP Notice is attached hereto as Exhibit A.

2. In response to the CDP Notice, petitioner timely submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing, which lists the taxable periods as [ list periods ]. A copy of the Form 12153 is attached hereto as Exhibit B.

3. Appeals issued a Notice of Determination covering the years listed on the hearing request. A copy of the Notice of Determination is attached hereto as Exhibit C. Petitioner subsequently filed a timely petition with the Court covering the years listed on the Notice of Determination.

4. Section 7463(f)(2) provides that a CDP case may be conducted under "S case" procedures with respect to "a determination in which the unpaid tax does not exceed $50,000." Section 7463(f)(2) requires that the total unpaid tax, not just the amount of tax in dispute, as of the date of the determination must not exceed $50,000.00 for a CDP case to qualify for small case status. Leahy v. Commissioner , 129 T.C. 71 (2007); Schwartz v. Commissioner , 128 T.C. 6 (2007). The term "tax" includes all accrued and unassessed interest and penalties on the underlying tax liability, as well as all assessed interest and penalties. See Schwartz v. Commissioner , 128 T.C. 6, n.1 (2007); see also I.R.C. §§ 6601(e)(1) and 6665(a)(2).

Select the paragraph 5 that applies to your case: Use the first paragraph when there is no question that the total unpaid tax as of the Determination exceeded $50,000. Use the second paragraph when the amount of total unpaid tax is close to $50,000 and so an INTST transcript must be obtained to establish the actual total unpaid tax as of the Determination.

5. As of the date listed on the CDP notice, the amount of unpaid tax for the year(s) at issue exceeded $50,000. See Exhibit A. Between the date the Internal Revenue Service calculated the amount due in Exhibit A and the date the Notice of Determination was issued, petitioner has (select correct option) [ made no payments toward the tax liabilities at issue .] [ made payments in the amount of only $ _______toward the tax liabilities at issue .] See Exhibit D, the transcript of account. (Generally Forms 4340 are preferred, but if time does not permit obtaining certified transcripts, literal or IDRS transcripts should suffice.) Thus, the total unpaid tax for the case at issue as of the date of the Notice of Determination was greater than $50,000.00, and this case is not eligible for small case designation.

5. Attached as Exhibit D is an INTST transcript for the year(s) at issue. According to the INTST transcript, the total unpaid tax for the case at issue as of the date of the Notice of Determination is $ _____________. Thus, this case is not eligible for small case designation.

6. Respondent contacted petitioner regarding this Motion, and petitioner said that he/she (select one) [ objects ] [ does not object ] to the granting of this Motion.

WHEREFORE, it is prayed that this Motion be granted.



C. Motion to Dismiss for Mootness


MOTION TO DISMISS ON GROUND OF MOOTNESS


RESPONDENT MOVES, pursuant to T.C. Rule 53, that this case be dismissed as moot given that, subsequent to the filing of the petition, the tax liability for taxable year(s) [ insert year(s) ] has been paid in full and the proposed levy is no longer necessary.

IN SUPPORT THEREOF, respondent states:

1. On ___, 200_, respondent issued a Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing ("CDP Notice") to petitioner with respect to his/her income tax liabilities, including penalties and interest, for taxable year(s) [ insert year(s) ].

2. In response to the Final Notice, petitioner requested a collection due process ("CDP") hearing with respondent's Office of Appeals pursuant to I.R.C. § 6330(b)(1).

3. On ___, 200_, Appeals issued a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 approving the proposed levy to collect the liabilities arising with respect to taxable year(s) [ insert year(s) ].

4. On ___, 200_, petitioner filed a Petition for Lien or Levy Action under Code Section 6320(c) or 6330(d) in the present case.

5. Subsequently, petitioner [an offset pursuant to section 6402(a) of an overpayment from petitioner's taxable year(s) [ insert year(s) ] paid all outstanding income taxes, penalties, and interest with respect to taxable year(s) [ insert year(s) ]. Attached to this motion as Exhibit ___is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ] which reflects this payment.

6. As a result of the full payment of petitioner's liabilities subject to the Notice of Determination, respondent no longer needs nor intends to levy to collect petitioner's income tax liabilities for taxable year(s) [ insert year(s) ], which gave rise to the petition in the instant case. As there is no remaining case or controversy to sustain this Court's jurisdiction, this action is no longer justiciable. See Greene-Thapedi v. Commissioner , 126 T.C.1 (2006). Accordingly, this case is moot, and the petition should be dismissed.

7. Petitioner objects/does not object to the granting of this motion.

WHEREFORE, it is prayed that this motion be granted.



D. Motions to Dismiss for Lack of Jurisdiction



1. No CDP notice of determination (and no notice of deficiency or other determination issued)


MOTION TO DISMISS FOR LACK OF JURISDICTION


RESPONDENT MOVES, pursuant to T.C. Rule 53, that this case be dismissed for lack of jurisdiction upon the grounds that no notice of determination under I.R.C. § 6320 or 6330 was sent to petitioner for taxable year(s) [ insert year(s) ], nor has respondent made any other determination with respect to taxable year(s) [insert year(s) ] that would confer jurisdiction on this Court.

IN SUPPORT THEREOF, respondent states:

1. Petitioner attached to the petition a Notice of Levy [ or state the type of notice regarding filing of notice of federal tax lien, levies, or collection actions ]. Such document, attached hereto as Exhibit A, may indicate that petitioner is seeking to invoke the Court's jurisdiction under I.R.C. § 6330(d) [§§ 6320(c) and 6330(d)] in this case.

2. The Tax Court cannot acquire jurisdiction with respect to a proposed levy [the filing of a notice of federal tax lien] unless, and until, there is a determination by respondent's Office of Appeals and the taxpayer seeks review of that determination within 30 days thereof. Offiler v. Commissioner , 114 T.C. 492, 498 (2000).

3. Respondent has diligently searched respondent's records and has found no indication that any Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 was sent to petitioner with respect to taxable year(s) [ insert year(s) ]. Attached to this motion as Exhibit A is a Form 4340, Certificate of Assessments, Payments and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ].


Alternative Paragraphs where decision letter is attached to the petition:


1. Petitioner attached to the petition a Decision Letter Concerning Equivalent Hearing under Section 6320 and/or 6330 of the Internal Revenue Code. Such document, attached hereto as Exhibit B, may indicate that petitioner is seeking to invoke the Court's jurisdiction under section 6330(d) [sections 6320(c) and 6330(d). Petitioner was issued a Decision Letter, rather than a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, because he/she did not timely request a hearing under section 6330 [6320]. Treas. Reg. § 301.6330-1(i)(1). [Treas. Reg. § 301.6320-1(i)(1).]

2. A Final Notice-Notice of Intent to Levy and Notice of Your Right to Request a Hearing under I.R.C. § 6330 [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, hereinafter referred to as the "CDP Notice") dated _____, 200_, was sent to petitioner by certified mail on _____, 200_, as shown by the postmark date stamped on the IRS certified mail list [United States Postal Service Form 3877]. Copies of the CDP Notice and IRS certified mail list [Postal Service Form 3877], showing the date the CDP Notice was delivered to the Post Office to be sent by certified mail, are attached as Exhibits C and D, respectively.

3. Respondent received petitioner's Request for a Collection Due Process Hearing on Form 12153 on ____, 200_, as evidenced by respondent's date stamp thereon. A copy of petitioner's Request for a Collection Due Process or Equivalent Hearing is attached as Exhibit E.

4. Pursuant to section 6330(a)(3)(B) and Treas. Reg. § 301.6330-1(b)(1) petitioner must submit a written request for a hearing with respect to a CDP notice issued under section 6330 within the 30-day period commencing the day after the date of the CDP notice. [Pursuant to section 6320(a)(3)(B) and Treas. Reg. § 301.6320-1(b)(1), petitioner must submit a written request for a hearing with respect to a CDP notice issued under section 6320 within the 30-day period commencing the day after the end of the five day business period within which respondent is required to give notice of the lien filing.] Any written request for a CDP hearing should be filed with the IRS office at the address indicated on the notice. Treas. Reg. § 301.6330-1(c)(2) Q&A-C6 [301.6320-1(c)(2) Q&AC6]. If the address on the CDP Notice is used and the written request is postmarked within the applicable 30-day response period, then in accordance with section 7502, the request will be considered timely even if it is not received by the correct IRS office until after the 30-day response period. Treas. Reg. § 301.6330-1(c)(2) Q&A-C4 [301.6320-1(c)(2) Q&A-C4].

5. Petitioner's request for hearing was not received within the 30-day period, and was not timely mailed. [ Describe the reasons why the request for hearing should be considered late. ]

6. A taxpayer who makes an untimely request for a CDP hearing under either section 6320 or section 6330 is not entitled to a CDP hearing. Treas. Reg. § 301.6330-1(i)(1)[301.6320-1(i)(1)]; Kennedy v. Commissioner , 116 T.C. 255 (2001). Because petitioner did not make a timely written request for a hearing under section 6330 [section 6320], the Office of Appeals properly held an equivalent hearing and issued a Decision Letter. Under the circumstances described above, the Tax Court lacks jurisdiction of this matter under section 6330[6320] and T.C. Rule 330.

*************

4. Respondent has diligently searched respondent's records and has determined that no other determination has been made by respondent that would confer jurisdiction on this Court.

5. Petitioner has not demonstrated that a Notice of Determination sufficient to confer jurisdiction on this Court with respect to tax year(s) [ insert year(s) ] was issued by Appeals as required by section 6320(c) and/or 6330(d)(1).

6. Under the circumstances described above, the Tax Court lacks jurisdiction of this matter under section 6320 or 6330 and T.C. Rule 330(b).

7. Petitioner objects to the granting of this motion.

WHEREFORE, respondent requests that this motion be granted.



2. Petition includes taxes and/or periods not included in CDP notice of determination (and not included on any notice of deficiency or any other determination)


MOTION TO DISMISS FOR LACK OF JURISDICTION AND TO STRIKE AS TO TAXABLE YEAR 1997


RESPONDENT MOVES, pursuant to T.C. Rules 52 and 53, that petitioner's claim with respect to taxable year 1997 be dismissed upon the ground that no notice of determination under I.R.C. § 6320 or 6330 was sent to petitioner for taxable year 1997, nor has respondent made any other determination with respect to taxable year 1997 that would confer jurisdiction on this Court, and that all references to taxable year 1997 be stricken from the petition.

IN SUPPORT THEREOF, respondent states:

1. Respondent sent to petitioner a Final Notice-Notice of Intent to levy and Notice of Your Right to a Hearing [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, which hereinafter is referred to as the "CDP Notice"), dated _____, 200_, advising petitioner that respondent intended to levy to collect unpaid liabilities for taxable years 19XX through and including 1996 [advising petitioner that a notice of federal tax lien has been filed with respect to his/her unpaid liabilities for taxable years 19XX through and including 1996], and that petitioner could receive a collection due process hearing with Appeals. A copy of the CDP Notice is attached hereto as Exhibit A.

2. Respondent has diligently searched respondent's records and has found no indication that any Final Notice-Notice of Intent to levy and Notice of Your Right to a Hearing [any Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] was sent to petitioner with respect to taxable year 1997. Attached to this motion as Exhibit B is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ].

3. On ___, 200_, petitioner requested a collection due process hearing from respondent for taxable years 19XX through 1997. A copy of the Form 12153 Request for a Collection Due Process or Equivalent Hearing is attached hereto as Exhibit C.

4. On ____, 200_, respondent sent to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, informing petitioner that he/she was not entitled to the relief requested. On the first page of the Notice of Determination, under the headings "Tax Type/Form Number" and Tax Period(s) Ended, income tax for taxable year 1997 is not included. Moreover, income tax for taxable year 1997 is not included in the attachment to the Notice of Determination, which describes the determinations of respondent's Office of Appeals with respect to collection of petitioner's tax liabilities by proposed levy [filing of notice of federal tax lien]. A copy of the Notice of Determination is attached hereto as Exhibit D.

5. On ___, 200_, petitioner timely commenced the above-entitled case by filing a petition with the Court pursuant to section 6330(d) [sections 6320(c) and 6330(d)] and T.C. Rule 331(a). In the petition, petitioner requests relief with respect to taxable years 19XX through 1997.

6. Respondent has diligently searched respondent's records and has found no indication that any Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 was sent to petitioner with respect to taxable year 1997.

7. Respondent has diligently searched respondent's records and has determined that no other determination has been made by respondent that would confer jurisdiction on this Court.

8. Petitioner has not demonstrated that a notice of determination sufficient to confer jurisdiction on this Court with respect to taxable year 1997 was issued by respondent's Office of Appeals as required by section 6330(d)(1) [sections 6320(c) and 6330(d)(1)].

9. Under the circumstances described above, the Tax Court lacks jurisdiction of this matter under section 6330 [6320] and T.C. Rule 330(b). See Freije v. Commissioner , 125 T.C. 14 (2005); Lister v. Commissioner , T.C. Memo. 2003-17.

10. Petitioner objects to the granting of this motion.

WHEREFORE, respondent requests that this motion be granted.



3. Invalid notice of determination (because of late-filed request for hearing)


MOTION TO DISMISS FOR LACK OF JURISDICTION


RESPONDENT MOVES, pursuant to T.C. Rule 53, that this case be dismissed for lack of jurisdiction upon the grounds that the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 sent to petitioner for taxable year(s) [ insert year(s) ] is invalid, and, thus, it does not confer jurisdiction on this Court under section 6330(d) [sections 6320(c) and 6330(d)].

IN SUPPORT THEREOF, respondent states:

1. On [ insert date ], respondent mailed to petitioner by certified mail a Final Notice of Intent to Levy and Notice of Your Right to a Hearing under I.R.C. § 6330 [Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] ("CDP notice") with respect to petitioner's unpaid [ insert year and type ] tax liabilities. Copies of the CDP notice and a certified mail list, USPS Form 3877 [IRS certified mail list bearing a USPS date stamp or the initials of a postal employee], bearing petitioner's name and address and a postmark date of [ insert date ], are attached as Exhibits A and B, respectively.

2. Attached to this motion as Exhibit C is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ]. [The Form 4340 also confirms mailing of the CDP notice on [ insert date ]].

3. Respondent received petitioner's Form 12153, Request for a Collection Due Process or Equivalent Hearing ("CDP hearing request"), on [ insert date ], as evidenced by respondent's date stamp thereon. The envelope transmitting the CDP hearing request was postmarked [ insert date ]. Copies of the CDP hearing request and its transmittal envelope are attached hereto as Exhibits D and E, respectively.

4. Respondent's Office of Appeals conducted an administrative hearing and determined that the proposed collection action was appropriate. A copy of Appeals' written determination, entitled "Notice of Determination," is attached hereto as Exhibit F.

5. On [ insert date ], petitioner filed a Petition for Lien or Levy Action (Collection Action) and attached to the petition the written determination attached hereto as Exhibit G. This so-called Notice of Determination is invalid, however, and does not confer jurisdiction on this Court to consider the petition because petitioner did not timely request a hearing under section 6330.

6. Pursuant to section 6330(a)(3)(B) [6320(a)(3)(B)] and Treas. Reg. § 301.6330-1(b)(1) [Treas. Reg § 301.6320-1(b)(1)], a taxpayer must submit a written request for a hearing with respect to a CDP notice issued under section 6330 within the 30-day period commencing the day after the date of the notice [with respect to a CDP notice issued under section 6320 within the 30-day period that commences the day after the end of the five business day period within which the IRS is required to provide the taxpayer with notice of the filing of the NFTL]. The CDP hearing request should be filed with the IRS office at the address indicated on the notice. Treas. Reg. § 301.6330-1(c)(2) Q&A C6 [Treas. Reg. § 301.6320-1(c)(2) Q&A C6]. If the address on the CDP notice is used and the written request is postmarked within the applicable 30-day response period, then, in accordance with section 7502, the request will be considered timely even if it is not received by the correct IRS office until after the 30-day response period. Treas. Reg. § 301.6330-1(c)(2) Q&A C4 [Treas. Reg. § 301.6320-1(c)(2) Q&A C4].

7. Here, respondent did not receive petitioner's CDP hearing request within the 30-day response period and the hearing request was not timely mailed. As indicated above, the date on the CDP notice was [ insert date ], meaning the last day for filing a timely request under section 6330(a)(3)(B) [6320(a)(3)(B)] was [ insert day and date ]. Respondent received petitioner's CDP hearing request on [ insert date ], and the postmark on the envelope transmitting the CDP notice to respondent was [ insert date ], which was [ insert number of days] after the [ insert date ] deadline. The attachment to the Notice of Determination correctly recognizes that the hearing request was untimely and that the taxpayer was only entitled to an equivalent hearing.

8. The Tax Court is a court of limited jurisdiction that possesses only such jurisdiction as is expressly conferred upon it by Congress. See Freytag v. Commissioner , 501 U.S. 868, 870-71 (1991); Gati v. Commissioner , 113 T.C. 132, 133 (1999). "It is well settled that the [Tax] Court's jurisdiction in a collection review case under section 6330 depends on the issuance of a valid notice of determination and the filing of a timely petition for review." Smith v. Commissioner , 124 T.C. 38, 39 (2005).

9. The Tax Court cannot acquire jurisdiction under section 6330 with respect to a proposed collection action unless and until respondent's Office of Appeals has issued a valid Notice of Determination with respect to such collection action and the taxpayer has filed a timely petition for review of such determination with the Court. Offiler v. Commissioner , 114 T.C. 492, 498 (2000); Kennedy v. Commissioner , 116 T.C. 255, 260-61 (2001), Moorhaus v. Commissioner , 116 T.C. 263, 269 (2001). A valid Notice of Determination is a written determination issued by Appeals pursuant to section 6320(c) and/or 6330(b) and (c). See section 6330(d) ("a person may within 30 days of a determination under this section , appeal such determination") (emphasis added).

10. A taxpayer who makes an untimely request for a CDP hearing under either section 6320 or section 6330 is entitled neither to a hearing under 6320(c) and/or 6330(b) and (c) nor a determination incident to such a hearing. Treas. Reg. § 6330-1(i)(1) [Treas. Reg. § 6320-1(i)(1)]; Offiler , supra at 498; Kennedy , supra at 262; Moorhaus , supra at 270, n.5. Rather, pursuant to Treas. Reg. § 301.6330-1(i)(1) [Treas. Reg. § 6320-1(i)(1)], the taxpayer is entitled to an equivalent hearing, after which Appeals issues a Decision Letter containing its determination. A Decision Letter is not a "ticket to Tax Court" under section 6330(d), and thus, cannot form the basis for jurisdiction in this proceeding.

11. Where, as here, Appeals erroneously issued a written determination purporting to be a Notice of Determination to a taxpayer who filed an untimely CDP hearing request, such error does not convert the non-statutory equivalent hearing into a CDP hearing under sections 6320(c) and/or 6330(b) and (c) or a written determination issued incident to the equivalent hearing into a valid Notice of Determination under section 6330(c). The Notice of Determination is not a valid notice and this court does not have jurisdiction over this case. Wilson v. Commissioner , 131 T.C. No. 5 (2008).

12. In summary, because petitioner did not make a timely written request for an appeals hearing in accordance with section 6330 [6320], Appeals' written determination was not a valid Notice of Determination within the meaning of section 6330(c). Accordingly, the Tax Court lacks jurisdiction of this case under section 6330(d).

13. Petitioner objects to the granting of this motion.

WHEREFORE, Respondent requests that this motion be granted.



4. Invalid notice of determination (because no CDP lien or levy notice was issued for certain taxes and periods listed in notice of determination, and no notice of deficiency or other determination has been issued for such taxes and periods)


MOTION TO DISMISS FOR LACK OF JURISDICTION AND TO STRIKE AS TO TAXABLE YEAR 1997


RESPONDENT MOVES, pursuant to T.C. Rules 52 and 53, on the grounds that the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 sent to petitioner for taxable year 1997 is invalid and cannot confer jurisdiction on this Court under I.R.C. § 6320(c) or 6330(d), nor has respondent made any other determination with respect to taxable year 1997 that would confer jurisdiction on this Court, and that all references to taxable year 1997 be stricken from the petition.

IN SUPPORT THEREOF, respondent respectfully states:

1. Respondent sent to petitioner a Final Notice-Notice of Intent to levy and Notice of Your Right to a Hearing [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, hereinafter referred to as the "CDP Notice"), dated _____, 200_, advising petitioner that respondent intended to levy to collect unpaid liabilities for 19XX through and including 1996, [advising petitioner that a notice of federal tax lien has been filed with respect to his/her unpaid liabilities for taxable years 19XX through and including 1996], and that petitioner could receive a hearing with respondent's Office of Appeals. A copy of the CDP Notice is attached hereto as Exhibit A.

2. Respondent has diligently searched respondent's records and has found no indication that any Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing [any Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] was sent to petitioner with respect to taxable year 1997. Attached to this motion as Exhibit B is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year 1997 that is current through [ insert date ].

3. On _______, 200_, petitioner requested a collection due process hearing from respondent for taxable years 19XX through 1997. A copy of the Form 12153 Request for a Collection Due Process or Equivalent Hearing is attached hereto as Exhibit C.

4. On ____, 200_, respondent sent to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, informing petitioner that he/she was not entitled to the relief requested. A determination with respect to the collection of petitioner's liability for taxable year 1997 was erroneously included in the Notice of Determination. The attachment to the Notice of Determination, however, recognizes that the CDP Notice was only for the tax years 19XX through 1996. A copy of the Notice of Determination is attached hereto as Exhibit D.

5. On _____, 200_, petitioner timely commenced the above-entitled case by filing a petition with the Court pursuant to section 6330(d) [sections 6320(c) and 6330(d)] and T.C. Rule 331(a).

6. Section 6330(c)(2)(A) [sections 6320(c) and 6330(c)(2)(A)] provide(s) that during the collection due process hearing (the "CDP hearing") with Appeals, the taxpayer may raise "any relevant issue relating to the unpaid tax or the proposed levy...."

7. Treas. Reg. § 301.6330-1(e)(1) [301.6320-1(e)(1)] provides that the taxpayer may raise any relevant issue relating to the unpaid tax during the CDP hearing process and the taxpayer also may raise "challenges to the existence or amount of the tax liability for any tax period shown on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability." (Emphasis added.)

8. Similarly, the legislative history of section 6330 [6320] indicates that Congress intended courts only to review liabilities properly at issue in the CDP hearing. See H.R. Conf. Rep. No. 105-599, 105th Cong. 2d Sess., at p. 266 (1998) (Courts are to review the amount of tax liability on a de novo basis "where the validity of the tax liability was properly at issue in the [collection due process] hearing, and where the determination with regard to the tax liability is part of the [judicial] appeal....").

9. Thus, petitioner was not entitled to make any challenges with respect to taxable year 1997 on his/her Request for a Collection Due Process Hearing or as part of his/her CDP hearing, because that taxable year was not shown on the CDP Notice. The fact that the appeals officer erroneously included taxable year 1997 in the Notice of Determination, and made a determination with respect to this taxable year does not entitle petitioner to judicial review thereof. Cf. Treas. Reg. § 301.6330-1(e)(3) Q&A-E11 [301.6320-1(e)(3) Q&A-E11]; Behling v. Commissioner , 118 T.C. 572 (2002). See also Wilson v. Commissioner , 131 T.C. No. 5 (2008) (written determination purporting to be a Notice of Determination that could be petitioned to Tax Court was not subject to judicial review where the attached appeals case memorandum established that the taxpayer had received an equivalent hearing because of untimely hearing request and could not petition the Tax Court).

10. Because it was improper for petitioner to challenge in the CDP hearing the collection of his/her 1997 tax liabilities, this Court does not have jurisdiction over that taxable year in the judicial review of the Notice of Determination.

11. Respondent has diligently searched respondent's records and has determined that no other determination has been made by respondent that would confer jurisdiction on this Court.

12. Petitioner objects to the granting of this motion.

WHEREFORE, respondent requests that this motion be granted.



5. Late-filed petition


MOTION TO DISMISS FOR LACK OF JURISDICTION


RESPONDENT MOVES, pursuant to T.C. Rule 53, that this case be dismissed for lack of jurisdiction upon the ground that the petition was not filed within the time prescribed by I.R.C. § 6330(d) [I.R.C. §§ 6320(c) and 6330(d)] or § 7502.

IN SUPPORT THEREOF, respondent states:

1. The Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 dated ___, 200_, upon which the above-entitled case is based, was sent to petitioner at his/her last known address by certified mail on ___, 200_, as shown by the postmark date stamped on the certified mail list, United States Postal Service Form 3877 [IRS certified mail list bearing a USPS date stamp or the initials of a postal employee], a copy of which is attached hereto as Exhibit A.

2. The 30-day period for timely filing a petition with this Court from the Notice of Determination expired on [ insert day of the week ], ___, 200_, which date was not a legal holiday in the District of Columbia.

3. The petition was filed with the Tax Court on ___, 200_, which date is [ insert number of days ] days after the mailing of the Notice of Determination.

4. The copy of the petition served upon respondent bears a notation that the petition was mailed to the Tax Court on ___, 200_, which date is [ insert number of days ] days after the mailing of the Notice of Determination.

5. The petition was not filed with the Court within the time prescribed by sections 6330(d) [6320(c) and 6330(d)] or 7502.

6. Petitioner objects to the granting of this motion.

WHEREFORE, it is prayed that this motion be granted.



E. Motion to Remand


MOTION TO REMAND


RESPONDENT MOVES, that the Court remand this Collection Due Process case to the respondent's Office of Appeals for further consideration. IN SUPPORT THEREOF, respondent states:


Sample Alternative paragraphs:


1. During the Collection Due Process (CDP) hearing, the petitioner requested a face-to-face conference at the Office of Appeals closest to his residence. The appeals [settlement] officer assigned to conduct the hearing instead conducted a telephone conference on ___, 200_. On ____, 200_, Appeals issued to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 upholding the [notice of federal tax lien filing/proposed levy]. The petitioner was not advised that the telephone conference constituted his opportunity to be heard, nor was he advised that his request for a face-to-face conference had been denied. Accordingly, the petitioner is entitled to a new CDP hearing, to be held as a face-to-face conference at the [ insert location ] Office of Appeals.

1. During the Collection Due Process (CDP) hearing, the petitioner submitted an offer-in-compromise. The appeals [settlement] officer assigned to conduct the hearing rejected the offer-in-compromise as she determined that the petitioner was not in compliance with filing of all required tax returns. The appeals [settlement] officer was incorrect, however, as petitioner was actually in full compliance with the filing requirements. Accordingly, this case should be remanded to the [ insert location ] Office of Appeals for a new CDP hearing during which petitioner's offer-in-compromise should be reconsidered.

1. During the Collection Due Process (CDP) hearing, the petitioner asked that the CDP conference be postponed to allow for him to consult with counsel. The appeals [settlement] officer from respondent's Office of Appeals refused to postpone the conference in violation of I.R.C. § 7521(b)(2). Section 7521(b)(2) provides a taxpayer with the right to suspend an interview with an Internal Revenue Service officer or employee for the purpose of consulting with an attorney or other authorized representative. The hearing was thereafter terminated by the appeals officer without any relevant issues having been advanced by the petitioner. Respondent issued the Notice of Determination from which the petitioner appeals without considering arguments which petitioner may have made had he consulted with his attorney.

*********

2. Where respondent has abused respondent's discretion, this Court may remand the case to the Office of Appeals to hold a new hearing, where a new hearing is necessary and will be productive. Lunsford v. Commissioner , 117 T.C. 183, 189 (2001); Lites v. Commissioner , T.C. Memo. 2005-206.

3. This case should be remanded to the Office of Appeals in order that the hearing prescribed by section 6330 may be conducted with the petitioner and/or a duly authorized representative.

4. Petitioner objects/does not object to the granting of this motion.

WHEREFORE, respondent requests that this motion be granted.



F. Motions for Summary Judgment and Declaration



1. Motion for summary judgment (for issues subject to abuse of discretion review)


RESPONDENT'S MOTION FOR SUMMARY JUDGMENT [AND TO IMPOSE A PENALTY UNDER I.R.C. § 6673]


RESPONDENT MOVES, pursuant to T.C. Rule 121, for summary adjudication in respondent's favor upon all issues presented in this case.

[RESPONDENT FURTHER MOVES that the Court impose a penalty in an appropriate amount, pursuant to I.R.C. § 6673, as petitioner has instituted these proceedings primarily for the purpose of delay and petitioner's position in the present case is frivolous and groundless.]

IN SUPPORT THEREOF, respondent states:

1. The pleadings in this case were closed on ___, 200_. This motion is made at least 30 days after the date that the pleadings in this case were closed and within such time as not to delay the trial. T.C. Rule 121(a).

2. Filed with this motion is a declaration [the declaration must be accompanied by its own certificate of service, pursuant to T.C. Rule 21(b)] by _______, the appeals [settlement] officer in respondent's Office of Appeals who conducted petitioner's collection due process ("CDP") hearing, setting out the relevant documents contained in the administrative record from the CDP hearing.

3. Attached to this motion as Exhibit _ is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ].


Sample Alternative Paragraphs:


4. Petitioner filed income tax return(s) for taxable year(s) [ insert year(s ], but failed to pay all of the liability (ies) reported on the return(s). Respondent assessed the tax shown on the returns. Declaration Exhibit _.

4. Petitioner filed income tax return(s) for taxable year(s) [ insert year(s) ]. Respondent conducted an examination of the return(s) for taxable year(s) [ insert year(s) ]. On ___, __, respondent sent a statutory notice of deficiency to petitioner, proposing a tax liability(ies). Declaration Exhibit _. As petitioner did not petition the Tax Court with respect to the proposed assessment(s), on ___, __, respondent assessed the tax liability (ies), along with additions to tax and interest. Declaration Exhibit ___.

4. Petitioner failed to file his/her income tax return(s) for [ list year(s) involved ]. On ___, __, respondent sent a statutory notice of deficiency to petitioner, proposing a tax liability (ies). Declaration Exhibit . As petitioner did not petition the Tax Court with respect to the proposed assessment(s), on ___, __, respondent assessed the tax liability(ies), along with additions to tax and interest. Declaration Exhibit _.


Continue with following paragraphs:


5. Respondent sent to petitioner a Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, hereinafter referred to as the "CDP Notice"), dated _____, 200_, advising petitioner that respondent intended to levy to collect unpaid liabilities for taxable year(s) [ insert year(s) ] [advising petitioner that a notice of federal tax lien has been filed with respect to his/her unpaid liabilities for taxable year(s) [ insert year(s) ]], and that petitioner could receive a hearing with respondent's Office of Appeals. Declaration Exhibit ___.

6. On ___, 200_, petitioner submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing. Declaration Exhibit __.

7. On __, 200_, a face to face [telephone] conference was held between Appeals Officer ___and petitioner [petitioner's representative]. Declaration Exhibit __.

8. [Prior to/at/after] the conference, the appeals officer provided petitioner [petitioner's representative] with a copy of the [type of transcripts provided] for petitioner's tax liabilities for taxable year(s) [ insert year(s) ]. Declaration Exhibit __.

9. On ___, 200_, Appeals issued to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330. Declaration Exhibit _.

10. On ___, 200_, petitioner filed with this Court a Petition for Lien or Levy Action under Code Section 6230(c) or 6330(d).

11. When the underlying tax liability is properly at issue, the Court decides the issue of liability de novo. Sego v. Commissioner , 114 T.C. 604, 610 (2000). The Court reviews the Office of Appeals' administrative determination regarding nonliability issues for an abuse of discretion. Goza v. Commissioner , 114 T.C. 176 (2000).


Sample paragraphs for where record rule is at issue.


12. The First and Eighth Circuits have held that judicial review of nonliability issues under section 6330(d) is limited to the administrative record. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), aff'g 125 T.C. 301 (2005); Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006), rev'g 123 T.C. 85 (2004). Respondent recognizes that in cases appealable to circuit courts of appeal other than the First and Eighth Circuit Courts of Appeal, the court's rejection of the record rule in Robinette v. Commissioner , 123 T.C. 85 (2004), is controlling. Nonetheless, respondent urges the Court to reconsider its holding in Robinette and adopt the record rule as enunciated by the First and Eighth Circuits in all cases arising under sections 6320 and 6330, including this case. See also Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4, 301.6330-1(f)(2) Q&A F4.

13. Testimony [ evidence ] outside of the administrative record may be admissible if the administrative record does not adequately explain the basis of the agency determination or if there is a dispute over what happened during the administrative hearing. Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006) (new evidence regarding an irregularity in the conduct of a hearing or some defect in the record may be presented at trial, even if the record rule is applicable). See also Robinette v. Commissioner , 439 F.3d 455, 461 (8 th Cir. 2006) ("Of course, where a record created in informal proceedings does not adequately disclose the basis for the agency's decision, then it may be appropriate for the reviewing court to receive evidence concerning what happened during the agency proceedings.") (citation omitted). The administrative record in this case, however, not only completely discloses all of the factors that the appeals officer [ settlement officer ] considered in making his/her determination but also confirms that he/she did not omit any relevant factor required to make such determination, and the petitioner has failed to allege material facts or otherwise make a prima facie showing that any exceptions to the record rule applies.

*********


Additional Sample Paragraphs:


16. In his/her petition, petitioner argues that the appeals officer erred in not allowing him/her to challenge the validity of the notice of deficiency (Declaration Exhibit __) issued to him/her. Petitioner admits he/she received a notice of deficiency but contends that the notice was invalid because the Secretary did not sign the notice. There is no requirement that the notice of deficiency be signed and it may be issued by delegates of the Secretary. Nestor v. Commissioner , 118 T.C. 162 (2002).

17. In his/her petition, petitioner argues that the appeals officer erred in not providing him/her with documentation that established that the appeals officer verified that the requirements of any applicable law or administrative procedure were met. Section 6330(c)(1) [Sections 6320(c) and 6330(c)(1)] does not require the appeals officer to give petitioner a copy of the verification that the requirements of any applicable law or administrative procedure were met. Nestor v. Commissioner , 118 T.C. 162 (2002). Therefore, petitioner was not entitled to the production of the documents requested, including [ list documents requested ]. [Petitioner was provided with a MFTRA-X transcript of account [Form 4340].]

18. In his/her petition, petitioner argues that the appeals officer did not produce documents which show a valid assessment was made. The appeals officer, however, provided petitioner with a copy of a MFTRA-X transcript of his/her account [Form 4340]. Declaration Exhibit _. This transcript identifies the taxpayer, the character of the liability assessed, the taxable period and the amount of the assessment. Absent a showing of irregularity, transcripts which show this type of information are sufficient to establish that a valid assessment was made. Standifird v. Commissioner , T.C. Memo. 2002-245 (MFTRAX); Schroeder v. Commissioner , T.C. Memo. 2002-190 (TXMOD-A); Wagner v. Commissioner , T.C. Memo. 2002-180 (IMF MCC - Individual Master File-Martinsburg Computing Center - transcript). [Absent a showing of irregularity, a Form 4340 is sufficient to establish that a valid assessment was made. Nestor v. Commissioner , 118 T.C. 162 (2002).] As petitioner does not allege that there were any irregularities in the assessment procedure, petitioner's argument that there was no valid assessment has no merit.

19. In his/her petition, petitioner claims he/she never received [was never sent] a notice and demand for payment, as required under section 6303. The TXMOD-A transcript of account, however, reviewed by the appeals officer showed that respondent sent to petitioner notice and demand for payment on ___. Declaration Exhibit _. An appeals officer may rely on a computer transcript to verify that a notice and demand for payment has been sent to the taxpayer in accordance with section 6303. Schaper v. Commissioner , T.C. Memo. 2002-203; Schroeder v. Commissioner , T.C. Memo. 2002-190. [The Form 4340 provided to petitioner by the appeals officer shows that respondent issued to petitioner notice(s) of balance due on ____. This notice of balance due constitutes notice and demand for payment within the meaning of section 6303(a). Thompson v. Commissioner , T.C. Memo. 2004-204; Henderson v. Commissioner , T.C. Memo. 2004-157; Standifird v. Commissioner , T.C. Memo. 2002-245. An appeals officer may rely on a Form 4340 to verify that a notice and demand for payment has been sent to the taxpayer in accordance with section 6303. Craig v. Commissioner , 119 T.C. 252, 262-263 (2002).] Proof that notice and demand was issued is sufficient to satisfy the requirements of section 6303, and there is no requirement that respondent prove receipt of such notice. I.R.C. § 6303(a); Perez v. United States , 2002-1 USTC ¶ 50,259; United States v. Lisle , 92-1 USTC ¶ 50,286 (N.D. Cal.), citing Thomas v. United States , 755 F.2d 728 (9 th Cir. 1985). As petitioner has failed to present any evidence that the notice and demand was not issued as reflected on the transcripts of account [Forms 4340], his/her argument has no merit.

20. In his/her petition, petitioner claims that the appeals officer erred in not considering his/her offer of a collection alternative, i.e. , his/her offer to pay the tax liability (ies) if the appeals officer showed him/her the law which requires payment of tax. Petitioner's attempt to label this conditional offer as a "collection alternative" has no merit as the offer is based on the assumption that the Internal Revenue Code does not require petitioner to pay taxes. This Court has found this argument to be frivolous. Holliday v. Commissioner , T.C. Memo. 2005-240; Tolotti v. Commissioner , T.C. Memo. 2002-86; Rowlee v. Commissioner , 80 T.C. 1111 (1983).

21. Throughout the administrative and litigation process, the petitioner has advanced contentions and demands previously and consistently rejected by this and other courts. Carrillo v. Commissioner , T.C. Memo. 2005-290; Holliday v. Commissioner , T.C. Memo. 2005-240; Delgado v. Commissioner , T.C. Memo. 2005-186. Courts have acknowledged that there is no need to devote resources to refuting such arguments "... with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit." Id. , citing Crain v. Commissioner , 737 F.2d 1417 (5 th Cir. 1984).

22. The appeals officer did not abuse his [her] discretion in rejecting the offer-incompromise [installment agreement] offered by the taxpayer. Acceptance of a proposed collection alternative is within the discretion of the appeals officer. The appeals officer followed all guidelines in the IRM in evaluating the offer-in-compromise [installment agreement]. Fifty Below Sales & Marketing, Inc. v. United States , 497 F.3d 828 (8 th Cir. 2007) (where appeals officer followed all statutory and administrative procedures and gave a reasoned decision in rejecting a proposed installment agreement, the court cannot reverse simply because it might have weighed the equities differently from the appeals officer). [The appeals officer did not abuse her discretion in rejecting petitioner's offer-incompromise, as petitioner failed to provide the necessary financial information during the CDP hearing. Olsen v. United States , 414 F.3d 144, 154 (1 st Cir. 2005).] [The appeals officer did not abuse her discretion in rejecting petitioner's installment agreement, as petitioner failed to provide the necessary financial information during the CDP hearing. Orum v. Commissioner , 412 F.3d 819, 820 (7 th Cir. 2005).] [The appeals officer did not abuse her discretion in rejecting the proposed installment agreement [offer-in-compromise] as, during the CDP hearing, petitioner was not in compliance with the filing requirements for all required tax returns. Rodriguez v. Commissioner , T.C. Memo. 2003-153; McCorkle v. Commissioner , T.C. Memo. 2003-34.] [The appeals officer did not abuse her discretion in rejecting the proposed installment agreement [offer-in-compromise] as, during the CDP hearing, petitioner was not in compliance with the required employment tax deposits. Living Care Alternatives Inc. v. United States , 411 F.3d 621 (6 th Cir. 2005).]

23. Pursuant to section 6330(c)(3), the determination of an appeals officer must take into consideration (A) the verification that the requirements of applicable law and administrative procedures have been met, (B) issues raised by the taxpayer, and (C) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection be no more intrusive than necessary. As stated in the attachment to the Notice of Determination, attached as Declaration Exhibit _, the appeals officer considered all three of these matters. The appeals officer fully responded to petitioner's challenge(s) to the proposed collection action at the collection due process hearing. Because the appeals officer fully complied with the requirements of section 6330(c)(3), particularly in responding to the issue(s) raised by petitioner, there was no abuse of discretion.


Sample paragraphs for Requesting the Section 6673 penalty.


24. Section 6673(a)(1) authorizes the Tax Court to impose a penalty, not in excess of $25,000, on a taxpayer, if it appears that the taxpayer has instituted or maintained a proceeding primarily for delay, or that the taxpayer's position in the proceeding is frivolous or groundless. I.R.C. § 6673(a). Section 6673(a)(1) applies to collection due process proceedings. Pierson v. Commissioner , 115 T.C. 576 (2000); Hoffman v. Commissioner , T.C. Memo. 2000-198. In collection due process proceedings, this Court has imposed the penalty when petitioner raises frivolous and groundless arguments with respect to the legality of the federal tax laws. Burke v. Commissioner , 124 T.C. 189 (2005); Forrest v. Commissioner , T.C. Memo. 2005-228; Yacksyzn v. Commissioner , T.C. Memo. 2002-99; Watson v. Commissioner , T.C. Memo. 2001-213; Davis v. Commissioner , T.C. Memo. 2001-87.

25. In his/her [request for a hearing/petition/any other relevant pleadings], petitioner argues [ list arguments ]. These allegations establish that petitioner is using the collection due process proceedings as a vehicle to raise frivolous arguments against the federal income tax system. Petitioner was warned that the Tax Court may impose a penalty for such arguments by the appeals [settlement] officer in a letter sent to petitioner dated ____. Declaration Exhibit ___.


Conclude motion with the following paragraphs.


26. Respondent states that counsel of record has reviewed the administrative file, the pleadings, and all written proof submitted, and, on the basis of this review, concludes that there is no genuine issue of any material fact for trial.

27. Petitioner objects to the granting of this motion.

WHEREFORE, it is prayed that this motion be granted.



2. Motion for summary judgment (section 6330(c)(2)(B))



a. Receipt of statutory notice of deficiency


MOTION FOR SUMMARY JUDGMENT


RESPONDENT MOVES, pursuant to T.C. Rule 121, for summary adjudication in respondent's favor, because, pursuant to I.R.C. § 6330(c)(2)(B), petitioner's receipt of the statutory notice of deficiency precludes him/her from challenging the underlying tax liability for taxable year(s) [ insert year(s) ], the only error assigned in the petition.

IN SUPPORT THEREOF, respondent states:

1. The pleadings in this case were closed on ___, 200_. This motion is made at least 30 days after the date that the pleadings in this case were closed and within such time as not to delay the trial. T.C. Rule 121(a).

2. Filed with this motion is a declaration [the declaration must be accompanied by its own certificate of service, pursuant to T.C. Rule 21(b)] by _______, the appeals [settlement] officer in respondent's Office of Appeals who conducted petitioner's collection due process ("CDP") hearing, setting out the relevant documents contained in the administrative record from the CDP hearing.

3. Attached to this motion as Exhibit _ is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable year(s) [ insert year(s) ], that is current through [ insert date ].

4. Respondent sent to petitioner a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, hereinafter referred to as the "CDP Notice"), dated _____, 200_, advising petitioner that respondent intended to levy to collect unpaid liabilities for taxable year(s) [ insert year(s) ] [advising petitioner that a notice of federal tax lien has been filed with respect to his/her unpaid liabilities for taxable year(s) [ insert year(s) ]], and that petitioner could receive a hearing with respondent's Office of Appeals. Declaration Exhibit B.

5. Petitioner timely filed Form 12153, Request for a Collection Due Process or Equivalent Hearing, on ___, 200_. Declaration Exhibit C.

6. Respondent sent to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, dated , 200_, with respect to petitioner's income tax liability for tax year(s) [ insert year(s) ]. Declaration Exhibit D.

7. In his/her petition, petitioner argues that the appeals officer erred in not allowing him/her to challenge the existence of the underlying tax liability. Pursuant to section 6330(c)(2)(B), petitioner cannot raise during the CDP hearing the existence or amount of the underlying tax liability if petitioner received a statutory notice of deficiency for that tax liability.

8. Treas. Reg. § 301.6330-1(e)(3) Q&A-E2 [ 301.6320-1(e)(3) Q&A-E2] provides that receipt of a statutory notice of deficiency for purposes of section 6330(c)(2)(B) means receipt in time to petition the Tax Court for a redetermination of the deficiency asserted in the notice of deficiency.


Alternative Paragraphs addressing receipt of the Notice of Deficiency:


9. Petitioner received a statutory notice of deficiency for taxable year(s) [ insert year(s) ]. A copy of the notice of deficiency for [ insert year(s) ] sent to petitioner is contained in respondent's examination file, and is attached hereto as Declaration Exhibit _. Additionally, the examination file contains a letter from petitioner to Deborah Decker, Director of the Ogden Service Center, dated ___, __, acknowledging receipt of the notice of deficiency and raising frivolous objections. Declaration Exhibit _.

9. Petitioner received a statutory notice of deficiency for taxable year(s) [ insert year(s) ]. A copy of the notice of deficiency for [ insert year(s) ] sent to petitioner is contained in respondent's examination file, and is attached hereto as Declaration Exhibit _. Petitioner admitted to Appeals Officer ____, the person in respondent's Office of Appeals who conducted petitioner's CDP hearing, that petitioner received the notice of deficiency. Declaration, ¶ __.

9. Respondent properly mailed the statutory notice of deficiency to the petitioner's last known address on ____, ____. A copy of the notice of deficiency for taxable year(s) [ insert year(s) ] sent to petitioner is contained in respondent's examination file, and is attached hereto as Declaration Exhibit __. Also attached is United States Postal Service Form 3877 [IRS certified mail list bearing a USPS date stamp or the initials of a postal employee] dated ____, ____. Declaration Exhibit __. Respondent is entitled to rely upon presumptions of official regularity and delivery where the record reflects proper mailing of the statutory notice of deficiency. Sego v. Commissioner , 114 T.C. 604, 610 (2000); Bailey v. Commissioner , T.C. Memo. 2005-241. See also Figler v. Commissioner , T.C. Memo. 2005-230; Carey v. Commissioner , T.C. Memo. 2002-209. There is no evidence that the statutory notice of deficiency was returned to the Service, nor has petitioner ever denied its receipt. Thus, the presumptions of official regularity and delivery have not been rebutted. Bailey v. Commissioner , supra . Accordingly, the appeals officer properly determined that the petitioner was precluded from disputing the underlying tax liability under section 6330(c)(2)(B).

