Judicial Review of Appeals - Judicial Review (1)

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IRS Tax Liens - continued 2
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Actions & Restrictions on Levy
Serving & Releasing Levies
Jeopardy Levy
Bank Levies
Levy on Income
Levy in Special Cases
Automated Levy Programs
6331 Code and Regulations
6332 Code and Regulations
6333 Code and Regulations
6334 Code and Regulations
6335 Code and Regulations
6336 Code and Regulations
6337 Code and Regulations
6338 Code and Regulations
6339 Code and Regulations
6340 Code and Regulations
6341 Code and Regulations
6330 Code and Regulations
6331 Court Order
6331 Damages
6331 Debt
6331 Community Property
6331 Effective Levy
6331 Bankruptcy p1
6331 Bankruptcy p2
6331 Bankruptcy p3
6331 Bankruptcy p4
6331 Bankruptcy p5
6331 Bankruptcy p6
6331 Bail Money
6331 Bank Account
6331 Bank Vault
6331 Alimony Funds
6331 Continuous Levy
Publication 4418 - Levy Program
Pre Seizure Considerations Tax Levy
Pre Approval Post Approval
Actions Prior to sale of seized property
IRS Seizure Sale Procedures
How IRS Conducts a Seizure of  Property
Property acquired and disposed by IRS
Judicial Sale of Levied Property
Understanding your IRS Notice
Releasing Levies and Levied Property
7426 Code and Regulations
Amendment to section 6330 Regulations
6320 Proposed Amendments of Regulations
6332 - Seizure of Property Subject to Distraint
6332 - Annotations- Salary
6332 - Annotations- Savings Account Attachment
6332 - Annotations- Summary Judgment
6332 - Annotations- State Auditor
6332 - Annotations- State Funds
6332 - Annotations-Prior Law
6332 - Annotations- Surety
6332 - Annotations- Title in Dispute
6332 - Annotations- Attorney Fees
6332 - Annotations- Attorney's Liability
6332 - Annotations- Bank Accounts p1
6332 - Annotations- Bank Accounts p2
6332 - Annotations- Bank Accounts p3
6332 - Annotations- Bank Accounts p4
6332 - Annotations- Bank Accounts p5
6332 - Annotations- Commissions
6332 - Annotations- Corporations Obligations
6332 - Annotations- Effect of Honoring Levy p1
6332 - Annotations- Effect of Honoring Levy p2
6332 - Annotations- Effect of Honoring Levy p3
6332 - Annotations- Effect of Honoring Levy p4
6332 - Annotations- Effect of Honoring Levy p5
6332 - Annotations- Effect of payment of tax
6332 - Annotations- Embezzled Funds
6332 - Annotations- Partnership Property
6332 - Annotations- Levy and Demand
Property in