*********

10. Because respondent mailed the statutory notice of deficiency on ___, __and petitioner received it on ___, __, petitioner received it in sufficient time to petition the Tax Court. Thus, during the subsequent CDP hearing with Appeals, it was improper for petitioner to challenge the tax liability(ies) to which the statutory notice of deficiency related.

11. Because it was improper for the taxpayer to challenge in the CDP hearing the existence or amount of petitioner's liability (ies) with respect to taxable year(s) [ insert year(s) ], the validity of petitioner's underlying tax liability is not properly at issue before this Court. Sego v. Commissioner , 114 T.C. 604 (2000).

12. The petition raises no issues other than challenges to petitioner's tax liability. Pursuant to T.C. Rule 331(b)(4), all other issues are deemed conceded. Lunsford v. Commissioner , 117 T.C. 183 (2001).

13. Respondent states that counsel of record has reviewed the administrative file, the pleadings, and all written proof submitted, and, on the basis of this review, concludes that there is no genuine issue of any material fact for trial.

14. Petitioner objects/does not object to the granting of this motion.

WHEREFORE, it is prayed that this motion be granted.



b. Other "opportunity to dispute" liability: trust fund recovery penalty


MOTION FOR SUMMARY JUDGMENT


RESPONDENT MOVES, pursuant to T.C. Rule 121, for summary adjudication in respondent's favor, because, pursuant to I.R.C. § 6330(c)(2)(B), petitioner's prior opportunity to dispute the underlying liability precludes him/her from challenging the underlying tax liability for the trust fund recovery penalty under I.R.C. § 6672 for the taxable period(s) [ insert period(s) ], the only error assigned in the petition.

IN SUPPORT THEREOF, respondent states:

1. The pleadings in this case were closed on ___, 200_. This motion is made at least 30 days after the date that the pleadings in this case were closed and within such time as not to delay the trial. T.C. Rule 121(a).

2. Filed with this motion is a declaration [the declaration must be accompanied by its own certificate of service, pursuant to T.C. Rule 21(b)] by _______, the appeals [settlement] officer in respondent's Office of Appeals who conducted petitioner's collection due process ("CDP") hearing, setting out the relevant documents contained in the administrative record from the CDP hearing.

3. Attached to this motion as Exhibit _ is a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters for taxable period(s) [ insert period(s) ], that is current through [ insert date ].

4. Respondent sent to petitioner a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing [Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320] (the collection due process notice, hereinafter referred to as the "CDP Notice"), dated _____, 200_, advising petitioner that respondent intended to levy to collect unpaid liabilities for taxable period(s) [ insert period(s) ] [advising petitioner that a notice of federal tax lien has been filed with respect to his/her unpaid liabilities for taxable period(s) [ insert period(s) ]], and that petitioner could receive a hearing with respondent's Office of Appeals. Declaration Exhibit B.

5. Petitioner timely filed Form 12153, Request for a Collection Due Process or Equivalent Hearing, on ___, 200_. Declaration Exhibit C.

6. Respondent sent to petitioner a Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, dated ___, 200_, with respect to petitioner's trust fund recovery penalty tax liability for the tax period(s) [ insert period(s) ]. Declaration Exhibit D.

7. In his/her petition, petitioner argues that the appeals officer erred in not allowing him/her to challenge the existence of the underlying tax liability. Pursuant to section 6330(c)(2)(B), petitioner cannot raise during the CDP hearing the existence or amount of the underlying tax liability if petitioner otherwise had an opportunity to dispute such tax liability.

8. Treas. Reg. § 301.6330-1(e)(3) Q&A-E2 [ 301.6320-1(e)(3) Q&A-E2] provides that an opportunity to dispute the underlying liability for purposes of section 6330(c)(2)(B) includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.


Alternative paragraphs on receipt of Letter 1153:


9. Petitioner received a notice of a proposed trust fund recovery penalty assessment (Letter 1153(DO)) for taxable period(s) [ insert period(s) ] which provided a preassessment opportunity for a conference with Appeals. A copy of the Letter 1153(DO) for [ insert period(s) ] sent to petitioner is attached hereto as Declaration Exhibit _. Additionally, the file contains a letter from petitioner to Appeals dated _____, ___, acknowledging receipt of the Letter 1153(DO) and raising objections to the proposed assessment. Declaration Exhibit _.

9. Petitioner received a notice of a proposed trust fund recovery penalty assessment (Letter 1153(DO)) for taxable period(s) [ insert period(s) ] which provided a preassessment opportunity for a conference with Appeals. A copy of the Letter 1153(DO) for [ insert period(s) ] sent to petitioner is attached hereto as Declaration Exhibit _. Petitioner admitted to Appeals Officer ____, the person in respondent's Office of Appeals who conducted petitioner's CDP hearing, that petitioner received the Letter 1153(DO). Declaration, ¶ __.

9. Respondent sent petitioner by certified mail a notice of a proposed trust fund recovery penalty assessment (Letter 1153(DO)) for taxable period(s) [ insert period(s) ] which provided a pre-assessment opportunity for a conference with Appeals. A copy of the Letter 1153(DO) for [ insert period(s) ] sent to petitioner is attached hereto as Declaration Exhibit _. Also attached is United States Postal Service Form 3877 [IRS certified mail list bearing a USPS date stamp or the initials of a postal employee] dated [ insert date ]. Declaration Exhibit_. Respondent is entitled to rely upon presumptions of official regularity and delivery where the record reflects proper mailing of the Letter 1153(DO). Cf . Sego v. Commissioner , 114 T.C. 604, 610 (2000) (respondent entitled to rely upon presumptions of official regularity and deliver to establish receipt of statutory notice of deficiency); Bailey v. Commissioner , T.C. Memo. 2005-241 (same). There is no evidence that the Letter 1153(DO) was returned to the Service, nor has petitioner ever denied its receipt. Thus the presumptions of official regularity and delivery have not been rebutted. Bailey v. Commissioner , supra . Accordingly, the appeals officer properly determined that the petitioner received the Letter 1153(DO).


Alternative paragraphs on opportunity to dispute:


10. Because the petitioner actually participated in a hearing with Appeals, he had a prior opportunity to challenge the underlying tax liabilities included on the Letter 1153(DO). Thus, during the subsequent CDP hearing with Appeals, it was improper for petitioner to challenge the underlying tax liability(ies) to which the Letter 1153(DO) related. Jackling v. IRS , 352 F. Supp. 2d 129, 132 (D.N.H. 2004); Pelliccio v. United States , 253 F. Supp. 2d 258, 261-62 (D. Conn. 2003); Dami v. IRS , 2002-1 USTC ¶ 50,433 (W.D. Pa.); Konkel v. Commissioner , 2001-2 USTC ¶ 50,520 (M.D. Fla. 2000). See Lewis v. Commissioner , 128 T.C. 48 (2007) (prior opportunity to dispute the underlying tax liability for purposes of section 6330(c)(2)(B) includes an actual hearing with Appeals, even where a taxpayer has no right of judicial review of the Appeals determination).

10. Because the petitioner received the Letter 1153(DO), he had a prior opportunity to challenge the underlying tax liabilities included on the Letter 1153(DO) in a conference with Appeals, even though he did not actually participate in a hearing with Appeals. Thus, during the subsequent CDP hearing with Appeals, petitioner was precluded from challenging the underlying tax liability(ies) to which the Letter 1153(DO) related. Jackling v. IRS , 352 F. Supp. 2d 129, 132 (D.N.H. 2004); Pelliccio v. United States , 253 F. Supp. 2d 258, 261-62 (D. Conn. 2003); Dami v. IRS , 2002-1 USTC ¶ 50,433 (W.D. Pa.); Konkel v. Commissioner , 2001-2 USTC ¶ 50,520 (M.D. Fla. 2000); cf. Planes v. United States , 98 A.F.T.R. 2d 2006-7044 (M.D. Fla. 2006) (settlement officer properly allowed taxpayer to challenge trust fund recovery penalty when he did not receive notice of proposed assessment).

*********

11. Because it was improper for the taxpayer to challenge in the CDP hearing the existence or amount of petitioner's liability (ies) with respect to taxable period(s) [ insert period(s) ], the validity of petitioner's underlying tax liability is not properly at issue before this Court. Sego v. Commissioner , 114 T.C. 604 (2000).

12. The petition raises no issues other than challenges to petitioner's tax liability. Pursuant to T.C. Rule 331(b)(4), all other issues are deemed conceded. Lunsford v. Commissioner , 117 T.C. 183 (2001).

13. Respondent states that counsel of record has reviewed the administrative file, the pleadings, and all written proof submitted, and, on the basis of this review, concludes that there is no genuine issue of any material fact for trial.

14. Petitioner objects/does not object to the granting of this motion.

WHEREFORE, it is prayed that this motion be granted.



3. Declaration


DECLARATION OF [NAME OF APPEALS OFFICER]


I, [name of appeals officer], declare:

1. I am an appeals officer employed in the [name of specific Appeals office], Office of Appeals, Internal Revenue Service, Department of the Treasury, who was assigned to petitioner's appeal under I.R.C. § 6330 of the Service's proposed collection action with respect to petitioner's unpaid liabilities for taxable year(s) [ insert year(s) ].

2. Pursuant to this assignment, I made the determination under section 6330(c)(3) to permit the collection action to proceed. The reasons for, and the facts underlying, my determination are found in the Notice of Determination, dated _____, 200_, a true and correct copy of which is attached hereto as Exhibit A , and in the Appeals Transmittal Memorandum and Case Memo, a true and correct copy of which is attached hereto as Exhibit B [ attach only if applicable ].

3. My determination was made after a face-to-face conference [telephone conference] with petitioner on _____, 200_, and after reviewing the following documents, true and correct copies of which are marked as exhibits, and attached to this declaration:

Exhibit C : Letter 1058 [LT-11], Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing [Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320], dated ___, 200_, issued to petitioner for collection of his/her unpaid tax liabilities for taxable year(s) [ insert year(s) ].

Exhibit D : Form 12153, Request for a Collection Due Process or Equivalent Hearing, filed by petitioner and received by respondent on ______, 200_.

Exhibit E : Letter, dated _____, 200_, to petitioner scheduling a face-to-face [telephone] conference.

Exhibit F : TXMOD-A transcript, dated ____, 200_.

Exhibit G : [ continue attaching as exhibits all documents used by appeals officer in making his or her determination ].

Pursuant to 28 U.S.C. §1746, I declare under penalty of perjury that the foregoing is true and correct.

Executed on _____________
____________________

[Name of appeals officer]



G. Motion to Permit Levy


RESPONDENT'S MOTION TO PERMIT LEVY


THE RESPONDENT MOVES, pursuant to Tax Court Rule 50(a) and I.R.C. § 6330(e)(2), that the Court remove the suspension of the levy under I.R.C. § 6330(e)(1) as the underlying tax liability is not at issue and respondent has shown good cause for the removal of the suspension of the levy.

IN SUPPORT THEREOF, respondent states:

1. Respondent filed a Motion for Summary Judgment and to Impose a Penalty under I.R.C. Section 6673 on or about [ insert date ]. Petitioner was ordered to respond to the motion on or before [ insert date ]. On or about [ insert date ], petitioner filed a declaration with the Court. The motion for summary judgment was calendared for hearing at the [ insert City, State ] trial session of the Court commencing on [ insert date ]. A hearing was held before Judge [ insert name ] on [ insert date ], and the case was taken under advisement for opinion on the motion for summary judgment and damages.

2. Section 6330(e)(1) provides, in pertinent part, that, except as provided in paragraph (2), if a hearing is requested under section 6330(a)(3)(B), the levy actions which are the subject of the requested hearing "shall be suspended for the period during which such hearing, and appeals therein, are pending." Paragraph 2 of section 6330(e) provides that: "Paragraph (1) shall not apply to a levy action while an appeal is pending if the underlying tax liability is not at issue in the appeal and the court determines that the Secretary has good cause not to suspend the levy."

3. In the present case, the underlying tax liabilities for [ insert years ] are not at issue. Petitioner failed to file a valid tax return for [ insert years ] reporting his income. Petitioner received the Statutory Notice of Deficiency for [ insert years ] and petitioned the Tax Court. This case was dismissed for lack of prosecution in [ insert year ] in favor of respondent after petitioner raised frivolous arguments that labor/income is not taxable at [ insert case citation ].

4. In the present levy review (CDP or collection due process) case, petitioner has made only frivolous assertions challenging the validity of the assessments. The assessments with respect to the taxable years in this case were valid. Copies of the Forms 4340 were reviewed and provided to petitioner reflecting that assessments were properly made and notices and demands for payment were mailed to petitioner for each of the taxable years at issue.

5. Respondent submits that "good cause" clearly exists to remove the suspension upon levy in this case, in accordance with section 6330(e)(2). See Burke v. Commissioner , 124 T.C. 189 (2005); Howard v. Commissioner , T.C. Memo. 2005-100; Cf. Polmar Int'l, Inc. v. United States , 2002-2 USTC ¶ 50,636 (W.D. Wash.) (court found "good cause" where taxpayer corporation repeatedly failed to pay employment taxes on time). The purpose of the collection due process statutes, sections 6320 and 6330, is to provide taxpayers with a forum to raise relevant issues with respect to a proposed levy or notice of federal tax lien. I.R.C. § 6330(c)(2)(A); Internal Revenue Service Restructuring and Reform Act of 1998, H.R. Conf. Rep. No. 105-599, 105 Cong., 2d Sess., 263-267 (1998). Petitioner is not using the collection due process statutes for this purpose. Rather, petitioner is using the collection due process statutes solely as a mechanism to delay collection. As noted supra , petitioner has continued to waste judicial resources, after numerous warnings, by continuing to pursue frivolous arguments which have been rejected numerous times by this and other courts. Without relief from the stay upon collection in section 6330(e)(1), this subversion of the collection due process statutes will continue until all final judicial appeals have been exhausted.

6. In sum, all of the aforementioned facts establish good cause for the Court to issue an Order permitting levy under section 6330(e)(2). We request this motion be handled expeditiously, to minimize any further unnecessary delays in collection.

7. Respondent objects to this motion.



H. Stipulation of Facts Attaching Administrative Record


STIPULATION OF FACTS


In accordance with Tax Court Rule 91(e), the parties agree to this Stipulation of Facts pursuant to the general terms of this preamble, unless specifically expressed otherwise. All stipulated facts shall be conclusive. All stipulated exhibits shall be considered authentic. All copies shall be considered electronic reproductions of the originals and shall be treated as if originals. Any relevance or materiality objection may be made with respect to all or any part of this stipulation at the time of submission, but all other evidentiary objections are waived unless specifically expressed within this stipulation.

1. At the time of the filing of the Tax Court petition, the petitioner was a resident of [ insert city and state ].

2. From [ insert date ] through [ insert date ], the petitioner resided at [ insert address ].

3. On [ insert date ], a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320 [ Letter 1058 or LT 11 ], was sent to the petitioner for his [ insert date and type of tax liability ]. Attached and marked as Exhibit 1-J is a true and correct copy of the Letter 3172 [ Letter 1058 or LT11 ].

4. On [ insert date ], respondent received a Form 12153, Request for a Collection Due Process or Equivalent Hearing, filed by the petitioner. Attached and marked as Exhibit 2-J is a true and correct copy of the Form 12153.

5. Attached and marked as Exhibit 3-J is an IMFOLT transcript [ Form 4340, TXMOD-A, MFTRA- X] for petitioner's income tax liability for tax year [ insert year ] dated [ insert date ].

6. On [ insert date ], Appeals Officer [ insert name ] mailed a letter to the petitioner scheduling a hearing for [ insert date ]. Attached and marked as Exhibit 4-J is a true and correct copy of the [ insert date ] letter.

7. Attached and marked as Exhibit 5-J is a true and correct copy of a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, signed by the petitioner and dated [ insert date ].

8. On [ insert date ], the petitioner filed a Form 1040 Individual Income Tax Return, for the taxable year [ insert year ]. Attached and marked as Exhibit 6-J is a true and correct copy of the petitioner's Form 1040 for the taxable year [ insert year ].

9. On [ insert date ], a statutory notice of deficiency was sent to the petitioner for his taxable year [ insert year ]. Attached and marked as Exhibit 7-J is a true and correct copy of the statutory notice of deficiency sent to the petitioner for his taxable year [ insert year ]. Attached and marked as Exhibit 8-J is a true and correct copy of the certified mail list for the [ insert date ] statutory notice of deficiency.

10. On [ insert date ], a conference was held between the petitioner and Appeals Officer [ insert name ].

11. Attached and marked as Exhibit 9-J is a true and correct copy of the Appeals Case Activity Record dated [ insert dates ].

12. Attached and marked as Exhibit 10-J is a true and correct copy of the Appeals Transmittal and Case Memo dated [ insert date ].

13. On [ insert date ], a Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 and Attachment 3193 was sent to the petitioner. Attached and marked as Exhibit 11-J is a true and correct copy of the Notice of Determination.

14. Exhibits 1-J through 11-J constitute the administrative record in the above captioned case.

15. Attached and marked as Exhibit 12-J is a true and correct copy of a letter dated [ insert date ], mailed to petitioner from his personal physician, [ insert name ], discussing petitioner's present medical condition.

_______________________

Counsel for Petitioner
_______________________

Counsel for Respondent



I. Motion in Limine


RESPONDENT'S MOTION IN LIMINE TO EXCLUDE EVIDENCE NOT CONTAINED IN THE ADMINISTRATIVE RECORD


PURSUANT TO Tax Court Rules 50(a) and 143(a), respondent hereby moves that the Court not permit the admission of petitioner's exhibits [ list exhibits ] OR the testimony of [ name of person ] on the grounds that said exhibits OR [ name of person ']s testimony constitute(s) evidence outside of the administrative record and are not relevant as to whether the appeals officer abused his/her discretion.

IN SUPPORT THEREOF, respondent states:

1. On [ insert date ], respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (hereinafter, "Notice of Determination"), which sustained the filing of a Notice of Federal Tax Lien [proposed levy] for petitioner's income tax liabilities for the years [ insert years ]. Petitioner timely filed a petition with the Tax Court on [ insert date ], contesting the Notice of Determination.

2. In his petition, petitioner does not challenge the underlying tax liabilities. Therefore, the Court reviews the Notice of Determination for an abuse of discretion. Goza v. Commissioner , 114 T.C. 176 (2000).

3. The First and Eighth Circuits have held that Tax Court review of nonliability issues arising under sections 6320 and 6330 is limited to the administrative record. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), aff'g 125 T.C. 301 (2005); Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006), rev'g 123 T.C. 85 (2004). Respondent urges the Court to reconsider its holding in Robinette and adopt the record rule as enunciated by the First and Eighth Circuits in all collection due process cases in this Court, including this case.

4. The administrative record consists of the information that the agency reviewed in making its determination. James Madison Ltd. by Hecht v. Ludwig , 82 F.3d 1085, 1095 (D.C. Cir. 1996). In cases arising under section 6330 of the Internal Revenue Code, the administrative record consists of all of the information the appeals officer reviewed in making his/her determination. Treas. Reg. §§ 301.6320-1(f)(2) Q&A F4; 301.6330-1(f)(2) Q&A F4. Attached as Exhibit __to this motion is a declaration from the appeals officer attaching the complete administrative record in this case.

5. In this case, in petitioner's proposed Stipulation of Facts OR in the Stipulation of Facts, petitioner includes the following as exhibits:

[ list exhibits ]

None of these exhibits were presented to or considered by the appeals officer in this case.
OR

5. In this case, in his Trial Memorandum, petitioner lists [ name of person ] as a witness that petitioner expects to call at the trial in this case. Respondent anticipates that [ name of person ] will testify as to events and circumstances that occurred subsequent to the appeals officer's determination to proceed with collection in this case, or to facts and matters that were not considered by the appeals officer.

6. As petitioner's exhibits are not part of the administrative record, they should not be admitted. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), aff'g 125 T.C. 301 (2005); Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006), rev'g 123 T.C. 85 (2004).
OR

6. As the testimony petitioner seeks to introduce from [ name of person ] constitutes evidence outside of the administrative record, it should not be admitted. Murphy v. Commissioner , 469 F.3d 27 (1 st Cir. 2006), aff'g 125 T.C. 301 (2005); Robinette v. Commissioner , 439 F.3d 455 (8 th Cir. 2006), rev'g 123 T.C. 85 (2004).

7. Testimony [ evidence ] outside of the administrative record may be admissible if the administrative record does not adequately explain the basis of the agency determination or if there is a dispute over what happened during the hearing process. Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006) (new evidence regarding an irregularity in the conduct of a hearing or some defect in the record may be presented at trial, even if the record rule is applicable); Robinette v. Commissioner , 439 F.3d 455, 461 (8 th Cir. 2006) ("Of course, where a record created in informal proceedings does not adequately disclose the basis for the agency's decision, then it may be appropriate for the reviewing court to receive evidence concerning what happened during the agency proceedings.") (citation omitted). The administrative record in this case, however, not only completely discloses all of the factors that the appeals officer [ settlement officer ] considered in making his/her determination but also confirms that he/she did not omit any relevant factor required to make such determination, and the petitioner has failed to allege material facts or otherwise make a prima facie showing that any exceptions to the record rule applies.

8 The evidence offered by petitioner should also be excluded because it is not admissible under the Federal Rules of Evidence. In particular, the evidence is not relevant as required by Federal Rule of Evidence 401, as it does not have a tendency to make the existence of any fact that is of consequence in determining whether the appeals [settlement] officer abused his or her discretion more probable or less probable than it would be without the evidence. [Evidence that the petitioner had an opportunity to present but failed to produce at the CDP hearing is not relevant to the question of whether the appeals [settlement] officer abused her discretion.] See Murphy v. Commissioner , 125 T.C. 301 (2005), aff'd , 469 F.3d 27 (1 st Cir. 2006).

WHEREFORE, respondent requests that this motion be granted.



J. Stipulated Decision Documents



1. Notice of determination addresses only tax liability or collection issues (CDP issues)



a. Notice of Determination not sustained

- underlying tax liability or unpaid tax to be abated


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based, are not sustained.
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

Insert the following paragraphs as applicable:

It is further stipulated that respondent will abate the [ insert type of tax ] tax liability for taxable year [ insert year ] on the basis that [ e.g., the assessment was not made within the applicable statute of limitations; the statutory notice of deficiency was not sent to petitioner's last known address and petitioner did not receive it in time to file a Tax Court petition. ]

It is further stipulated that respondent will abate the balance of petitioner's outstanding [ insert type of tax ] tax liability for taxable year [ insert year ] on the basis that [ e.g., the statute of limitations for collection has expired; the tax liability was discharged in bankruptcy. ]

It is further stipulated that respondent will take no further collection action with respect to the [ insert type of tax ] tax liability for taxable year [ insert year ].

If the statute of limitations for assessment has not expired include the following paragraph:

It is further stipulated that the above-referenced tax liability will be abated without prejudice to respondent's right to reassess the tax liability for taxable year [ insert year ] pursuant to the deficiency procedures prescribed in the Internal Revenue Code, to the extent permitted by law.



b. Notice of Determination sustained in full
- underlying tax liability not at issue

- no abuse of discretion


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED: That the determinations set forth in the Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based, are sustained in full.
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

It is further stipulated that, effective upon the entry of this decision by the Court, petitioner waives the restrictions contained in I.R.C. § 6330(e) prohibiting collection of the [ insert type of tax ] tax liability (plus statutory interest) until the decision of the Tax Court becomes final.

If Supplemental Notice is issued after remand:

Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED: That the determinations set forth in the Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based, as supplemented by the Notice of Determination issued on [insert date of supplemental notice ], are sustained in full.



c. Notice of Determination sustained in full
- no abuse of discretion

- tax liability not at issue

- IRS agrees to collection alternative outside CDP (e.g., OIC, installment agreement)


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year )], and upon which this case is based, are sustained in full.

Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

It is further stipulated that the collection of petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ] shall be closed as currently uncollectible for reason of economic hardship as provided under the conditions specified on Form 53, Report of Currently Not Collectible Taxes.

OR

It is further stipulated that collection of petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ] shall be made in accordance with the terms of the [ insert date of installment agreement ] Installment Agreement entered into between the parties pursuant to the provisions of I.R.C. § 6159.

OR

It is further stipulated that collection of petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ] shall be made in accordance with the terms of the [ insert date of offer-in-compromise ] Offer in Compromise entered into between the parties pursuant to the provisions of I.R.C. § 7122.



d. Underlying tax liability properly at issue, no abuse of discretion


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based, are sustained [ insert "in full" if the underlying tax liability is not adjusted; insert "except as provided herein" if the underlying tax liability is adjusted ].

That the tax imposed on petitioner by the Internal Revenue Code for taxable year [ insert year ] is as follows :


[Insert type Addition to tax Addition to tax
Year of tax] Tax I.R.C. § I.R.C. §

------- $xxxx.xx $xxxx.xx $xxxx.xx


Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

It is further stipulated that interest is not included in the above-referenced tax liability, and that interest will be assessed as provided by law on the tax liability.

It is further stipulated that fees and collection costs related to the above referenced tax liability, and interest thereon, are not included in the tax liability and shall remain due and owing.

It is further stipulated that, effective upon the entry of this decision by the Court, petitioner waives the restrictions contained in I.R.C. § 6330(e) prohibiting collection of the tax liability (plus statutory interest) until the decision of the Tax Court becomes final.

Insert if applicable:

It is further stipulated that unassessed additions to tax under I.R.C. § [ insert applicable code section ] will be assessed as provided by law on the above-referenced tax liability.

Insert any of the following paragraphs as appropriate:

It is further stipulated that the above-referenced tax liability does not include a payment in the amount of [ insert amount ] that was made on [ insert date of payment ] and applied to petitioner's tax liability for taxable year [ insert year ]. It is further stipulated that the above-referenced tax liability does not include petitioner's withholding credits in the amount of [ insert amount ] for taxable year [ insert year ].

It is further stipulated that the above-referenced tax liability does not include an advance payment of estimated tax in the amount of [ insert amount ] made by petitioner on [ insert day of payment ] for taxable year [ insert year ]. It is further stipulated that petitioner is entitled to an overpayment credit in the amount of [ insert amount ] from his [ insert year ] tax year which will be applied to petitioner's tax liability for taxable year [ insert year ]. It is further stipulated that there are no overpayments due to petitioner for taxable year [ insert year ].

It is further stipulated that the amount of petitioner's unpaid [ insert type of tax ] tax liability for taxable year [ insert year ] is [ insert amount ].



e. Underlying tax liability not at issue but adjusted, no abuse of discretion


DECISION


Pursuant to agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based are sustained, except as provided herein.
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

It is further stipulated that the tax imposed on petitioner by the Internal Revenue Code for taxable year [ insert year ] is as follows:


[Insert type Addition to tax Addition to tax
Year of tax] Tax I.R.C. § I.R.C. §

------- $xxxx.xx $xxxx.xx $xxxx.xx



It is further stipulated that interest is not included in the above-referenced tax liability, and that interest will be assessed as provided by law on the tax liability.

It is further stipulated that fees and collection costs related to the above referenced tax liability, and interest thereon, are not included in the tax liability and shall remain due and owing.

It is further stipulated that, effective upon the entry of this decision by the Court, petitioner waives the restrictions contained in I.R.C. § 6330(e) prohibiting collection of the tax liability (plus statutory interest) until the decision of the Tax Court becomes final.

Insert if applicable:

It is further stipulated that unassessed additions to tax under I.R.C. § [ insert applicable code section ] will be assessed as provided by law on the above-referenced tax liability.

Insert any of the following paragraphs as appropriate:

It is further stipulated that the above-referenced tax liability does not include a payment in the amount of [ insert amount ] that was made on [ insert date of payment ] and applied to petitioner's tax liability for taxable year [ insert year ].

It is further stipulated that the above-referenced tax liability does not include petitioner's withholding credits in the amount of [ insert amount ] for taxable year [ insert year ].

It is further stipulated that the above-referenced tax liability does not include an advance payment of estimated tax in the amount of [ insert amount ] made by petitioner on [ insert day of payment ] for taxable year [ insert year ].

It is further stipulated that petitioner is entitled to an overpayment credit in the amount of [ insert amount ] from his [ insert year ] tax year which will be applied to petitioner's tax liability for taxable year [ insert year ].

It is further stipulated that there are no overpayments due to petitioner for taxable year [ insert year ].

It is further stipulated that the amount of petitioner's unpaid [ insert type of tax ] tax for taxable year [ insert year ] is [ insert amount ].



2. Notice of Determination addresses CDP issues and interest abatement



a. No abuse of discretion in denial of abatement of interest


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

[ Insert all appropriate paragraphs that are above the Court's signature in sample decisions I.1.a.-e. for the CDP issues .]

That petitioner is not entitled to abatement of interest under I.R.C. ' 6404 with respect to taxable year [ insert year ].
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]



b. Concession of abatement of interest


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 issued to petitioner on [ insert date of Notice of Determination ], for petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ], and upon which this case is based, are sustained except as provided herein.

[ Insert all appropriate paragraphs that are above the Court's signature in sample decisions I.1.a.-e. for the CDP issues ];

That interest assessed on petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ] will be abated under I.R.C. ' 6404 for the period beginning [ insert date ], and ending [ insert date ].

OR

That interest will not be assessed on petitioner's [ insert type of tax ] tax liability for taxable year [ insert year ] for the period beginning [ insert date ], and ending [ insert date ].
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]



3. Notice of Determination addresses CDP issues and innocent spouse relief



a. Innocent spouse relief denied


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

[ Insert all appropriate paragraphs that are above the Court's signature in sample decisions I.1.a.-e. for the CDP issues.] ;

That petitioner is not entitled to relief under I.R.C. § 6015 [ insert applicable subsection (b), (c) or (f) ] with respect to petitioner's joint and several income tax liability for taxable year [ insert year ].
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]



b. Innocent spouse relief granted


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ] for petitioner's joint and several income tax liability for taxable year [ insert year ], and upon which this case is based, are not sustained;

That there is no income tax due from petitioner for taxable year [ insert year ], after application of I.R.C. § 6015 [ insert applicable subsection (b), (c), or (f) ];

That there are no additions to tax due from petitioner under the provisions of I.R.C. § [ insert applicable code section ] for taxable year [ insert year ] after application of I.R.C. § 6015 [ insert applicable subsection (b), (c) or (f) ];

Insert as applicable :

That there is no overpayment in income tax due to petitioner for taxable year [ insert year ].

OR

That there is an overpayment in income tax for taxable year [ insert year ] in the amount of [ insert amount ], which was paid on [ insert date of payment ] and for which amount a Form 8857 (which was treated as a claim for refund) was filed on [ insert appropriate date ], which was within the period provided by I.R.C. ' 6511(b)(2).] [NOTE: If there is an overpayment, also add a stipulation providing the calculation of the overpayment.]
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

It is further stipulated that respondent will take no further collection action with respect to the income tax liability that was assessed against petitioner on [ insert date of assessment ] for taxable year [ insert year ].



c. Partial innocent spouse relief granted


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

That the determinations set forth in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 issued to petitioner on [ insert date of notice of determination ] for petitioner's joint and several income tax liability for taxable year [ insert year ], upon which this case is based are sustained, except as provided herein.

That the amount of petitioner's liability for income tax and additions to tax for taxable year [ insert year ] after application of I.R.C. § 6015 [ insert applicable subsection (b), (c), or (f) ] is as follows :


Year Income Tax Addition to Tax I.R.C. § xxxx



That there are no overpayments in income tax due to petitioner for taxable year [ insert year ].
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision.

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]



d. Innocent spouse relief granted, in whole or in part, for some years, but denied for other years


DECISION


Pursuant to the agreement of the parties in this case, it is

ORDERED AND DECIDED:

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]

That there is a liability in income tax and penalties due from the petitioner, before application of I.R.C. § 6015 [ insert applicable subsection (b), (c) or (f) ], as follows:


Year Income Tax Penalty I.R.C. § xxxx



That the following liability in income tax and penalties are due from petitioner, after application of I.R.C. § 6015 [ insert applicable subsection (b), (c) or (f) ]:


Year Income Tax Penalty I.R.C. § xxxx



That there are no overpayments in income tax due to petitioner for the taxable years [ insert years ].
Judge.

Entered:

* * * * *

It is hereby stipulated that the Court may enter the foregoing decision in this case.

[ Insert all appropriate paragraphs that are below the Court's signature in sample decisions I.1.a.-e. for the CDP issues. ]

IRS Audits and IRS Examinations - Report from Treasury Inspector General for Tax Administration (TIGTA) Report:

Examiners Did Not Always Properly Select the Prior and/or Subsequent Year Tax Returns (Reference Number: 2009-30-034)

February 23, 2009


TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION





Examiners Did Not Always Properly Select the Prior and/or Subsequent Year Tax Returns


February 13, 2009

Reference Number: 2009-30-034

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.



Redaction Legend :

1 = Tax Return/Return Information

Phone Number | 202-622-6500

Email Address | inquiries@tigta.treas.gov

Web Site | http://www.tigta.gov




DEPARTMENT OF THE TREASURY


WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

February 13, 2009

MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION

FROM: Michael R. Phillips


Deputy Inspector General for Audit


SUBJECT: Final Audit Report - Examiners Did Not Always Properly Select the Prior and/or Subsequent Year Tax Returns (Audit # 200730015)

This report presents the results of our review to determine whether Examination function employees appropriately inspect and examine prior and/or subsequent year tax returns when warranted. This audit was conducted as part of our Fiscal Year 2007 Annual Audit Plan.



Impact on the Taxpayer

When a taxpayer's tax return is selected for examination, to improve efficiency and identify additional tax owed, examiners should also inspect and examine, if warranted, prior, subsequent, and related year tax returns. Our review showed 14 (21 percent) of 68 sample cases warranted examination of the prior and/or subsequent year returns but were not selected for examination. When examiners do not make the proper decision to select returns for examination, taxpayers are not provided equitable treatment, and the examination is not as effective for improving taxpayer compliance on future tax returns.



Synopsis

The Internal Revenue Service (IRS) policy is that an examination covers not only the single tax period that initiated the examination, but also any and all open tax periods that affect the taxpayer's return. Our review of a statistical sample of 68 closed cases worked by examiners in the Area Offices 1 determined that examiners did not always properly inspect prior and/or subsequent year returns and, therefore, did not make a proper decision to select these returns for examination when warranted. In addition, examiners did not adequately document the decision to examine associated years' tax returns.

In 26 (38 percent) of 68 sample cases, there was no evidence that examiners inspected either the prior or subsequent year returns to identify similar issues to the year under examination or if large, unusual, or questionable items 2 existed that would warrant examination. If examiners do not properly inspect prior and/or subsequent year returns, the examination is not performed as efficiently and effectively as possible because additional cases that warrant examination might not be identified. We identified 14 (21 percent) of 68 cases that warranted the examination of a prior and/or subsequent year return, but the returns were not selected for examination. Although managers reviewed 59 (87 percent) of the 68 cases, they did not review the cases early enough. When the managers did get involved, they did not remain involved throughout the case. In 40 (68 percent) of the 59 cases, the managers reviewed the cases only one time.

Our review also showed that in 33 (49 percent) of the 68 cases, the case files did not include adequate documentation to support the decision for not selecting the prior and/or subsequent year returns for examination. Although managers reviewed most of the cases, they did not properly explain or support their decision to not select the returns. Tax compliance officers did not inspect the prior and/or subsequent year returns in a higher percentage of cases (30 percent) than revenue agents. In the majority of these cases (71 percent), they did not complete the multi-year lead sheet. Although this sheet is a resourceful tool that gives the examiners a reminder of the areas that should be considered and checked when inspecting a tax return, it is only required to be completed by the revenue agents. If examiners do not include support or a documented explanation of how a decision is reached, then managers do not have a basis to measure the examiners' judgment. Also, well-documented and supported decisions will facilitate the IRS position if the taxpayers challenge an issue, especially after the case is closed.

We also conducted an analysis of the correspondence examinations closed by campus 3 Correspondence function tax examiners. Our review of 68 cases (not the same cases as previously mentioned) showed that in 31 (46 percent) cases campus Correspondence function tax examiners could have examined the subsequent year tax return because the same issues adjusted on the tax year return under examination were present on the subsequent year return. However, IRS management informed us that campus Correspondence function tax examiners do not inspect and select the related subsequent year tax returns. Instead, workload is identified on a national basis through the Small Business/Self-Employed Division Compliance Services function national headquarters managers.

Because the current procedures do not permit campus Correspondence function tax examiners to assess subsequent year tax returns and select them for audit, the IRS could be missing an opportunity to conduct examinations more efficiently and consistently from year to year. Expanding examinations in the campus Correspondence function program could increase the efficiency of performing examinations, similar to how Field and Office Examination functions perform their audits.



Recommendations

We recommended that the Director, Examination, Small Business/Self-Employed Division, 1) ensure that group managers place the appropriate emphasis on the requirement to consider selection of prior and/or subsequent year tax returns for examination during documented reviews, discussions, and/or other case related activities with their examiners, 2) ensure that group managers require a clear-cut justification in the workpapers, and 3) require that tax compliance officers use the multi-year lead sheet during examinations. We also recommended that the Acting Director, Campus Compliance Services, Small Business/Self-Employed Division, determine if there is an opportunity for campus Correspondence function tax examiners to expand examinations to include subsequent year returns for limited issues.



Response

IRS management agreed with our recommendations. Management will reemphasize the requirements for consideration of prior and/or subsequent year returns by ensuring appropriate content is included in the Fiscal Year 2009 Examination All Managers' Continuing Professional Education training. They will discuss requirements with the area technical analysts during monthly conference calls and require specific actions be implemented and submit articles for inclusion in the Small Business/Self-Employed Division Group Managers' Performance Perspective and the Small Business/Self-Employed Division Technical Digest. In addition, management will issue a memorandum requiring that all office examiners use the multi-year lead sheet to document their actions regarding consideration of prior and/or subsequent year returns, revise Examination Workpapers (Form 4700) and related workpapers to correspond with the use of the administrative lead sheets, and update the Internal Revenue Manual. 4 They will revise campus procedures to ensure that the appropriate analysis is conducted on current year correspondence deficiency case closures to determine if the same issue appears in the subsequent year return. Followup adjustment cases will receive priority in the examination workload assignment plan. Management's complete response to the draft report is included as Appendix V.

Copies of this report are also being sent to the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Margaret E. Begg, Assistant Inspector General for Audit (Compliance and Enforcement Operations), at (202) 622-8510.




Table of Contents


Background

Results of Review


Examination Function Management Has Emphasized the Procedures for Inspecting and Selecting Prior and/or Subsequent Year Tax Returns



Examiners Did Not Adequately Assess Prior and/or Subsequent Year Tax Returns or Maintain Sufficient Documentation to Support Their Actions



Recommendation 1 :



Recommendation 2 :



The Correspondence Examination Function Does Not Select the Subsequent Year Tax Returns for Examination While Auditing the Originally Selected Tax Year Return



Recommendation 3 :


Appendices


Appendix I - Detailed Objective, Scope, and Methodology



Appendix II - Major Contributors to This Report



Appendix III - Report Distribution List



Appendix IV - Outcome Measure



Appendix V - Management's Response to the Draft Report





Abbreviations





IRS Internal Revenue Service

SB/SE Small Business/Self-Employed







Background


One of the goals of the Small Business/Self Employed (SB/SE) Division Examination function is to conduct efficient and quality examinations while encouraging compliance with the tax laws. The Examination function's policy is that examinations cover not only the single tax period that initiated the examination, but also any and all open tax periods that affect the taxpayer's return.


IRS procedures state that when examining tax returns, examiners should inspect and possibly examine all related returns if warranted.


When examiners propose an adjustment to the tax year return under examination, they should inspect the taxpayer's prior and/or subsequent year (hereafter in this report, interchangeably referred to as associated years) tax returns for proper filing and to evaluate audit potential. Examining the prior and/or subsequent year returns and all related tax returns at the same time has greater tax compliance impact. Also, it takes less time than examining single tax years at various different times for the same taxpayer and contributes to a more efficient and effective examination. From July 2007 through June 2008, there were 293,959 closed examinations from Area Offices 1 of which 117,574 examinations (40 percent) were classified as closures related to selecting additional tax years or related tax returns for examination.

There are three types of examinations:


Ÿ Field examinations typically conducted in a taxpayer's place of business.



Ÿ Office examinations conducted in Internal Revenue Service (IRS) offices.



Ÿ Correspondence examinations conducted through the mail.


Revenue agents and tax compliance officers (hereafter in this report, interchangeably referred to as examiners) conduct the field and office examinations. The examiner's professional judgment is required to determine if potential compliance issues exist that warrant expanding the examination. For those cases containing proposed adjustments in the open year or the presence of large, unusual, or questionable items 2 on the related returns, the examiners are required to provide an explanation as to why they did not select the related or prior and/or subsequent year tax return for examination.

Other tax examiners at various IRS campuses 3 located throughout the country conduct correspondence examinations. These examinations are primarily done by mail. These cases are less complex and require a lesser degree of accounting and auditing skills to perform the examination than cases worked at the Area Offices. IRS procedures for correspondence examinations state that consideration of associated years' tax returns is a key element of one of the auditing standards to produce a quality examination. Prior and subsequent year returns containing the same issues as the tax year examined should be considered and pursued when appropriate.

This review was performed at the SB/SE Division Examination and Campus Compliance Services functions National Headquarters in New Carrollton, Maryland, during the period July 2007 through September 2008. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.




Results of Review




Examination Function Management Has Emphasized the Procedures for Inspecting and Selecting Prior and/or Subsequent Year Tax Returns

SB/SE Division management has been implementing various approaches to emphasize the expectation that examiners inspect and select associated years' tax returns for audit, when warranted. During Fiscal Year 2008, Examination function management took the following actions:


Ÿ Developed Field Examination function quality action plans with an emphasis placed on selecting additional tax years or related tax returns for examination.



Ÿ Highlighted in the March 2008 Keys to Success newsletter and a Technical Digest the importance of the required filing checks and selecting prior and/or subsequent year returns as part of a quality examination.



Ÿ Included in the Fiscal Year 2008 Continuing Professional Education a mandatory module that emphasized the required filing check and proper consideration of the prior and subsequent year returns.



Ÿ Included in an article in online guidance for managers the importance of selecting additional tax years or related tax returns for examination.




Examiners Did Not Adequately Assess Prior and/or Subsequent Year Tax Returns or Maintain Sufficient Documentation to Support Their Actions

Because taxpayers might have made the same kinds of errors in prior and/or subsequent years as those made in the tax year under review, inspecting those returns provides the IRS with an efficient means for identifying returns with a higher probability of adjustment. However, despite SB/SE Division management's efforts to emphasize this requirement, examiners did not always properly inspect associated years' tax returns when conducting the examination of the tax return under review. In addition, examiners did not adequately document their decision to examine associated years' tax returns. As a result, examiners did not always make the proper decision to select these returns for examination, which potentially reduced revenue, did not provide equitable treatment of taxpayers, and was not effective in improving the taxpayers' compliance on future tax returns.



Examiners did not properly inspect and examine the associated years' tax returns

An examiner must first inspect the associated years' tax returns before they can be selected for examination to identify similar issues to the year under examination or if large, unusual, or questionable items existed that would warrant examination. However, in 26 (38 percent) of 68 sample cases, there was no evidence that examiners properly inspected the prior or subsequent year tax returns as follows:


In 38 percent of our sample cases, there was no evidence that tax examiners properly inspected the prior/or subsequent tax returns.



Ÿ In 15 cases, there was no evidence that examiners inspected both the prior and subsequent year returns.



Ÿ In three cases, the examiners inspected only the prior or subsequent year return, but not both.



Ÿ In eight cases, the examiners checked a box on a form showing that they inspected returns, but there was no evidence supporting the action.


One reason that proper actions were not always taken is because managers did not always review or get involved in the cases early enough. Of the 68 reviewed cases, 9 (13 percent) had no evidence of managerial involvement, while 28 (41 percent) were not reviewed until closure. This means that more than one-half of the sample cases (54 percent) were either not reviewed, or not reviewed until closure.

In addition, the manager's first involvement occurred within the first 2 weeks after taxpayer contact in just 19 (32 percent) of the 59 cases that had managerial involvement. More than 70 days had passed before the manager became involved in 30 percent of these cases. Further, managers did not remain involved throughout the case development to ensure examiners followed proper procedures. In 40 (68 percent) of the 59 cases, managers were involved once, and there were only 4 (7 percent) where the manager was involved more than twice.

As a result, examiners did not identify all associated years' cases that warranted examination. Examiners selected prior and/or subsequent year returns for examination in only 13 (19 percent) of the 68 cases in our statistical sample. However, we identified an additional 14 cases (21 percent) that warranted an examination of the prior and/or subsequent year returns. When examiners do not properly select prior and/or subsequent year returns, examinations are not being performed as efficiently and effectively as possible. Although we cannot estimate the amount of the potential tax assessments from the 14 cases that warranted examination, the additional tax assessments for the controlling tax year originally selected for examination totaled $50,467. In addition, we project a similar situation occurred in 16,830 4 of the 81,745 closed cases from which we selected our sample.


We identified an additional 21 percent of our sample cases that warranted an examination of the prior and/or subsequent year tax returns.




Examiners did not include adequate documentation in the case files to support decisions about examining associated years' tax returns

Examiners should include all the information necessary to conduct the examination and support the result of the evaluation, especially if prior and/or subsequent year returns were not selected for examination. Examiners should document actions taken and summarize their decisions about examining associated years' returns on Examination Workpapers Forms 4318 and 4318-A for the Field Examination function and Form 4700 for the Office Audit Examination function. In addition, revenue agents in the Field Examination function use a multi-year and related returns lead sheet. Although this lead sheet is not mandatory for tax compliance officers, Examination function management encourages its use. The examiners should check the appropriate boxes on the lead sheet including the required filing check and explain what they saw when they inspected and analyzed the prior and/or subsequent year returns. They should explain if the tax year return under examination has adjustments and, if applicable, why other years did not warrant examination.

Examiners should also include in the case file any type of workpaper they obtained that documents and supports the facts used to reach the determination. These documents can be obtained from internal sources, such as the taxpayer account and filing information from the Integrated Data Retrieval System. 5 If additional tax return information is obtained from the taxpayer, the tax examiner should keep a copy of the tax return in the file. This facilitates managers' reviews and helps support the IRS position on any tax adjustment.

Our review showed that 33 (49 percent) of the 68 case files did not include adequate documentation or an adequate explanation to support the determination for not selecting the associated years' tax returns for examination. For example, although the revenue agents checked the appropriate box on the lead sheets in most cases and included some comments, they did not include tax returns or tax account information to substantiate the determination made. In five cases, tax compliance officers did not properly prepare the Form 4700 workpaper, and in ***** In 13 other cases, the explanation on the lead sheet did not support the decision on whether to examine associated year's tax returns. For example, the written explanation was based only on items on the tax year return under examination.


Forty-nine percent of sample cases did not include adequate documentation or explanations for decisions about examining associated years' returns.


In addition, our review showed tax compliance officers did not inspect the associated years' returns in a higher percentage of cases (30 percent) than revenue agents and, in the majority of these cases (71 percent), they did not complete the multi-year lead sheet. Although this sheet is a resourceful tool that gives the examiners a reminder of the areas that should be considered and checked when inspecting a tax return, it is only required to be completed by the revenue agents.

As stated in the previous section, managers reviewed 59 of the 68 cases. However, during these reviews, managers did not ensure that there was supporting evidence to support the decision not to examine the associated years' returns. The examiner's professional judgment is required to determine if prior and/or subsequent year returns warrant examination. If examiners are not including supported and documented explanations of how a decision is reached, then managers do not have a basis to measure the examiners' judgment. Also, it makes it more difficult for managers to do their jobs of ensuring that tax examiners followed proper procedures. In addition, well-documented and supported decisions will facilitate the IRS position if the taxpayers challenge an issue, especially after the case is closed.



Recommendations

The Director, Examination, SB/SE Division, should:

Recommendation 1: Ensure all group managers place the appropriate emphasis on the requirement to consider selection of prior and/or subsequent year tax returns for examination during documented reviews, discussions, and/or other case related activities with their examiners. In addition, group managers should ensure that there is a clear-cut justification in the workpapers.


Management's Response: IRS management agreed with this recommendation. They will reemphasize the requirements for consideration of prior and/or subsequent year returns through the following actions:



Ÿ Ensure that appropriate content is included in the Fiscal Year 2009 Examination All Managers' Continuing Professional Education Performance Feedback to Achieve Higher Quality and Increased Productivity training module.



Ÿ Discuss requirements with the area technical analysts during monthly conference calls and require specific actions be implemented that will provide improvement for each SB/SE Division Examination function.



Ÿ Submit articles for inclusion in the SB/SE Division Group Managers' Performance Perspective and SB/SE Division Technical Digest.


Recommendation 2: Require tax compliance officers to use the multi-year lead sheet during examinations.


Management's Response: IRS management agreed with this recommendation and will:



Ÿ Issue a memorandum requiring that all SB/SE Division office examiners use the multi-year lead sheet to document their actions regarding consideration of prior and/or subsequent year returns.



Ÿ Revise Form 4700 and related workpapers to correspond with the use of the administrative lead sheets.



Ÿ Update Internal Revenue Manual 6 Section 4.10.9, Examination of Workpapers , to include the changes.




The Correspondence Examination Function Does Not Select the Subsequent Year Tax Returns for Examination While Auditing the Originally Selected Tax Year Return

Although IRS guidelines state that prior and/or subsequent year returns should be considered when appropriate by campus Compliance Services Correspondence function tax examiners (hereafter referred to as campus correspondence tax examiners), IRS Compliance Services function management's procedures do not permit campus correspondence tax examiners to select associated year returns when they conduct examinations. Instead of requiring the campus correspondence tax examiners to assess associated years' returns, campus Compliance Services function management controls the workload selection and delivery from a national level through its headquarters office. Periodically, analysts review reports of closed inventory to identify possible subsequent year return inventory and select returns for examination.

Our statistical sample of 68 closed correspondence cases, which was different from our other sample of cases closed within the Area Offices, showed that for 31 (46 percent) cases, the same issue adjusted on the tax year return under examination was present on the subsequent year tax return. 7 Campus correspondence tax examiners could have examined the subsequent year tax return on these cases at the same time that they examined the originally selected return. The scope of a correspondence examination performed at a campus is limited to single tax years and issues. Although campus correspondence tax examiners might not have been trained to evaluate an entire tax return for every issue, they are trained to address the same routine issues and could recognize whether an issue was a concern in the subsequent year.

Because the current procedures do not permit campus correspondence tax examiners to assess subsequent year tax returns and select them for audit, the IRS could be missing an opportunity to conduct examinations more efficiently and consistently from year to year. Expanding examinations in the campus Correspondence function program could increase the efficiency of performing examinations, similar to how Field and Office Examination functions perform their audits.



Recommendation

Recommendation 3: The Acting Director, Campus Compliance Services, SB/SE Division, should determine if there is an opportunity for campus correspondence tax examiners to expand examinations to include subsequent year returns for limited issues.


Management's Response: IRS management agreed with this recommendation. They will revise campus procedures to ensure that the appropriate analysis is conducted on current year correspondence deficiency case closures to determine if the same issue appears in the subsequent year return. Followup adjustment cases will receive priority in the examination workload assignment plan.




Appendix I




Detailed Objective, Scope, and Methodology


Our overall audit objective was to determine whether Examination function employees appropriately inspect and examine prior and/or subsequent year tax returns when warranted. To accomplish this objective, we:


I. Identified the IRS procedures and guidelines for pick up of prior and/or subsequent year tax returns for the Area Offices and campuses. 1



II. Determined whether examiners within the Area Offices followed proper procedures. We reviewed the effectiveness of case actions and determined whether prior and/or subsequent year tax returns were inspected and examined during the examination when warranted.




A. Extracted all examination closed cases from the Audit Information Management System, 2 with the following criteria: closed between July 1, 2006, and June 30, 2007; individual cases; small business taxpayers; worked by a revenue agent or a tax auditor in the Area Offices; and with specific selection reasons.



B. Validated the data by comparing it to the IRS Integrated Data Retrieval System files to ensure that there was examination activity during our audit period of July 1, 2006, through June 30, 2007.



C. From the population of 81,745 closed cases, selected a statistical sample of 68 closed cases to review, using a 95 percent confidence level, ±10 percent precision, and a 23 percent error rate based on the results from the Examination function quality review results.



D. Reviewed the examination closed cases and determined whether examiners inspected and examined prior and/or subsequent year tax returns when warranted.




1. Developed a case review questionnaire using criteria and procedures identified.



2. Used the case review questionnaire and captured information from each case reviewed in an Access database. We reviewed cases and identified whether proper actions were taken.



3. Identified the degree of managerial involvement on the closed cases.



III. Determined whether campus correspondence tax examiners in the Compliance Services function should have examined subsequent year tax returns.




A. Obtained a download from IRS management of the Examination Operational Automation Database 3 of closed correspondence cases with the following criteria: closed between July 1, 2006, and September 30, 2007; individual cases; small business taxpayers; and worked in the campus Compliance Services Correspondence function. During our review of cases, we validated through the Integrated Data Retrieval System that the cases selected for our sample were examination cases.



B. Conducted a data analysis from the data obtained in Step III.A. and identified the primary reason for examination and the issues adjusted by the examiner. Using the population of 85,661 cases obtained from the data analysis, we selected a statistical sample of 68 closed cases for review. We used the following criteria: 95 percent confidence level, ±10 percent precision, and a 23 percent error rate based on the results from the Examination function quality review results.



C. Used internal research tools to review the 68 closed cases and identified any trends that indicated whether the subsequent year tax returns could have been examined.



IV. Discussed conclusions on the cases reviewed with IRS management and identified any reasons for Examination function employees and managers not inspecting or selecting prior and/or subsequent year tax returns during an examination when warranted.




Appendix II




Major Contributors to This Report


Margaret E. Begg, Assistant Inspector General for Audit (Compliance and Enforcement Operations)

Carl Aley, Director

Lynn Wofchuck, Audit Manager

Doris A Cervantes, Lead Auditor

Mike J. Della Ripa, Auditor



Appendix III




Report Distribution List


Commissioner C

Office of the Commissioner - Attn: Chief of Staff C

Deputy Commissioner for Services and Enforcement SE

Deputy Commissioner, Small Business/Self-Employed Division SE:S

Director, Examination, Small Business/Self-Employed Division SE:S:E

Acting Director, Campus Compliance Services, Small Business/Self-Employed Division SE:S:CCS

Director, Campus Reporting Compliance, Small Business/Self-Employed Division SE:S:CCS:CRC

Director, Examination Policy, Small Business/Self-Employed Division SE:S:E:CP

Chief Counsel CC

National Taxpayer Advocate TA

Director, Office of Legislative Affairs CL:LA

Director, Office of Program Evaluation and Risk Analysis RAS:O

Office of Internal Control OS:CFO:CPIC:IC

Audit Liaison: Commissioner, Small Business/Self-Employed Division SE:S



Appendix IV




Outcome Measure


This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. This benefit will be incorporated into our Semiannual Report to Congress.

Type and Value of Outcome Measure:

l Increased Revenue - Potential; 16,830 taxpayer accounts affected (see page 3).

Methodology Used to Measure the Reported Benefit:

We identified a population of 81,745 closed examination cases from the Audit Information Management System 1 database meeting the following criteria: closed between July 1, 2006, and June 30, 2007; individual cases; small business taxpayers; worked by a revenue agent or a tax auditor in the Area Offices; 2 and with specific selection reasons. From this population, we reviewed a statistical sample of 68 closed cases, using a 95 percent confidence level, ±10 percent precision, and a 23 percent error rate based on the results from the Examination function quality review results.

We reviewed the 68 cases to determine whether Examination function employees appropriately inspected and examined prior and/or subsequent year tax returns when warranted. In 14 of the 68 cases, the prior and/or subsequent year returns warranted examination.

Based on these 14 cases, we estimated that 16,830 cases in our population might have had the same situation. This is based on the ratio of 14 to 68 (.2058823) and applicable to the total population of 81,745 cases, which resulted in 16,830 taxpayers who could be affected.



Appendix V




Management's Response to the Draft Report


COMMISSIONER SMALL BUSINESS/SELF-EMPLOYED DIVISION

DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224

January 23, 2009

MEMORANDUM FOR MICHAEL R. PHILLIPS DEPUTY INSPECTOR GENERAL FOR AUDIT

FROM: Christopher Wagner


Commissioner, Small Business/Self-Employed Division


SUBJECT: Draft Audit Report - Examiners Did Not Always Properly Select the Prior and/or Subsequent Year Tax Returns


(Audit 200730015)


Thank you for the opportunity to review the draft report entitled "Examiners Did Not Always Properly Select the Prior and/or Subsequent Year Tax Returns." We concur with your conclusions that taking the appropriate actions on prior and/or subsequent year returns in conjunction with current year examinations can improve our compliance efforts and reduce taxpayer burden.

We agree with your recommendations and are committed to ensuring all examiners are fully aware of their responsibilities regarding prior and/or subsequent year audit consideration. Continued focus will be placed on this important area through analysis of the relevant data captured by our National Quality Review System.

Attached is a detailed response outlining our corrective actions. If you have questions, please call me at (202) 622-0600 or Monica Baker, Director, Examination Policy at (202) 283-2659 or Jeffrey Basalla, Acting Director, Campus Compliance Services at (202) 283-7399.

Attachment



RECOMMENDATION 1:

The Director, Examination SB/SE Division should ensure all group managers place the appropriate emphasis on the requirement to consider selection of prior and/or subsequent tax returns for examination during documented reviews, dicussions, and/or other case related activities with their examiners. Group managers should ensure that there is a clear-cut justification in the workpapers.



CORRECTIVE ACTIONS:

We concur with this recommendation. We will reemphasize the requirements for consideration of prior and/or subsequent year returns through the following actions:


1. Ensure appropriate content is included in the FY 09 Examination All Managers' Continuing Professional Education Performance Feedback to Achieve Higher Quality and Increased Productivity training module.



2. Discuss requirements with the Area Technical Analysts during monthly conference calls and require specific actions be implemented that will provide improvement for each SB/SE Examination Area.



3. Submit articles for inclusion in the SB/SE Group Managers' Performance Perspective and SB/SE Technical Digest.




IMPLEMENTATION DATE:

October 15, 2009



RESPONSIBLE OFFICIAL:

Director, Examination Policy SB/SE Division



CORRECTIVE ACTION(S) MONITORING PLAN:

The Director, Examination Policy SB/SE Division will monitor the status and advise the Director, Examination SB/SE Division of any delays in Implementing.



RECOMMENDATION 2:

The Director, Examination SB/SE Division should require tax compliance officers to use the multi-year lead sheet during examinations.



CORRECTIVE ACTIONS:

We concur with this recommendation. We will:


1. Issue a memorandum requiring that all SB/SE office examiners use the multi-year leadsheet to document their actions regarding consideration of prior and/or subsequent year returns.



2. Revise Form 4700 and related workpapers to correspond with the use of the Administrative Leadsheets.



3. Update IRM 4.10.9, Examination of Workpapers, to include the changes.




IMPLEMENTATION DATES:

Corrective Action #1 - March 15, 2009

Corrective Action #2 - June 15, 2009

Corrective Action #3 - January 15, 2010



RESPONSIBLE OFFICIAL:

Director, Examination Policy SB/SE Division



CORRECTIVE ACTION(S) MONITORING PLAN:

The Director, Examination Policy SB/SE will monitor the status and advise the Director, Examination SB/SE of any delays in implementing.



RECOMMENDATION 3:

The Acting Director, Campus Compliance Services SB/SE Division, should determine if there is an opportunity for campus correspondence tax examiners to expand examinations to include subsequent year returns for limited issues.



CORRECTIVE ACTIONS:

We concur with this recommendation. We will revise Campus procedures to ensure the appropriate analysis is conducted on current year correspondence deficiency case closures to determine if the same issue appears in the subsequent year return. Follow-up adjustment cases will receive priority in examination workload assignment plan.



IMPLEMENTATION DATE:

June 15, 2009



RESPONSIBLE OFFICIAL:

Director, Campus Reporting Compliance



CORRECTIVE ACTION(S) MONITORING PLAN:

The Director, Campus Reporting Compliance SB/SE will monitor the status and advise the Director, Campus Compliance Services SB/SE of any delays in implementing.

1 A geographic organizational level used by IRS business units and offices to help their specific types of taxpayers understand and comply with tax laws and issues.

2 Some factors to be considered when identifying large, unusual, or questionable items include: the comparative size of an expense, if the nature of the item is significant, beneficial effect of the manner in which an item is reported, and missing items on the return.

3 The data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to the taxpayer accounts.

4 The manual containing the procedures for IRS employees.

1 A geographic organizational level used by IRS business units and offices to help their specific types of taxpayers understand and comply with tax laws and issues.

2 Some factors to be considered when identifying large, unusual, or questionable items include: the comparative size of an expense, if the nature of the item is significant, beneficial effect of the manner in which an item is reported, and missing items on the return.

3 The data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to the taxpayer accounts.

4 See Appendix IV for details.

5 The IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer's account records.

6 The manual containing the procedures for IRS employees.

7 The scope for this audit test was limited to the review of subsequent year returns. Due to the high volume of correspondence cases, the fact that the campus workload deals with more recent tax returns, and the complexity involved in examining prior year returns, the campus Correspondence function cannot effectively examine prior year tax returns.

1 Area Offices are geographic organizational levels used by IRS business units and offices to help their specific types of taxpayers understand and comply with tax laws and issues. Campuses are the data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to the taxpayer accounts.

2 A computer system used to control returns, input assessments/adjustments to the Integrated Data Retrieval System, and provide management reports. The Integrated Data Retrieval System is the IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer's account records.

3 The database designed to track examination results by issue and related cause. These data are used to enhance the ability to identify specific areas of noncompliance based on examination results.

1 A computer system used to control returns, input assessments/adjustments to the Integrated Data Retrieval System, and provide management reports. The Integrated Data Retrieval System is the IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer's account records.

2 A geographic organizational level used by IRS business units and offices to help their specific types of taxpayers understand and comply with tax laws and issues.

A conviction for "willfully attempting to evade or defeat the payment of a tax" under 26 U.S.C. §7201 requires proof of three elements: "willfulness; the existence of a tax deficiency; and an affirmative act constituting an evasion or attempted evasion of the tax." United States v. Schoppert, 362 F.3d 451, 454 (8th Cir. 2004) (quoting Sansone v. United States [ 65-1 USTC ¶9307], 380 U.S. 343, 351 (1965)). The willfulness element "requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991). However, where a defendant seeks to defeat a finding of willfulness through a "good-faith belief that he was not violating any of the provisions of the tax laws ...[,] the issue is whether, based on all the evidence, the Government has proved that the defendant was aware of the duty at issue." Id. at 201-02; see also United States v. Gustafson [ 2008-1 USTC ¶50,393], 528 F.3d 587, 591 n.3 (8th Cir. 2008) (holding that a "good-faith misunderstanding of the law or a good-faith belief that [they were] not violating the law" negates willfulness (alteration in original) (quoting Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 201)).

United States of America, Appellee/ Cross-Appellant v. Stephen Richards Barker, Appellant/ Cross-Appellee.

U.S. Court of Appeals, 8th Circuit; 08-1067, 08-1250, February 12, 2009.

Affirming in part, vacating and remanding in part an unreported DC Minn. decision.

[ Code Sec. 7201]


A federal district court properly convicted an individual of willful tax evasion; however, his sentence was vacated and remanded for resentencing. The government was not required to refute the individual's good-faith belief that payment of taxes was voluntary because it presented sufficient evidence showing that the individual was aware of his obligation to pay taxes and acted willfully. However, the 42-month sentence of imprisonment imposed on the individual was remanded for resentencing because the court committed significant procedural error by concluding that tax evasion under Code Sec. 7201 was not a continuing offense. That error led the court to use an incorrect version of the sentencing guidelines manual, thereby resulting in a lower advisory sentencing guidelines range. Because tax evasion is a continuing offense, the date of the individual's last act of evasion was the date of the offense of conviction, which was to be used to determine the correct guidelines to calculate the advisory guidelines range.



Before: Murphy, Riley and Gruender, Circuit Judges.

GRUENDER, Circuit Judge: A jury found Stephen Barker guilty of four counts of tax evasion --evading and defeating the payment of income taxes, penalties and interest --in violation of 26 U.S.C. §7201, and the district court sentenced him to 42 months' imprisonment. Barker appeals his conviction, arguing that the Government's evidence was insufficient to prove that he acted willfully in light of his good-faith belief that he did not owe any federal income taxes. The Government cross-appeals Barker's sentence, arguing that the district court committed significant procedural error. For the reasons discussed below, we affirm Barker's conviction, vacate the sentence and remand to the district court for resentencing.



I. BACKGROUND

From 1994 to 1997, Stephen Barker worked in the investment-brokerage business and earned over $3,800,000 in personal income. During this period, however, Barker did not pay all of the federal income taxes that he owed. For the 1994 tax year, Barker underpaid his taxes by $9,650, and for the 1995, 1996 and 1997 tax years, Barker did not file any tax returns or pay any taxes despite owing $1,367,947. The Internal Revenue Service ("IRS") assessed Barker's unpaid taxes and interest for the 1994 tax year in August 1997, and it filed a tax lien in November 1997. The IRS assessed Barker's taxes and interest for the 1995, 1996 and 1997 tax years in December 1999, and it notified Barker that it intended to levy his assets in March 2000. Even after the IRS's assessments, tax lien and threat to levy his assets, Barker did not satisfy his tax debt. In July 2006, a federal grand jury returned an indictment charging Barker with four counts of tax evasion by evading and defeating the payment of his taxes, penalties and interest for each of the relevant tax years. Barker pled not guilty to the charges, and the case proceeded to trial.

In its case-in-chief, the Government presented evidence demonstrating Barker's tax liability, the IRS's assessment of his tax debt, and the IRS's unsuccessful efforts to collect from Barker. The Government also presented evidence of Barker's alleged efforts to willfully evade the payment of his assessed tax liability. In 1996, after Barker stopped paying his taxes, Barker and his wife created offshore trusts and business entities in the countries of Andorra and St. Kitts and Nevis. Barker owned and controlled these entities and had signatory authority over their associated financial accounts. Later, Barker hired three related companies, the Laughlin Group, the Privatech Group and the Nevis American Trust, to create domestic corporations and limited liability companies that would not appear to be owned by Barker but would, in fact, be controlled by him. Barker used these offshore and domestic entities as shells for receiving and holding his personal income. Barker continued to transfer his personal assets to these entities, even after the IRS assessed Barker's back taxes in December 1999 and notified him of its intent to levy his assets in March 2000. From March 2000 through at least December 2006, these entities held nearly all of Barker's personal assets, including $1.5 million from a personal disability benefits settlement, nearly $1.2 million in consulting income, automobiles, boats and homes. One particular entity, Shasta Property Management, Inc., held Barker's homes in Minnesota, Florida and Rhode Island.

The Government also presented evidence that before April 2003, the IRS began investigating and prosecuting members of Laughlin, Privatech and Nevis American for assisting others in evading taxes. After Barker learned of the IRS's investigation, he terminated his relationship with these companies. In an April 7, 2003 facsimile letter to Jim Fontano at the Privatech Group, Barker wrote:
This [investigation] may have jeopardized my business going forward. I don't need the IRS connecting me to Shasta, which they have now done, while I am going through a Collection Due Process Hearing and Tax Court on two separate matters from the late '90s. By seizing Laughlin's and your records, they can now make a lot of connections. I didn't pay major dollars for that to happen. Terry, Aaron and I have had more than one conversation about this type of scenario, and they assured me that a connection could never be made.

In this same letter, Barker directed Fontano to "please erase any files for Shasta." During a May 2003 interview with the IRS, Barker denied having any knowledge of or involvement with Shasta Property Management.

At the close of the Government's case-in-chief, Barker moved for a judgment of acquittal, arguing that the Government's evidence was insufficient to sustain a conviction for tax evasion because it did not prove that Barker willfully evaded and defeated the payment of federal income taxes. The district court denied Barker's motion.

In his case-in-chief, Barker did not dispute the Government's allegations that the IRS had assessed his taxes and that he had not paid them. Instead, Barker testified that starting in 1996, he developed a belief that according to certain provisions of the tax code, the payment of federal income taxes was voluntary. In 1999, Barker came to the additional conclusion that he was a nonresident alien not subject to federal income taxes because he was a citizen of the "United States of America" rather than the "United States" mentioned in the tax code. According to Barker, the "United States" of the tax code is an entity that governs only the District of Columbia, Puerto Rico and the Marinara Islands, and it is different from the "United States of America," which governs the fifty states. In 2003, Barker further supplemented his tax beliefs by subscribing to a "chargeback redemption strategy," by which he believed that he had satisfied any outstanding IRS debts. According to this strategy, a citizen may satisfy a tax debt by taking control of an account, which the United States Federal Reserve creates in each citizen's name at birth, and charging the tax debt against the funds in the account. Barker allegedly believed that this strategy discharged his tax debts because the account in the name "STEPHEN RICHARDS BARKER" was funded with between $500,000 and $1,000,000 at his birth fifty years earlier and had been accruing annual interest at a rate of six to eight percent since its creation. Barker also disputed the Government's evidence of his willfulness by testifying that his practice of keeping personal funds in foreign and domestic entities was innocent and done only to protect his personal assets from his litigious brokerage clients. The jury found Barker guilty on all four counts.

Prior to sentencing, the United States Probation Office prepared Barker's Presentence Investigation Report ("PSR"). In the "offense conduct" section of the PSR, the Probation Office chronicled Barker's acts of evasion, which continued through at least December 2006. The Probation Office then proceeded to calculate Barker's advisory sentencing guidelines range by first determining the applicable version of the United States Sentencing Guidelines ("U.S.S.G."). See U.S.S.G. §1B1.11(a)-(b)(1) (instructing courts to use "the Guidelines Manual in effect on the date that the defendant is sentenced" unless doing so would "violate the ex post facto clause of the United States Constitution," in which case the manual "in effect on the date that the offense of conviction was committed" should be used). Rather than using the December 2006 date for this determination, the Probation Office concluded that Barker's offense conduct occurred "through April 15, 1998," apparently relying on the date upon which his 1997 tax return was due.

Using the April 15, 1998 date, the Probation Office found that Barker's advisory sentencing guidelines range should be calculated using the November 1997 U.S.S.G. manual, the version effective as of April 15, 1998, instead of the November 2006 U.S.S.G. manual, the version effective on Barker's expected sentencing date, because using the November 2006 version would result in a higher guidelines range, thereby violating the Ex Post Facto Clause of the United States Constitution. See U.S.S.G. §1B1.11; U.S.S.G. amend. 617 (amending U.S.S.G. §2T1.1 to alter the definition of "tax loss" to include interest and penalties (in addition to the actual tax loss) for willful evasion of payment cases under §7201 and amending U.S.S.G. §2T4.1 to change the tax loss amounts in the tax table, effective November 2001). Using the November 1997 U.S.S.G. manual, the Probation Office calculated an advisory guidelines range of 37 to 46 months' imprisonment based upon the $1,377,597 tax loss under §2T1.1(a) and its corresponding base offense level of 19 under §2T4.1(N), a two-level increase under §2T1.1(b) due to Barker's use of sophisticated means of concealment, and Barker's criminal history category of I.

The Government objected to the PSR, contending that the Probation Office used the wrong version of the guidelines based on its improper conclusion that an evasion of payment offense under §7201 is not a continuing offense. Because evasion of payment is a continuing offense and because the PSR found that Barker's acts of evasion continued through December 2006, the Government argued that Barker's advisory sentencing guidelines range should have been calculated using the November 2006 U.S.S.G. manual under U.S.S.G. §1B1.11, resulting in a higher advisory guidelines range.

The Probation Office did not revise the PSR in response to the Government's objection, stating that "[t]he issue as to whether the instant offense is a continuing offense remains unclear." However, the Probation Office noted that
Should the Court concur with the Government, the Guideline Manual applicable November 1, 2006, would be used to calculate the guidelines in this case. Pursuant to §2T1.1, Application Note 1, the tax loss in evasion of payment cases includes interest and penalties (effective November 1, 2001); therefore, the tax loss in this case would increase from $1,377,597 to $3,600,821.53. As a result, the total offense level would be 26. Combined with a criminal history category I, the advisory guideline imprisonment range would be 63 to 78 months.

At sentencing, the Government renewed its objection to the PSR's legal conclusion that an evasion of payment under §7201 is not a continuing offense. The district court overruled the Government's objection and adopted the findings and recommendations in the PSR, including the advisory guidelines range calculation of 37 to 46 months' imprisonment. After considering both parties' sentencing arguments and the sentencing factors enumerated in 18 U.S.C. §3553(a), the court sentenced Barker within its calculated advisory guidelines range to 42 months' imprisonment.



II. DISCUSSION



A. Sufficiency of the Evidence

Barker appeals his conviction, arguing that the Government's evidence of his willfulness was insufficient to sustain his conviction for tax evasion.
[We] review the sufficiency of the evidence de novo, viewing evidence in the light most favorable to the government, resolving conflicts in the government's favor, and accepting all reasonable inferences that support the verdict. This standard of review is strict; we will uphold the verdict if there is any interpretation of the evidence that could lead a reasonableminded jury to find the defendant guilty beyond a reasonable doubt.

United States v. Cole, 525 F.3d 656, 661 (8th Cir.) (quoting United States v. Hamilton, 332 F.3d 1144, 1148-49 (8th Cir. 2003)) (internal quotation marks omitted), cert. denied, Gilbert v. United States, 555 U.S. ---, 129 S.Ct. 309 (2008).

A conviction for "willfully attempting to evade or defeat the payment of a tax" under 26 U.S.C. §7201 requires proof of three elements: "willfulness; the existence of a tax deficiency; and an affirmative act constituting an evasion or attempted evasion of the tax." United States v. Schoppert, 362 F.3d 451, 454 (8th Cir. 2004) (quoting Sansone v. United States [ 65-1 USTC ¶9307], 380 U.S. 343, 351 (1965)). The willfulness element "requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek v. United States [ 91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991). However, where a defendant seeks to defeat a finding of willfulness through a "good-faith belief that he was not violating any of the provisions of the tax laws ...[,] the issue is whether, based on all the evidence, the Government has proved that the defendant was aware of the duty at issue." Id. at 201-02; see also United States v. Gustafson [ 2008-1 USTC ¶50,393], 528 F.3d 587, 591 n.3 (8th Cir. 2008) (holding that a "good-faith misunderstanding of the law or a good-faith belief that [they were] not violating the law" negates willfulness (alteration in original) (quoting Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 201)).

Barker argues that the Government's evidence of his willfulness was insufficient to sustain his conviction because it did not refute his good-faith beliefs that the payment of federal income taxes was voluntary under the tax code, that he was a nonresident alien not subject to federal income tax, and that he discharged any tax liability through his chargeback redemption strategy. We disagree. Because Barker's argument merely raises the issue of whether he "knew of the duty purportedly imposed by the provision of the statute or regulation he is accused of violating," we need only determine whether "the Government has proved that the defendant was aware of the duty at issue." Cheek [ 91-1 USTC ¶50,012], 498 U.S. at 201-02. Viewing all of the evidence in the light most favorable to the jury's verdict and drawing all reasonable inferences in the Government's favor, we find that the evidence was sufficient for a reasonable jury to conclude beyond a reasonable doubt that Barker was aware of his obligation to pay federal income taxes and that Barker, therefore, acted willfully.

At trial, the Government presented significant circumstantial evidence showing that Barker was aware of his obligation to pay federal income taxes. The Government produced evidence that Barker maintained his personal assets in domestic and offshore entities from 1996 until at least December 2006. Given the temporal proximity between the IRS's assessment of his taxes in August 1997 and December 1999, the IRS's November 1997 tax lien and March 2000 threat to levy his assets, and Barker's attempts to shield his assets, a reasonable jury could conclude that Barker's attempt to place his assets beyond the reach of the IRS demonstrated Barker's knowledge of his duty to pay federal income taxes. See United States v. Brooks, 174 F.3d 950, 955 (8th Cir. 1999) (finding sufficient evidence of willfulness where the defendant "made a concerted effort to dissociate himself from his property and income" by transferring property to a trust).

The Government also produced evidence that Barker sought to terminate his relationship with Laughlin, Privatech and Nevis American after he discovered that the IRS was investigating the companies for assisting others in evading payment of their taxes and was learning the identity of their clients. Given the close temporal proximity between the IRS's attempts to levy Barker's assets and Barker's April 2003 statements that "I don't need the IRS connecting me to Shasta," "I didn't pay major dollars for that to happen," and "they assured me that a connection could never be made," a reasonable jury could conclude that Barker's letter demonstrated his awareness of his duty to pay taxes and his efforts to avoid payment. Cf. United States v. Noske [ 97-2 USTC ¶50,538], 117 F.3d 1053, 1059 (8th Cir. 1997) (finding sufficient evidence of a defendant's willfulness in a conspiracy to evade taxes where she sought to liquidate her client's assets after an adverse tax court determination).

The Government also elicited testimony that Barker falsely denied having any knowledge of or involvement with Shasta Property Management, Inc. during the course of the IRS's investigation of Laughlin, Privatech and Nevis American. Barker's false statement to the IRS would also allow a reasonable jury to conclude that Barker was aware of his duty to pay taxes and attempted to avoid that duty. See Brooks, 174 F.3d at 955 (holding that a defendant's submission of false information to the IRS supported a finding that the defendant willfully evaded taxes).

Although the jury could have accepted Barker's testimony regarding his goodfaith beliefs, "in reviewing the denial of a judgment of acquittal, it is not our role to assess [the defendant's] credibility." United States v. Garcia-Hernandez, 530 F.3d 657, 662 (8th Cir. 2008). Because a reasonable interpretation of the Government's evidence "could lead a reasonable-minded jury to find the defendant guilty beyond a reasonable doubt," we must affirm Barker's conviction. See Cole, 525 F.3d at 661 (quoting Hamilton, 332 F.3d at 1149).



B. Procedural Error in Sentencing

The Government cross-appeals Barker's sentence, arguing that the district court erred in its conclusion that an evasion of payment under §7201 is not a continuing offense for the purpose of determining the correct guidelines version under U.S.S.G. §1B1.11. Because this error led the court to use the wrong guidelines version in calculating Barker's advisory sentencing guideline range, the Government argues that the district court committed a procedural error requiring us to vacate Barker's sentence and remand for resentencing. "We review a sentence in two parts: first, we review for significant procedural error, such as an improper calculation of the advisory sentencing guidelines range; and second, absent significant procedural error, we review for substantive reasonableness." United States v. Fischer, 551 F.3d 751, 754 (8th Cir. 2008). In reviewing a sentence for procedural error, we review the district court's factual findings for clear error and its application of the guidelines de novo. See United States v. Yah, 500 F.3d 698, 702 (8th Cir. 2007).

We agree with the Government that the district court erred in its legal conclusion that an evasion of payment under §7201 is not a continuing offense. See United States v. Marchant [ 85-2 USTC ¶9724], 774 F.2d 888, 891 (8th Cir. 1985) ("the violation of section 7201 is a 'continuing offense'"). Because tax evasion is a continuing offense, the date of the defendant's last act of evasion is the "date of the offense of conviction" in determining the appropriate version of the guidelines under U.S.S.G. §1B1.11. See United States v. Maggard, 156 F.3d 843, 849 (8th Cir. 1998) ("Some offenses ... are 'continuing offenses' for which the completion date controls which version of the Sentencing Guidelines should apply." (quoting United States v. Reetz, 18 F.3d 595, 598 (8th Cir. 1994))); U.S.S.G. §1B1.11 cmt. 2 ("Under subsection (b)(1), the last date of the offense of conviction is the controlling date for ex post facto purposes." (underline omitted)).

The district court's error constitutes significant procedural error because it led the court to use the wrong version of the guidelines manual, thereby resulting in a lower advisory sentencing guidelines range. Based on its erroneous legal conclusion that tax evasion was not a continuing offense, the court used April 15, 1998, the day that Barker's 1997 tax return was due, rather than December 2006, the date of Barker's last acts of evading payment, as the "date of the offense of conviction" under §1B1.11. This led the court to use the November 1997 U.S.S.G. manual under §1B1.11(b)(1) and resulted in an advisory guidelines range of 37 to 46 months' imprisonment. If, however, the court had used the December 2006 date, which was well supported by the evidence at trial and the PSR's offense conduct paragraphs adopted by the district court, then the court would have used the November 2007 U.S.S.G. manual, the version of the guidelines manual in effect as of the date of sentencing. 1 See U.S.S.G. §1B1.11(a). Under the November 2007 U.S.S.G. manual, which included the November 2001 amendments to U.S.S.G. §§2T1.1 and 2T4.1, Barker's advisory sentencing guidelines range would have been 63 to 78 months' imprisonment. 2 Because the district court's error resulted in an improperly calculated advisory guidelines range, we find that the court committed a significant procedural error. See Fischer, 551 F.3d at 754.

Furthermore, we find no merit in Barker's contention that the court's procedural error is harmless based on Barker's assertion that the district court would have imposed the same sentence even if the November 2007 version of the guidelines had been applied. Barker has failed to identify any evidence to support his claim that the court would have given the same sentence had it correctly calculated the advisory guidelines range, and we have independently determined that none of the court's statements at sentencing could be reasonably construed to support Barker's position. Thus, we do not find the district court's procedural error to be harmless. See United States v. Gutierrez, 437 F.3d 733, 736 (8th Cir. 2006) ("The party benefitting from the error has the burden to prove that it was harmless.").

Because the district court committed a significant procedural error, we do not review the sentence for substantive reasonableness, but we instead remand for resentencing. See United States v. Vickers, 528 F.3d 1116, 1120 (8th Cir. 2008). 3



III. CONCLUSION

For the foregoing reasons, we affirm Barker's conviction, vacate the sentence and remand to the district court for resentencing.

1 The Probation Office referred to the November 2006 U.S.S.G. manual in the PSR because it anticipated that sentencing would occur prior to November 1, 2007, the effective date of the November 2007 U.S.S.G. manual. Because sentencing occurred on December 20, 2007, however, we recognize that the November 2007 U.S.S.G. manual was the version of the guidelines "in effect as of the date of sentencing." See U.S.S.G. §1B1.11(a).

2 This calculation is based upon the amended tax table in §2T4.1 and the PSR's finding that the tax loss, with penalties and interest included, is $3,600,821.

3 We note that Barker submitted three pro se filings on November 6, 2008, November 10, 2008, and December 4, 2008, after this case had been fully briefed. We do not consider these pro se filings because "[w]e generally do not accept pro se motions or briefs when an appellant is represented by counsel." United States v. McIntosh, 492 F.3d 956, 961 n.2 (8th Cir. 2007); see also United States v. Moore, 481 F.3d 1113, 1114 n.2 (8th Cir.), cert. denied, 552 U.S. ---, 128 S. Ct. 122 (2007).

Willful evasion of tax. --Willful Failure to File Return, Supply Information, or Pay Tax: Willful evasion of tax

Before a defendant can be found guilty of a felony for willful attempt to evade or defeat the income tax there must be proof other than that necessary to make out the misdemeanors for failure to file returns, submit information, or pay tax. Use of the word "attempt" in the Code indicates the need for some willful commission in addition to the willful omissions that make up the misdemeanors.

Spies, 43-1 USTC ¶9243, 317 US 492.

J.H. Jones, CA-5, 47-2 USTC ¶9402, 164 F2d 398.

G.L. Smith, CA-3, 53-2 USTC ¶9538, 206 F2d 905.

E.J. Mesheski, CA-7, 61-1 USTC ¶9233, 286 F2d 345.

A. Burrell, CA-5, 75-1 USTC ¶9152, F2d 904.

Conviction and sentence for willfully attempting to evade tax were affirmed.

Orzechowski, CA-3, 1930 CCH ¶9100, 37 F2d 713.

R. Capone, CA-7, 2 USTC ¶786, 51 F2d 609. Cert. denied, 284 US 669.

G.G. Oliver, CA-7, 1931 CCH ¶9649, 54 F2d 48. Cert. denied, 285 US 543.

Pappas, CA-10, 54-2 USTC ¶9637, 216 F2d 515.

Clayton-Kennedy, DC, 1933 CCH ¶7079, 2 FSupp 233.

J.J. Sullivan, CA-2, 38-2 USTC ¶9429, 98 F2d 79.

J.J. McCormick, CA-2, 3 USTC ¶1187, 67 F2d 867. Cert. denied, 291 US 662.

D.D. Battjes, CA-6, 49-1 USTC ¶9149, 172 F2d 1.

J.F. Keenan, CA-7, 59-1 USTC ¶9349, 267 F2d 118.

R.G. Carlisle, CA-6, 59-1 USTC ¶9462, 266 F2d 551.

S. Lefkowitz, DC, 59-1 USTC ¶9449, 173 FSupp 932.

Yarborough, CA-4, 56-1 USTC ¶9295, 230 F2d 56. Cert. denied, 351 US 969.

A.C. Willingham, CA-5, 61-1 USTC ¶9401, 289 F2d 283. Cert. denied, 368 US 828.

L.A.E. Mollet, CA-2, 61-1 USTC ¶9444, 290 F2d 273.

L.M. Bernard, CA-7, 61-1 USTC ¶9221, 287 F2d 715. Reh'g denied, on other grounds, CA-7, 61-1 USTC ¶9378.

H.L. Taylor, CA-4, 62-2 USTC ¶9590, 305 F2d 183. Cert. denied, 371 US 894.

G.E. Baldwin, CA-7, 62-2 USTC ¶9644, 307 F2d 577. Cert. denied, 371 US 947.

N. Madden, CA-4, 62-1 USTC ¶9378, 300 F2d 757.

F.W. Malone, CA-5, 62-2 USTC ¶9582, 304 F2d 878.

A.C. Cain, CA-7, 62-1 USTC ¶9226, 298 F2d 934. Cert. denied, 370 US 902.

I. Woodner, CA-2, 63-2 USTC ¶9515, 317 F2d 649. Cert. denied, 375 US 903.

M. Sherwin, CA-9, 63-2 USTC ¶9550, 320 F2d 137. Cert. denied, 375 US 964.

D.S. Fago, CA-2, 63-2 USTC ¶9576, 319 F2d 791. Cert. denied, 375 US 906.

A.M. Katz, CA-1, 63-2 USTC ¶9600, 321 F2d 7. Cert. denied, 375 US 903.

J.B. Cooper, CA-5, 63-2 USTC ¶9651, 321 F2d 274. Cert. denied, 375 US 964.

B. Mortimer, CA-7, 65-1 USTC ¶9301, 343 F2d 500. Cert. denied, 382 US 842.

J. Grandinetti, CA-3, 64-2 USTC ¶9822, 337 F2d 1010.

E.O.D. Campbell, CA-2, 65-2 USTC ¶9664, 351 F2d 336. Cert. denied, 383 US 907.

H.C. Trownsell, CA-7, 66-2 USTC ¶9661.

H. Roy, CA-9, 67-1 USTC ¶9355, 377 F2d 544. Cert. denied, 389 US 936.

C.E. Mansfield, CA-7, 67-2 USTC ¶9586, 381 F2d 961. Cert. denied, 389 US 1015.

W.P. Johnson, Jr., CA-3, 67-2 USTC ¶9750, 386 F2d 630.

J.D. McCarty, CA-10, 69-1 USTC ¶9322, 409 F2d 793. Cert. denied, 396 US 836.

E.E. Haseltine, CA-9, 70-1 USTC ¶9140, 419 F2d 579.

H.G. Browney, CA-4, 70-1 USTC ¶9154, 421 F2d 48.

W.B. Aberson, CA-2, 70-1 USTC ¶9167, 419 F2d 820. Cert. denied, 397 US 1066.

E.E. Matosky, CA-7, 70-1 USTC ¶9210, 421 F2d 410. Cert. denied, 398 US 904.

S.J. Spinelli, CA-9, 71-1 USTC ¶9434, 443 F2d 2.

A.L. Dowell, CA-10, 71-2 USTC ¶9642, 446 F2d 145. Cert. denied, 404 US 984.

A.M. Siragusa, CA-2, 71-2 USTC ¶9730, 450 F2d 592. Cert. denied, 405 US 974.

L.L. Bursten, CA-5, 72-1 USTC ¶9152, 453 F2d 605. Cert. denied, 409 US 843.

L. Potts, CA-7, 72-1 USTC ¶9371, 459 F2d 412.

A.M. Newman, CA-5, 72-2 USTC ¶9719, 468 F2d 791. Cert. denied, 411 US 905.

K. Vanderburgh, CA-9, 73-1 USTC ¶9304, 473 F2d 1313.

G. Stribling, CA-6, 73-2 USTC ¶9604.

G.O. Meriwether, CA-5, 73-2 USTC ¶9731, 486 F2d 498.

D.M. Sarvis, CA-9, 73-2 USTC ¶9787, 488 F2d 526.

L. Kalmanson, CA-5, 74-1 USTC ¶9128.

J.B. Pinner, CA-4, 74-2 USTC ¶9547, 498 F2d 1398.

J.E. Smith, CA-4, 74-2 USTC ¶9709, 502 F2d 1150.

W.A. Lisowski, CA-7, 74-2 USTC ¶9784, 504 F2d 1268.

E. Cook, CA-5, 75-1 USTC ¶9134. Aff'd, per curiam, CA-5, 77-1 USTC ¶9165, 546 F2d 82.

E.J. Barrett, CA-7, 75-1 USTC ¶9340, 505 F2d 1091.

G.B. Parr, CA-5, 75-1 USTC ¶9349, 509 F2d 1381.

N.D. Anderson, CA-4, 75-1 USTC ¶9368.

D.C. Ross, CA-5, 75-1 USTC ¶9428, 511 F2d 757. Cert. denied, 423 US 836.

N.L. Ordoneaux, CA-5, 75-2 USTC ¶9516.

M. Stern, CA-9, 75-2 USTC ¶9637, 519 F2d 521.

J.G. Martin, CA-2, 75-2 USTC ¶9699, 525 F2d 703. Cert. denied, 423 US 1035.

J.L Allen, CA-6, 75-2 USTC ¶9685, 522 F2d 1229. Cert. denied, 423 US 1072.

J.H. Fendley, CA-5, 76-1 USTC ¶9110.

C.E. Prevatt, CA-5, 76-1 USTC ¶9180, 526 F2d 400.

V. Bernabei, CA-6, 76-2 USTC ¶9648.

J.W. Venditti, CA-5, 76-2 USTC ¶9492, 533 F2d 217.

B. Daniels, CA-5, 80-1 USTC ¶9438, 617 F2d 146.

W.L. Davis, CA-6, 81-1 USTC ¶9346.

S. Dwoskin, CA-5, 81-1 USTC ¶9416, 644 F2d 418.

R. Hebel, CA-8, 82-1 USTC ¶9162, 668 F2d 995. Cert. denied, 102 SCt 2014.

L.F. Shelton, CA-7, 82-1 USTC ¶9166, 669 F2d 446.

R.C. Thetford, CA-5, 82-1 USTC ¶9393, 676 F2d 170.

H. Stone, CA-9, 85-2 USTC ¶9652, 770 F2d 842.

D.K. Turner, CA-10, 86-2 USTC ¶9647, 799 F2d 627.

R.A. Copeland, CA-7, 86-1 USTC ¶9314, 786 F2d 768.

W. Jeffries, CA-7, 88-2 USTC ¶9459, 854 F2d 254.

M.C. Frederickson, CA-8, 88-2 USTC ¶9405.

F.C. Parrino, CA-8, 88-1 USTC ¶9348.

D.G. Auen, CA-2, 89-1 USTC ¶9105.

M.W. Williams, CA-11, 89-2 USTC ¶9390, 875 F2d 846.

H. Michaud, CA-1, 88-2 USTC ¶9577, 860 F2d 495.

J.J. Hogan, CA-1, 88-2 USTC ¶9593, 861 F2d 312.

W.A. Connor, Jr., CA-3, 90-1 USTC ¶50,166, 898 F2d 942.

W. Willie, CA-10, 91-2 USTC ¶50,409.

J.J. DiPetto, CA-2, 91-2 USTC ¶50,407, 936 F2d 96. Cert denied, 10/7/91.

R.W. Daniel, CA-6, 92-1 USTC ¶50,095.

E.A. Boone, CA-9, 92-1 USTC ¶50,179.

L. Chesson, Jr., CA-5, 92-1 USTC ¶50,230.

P.B. Bonneau, CA-1, 92-2 USTC ¶50,385, 970 F2d 929.

F.O. Becker, CA-7, 92-2 USTC ¶50,314, 965 F2d 383.

R.L. McGill, CA-1, 92-1 USTC ¶50,052.

W. Rea, CA-2, 92-1 USTC ¶50,191, 958 F2d 1206.

J.A. Brimberry, CA-7, 92-1 USTC ¶50,288, 961 F2d 1286.

R.L. Huguenin, CA-1, 91-2 USTC ¶50,571, 950 F2d 23.

R.W. Charroux, CA-5, 93-2 USTC ¶50,628, 3 F3d 827.

J.L. Martin, CA-4 (unpublished opinion), 97-2 USTC ¶50,727, aff'g, per curiam, an unreported District Court decision.

S.J. Holland, CA-7, 98-2 USTC ¶50,898, 160 F3d 377.

J.E. Codner, CA-10 (unpublished opinion), 2000-1 USTC ¶50,389, aff'g an unreported District Court decision.

L. Tekle, CA-9 (unpublished opinion), 2002-1 USTC ¶50,225, aff'g an unreported District Court decision.

T.P. Brennan, CA-3 (unpublished opinion), 2002-1 USTC ¶50,455, aff'g an unreported District Court decision.

M. Wick, CA-9 (unpublished opinion), 2002-1 USTC ¶50,456, aff'g an unreported District Court decision.

Willfulness may be negated by a good-faith misunderstanding of the law or a good-faith belief that there is no violation regardless of whether the claim is objectively unreasonable.

J.L. Cheek, SCt, 91-1 USTC ¶50,012, 11 SCt 604.

The Seventh Circuit, on remand, reversed and remanded the unreported DC Ill. decision.

J.L. Cheek, CA-7, 91-1 USTC ¶50,232, 931 F2d 1206.

A pilot's contention that the trial court erred in not instructing the jury on the advice of counsel defense was not valid because the court's instructions treated the issues fairly and accurately. Moreover, the court's instructions as to willfulness encompassed any defense claiming a good faith belief of lawful conduct. Thus, the taxpayer's conviction and sentencing for tax evasion and failure to file returns on retrial were upheld, consistent with the U.S. Supreme Court's opinion in J.L. Cheek, SCt, 91-1 USTC ¶50,012.

J.L. Cheek, CA-7, 93-2 USTC ¶50,473, 3 F3d 1057. Cert. denied, 2/22/94.

Similarly.

R.G. Powell, CA-9, 91-2 USTC ¶50,320, 936 F2d 736. Amended, CA-9, 92-1 USTC ¶50,128, 955 F2d 1206.

Evidence was sufficient to find the taxpayer guilty of attempted evasion of income taxes.

M.C. Goldberg, DC, 62-2 USTC ¶9638, 206 FSupp 394. Aff'd on another issue, CA-3, 64-1 USTC ¶9316, 330 F2d 30.

W.A. Mousley, CA-3, 63-1 USTC ¶9245, 311 F2d 795. Cert. denied, 372 US 966.

P.J. Richard, DC, 63-1 USTC ¶9243. Aff'd on other grounds, CA-1, 63-1 USTC ¶9376, 315 F2d 331.

M.R. Scheetz, DC, 64-1 USTC ¶9364, 224 FSupp 789.

V.M. Gase, DC, 66-1 USTC ¶9288, 248 FSupp 704.

M.L. Donovan, DC, 66-1 USTC ¶9231, 250 FSupp 463.

G.L. Mancuso, CA-4, 67-2 USTC ¶9487, 378 F2d 612. Petition for rehearing denied, CA-4, 68-1 USTC ¶9166, 387 F2d 376. Cert. denied, 390 US 955.

D.E. Bartone, CA-6, 68-2 USTC ¶9564, 400 F2d 459.

A.T. Critzer, CA-4, 74-2 USTC ¶9505, 498 F2d 1160.

R.E. Berzinski, CA-8, 76-1 USTC ¶9211, 529 F2d 590.

B. Kaatz, CA-10, 83-1 USTC ¶9156, 705 F2d 1237.

W. Greene, CA-9, 83-1 USTC ¶9175, 698 F2d 1364.

F.J. Hecht, CA-8, 83-1 USTC ¶9233, 705 F2d 976.

J.A. Shorter, Jr., CA-D.C., 87-1 USTC ¶9127, 809 F2d 54.

R.S. Hart, DC Ind., 88-2 USTC ¶9467.

G.M. House, DC Mich., 87-2 USTC ¶9561.

D.E. Dack, CA-7, 93-1 USTC ¶50,162, 987 F2d 1282.

H.J. Sallee, CA-5, 93-1 USTC ¶50,236, 984 F2d 643.

W.J. Benson, CA-7, 95-2 USTC ¶50,540, 67 F3d 641.

J. Klausner, CA-2, 96-1 USTC ¶50,173.

R.A. Valenti, CA-7, 97-2 USTC ¶50,629, 121 F3d 327.

See also ¶41,318.177.

Taxpayer was found not guilty of fraud with intent to evade tax.

F. Palermo, CA-3, 58-2 USTC ¶9850, 259 F2d 872.

A.T. Critzer, CA-4, 74-2 USTC ¶9505, 498 F2d 1160.

L. Harris, CA-7, 91-2 USTC ¶50,433, 942 F2d 1125.

B. Romano, CA-2, 91-2 USTC ¶50,471, 938 F2d 1569.

J.R. Montgomery, DC, 54-1 USTC ¶9247.

M.J. Marler, DC, 56-1 USTC ¶9483.

C. Jannuzzio, DC, 60-2 USTC ¶9512, 184 FSupp 460.

J.C. Tyler, DC, 61-1 USTC ¶9290.

R.E. Ford, Sr., DC, 62-1 USTC ¶9417.

W.B. Archer, DC, 63-2 USTC ¶9632.

J.B. Nicosia, DC, 73-2 USTC ¶9587, 360 FSupp 814.

K. Frosch, BC-DC Pa., 2002-1 USTC ¶50,124.

A judgment by the Court of Appeals for the Fifth Circuit affirming the taxpayer's conviction by a jury for willfully attempting to evade taxes was vacated and remanded on certiorari by the U.S. Supreme Court, which followed the Solicitor General's recommendation that certiorari be granted because the government failed to disclose written or recorded statements or reports of its witnesses in its possession.

N.C. Beasley, SCt, 76-2 USTC ¶9555, 425 US 956, vacating and remanding CA-5, 75-2 USTC ¶9725, 519 F2d 233.

Pursuant to the Supreme Court decision above, the Court of Appeals for the Fifth Circuit remanded the case to the District Court with instructions to consider the issues raised by the Solicitor General's investigation.

N.C. Beasley, CA-5, 76-2 USTC ¶9556, 535 F2d 293, on remand from SCt, 76-2 USTC ¶9555, 425 US 956.

On appeal, after the remand, it was held that the government's failure, albeit in good faith, to produce pre-trial statements given by a key prosecution witness violated the Jencks Act. The viola tion, however, constituted reversible error as to only one of the two charges.

N.C. Beasley, CA-5, 78-2 USTC ¶9586, 576 F2d 626. Defendant's petition for rehearing denied, CA-5, 79-1 USTC ¶9107.

Insufficient evidence was presented to support married taxpayers' convictions for tax evasion where the government failed to prove the required existence of a tax deficiency. Under the "no earnings and profits, no income" rule established in P.F. DiZenzo, CA-2, 65-2 USTC ¶9518, amounts that the couple diverted from their wholly owned corporation could not be taxable to them personally as a constructive dividend, where the company had no earnings or profits. Instead, the diverted funds constituted a nontaxable reduction of the couple's shareholder loan account.

J. D'Agostino, CA-2, 98-1 USTC ¶50,380, 145 F3d 69.

The conviction of a lawyer for tax evasion where the amounts of depreciation on some 90 pieces of taxpayer's property, which were large and important items in the net worth method used to determine his income, were based upon speculative and uncertain values and economic lives was reversed.

R.G. Lenske, CA-9, 67-2 USTC ¶9631, 383 F2d 20.

On evidence that the taxpayer had failed to file returns for the years in issue because he was "unable to pay" but that he submitted or caused others to submit W-2 forms disclosing his tax responsibility to the Government, the Court found an absence of an "evil motive", such as is required for conviction. Accordingly, the motion for judgment of acquittal was granted.

R.R. Power, DC, 68-2 USTC ¶9443.

Where the evidence indicated that the taxpayer's purpose in failing to pay over collected taxes for his clients was to take advantage of the time lag in the government's investigation of delinquent returns to tide him over during a period of personal financial hardship, he was not guilty of willfully attempting to evade the payment of taxes of his clients. District Court reversed.

C.L.O. Edwards, CA-9, 67-1 USTC ¶9356.



A dentist who opened two bank accounts using false personal information in an attempt to prevent the IRS from collecting taxes owed was properly convicted of tax evasion and failure to pay tax. The taxpayer transferred large amounts of income earned from his dental practice to bank accounts upon receiving deficiency notices for the tax years in issue. His use of a false social security number (SSN), birth place and birth date could have easily misled or concealed information from the IRS.

R.S. Carlson, CA-9, 2001-1 USTC ¶50,152.

Conviction for willfully attempting to evade taxes by filing false returns was reversed on two counts because there was insufficient evidence to determine that a bank installment loan department head had received money illegally from a bank client.

G.O. Meriwether, CA-5, 73-2 USTC ¶9731, 486 F2d 498.

The Court of Appeals for the Third Circuit, regarding the lower court's conclusion that there was willful evasion of taxes for 1966, reversed with respect to the taxpayer-husband and reversed and remanded with respect to his wife. There should have been a reasonable doubt as to whether the husband had thwarted the investigation by the IRS by taking steps to conceal their 1965 tax records. Since there was a question for the jury regarding the wife's willfulness, she was granted a new trial because the jury was exposed to considerable evidence bearing on willful conduct in prior years for which the government failed to prove any deficiency.

E.F. House, CA-3, 75-2 USTC ¶9782, 524 F2d 1035, rev'g in part and rem'g in part DC, 75-1 USTC ¶9285. Reh'g denied by CA-3, 76-2 USTC ¶9616.

Willfulness need only exist when the returns are filed. The subsequent payment of enough to satisfy liability cannot be used to show the lack of willfulness.

C.F. Quinn, DC, 77-2 USTC ¶9503.

Willfulness was shown by consistent failure to report large amounts of income, failure to comply with summonses and the making of a false statement to an IRS agent.

C.A. Schafer, CA-5, 78-2 USTC ¶9717, 580 F2d 774.

The evidence showed that tax evasion was willful. The defendant had admitted to the IRS that he knew the tax laws well, that he knew that illegally obtained income was reportable and that he had considered reporting it but feared that if he did his employer would discover his activities.

L. Ojala, CA-8, 78-2 USTC ¶9845, 587 F2d 395.

The jury properly concluded, based on all the psychiatric testimony, that the defendant was not mentally ill during the years in question. No error was involved in allowing the government's doctors to testify as to his competency to commit the offense even though they were initially appointed to determine his competency to stand trial.

B. Klein, CA-10, 80-1 USTC ¶9109.

Evidence of a consistent pattern of not reporting large amounts of income is in itself evidence of wilfulness.

S.R. King, CA-8, 80-1 USTC ¶9251, 616 F2d 1034.

Operators of a legal house of ill repute were properly convicted of tax evasion for failing to withhold tax as to wages paid to auxiliary employees such as maids and bartenders. The amounts received by those persons were wages, not tips. The overall operation established an intent to deprive the government of taxes.

J. Conforte, CA-9, 80-1 USTC ¶9417, 624 F2d 869. Cert. denied, 449 US 1012, 101 SCt 568.

Before the Spies case it was held that willful failure to file a return was in itself evidence of an attempt to evade and defeat the income tax laws.

L.C. O'Brien, CA-7, 1931 CCH ¶9474, 51 F2d 193. Cert. denied, 284 US 673.

Miro, CA-2, 1932 CCH ¶9396, 60 F2d 58.

The filing of a false W-4 form by an insurance agent was found to be the affirmative act necessary to support a felony charge of willful evasion of tax.

J.R. Williams, CA-5, 91-1 USTC ¶50,197, 928 F2d 145. Cert. denied, 10/7/91.

An individual's conviction for attempting to evade assessment of income taxes was upheld because the filing and maintaining on file of Forms W-4, on which he falsely claimed exemption from withholding, constituted the necessary affirmative act of evasion. A reasonable jury could have concluded that the taxpayer filed the forms with the intent of permanently eliminating income tax withholding. The government fulfilled its obligation of showing that the individual willfully attempted to evade assessment, and whether or not he was successful was irrelevant.

R.A. King, CA-7, 97-2 USTC ¶50,746, 126 F3d 987.

A subcontractor who received earned income for services rendered but who directed that his paychecks be made payable to a tax avoidance organization was properly convicted of tax evasion and failure to file income tax returns. Testimony and documentary evidence established that the subcontractor received earned income and filed no returns; thus, the existence of a tax deficiency was proven. Moreover, the taxpayer's admissions to a co-worker, as well as instructions to make checks payable to the tax protest organization, were indicative of his willful evasion of taxes.

L. Beall, CA-7, 92-2 USTC ¶50,417, 970 F2d 343.

The indictment leading to a steam fitter's conviction for tax evasion, which charged conduct constituting both evasion of assessment of tax and evasion of payment of tax, was not duplicitous. The individual's filing of a fraudulent Form W-4 was a sufficient affirmative act to support a felony tax evasion prosecution.

R.S. Mal, CA-9, 91-2 USTC ¶50,518, 942 F2d 682.

An individual's motion for judgment of acquittal notwithstanding jury verdicts that he was guilty of the crimes of tax evasion and the willful failure to file returns was denied. Evidence of fraudulently filed withholding forms established the affirmative act element of the crime of tax evasion. Willfulness was established for both crimes through evidence of an incorrect address and false information provided during the IRS investigation.

J.R. Crocker, DC Del., 92-1 USTC ¶50,008, 753 FSupp 1209.

The IRS did not have to prove that the form filed by a massage parlor operator was a "return" in order to establish tax evasion because the filing of a return is not an element of the crime of tax evasion. Similarly, in proving that the taxpayer filed a false return, the IRS was not required to establish that it was a joint return, as described in the indictment.

S.N. Robinson, CA-5, 92-2 USTC ¶50,565, 974 F2d 575.

A taxpayer who provided false social security numbers to his bank and brokerage firms, which in turn caused these payors to issue Forms 1099 to the IRS under the false social security numbers, was properly convicted on four counts of tax evasion.

J.C. Payne, CA-10, 92-2 USTC ¶50,555, 978 F2d 1177. Cert. denied, 113 SCt 2995.

The IRS failed to prove that a husband and wife willfully attempted to evade or defeat payment of their taxes. There was no fraud on the part of the wife in signing returns and filing for bankruptcy shortly after the taxes were eligible for discharge in bankruptcy. Although the husband claimed excessive exemptions and filed late returns after being contacted by the IRS, the IRS's assertion that he willfully attempted to avoid paying taxes by making minimal payments on the overdue amounts was not supported by the evidence. The sparse stipulated facts that the IRS relied upon did not establish that the husband knew he had a duty to pay the taxes and that he voluntarily and intentionally violated that duty.

R.A. Peterson, BC-DC Wyo., 93-2 USTC ¶50,499, 160 BR 385.

An individual who prepared sham promissory notes for tax protestors, listed the debt on their bankruptcy petition forms and filed the petitions in order to cause the IRS to release tax levies on their wages was properly convicted of aiding and abetting attempted income tax evasion. Although the bankruptcy filings alone did not constitute an unlawful attempt to evade payment of tax, the false assertions of heavy debt and financial distress, which had the purpose of depriving the government of amounts collectible under the levies, supported the conviction. Similarly, convictions for conspiracy to defraud the United States were sustained because the false assertions provided the required element of dishonesty.

R. Huebner, CA-9, 95-1 USTC ¶50,008, 48 F3d 376. Cert. denied, 116 SCt 71.

An attorney who served as administrator of an estate was properly convicted of tax evasion. The attorney's transfers of estate funds among accounts at the same bank were not only part of an embezzlement scheme, but also constituted affirmative acts showing an intent to conceal receipt of embezzled funds. Also, the attorney sought an extension of time to file his tax return and underpaid estimated taxes in order to mislead the government as to his true amount of income.

W.E. Eaken, CA-7, 94-1 USTC ¶50,098, 17 F3d 203.

A married couple and their tax attorney were properly convicted of tax evasion despite their claim that the husband's underlying tax deficiency had been eliminated. His voluntary payments and the proceeds from the sale of his seized property did not eliminate his original tax liability and the IRS was not required to apply the seized amounts in the same manner as he requested for his voluntary payments. The IRS applied the seizure proceeds to his total tax, interest and penalties for the earliest year owed; thus, there continued to be a deficiency even thought the husband's total payments exceeded the amount of tax that he originally owed.

F.Y. Wright, Jr., CA-5, 2000-1 USTC ¶50,438, 211 F3d 233. Aff'g in part and rem'g in part an unreported District Court decision.

A bankruptcy court's determination that the government failed to meet its burden of proving that an individual willfully evaded taxes was erroneous. Prior to the debtor's bankruptcy filing, a federal district court allowed the government's federal tax lien to take priority over the mortgage and that may have implicated a finding of fraud. In addition, the bankruptcy court erred in its finding that the debtor did not have the ability to pay his tax liabilities in light of his substantial income tax liability three years after he allegedly ceased to earn an income. Accordingly, the bankruptcy court was instructed to make a factual determination as to whether evidence of a willful attempt to evade taxes existed under a totality of the circumstances.

S.M. Spiwak, DC Fla., 2002-2 USTC ¶50,568, 285 BR 744.

The IRS reached an agreement with Doctors Benefit Insurance Company (DBIC), assignee of xélan Insurance Company Limited, with respect to group supplemental insurance programs offered to members of xélan. DBIC agreed to stop operations and return $500 million to the programs' participants. DBIC is required to withhold money on these payments, as well as make a $2.34 million payment to the IRS to resolve issues arising in connection with these policies.

IRS News Release IR-2005-114, October 3, 2005.

A dentist who was a persistent "tax protestor" willfully attempted to evade the federal income tax in violation of Code Sec. 7201. The government's evidence established that the dentist earned taxable income, owed substantial income tax, knew that he was required to file an income tax return, failed to pay any income taxes and willfully attempted to evade the taxes he owed. Thus, the evidence was sufficient to establish the offense of willful tax evasion.

R.E. Nolen, CA-5, 2007-1 USTC ¶50,285.

The evidence was sufficient to support a married couple's conviction for willfully attempting to evade or defeat tax. The husband, a certified public accountant, failed to report his accounting income from the nonprofit organization for which his wife was the executive director. He also did not report the rental income received from property that was leased to the organization on the couple's joint tax returns. The wife reported only half the rent she received for the property leased to the organization on her returns. Moreover, she used organization funds for her own purposes and tried to conceal such activities from the organization's auditors and the government by underreporting her income.

W.D. Madison, CA-6 (unpublished opinion), 2007-1 USTC ¶50,495, aff'g in part, rev'g and rem'g in part an unreported DC Tenn. decision.

An individual's conviction for willful tax evasion was not invalidated merely because he was seeking a Collection Due Process hearing to dispute his tax liability. His argument that the offense of tax evasion was not complete until the IRS was unable to collect taxes was without merit. The offense was complete when he failed to make tax payments and used three trusts to conceal his income. Further, the Paperwork Reduction Act did not preclude his conviction. There was no evidence that the control numbers on the tax forms were invalid.

D.R. Patridge, CA-7, 2007-2 USTC ¶50,806, 507 F3d 1092.

The sentence imposed on an individual for willfully attempting to evade payment of taxes was affirmed. After reaching a settlement agreement with the IRS, the individual submitted an offer in compromise in which he failed to disclose substantial assets to the IRS. The individual had transferred his income and assets to two companies he failed to disclose on Form 656, Offer in Compromise, and supporting documents. Although the individual argued that he was denied from presenting his good faith defense, he failed to identify specific evidence that was excluded by the court. The record established that he was allowed to introduce evidence, to argue the facts attacking the willfulness element, to testify extensively and to explain his doubts as to his tax liability. Further, since a formal assessment is not a required element to proving tax evasion, the court properly ruled that the government did not need to prove that a valid assessment had been issued.. Finally, the court was without authority to issue an order compelling the prosecution to grant immunity to the individual's witness who invoked Fifth Amendment privilege and refused to testify.

C.E. Vaughn, CA-4 (unpublished opinion), 2007-2 USTC ¶50,811, aff'g, per curiam, an unreported DC W.Va. decision.

A married couple was properly convicted of tax evasion. The documents and information seized pursuant to a search warrant was properly introduced into evidence to establish the couples' tax liability; thus, the couple's claim that the warrant lacked particularity was without merit. Further, the government's evidence presented at trial was sufficient for a rational jury to find that the wife willfully evaded paying the tax deficiency. The couple transferred money to an offshore account, kept assets in the name of trusts and used those assets to live a lavish lifestyle.

J. Van Meter, CA-5, 2008-1 USTC ¶50,373.

The director of a television station was properly convicted of tax evasion. A single count charging the individual with tax evasion covering several years was not duplicitous when the director exhibited the same pattern of evasive conduct for all the years in question leading to one continuous course of conduct. Moreover, the evidence used by the government to prove one count of tax evasion encompassing those years was the same evidence it would have used to prove evasion in each year individually.

T.L. Root, DC Pa., 2008-1 USTC ¶50,391.

A federal district court properly convicted and sentenced an individual for income tax evasion. The individual operated his business under a false name, concealed his identity and income, and did not file a tax return for any of the tax years at issue. A rational jury could easily infer that the individual knew of his obligation to file federal income tax returns and that his failure to do so was an intentional violation of a known legal duty.

N. Stierhoff, CA-1, 2009-1 USTC ¶50,103.

An individual was properly convicted of attempted tax evasion. There was no merit in his argument that the district court lacked jurisdiction due to an alleged defect in the arrest warrant that was issued after his indictment. Even if the warrant was defective, the illegal arrest or detention did not void a subsequent conviction.

A.L. Farnsworth, CA-3, 2009-1 USTC ¶50,104.

Internal Revenue Code § 6672(a), provides in pertinent part that: Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
This rule has been interpreted by the Supreme Court to apply to persons responsible for the collection of third-party taxes, not only persons who perform all three functions of collection, accounting, and paying. "In an action to collect taxes, the government bears the initial burden of proof." That burden is satisfied by the IRS's "deficiency determinations and assessments for unpaid taxes," which are presumed correct "so long as they are supported by a minimal factual foundation." However, "[a] showing by the taxpayer that a determination is arbitrary, excessive or without foundation shifts the burden of proof back to the IRS." For liability determinations under 26 U.S.C. § 6672, a taxpayer may establish that an assessment or determination is without foundation by establishing that he or she (1) is not a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over the tax), and (2) did not willfully refuse to pay the tax. Once the taxpayer rebuts the presumption, the burden reverts to the IRS to show that its determination was correct.

In the Haslett case, an individual who assumed the role of chief executive officer (CEO) of a holding company was a responsible person liable for the unpaid employment tax obligations of a wholly-owned subsidiary for two assessment periods at issue. On becoming a CEO, he also became a "responsible person" within the meaning of the trust fund provisions because he had the authority to control the financial affairs of the subsidiary. He was not relieved of that responsibility even though he took control after the holding company decided to cease paying the subsidiary's trust fund taxes. However, the individual was not responsible with respect to unpaid tax obligations for a period when he was merely a member of the board of directors and had no official role in the subsidiary's operations or any direct control over payment of the subsidiary's taxes. Further, the individual's failure to pay over the taxes was willful. Despite full knowledge of the subsidiary's unpaid tax obligations, he failed to remit the subsidiary's taxes; instead he directed that corporate funds be paid to other creditors.


Bradley A. Haslett, Plaintiff v. United States of America, Defendant. United States of America, Counter-plaintiff v. Bradley A. Haslett, Counter-defendant.

U.S. District Court, Dist. Alas.; 3:06-cv-00150-JWS, February 9, 2009.

[ Code Sec. 6672]






ORDER AND OPINION



[Re: Motions at Docket 72 and 79]



I. MOTIONS PRESENTED


SEDWICK, United States District Judge: At docket 72, defendant and cross-plaintiff United States of America ("government") moves for an order granting summary judgment in its favor and against plaintiff and cross-defendant Bradley A. Haslett ("Haslett") in the amount of $438,971.35 1 in federal tax assessments plus accrued statutory interest and additions from February 28, 2009, less any payment or credits. Haslett cross-moves for summary judgment in his favor at docket 79 and opposes the government's motion at docket 80. The government replies at docket 81. Neither party requested oral argument, and it would not assist the court.


II. BACKGROUND


Winward Electric Services, Inc. ("Winward") was an electrical contracting company originally formed in 1956. In 1999, Winward was purchased by and became a wholly-owned subsidiary of a holding company named CommSpan, Inc. ("CommSpan"). CommSpan was created for the sole purpose of acquiring Winward and three other electrical services companies - Aurora Electric, Inc. ("Aurora"), CTS, and CRA-TEK. At the time of the acquisition, Winward was operated by the following individuals: James Millerberg ("Millerberg"), who served as CEO; Toby Quesinberry ("Quesinberry"), who served as COO; Paul Jacobson ("Jacobson"), who served as CFO; and Dawn Dauber ("Dauber"), who served as Controller. Haslett owned and operated Aurora, but did not play a role in the management of Winward. As a holding company of four electrical services subsidiaries, CommSpan provided management services to the companies it oversaw, and each subsidiary paid management fees to CommSpan in return. 2 CommSpan managed 401(k) plans for the employees of its subsidiaries and ensured that its subsidiaries were covered by appropriate insurance policies. CommSpan also acted to capitalize its subsidiaries.

As a result of the acquisition, all of the subsidiaries' existing shares were extinguished and its shareholders received CommSpan stock in return. In exchange for the Aurora acquisition, Haslett received 805,000 of the 5,400,000 issued shares in CommSpan, which represented the fifth largest block of shares outstanding. Haslett remained in control of Aurora and also assumed a role as a director of CommSpan. CommSpan's other directors were Andrew Hidalgo ("Hidalgo") (who also served as CEO of CommSpan) and David Gerber ("Gerber") (who also served as COO and Secretary of CommSpan). On May 27, 2000, CommSpan's Board of Directors, including Hidalgo, Haslett, and Gerber, participated in a telephone conference to discuss Winward's financial difficulties. Also in attendance was Jacobson, Winward's CFO. During the telephone conference, CommSpan's Board members discussed various ways in which Winward's financial situation could be resolved. The course of action ultimately adopted was to cease making Winward's federal tax payments. Jacobson testified at his deposition that prior to making the decision all participants in the call were aware of the personal liabilities associated with a failure to pay trust fund taxes. Nevertheless, the decision was made because it was the "easiest" and would cause only short-term impact. In the meantime, it was agreed that Jacobson would negotiate a payment plan with the IRS.

Because Haslett was only a director at the time, he denies any role in the decision not to pay taxes for June, July, and August 2000, although he admits he attended the May 27, 2000 telephone conference during which the decision was made. According to Haslett, "the officers of Winward [subsequently] failed to make trust fund deposit[s] on the following pay periods in 2000[:] May 24, May 31, June 7, June 14, June 21, June 28, July 4, July 12, July 26, August 2, August 9, August 16, August 23 and August 30." Prior to this period, CommSpan sought to capitalize Winward by other means. In January 2000, Hidalgo and Gerber negotiated and guaranteed a $2.0 million line of credit for the benefit of Winward. Between January 2000 and September 2000, Jacobsen - CFO of Winward - was the only individual to draw down on the line of credit.

On September 29, 2000, Haslett became CEO of CommSpan. On the same day, Haslett obtained and personally guaranteed an increase in CommSpan's line of credit in the amount of $700,000, $300,000 of which was drawn down to pay Winward's trust fund taxes. 3 Haslett claims that, despite "[r]epeated admonishments," Winward's management ignored him and failed to pay its accumulated trust fund taxes on September 30, 2000 and again on December 31, 2001. Instead, those funds were used to pay other creditors. Winward and CommSpan collapsed in December 2001. After Haslett proved unable to save Winward or CommSpan, he took both entities into bankruptcy. This action and a concurrent action in the District of Utah followed. The Utah action has been stayed pending resolution of Haslett's claims and the claims against him in this court.


III. STANDARD OF REVIEW


Federal Rule of Civil Procedure 56 provides that summary judgment should be granted when there is no genuine dispute about material facts and when the moving party is entitled to judgment as a matter of law. The moving party has the burden to show that material facts are not genuinely disputed. 4 To meet this burden, the moving party must point out the lack of evidence supporting the nonmoving party's claim, but need not produce evidence negating that claim. 5 Once the moving party meets its burden, the nonmoving party must demonstrate that a genuine issue exists by presenting evidence indicating that certain facts are so disputed that a fact-finder must resolve the dispute at trial. 6 The court must view this evidence in the light most favorable to the nonmoving party, must not assess its credibility, and must draw all justifiable inferences from it in favor of the nonmoving party. 7


IV. DISCUSSION


Internal Revenue Code § 6672(a), provides in pertinent part that:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. 8

This rule has been interpreted by the Supreme Court to apply to persons responsible for the collection of third-party taxes, not only persons who perform all three functions of collection, accounting, and paying. 9 "In an action to collect taxes, the government bears the initial burden of proof." 10 That burden is satisfied by the IRS's "deficiency determinations and assessments for unpaid taxes," which are presumed correct "so long as they are supported by a minimal factual foundation." 11 However, "[a] showing by the taxpayer that a determination is arbitrary, excessive or without foundation shifts the burden of proof back to the IRS." 12 For liability determinations under 26 U.S.C. § 6672, a taxpayer may establish that an assessment or determination is without foundation by establishing that he or she (1) is not a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over the tax), and (2) did not willfully refuse to pay the tax. 13 Once the taxpayer rebuts the presumption, the burden reverts to the IRS to show that its determination was correct. 14

The question before the court is whether Haslett (1) is a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over Winward's trust fund taxes), and (2) willfully refused to pay Winward's trust fund taxes. 15 The government argues that Haslett was a "responsible person" under § 6672 because he was the CEO and a member of the Board of Directors of Winward's parent company, CommSpan. Moreover, the government contends that Haslett's willfulness in refusing to pay Winward's trust fund taxes is apparent because Haslett knew that Winward was delinquent and nevertheless allowed Winward "to use unencumbered funds to pay creditors other than the United States." 16 Because Haslett continued on as CEO of CommSpan in the face of these understood tax delinquencies, the government asserts that he should not be relieved of liability for willfully failing to pay Winward's taxes.

Haslett counters that because he was not Winward's "responsible person" at the time the decision was made to cease paying taxes or at the time the taxes were due, he is relieved of liability. Furthermore, Haslett argues that because he directed the officers of Winward to pay its delinquent taxes, and they refused, he cannot personally be found to have acted willfully in refusing to pay Winward's trust fund taxes. Haslett finally claims that genuine issues of material fact preclude granting summary judgment in favor of the United States because there is a dispute over whether Haslett knew of the tax liabilities at the time they arose and "the law specifically exempts a taxpayer from liability who later steps in after the fact to clean up the mess." 17 The court addresses the parties' arguments below.



A. Whether Haslett was Winward's "Responsible Person"

Whether Haslett was a "responsible person" turns on his status, duty, and authority at the time the CommSpan Board of Directors and Winward's tax assessments became due. 18 "Authority turns on the scope and nature of an individual's power to determine how the corporation conducts its financial affairs; the duty to ensure that withheld employment taxes are paid over flows from the authority that enables one to do so." 19 Although an individual's day-to-day responsibilities may not include financial decision-making or tax matters, that individual may nevertheless be responsible if he or she "has the authority to pay or to order the payment of delinquent taxes." 20 An individual becomes "responsible" under § 6672 if that person "had the authority required to exercise significant control over the corporation's financial affairs, regardless of whether he exercised such control in fact." 21 In short, "'persons' who are 'responsible' for the payment of withholding taxes are those who 'had the final word as to what bills should or should not be paid, and when.'" 22 Joint and several liability therefore attaches to "all those under the duty set forth in the statute." 23

In Slodov v. United States, 24 the Supreme Court created an exception to § 6672 liability intended to "encourage new management to salvage failing businesses" without incurring tax liability for back taxes. 25 If such an exception did not exist, "a wellcounseled person contemplating assuming control of a financially beleaguered corporation owing back employment taxes would recognize that he could do so without incurring personal civil and criminal penalties only if there were available sufficient borrowed or personal funds fully to pay all back employment taxes before doing any business." 26 Therefore, the Court concluded, when the individual who caused the delinquency in tax payments is also a "responsible person" at the time the government attempts to collect from the employer have failed, § 6672 applies to that individual. 27 When, on the other hand, there has been a change in control of the corporation prior to the expiration of a tax quarter, or at a time when a tax delinquency for past quarters already exists, liability may not inure to the new management unless a trust has been impressed under § 7501 prior to the accession of the new "responsible person." 28

Haslett spends much of his brief arguing that the Slodov exception relieves him of responsibility because he took the helm of CommSpan after the decision was made to cease paying Winward's taxes. Although Haslett appears to have been complicit in the CommSpan Board's decision to cease paying taxes by virtue of his presence at the May 27, 2000 telephone conference, he is correct that he was not a "responsible person" at the time the June 30, 2000 tax assessment became due. At that time, Haslett was merely a director of CommSpan and had no official role in Winward's operations and no direct control over whether payment for Winward's taxes was made. Once he assumed the role of CEO of CommSpan in September 2000, on the other hand, Haslett became the individual with "the final word" over payment of the tax assessments dated September 30, 2000 and December 31, 2001. As CEO of CommSpan, Winward's parent company, Haslett's first order of business appears to have been to negotiate an additional $700,000 line of credit for the purpose of relieving Winward's current tax deficit. Moreover, Haslett had authority to control the financial affairs of Winward, including the administration of payroll, 401(k) contributions, and union dues. 29 Haslett even loaned CommSpan $10,000 of his personal assets to pay the interest on the line of credit that was being used to sustain Winward's operations. Haslett's argument that he did not control Winward's finances after he became CEO of CommSpan thus fails. The court concludes, therefore, that once Haslett became CEO, he exercised significant control over the financial affairs of Winward and was among the persons responsible for the tax assessments at issue.



B. Whether Haslett Willfully Refused to Pay Winward's Trust Fund Taxes

Having determined tha Haslett is a "responsible person" for the tax assessment periods ending September 30, 2000 and December 31, 2001, the remaining question is whether Haslett willfully refused to pay Winward's taxes for those periods. "Willfulness, within the meaning of section 6672, has been defined as a voluntary, conscious and intentional act to prefer other creditors over the United States." 30 Neither intent nor other bad motive need be proven; rather, "conduct motivated by a reasonable cause may nonetheless be willful." 31 Where a "responsible person" understands that trust fund taxes are delinquent, and uses corporate funds to pay other expenses, Ninth Circuit precedent requires that the failure to pay withholding taxes be deemed "willful." 32 Although such a standard may, at times, amount to imposing liability for "unwittingly" willful conduct, this proposition is long established in this circuit. 33

Here, Haslett's conduct was not so unwitting. It is undisputed that Haslett assumed control of CommSpan with full knowledge of the May 27, 2000 decision to cease paying Winward's trust fund taxes. Despite his knowledge, Haslett subsequently failed to remit Winward's taxes for an additional two tax assessment periods at the same time he directed that corporate funds be paid out to other creditors. 34 As the Ninth Circuit has noted, "[e]very such payment 'was a voluntary, conscious and intentional act to prefer other creditors over the United States.'" 35 The court concludes therefore that Haslett willfully refused to pay Winward's taxes for the tax assessment periods ending September 30, 2000 and December 31, 2001. Haslett has failed to present any evidence or even a single cogent argument that would support a different conclusion. Haslett is therefore jointly and severally liable for the tax assessment periods ending September 30, 2000 in the amount of $407,321.20 and December 31, 2001 in the amount of $2,343.44. 36 Haslett is not, however, liable for the tax assessment period ending June 30, 2000 because, although Haslett was complicit in the decision to cease paying Winward's taxes, he was not a responsible person at that time.


V. CONCLUSION


For the foregoing reasons, the government's motion at docket 72 is GRANTED in part and DENIED in part, and Haslett's motion at docket 79 is GRANTED in part and DENIED in part consistent with the preceding discussion. The government shall lodge a proposed judgment for the court's consideration within 10 days from the date of this order. Haslett may file comments on the proposed judgment within 10 days from the date it is lodged.

DATED at Anchorage, Alaska, this 9th day of February 2009.

1 Docket 81 at 7. As explained in the reply memorandum and supported by affidavit, this sum is updated from the $438,617.57 claimed in the motion at docket 72.

2 Haslett testified at his deposition that while Aurora always paid its management fees, CommSpan's other entities did not. Docket 75, Ex. C at 7-8.

3 Docket 75, Exhibit J at 2. The remaining $400,000 of the September 29, 2000 increase was distributed to CRA-TEK. Docket 80 at 4.

4 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

5 Id. at 325.

6 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986).

7 Id. at 255; Soldano v. United States, 453 F.3d 1140, 1143 (9th Cir. 2006) (citation omitted).

8 26 U.S.C. § 6672(a).

9 Slodov v. United States, 436 U.S. 238, 250 (1978).

10 Palmer v. United States, 116 F.3d 1309, 1312 (9th Cir. 1997) (citing United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983)).

11 Palmer, 116 F.3d at 1312.

12 Id. (citing Helvering v. Taylor, 293 U.S. 507, 515-16 (1935)).

13 U.S. v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994).

14 Keogh v. Comm'r, 713 F.2d 496, 501 (9th Cir. 1983).

15 Jones, 33 F.3d at 1139.

16 Docket 73 at 18.

17 Docket 80 at 15.

18 Purcell v. United States, 1 F.3d 932, 937 (9th Cir. 1993).

19 Id.

20 Id.

21 Id.

22 Id. at 936.

23 Id. at 937.

24 Slodov, 436 U.S. at 252-53.

25 Davis v. United States, 961 F.2d 867, 874 (9th Cir. 1992).

26 Slodov, 436 U.S. at 252-53.

27 Id. at 245-46.

28 Id. Were a trust of funds collected prior to the accession of a new "responsible person" impressed under 26 U.S.C. § 7501, that individual may violate § 6672 by failing to pay over those previously collected funds. However, § 7501 does not impress a trust on after-acquired funds, and that individual consequently does not violate § 6672 by using those funds for purposes other than the satisfaction of trust fund tax claims, as long as those funds are not directly traceable to the collected taxes. See Slodov, 436 U.S. at 259-60.

29 Docket 73 at 7.

30 Davis v. United States, 961 F.2d 867, 871 (9th Cir. 1992) (internal quotations omitted).

31 Id. (citations omitted).

32 Phillips v. United States, 73 F.3d 939, 942 (9th Cir. 1996).

33 Id.

34 Haslett even failed to direct the funds he secured from Key Bank on September 29, 2000, which were obtained for the purpose of paying Winward's back taxes, to pay Winward's back taxes.

35 Purcell, 1 F.3d at 938.

36 Docket 82 at Exhibits B and C.

The treasurer of a bankrupt corporation was personally liable to the government for withheld taxes that were diverted to pay other creditors. The treasurer breached his duty to hold such collected taxes in trust until they are paid over to the government. Although the treasurer could not sign checks in excess of $1,000 without the signature of another officer, such a limitation on his authority did not protect him from liability as the person responsible for payment of taxes. Further, the government was not bound by a hold-harmless agreement executed in favor of the treasurer by the other corporate officers.

E.A. Cella, DC, 80-1 USTC ¶9369.

Taxpayer was not an officer, director or employee of a toy company financed by her father and therefore was not liable for unpaid employment taxes of the company.

S. Philipson, DC, 55-1 USTC ¶9466.

Although the claimant denied that he was a director, officer or shareholder of the corporation, the weight of the evidence showed that he (1) hired and controlled employees of the corporation, (2) controlled the financial and business aspects of the corporation, (3) signed IRS forms, (4) engaged in other activities tending to show his direction and control over corporate funds, and (5) had the corporation formed.

J. Labowitz, DC, 73-1 USTC ¶9155, 352 FSupp 202.

A district court reversed a bankruptcy court's finding that the chairman of the board of two corporations was not a responsible person with respect to the collection and paying over of withholding and social security taxes. Because the taxpayer had, at all times, the power to see that such taxes were paid, the bankruptcy court's decision was clearly erroneous. The bankruptcy court's finding that the taxpayer did not willfully fail or refuse to pay the taxes in question was also clearly erroneous. After she became aware that the taxes had not been paid, she paid other creditors in preference to the government.

T.L. Woodson, DC Mich, 83-1 USTC ¶9258, rev'g BC- DC, 81-2 USTC ¶9791, 15 BR 185.

The determination of the liability (a corporate officer) for the payment of withheld taxes is an issue to be decided on the facts of the case. Thus, the court was compelled to dismiss both the government's and the taxpayer's motions for summary judgment.

B.H. Hoeniger, DC, 76-1 USTC ¶9296.

A corporate officer who paid the corporate liability for FICA taxes under the mistaken assumption that he was personally liable for their payment was entitled to a refund of the taxes and penalties paid.

E.B. David, DC, 83-1 USTC ¶9259.

After he failed to appear at trial, a district court sustained a 100% penalty against a president and treasurer of a photographic equipment business for his failure to pay over or collect employment taxes. However, an individual who had acted as general manager was not jointly liable for the penalty, since there was not sufficient evidence to suggest that he either preferred other creditors over the government or that he had financial responsibility over corporate affairs beyond that of depositing funds in a corporate account. As a result, the court sustained the penalty assessed against the president, but it dismissed the government's claim against the general manager.

R. Sparkman, DC Calif., 84-2 USTC ¶9983.

In reversing the Claims Court, the court of appeals held that a corporation's chairman of the board was not liable for the 100-percent penalty for failure to collect and pay withholding taxes because (1) he was not a responsible person who had a duty to collect, account for, and pay over taxes, since there was no evidence that he had or exercised control over such functions and (2) he did not act willfully in failing to withhold taxes because there was no evidence that he had actual knowledge of the nonpayment of taxes due after the first two quarters of the year until the eve of the corporation's bankruptcy. Since the taxpayer was not a responsible person and did not fail willfully to execute a duty to collect and pay taxes, the part of the judgment relating to the IRS's allocation of certain tax payments was vacated as moot.

D.J. Godfrey, Jr., CA-FC, 84-2 USTC ¶9974, 748 F2d 1568, rev'g ClsCt, 83-2 USTC ¶9635.

For withholding tax purposes, an individual who acquired a company in bleak financial condition and assumed unpaid liabilities had control over such company and was a responsible person. The facts that (1) the list of liabilities assumed did not include reference to unpaid pre-acquisition withholding tax liabilities and (2) such individual subsequently entered into an agreement with a bank to handle receipts and payments were insufficient to relieve such individual of his status as a responsible party. However, a question of material fact existed regarding whether such individual intentionally failed to pay taxes due.

H. Bonnabel, DC N.J., 90-2 USTC ¶50,481.

Mere titular officers of a corporation were not responsible parties and, even if they were, there was no showing that they willfully failed to pay the taxes due.

R.E. Couture, DC, 74-2 USTC ¶9706.

The son of the president of a restaurant corporation was not liable for the unpaid employee withholding taxes of the corporation because he was not a responsible person obligated to withhold and pay over taxes. Even though he managed some of the company's restaurants and was authorized to sign checks, he could not disburse funds except in emergency situations, and he did not have authority to pay creditors. In addition, although he held the office of Secretary/Treasurer and technically owned 10 percent of the stock of the corporation, he did not control that interest, had no authority to sell the stock, and was completely accountable to his father. Finally, even if it had been determined that he was a responsible person, he lacked authority to pay the taxes and other debts of the corporation and, therefore, could not be found to have willfully failed to carry out that responsibility.

E.D. Goodick, DC La., 92-1 USTC ¶50,279.

Individual financial backers who loaned money and obtained lines of credit for a corporation were responsible persons and, therefore, were liable for penalties for failure to pay over withheld income taxes. The backers had the ability to decide where corporate funds were spent and, in fact, exerted this control at least once. They had check-writing authority and could pull their financial support at any time their wishes were not fulfilled. Moreover, the backers' failure to pay the taxes was willful because they knew of the corporation's obligation to pay the taxes. In addition, the corporate officer, who operated the company on a day-to-day basis, was also liable for the taxes as a responsible person. Even though the officer intended to pay the taxes in the long run, he preferred to use current cash flows to carry on the corporation's operations and not to pay over the withheld taxes.

C.D. Webster, DC Md., 94-1 USTC ¶50,008.

A corporation in bankruptcy that was in the business of providing security guards to its customers was the employer of these guards because it had control over the guards and the funds used to pay them. It was responsible for the payment of employment taxes regarding these employees, and this obligation could not be avoided by delegating that function to another. However, the government's tax claim for the penalty for the failure to pay over withheld taxes was disallowed with leave to file an amended claim, because it failed to identify a particular person as the responsible person liable for the corporation's FICA and FUTA obligations and did not specify whether the unpaid FICA amounts were attributable to the debtor's portion or the employees' share.

Professional Security Services, Inc., BC-DC Fla., 94-1 USTC ¶50,148.

Summary judgment was denied where material issues of fact existed as to whether a corporate officer should be classified as a responsible person. The corporate officer had authority to sign corporation checks and could be deemed a person responsible for paying withholding taxes. Further, there was evidence that the officer was aware that the corporation was delinquent in paying over withholding to the IRS.

J.P. Ladwig, DC Ill., 94-1 USTC ¶50,192.

Married individuals were not responsible persons during the time that a company's tax delinquency accrued and, therefore, were not required to pay over federal income taxes and social security taxes withheld from employees' wages. They lacked control over the decision-making process by which the corporation allocated funds to other creditors instead of paying its withholding tax obligations.

M.L. Michaud, FedCl, 97-2 USTC ¶50,972, 40 FedCl 1.

The president of a bankrupt company who willfully failed to pay over his company's payroll withholding taxes was a responsible person with respect to the trust fund recovery penalty. The president acknowledged that he was a responsible person under the statute. However, whether two other company officers were responsible persons was questionable. Although one of the officers served as chief financial officer and both had check-writing authority, the president exerted such command over the finances of the company that a reasonable fact-finder could conclude that neither officer had significant control over the company's finances.

R.S. Hudson, DC Pa., 99-2 USTC ¶50,914.

A bankrupt attorney who was the president and sole shareholder of his law corporation was liable for the trust fund recovery penalty in connection with the corporation's failure to collect and pay over employment taxes.

D.A. Smith, DC Hawaii, 99-2 USTC ¶50,998. Aff'g 99-1 USTC ¶50,278.

The president and vice president of a corporation who failed to remit withholding taxes to the IRS were determined to be "responsible persons" liable for the trust fund recovery penalty. In addition to being corporate directors and officers, the individuals owned stock in the corporation, were responsible for daily management operations, hired and fired employees, and had the authority to sign checks and pay the corporation's taxes.

D.C. Stull, DC Tex., 2000-1 USTC ¶50,168. Aff'd, per curium, CA-5 (unpublished opinion), 2001-1 USTC ¶50,333, 252 F3d 436.

A corporate director who lacked control over the company's tax deposits and payments did not qualify as a responsible person liable for the trust fund recovery penalty. Although he made deposits and tax payments at a bank under the direction of the corporate president and was aware of the company's payroll tax delinquencies, he had no decision-making authority regarding the payment of creditors.

M.D. McGlaughlin, DC Md., 2000-1 USTC ¶50,183.

Questions of fact precluded summary judgment on the government's claim for the trust fund recovery penalty against the sole owner of a real estate appraisal business who was on maternity leave during the quarters at issue. Because her level of involvement with company during her maternity leave was in dispute, it could not be determined on summary judgment that she was a responsible party.

P. Ranson, DC Wash., 2001-1 USTC ¶50,161.

A federal district court applied improper legal standards to reach its determination that an individual was not a responsible person. The district court erroneously focused its inquiry on whether the taxpayer had knowledge of the unpaid taxes, the taxpayer's functional responsibility, and the fact that another individual had greater control of corporate affairs. That the taxpayer had significant control over the company's affairs was sufficient for him to qualify as a responsible person.

D.M. Chapman, CA-9 (unpublished opinion), 2001-1 USTC ¶50,380, 7 FedAppx 804, rev'g and rem'g and unreported District Court decision.

The former owner of a plumbing business who transferred 80% of the ownership in the business to his children was deemed to be a responsible person for purposes of the trust fund recovery penalty. The individual was still a 20% owner in the business, had check-signing authority, was often asked to co-sign checks for the business and continued to work to determine the bids the company would make. Moreover, he loaned money to the company when it was in financial difficulty and had considerable influence over how his children ran the business.

M.E. Pitts, DC Ariz., 2001-1 USTC ¶50,419.

The president and CEO of two trucking corporations, who was assessed penalties for his failure to turn over withholding taxes, was a responsible person under Code Sec. 6672. The undisputed evidence established that he had the authority to instruct his manager to pay the taxing authorities, had significant control over the finances of the corporations, retained the authority to sign checks on behalf of the corporation, and possessed the authority to hire and discharge employees. The taxpayer's argument that he delegated these duties and did not have day-to-day financial responsibilities was unpersuasive.

R.C. Bolus, Sr., DC Pa., 2001-2 USTC ¶50,644.

An individual who was the sole shareholder of one credit bureau and the president and CEO of a second bureau, both of which failed to pay over withholding taxes, qualified as a responsible person who willfully failed to collect, account for, or remit the funds to the IRS. Thus, he was liable for the assessed trust fund recovery penalties. No triable issues of fact existed as to the individual's liability for the penalties.

W.K. Hankins, DC Ind., 2001-2 USTC ¶50,692.

A third-party defendant's motion for summary judgment in connection with the IRS's assessment of a trust fund recovery penalty against him due to a corporation's failure to pay over employment taxes was denied. He unsuccessfully contended that he was not a responsible person because he was not an employee, officer or shareholder of the corporation. However, he served as corporate counsel and as the entity's chief financial officer. He also directed the president to make payments to various creditors, including tax payments to the IRS, was involved in the preparation and filing of the company's payroll tax returns, prepared corporate tax returns and was responsible for ensuring that the payroll tax deposits were made.

D.K. Scheingold, DC N.J. (unpublished opinion), 2002-2 USTC ¶50,510.

The chairman of a corporation was liable for the trust fund recovery penalty in connection with the corporation's failure to pay over employment taxes. He qualified as a responsible person because he had the authority to sign checks, hire and fire employees, participate in management, determine corporate financial policy, and authorize the payment of bills. He also discussed corporate business with other company officers on a weekly basis and was the corporation's majority shareholder, a member of its board of directors, and a guarantor of corporate loans.

C.S. Perlman, DC Fla., 2002-1 USTC ¶50,346.

The founder and president of a corporation was a responsible person with liability to pay the IRS's assessment of unpaid employment and withholding taxes, plus interest and penalties, for one tax year. He held the position of president of the company and attended its board meetings, he was generally responsible for the operation of the company and possessed the authority to sign checks and approved the check signing of the only other company employee with checking signing authority. Furthermore his decision not to pay over or withhold the employment taxes was willful. He made the decision to pay other creditors in preference to the IRS knowing that taxes were due and he failed to take corrective actions.

G. Sutton,, DC Tex., 2002-2 USTC ¶50,552, 194 FSupp2d 559.

The president of a corporation was considered the responsible person with liability to pay the assessment of unpaid taxes, plus interest and penalties, for two tax years. He was the highest-ranking officer and had substantial authority to direct operations. Moreover, he signed the payroll tax returns and had signature authority on corporate accounts. He paid other creditors in preference to the IRS knowing that taxes were due and failed to take corrective actions. That he resigned from his position of president was meaningless as he exercised control in all relevant areas both before and after the purported resignation.

L.A. Mitchell, DC N.J. (unpublished opinion), 2002-2 USTC ¶50,537. Aff'd, CA-3 (unpublished opinion), 2004-1 USTC ¶50,113, 82 FedAppx 781.

The CFO of a bankrupt airline company was a "responsible person," who willfully failed to file quarterly excise tax returns and pay the accompanying tax to the government. The CFO held a corporate office, possessed control over the financial affairs of the airline company, possessed the authority to disburse corporate funds, and possessed the ability to pay the excise taxes without the approval of the company's Board. There was a material issue of genuine fact, however, as to whether the controller of the company had the requisite corporate decision making authority within the company to be considered a responsible person with regard to the delinquent excise taxes. Although the controller applied for credit on behalf of the company and signed promissory notes that bound the company, he was not in charge of the department that was responsible for tracking the excise taxes and he was not involved in overall day-to-day operations of the company.

D.R. Ferguson, DC Iowa, 2004-1 USTC ¶50,247, 317 FSupp2d 945.

The bankruptcy court erroneously held that the president and sole shareholder was not a responsible person for purposes of the trust fund recovery penalty. Although the taxpayer did not run the day-to-day operations of the corporation, she had sole authority to right checks for the company. The bankruptcy court's conclusion that the taxpayer was not a responsible person was strongly based on the lack of authority or power over daily management of the company. However, the taxpayer's status as president, sole shareholder and her authority to sign checks was sufficient to make her the responsible person.

E.L. Marino, DC Fla., 2004-1 USTC ¶50,262, 311 BR 111, rev'ing BC-DC Fla., 2004-1 USTC ¶50,261.

A president and fifty percent shareholder of an employee leasing company was liable for the trust fund recovery penalty in connection with his company's failure to pay employee withholding taxes. Evidence established that the taxpayer was a responsible person because he had check signing authority, even though he claimed that he did not often exercise such authority, and had the authority to manage and direct the employees of the company. The taxpayer also had the authority to hire and fire all levels of employees, which he displayed when he fired his business partner, who was also a fifty percent shareholder.

S. Farkas, FedCl, 2003-2 USTC ¶50,574.

A debtor who served as vice-president of a general contracting business was a responsible person as a matter of law. He had significant authority over the employees, as well as over the finances of the company during the tax periods in issue. Questions remained regarding whether he willfully failed to pay over the withholding taxes.

V.K. Pugh, BC-DC Nev., 2004-2 USTC ¶50,352, 315 BR 889.

A debtor's objection to the IRS's claim for the trust fund recovery penalty assessed against him was denied because he was determined to be a responsible person who willfully failed to pay over withheld taxes. The debtor stipulated that he was a responsible person and his failure to remit the withheld taxes was willful because he was aware of the company's employment tax deficiency yet chose to pay creditors other than the government. The fact that the debtor was told by the company's owner not to pay the taxes and that he might have been fired had he disobeyed orders did not excuse his liability for nonpayment.

L. Borman, BC-DC Fla., 2005-1 USTC ¶50,109.

An individual was liable for the trust fund recovery penalty, during the time he was no longer president of the corporation. The taxpayer admitted to being the chairman of the board, the sole director, vice president, secretary, and treasurer. Between himself, his spouse and his children, he controlled about 50 percent of all outstanding stock and he has controlling interest in the corporation. At all times, the interim president served at his will. Undoubtedly, the taxpayer was a "responsible person" liable to pay the trust fund taxes.

D.J. Frank, BC-DC N.C., 2005-1 USTC ¶50,222.

The manager of a casino was not a responsible person for purposes of the trust fund recovery penalty since he had no authority over payroll or tax matters. Although he supervised department managers and was otherwise responsible for the day-to-day operations of the casino, the manager did not have significant decision-making authority over the financial affairs of the company to be responsible for payroll taxes. Authority to decide which checks were to be written, and to whom, rested in the sole shareholder, director and corporate officer of the casino.

B.E. Dewing, DC Nev., 2005-1 USTC ¶50,275.

The chief financial officer of a bankrupt company was not a responsible person for purposes of imposition of the trust fund recovery penalty, despite have check-signing authority, because the company president had absolute control over all of the company funds. The company president reviewed the cash flow balance daily, authorized the creditors to be paid and even wired funds to another creditor to prevent the IRS from obtaining the funds after the CFO sent the IRS a check without the president's knowledge.

J.D. Salzillo, FedCl, 2005-1 USTC ¶50,324, 66 FedCl 23.

The sole owner and president of a corporation was a responsible person who willfully failed to pay the corporation's employment tax liabilities for purposes of imposing the trust fund recovery penalty. He signed Form 941 employment tax returns on behalf of the corporation, could independently sign checks on behalf of the corporation and signed a sworn statement that he was solely responsible for all tax debts incurred by the corporation. The taxpayer's failure to pay the taxes was willful because he knew of the tax liabilities, but chose to pay other expenses.

G. Kraljevich, DC Mich., 2005-1 USTC ¶50,372, 364 FSupp2d 655.

An individual was determined to be a responsible person with respect to unpaid employment taxes. The taxpayer, who was involved in the operation of two companies until the time a surety company assumed control, did not present any evidence contradicting that he was a responsible party for tax liability under Code Sec. 6672. Instead, the evidence reflected that the majority of the unpaid employment taxes accrued prior to the time the surety company assumed control. Furthermore, whether the surety was responsible for the unpaid employment taxes had no bearing on whether the taxpayer was a responsible person for purposes of tax liability.

J. Dowdy, DC Tex., 2005-2 USTC ¶50,517.

The IRS was granted summary judgment against the former president of a non-profit corporation for trust fund recovery penalties under Code Sec. 6672. The taxpayer had significant control of the corporation's finances, had check writing authority, and was responsible for ensuring that the company paid its trust fund taxes. Further, once the taxpayer became aware of the deficiency, he failed to ensure its payment before any other creditors were paid. Such a failure is willful and subjects the responsible person to trust fund recovery penalties under Code Sec. 6672.

Reverend R. W. Schlicht, DC Ariz., 2005-2 USTC ¶50,527.

An electrical contractor was liable for penalties under Code Sec. 6672 for failing to pay over federal employment taxes owed by two corporations that he formed. Despite having relinquished his management role to family members, he was a "responsible person" for purposes of Code Sec. 6672 liability because he kept the title of president and retained authority to control the company, even if he did not exercise that authority. Specifically, the taxpayer had full check writing authority, full access to company books and records, and the opportunity to exercise substantial financial control over company affairs.

J.F. Grillo, BC-DC N.J, 2005-2 USTC ¶50,625.

The founder, president and principal stockholder of a company was determined to be a responsible person with respect to unpaid employment taxes. The failure of the taxpayer's accountant and tax specialist to properly designate amounts paid to offset these liabilities did not mean that the IRS should be equitably estopped from collecting under Code Sec. 6672, as the taxpayer mistakenly argued. The trust fund recovery penalty is separate and distinct from the legal obligation imposed on the employer to collect and remit the trust fund taxes. Since the taxpayer did not present any evidence to the contrary, he was found to be a responsible person who willfully failed to pay the owed employment taxes.

J.A. Lencyk, DC Tex., 2005-2 USTC ¶50,630, 384 FSupp2d 1028.

A 100-percent trust fund penalty was reduced to judgment since the taxpayer was the responsible person even though he did not have day-to-day control of the company. Rather his status as CEO, president and sole shareholder gave him sufficient control to be the responsible person for trust fund purposes.

R. Sage, DC N.Y., 2006-1 USTC ¶50,175, 412 FSupp2d 406.

The president of a tax-exempt organization was not entitled to a refund of the federal employment and withholding taxes he paid from his personal funds. As president of the board of directors for almost 20 years, he had check-signing authority and control over the organization's financial affairs. Further, he exhibited a reckless disregard of a known risk that the organization was not making required trust fund payments to the IRS and he made no effort to ascertain the status of the organization's tax payments.

C.E. Jefferson, DC Ill., 2007-1 USTC ¶50,304, 459 FSupp2d 685.

A company's vice president of operations was denied a refund of a trust fund recovery penalty assessed against her for her employer's failure to pay backup withholding taxes. She was a responsible person because her own testimony about her duties and responsibilities and her undisputed check-writing authority established that she could have prevented the company from paying other creditors instead of paying the taxes. She enjoyed exclusive check-writing authority and was responsible for collecting, accounting for, and paying over the withheld taxes. She was in a position to use her ability to prioritize creditors and her check-signing authority to impede the flow of business to the extent necessary to ensure the payment of taxes and nothing in the company's business model prevented her from paying the taxes. In addition, the undisputed evidence clearly established that the willfulness requirement was met.

N.A. Cook, DC Ind., 2007-1 USTC ¶50,333.

A trust fund recovery penalty was correctly assessed against the chief financial officer of a bankrupt airline company because he was a responsible person who willfully failed to pay the company's excise taxes. The individual was authorized to sign checks and disburse corporate funds on behalf of the company and had the authority to pay the company's excise taxes without board or management approval. The board never explicitly instructed him to not pay the excise taxes but he chose not to do so in order to pay other company expenses.

R. Musal, DC Iowa, 2006-1 USTC ¶50,207, 421 FSupp2d 1153. Aff'd sub nom. D.R. Ferguson, CA-8, 2007-1 USTC ¶50,481, 484 F3d 1068.

The CEO and board chairman of a motorcycle company was not entitled to a refund of a portion of the trust fund recovery penalty he paid to the IRS in satisfaction of the company's unpaid payroll withholding taxes. Testimony of the CEO and the company's chief operating officer and financial director established that the CEO was a responsible person who willfully failed to pay the company's taxes. He had overall authority, including raising capital and hiring, was involved in the day-to-day management of the company, had the authority to issue checks, and determined which creditors to pay and when to pay them. Further, he instructed the company's financial director that bills pertaining to utilities were to be paid first; thus, checks were issued to other creditors but not to the government.

R.K. Hagen, DC Md., 2007-1 USTC ¶50,510, 485 FSupp2d 622.

An individual who held no ownership or entrepreneurial stake in debtor corporations was not a responsible person with regard to those corporations' failure to pay over withheld federal taxes. She could not sign checks without the prior authorization of the president and sole shareholder of the corporations and had no power or authority to hire or fire employees. Although she was the secretary of the debtor corporations, the duties that she performed were ministerial and administrative in nature. All of the authority and control over the corporations' administration and finances resided with the president, and the tasks she performed were executed solely upon his instructions.

L.M. Benitez, DC PR, 2006-2 USTC ¶50,598.

The sole corporate officer of a construction company was a responsible person who willfully failed to pay over federal withholding taxes. The officer continued to write checks, sign returns and act on behalf of the corporation after the date he claimed an insurance company took over control under an indemnity agreement. However, the officer's wife was not liable for the unpaid taxes because there was no evidence that she was an officer or director of the construction company. Her involvement was limited to occasional business purchases and as a signatory with her husband on the indemnity agreement.

G. Hartman, BC-DC Pa., 2007-2 USTC ¶50,747, 375 BR 740.

The chairman of a corporation was a responsible person who willfully failed to collect, account for and pay over the withheld income and employment taxes of the corporation. The IRS's evidence showed that he had the ability to sign checks, hire and fire employees, and sign the corporation's tax returns. He owned stock in the corporation, was ultimately responsible for making financial decisions and directed payment to the corporation's creditors despite knowledge of the corporation's unpaid employment taxes. However, a genuine issue of material fact existed as to whether another corporate officer, the CEO, had sufficient authority over the corporation's financial affairs to be considered a responsible person for purposes of the trust fund recovery penalties.

R.C. Savona, DC Calif., 2007-2 USTC ¶50,788.

The CEO and the Chief Financial Officer of a trucking company were both responsible persons who were jointly and severally liable for the trust fund recovery penalties in connection with the company's failure to pay its federal employment tax obligations. Both officers acted willfully when they made numerous voluntary and intentional payments to creditors despite having knowledge that the employment taxes were unpaid. Both exercised significant control over the disbursement of company's funds, had active day-to-day involvement in the business and had full authority to sign checks and Form 941 tax returns.

J.M. Horovitz, DC Pa., 2008-1 USTC ¶50,186, 543 FSupp2d 441.

The founder, shareholder and officer of a corporation was liable for the trust fund recovery penalty because he exercised significant control over the corporation's day-to-day activities and participated in the decision to hire or fire management employees and accountants in charge of the corporation's payroll operations. He also reviewed weekly and monthly financial statements, personally guaranteed payments to vendors and directed checks to be written and expenses to be paid.

C.B. Erwin, DC N.C., 2008-1 USTC ¶50,258.

The owner and the bookkeeper of a limited liability company (LLC) were liable for trust fund recovery penalties in connection with the operation of a restaurant. The owner was a responsible person because she organized the LLC, entered into a lease agreement for the restaurant, obtained a liquor license and failed to make a timely election for the LLC to be taxed as a corporation. Further, the bookkeeper was also a responsible person because he had the authority to sign checks for the restaurant, to make and authorize bank deposits, to identify and calculate the amount to be withheld for federal payroll taxes, to authorize payment of federal tax deposits and to authorize payroll checks. Moreover, he acted willfully because he knew about the delinquent taxes and voluntarily paid other creditors before paying the government.

D.M. Seymour, DC Ky., 2008-2 USTC ¶50,406.

An individual who was the president, director, Chief Executive Officer and majority shareholder of a corporation was liable for the trust fund recovery penalty assessed against him in connection with the corporation's unpaid withholding taxes. The individual was a "responsible person" with respect to the corporation because he had complete authority over every aspect of the corporation's finances, including the sole authority to hire and fire employees, take out loans, sign contracts and checks, withhold income and FICA taxes from wages and pay those taxes to the government.

J.C. Tornes, DC Ohio, 2008-2 USTC ¶50,431.

The majority stockholder of two retail optometry companies was not entitled to a refund of the trust fund recovery penalty he paid to the IRS in satisfaction of the companies' unpaid withholding taxes. The individual was a responsible person because he exercised significant control over the companies' finances, had check-signing authority and the authority to sign the companies' employment tax returns. Furthermore, more than one person can be a responsible person with respect to liability for unpaid taxes.

L.H. Joel, DC Ky., 2008-2 USTC ¶50,451.

The director, shareholder and secretary-treasurer of a closely held corporation was liable for the trust fund recovery penalty assessed against her in connection with the corporation's unpaid withholding taxes. The individual was a responsible person because she was involved in the corporation's business operations, had check signing authority, attended meetings to discuss the corporation's cash-flow problems, had access to the corporation's financial records and books and knew of the corporation's tax problems. Although her responsibilities did not typically include the payment of withholding taxes and she did not believe that it was within her control, she had the power to pay the corporation's withholding taxes.

N. Noronha, DC Ky., 2008-2 USTC ¶50,554.

The president of a company was liable for the trust fund recovery penalties assessed against him. The individual was the responsible person with respect to the company since he had the sole authority to write and sign checks on corporate accounts and to hire and fire personnel.

C.C. Anuforo, DC Minn., 2008-2 USTC ¶50,584.

The owner of a company was liable for the trust fund recovery penalty (TFRP). The individual maintained the company's books, prepared its financial statements, authorized payment of its bills and payroll, reviewed federal income tax returns and prepared and signed federal payroll tax returns. He acted willfully because he had reason to know that the taxes were not being paid and failed to exercise his authority to ensure their payment. Despite knowledge of the tax deficiencies, he regularly directed that payments be made to creditors other than the IRS.

S.O. Johnson, DC Ill., 2008-2 USTC ¶50,585.

The president of the board of directors of a tax-exempt organization was not entitled to a refund of federal employment and withholding taxes he paid from his personal funds. Although his position was voluntary and uncompensated, and although he was not involved in the day-to-day operations of the day care center, the individual had enough involvement in and control over the organization's financial affairs to qualify him as a "responsible person" within the meaning of Code Sec. 6672.

C.E. Jefferson, CA-7, 2008-2 USTC ¶50,587.

The owners of three companies and their employee, a certified public accountant (CPA), serving as the vice president of finance for those companies, were all responsible persons for purposes of the trust fund recovery penalty. The owners were the founders, officers, board members, and equal shareholders of each of the three companies. They had check-signing authority, could hire and fire employees, could exercise control over the companies' finances, including the payment of payroll taxes, and were intimately involved in running the companies. Although the CPA/employee had no check-signing authority, he supervised the accounting department, oversaw the preparation of checks, including payroll and federal tax deposit checks and had the authority to direct the accounting department to draft checks to the IRS instead of to other creditors. Further, the individuals acted willfully when they made payments to other creditors despite knowing that the trust fund taxes remained unpaid.

S.P. Davis, Sr., DC La., 2008-2 USTC ¶50,613.

The secretary and treasurer of a corporation was liable for the trust fund recovery penalty assessed against him in connection with the corporation's unpaid withholding taxes. The individual was a "responsible person" because he exercised significant control over the day-to-day management of the corporation and over the company's payroll, had the power to write checks on behalf of the corporation, had the authority to hire and fire employees, sign corporate income tax and payroll tax returns and to determine which creditors to pay and when.

W.M. Cheatle, DC Va., 2009-1 USTC ¶50,139.

Unpaid employment tax assessments against the president and vice-president of two health care companies were reduced to judgment. The individuals were responsible persons because they had the authority to sign checks, hire and fire employees, determine corporate financial policy, and authorize the payment of bills.

J.A. Rineer, DC Tex., 2009-1 USTC ¶50,149.
Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Willfulness: Evidence of willfulness, penalty imposed

Where the evidence showed that the decision of the taxpayer as the responsible officer of the corporation not to have the corporation pay over to the Government withheld employees' taxes was a voluntary, conscious, and intentional act to prefer other creditors of the corporation over the Government, such evidence was proof of the "willful" acts calling for the imposition of the statutory penalty imposed against the responsible officer. Proof of criminal intent was not necessary in a civil action designed to insure payment to the Government of a tax already collected or deducted.

E.J. Bloom, CA-9, 59-2 USTC ¶9772, 272 F2d 215. Cert. denied, 363 US 803.

H.C. Frazier, CA-5, 62-2 USTC ¶9535, 304 F2d 528.

E.L. Stout, DC, 66-1 USTC ¶9372, vacating 66-1 USTC ¶9279.

R.W. Monday, CA-7, 70-1 USTC ¶9205, 421 F2d 1210. Cert. denied, 400 US 821.

E.R. Griswold, DC, 63-1 USTC ¶9147, 209 FSupp 98.

J. Labowitz, DC, 73-1 USTC ¶9155, 352 FSupp 202.

J.P. Emshwiller, Jr., DC, 76-2 USTC ¶9802. Aff'd and rem'd, CA-8, 77-2 USTC ¶9744, 565 F2d 1042.

L.R. Marsh, DC, 76-2 USTC ¶9734.

D.H. Shepherd, DC, 76-2 USTC ¶9765.

M.F. Bedford, DC, 77-1 USTC ¶9308.

I. Mazo, CA-5, 79-1 USTC ¶9284, 591 Fd 1151. Cert. denied, 100 SCt 82.

R.F. Neu, DC, 77-1 USTC ¶9332.

H. Anderson, DC, 77-2 USTC ¶9701.

N. Copperman, DC, 78-2 USTC ¶9579.

D. Goodman, 78-2 USTC ¶9565.

R.C. Morley, DC, 78-2 USTC ¶9576.

Sweetser, DC, 77-2 USTC ¶9470.

R.H. Brown, CA-5, 79-1 USTC ¶9285, 591 F2d 1136.

R.G. Kizzier, CA-8, 79-1 USTC ¶9373, 598 F2d 1128.

W.R. Hornsby, CA-5, 79-1 USTC ¶9188, 588 F2d 952.

N.I. Newell, Jr., DC, 79-1 USTC ¶9178.

W. Waychoff, DC, 79-2 USTC ¶9602.

V. Bradford, BC-DC, 83-2 USTC ¶9625, 35 BR 166.

E.A. Kappas, DC, 83-2 USTC ¶9683, 578 FSupp 1435.

R.J. McGlothin, CA-6, 83-2 USTC ¶9658, 720 F2d 6.

W.L. Summers, BC-DC, 84-1 USTC ¶9149.

C.E. Thompson, BC-DC, 84-1 USTC ¶9207, 37 BR 211.

R.O. Johnson, DC, 84-1 USTC ¶9236, 583 FSupp 127.

L.A. Farris, Jr., ClsCt, 84-1 USTC ¶9263.

R.J. Gray, DC Kan., 84-1 USTC ¶9419, 586 FSupp 1127.

M. Schlauch, DC Ohio, 84-1 USTC ¶9431.

P.W. Verdung, DC Ill., 84-1 USTC ¶9324.

Berman, DC, 67-2 USTC ¶9665, 277 FSupp 646.

R.A. Hanes, DC Okla., 84-2 USTC ¶9597.

J.E. Ronholt, DC Wash., 84-2 USTC ¶9678.

G.F. Howard, DC Ky., 84-2 USTC ¶10,012.

W. Kraus, DC N.Y., 85-1 USTC ¶9310.

W.M. Flemister, Jr., BC Ga., 85-1 USTC ¶9333, 48 BR 427.

R.D. Grant, DC Vt., 85-1 USTC ¶9385.

W. Carr, DC Ill., 85-2 USTC ¶9542.

A.M. Senall, BC-DC Fla., 86-1 USTC ¶9119, 55 BR 517.

C.J. Caterino, CA-1, 86-1 USTC ¶9452, 794 F2d 1.

D.L. Mulee, DC Ill., 86-2 USTC ¶9783, 648 FSupp 1181.

S.R. Wright, CA-7, 87-1 USTC ¶9130, 809 F2d 425.

H. Schwinger, DC N.Y., 87-1 USTC ¶9174, 652 FSupp 464.

L. Grover, DC Mass., 88-1 USTC ¶9360, 691 FSupp 1572.

W.W. Timmons, DC Tex., 88-1 USTC ¶9332.

A. Konduros, DC Mich., 88-1 USTC ¶9324.

D.M. Malone, DC Neb., 87-2 USTC ¶9641.

D.L. Samp, DC Ill., 88-1 USTC ¶9141.

D. Steen, DC Fla., 88-1 USTC ¶9113.

J.N. Bowen, CA-5, 88-1 USTC ¶9164, 836 F2d 965.

F.A. Collins, CA-6, 88-1 USTC ¶9386, 848 F2d 740.

E.R. Hanshaw, BC-DC Fla., 89-1 USTC ¶9126, 94 BR 753.

K. Burdg, DC Mo., 89-1 USTC ¶9140.

M. Marshall, DC Ill., 89-1 USTC ¶9150.

D.K. Staats, DC Ill., 89-1 USTC ¶9366.

R. Brown, DC Colo., 89-1 USTC ¶9210.

H.D. Summers, DC Ida., 89-1 USTC ¶9239.

R.Y.S. Lee, DC Hawaii, 89-2 USTC ¶9393.

D.A. Byers, BC-DC Colo., 89-2 USTC ¶9439.

E.A. Landau, DC Ill., 89-2 USTC ¶9444.

J. Carter, DC N.Y., 89-2 USTC ¶9446, 717 FSupp 188.

Quattrone Accountants, Inc., DC Pa., 89-2 USTC ¶9538.

W.L. Schlanger, DC Calif., 89-2 USTC ¶9626.

R.H. Clements, BC-DC Wyo., 90-1 USTC ¶50,224.

R. Bond, Jr., DC Pa., 90-2 USTC ¶50,551.

P. Mason, BC-DC Mass., 90-2 USTC ¶50,516.

G. Seachrist, DC W.Va., 91-1 USTC ¶50,019.

E.W. Carlson, DC Utah, 91-1 USTC ¶50,262.

N. Novick, DC Wash., 91-1 USTC ¶50,250.

B.N. Sims, BC-DC Fla., 91-2 USTC ¶50,306.

L.R. Miller, DC Iowa, 91-1 USTC ¶50,141.

F. Bogard, DC Tex., 91-1 USTC ¶50,222. Aff'd, CA-5 (unpublished opinion 5/4/92).

E.T. Williams, CA-11, 91-1 USTC ¶50,285.

W.A. Kinnie, CA-6, 93-1 USTC ¶50,311, 994 F2d 279.

D.J. Turnbull, CA-5, 91-1 USTC ¶50,196.

F. Hawley, BC-DC Wash., 98-1 USTC ¶50,439.

R.A. Powers, CA-2 (unpublished opinion), 2001-1 USTC ¶50,338, aff'g an unreported District Court decision.

G. Sutton, DC Tex., 2002-2 USTC ¶50,552, 194 FSupp2d 559.

P. Thosteson, CA-11, 2002-2 USTC ¶50,649, 304 F3d 1312.

A bankrupt debtor's objection to the IRS's claim for the trust fund recovery penalty was improperly granted by the Bankruptcy Court. The debtor admitted to being a responsible person, but the Bankruptcy Court found that he was not willful in his failure to pay employment taxes because he cooperated with the IRS in its efforts to collect the taxes. However, the debtor's cooperation was irrelevant to the issue of willfulness. The debtor engaged in voluntary, conscious and intentional acts that established willfulness. The debtor knew that the withholding taxes were due, yet he paid other creditors before the IRS. Additionally, he continued to pay salaries, including a lower salary for himself.

C. Beltran, DC Fla., 2004-2 USTC ¶50,416, 316 BR 371, rev'g and rem'g an unreported Bankruptcy Court decision.

The chairperson of a corporation's board of directors and the corporation's largest shareholder was a "responsible person" for purposes of the corporation's unpaid employment taxes and was liable for the trust fund recovery penalty. He satisfied the willfulness requirement because he knew of the corporation's unpaid taxes and made no effort to urge other members of the board to pay the IRS, rather than other creditors.

T.C. Turner, DC Wash., 2006-1 USTC ¶50,238.

A corporation's former president and owner failed to prove that the IRS's penalty assessment against him for nonpayment of the corporation's withholding taxes was erroneous. He admitted that he was a responsible person. Further, he failed to take timely and purposeful steps to verify that the corporation's taxes were being paid, despite being the only person in control of the corporation's financial decisions and after receiving 14 notices from the IRS informing him that the corporation had not paid the taxes. Instead, he paid his employees and other creditors. However, the penalty assessment against his wife, a former employee of the corporation, was erroneous because she was not a responsible person and her conduct not willful.

J.H. Boyajian, DC N.J. (unpublished opinion), 2007-1 USTC ¶50,186.

The president of a company was liable for trust fund recovery penalties assessed against him. The individual was the responsible person with respect to the company, and he acted willfully when he voluntarily and intentionally diverted resources that should have been held in trust for the government to pay other creditors. His argument that his failure to pay trust fund taxes was a consequence of an employee's embezzlement of company funds was not a legally recognized defense. The individual did not have the legal option to withhold a portion or all of the trust fund taxes in order to sustain the company's viability.

C.C. Anuforo, DC Minn., 2008-2 USTC ¶50,584.

In tSection 1.183-2(b), Income Tax Regs., provides a nonexclusive list of factors to be considered in determining whether a taxpayer has the requisite profit objective. The factors are: (1) The manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or loss with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. No single factor is determinative.he case of Rowden v. Commissioner, below, a taxpayer could not deduct section 162 expenses associated with his ownership of an airplane on Schedule C because none of the activities related to the airplane was a trade or business, as limited by section 183(b)(2). The individual was not involved in the trade or business of environmental consulting in one of the years at issue because he did not establish that he engaged in related activities with the required continuity and regularity. Furthermore, expenses incurred by the individual with respect to aircraft maintenance activity in one year and in environmental aviation activity in the subsequent year were not deductible. The individual was not engaged in either activity as a trade or business because his primary purpose for engaging in the activities was not income or profit. His recordkeeping was disorganized and unreliable, he could not have an expectation that assets used in the activity would appreciate, he could not have had a good-faith expectation of realizing a profit on his operation, he introduced no evidence regarding the financial performance of his aircraft maintenance activity for previous years or evidence regarding occasional profits, and the individual's full-time job allowed the individual to conduct the aircraft maintenance activity at a loss. The section 6662 penalty was assessed and for that reason if the tax return would have been prepared by a tax return preparer, the NEGLIGENCE could easily be treated as “reckless” and, therefore, trigger the $5,000 6694 penalty on the return preparer. The “trade or business” expense is one of the most common IRS examination issues and the rationale of the Rowden case applies to ALL SCHEDUEL C EXPENSES. You will see from the Rowden case that the Tax Court is very tough on justifying trade or business expenses. My personal opinion is that the court in this case is wrong in not taking into account that a “business” can have a short duration. For example, one can enter a business and, if it does not work out, the wise thing to do is to abandon the business. Nevertheless all tax return preparers should understand that Schedule C business expenses for new and short term businesses will be vulnerable to an aggressive IRS examiner who will be newly focused on the revenue that could be generated from the 6694(b) penalty for the 2008 tax year.

Robert L. Rowden v. Commissioner,`Dkt. No. 17510-06 , TC Memo. 2009-41, February 19, 2009.


MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Respondent determined deficiencies of $5,074 and $7,396 in petitioner's 2002 and 2003 Federal income taxes and accuracy-related penalties under section 6662 1 of $1,015 and $1,479, respectively. After concessions 2 the issues for decision are:

(1) Whether petitioner was in the trade or business of environmental consulting and aircraft maintenance during 2002 and environmental aviation during 2003;

(2) whether petitioner substantiated deductions claimed on Schedules C, Profit or Loss From Business; and

(3) whether petitioner is liable for the accuracy-related penalties under section 6662.


FINDINGS OF FACT

The parties have stipulated some of the facts, which we incorporate in our findings by this reference. Petitioner resided in Oklahoma when his petition was filed.

During 2002 and 2003 petitioner was employed full time as an environmental engineer by Engineering and Environment, Inc. (EEI), a government contractor. He earned $52,611 and $60,889, respectively. Petitioner's employment contract was renewable annually. During 2002 petitioner also performed environmental consulting services that were an outgrowth of services he had performed and been paid for before 2002.

Petitioner grew up in a family of pilots and enjoys working on and being around airplanes. Petitioner has been a licensed pilot for about 25 years. In the 1980s petitioner completed a 2-year program at the Spartan School of Aeronautics in Tulsa, Oklahoma. After passing written and oral Federal Aviation Administration (FAA) tests, petitioner obtained a mechanic's certificate with airframe and powerplant ratings. 3 In 2000, after passing another FAA test, petitioner obtained an inspection authorization. 4 Petitioner also attended specialized aviation-related seminars; in August 2002 petitioner attended a seminar on aircraft rigging held by the Cessna Pilots Association.

On August 25, 2002, petitioner purchased a 50-percent interest in a 1975 Cessna 182P aircraft (Cessna) from DenRow Limited, L.C. (DenRow), for $30,000 using loan proceeds. DenRow is owned by petitioner's brother, William J. Rowden (Mr. Rowden), 5 a commercial airline pilot, and Mr. Rowden's wife. DenRow retained the other 50-percent interest in the Cessna. The Cessna continued to be hangared at the Prague, Oklahoma, municipal airport, although occasionally it was stored at the Lawton, Oklahoma, municipal airport where in 2003 petitioner rented hangar space.

Under the purchase agreement, petitioner was responsible for one-half of the maintenance, repair, storage, and operation costs of the Cessna. When petitioner purchased his interest in the Cessna, it was not in airworthy condition because its engine required a major overhaul. 6 At some point during the years at issue, petitioner sent the engine to an outside shop for an overhaul, at a cost of approximately $25,000.

During the years at issue petitioner spent 20 to 30 hours weekly working on the Cessna, on airplanes owned by other people, and on related matters. Neither Mr. Rowden nor DenRow paid petitioner for work he performed on the Cessna.

During the years at issue the Cessna was for sale. Petitioner followed market prices using various sources for aircraft valuation, such as trade periodicals. In 2007 the Cessna was appraised at $93,000. As of the date of trial Mr. Rowden did not believe the Cessna could be sold at a profit.

Petitioner timely filed his 2002 and 2003 Forms 1040, U.S. Individual Income Tax Return (2002 and 2003 returns). On the 2002 return he reported two businesses on two Schedules C (2002 Schedules C1 and C2). The 2002 Schedule C1 described petitioner's business as "Env [Environmental] Consulting", and the 2002 Schedule C2 described petitioner's other business as "Aircraft Maintenance". Petitioner reported one business on a Schedule C attached to the 2003 return (2003 Schedule C) and described his business as "Environmental Aviati[on]". On his Schedules C petitioner reported gross income and expenses and net profit or loss, as shown in the following table:



Net
Gross profit
Schedule C income Expenses or (loss)

2002 Schedule C1 -0- $9,780 ($9,780)

2002 Schedule C2 $450 11,364 (10,914)

2003 Schedule C 2,238 27,531 (25,293)


The following table compares the adjusted gross income (AGI) that petitioner would have reported if he had not engaged in his activities with the AGI that he actually reported on his 2002 and 2003 returns:



AGI
without
the AGI
Year activities reported

2002 $53,807 $33,113

2003 63,137 37,844


In the notice of deficiency respondent disallowed all 2002 Schedule C1 and 2003 Schedule C deductions. Respondent also disallowed deductions for tools, parts, and training expenses totaling $8,744 claimed on the 2002 Schedule C2. 7 Respondent disallowed these Schedule C deductions for the following reason: "Your deductions * * * have been adjusted to reflect the amount verified as paid or incurred for business purposes." Because respondent disallowed the deductions for business use of home of $511 and $504 claimed on the 2002 Schedule C1 and 2003 Schedule C, respondent allowed additional home mortgage interest deductions of $511 and $504 for 2002 and 2003, respectively. Respondent made computational adjustments to self-employment tax for 2003 and determined that petitioner was liable for accuracy-related penalties under section 6662 of $1,015 and $1,479 for 2002 and 2003, respectively.


OPINION

The Commissioner's determinations are presumed correct, and the taxpayer ordinarily bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that he is entitled to any deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Petitioner does not contend that section 7491(a) shifts the burden of proof to respondent, and petitioner has not established that he satisfies the section 7491(a)(2) requirements.

Respondent contends that petitioner may not deduct his Schedule C expenses because none of the Schedule C activities was a trade or business. 8 Section 162(a) allows a taxpayer to deduct ordinary and necessary expenses of carrying on the taxpayer's trade or business. To be engaged in a trade or business with respect to which deductions are allowable under section 162, "the taxpayer must be involved in the activity with continuity and regularity", and "the taxpayer's primary purpose for engaging in the activity must be for income or profit." Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). A sporadic activity or a hobby does not qualify. Id.



I. The Environmental Consulting Activity in 2002 9
Petitioner testified that he engaged in the environmental consulting activity "when available" and that the aviation activity had become his priority. During 2002 petitioner reported no gross income from the activity and only performed followup services; he attended two client meetings and conducted online research related to the activity. Petitioner did not introduce any evidence regarding how much time he spent on the activity. We conclude petitioner failed to establish that in 2002 he engaged in the environmental consulting activity with the requisite continuity and regularity. See id. Consequently, we do not need to address whether petitioner engaged in the environmental consulting activity for profit and whether he substantiated deductions claimed on the 2002 Schedule C1.



II. Aircraft Maintenance Activity in 2002 and Environmental Aviation Activity in 2003
A. In General

Section 162 allows deductions for ordinary and necessary expenses of carrying on an activity which constitutes the taxpayer's trade or business. To be engaged in a trade or business under section 162(a), "the taxpayer's primary purpose for engaging in the activity must be for income or profit." Commissioner v. Groetzinger, supra at 35. Section 212 allows deductions for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. The profit standards applicable to section 212 are the same as those used in section 162. See Allen v. Commissioner, 72 T.C. 28, 33 (1979).

Petitioner contends that respondent has conceded the profit-motive issue. We disagree. Respondent has not conceded the issue; respondent argued during trial and on brief that to establish that petitioner was engaged in a trade or business petitioner must prove he engaged in an activity with continuity and regularity and with the primary purpose of making a profit. See Commissioner v. Groetzinger, supra at 35. We begin our analysis of whether petitioner's aircraft maintenance activity or environmental aviation activity was a trade or business by examining whether petitioner engaged in either activity with the requisite profit motive.

Section 183, which restricts taxpayers from deducting losses from an activity that is not engaged in for profit, is often applied to determine whether an alleged trade or business is conducted with the requisite profit motive. Cannon v. Commissioner, 949 F.2d 345, 348 (10th Cir. 1991), affg. T.C. Memo. 1990-148; Krause v. Commissioner, 99 T.C. 132, 168 (1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir. 1994). Section 183(c) defines any "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."

Absent a stipulation to the contrary, see sec. 7482(b)(2), this case is appealable to the Court of Appeals for the Tenth Circuit, which has applied the dominant or primary objective standard to test whether an alleged business activity is conducted for profit, Hildebrand v. Commissioner, 28 F.3d at 1027; Cannon v. Commissioner, supra at 350; 10 Oswandel v. Commissioner, T.C. Memo. 2007-183. Under the standard applied by the Court of Appeals for the Tenth Circuit, a taxpayer's dominant or primary objective in conducting the activity must be to earn a profit. Whether an activity was engaged in for profit is a factual determination to be resolved on the basis of all the surrounding facts and circumstances. Hildebrand v. Commissioner, 28 F.3d at 1027.

Section 1.183-2(b), Income Tax Regs., provides a nonexclusive list of factors to be considered in determining whether a taxpayer has the requisite profit objective. The factors are: (1) The manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer's history of income or loss with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation. No single factor is determinative. See id.

While the taxpayer's expectation of profit need not be reasonable, it must be in good faith. Allen v. Commissioner, supra at 33. We give greater weight to the surrounding objective facts than to the taxpayer's mere statement of intent. Cannon v. Commissioner, supra at 351 n.8; Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir. 1983).

B. Nature of the Environmental Aviation Activity in 2003

Petitioner testified that the environmental aviation activity reported on the 2003 Schedule C combined two activities: Environmental consulting and aircraft maintenance. Petitioner received his 2003 Schedule C gross income from two clients for performing annual inspections in the course of the aircraft maintenance activity. 11 The record establishes that most 2003 Schedule C expenses, such as interest on the aviation loan, the Cessna insurance, and parts expenses, were incurred for petitioner's aircraft maintenance activity. Consequently, for purposes of this opinion we treat the environmental aviation activity as a continuation of the 2002 aircraft maintenance activity.

C. Applying the Factors

1. Manner in Which Petitioner Conducted the Activity

In deciding whether a taxpayer has conducted an activity in a businesslike manner we consider: (1) Whether complete and accurate books and records were maintained; (2) whether the activity was conducted in a manner substantially similar to those of other activities of the same nature that were profitable; and (3) whether changes in operating methods, adoption of new techniques, or abandonment of unprofitable methods were done in a manner consistent with an intent to improve profitability. See Engdahl v. Commissioner, 72 T.C. 659, 666-668 (1979); sec. 1.183-2(b)(1), Income Tax Regs.

Petitioner's recordkeeping was disorganized and unreliable. For example, although petitioner retained all receipts for his expenses, petitioner's files mistakenly contained receipts for unrelated years. Petitioner did not introduce any records pertaining to gross income, such as copies of customer work orders, logbooks, or customer invoices. Petitioner testified that approximately 25 percent of the parts he purchased were used for airplanes other than the Cessna and that he kept records for larger inventory items. However, petitioner did not introduce any inventory records into evidence.

We are not convinced that petitioner's recordkeeping represented anything other than an effort to substantiate expenses claimed on his return. For a taxpayer's books and records to indicate a profit motive, the taxpayer should use books and records for measuring profits, cutting expenses, and evaluating the overall performance of the operation. Golanty v. Commissioner, 72 T.C. 411, 430 (1979), affd. without published opinion 647 F.2d 170 (9th Cir. 1981). Petitioner's records, however, consisted of a collection of receipts. Petitioner presented no evidence that he used them to evaluate the profitability of his operations.

Petitioner testified that he had engaged in the aircraft maintenance activity since 1996. However, he offered no evidence regarding the past performance of the activity and whether he considered changes in his operating methods.

We conclude that during the years at issue petitioner did not conduct his aircraft maintenance activity in a businesslike manner. This factor favors respondent's position.

2. Expertise of Petitioner or His Advisers

Preparation for an activity by an extensive study of its accepted business, economic, and scientific practices or consultation with those who are experts therein may indicate a profit objective. Engdahl v. Commissioner, supra at 668; sec. 1.183-2(b)(2), Income Tax Regs. Efforts to gain experience and a willingness to follow expert advice may indicate a profit motive. Engdahl v. Commissioner, supra at 668. Petitioner established that he had acquired technical expertise by completing studies at the Spartan School of Aeronautics and by obtaining FAA certifications. However, petitioner did not establish that he had had experience or had acquired expertise in running a profitable business. This factor is neutral.

3. Time and Effort Devoted to the Activity

The fact that a taxpayer devotes personal time and effort to carrying on an activity may indicate an intention to derive a profit, particularly where there are no substantial personal or recreational elements associated with the activity. Sec. 1.183-2(b)(3), Income Tax Regs. Petitioner testified that he spent between 20 and 30 hours weekly working on the Cessna and his clients'airplanes. 12 However, the time petitioner spent working on the Cessna is consistent with the use of the Cessna for recreation. See Warden v. Commissioner, T.C. Memo. 1995-176 (finding that the time the taxpayers spent on cleaning and maintaining their yacht was consistent with the use of the yacht for recreation), affd. without published opinion 111 F.3d 139 (9th Cir. 1997). Petitioner did not introduce any evidence regarding what portion of 20-30 hours per week he spent working on clients' airplanes. Although petitioner testified that at the time of trial he spent less than 20 hours annually flying (predominantly using the Cessna), he did not introduce any evidence regarding how much of his use of the Cessna (after the repairs during the years at issue) was for personal flying and how much was for income-producing activities. Given the lack of evidence regarding the appropriate allocation, we conclude this factor is neutral.

4. Expectation That Assets Used in the Activity May Appreciate

The term "profit" encompasses appreciation of assets used in the activity. Sec. 1.183-2(b)(4), Income Tax Regs. An activity may produce an overall economic profit, even if there is no operational profit, when appreciation of the assets of the activity is taken into account. Id.

Petitioner claims that his business's value increased because the Cessna appreciated after the overhaul and because the Cessna ownership provided his business additional client exposure. The only evidence in the record that the Cessna was an advertising tool is petitioner's uncorroborated testimony, which we are not required to accept. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). As to petitioner's expectations regarding the appreciation of the Cessna, although both petitioner and his brother testified that the Cessna had always been for sale and they had hoped to sell it at a profit, petitioner did not offer into evidence any listing prices for the Cessna or comparable aircraft or any other credible evidence in support of his claim that he had a good-faith expectation of selling the Cessna at a profit.

Even if we were to conclude, however, that petitioner had a good-faith expectation of selling the overhauled Cessna at a profit, we must still examine whether petitioner had a good-faith expectation of realizing a profit on his entire operation. Bessenyey v. Commissioner, 45 T.C. 261, 275 (1965), affd. 379 F.2d 252 (2d Cir. 1967). Such an expectation should be based on analyzing estimated future earnings from the activity, the likely appreciation of the Cessna, and whether the resulting amount would be sufficient to recoup losses from the activity. Because an airplane is generally a wasting asset, we fail to see how petitioner could expect in good faith to recoup his $30,000 cost of a one-half interest in the Cessna, the capital expenditures for the overhaul and repair of the Cessna, and his accumulated operating losses. Petitioner's expectation of making a profit was not based on careful analysis, and it is not supported by credible evidence. This factor favors respondent.

5. Success in Carrying On Other Similar or Dissimilar Activities

The fact that a taxpayer has engaged in similar activities and converted them from unprofitable to profitable enterprises may indicate that the taxpayer is engaged in the present activity for a profit, even though the activity is presently unprofitable. Sec. 1.183-2(b)(5), Income Tax Regs. Although petitioner testified he engaged in the environmental consulting activity before the years in issue, he offered no evidence regarding his success in the activity. This factor is neutral.

6. Petitioner's History of Income or Loss From the Activity

A taxpayer's history of income or loss with respect to any activity may indicate the presence or absence of a profit objective. See Golanty v. Commissioner, 72 T.C. at 426; sec. 1.183-2(b)(6), Income Tax Regs. However, "a series of startup losses or losses sustained because of unforeseen circumstances beyond the control of the taxpayer may not indicate a lack of profit motive." Kahla v. Commissioner, T.C. Memo. 2000-127 (citing Engdahl v. Commissioner, 72 T.C. at 669, and section 1.183-2(b)(6), Income Tax Regs.), affd. without published opinion 273 F.3d 1096 (5th Cir. 2001).

Petitioner testified that he had been providing maintenance services, such as aircraft maintenance, rigging, inspection, sale, and refurbishing since 1996. However, petitioner introduced no credible evidence regarding the financial performance of his aircraft maintenance activity before the years at issue. The failure to introduce such evidence raises a presumption that the evidence would be unfavorable to petitioner. See Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947). This factor favors respondent's position.

7. Amount of Occasional Profits

The amount of profits earned in relation to the amount of losses incurred, the amount of the investment, and the value of the assets in use may indicate a profit objective. See sec. 1.183-2(b)(7), Income Tax Regs. The opportunity to earn substantial profits in a highly speculative venture may be sufficient to indicate that the activity is engaged in for profit even though only losses are produced. See id.

During 2002 and 2003 the aircraft maintenance activity generated net losses which significantly reduced petitioner's AGI. Petitioner offered no credible evidence regarding what profits, if any, his aircraft maintenance activity generated between 1996 and 2001. Failure of a party to introduce evidence within his possession which, if true, would be favorable to him gives rise to the presumption that such evidence is unfavorable. Wichita Terminal Elevator Co. v. Commissioner, supra at 1165. This factor favors respondent's position.

8. Petitioner's Financial Status

The fact that a taxpayer does not have substantial income or capital from sources other than the activity in question may indicate that the activity is engaged in for profit. See sec. 1.183-2(b)(8), Income Tax Regs. Substantial income from sources other than the activity (especially if the losses from the activity generate substantial tax benefits) may indicate a lack of profit motive, particularly where elements of personal pleasure or recreation are involved. See id.

During 2002 and 2003 petitioner was employed as an environmental engineer, earning $52,611 and $60,889, respectively. Petitioner is single and has no children. Although the income did not support a lavish lifestyle, it provided petitioner with a comfortable living and allowed him to conduct the aircraft maintenance activity at a loss. This factor favors respondent's position.

9. Elements of Personal Pleasure or Recreation

The presence of personal pleasure or recreation relating to the activity may indicate the absence of a profit objective. See sec. 1.183-2(b)(9), Income Tax Regs. An activity is not treated as an activity not engaged in for profit merely because the taxpayer also has purposes or motivations other than to make a profit. Id.

Petitioner grew up around airplanes and has been a licensed pilot for 25 years. He enjoys working on airplanes and takes pride in his workmanship and in his family's aviation history. We cannot overlook significant elements of recreation and pleasure that petitioner derived from working on airplanes. This factor favors respondent's position.

D. Petitioner's Argument

Petitioner relies on Doggett v. Burnet, 65 F.2d 191 (D.C. Cir. 1933), revg. 23 B.T.A. 744 (1931), to suggest that a profit motive exists if a taxpayer enters into and carries on an activity with a good-faith intention to make a profit or with the belief that a trade or business can be profitable. However, in determining a taxpayer's intent, the Court of Appeals for the Tenth Circuit gives less weight to the taxpayer's statement of intent than to objective factors. Cannon v. Commissioner, 949 F.2d at 351 n.8. Moreover, such reliance on objective factors is consistent with section 1.183-2(a), Income Tax Regs., providing:

The determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case. Although a reasonable expectation of profit is not required, the facts and circumstances must indicate that the taxpayer entered into the activity, or continued the activity, with the objective of making a profit. * * * [Emphasis added.]

After a review of the objective factors discussed above, we are not convinced that petitioner engaged in his aircraft maintenance activity with the objective of making a profit.

E. Conclusion

After considering the factors listed in section 1.183-2(b), Income Tax Regs., and the facts and circumstances of this case, we conclude that petitioner has not established that he engaged in the aircraft maintenance activity with the primary or dominant objective of making a profit. Accordingly, we hold that petitioner's aircraft maintenance activity did not constitute a trade or business or profit-seeking activity in 2002 or 2003.

F. Deductibility of the 2002 Schedule C2 and 2003 Schedule C Expenses

Because we have sustained respondent's determination that petitioner's aircraft maintenance activity was not a trade or business under section 162, we must decide what deductions, if any, he may claim under section 183(b). Section 183(b)(1) permits deductions which are otherwise allowable without regard to whether the activity is engaged in for profit, such as State and local taxes and casualty losses. Section 183(b)(2) allows deductions that would be allowable if the activity were engaged in for profit, but only to the extent of gross income received from the activity, reduced by deductions under section 183(b)(1).

With respect to the 2002 Schedule C2, respondent allowed $2,620 in deductions. This amount exceeds petitioner's $450 gross income from the activity. Consequently, no additional deductions are allowed for 2002.

For 2003 petitioner did not claim any deductions that are allowable under section 183(b)(1). In his brief respondent concedes that "If the Court finds that petitioner was in the trade or business of environmental aviation in 2003, petitioner has substantiated the following expenses to be ordinary and necessary business expenses". Respondent lists the following expenses as substantiated:



Amount
Expense substantiated

Insurance $529

Office expense 186

Rent of other
business property 1,200

Supplies 1,020

Tools 1,570

Training
certifications 313

Professional
subscription 110

Total 4,928


Although we hold that in 2002 and 2003 petitioner's aircraft maintenance activity did not constitute a trade or business under section 162 or an activity for the production of income under section 212, under section 183(b)(2) petitioner's substantiated expenses from the activity are deductible for 2003 to the extent of $2,238, the gross income generated by the activity.



III. Accuracy-Related Penalty Under Section 6662
Respondent contends that petitioner is liable for the accuracy-related penalty on the grounds of substantial understatement of income tax under section 6662(a) and (b)(2) for 2002 and 2003 or, alternatively, negligence or disregard of rules or regulations under subsection (b)(1). 13

Section 6662(a) and (b)(2) authorizes the Commissioner to impose a 20-percent penalty if there is a substantial understatement of income tax. An understatement is substantial if the amount of the understatement for the taxable year exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. Sec. 6662(d)(1)(A).

The Commissioner bears the initial burden of production with respect to the taxpayer's liability for the section 6662(a) penalty and must produce sufficient evidence indicating that it is appropriate to impose the penalty. See sec. 7491(c). Respondent established that for both years at issue the amount of the understatement exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. Because respondent has met his burden of production, petitioner must produce sufficient evidence to prove that respondent's determination is incorrect. See Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

The accuracy-related penalty is not imposed with respect to any portion of the underpayment if the taxpayer can establish that he acted with reasonable cause and in good faith. Sec. 6664(c)(1). The taxpayer bears the burden of producing evidence to demonstrate reasonable cause under section 6664(c)(1). See Higbee v. Commissioner, supra at 446-448. We determine reasonable cause and good faith on a case-by-case basis, taking into account all pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.

In his post trial briefs petitioner did not address why the penalties should not be imposed. Petitioner did not contend that he was not negligent or that he had reasonable cause or acted in good faith. Therefore, we sustain respondent's determination to impose the section 6662(a) and (b)(2) accuracy-related penalty for 2002 and 2003.

We have considered all arguments raised by either party, and to the extent not discussed, we find them to be irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to the nearest dollar.

2 Petitioner concedes that he is not entitled to deduct the $9,829 depreciation expense for 2003 and unreimbursed employee expenses of $6,596 and $5,083, before application of the 2-percent floor of sec. 67(a), for 2002 and 2003, respectively. After the latter concession petitioner's remaining miscellaneous itemized deductions do not exceed the 2-percent floor of sec. 67(a) and therefore also are not at issue.

3 A certified mechanic may perform or supervise the maintenance, preventive maintenance, or alteration of an aircraft or a part thereof for which he is rated. 14 C.F.R. sec. 65.81(a) (2003). A certified mechanic with an airframe rating may also approve and return to service an airframe or related part or appliance after he has performed, supervised, or inspected its maintenance or alteration. 14 C.F.R. sec. 65.85 (2003). A certified mechanic with a powerplant rating has similar additional privileges with respect to a powerplant, propeller, or any related part. See 14 C.F.R. sec. 65.87 (2003).

4 In general, a holder of an inspection authorization may inspect and approve for return to service any aircraft or related part after a major repair or major alteration; he may also perform certain other types of inspections. See 14 C.F.R. sec. 65.95 (2003).

5 At the time of trial Mr. Rowden held a mechanic's certificate with airframe and powerplant ratings and an inspection authorization, and he was a flight instructor for single-engine and multi-engine aircraft and instruments and a commercial glider pilot. Mr. Rowden bought undervalued airplanes, used them for charter and instruction, and then sold them. DenRow purchased the 1975 Cessna 182P (Cessna) in 2000 for $43,000. During the years at issue petitioner was not a partner, member, or agent of DenRow, and he was not involved in making any of its business decisions.

6 Airworthy means that the aircraft conforms to its type design and is in a condition for safe operation. 14 C.F.R. 3.5(a) (2008). Overhaul is a type of aircraft maintenance. 14 C.F.R. 1.1 (2003) (defined under the word "maintenance").

7 Respondent contends that in the notice of deficiency he erroneously allowed the 2002 Schedule C2 deductions totaling $2,620, but he does not assert an increased deficiency for 2002.

8 In the notice of deficiency respondent disallowed the deductions as not verified as paid or incurred for business purposes. At trial respondent argued that petitioner did not engage in the trade or business of environmental consulting and aircraft maintenance during 2002 and environmental aviation during 2003. Petitioner does not contend that the argument represents a new issue on which respondent should have the burden of proof. See Rule 142(a). In addition, petitioner listed the profit-motive issue with respect to the aviation-related activities in his trial memorandum as one for decision.

9 Although respondent states in his reply brief that petitioner has conceded the issue of the environmental consulting activity because he failed to address it on brief, petitioner in his opening brief continues to challenge the full amount of deficiency and identifies the 2002 Schedule C1 amounts as still in dispute. Nevertheless, we agree with respondent that petitioner does not address the environmental activity elsewhere in briefs, and we note that petitioner also agrees with respondent's proposed finding of fact that "Petitioner failed to introduce credible evidence that he was in the environmental consulting business in 2002." We address the environmental consulting activity for the sake of completeness.

10 In both Hildebrand v. Commissioner, 28 F.3d 1024, 1027 (10th Cir. 1994), affg. Krause v. Commissioner, 99 T.C. 132 (1992), and Cannon v. Commissioner, 949 F.2d 345, 350 (10th Cir. 1991), affg. T.C. Memo. 1990-148, the Court of Appeals for the Tenth Circuit applied the dominant or primary objective test at the partnership level in analyzing whether a partnership was engaged in an activity for profit under sec. 183.

11 While petitioner's testimony is not clear as to whether such annual inspections were performed in the course of environmental consulting services or aircraft maintenance services, petitioner contends in his brief that his 2003 Schedule C gross income was derived from "aircraft activities".

12 While petitioner's testimony is not clear as to whether such annual inspections were performed in the course of environmental consulting services or aircraft maintenance services, petitioner contends in his brief that his 2003 Schedule C gross income was derived from "aircraft activities".

13 Respondent argues that petitioner has conceded the issue of penalties because petitioner does not address it in his brief We address the issue for the sake of completeness because petitioner lists the issue as one for decision in his reply brief.

What Is a "Business"?: Airplane operation

Where an airplane was acquired for personal use but later was converted into commercial use by the taxpayer, the expenses borne by the taxpayer after such conversion were deductible by him.

R. Denny, 33 BTA 738, Dec. 9175 (Acq.).

Because the taxpayer's suppliers and customers were spread out over a large geographic area, owning and operating an airplane was considered an expense of his business. Consequently, since an instrument rating was essential for the taxpayer's efficient use of the plane for business purposes, the expense of operating the plane during his instrument flight training was deductible.

K.L. Knudtson, 41 TCM 166, Dec. 37,333(M), TC Memo. 1980-455.

The taxpayer, a flight surgeon and aviation pathologist for the United States Navy, was entitled to deduct 50 percent of his out-of-pocket expenses incurred in maintaining his privately owned airplane as a business-related educational expense.

E.J. Colangelo, 41 TCM 495, Dec. 37,445(M), TC Memo. 1980-543.

The entire cost of maintaining an airplane on a 24-hour standby basis, not merely the cost of flying time for a charter flight, was deductible as a business expense where the airplane was useful to the taxpayer in obtaining tenants for its shopping centers and was in fact less expensive and more efficient than alternative air travel arrangements.

Palo Alto Town & Country Village, Inc., CA-9, 78-1 USTC ¶9200, 565 F2d 1388.

The IRS's disallowance of a very small amount of claimed deductions for the cost of maintaining an airplane was not sustained.

O.W. Brothers, 33 TCM 269, Dec. 32,485(M), TC Memo. 1974-56.

A private surveyor was entitled to claim deductions for the costs of operating an airplane used in his business. The deductions were based on the percentage of business usage of the plane.

W.L. Snyder, 34 TCM 965, Dec. 33,307(M), TC Memo. 1975-221.

Similarly, as to an attorney.

H.A. Sherry, 34 TCM 1468, Dec. 33,507(M), TC Memo. 1975-336.

A teacher employed as a guidance counselor at a high school offering vocational training in avionics established that a direct and proximate relationship existed between flying his private airplane and his employment, and that a direct connection existed between his training in instrument flying and the enhancement of his employment skills. Thus, a portion of the operating expenses (including depreciation) of the airplane were deductible.

J.R. McKirahan, Jr., 45 TCM 787, Dec. 39,918(M), TC Memo. 1983-102.

A retired Naval officer, employed full time as a business and engineering consultant, was not entitled to deduct the cost of maintaining a private airplane. He was not in the business of chartering the plane.

C.F. Fischer, 50 TC 164, CCH Dec. 28,935.

Aviation activities carried on by a doctor engaged in the general practice of medicine did not constitute a trade or business.

J.V. Curran, 29 TCM 696, Dec. 30,185(M), TC Memo. 1970-160.

A taxpayer who used an airplane on buying trips for a store was not in the trade or business of renting an airplane to the store and did not hold the plane to produce income. Thus, he was not entitled to deduct various costs associated with the plane.

Bullock's Department Store, Inc., 32 TCM 1168, Dec. 32,217(M), TC Memo. 1973-249.

The taxpayers failed to establish that they had engaged in an air charter business. Accordingly, business expenses claimed by the taxpayers were disallowed.

D.R. Bacot, 56 TCM 1322, Dec. 45,503(M), TC Memo. 1989-77.

Similarly.

L.T. Baldwin, III, 83 TCM 1915, Dec. 54,798(M), TC Memo. 2002-162.

Nonprofit Activities: Amounts deductible regardless of profit motive

A bankruptcy trustee failed to prove that a Chapter 7 debtor's activities as a professional off-road bicyclist constituted a hobby rather than a business. Consequently, the debtor's deduction of her racing expenses was not a "substantial abuse" of the bankruptcy proceeding that merited dismissal of her petition. The trustee's arguments that the debtor had sustained two years of losses and that bicycle racing was a recreational sport were insufficient to overcome the statutory presumption in favor of granting the bankruptcy discharge. Rather, the taxpayer had an actual and honest profit objective with respect to the activity. She expended considerable time and effort on a daily basis participating in or preparing for races, earned rankings from a national bicycle association, won races that provided a small amount of prize money, and kept records of her income and expenses related to her racing activities.

D.L. Fletcher, BC-DC Vt., 2000-1 USTC ¶50,462.

A taxpayer who was denied deductions for accrued interest on nonrecourse notes used to finance a tax-motivated computer equipment transaction was entitled to deduct interest actually paid.

H. Gilman, 59 TCM 465, Dec. 46,541(M), TC Memo. 1990-205. Aff'd on other grounds, CA-2, 91-1 USTC ¶50,245, 933 F2d 143. Cert. denied, 1/13/92.

Evidence, penalty imposed. --Substantial Understatement: Evidence, penalty imposed

In the following cases, taxpayers made substantial understatements of tax to which the IRS correctly applied the substantial understatement penalty:

An individual was liable for the substantial understatement component of the accuracy-related penalty where he failed to include in income payments received from his employer as compensation for services. The reasonable cause exception did not apply because, despite not receiving a Form 1099-MISC issued by his employer, the taxpayer was aware that he should have included the amounts received in income. Moreover, the taxpayer's liability for the penalty was not affected as a result of the government's concession that he should have been taxed as an employee rather than an independent contractor.

R.A. Brunsman, 86 TCM 465, Dec. 55,322(M), TC Memo. 2003-291.

Married taxpayers were liable for the substantial understatement component of the accuracy-related penalty. The taxpayers failed to establish that their failure to pay their federal income tax liability in full was due to reasonable cause. The record was devoid of reliable evidence that the excess bank deposit amount was not subject to U.S. tax. The taxpayers gave inconsistent and incoherent testimony, and failed to comply with the Tax Court's request to have documents that they proffered translated into English and certified, so as to render them admissible.

R.M. Gutierrez, 86 TCM 611, Dec. 55,353(M), TC Memo. 2003-321.

The accuracy related penalty was imposed on an individual who improperly claimed various theft and business loss deductions arising from his bankruptcy and divorce.

S.M. Ferguson, Jr., 91 TCM 785, Dec. 56,438(M), TC Memo. 2006-32.

An accuracy-related penalty under Code Sec. 6662(a) for substantial understatement of income tax was imposed. The taxpayer's claim that the understatement was due to reasonable cause and made in good faith because he relied on his accountant, was not persuasive. The only alleged erroneous advice related to the carryforward of the claimed NOL, which the court disallowed because the taxpayer failed to substantiate it.

M.D. Lee, 91 TCM 999, Dec. 56,476(M), TC Memo. 2006-70.

The Tax Court improperly disallowed a corporate taxpayer's interest expense deductions and imposed an accuracy-related penalty after incorrectly concluding that advances made to the company by some of its shareholders were equity contributions, rather than bona fide debt.

Indmar Products Co. Inc., CA-6, 2006-1 USTC ¶50,270.

For purposes of the accuracy-related penalty for a substantial understatement of tax, a married couple did not demonstrate that there was reasonable cause for their understatement or that they acted in good faith. Their position that Code Sec. 165(d) did not apply to tournament poker did not constitute an honest misunderstanding. Further, the understatement was not subject to reduction because there was no substantial authority to support the taxpayers' position on tournament poker and there was no reasonable basis to support their argument.

G.E. Tschetschot, 93 TCM 914, Dec. 56,840(M), TC Memo. 2007-38.

An individual was liable for the accuracy-related penalty because he substantially understated his tax liability. The deficiency was more than ten percent of the amount required to be shown in his return. Moreover, he introduced no evidence to support a finding that he made a reasonable attempt to comply with the tax code.

R.C. Randall, CA-10, 2007-2 USTC ¶50,839.

Married taxpayers were subject to the Code Sec. 6662 accuracy-related penalty because the understatement of their tax liability exceeded ten percent of the tax required to be shown on their return and, therefore, met the statutory threshold for a substantial understatement of tax. In addition, no reasonable cause and good faith with respect to the tax underpayment was established. The taxpayers could not reasonably and in good faith rely on their tax return preparers because they failed to provide them with sufficient financial information to accurately and properly prepare their return. Moreover, the taxpayers did not make any efforts to review their return and assess the proper tax liability. The return was signed only by the wife, who also signed her husband's name, and although she coordinated the company's financial information with the tax return preparers, she never reviewed the return to make sure that all income items were reported.

R.A. Prudhomme, 95 TCM 1324, Dec. 57,388(M), TC Memo. 2008-83.

A doctor who claimed that federal law, as it relates to medical records, prevented her from submitting evidence regarding her income was liable for the substantial understatement penalty. The doctor failed to prove that she was entitled to any reduction in the understatement determined by the IRS.

J.K. McCammon, 95 TCM 1421, Dec. 57,419(M), TC Memo. 2008-114.

A self-employed attorney was liable for an accuracy-related penalty for a substantial understatement of income tax. The taxpayer did not establish that he acted with reasonable cause and in good faith, or any other basis for reducing the penalty. Although the taxpayer relied on a lawyer to prepare his tax return for the year at issue, he did not present evidence to establish that the lawyer was a competent tax professional. Further, he did not demonstrate that he provided the lawyer with all of the information necessary to prepare the return properly.

R.A. Tash, 95 TCM 1436, Dec. 57,427(M), TC Memo. 2008-120.

A taxpayer who failed to report nonemployee compensation and paid no tax was liable for the accuracy-related penalty, and sanctions were imposed for frivolous arguments. The accuracy-related penalty was based on both negligence and substantial understatement of income. The taxpayer was negligent in failing to include the amounts of income shown on several information returns (Forms 1099-MISC) on his return. Since the tax deficiency was greater than both $5,000 and 10 percent of the amount required to be shown on the return, there was a substantial understatement of income.

R.C. Randall, 95 TCM 1546, Dec. 57,448(M), TC Memo. 2008-138.

A series of payments under a divorce decree (the "settlement payments") were not deductible alimony and the payor spouse who deducted the settlement payments was liable for accuracy-related penalty under Code Sec. 6662. Other than the taxpayer's uncorroborated claim, nothing in the record indicated that the taxpayer relied on the appropriate authorities or otherwise had a reasonable basis for deducting the payments. The taxpayer provided no evidence that the exceptions to the penalty under Code Sec. 6662(d)(2)(B) were available; and, the taxpayer presented no evidence that he reasonably and in good faith relied on professional advice in taking the deduction, thus the exception under Code Sec. 6664(c)(1) was not available.

R.W. Fields, 96 TCM 130, Dec. 57,528(M), TC Memo. 2008-207.

An individual was subject to an accuracy-related penalty due to substantial understatement. Although he argued that the penalties should not be imposed, he presented no evidence of reasonable cause or good faith.

D.A. Hughes, Dec. 57,577(M), TC Memo. 2008-249.

Married taxpayers, who put their business in a sham trust and failed to report the trust's income, were subject to the accuracy-related penalty under Code Sec. 6662 for substantial understatement of their income tax. The taxpayers neither had a reasonable cause for their underpayment of tax nor acted in good faith.

D.W. Swanson, Dec. 57,595(M), TC Memo. 2008-265.

The victim of an investment scheme was liable for a Code Sec. 6662 accuracy-related penalty for the understatement attributable to the disallowance of his theft-loss deduction. The taxpayer unreasonably relied upon a tax advisor's advice because he failed to take adequate steps to determine that the advisor had sufficient expertise or that his advice was sufficiently independent. Back reference: ¶39,652.34.



D.J. Vincentini, Dec. 57,602(M), TC Memo. 2008-271.

A pipeline inspector/consultant who was liable for income tax on nonemployee compensation that he received, rather than his two purported business entities, was not entitled to business expense deductions in excess of what the IRS had conceded due to lack of evidence. In addition, penalties were imposed for erroneous tax return reporting and improper deductions that resulted in a substantial understatement of income tax.

H. Pate, Dec. 57,603(M), TC Memo. 2008-272.

In the Dornbrock case, below, was published on January 17, 2009. The case involves a nominee lien issue. The nominee theory may be established without a showing of fraud. See, e.g., United States v. Bollinger [ 88-1 USTC ¶9233], 485 U.S. 340 (1988) (corporation held title to property as a nominee for partnerships so the partnerships could avoid Kentucky usury law). A nominee holds bare legal title to property for the benefit of another. Black's Law Dictionary (7th Ed. 1999); United States v. Gilbert, 244 F.3d 888, 902 n.37 (11th Cir. 2001). When a taxpayer's property or rights to property are held in the name of another, or are transferred to another with the taxpayer retaining beneficial ownership, the third party is said to hold the property as a nominee for the taxpayer. William D. Elliott, Federal Tax Collections, Liens, and Levies ¶ 9.10[1] at 9-93 to 9-94. The "nominee theory involves the determination of the true beneficial or equitable ownership of the property" at issue. Oxford Capital Corp. v. United States [ 2000-1 USTC ¶50,447], 211 F.3d 280, 284 (5th Cir. 2000). "Focusing on the relationship between the taxpayer and the property, the [nominee] theory attempts to discern whether a taxpayer has engaged in a sort of legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the true owner." In re Richards [ 99-1 USTC ¶50,317], 231 B.R. 571, 578 (E.D. Pa. 1999); see also Shades Ridge Holding Co., 888 F.2d at 728 (nominee theory focuses on delinquent taxpayer's relationship to the property); May v. United States [ 2007-2 USTC ¶50,799], Case No. 07-10531, 2007 WL 3287513 (11th Cir., Nov. 8, 2007) (same). Who really benefits from and controls the property is at the heart of a nominee case. The issue is important to tax return preparers for obvious reasons. For example, income is taxable income to the true owner of the property, and that owner could be the substantive owner. I see these issues frequently and, in my opinion, the factors considered justify a substance over form analysis. The government was entitled to foreclose tax liens that attached to a property held by a corporation as the nominee of a delinquent taxpayer. The government established that the individual was the true beneficial and equitable owner of the property. The corporation had no business purpose and was created for the sole purpose of holding title to the property. The individual was the only officer and director of the corporation and controlled the funds, assets and bank accounts of the corporation and related entities for his own benefit. Moreover, the individual exercised clear dominion and control over the property because he was the sole occupant, never paid any rent for its use, controlled the manner in which the property could be used and claimed an ownership interest in the property.



United States of America, Plaintiff v. William L. Dornbrock a/k/a Robert William Lee, Inland Management Systems, Inc., and Intelec, Inc., f/k/a Integra Engineering, Inc., Defendants.

U.S. District Court, So. Dist. Fla., Fort Lauderdale Div.; 06-61669-CIV-MARRA/GONZALEZ, January 17, 2008.

Related case at 2009-1 USTC ¶50,220.







FINDINGS OF FACT AND CONCLUSIONS OF LAW


GONZALEZ, District Court Judge: This action came before this Court to reduce to judgment the federal income tax liability of Defendant William L. Dornbrock ("Dornbrock") for tax years 1994 and 1995, and to foreclose on real property in collection of that liability. An agreed judgment was entered on August 31, 2007 as to the approximately $1.2 million liability against Defendant Dornbrock. The Court held trial in this matter commencing on November 19, 2007. The main issue at trial was whether Defendant Dornbrock is the true owner of the real property upon which the United States seeks to foreclose. Defendant Dornbrock is the sole occupant of the subject property, a three-bedroom condominium in Ft. Lauderdale, purchased in 1997 for $499,000 and assessed in 2007 as worth approximately $780,000. The condominium has at all times been titled in the name of Inland Management Systems, Inc. ("Inland").

The United States alleges that defendant Inland is a nominee for the true owner, Defendant Dornbrock. The defendants counter that Inland is a nominee for defendant Intelec, Inc., formerly known as Integra Engineering, Inc. ("Intelec"). The United States responds that if Intelec is determined to be the beneficial owner of the condominium, then because Intelec is the alter ego / nominee of Intelec owner Defendant Dornbrock, Defendant Dornbrock remains the only true owner of the condominium. The defendants deny that Defendant Dornbrock owns Intelec.



I. FINDINGS OF FACT

1. On April 28, 2000, Defendant Dornbrock consented to a U.S. Tax Court judgment for income tax liabilities for tax years 1994 and 1995.

2. On June 2, 2000, Notices of Federal Tax Lien were recorded in Broward County, Florida against William L. Defendant Dornbrock, Robert W. Lee, and Inland Management Systems, Inc.

3. Pursuant to an agreed judgment in this case, Defendant Dornbrock is indebted to the United States for unpaid income taxes, penalties, and interest for the tax years 1994 and 1995 in the amount of $1,206,570.43, plus interest and statutory additions as allowed by law from August 31, 2007 until the judgment is paid.



A. Defendant Dornbrock Controlled and Benefitted from Unit 1005.

1. Defendant Inland Management Systems, Inc. was formed for the sole purpose of holding title to a three-bedroom condominium, Unit 1005 in the Point of the Americas II complex. The condominium is located at 2200 S. Ocean Boulevard, Ft. Lauderdale, Florida ("Unit 1005").

2. Inland is record title holder of Unit 1005. Since the October 31, 1997 purchase of Unit 1005, title has not been held by any other entity or person.

3. Point of Americas II Condominiums approved a sale of Unit 1005 to Inland.

4. Inland has no business purpose and has never filed a tax return.

5. Inland was automatically dissolved as a Michigan corporation on July 15, 2002.

6. Inland is not a Florida corporation.

7. Defendant Dornbrock has always been the only officer and director of Inland and the only person to act on behalf of Inland. He has held himself out as an officer of Inland. Defendant Dornbrock was the president, CEO, secretary, treasurer, and CFO of Inland.

8. Defendant Dornbrock is the only person authorized to sign bank checks for Inland and the only person who signs any documents on behalf of Inland.

9. No documentary evidence reflects that Inland is owned by Intelec.

10. Defendant Dornbrock has identified himself as the owner of Unit 1005. [Exhibit 305 page 2 paragraph 2.]

11. Defendant Dornbrock has always been the sole occupant of Unit 1005.

12. Defendant Dornbrock controls the use of Unit 1005. He decides who may stay there and for what purpose the Unit is used.

13. Defendant Dornbrock has never paid rent for the use of Unit 1005.

14. Defendant Dornbrock may have guests at Unit 1005 without approval.

15. There are no restrictions imposed by Intelec or Inland or Maureen Russell on Defendant Dornbrock's use of Unit 1005.

16. Defendant Dornbrock has never declared his use of Unit 1005 as income.

17. No individual other than Defendant Dornbrock has claimed an ownership interest in Unit 1005.

18. Absent an order of foreclosure in this case, Defendant Dornbrock has the power at any time to sell the condominium and use the sale proceeds.

19. There is no mortgage on Unit 1005. It was purchased for $499,000.

20. Unit 1005 was assessed by Broward County in 2007 at $783,860.

21. Unit 1005 was purchased for Defendant Dornbrock's benefit.

22. At the time of the purchase of Unit 1005, the IRS was examining Defendant Dornbrock's tax returns and Defendant Dornbrock had retained counsel to appear on his behalf before the IRS.

23. Within the same year that Unit 1005 was purchased for Defendant Dornbrock, Unit 207 was purchased for the benefit of Timothy and Maureen Russell.

24. Defendant Dornbrock processes and pays all expenses of Unit 1005.

25. Defendant Dornbrock has authorized improvements to Unit 1005 in 2003.


B. Defendant Dornbrock Controls the Funds, Assets, and Bank Accounts of Inland, Integra, Intelec, Support Solutions and Related Entities for his Benefit. He Intentionally Holds No Assets in his Name.


1. Defendant Dornbrock opened and maintains a bank account in Inland's name. Defendant Dornbrock makes deposits and writes checks on the Inland account. The checks on the Inland bank account include payment of Defendant Dornbrock's personal expenses, including credit cards debt, resort fees, and gifts to family. Defendant Dornbrock also writes checks to pay the taxes and expenses affiliated with Unit 1005.

2. Defendant Dornbrock maintains no bank accounts in his name from which he pays his expenses. He uses bank accounts in the name of Inland and Support Solutions, Inc. to pay his personal expenses.

3. Defendant Dornbrock freely transfers funds between financial accounts he controls in the names of Integra, Inland, Support Solutions, Internal Technical Services, and Continental Manage.

4. Defendant Dornbrock holds no assets in his name, including real estate, cars, boats or financial accounts. His boat in Michigan is titled in the name of Continental Management, Inc., a corporation that does no business. His son, Dennis Dornbrock, is the primary user of the boat.

5. Defendant William Lee Dornbrock has used the alias Robert William Lee, including owning property, signing documents, and maintaining a checking account under the alias to aid in the concealment of assets.

6. Defendant Dornbrock has opened financial accounts for his sole personal benefit at ING and Fidelity and under the Inland American Real Estate Trust but placed the accounts in the name of Support Solutions, Inc., a defunct corporation.

7. Support Solutions, Inc. operated from 1998 to 2002 as a temporary staffing company. It was not owned by any other entity. It is a defunct company. The last tax return it filed was for tax year 2002.

8. Defendant Dornbrock represented to Patrick Kirby that he owned Integra Engineering, Inc. and sold assets of Integra to Kirby in an Asset Purchase Agreement signed by Defendant Dornbrock on behalf of Integra on December 31, 2004.

9. As a result of the Asset Purchase Agreement, checks and wire transfers of more than $400,000 were made to the account number 3660564271 of Support Solutions, Inc. Defendant Dornbrock misrepresented to Kirby that Support Solutions owed Integra. Defendant Dornbrock is the only signatory to the Support Solutions bank account into which the sales proceeds were deposited.

10. Defendant Dornbrock transferred more than $300,000 from the Support Solutions bank account to financial accounts for his personal benefit and over which he has sole control. Support Solutions has paid no taxes with regard to income from these accounts.

11. Defendant Dornbrock was an authorized signatory on the Integra Engineering, Inc. bank accounts at Comerica Bank from at least from February 28, 2002 and wrote checks on the Comerica accounts, including transferring money to the Support Solutions, Inc. account he controlled, after Support Solutions no longer did business.

12. Defendant Dornbrock transferred funds from the Comerica Bank accounts of Integra for his own benefit.

13. Defendant Dornbrock and Timothy Russell controlled Integra Engineering, Inc. until Timothy Russell's death on December 7, 2001.

14. Defendant Dornbrock and Timothy Russell, while he was living, held themselves out as partners in Integra Engineering, Inc.

15. Any remaining ownership interest or claims Maureen Russell may have had in Integra Engineering Inc. after her husband Timothy Russell died were transferred to Defendant Dornbrock in or about February 2005.

16. On January 31, 2005, Defendant Dornbrock had the name of Integra Engineering, Inc. changed to Intelec, Inc., but Intelec, Inc. does no business, has no bank accounts, and has never filed a tax return.

17. Integra Engineering, Inc. last filed a Form 1120 federal income tax return for tax year 2004. It reported $38,239 in net taxable income for 2004.

18. Integra Engineering, Inc. Form 1120 federal income tax returns were signed by Defendant Dornbrock from 1997 through 2002.

19. Integra Engineering, Inc. did not identify Unit 1005 as a corporate asset to the IRS.

20. Maureen Russell denies an ownership interest in Unit 1005.

21. Maureen Russell owns Unit 201.



II. CONCLUSIONS OF LAW

a. A tax lien arises by operation of law upon the assessment of an income tax deficiency. 26 U.S.C. §§6321, 6322.

b. A tax lien attaches to any interest a taxpayer holds or will hold in property, including property held by a nominee or alter ego. G.M. Leasing v. United States [ 77-1 USTC ¶9140], 429 U.S. 338, 350-51 (1977); Shades Ridge Holding Co., 888 F.2d 725, 729 (11 th Cir. 1989). A tax lien applies to any interest in property a taxpayer acquires after the lien. United States v. McDermott [ 93-1 USTC ¶50,164], 507 U.S. 447 at 447 (1993); see also Glass City v. United States [ 45-2 USTC ¶9449], 326 U.S. 265, 267 (1945) (tax lien applies to all property of taxpayer at any time during the life of the lien). The language of Section 6321 "is broad and reveals on its face that Congress meant to reach every interest in property that the taxpayer might have." United States v. National Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 719-20 (1985) ("Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.")

c. A Notice of Federal Tax Lien operates as public notice to those who might seek to buy property titled to either the taxpayer or his or her known nominees that the property is encumbered and any sale would be subject to the government's claim. 26 U.S.C. §6323; Fla. Stat. §695.01(1) (recording to perfect a lien).

d. The nominee theory may be established without a showing of fraud. See, e.g., United States v. Bollinger [ 88-1 USTC ¶9233], 485 U.S. 340 (1988) (corporation held title to property as a nominee for partnerships so the partnerships could avoid Kentucky usury law).

e. A nominee holds bare legal title to property for the benefit of another. Black's Law Dictionary (7th Ed. 1999); United States v. Gilbert, 244 F.3d 888, 902 n.37 (11th Cir. 2001).

f. When a taxpayer's property or rights to property are held in the name of another, or are transferred to another with the taxpayer retaining beneficial ownership, the third party is said to hold the property as a nominee for the taxpayer. William D. Elliott, Federal Tax Collections, Liens, and Levies ¶ 9.10[1] at 9-93 to 9-94.

g. The "nominee theory involves the determination of the true beneficial or equitable ownership of the property" at issue. Oxford Capital Corp. v. United States [ 2000-1 USTC ¶50,447], 211 F.3d 280, 284 (5th Cir. 2000). "Focusing on the relationship between the taxpayer and the property, the [nominee] theory attempts to discern whether a taxpayer has engaged in a sort of legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the true owner." In re Richards [ 99-1 USTC ¶50,317], 231 B.R. 571, 578 (E.D. Pa. 1999); see also Shades Ridge Holding Co., 888 F.2d at 728 (nominee theory focuses on delinquent taxpayer's relationship to the property); May v. United States [ 2007-2 USTC ¶50,799], Case No. 07-10531, 2007 WL 3287513 (11th Cir., Nov. 8, 2007) (same). Who really benefits from and controls the property is at the heart of a nominee case.

h. While the federal courts generally apply the law of the forum state (in this case, Florida) to resolve nominee, alter-ego and similar questions, Florida, like many states, does not have a bright-line test for determining nominee ownership. Therefore, federal common law applies. See Towe Antique Ford Found. v. IRS [ 92-1 USTC ¶50,115], 791 F.Supp. 1450, 1454 (D. Mont. 1992), aff'd on other grounds [ 93-2 USTC ¶50,430], 999 F.2d 1387 (9th Cir. 1993) (applying the test for nominees used by other courts when no applicable law from the appropriate state can be found); cf. Grippo v. Perazzo, 357 F.3d 1218, 1222 (11th Cir. 2004) (where Florida law does not answer the question at bar, the court will "look to federal law for guidance"); see also May v. United States [ 2007-2 USTC ¶50,799], Case No. 07-10531, 2007 WL 3287513 (11th Cir., Nov. 8, 2007) (affirming trial court finding that delinquent taxpayer owned land titled to a nominee).


FACTORS


i. Factors considered to determine whether property is being held by a nominee of the taxpayer include: (1) whether the taxpayer exercised dominion and control over the property; (2) whether the property of the taxpayer was placed in the name of the nominee in anticipation of collection activity; (3) whether the purported nominee paid any consideration for the property, or whether the consideration paid was inadequate; (4) whether a close relationship exists between the taxpayer and the nominee; and (5) whether the taxpayer pays the expenses (mortgage, property taxes, insurance) directly, or is the source of the funds for payments of the expenses. See Scoville v. United States [ 2001-1 USTC ¶50,442], 250 F.3d 1198, 1202 (8 th Cir. 2001); Oxford Capital Corp. v. United States [ 2000-1 USTC ¶50,447], 211 F.3d 280, 284 (5 th Cir. 2000); Shades Ridge Holding Co., 888 F.2d at 729; United States v. Klimek [ 97-1 USTC ¶50,281], 952 F.Supp. 1100, 1113 (E.D. Pa. 1997).

j. Not all of the foregoing factors are of equal weight, and they "should not be applied rigidly or mechanically, as no one factor is determinative." In re Richards [ 99-1 USTC ¶50,317], 231 B.R. 571, 579 (E.D. Pa. 1999). See also Simpson v. United States [ 89-1 USTC ¶9285], 1989 WL 73212 at *6 (M.D. Fla. 1989).

k. The most critical issue is who has substantial control over the property. See Shades Ridge, 888 F.2d at 728 ("The issue under either state or federal law depends on who has 'active' or 'substantial' control."); see also In re Richards [ 99-1 USTC ¶50,317], 231 B.R. at 579, citing United States v. Kudasik [ 98-2 USTC ¶50,535], 21 F.Supp.2d 501, 508 (W.D. Pa. 1998).

l. A related principal to the nominee doctrine is the alter ego doctrine. There are common elements to both doctrines. While the nominee doctrine focuses on the relationship between the taxpayer and the property, the alter ego doctrine focuses on whether the taxpayer is similar to or controls another individual, trust, business or corporation. See, e.g., Century Hotels v. United States [ 92-1 USTC ¶50,080], 952 F.2d 107, 110 n.5 (5th Cir. 1992) (listing objective factors to be considered); see also Zahara Spiritual Trust v. United States [ 90-2 USTC ¶50,473], 910 F.2d 240, 245 (5th Cir. 1990).


CONCLUSION


The United States has met its burden of proving that Defendant Dornbrock is the true and sole beneficial owner of Unit 1005. It is clear that Defendant Dornbrock exercised dominion and substantial control over the property located at Point of Americas. Also, this Court determines that Defendant Dornbrock holds true beneficial and equitable ownership of the property.

Therefore, foreclosure of Unit 1005 is ordered. The United States shall sell Unit 1005 to satisfy Defendant Dornbrock's tax liabilities as reflected in the judgment of August 31, 2007. The United States will submit a proposed Order of Sale setting forth the details of sale.

Judgment shall be entered for the United States.

DONE AND ORDERED.

Real property. --Tax Liens: Property Subject to Tax Liens: Real property

Tax liens were effective to reach the following property.

Condominium unit and related common areas.

Rev. Rul. 79-55, 1979-1 CB 400.

An interest that the decedent had in an estate by the entirety, where the lien arose from federal estate taxes.

Detroit Bank, SCt, 43-1 USTC ¶9224, 317 US 329.

Equitable rights in real property.

E. Fox, DC N.D., 69-2 USTC ¶9695.

J. Schuster, DC Ohio, 73-1 USTC ¶9241.

Equitable interest in real property that the taxpayer was purchasing through an installment contract.

H.G. Runkel, Jr., CA-9, 76-1 USTC ¶9152, 527 F2d 914.

The taxpayer's residence, which was being purchased in his mother's name.

R.D. Williams, DC Ga., 84-2 USTC ¶9936.

Unrecorded fee interest in real property.

A.C. Fisher, DC Pa., 80-2 USTC ¶9583.

Real property that had been sold to a third party.

Juvenile Products of Pasadena, DC Calif., 51-1 USTC ¶9176, rev'd on another issue, 52-1 USTC ¶9108, 193 F2d 154.

Real property in the possession of a third party.

J. Morgan, Jr., DC La., 78-1 USTC ¶9243. Aff'd, CA-5 (unpublished opinion 8/6/80).

Real property subject to a so-called business lease.

O.W. Dickerson, DC Mo., 51-2 USTC ¶9453.

A hotel, notwithstanding a subsequent execution of a lease to a third party.

C. Marin, CA-1, 81-2 USTC ¶9506.

Fixtures attached to the taxpayer's building by its subsidiary.

Bullock, CA-2, 65-1 USTC ¶9143, 339 F2d 603.

Silt deposits that belonged to the taxpayer, a coal plant operator, and not to a land owner.

Gilberton Contracting Co., Inc., DC Pa., 66-2 USTC ¶9579, 255 FSupp 687.

Real property that the taxpayer gratuitously conveyed to his daughter.

Buchman, DC N.Y., 69-1 USTC ¶9307.

Reversionary interest in real property.

E.G. Lackey, DC N.C., 72-2 USTC ¶9578.

Undivided interest in real property.

Benson, DC Kan., 42-2 USTC ¶9621.

A. Vega, DC D.C., 45-1 USTC ¶9244.

M.E. Brandenburg, DC Calif., 52-1 USTC ¶9342.

One-half of joint tenancy property.

A.M. Borcia, DC Calif., 58-1 USTC ¶9119.

Taxpayer-husband's right of survivorship in the balance of funds derived from a sale of a tenancy by the entirety.

L.M. Ragsdale, DC Tenn., 62-2 USTC ¶9741.

One-half of the residential property owned jointly by the taxpayer and his wife.

B. Mosolowitz, DC Conn., 67-1 USTC ¶9350, 269 FSupp 12.

H.D. Popky, CA-3, 2005-2 USTC ¶50,466, 131 FedAppx 816.

One-half of tenancy in common.

I. Paurowski, DC Va., 72-1 USTC ¶9229. Aff'd on other grounds, CA-4, 73-1 USTC ¶9398, 475 F2d 1401.

Community real property that the taxpayer's ex-wife had received pursuant to their property settlement agreement.

R. Prewitt, CA-5, 86-2 USTC ¶9513, 792 F2d 1333.

A residence that was purportedly transferred by the taxpayer to an entity that was his alter ego.

H.M. Boos, DC Okla, 85-2 USTC ¶9639.

A pre-avoidance interest as a tenant by the entirety.

T. Barry, BD-DC, 83-2 USTC ¶9514, 31 BR 738.

A husband-taxpayer's property, notwithstanding the fact that it was subject to contingent and inchoate dower rights.

First National Bank of Elkhorn, Wis. Cty. Ct., 58-2 USTC ¶9568.

Chandler, Tenn. Probate Ct., 60-1 USTC ¶9238.

G.H. Griffin, Fla. DCA, 64-1 USTC ¶9436, 164 So2d 883.

L.D. Benn, DC Fla., 73-1 USTC ¶9415.

Real property that was being acquired by acquisitive prescription by a third party under Puerto Rican law.

M.E. Rodriguez, CA-1, 84-2 USTC ¶9698, 740 F2d 92.

A residence that was provided by the taxpayer's corporation to himself.

Travelers Rent-A-Car of Alaska, Inc., DC Hawaii, 87-1 USTC ¶9285.

An unrecorded interest in real property that was sold to a co-tenant before the IRS filed a tax lien.

A.L. Raimo, DC Pa., 88-1 USTC ¶9170.

Parcels of real estate transferred to the taxpayer's mother for a stated consideration of $10.

L.C. Weldon, DC N.C., 2002-1 USTC ¶50,288. Aff'd, per curiam, CA-4 (unpublished opinion), 2002-1 USTC ¶50,445.

Married taxpayers' residence and the husband's dental office.

L.D. Wight, DC Calif., 2002-1 USTC ¶50,287.

A. Patej, DC Mich., 2002-2 USTC ¶50,792

Real property fraudulently transferred by a delinquent taxpayer to his wife in order to avoid paying taxes. The wife, who was subsequently awarded the property in a divorce proceeding, could not avoid the lien based on the alleged priority of her dower rights.

A. Patej, DC Mich., 2002-2 USTC ¶50,792. Motion for reconsideration denied, 2003-1 USTC ¶50,250.

A husband's interest in entireties property constituted "property" or "rights to property" to which a federal tax lien could attach, despite the fact that, under state (Michigan) law, the property was exempt from the claims of creditors. Following the IRS's issuance of the lien against all of the husband's property, he and his wife jointly executed a quitclaim deed transferring his interest in a parcel of realty to her for $1. Upon the wife's sale of the property, half of the proceeds were placed in escrow pending a determination of the government's interest in the realty, and the wife brought a quiet title action seeking to recover the funds. According to the U.S. Supreme Court, the interpretation of Code Sec. 6321 is a federal question, and exempt status under state law is not binding on the federal tax collector. The Court examined the individual rights created by Michigan law in order to determine whether the husband possessed property or rights to property, and concluded that the broad language of Code Sec. 6321 demonstrates that Congress intended to reach every property interest that a taxpayer might have.

S.L. Craft, SCt, 2002-1 USTC ¶50,361.

A state foreclosure statute, which protected real estate once foreclosed upon from subsequent attachment by creditors, did not bar the government from its attempt to foreclose on the property.

R.C. Jones, DC Kan., 89-2 USTC ¶9411.

The transfer of a condominium by delinquent taxpayers to a related corporation did not defeat an IRS tax lien that was filed against the individuals only. Although the deed was executed before the IRS filed its lien, it was not recorded until afterward.

First of America Bank --West Michigan, DC Mich., 94-1 USTC ¶50,169.

Under state law (Minnesota), a creditor of an individual is permitted to reach corporate assets where the corporation functions as the individual's alter ego. However, there was a genuine issue of fact regarding whether a husband and wife used their corporation to conceal their assets in order to evade the collection of income tax. Thus, the corporation's motion for summary judgment in a suit to quiet title of real estate to which income tax liens had attached was denied.

BBCA, Inc., DC Minn., 90-1 USTC ¶50,309, 733 FSupp 73.

A tax lien on an individual taxpayer's real estate was superior to claims by his wholly owned corporation's bankruptcy trustee and by his wife. The bankruptcy trustee failed to establish that the corporation was entitled to have a constructive trust placed on the property by virtue of its having advanced to the taxpayer a part of the down payment for the original purchase of the property. The wife failed to establish a superior interest because the tax lien attached when the taxpayer originally took title in his name alone, which occurred before he subsequently conveyed the property to himself and his wife as joint tenants.

Hamilton & Son, Inc., BC-DC Me., 90-1 USTC ¶50,223.

A taxpayer did not show the existence of a tenancy in the entirety as to certain real estate so as to defeat an IRS lien on the property. The court was justified in ordering foreclosure of the IRS lien because no special equitable factors existed that would render the foreclosure overwhelmingly unjust to the taxpayer's wife.

R.L. Scharf, DC Mo., 91-1 USTC ¶50,205.

Real property allegedly conveyed by an exempt organization that was liable for taxes arising out of lottery activities to another exempt organization for insufficient consideration was subject to foreclosure for the satisfaction of tax liens.

Auxiliary to the Knights of St. Peter Claver, DC Ind., 92-1 USTC ¶50,176.

The IRS had valid tax liens upon all the taxpayer's property, right to property, and after-acquired property upon assessment of federal income taxes and additions to tax against the taxpayer. The taxpayer's right to the proceeds that the executor, as trustee, possessed after the sale of their mother's residence was a chose in action. Therefore, the federal tax liens against the taxpayer attached to the taxpayer's chose in action.

G.L. Walker, DC Ky., 92-1 USTC ¶50,065.

The government followed correct procedures in placing a tax lien upon a home. Therefore, seizure and sale of the home to satisfy unpaid tax debts was proper.

M.J. Geiselman, CA-1, 92-1 USTC ¶50,200, 961 F2d 1.

The IRS was authorized to foreclose a tax lien on real property owned by a corporation to satisfy the personal tax liabilities of an insolvent taxpayer because the corporation was determined to be the alter ego of the taxpayer under state (California) law.

Brownfield Investment Corp., DC Calif., 92-2 USTC ¶50,453. Aff'd, CA-9 (unpublished opinion 7/13/94).

Individuals who received real property by deed of gift from their tax-delinquent parents were denied injunctive relief against the IRS, which maintained a lien on the property; the Anti-Injunction Act barred any action seeking to restrain the IRS from collecting the parents' taxes by proceeding against the property, and no exception to the Act applied.

M.D. Ross, DC N.C., 94-2 USTC ¶50,372, 861 FSupp 406.

The IRS was entitled to one-half of the proceeds from the foreclosure sale of property held in joint tenancy by married taxpayers and upon which a federal tax lien relating to the husband's unpaid taxes had attached prior to his death. Under state (Wisconsin) law, the government's recovery was not limited to one-half of the value of the property at the time of the husband's death. Although the husband's interest in the property ended upon his death, his wife took the interest that he could have transferred prior to death subject to the tax lien. Further, if the government had enforced the lien during the husband's lifetime, it would have compelled a severance and his wife would have received no more than her one-half interest.

C.F. Librizzi, CA-7, 97-1 USTC ¶50,263.

A tax lien properly attached to an individual's marital residence. At the time of assessment, the individual and his wife held the property as joint tenants; therefore, the individual had a separable interest in the property to which the lien could attach even though the property was subsequently converted by the taxpayers to a tenancy by the entirety.

A.D. Davenport, Jr., CA-7, 97-1 USTC ¶50,213.

The amount that the government could recover on an IRS tax lien against an individual's interest in real property was not limited to the taxpayer's equity in the property at the time he conveyed it to his wife. The wife sold the property, which the couple held as tenants by the entireties, and used the proceeds to pay the balances of several liens against the property with priority over the tax lien. Since the lien was determined by reference to the taxpayer's interest in the property and was unaffected by the sale of the property, there was no reason to fix the amount recoverable on the lien based on the property's value at the time of the sale.

F.A. Avila, CA-3, 96-2 USTC ¶50,357, 88 F3d 229. Rev'g and rem'g J.D. Diemer, DC N.J., 94-2 USTC ¶50,420.

A lien for unpaid taxes relating to income an individual received from the illegal sale of drugs did not attach to a residence in which he lived but that was owned by a family farm. The farm was not the alter ego of the taxpayer. In addition, the taxpayer did not have any claim for damages against the farm that would represent an interest to which a lien could attach. The taxpayer also was required to provide to the IRS an accounting of the current assets and liabilities of the farm in order to determine the value of the taxpayer's stock to which the lien could attach. The taxpayer's children to whom his ex-wife had deeded the property were not entitled to the monetary value of the property because the ex-wife did not acquire any interest in the property due to the marriage.

D.J. Miller, DC Ohio, 96-2 USTC ¶50,445.

A previous court order established that the taxpayer was the only party with a potential interest in real property with respect to which the IRS held a tax lien. Thus, the IRS, was entitled to foreclose on the property.

R.L. Bodwell, DC Calif., 97-1 USTC ¶50,260. Aff'd, CA-9 (unpublished opinion), 98-1 USTC ¶50,172.

State (Indiana) law which prohibited the seizure and sale of land held as tenants by the entirety for the benefit of a spouse's creditors did not prevent the IRS from foreclosing on the property. The taxpayer's wife was not residing on the property and would not be harmed by its sale. The wife, however, was entitled to one-half of the sale proceeds.

R.S. Waltman, DC Ind., 97-2 USTC ¶50,760.

In a clarification of the above decision, real property owned by married taxpayers in a tenancy by the entireties was not subject to levy in order to satisfy the tax liabilities of the husband. State (Indiana) law created a unity of ownership that was not severable except upon consent of both parties. Thus, the IRS could not levy on entireties property to satisfy the tax debt of one spouse since neither spouse possessed an independent interest in the property. However, the husband's subsequent transfer of his interest to his wife so that she could convey the property to a third party constituted a fraudulent transfer. Accordingly, ownership reverted back to the taxpayers, and a sale of the property was ordered to satisfy the husband's tax liabilities.

R.S. Waltman, DC Ind., 98-1 USTC ¶50,487.

Summary judgment was granted to the IRS and denied to a joint owner of property in his third-party suit for refund of taxes that were owed by the other joint owner and collected by the IRS out of proceeds from the sale of the property. The IRS's notice of federal tax lien against the delinquent taxpayer was sufficient to protect its interest in the property, even though the lien was not in the proper form or properly indexed with respect to the property due to a misspelling of the taxpayer's name. Since the third-party owner did not purchase his interest from the delinquent taxpayer, he was not a subsequent bona fide purchaser protected under Code Sec. 6323.

J.D. Brady, DC Calif., 99-1 USTC ¶50,334. Aff'd, CA-9 (unpublished opinion), 2000-1 USTC ¶50,131.

A tax lien attached to real property held by a debtor and her husband as tenants by the entirety because the couple filed a joint return and, thus, assumed joint responsibility for taxes owing. While property held in tenancy by the entirety cannot be reached to satisfy the debts of an individual spouse under state (Virginia) law, it can be used to satisfy joint obligations.

T.A. O'Gorman-Sykes, BC-DC Va., 2000-1 USTC ¶50,174, 245 BR 815.

The government was granted summary judgment on the issue of the legitimacy and amount of a tax lien imposed against a residence held by married debtors as tenants by the entirety. The taxpayers, who filed joint returns for four tax years preceding the year of their marriage, attempted to avoid joint liability for the taxes owing by amending their returns to renounce the joint filing status claimed for those years. The IRS had the discretion to accept or reject the amended returns, and the taxpayers presented no valid reason for the court to require the IRS to accept those documents.

R.M. Sawyer, BC-DC N.C., 2000-1 USTC ¶50,175.

A bankruptcy court's determination that the IRS imposed a valid tax lien against a debtor's interest in real property, owned jointly with his spouse, was sustained. The tax lien attached to the joint tenancy interest in accordance with state (Oregon) law.

R.W. Pletz, CA-9, 2000-2 USTC ¶50,660.

The government was entitled to the surplus funds generated from the forced sale of married taxpayers' real property because the tax liens attached to the property before the taxpayers' creditors instituted the foreclosure proceeding.

Law Offices of Dean Malone, P.C., DC Tex., 2001-1 USTC ¶50,160.

A delinquent taxpayer's nondebtor ex-wife was not entitled to payment of her share of the sale proceeds from levied marital property ahead of the government. Upon assessment of the tax against her, a lien interest arose that attached to all property and rights to property held by her. Upon perfection of the tax lien, the government acquired a superior interest in the sale proceeds.

A. Doncheff, BC-DC Ark., 2001-1 USTC ¶50,215.

A delinquent taxpayer's conveyance of real property to his children constituted a sale, and not a valid inter vivos gift, under state (Arkansas) law. Thus, the taxpayer had an ownership interest in the property to which a tax lien could attach. Although the children tendered a promissory note to the taxpayer that was secured by a mortgage on the realty, which the taxpayer subsequently released, the purported release occurred several years after the alleged gift occurred and after the tax assessment was made. Consequently, the release did not definitively demonstrate that the conveyance was a gift or remove the lien against the property.

J. Jepsen, CA-8, 2001-2 USTC ¶50,698.

A lien was valid and could be foreclosed with respect to a parcel of real estate owned by a taxpayer's wife under the nominee theory. While the wife retained beneficial ownership of the land, it was purchased with the proceeds of a loan undertaken by the husband, the husband exercised clear dominion and control over the land, and held himself out as the owner of the property to tenants, a zoning board and a bank.

M. Olsen, Jr., DC Ill., 2002-1 USTC ¶50,360.

Married debtors who were equitable owners, but not owners of record, of a residence at the time they filed a bankruptcy petition could not avoid a federal tax lien against the property even though their personal liability for the underlying tax had been discharged. Pursuant to state (Florida) law, when they entered into a purchase agreement the debtors acquired a beneficial or equitable interest in the residence, to which the lien attached.

T.G. Ready, BC-DC Fla., 2001-2 USTC ¶50,637.

An order authorizing foreclosure and sale of real property owned by various related corporations and individuals was amended because factual errors in the order wrongfully excluded various properties.

W.M. Arnold, DC Fla., 2002-1 USTC ¶50,300.

The government was entitled to foreclose on an individual's real property in order to satisfy her delinquent tax liability. The government presented sufficient evidence to establish that the taxpayer was the owner of the property and that she possessed it at the time of the assessment.

M.M. Abbott, DC Nev., 2003-2 USTC ¶50,603.

The government was entitled to foreclose upon real property owned by married taxpayers resulting from their unpaid income taxes, interest and penalties. The government's secured claim was not limited to the extent of the taxpayers' equity in the property at the time the lien attached. As a result, the tax liens attached to the appreciated value of the residence.

S.B. Doyle, DC Pa., 2003-2 USTC ¶50,619.

The IRS has released guidance on collection efforts with respect to property held by a married couple in a tenancy by the entirety in circumstances where only one of the spouses is liable for outstanding tax liabilities. These guidelines have been issued in light of the ruling in S.L. Craft, SCt, 2002-1 USTC ¶50,361, that a federal tax lien arising under Code Sec. 6321 on all property and rights to property of a delinquent taxpayer attaches to the taxpayer's rights in entireties property, even though state (Michigan) law insulates such property from creditors' claims against only one spouse. The Service has set forth the general principles on which it will rely in addressing issues raised as a result of the Craft ruling. Also, it has provided nine questions and answers illustrating how it will apply Craft.

Notice 2003-60, 2003-2 CB 643

A federal tax lien properly attached to a condominium held in joint tenancy by a mother and her delinquent son. Despite the mother's assertion that joint ownership was transferred to the son solely for estate planning purposes, under state (Arizona) law, the son had an interest in the whole of the property that could be levied upon.

L. Nikirk, DC Ariz., 2003-2 USTC ¶50,701.

The taxpayer admitted during the CDP hearing that he inherited an interest in the property at issue upon his mother's death. As such, the IRS did not have to review state (Oklahoma) law to determine whether the taxpayer owned the requisite property interest. Moreover, federal lien procedures were appropriately followed, despite the absence of an advisory review.

J.D. Criner, 86 TCM 655, Dec. 55,362(M), TC Memo. 2003-328.

Relatives of delinquent married taxpayers who claimed to own the townhouse where the taxpayers lived were mere nominee owners. Therefore, a federal tax lien on the home resulting from the delinquent tax liability of the taxpayers was valid and the government could proceed with foreclosure.

R.F. Cody, DC Va., 2005-1 USTC ¶50,213.

The government was not entitled to foreclose on a federal tax lien attached to an individual's residence, which the taxpayer held with his spouse as tenants by the entireties. The court had insufficient information to determine whether the taxpayer had other assets available to satisfy the lien or to cushion the nondebtor spouse's dislocation costs. Moreover, there was insufficient evidence for the court to adjudicate the relative equities between the taxpayer and the nondebtor spouse regarding the residence. Since the government failed to present specific evidence for the court to determine the merits of all the claims to and liens upon the property it was not entitled to foreclose on the lien.

J.A. Frein, DC Fla., 2005-1 USTC ¶50,253.

The Bankruptcy Court upheld the trustee's motion for turnover of the debtor's home, and denied the debtor's motion to compel abandonment of the property, where the debtor claimed that the total tax liens against his home far exceed its value. The court held that the turnover order would facilitate an expeditious sale of the property and provide unsecured creditors with significant benefits.

D.M. Bolden, BC-DC Calif., 2005-2 USTC ¶50,443.

The taxpayer's conveyance of land to his mother was not fraudulent and he was not the nominee or alter ego of a trust. The taxpayer purchased the land as his mother's agent with proceeds from the sale of land originally owned by his mother. Then, after conveyance from the taxpayer, the mother subsequently placed the property in a trust and named the taxpayer as a trustee and beneficiary of the trust. Since the trust was established by another person using another person's assets, the trust was not considered the taxpayer's alter ego merely because of his position as trustee and beneficiary.

H.E. Greer, DC N.C., 2005-2 USTC ¶50,559.

The IRS could foreclose on a couple's real property because the couple did not timely file responses to interrogatories. The couple had agreed to an entry of judgment against them if they failed to meet an extended discovery deadline. The IRS was also entitled to summary judgment in its foreclosure action because the tax liens were based on amounts reported in the couple's returns. An assertion that the wife intended to amend one of her returns did not change the validity of the tax liens.

A.S. Roberts, DC Ala., 2005-2 USTC ¶.

A federal district court's decision allowing the IRS to attach a nominee federal tax lien to property owned by an ex-spouse of a delinquent taxpayer was vacated because it was not clear that the ex-spouse held the property as a mere nominee and that her former husband was the true beneficial owner under state (Kentucky) property law. At the time the lien arose, the former husband had not lived in the home or derived any beneficial interest related to the home for more than fourteen months. The case was remanded to determine under state law whether the former husband had any property interest in the home and, if so, to what extent the lien attached.

P.A.S. Spotts, CA-6, 2005-2 USTC ¶50,643, vac'g and rem'g DC Ky., 2004-2 USTC ¶50,367.

Genuine issues of material fact existed regarding the nature of a conveyance of property subject to a tax lien to an individual by her ex-husband. The IRS produced evidence suggesting that the wife was an active participant, along with her ex-husband, in a tax-avoidance scheme. Further, her ex-husband testified that one of the reasons the house was titled in her name was to protect the property from his creditors. Finally, the assignment and release of a sham mortgage raised questions about the legitimacy of the entire sequence of events surrounding the purchase of the house. Therefore, quiet title was not granted to the wife.

P. Spotts, DC Ky., 2006-2 USTC ¶50,561.

The IRS was entitled to foreclose on real property owned by two individuals in order to satisfy tax liens arising from their unpaid federal tax liabilities. The district court had previously entered a default judgment against the taxpayers and the trustee of a trust that held title to the property pursuant to a sham transfer intended to defraud the United States. The taxpayers were ordered to vacate the property, and the IRS was authorized to proceed with the foreclosure.

J. Verni, DC Calif., 2006-1 USTC ¶50,265.

The IRS's tax lien against real property held by a company that purchased the property by warranty deed was valid, even though the seller held an unrecorded deed of trust securing the warranty deed that was executed prior to the lien and a state (Tennessee) court had declared the warranty deed void. The company had sufficient interest in the property for the lien to attach since it had the power to convey the property and the property was free from all encumbrances at the time of the lien attachment.

Gatlinburg Airport Authority, Inc., DC Tenn., 2007-2 USTC ¶50,643.

A federal district court's decision refusing to foreclose a federal tax lien against property held by alleged nominees of a delinquent taxpayer was vacated and remanded. The district court erroneously held that the transfer of legal title from the husband to the wife was a requirement for enforcement of a nominee lien against her interest in the property. However, since the wife met the five factors required for nominee status, actual transfer of legal title of the property was not essential to the enforcement of the lien. In addition, the district court failed to determine whether the husband had any interest in the property under state (Utah) law and, if so, whether the lien could be enforced against that interest as a matter of federal law.

D.M. Holman, CA-10, 2007-2 USTC ¶50,734.

The IRS was entitled to reduce a married couple's tax liability to judgment and foreclose on federal tax liens. Moreover, the couple's homestead declaration could not prevent the tax lien foreclosure. Although the couple's bankruptcy discharge relieved them of their personal liability for some of the years at issue, it did not exempt their property from the federal tax liens.

S.A. Berk, DC Mass., 2007-2 USTC ¶50,757.

The government was entitled to foreclose its tax liens on a tax protestor's interest in residential property owned by him and his wife as tenants by the entirety. The taxpayer's interest in the tenancy constituted "property" or "rights to property" within the meaning of Code Sec. 6321. However, because it was not clear whether the wife engaged in a fraudulent conveyance of the property, what her percent interest in the property was, or the extent to which she would be prejudiced by the forced sale, these issues were left for determination at trial.

M.D. Miller, DC Ind., 2008-1 USTC ¶50,148.

The government was entitled to foreclose its tax liens on a married couple's real property and to sell that property at auction. The government established the amount of the couple's tax liability and that the liens securing those liabilities attached to all of the couple's property.

W.V. Marlatt, DC Ore., 2008-2 USTC ¶50,496.

The government was entitled to foreclose federal tax liens against a trustee's property interests in two parcels of real property in order to recoup taxes owed by him. The trustee's transfer of his rights in the property to his wife pursuant to their divorce did not affect the government's right to foreclose because the wife took the property subject to the taxes assessed against her husband, prior to the date of that transfer. Under the terms of the trust, the individual held an equitable right to the property as a beneficiary, and thereafter, held legal title to the property as a trustee. Additionally, under the state (Illinois) law, the individual, as a beneficiary, could alienate, assign or transfer his interest and could also sell or mortgage it. Hence, his equitable interest qualified as property under federal law. Any liens the government had pertaining to the taxes assessed, attached to the property on the day the assessments were made, and not upon the filing of the notices of federal tax liens.

R.F. Schaudt, DC Ill., 2008-2 USTC ¶50,609.

The government was denied summary judgment in its action to foreclose federal tax liens against real property. While the government presented sufficient facts to support its theory that the corporation that held title to the property was an alter ego of a married couple who owed taxes, disputed facts existed regarding whether the corporation paid adequate compensation for the property and whether the couple paid adequate rent to the corporation. Although the corporation could be considered a sham because it was not capitalized, and corporate formalities were disregarded, a reasonable fact finder could conclude that the corporation's president compensated the couple for the property and that the couple paid at least some rent.

Northern States Investment, Inc., DC Ill., 2009-1 USTC ¶50,132.

Foreclosure. --Action to Enforce Lien or to Subject Property to Payment of Tax: Foreclosure

An act approved March 4, 1931, gives the United States, where it owns a prior lien on real estate, authority to ask for affirmative relief in the form of foreclosure of its lien, and the right to bid at the sale up to the amount of its claim and expenses of sale.

Statute of March 4, 1931, Public No. 862, 71st Congress.

The government was not entitled to summary relief in an action to foreclose a tax lien against a surety bond. Although the agreement secured by the bond had come to an end, there was a triable issue of material fact as to whether any claims against the bond might exist.

Blue Ribbon Products Corp., DC, 66-2 USTC ¶9594.

The Government, having valid and subsisting liens on property and rights to property belonging to or owned by the taxpayers, was entitled to have its federal tax liens foreclosed on such property.

L.T. Anderson, DC, 65-2 USTC ¶9638.

J. Platon, DC, 66-1 USTC ¶9292.

G.E. Trager, DC, 72-1 USTC ¶9133, 53 FRD 654.

E.R. Hicks, DC, 72-2 USTC ¶9611.

A.J. Farinella, DC, 74-2 USTC ¶9749.

San Antonio Savings Assn., DC Tex., 86-2 USTC ¶9665.

C.F. Martin, DC Tex., 88-1 USTC ¶9215.

S.A. Stemm, DC Fla., 97-2 USTC ¶50,838. Aff'd, per curiam, CA-11 (unpublished opinion), 98-2 USTC ¶50,636.

G. Labato, DC Fla., 97-2 USTC ¶50,922. Aff'd, per curiam, CA-11 (unpublished opinion), 98-2 USTC ¶50,817.

M.K. Turner, DC Hawaii, 2000-2 USTC ¶50,815.

F.C. Tapp, DC Tex., 2001-1 USTC ¶50,427.

W.M. Arnold, DC Fla., 2001-2 USTC ¶50,605. Aff'd on specific properties foreclosed, DC Fla., 2002-1 USTC ¶50,300.

R.W. Olsen, DC Wis., 2001-2 USTC ¶50,736.

C.D. Schaut, DC Ill., 2002-1 USTC ¶50,184.

J. Delano, DC Colo., 2002-1 USTC ¶50,229. Aff'd, after motion to reconsider, DC Colo., 2002-1 USTC ¶50,261.

S.C. Burdine, DC Wash., 2002-2 USTC ¶50,560, 205 FSupp2d 1175.

J.M. Bannister, DC Wis., 2002-2 USTC ¶50,706.

The transfer of real property by the taxpayer to a trust of which she was trustee, without consideration, was a fraudulent conveyance under Minnesota law. Thus, the conveyance was set aside and the government's lien on the property was enforceable despite the conveyance.

M.A. Wurdemann, DC, 81-1 USTC ¶9353. Aff'd, per curiam, CA-8, 81-2 USTC ¶9757, 663 F2d 50.

Similarly.

Indiana National Bank, DC Ill., 84-2 USTC ¶9884.

W.H. Schroeder, DC Ill., 85-2 USTC ¶9709.

I.R. Hoffman, DC Wis., 86-2 USTC ¶9733, 634 FSupp 346.

W.E. Drexler, Sr., DC Okla., 87-2 USTC ¶9493.

J.A. Course, DC Ill, 87-2 USTC ¶9553.

A. Langrehr, DC Neb., 2001-1 USTC ¶50,253. Aff'd, per curiam, CA-8 (unpublished opinion), 2001-2 USTC ¶50,697.

L.D. Wight, DC Calif., 2002-1 USTC ¶50,287.

P. Labato, DC Fla., 2002-2 USTC ¶50,541.

E.G. Novotny, DC Colo., 2002-2 USTC ¶50,637. Aff'd, CA-10 (unpublished opinion), 2003-2 USTC ¶50,639.

D. Cook, DC Calif. 2003-1 USTC ¶50,242.

The taxpayer's undivided one-half interest in community property was subject to tax liens, and those liens could be enforced by foreclosure against assets of the community.

J.A. Overman, CA-9, 70-1 USTC ¶9342, 424 F2d 1142.

Followed.

American Business Machines, Inc., BC-DC, 80-2 USTC ¶9684.

A taxpayer's undivided one-half interest in community property was subject to tax liens, and those liens could be enforced by foreclosure against assets of the community. However, the government may not receive from its liens more than one half of the value of the community estate.

L. Ackerman II, CA-9, 70-1 USTC ¶9343, 424 F2d 1148.

Where the government served notice of levy, compelled transfer of legal title to itself and exercised the rights of an owner to control the property so that the taxpayer justly concluded that he had no further right to deal with the property, there was an effective levy. Thus, the taxpayer was entitled to a credit against his tax liability reflecting the value of the property at the time it should have been sold by the government following its seizure.

H. Pittman, CA-7, 71-2 USTC ¶9650, 449 F2d 623.

Foreclosure was denied on a residence held in joint tenancy by the taxpayer and his wife, where the Kansas homestead exemption precluded taking the wife's interest.

R.H. Hershberger, CA-10, 73-1 USTC ¶9289, 475 F2d 677.

Since a taxpayer failed to pay valid assessments, federal tax liens arose and attached to the taxpayer's property and to his rights to property and could be foreclosed.

T.A. Brown, DC, 76-1 USTC ¶9162.

The Court did not have jurisdiction to set aside a prior judicial sale of property under a lien foreclosure in the absence of a charge of fraud or a showing that the sales price was so inadequate as to amount to fraud, nor did the Oregon Homestead Act exempt the property from foreclosure.

J.F. Howard, DC, 69-1 USTC ¶9157, 296 FSupp 264.

Conveyance of a one-half interest in stock of a corporation to the delinquent taxpayer's wife was done with intent to defraud creditors; accordingly, the government was entitled to a judgment against the wife for her share of a liquidation distribution made by the corporation. In addition, the government was entitled to have its judgments satisfied through judicial sale of property owned by both the taxpayer and his wife.

E. Einhorn, DC, 69-1 USTC ¶9283.

The government was entitled to foreclose its tax liens on the property of the delinquent taxpayer. The conveyance of certain real property by the taxpayer and his wife to themselves as tenants by the entirety was made with the actual intent to defraud creditors and was, therefore, null and void.

W.C. Briggs, DC, 76-2 USTC ¶9543.

Similarly, where the property was conveyed prior to assessment. The taxpayers knew at the time of the transfer that they were in severe financial difficulty. Since the IRS was deemed to be a creditor from the date the obligation to pay taxes accrued, rather than from the date the assessment was made, the tax liens filed against the taxpayers and their transferees as nominees for the taxpayers were valid and could be foreclosed.

U. Freudenberg, DC Tenn., 99-2 USTC ¶50,623.

The government was entitled to foreclose its tax liens on a residence held in joint tenancy by the taxpayer and his wife even though the wife held a present property interest in the homestead under Iowa law. The buyer at the foreclosure sale, however, would take the foreclosed interest in the property subject to any rights that existed under state law on homesteads.

L.E. Musselman, DC, 81-2 USTC ¶9750.

For failure to make service on any named defendant, the court dismissed the government's action to foreclose a tax lien and to temporarily enjoin the distribution of funds deposited into court.

Capital Goods Supply & Leasing, DC, 73-1 USTC ¶9407.

The government's motion for reconsideration of the court's partial foreclosure of a tax lien was denied. The court concluded that it could exercise flexibility in fashioning its decree and that it had acted within its discretion in refusing to foreclose to the full extent of the taxpayer's property right.

H.H. Russell, DC, 75-1 USTC ¶9272. Motion for reconsideration denied, DC, 78-1 USTC ¶9333.

The government could foreclose its tax liens against a certain parcel of real estate despite the fact that the taxpayer had conveyed the reality by quitclaim deed to his wife. The taxpayer was found to have retained a two-thirds interest in the real property. The deed he gave his wife did not transfer his entire interest because two-thirds belonged to his minor son for whom the taxpayer was guardian.

H.T. Teti, DC, 75-2 USTC ¶9709.

Federal tax liens attaching to the home of the delinquent taxpayer were valid and had priority over any other lien. Taxpayer's wife could not block the sale of the house under state (Montana) homestead provisions since such provisions are merely exemption provisions and create no independent property interest.

G.E. Myers, Jr., DC, 76-2 USTC ¶9534.

The widow of a corporate officer who had failed to pay over withholding and FICA taxes from the wages of the corporation's employees did not have standing to contest the taxes assessed against her deceased husband. The husband's conveyance of the family residence without consideration to his wife prior to his death was constructively fraudulent because his widow failed to show that he had sufficient property remaining to pay his debts at the time the conveyance was executed. Thus, the husband's estate was indebted to the government in the amount of the tax lien and the family residence could be used to satisfy the government's claim.

L.C. Brown, DC, 81-2 USTC ¶9649.

A corporation that purportedly assigned its right to redeem real property from a tax sale purchaser to its president remained the owner. Because redemption rights may not be assigned, the president had no right to exercise the redemption privilege on his own behalf. Although the tax sale purchaser received a certificate of sale from the government, no deed was issued because of the purported redemption. Thus, title to the property remained where it was before the tax sale and, since the property was encumbered by unsatisfied tax liens, it was subject to IRS foreclosure.

Cassel Brothers, Inc., DC, 82-1 USTC ¶9189.

A federal district court may order the sale of a family home in which a delinquent taxpayer had an interest at the time that the tax indebtedness was incurred, or, in the exercise of its limited equitable discretion, it may decide not to order a sale. A spouse's separate homestead right (under state law) does not bar judicial sale, but it must be considered in determining the distribution of sale proceeds. A non-delinquent spouse is entitled to the portion of the proceeds that represents complete compensation for the loss of the homestead estate.

L.M.B. Rodgers, SCt, 83-1 USTC ¶9374, 103 SCt 2132.

Followed.

R.C. Gibson, CA-9, 87-2 USTC ¶9494.

R.P. Bachman, DC Iowa, 84-1 USTC ¶9390, 584 FSupp 1002, on remand from CA-8, 83-2 USTC ¶9450, 710 F2d 484..

W. Thomassen, DC Neb., 85-1 USTC ¶9325, 610 FSupp 386.

L. Wilson, DC Mich., 2003-1 USTC ¶50,153.

Similarly.

M. Dieter, DC Minn., 2003-1 USTC ¶50,439

The court of appeals ordered the cases of United States v. Rodgers, 81-2 USTC ¶9536, and Ingram v. United States, 81-2 USTC ¶9533 remanded to the district court for further proceedings consistent with the opinion of the United States Supreme Court ( 83-1 USTC ¶9374).

City of Dallas Department of Housing & Urban Rehabilitation, CA-5, 83-2 USTC ¶9572.

The government was entitled to reduce its lien on the property of a doctor who owed employment and income taxes to judgment. Although the doctor claimed that a forced sale would unduly burden his co-tenants, the federal district court could not exercise its limited discretion to decline to order the sale since the co-tenants did not assert a separate interest in the property.

J.C. Alden, DC Calif., 94-2 USTC ¶50,610. Aff'd, CA-9 (unpublished opinion), 97-2 USTC ¶50,604.

Neither the assets nor the stock of a family farm corporation could be sold in order to enforce a tax lien against one of the company's shareholders. The U.S. Supreme Court's decision in L.M.B. Rodgers, 83-1 USTC ¶9374, above, did not support the treatment of the shareholder's interest as an undivided interest in all of the company's outstanding stock that would permit the sale of the company's property and distribution of the proceeds. Moreover, the IRS failed to name the other shareholders as parties to the suit. In addition, the court could not order the sale of a percentage of the corporation's assets that represented the taxpayer's percentage of the total shares because, under state (Ohio) law, stock ownership does not create a property interest in corporate assets.

D.J. Miller, DC Ohio, 96-2 USTC ¶50,445.

The government could not force a sale of a married couple's home in order to satisfy its valid tax lien against the husband's property interest. Since the wife's interest was held as a tenant by the entirety, she had sufficient legal basis to expect that the property would not be disturbed by her husband's creditors. Also, half of the property's market value would not fully compensate the wife because she could become the sole owner by right of survivorship. Therefore, the government and the wife became tenants in common, the wife was ordered to pay the government half of the property's rental value, and the rental payments were credited against the unpaid amount of the judgment against the husband.

H.C. Jones, DC N.J., 95-1 USTC ¶50,190, 877 FSupp 907. Aff'd, CA-3, 96-1 USTC ¶50,056.

A husband's conveyance to his wife of his interest in the family home was set aside under Colorado's fraudulent conveyance statute, and the federal tax liens upon the property were foreclosed. The wife had paid her husband nothing in consideration of the transfer, and the husband became insolvent immediately after the transfer. A finding was made that the couple intended to hinder and delay their creditors generally, and the IRS in particular, by the conveyance. Also, the wife knew her husband was unemployed and that he was transferring to her the only asset with which he could hope to satisfy the just demands of his creditors.

J.E. Morgan, DC, 83-2 USTC ¶9535.

A taxpayer's wife was denied injunctive relief for wrongful levy where the tax lien for her husband's tax liability arising before they were married attached to a condominium which she held in joint tenancy with her husband. Although a non-taxpayer's property interest may be afforded certain protections when the government seeks to enforce its lien, a non-taxpayer cannot prevent attachment of the federal tax lien or a subsequent sale of a property to enforce such a lien.

M. Sato, DC, 84-1 USTC ¶9102, 579 FSupp 1170.

Tax liens representing a husband's liability were not valid against real property that he had transferred to his wife. The conveyance was not fraudulent under Connecticut law. The husband was not rendered insolvent by the transfer because his assets exceeded his liabilities both before and after the transfer.

C. Edwards, DC, 83-2 USTC ¶9719, 572 FSupp 1527.

The government was entitled to foreclose a federal tax and judgment lien on real property that was held in the name of the taxpayer's daughter. Other real property conveyed to the taxpayer's son and subsequently to his daughter with the intent to defraud creditors, including the United States, was exchanged for the property in question. The taxpayer's wife was not entitled to a homestead exemption after first fraudulently arguing that she had rented the property with her husband.

B.J. Chapman, CA-5, 85-1 USTC ¶9337, 756 F2d 1237.

Where the government served a notice of levy on the bankrupt taxpayer's debtor for an account receivable, caused notice of seizure of the account receivable to be served on the taxpayer and entered into a payment agreement with the taxpayer's debtor for the account receivable rather than selling it as required under Code Sec. 6335(b) and (d), the U.S. exercised control over the property and there was an effective levy. Thus, even though the taxpayer's debtor defaulted after making only one payment to the IRS under the payment agreement, only the taxpayer's debtor was liable to the U.S. for the value of the property not surrendered plus interest from the date of levy.

Barlows, Inc., BC-DC, 84-1 USTC ¶9233, 36 BR 826. Aff'd, CA-4 (unpublished opinion 7/22/85).

A federal tax lien took priority over an ex-wife's interest in the marital residence (which was awarded her pursuant to a judgment of divorce). Because she acquired her interest in the residence in exchange for relinquishing her marital rights, the court held that she was not a purchaser.

The lower court did not undervalue the wife's one-half interest in the homestead, but used the joint-life tables to value the interest which took into account the concurrent use of the property by both the husband and the wife.

S.M. Harris, CA-5, 85-2 USTC ¶9511, 764 F2d 1126.

Followed, where the court of appeals reversed and remanded to the lower court for redetermination the value of a wife's homestead interest in marital property because the lower court overvalued the wife's interest by failing to use the joint-life tables.

R. Molina, CA-5, 85-2 USTC ¶9510.

The foreclosure of a mortgage lien by a sheriff's sale under Pennsylvania law effectively extinguished a junior United States tax lien. The sheriff's sale was not considered as being a suit against the United States requiring consent.

W.J. Brosnan, SCt, 60-2 USTC ¶9516, 363 US 237.

Similarly. Foreclosure of tax liens denied.

P. Meyer, DC, 61-2 USTC ¶9747, 199 FSupp 508.

To the contrary, where the tax lien is senior to the mortgage lien.

R.C. Peterson, DC, 62-1 USTC ¶9445, 204 FSupp 683.

Distinguished, where enforcement proceedings predated initiation of lender's foreclosure action.

D.A. Hawkins, DC Wash., 99-1 USTC ¶50,383.

An "open-end" mortgage securing an original loan and all other indebtedness due did not secure three later loans. Thus, the government was entitled by tax lien to the proceeds of the foreclosure sale of the mortgaged realty that remained after paying the unpaid balance of the original loan, interest, taxes and sale expenses.

Automatic Heating & Equipment Co., DC, 60-1 USTC ¶9376, 181 FSupp 924. Aff'd by order, CA-6, 61-1 USTC ¶9280, 287 F2d 885.

A mortgage on property that was entitled to priority over the Government's lien for taxes did not lose its status as such when personal liability on a note for which the mortgage was given as security was released since the right to enforce the mortgage was not relinquished. Therefore, the purchaser at a foreclosure sale of the property was entitled to have the Government's lien cancelled.

Miners Savings Bank of Pittston, Pa., DC, 53-1 USTC ¶9222, 110 FSupp 563.

At the time that a plaintiff filed a foreclosure action based on a first mortgage lien on real property, the government had a lien on, and not title to, the property, notwithstanding the government's seizure and sale under 1954 Code Sec. 6331. A deed from a District Director to the government did not remove the jurisdiction of the court as to deciding the equities involved.

Waldoch, DC, 58-1 USTC ¶9291.

Even if the court had jurisdiction (which it did not), the sale of realty in partial satisfaction of transferee tax liability was valid.

Trustees of the Puritan Church, DC, 61-1 USTC ¶9135, 191 FSupp 670. Aff'd on the jurisdictional issue, CA-D.C., 61-2 USTC ¶9567, 294 F2d 735.

Sale of real properties subject to federal tax liens was ordered, the proceeds to be distributed according to the interests of the parties in the properties and the taxpayer's interest to be applied to liens according to priorities.

Fox, DC, 1931 CCH ¶9381, 52 F2d 794.

F. Folsom, DC, 61-1 USTC ¶9126.

D.E. Slater, DC, 61-1 USTC ¶9469.

McLaughlin Taylor Co., DC, 1927 CCH ¶7205.

Decker, DC, 62-1 USTC ¶9455.

J.A. Ashley, DC, 63-1 USTC ¶9384.

L.T. Anderson, DC, 66-2 USTC ¶9646.

E.E. Beasy, Sr., DC, 66-1 USTC ¶9236.

Title Ins. Co. of St. Louis, (St. Louis Court of Appeals) 68-2 USTC ¶9636.

J.L. Eshelman, DC Del., 87-2 USTC ¶9419, 663 FSupp 285.

H.L. Taylor, DC S.C., 2000-2 USTC ¶50,788. Aff'd, per curiam, CA-4 (unpublished opinion), 2001-1 USTC ¶50,343.

The taxpayer's conveyance of his one-half interest in residential real property to his daughters for no consideration was a fraudulent conveyance under West Virginia law. Thus, the court ordered the conveyance set aside and the property sold to satisfy a tax lien filed after the conveyance. Since the Tax Court determined that the taxpayer's spouse was an innocent spouse, the transfer of her one-half interest in the property to their children was effective, and the two daughters were entitled to one-half the proceeds from the sale of the property.

B. Brown, DC, 81-2 USTC ¶9481.

Although the Government had a lien against a delinquent taxpayer's undivided one-sixth interest in jointly-owned real estate, the Government had no right to force a sale of the entire properties in order to satisfy the lien, since under state law only the joint tenants are entitled to a partition or property in kind or to have the property sold and the proceeds divided.

J.E. Folsom, CA-5, 62-2 USTC ¶9648, 306 F2d 361.

To the contrary.

H. Trilling, CA-7, 64-1 USTC ¶9292, 328 F2d 699.

Folsom, above, does not apply when the nondelinquent joint tenant joins in the government's effort to have the property sold. The right not to have the entire property sold can only be raised by the nondelinquent co-owner.

F.B. Murphy, DC, 78-1 USTC ¶9299.

Where a wife received money from her insolvent husband-taxpayer, she could not be held personally liable as a fraudulent transferee for using his funds to pay his legitimate antecedent debts. When she did so, she merely acted as his agent. However, to the extent that she otherwise received funds from him and purchased a residence for them in her name, she could not avoid liability on the theory that he owed her an antecedent debt based on his marital obligation. She was not her husband's creditor. Avoidance of a foreclosure on the property, based on the minority view in J.E. Folsom, CA-5, 62-2 USTC ¶9648, also could not be condoned because Folsom is contrary to the weight of authority and the express language of section 7403, and both of the defendants benefited from the utilization of the non-paid taxes to acquire and maintain the subject residence. The equitable theories of laches and unclean hands were also unhelpful to the defendants because the government was asserting a sovereign right and it deferred acting on its claim against the wife only until the husband defaulted on two agreements to pay back taxes.

J.R. Mazzara, DC, 82-2 USTC ¶9423, 530 FSupp 1380.

The Connecticut residential real estate jointly owned by the taxpayer husband and his non-taxpayer wife could be sold in satisfaction of the federal tax lien upon property of the delinquent taxpayer husband. Government's motion for summary judgment was granted.

B. Mosolowitz, DC, 67-1 USTC ¶9350, 269 FSupp 12.

Similarly, as to property owned by a New York couple as tenants in common.

W. Kocher, CA-2, 72-2 USTC ¶9730, 468 F2d 503. Cert. denied, 411 US 931.

The lower court did not abuse its discretion in confining the sale to the taxpayer-husband's undivided one-half interest in property held in joint tenancy with his wife. The lower court in its sound discretion could have ordered the outright sale of the jointly held property or it could have refused to foreclose on the lien altogether.

J.C. Eaves, CA-10, 74-2 USTC ¶9526, 499 F2d 869.

Since title to real property was owned by taxpayer and his wife as tenants in common, the government, with a lien for unpaid taxes, could sell the property and account to the wife for her portion of the sales price.

B.H. Deal, Jr., DC, 74-2 USTC ¶9678.

It is not a jurisdictional prerequisite in a suit under section 2410 of the Judicial Code to quiet title to real estate from a Federal tax lien that the District Court order a foreclosure. The court may take whatever action is necessary to assure that the Government's lien is fully and effectually respected in accordance with its established rank.

O.E. Morrison, CA-5, 57-2 USTC ¶9801, 247 F2d 285.

W.W. Boyd, Jr., CA-5, 57-2 USTC ¶9791, 246 F2d 477.

In an action to foreclose a tax lien, there is no right to trial by jury.

B. Damsky, DC, 60-2 USTC ¶9721, 187 FSupp 404.

Similarly.

D.T. Stewart, DC Tex., 2003-1 USTC ¶50,261.

Petition to mandamus the District Court judge to vacate denial of jury trial was granted to the extent that the government's suit was for a money judgment only against the husband for taxes that only he owed, and was denied otherwise, CA-2 61-1 USTC ¶9351, 289 F2d 46.

E.F. Malakie, DC, 61-1 USTC ¶9117, 188 FSupp 592.

R.J. Rentz, DC, 63-1 USTC ¶9140, 213 FSupp 521.

A.R. George, DC, 64-1 USTC ¶9277.

S.J. Gefen, CA-5, 68-2 USTC ¶9552.

L.D.T. Corp., DC, 69-2 USTC ¶9451, 302 FSupp 990.

Foreclosure of federal tax liens and sale of property purchased by a good-faith buyer from a delinquent taxpayer were stayed pending completion of foreclosure and surplus money proceedings affecting other property owned by the delinquent taxpayer.

M. Pollack, DC, 64-2 USTC ¶9688, 233 FSupp 775.

Once the other foreclosure was completed, the Court ordered the foreclosure at issue to proceed.

M. Pollack, CA-2 67-1 USTC ¶9325.

Where a delinquent taxpayer transferred land to her daughter who then sold the property to a third party, the government could enforce a tax lien against the sale proceeds. Although the daughter claimed that enforcement of the lien should be stayed because her parents disputed their tax liability, the parents had exhausted their avenues of challenge to the deficiencies. Also, the equitable doctrines of inverse order of alienation and marshaling of assets, which would have required that the lien first be enforced against properties to which the parents retained title, did not apply to the government.

J.B. Muldavin, DC Mich., 98-1 USTC ¶50,408.

In exercising its equitable power, the court refused to foreclose on a piece of property pursuant to a tax lien that had been reduced to judgment against a husband because the court was persuaded that the property in question rightly belonged to his wife and that she had obtained and improved the property with her own funds and through her own effort.

J.L. Garsky, DC Wis., 86-2 USTC ¶9501.

A 50% interest in proceeds from the dissolution of a corporation could not be attached by the IRS in order to satisfy a default judgment for delinquent income taxes, penalties and interest issued against the deceased shareholder of a corporation. The evidence indicated that the taxpayer's wife was the sole owner of 50% of the outstanding shares of the corporation. Although the original stock certificate had been issued in the taxpayer's name alone, replacement certificates were issued in the taxpayer's wife's name prior to the default judgment. The taxpayer's name was subsequently added to the replacement certificates. The change of name on the certificates, in light of the fact that the stock had initially been paid for with joint funds, converted ownership of the stock from the taxpayer individually to the taxpayer and his wife as joint tenants with rights of survivorship. Upon the taxpayer's death, his wife became the sole owner of the stock, free from any tax liens that became effective against the taxpayer after the creation of the joint tenancy.

Tidal Equipment Co., Inc., DC Del., 86-2 USTC ¶9538, 623 FSupp 933.

A transfer of a residence by a husband and wife against whom deficiencies had been assessed was null and void because it was made for the purpose of hindering the collection of tax. The transferee, the taxpayers' daughter, did not purchase the property for a fair consideration. Thus, foreclosure on the property to satisfy the tax delinquencies was warranted.

Y.T. Taylor, DC Tex., 88-2 USTC ¶9394.

Income tax assessments were upheld in the amounts established by the government against a tax protestor. A voluntary conveyance of property from the protestor to his son, which was made without consideration at the time the protestor was indebted to the government, impaired the rights of his creditors and was fraudulent. Federal tax liens on the fraudulently conveyed property were ordered foreclosed.

People of the United States of America, DC Ill., 87-2 USTC ¶9553.

The Kansas second foreclosure statute, which protects real estate once foreclosed upon from subsequent attachment by creditors, did not bar an attempt by the U.S. to foreclose on the property.

R.C. Jones, DC Kan., 89-2 USTC ¶9411.

An individual's conveyance of a real property interest to his common-law wife was set aside as fraudulent and the property was sold to satisfy tax liens.

D.W. Freeman, DC W.Va., 89-1 USTC ¶9127. Aff'd, CA-4 (unpublished opinion 1/11/90).

Proceeds from the sale of certain real property could be used to satisfy a judgment because the taxpayer had an interest in this property when the tax liens arose. A divorce decree did not divest the taxpayer of his interest in the property, and he held a one-half interest in it at the time the IRS filed its notice of tax lien. Judgment was entered against the taxpayer's ex-wife as to her claimed right to the proceeds from the sale of the property.

S.H. Ray, Jr., DC Ohio, 90-2 USTC ¶50,415.

The amount of a tax assessment against an individual was upheld. The IRS's motion for a forced sale of all real property was denied, however. The individual and his wife were equal owners in the subject real property, but the tax liens attached only to the husband's interest in the property. Foreclosure and sale were limited to the husband's interest in the property.

G.D. Sellner, DC Mont., 90-2 USTC ¶50,452.

The U.S. was granted judgment foreclosing its tax liens on fraudulently conveyed property and was authorized to sell such property to satisfy tax liens and additions to tax.

E.D. Christensen, DC Utah, 90-2 USTC ¶50,543, 751 FSupp 1532. Dism'd, CA-10 (unpublished opinion) 4/8/92.

The statute of limitations to foreclose a lien for taxes had not expired. The taxpayer did not show the existence of a tenancy in the entirety as to certain real estate so as to defeat an IRS lien on the property. The court was justified in ordering foreclosure of the IRS lien because no special equitable factors existed that would render the foreclosure overwhelmingly unjust to the taxpayer's wife. Finally, the real estate was not exempt from foreclosure as the taxpayer's principal residence. Although an exemption from foreclosure of a principal residence exists where the IRS is seeking a levy of the property, the exemption does not exist in the case for the judicial enforcement of an IRS lien through a court-ordered foreclosure.

R.L. Scharf, DC Mo., 91-1 USTC ¶50,205.

A tax lien against property conveyed to an irrevocable trust prior to the assessment of the taxes was foreclosed since the transfer was fraudulent under Utah state law.

M.E. Parks, DC Utah, 91-1 USTC ¶50,263.

An employer who ran a construction company from his home could not escape a lien on his house for unpaid federal employment taxes by transferring ownership of the house to his wife. The federal government was empowered to enforce the tax lien despite a state homestead exemption from ordinary creditors by virtue of the Supremacy Clause of the U.S. Constitution. The power to enforce tax liens when property is jointly held by a delinquent taxpayer and a non-liable third party is limited under a four-factor test set forth in Rodgers (SCt, 83-1 USTC ¶9374). The lower court had focused solely on the possibility of undercompensation for the spouse in preventing foreclosure, but an analysis that accorded equal weight to all four factors justified imposing the lien despite the negative consequences to the spouse.

C. Bierbrauer, CA-8, 91-2 USTC ¶50,331, 936 F2d 373.

A transfer of property was set aside as a fraudulent transfer and the IRS could foreclose federal tax liens against the property.

B.G. Gosnell, CA-10, 92-2 USTC ¶50,368.

The IRS was allowed to foreclose a tax lien on real property that was owned by a married couple. The non-delinquent wife's homestead interest in the realty was no bar to the IRS's foreclosure sale of the property. Since the tax lien emanated from assessments made only against the husband for unpaid federal income taxes, the IRS was entitled to retain only that part of the proceeds from the sale which represented the husband's interest in the realty. The wife failed to demonstrate that her situation authorized the court to exercise its limited equitable discretion to disallow the forced sale.

C.A. Anderson, DC S.D., 91-2 USTC ¶50,468.

Purchasers of real property subject to a federal tax lien did not have a legally recognized expectation that the property would not be subject to a forced sale by the government. The lien attached to the property prior to purchase and notice of the lien was properly executed and recorded prior to the sale.

T.J. Bentley, DC Mo., 91-2 USTC ¶50,584.

Failure to join all parties in the chain of title who owned and transferred property did not warrant dismissal of the IRS's action to set aside fraudulent conveyances and foreclose tax liens on the property.

L. Scherping, DC Minn., 92-2 USTC ¶50,345.

The IRS could not foreclose a lien on property held by a third party under the state (Hawaii) fraudulent transfer statute. The action fell outside of the period established by the statute for bringing the claim.

G. Vellalos, DC Hawaii, 92-1 USTC ¶50,227. Aff'd and dismissed, CA-9 (unpublished opinion 3/19/93).

The government's action to foreclose tax liens on property was subject to the state (Washington) redemption rights of an individual who was the successor in interest to the judgment debtor.

D. Garcia, DC Wash., 92-1 USTC ¶50,038.

The IRS's request to foreclose a tax lien against an individual's undivided one-half interest in a house and to sell the entire property was denied. No lien was in effect against the other one-half interest held by the individual's elderly and infirm wife. Thus, she was an innocent third party and the possibility of harm to her from selling the house substantially outweighed any prejudice to the government from delaying the sale.

D.R. Jensen, DC Utah, 92-1 USTC ¶50,078, 785 FSupp 922.

To the contrary. Foreclosure sale was allowed where the wife failed to state a reason why her interest should be exempt from the forced sale and where the government would be severely hampered in its collection efforts if it attempted to sell only the husband's interest in the property.

B.J. Smith, DC Ala., 92-1 USTC ¶50,202.

The IRS could foreclose on a lien it had filed against an individual taxpayer's property because the taxpayer failed to rebut the presumption that the requisite notice and demand had been sent to him.

M.D. Smalley, DC Tenn., 93-1 USTC ¶50,111.

Judgment against the personal representative of a decedent's estate was entered for the unpaid balance of the decedent's income tax assessment. Foreclosure of federal tax liens upon property in the decedent's estate was ordered and the proceeds were applied against the decedent's tax liabilities. A valid tax lien also attached to property that had been transferred by the representative to his own estate for no consideration or money.

L. Grable, DC Mich., 93-1 USTC ¶50,063.

A married couple was found to have fraudulently conveyed substantially all of their assets in trust to their children in order to protect their assets from IRS foreclosure. Thus, the IRS's tax liens attached to all of the couple's real and personal property that was acquired both prior and subsequent to the tax liens, and the government could proceed with foreclosure of the liens.

K. Bryant, CA-8, 94-1 USTC ¶50,057, 15 F3d 756.

The government was entitled to foreclose its liens on the residence of a delinquent taxpayer in satisfaction of his tax liabilities even though the property was purportedly transferred to his son and stepson. Since the transfer occurred after the issuance of assessments, the transferees acquired their interest in the property subject to the government's tax lien. In addition, since no consideration was paid, the transferees could not be treated as bona fide purchasers. Further, the transfer was a fraudulent conveyance under state (Florida) law.

T.E. O'Day, DC Fla., 97-1 USTC ¶50,250.

An individual who served as president, chief executive officer, chief financial officer, and one of two directors of a corporation was liable for penalties resulting from his willful failure to collect, truthfully account for and pay over the withholding and FICA taxes of the corporation's employees for the quarters at issue. The federal tax lien on the taxpayer's residence was foreclosed and the residence was sold to satisfy the tax assessment and other liens against the property.

J.C. Alkire, DC Calif., 93-2 USTC ¶50,450.

A federal tax lien that arose when an audit deficiency was assessed against a delinquent taxpayer had priority over the rights of a transferee of the taxpayer's oil and gas properties and was enforceable through a foreclosure sale of the transferred properties. Under state (Texas) law, the delinquent taxpayer had an interest in the mineral rights when the tax liens attached since the transfer deed had not yet been recorded. Similarly, stock owned by the taxpayer was subject to the tax liens because she did not transfer title in the shares until after the liens attached.

R.L. Huszagh, DC Ill., 94-1 USTC ¶50,147.

The government was entitled to foreclose a tax lien on property conveyed by a husband to his wife even though the assessment was made against the husband alone. Since the tax lien attached to the property when it was held by the couple as tenants by the entireties, any subsequent conveyance of a property interest to the wife was subject to the lien. The wife should not have had any real expectation that the property would have been shielded from foreclosure because, under state (Rhode Island) law, lien creditors of one spouse can force a sale once a tenancy in the entirety is terminated. However, the sale was delayed in order to provide the wife with sufficient time to obtain financing or to arrange for a sale on more favorable terms.

H.A. Brynes, DC R.I., 94-1 USTC ¶50,180.

In order to satisfy an individual's outstanding tax liabilities, the government could foreclose on and sell four properties that he owned and fraudulently transferred to others who quit claimed the properties to his son's corporation. Even if state (Indiana) law prevented the seizure and sale of one parcel that was owned by the individual and his wife as tenants by the entireties, the government could foreclose on the property since the wife would not be prejudiced. She was not residing on the property and had little interest in it. However, the wife was entitled to half of the sale proceeds derived from that property.

R.S. Waltman, DC Ind., 97-2 USTC ¶50,760.

Clarifying R.S. Waltman ( 97-2 USTC ¶50,760, above), a federal tax lien could not attach to real property owned by married taxpayers in a tenancy by the entireties in order to satisfy the tax liabilities of one spouse. State (Indiana) law created a unity of ownership that was not severable except upon consent of both parties. However, since the husband's subsequent transfer of his interest to his wife so that she could further convey the property was a fraudulent transfer, ownership reverted back to the couple and a sale of the property could be ordered to satisfy the husband's tax liabilities.

R.S. Waltman, DC Ind., 98-1 USTC ¶50,487.

The IRS was permitted to foreclose tax liens against an individual on an entire piece of property that she held with her sister as joint tenants with right of survivorship, because the government's ability to collect taxes would have been prejudiced by a partial sale. A sale of the entire property better insured fair compensation to the joint tenants, and they did not incur dislocation costs by the sale. Further, the sister had no legally recognized expectation that she had a separate property interest that could not be subject to a forced sale by the delinquent taxpayer or by the delinquent taxpayer's creditors.

T.S. Hopkins, DC W.Va., 94-1 USTC ¶50,244.

The government was entitled to reduce assessments of unpaid tax liabilities to judgment and to foreclose its tax liens on assets owned by an individual and held by a trust and by a receiver. The taxpayer offered no evidence to disprove the government's assertion that he owned the assets, and he had admitted ownership of the assets in prior proceedings in connection with his filing of a bankruptcy petition.

W. Werner, DC N.Y., 94-2 USTC ¶50,345.

Two individuals were not entitled to either a statutory or an equitable period of redemption following the government's foreclosure of its tax liens on property fraudulently transferred from one of the individuals to the other. No statutory right of redemption existed because the government brought a judicial foreclosure action. Equitable relief was also barred by the clean hands doctrine since the property had been transferred with the intent to delay, hinder, or defraud the United States and the transferor had failed to pay federal income taxes.

K.T. Kilgore, DC Kan., 94-2 USTC ¶50,378.

The government was entitled to foreclose its tax lien against real property in which a delinquent taxpayer held a beneficial interest, subject only to a financial institution's prior perfected security interest in the property. An earlier transfer of the property by the taxpayer to a third party was set aside because it had been made with the intent to delay, hinder or defraud the government.

K.T. Kilgore, DC Kan., 95-1 USTC ¶50,099.

The government was entitled to a judgment of foreclosure and sale of one parcel of real property because it had a valid tax lien on the property and the owner did not assert that any other party owned an interest. However, the government was unable to foreclose on another individual's parcel because it did not address the issue of whether the individual's wife had a homestead interest in the property. The government also was unable to foreclose on parcels owned by the two individuals' corporation because it did not raise, in the pretrial order, the issue of piercing the corporate veil in order to treat the individuals as the actual owners of the corporation's property or the issue of selling their stock in the corporation.

H.L. Pottorf, DC Kan., 95-1 USTC ¶50,205, 881 FSupp 482.

The government was granted its motion for partial summary judgment allowing it to foreclose on tax liens on an individual's farm property despite a homestead interest in the property that was held by the individual's nonliable spouse. The individual failed to contest the motion, and the motion appeared meritorious on its face. The government's financial interest would have been severely prejudiced by a sale of only the liable spouse's interest. Further, although the state (Kansas) law provided broad protection of a homestead from a forced sale, the homestead interest of a nonliable spouse could be discharged by adequate compensation.

H.L. Pottorf, DC Kan., 95-2 USTC ¶50,502.

The IRS's motion for summary judgment to foreclose tax liens on an individual's real property was denied because issues of material fact existed regarding whether the individual fraudulently conveyed the property to a third party. The individual's transfer of stock to his four children may have been a gift, rather than actually fraudulent. Thus, his intent could not be determined on summary judgment. Finally, the government could not foreclose upon, and sell in their entirety, two properties in which the individual held partial interests because there was insufficient information to evaluate the impact of a forced sale on all parties.

A. DiGiulio, DC N.Y., 97-2 USTC ¶50,987.

The IRS's action seeking the foreclosure and sale of two residential properties in order to satisfy the tax liabilities of married taxpayers was dismissed without prejudice since the amount of the remaining unpaid tax liabilities was relatively modest when compared to the properties' value. The forced sale would have been inappropriate given the amount left at issue, and the taxpayers agreed to pay the remaining amount with interest.

R. Snyder, DC Pa., 98-2 USTC ¶50,643.

The Tax Injunction Act, 28 U.S.C. §1341, did not bar the government's action to foreclose federal tax liens against property that was also subject to state (Pennsylvania) tax liens. The foreclosure suit did not qualify as an attempt to enjoin, suspend or restrain the state's assessment and collection action, or to use an injunction or a declaratory judgment to deprive the state of any interest it had in the taxpayer's property.

R&E Corp., DC Pa., 99-2 USTC ¶50,813.

The foreclosure of an IRS judgment against real property owned by a delinquent church association was stayed pending the taxpayer's appeal of the judgment. The taxpayer could not obtain a supersedeas bond without endangering its financial stability, and the stay did not threaten the government's security interest in the taxpayer's property.

Indianapolis Baptist Temple, DC Ind., 99-2 USTC ¶51,004.

In a subsequent hearing, the church was ordered to vacate real estate foreclosed in a prior proceeding to collect delinquent federal employment tax. Its contention that the government would not suffer any harm were the enforcement of the judgment delayed while it sought Supreme Court review was rejected. The church merely repeated tax arguments that had been rejected in previous proceedings, namely that complying with tax laws would unconstitutionally force it to recognize the sovereignty of the federal government over its religious principles.

Indianapolis Baptist Temple, DC Ind. (unpublished opinion), 2000-2 USTC ¶50,764.

The government's request to foreclose on real estate to satisfy tax liens that had been assessed against an individual for failure to pay employment and unemployment tax was granted. Although the taxpayer conveyed the property to a trust, the tax liens had attached to the property when the notices of the liens were filed with the Register of Deeds. A subsequent transfer of the property after attachment did not extinguish the liens; the taxpayer transferred the real estate to the trust encumbered with the tax liens.

D.C. Stubb, DC Wis., 2000-2 USTC ¶50,573.

Married joint tenants were ordered to sell their residence to satisfy the tax debts of the husband in an action by the government to enforce a tax lien. The government's interests would have been prejudiced if it were only permitted to sell the husband's one-half interest in the property because such an interest would have little market value. Sale of the entire property did not substantially prejudice the wife because she received funds sufficient to obtain a house of the same quality.

W.J. Casey, DC Calif., 2000-2 USTC ¶50,816.

A federal district court did not grant the government's motion for summary judgment on its claim to have fraudulent conveyances set aside and on its request for foreclosure on federal tax liens that attached to the properties held by two trusts that were the nominees/alter egos of a married couple. Significant disputes existed between the parties as to the factual and procedural histories relevant to the government's claims.

J. Engels, DC Iowa, 2001-2 USTC ¶50,723.

After a motion to amend, the grant of the government's motion to reduce tax assessments against a married couple to judgment was amended to a denial without prejudice. The taxpayers successfully argued that the court overlooked evidence showing that they disputed the presumption of correctness of the assessed taxes.

J. Engels, DC Iowa, 2002-1 USTC ¶50,306.

The government was not entitled to foreclose its federal tax liens on a married couple's property that had been transferred to two trusts because it failed to demonstrate that the trusts were nominees of the taxpayers. Thus, the government's motion for summary judgment was denied. Moreover, the government's claim for summary judgment on its claim that the trusts were shams was denied. Genuine issues of material fact existed as to whether the husband continued to treat the seven parcels of property as his own after he transferred title to the trusts.

E.G. Novotny, DC Colo., 2002-1 USTC ¶50,147.

An individual trustee failed to satisfy the requirements for an injunction sought on behalf of a trust to halt the sale of real property subject to tax liens. The district court had already found that the taxpayer was the alter ego of the trust and, thus, his arguments that the trust's ownership of the property prevented a sale lacked merit. Additionally, the Anti-Injunction Act barred a suit by the trustee who failed to satisfy the requirements for an injunction.

Brandar Management Trust, DC Hawaii, 2002-1 USTC ¶50,308.

The government was entitled to summary judgment with respect to its suit to reduce to judgment an individual's personal tax liability with respect to four tax years, to establish the validity of tax liens on real property, and to foreclose the liens.

J.B. Peterson, DC Ohio, 2003-1 USTC ¶50,223.

The court declined to order a foreclosure on its tax liens against an individual. Because issues of material fact existed with respect to a possible fraudulent conveyance and to the marital status of the individual's alleged common law wife, no determination had been made as to whether various family members had a legally enforceable interest in the property subject to the lien.

R. Smith, DC Ohio, 2002-2 USTC ¶50,657.

A federal district bankruptcy court rejected a couple's valuation of property held as tenants by the entirety, as well as the IRS's valuation of such property. A valuation of the property was not dependent upon the market value of the property, rather it focused on the value of the property from the debtor's perspective. As a result, the court rejected the debtors' argument that the property had zero value, despite testimony that there would be a limited ability to sell only the husband's interest where the wife's interest in the property was not subject to the IRS's lien. Moreover, Code Sec. 7403 permits the IRS to sell the entire property to satisfy a lien obligation.

M.V. Basher, BC-DC Pa., 2003-1 USTC ¶50,426, 291 BR 357.

The government was entitled to foreclose upon real property owned by married taxpayers resulting from their unpaid income taxes, interest and penalties. The government's secured claim was not limited to the extent of the taxpayers' equity in the property at the time the lien attached. As a result, the tax liens attached to the appreciated value of the residence.

S.B. Doyle, DC Pa., 2003-2 USTC ¶50,619, 276 FSupp2d 415.

The government was entitled to summary judgment with respect to its suit to establish that federal tax liens attached to an individual's property, a holding trust was the alter ego of the taxpayer, and that foreclosure of the liens was proper. The government established that the trust paid inadequate consideration for real property that the taxpayer transferred to it; the taxpayer placed the property in the name of the trust in anticipation of suit, while he continued to exercise control over the property; there was a close relationship between the taxpayer and the trust; the taxpayer retained possession of the property; and the taxpayer continued to enjoy the benefits of the property. Moreover, the taxpayer refused to produce the trust instrument, although the real estate transactions were recorded. Because the trust was the alter ego of the taxpayer, the tax liens attached to all properties titled in the name of the trust.

B.S. Prather, Jr., DC Ohio, 2003-2 USTC ¶50,700.

The IRS could foreclose on farm properties that a divorced taxpayer held together with his third-party son where the son could not show why the foreclosure should not proceed. First, the son lacked a legal expectation that the properties would not be subject to a forced sale since he was not a bona fide purchaser of the properties. Second, foreclosure would not subject the son to hardship due to a forced dislocation since he did not live on the properties. Third, the son held a present fee interest so there was no complication in allocating the proceeds from the sale as there would be if the son held an interest contingent on the taxpayer's death. Fourth, the son's interest was equal to the taxpayer's and hence there was no inequity due to the son holding a disproportionately large share.

J.L. Padilla, DC Calif., 2005-1 USTC ¶50,134, 360 FSupp2d 760.

Foreclosure on a tract of real property was inappropriate because the taxpayer produced evidence that tended to show he purchased the land only as the agent for his mother, and that, at the time he transferred the property to her, he remained unaware of the tax deficiency asserted against him. The mother subsequently placed the property in a trust and named the taxpayer as a trustee and beneficiary of the trust. Under state law, the taxpayer was only entitled to 50.5 percent of the net income and corpus of the trust distributed at the discretion of the board of trustees. While the lien could attach to this income stream, foreclosure on the undistributed property was inappropriate unless the trust served as the taxpayer's alter ego. Since the trust was theoretically established by another person using another person's assets, the trust was not considered the taxpayer's alter ego merely because of his position as trustee and beneficiary.

H.E. Greer, DC N.C., 2005-1 USTC ¶50,234, 360 FSupp2d 760. Motion for reconsideration denied, 2005-1 USTC ¶50,433.

The IRS was entitled to foreclose on real property owned by two individuals in order to satisfy tax liens arising from their unpaid federal tax liabilities. The district court had previously entered a default judgment against the taxpayers and the trustee of a trust that held title to the property pursuant to a sham transfer intended to defraud the United States. The taxpayers were ordered to vacate the property, and the IRS was authorized to proceed with the foreclosure.

J. Verni, DC Calif., 2006-1 USTC ¶50,265.

Genuine issues of material fact remained regarding a decedent's liability for taxes and the merits of a cross-claim filed by a third-party purchaser of the decedent's real property that was subject to a federal tax lien. Therefore, foreclosure and judicial sale of the decedent's share in the real property were not granted until those issues relating to the property were resolved.

J. Doe, DC Ohio, 2006-1 USTC ¶50,295.

The government was entitled to foreclose and sell a tax debtor's marital residence and a bar he owned jointly with his wife in order to enforce a federal tax lien. The government has an overwhelming right to enforce tax liens and is not dependent on state (Montana) law that generally regulate creditors' rights. The Supremacy Clause provided the government with a means to sweep aside state-created exemptions against forced sale.

L. Sanders, DC Mont., 2006-2 USTC ¶50,385.

A husband's one-half interest in his home that he owned jointly with his wife could not be sold separately to satisfy his tax liability because the government's financial interests would be prejudiced if it were relegated to a forced sale of the partial interest, as opposed to the sale of the property as a whole. Thus, foreclosure and sale of the property as a whole was favored to satisfy the husband's tax debt.

B. Hanson, DC Minn., 2006-2 USTC ¶50,557.

Based on the four factors set forth in L.M.B. Rodgers ( 83-1 USTC ¶9374), the government was not allowed to foreclose on the entire property of a delinquent individual and his non-responsible ex-wife who each owned a one-half interest as tenants-in-common. Foreclosure would be an extremely inequitable and offensive result. It would displace an unemployed, disabled woman of modest and limited means who had lived on the property for 16 years. Moreover, the taxes at issue were the sole obligation of her ex-husband, from whom she had been divorced for 14 years and who did not reside on the property and would be relatively unaffected by the foreclosure.

W.F. Johns, DC Fla., 2007-1 USTC ¶50,316.

The government was entitled to enforcement of a lien against a married couple's property. The IRS's determination was presumed correct and the certificates of assessments established a prima facie case of liability on the part of the couple. They failed to offer evidence to show that the assessments were made in error. They merely pursued frivolous legal arguments that have been consistently and universally rejected by every federal court that has considered them. Thus, the couple failed to raise any genuine issue of material fact regarding the propriety of the tax assessments and statutory additions.

H.D. Goltz, DC Tex., 2007-1 USTC ¶50,360.

The government was not required to pay to other parties funds received through from a settlement with a married couple prior to the sale of the couple's foreclosed property. The other parties, who had interests in the foreclosed property, sought to compel the government to sell the property and distribute the proceeds. The parties, however, did not offer any support for granting such relief. The funds received were not derived from the foreclosed property and, since the government's claim was fully satisfied, it could not be compelled to sell the property in which it no longer had an interest. Although the other parties' liens against the property remained unpaid, they were unaffected.

A.S. Roberts, DC Ala., 2007-1 USTC ¶50,387.

The government could foreclose its tax lien on an individual's residential property. The IRS was not required to investigate and exhaust alternative collection methods before initiating foreclosure action. Further, the government had a considerable interest in an expeditious foreclosure of its lien. There were no third parties who would be impacted by the foreclosure and the property, since there was no insurance coverage, was at risk of being destroyed while in the individual's possession.

J.L. Meisner, DC Neb., 2007-1 USTC ¶50,513.

The government was entitled to foreclose its tax liens on personal and commercial property to collect the unpaid balance of the taxes due from a couple who had entered into a settlement agreement. The couple claimed that the IRS failed to credit them for payments made but they failed to produce canceled checks or copies of cashiers' checks actually paid to the IRS to prove they made the disputed payments.

N. Vong, DC Minn., 2007-1 USTC ¶50,521.

The government was entitled to foreclose on its tax liens and sell real property to which its liens had attached. An individual had failed to show that tax liabilities assessed against him were incorrect, and had not paid the assessed liabilities; consequently, federal liens had arisen on all of his property. Although the individual had transferred title of the real property to a trust, the liens had attached to the property before the transfer had occurred; consequently the property was not shielded from foreclosure.

D. Ruetz, DC Fla., 2007-2 USTC ¶50,630.

Summary judgment was granted reducing an individual's unpaid tax liability to judgment, foreclosing tax liens, and ordering the sale of real property held by the individual and his wife as tenants by the entirety. The evidence showed that the individual and his wife fraudulently conveyed the real property to a trust in order to avoid the tax liens attached on that property. Because the fraudulent conveyance was set aside, the government was entitled to proceed with the sale of the property, and the wife was entitled to a one-half interest in the sale proceeds.

A.A. Tolbert, DC Ark., 2007-2 USTC ¶50,717.

The government was entitled to foreclose federal tax liens and proceed with judicial sale of a ranch in which the taxpayer held only a one-half undivided interest. Although there was a substantial likelihood that the forced sale would unduly harm the co-tenants, who were innocent third parties, the government's interest in prompt collection of delinquent taxes was paramount. Moreover, the burden placed on the government due to the taxpayer's tax liabilities outweighed the burden placed on the co-tenants by the judicial sale.

J.V. Wells, DC Ky., 2007-2 USTC ¶50,728.

A federal district court's decision refusing to foreclose a federal tax lien against property held by alleged nominees of a delinquent taxpayer was vacated and remanded. The district court erroneously held that the transfer of legal title from the husband to the wife was a requirement for enforcement of a nominee lien against her interest in the property. However, since the wife met the five factors required for nominee status, actual transfer of legal title of the property was not essential to the enforcement of the lien. In addition, the district court failed to determine whether the husband had any interest in the property under state (Utah) law and, if so, whether the lien could be enforced against that interest as a matter of federal law.

D.M. Holman, CA-10, 2007-2 USTC ¶50,734.

A federal district court lacked jurisdiction over a married couple's damages claim against the IRS for failure to release tax liens on their property. The couple failed to exhaust all available administrative remedies with the IRS before brining their suit for damages and, therefore, the government's sovereign immunity was not waived.

S.A. Berk, DC Mass., 2007-2 USTC ¶50,757.

The government was required to submit evidence that its tax liens were properly recorded before it could foreclose those liens and seek judicial sale of a married couple's property to satisfy their tax liability.

A.B. Secapure, DC Calif., 2008-1 USTC ¶50,277.

Tax assessments against a married couple jointly and against the husband individually were reduced to judgment and tax liens on their residence were foreclosed. In addition, the government could proceed with a judicial sale of the residence. Since the residence was held in the husband's name only, the wife did not have compensable interest in the property. Moreover, there were no nonliable third parties who would be affected by the sale.

M. Patron, DC Minn., 2008-1 USTC ¶50,288.

Federal tax liens against an individual's real property were reduced to judgment. The government established that the individual was liable for unpaid taxes, interest and penalties, that he held title to the property as a joint tenant and that the liens had been recorded against his interest in that property.

D. Wagner, DC Colo., 2008-1 USTC ¶50,327.

The government was entitled to reduce tax assessments to judgment against an individual, in his personal capacity and as personal representative of an estate, and to foreclose the valid federal tax liens on the individual's residential property held nominally by a trust. The liens that encumbered the individual's residential property, which was conveyed to a trust created by the individual and his wife, were valid. The property was held by the trust as a nominee of the individual.

K. Lang, DC Calif., 2008-2 USTC ¶50,473.

The government was entitled to reduce to judgment a married couple's unpaid tax liability, interest and penalties. The couple filed joint tax returns and the wife failed to show that she was entitled to innocent-spouse relief. Because she did not argue that the Bierbrauer factors weighed in her favor, she failed to establish that the court should decline to order a foreclosure of the property.

J. Lovlie, DC Minn., 2008-2 USTC ¶50,503.

The government was entitled to reduce to judgment the unpaid tax liabilities of an individual and to foreclose federal tax liens on his property. The IRS properly sent by a statutory notice of deficiency certified mail to the individual's the last known address and other possible addresses. Contrary to the individual's argument, the IRS exercised reasonable diligence in determining his address. Although the individual was in contact with the IRS's criminal division while he was incarcerated, the IRS's civil division and criminal division generally do not share information and, therefore, the IRS's civil division was not aware of the individual's change in address while he was incarcerated.

T.T. Navolio, DC Fla., 2008-2 USTC ¶50,505.

The government was entitled to reduce to judgment the unpaid tax assessments, interest and penalties against an individual in light of the individual's stipulation to liability regarding the unpaid taxes. The government was also entitled to foreclose the valid federal tax liens on a real property and sell that property to satisfy the individual's tax debt. The tax liens arose on the date of assessment and attached to all of the individual's property and rights to property.

G.G. Langkand, DC Minn., 2008-2 USTC ¶50,526.

The government was entitled to foreclose and sell a delinquent individual's interest in a property he jointly held with his non-liable wife in tenancy by the entireties because such a sale would not be inequitable to the wife. The wife failed to show that, based on the four factors set forth in Rodgers, 83-1 USTC ¶9374, foreclosure and forced sale of the property would be an extremely inequitable and offensive result. The government's financial interest would have been substantially prejudiced if the sale of the entire property were denied, the wife had acted in such a way as to frustrate the government's tax collection efforts, there was no evidence to show that the wife would be unduly harmed by foreclosure and the interests in this case were easily divisible.

C.J. Barr, DC Mich., 2008-2 USTC ¶50,539.

The government was not granted summary judgment with respect to its motion to foreclose tax liens and sell a delinquent taxpayer's interest in a property he held in joint tenancy with his non-liable wife. The government failed to show that no genuine issues of material fact existed or that the foreclosure and forced sale of the property would be equitable.

M.R. Vogt, DC Ind., 2008-2 USTC ¶50,569.

Tax liens against two properties formerly held by a delinquent taxpayer's wholly owned corporation could be foreclosed even though the properties had been subsequently conveyed to third parties. The government established that the corporation was an alter ego of the taxpayer under the state (Nevada) law. The corporation's interest was inseparable from that of the taxpayer, the properties, as well as loans and insurance taken on them, continued to remain in the taxpayer's name even after the transfer and he paid the mortgage and treated the corporation's assets as his own. Further, the third parties took the properties subject to the tax liens because the government's notices of liens were filed before the third parties' recorded their interest.

L.R. Bretthauer, DC Nev., 2008-2 USTC ¶50,572.

Tax assessments against a married couple who failed to submit competent evidence to contest the accuracy of the assessments were reduced to judgment and federal tax liens on the husband's residence were foreclosed. Since the notices of assessment and demands for payment were properly made, the government was entitled to proceed with the sale of the residence.

K. Palhang, DC Miss., 2008-2 USTC ¶50,618.

Federal tax liens on an individual's real property which he held with his spouse as tenants by the entireties were foreclosed and the government could proceed with a judicial sale of the property. The government established that the individual was liable for unpaid taxes, interest and penalties. The tax liens were perfected upon assessment and attached to the individual's interest in the property prior to any conveyance to his son. Since the individual refused to pay his federal tax liabilities, the government was entitled to proceed with a sale of the real property.

N.P. Webb I, DC Hawaii, 2008-2 USTC ¶50,636.

The government's motion for reconsideration of the court's order denying summary judgment with respect to the IRS' motion to foreclose tax liens and sell a delinquent taxpayer's interest in a property was denied. The government failed to show that no genuine issues of material fact existed or that the foreclosure and forced sale of the property would be equitable based on the factors set forth in Rodgers, 83-1 USTC ¶9374. The burden was on the government to overcome the reasonable inference that the prejudice to the government was only minimal if the sale of the entire property were denied or if it could only sell the taxpayer's joint tenancy interest. Moreover, factual issues existed regarding the non-liable wife's dislocation costs, including the impact on her children and her health if the sale was ordered. The Rodgers factors weighed in the wife's favor because the government failed to provide additional facts necessary to evaluate the impact the factors might have on the wife's dislocation costs.

M.R. Vogt, DC Ind., 2008-2 USTC ¶50,652.

A married couple's motion for reconsideration of the court's order granting summary judgment reducing tax assessments to judgment and foreclosing tax liens on the couple's property was denied. The IRS's assessment of federal taxes was entitled to a presumption of correctness and the couple bore the burden of proving that the assessments were wrong. However, the couple failed to submit competent evidence to contest the accuracy of the assessments and raised meritless arguments.

K. Palhang, DC Miss., 2008-2 USTC ¶50,680.

Federal tax liens attached to properties an individual allegedly conveyed to a trust and could be foreclosed because the trust was merely a sham. No consideration was paid by the trust for the conveyed properties, the individual retained full use of the trust's assets, her personal expenses and those of her residence were paid out of the trust and there was no evidence that any trust assets had been distributed to the supposed beneficiaries. Since, the trust lacked economic reality it was disregarded for tax purposes.

M. McMahan, DC Tex., 2009-1 USTC ¶50,128.

An oral settlement agreement between the IRS and a married couple that allowed the IRS to sell the couple's home to satisfy the husband's unpaid tax liabilities was valid and enforceable. The wife's claim that the settlement agreement was invalid because she was unaware that the agreement involved foreclosure of the property was rejected. Her agreement to allow the IRS to auction the property coupled with the fact that she was intelligent, well-educated and capable of articulating her position, indicated that she understood that the agreement involved foreclosure. Finally, her willingness to sell the property on the condition that the agreement was modified to incorporate her settlement demands also undermined the credibility of her claim.

K.M. Stabler, DC Ala., 2009-1 USTC ¶50,135.

The government's request to foreclose tax liens against a couple's interest in a property was denied. The couple's allegations that the holder of the First Deed of Trust had already foreclosed would impact the government's foreclosure claim.

G.J. Wroblewski, DC Calif., 2009-1 USTC ¶50,182.

The government was entitled to foreclose and sell a delinquent taxpayer's properties which he held as a joint tenant with a non-liable co-owner because such a sale was in the co-owner's best interests. The co-owner would suffer no dislocation costs as he did not reside on any of the properties. He would receive the most advantageous compensation for his interest if the properties were sold in their entirety because it would result in a higher total sale price than a sale of each partial interest. Moreover, the government's interest would be substantially prejudiced by a sale of a partial interest in the properties because it would be at a price disproportionately below the market value of the entire property. Finally, under state (West Virginia) law, the co-owner did not have a "legally recognized expectation" that he had separate property interest that could not be subject to a forced sale by the government.

G.E. Zinkon, DC W.Va., 2009-1 USTC ¶50,183.

American Recovery and Reinvestment Act of 2009


Effective Dates





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Code Sec. Act Sec. Act Provision Subject Effective Date

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24(b)(3)(B) 1004(b)(1) American Opportunity Tax Credit --Conforming Amendments Tax years beginning after December
31, 2008

24(b)(3)(B) 1142(b)(1)(A) Credit for Certain Plug-In Electric Vehicles --Conforming Vehicles acquired after date of
Amendments enactment

24(b)(3)(B) 1144(b)(1)(A) Treatment of Alternative Motor Vehicle Credit as a Tax years beginning after December
Personal Credit Allowed Against AMT --Conforming Amendments 31, 2008

24(d)(4) 1003(a) Temporary Increase of Refundable Portion of Child Credit Tax years beginning after December
31, 2008

25(e)(1)(C)(ii) 1004(b)(2) American Opportunity Tax Credit --Conforming Amendments Tax years beginning after December
31, 2008

25(e)(1)(C)(ii) 1142(b)(1)(B) Credit for Certain Plug-In Electric Vehicles --Conforming Vehicles acquired after date of
Amendments enactment

25(e)(1)(C)(ii) 1144(b)(1)(B) Treatment of Alternative Motor Vehicle Credit as a Tax years beginning after December
Personal Credit Allowed Against AMT --Conforming Amendments 31, 2008

25A(i)-(j) 1004(a) American Opportunity Tax Credit Tax years beginning after December
31, 2008

25B(g)(2) 1004(b)(4) American Opportunity Tax Credit --Conforming Amendments Tax years beginning after December
31, 2008

25B(g)(2) 1142(b)(1)(C) Credit for Certain Plug-In Electric Vehicles --Conforming Vehicles acquired after date of
Amendments enactment

25B)(g)(2) 1144(b)(1)(C) Treatment of Alternative Motor Vehicle Credit as a Tax years beginning after December
Personal Credit Allowed Against AMT --Conforming Amendments 31, 2008

25C(a)-(b) 1121(a) Extension and Modification of Credit for Nonbusiness Tax years beginning after December
Energy Property 31, 2008

25C(c)(2)(A) 1121(d)(2) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for Qualified date of enactment
Energy Efficient Improvements --Additional Qualification
for Insulation

25C(c)(4) 1121(d)(1) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for Qualified date of enactment
Energy Efficient Improvements --Qualifications for Exterior
Windows, Doors, and Skylights

25C(d)(2)(A)(ii) 1121(c)(2) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for Oil date of enactment
Furnaces and Hot Water Boilers --Conforming Amendment

25C(d)(3)(B) 1121(b)(1) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for date of enactment
Energy-Efficient Building Property --Electric Heat Pumps

25C(d)(3)(C) 1121(b)(2) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for date of enactment
Energy-Efficient Building Property --Central Air
Conditioners

25C(d)(3)(D) 1121(b)(3) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for date of enactment
Energy-Efficient Building Property --Water Heaters

25C(d)(3)(E) 1121(b)(4) Extension and Modification of Credit for Nonbusiness Tax years beginning after December
Energy Property --Modifications of Standards for 31, 2008
Energy-Efficient Building Property --Wood Stoves

25C(d)(4) 1121(c)(1) Extension and Modification of Credit for Nonbusiness Property placed in service after
Energy Property --Modifications of Standards for Oil date of enactment
Furnaces and Hot Water Boilers

25C(e)(1) 1103(b)(2)(A) Repeal of Certain Limitations on Credit for Renewable Tax years beginning after December
Energy Property --Repeal of Limitation on Property Financed 31, 2008
by Subsidized Energy Financing --Conforming Amendments

25C(g)(2) 1121(e) Extension and Modification of Credit for Nonbusiness Tax years beginning after December
Energy Property --Extension 31, 2008

25D(b)(1) 1122(a)(1) Modification of Credit for Residential Energy Efficient Tax years beginning after December
Property --Removal of Credit Limitation for Property Placed 31, 2008
in Service

25D(e)(4) 1122(a)(2)(A) Modification of Credit for Residential Energy Efficient Tax years beginning after December
Property --Removal of Credit Limitation for Property Placed 31, 2008
in Service --Conforming Amendment

25D(e)(4)(C) 1122(a)(2)(B) Modification of Credit for Residential Energy Efficient Tax years beginning after December
Property --Removal of Credit Limitation for Property Placed 31, 2008
in Service --Conforming Amendment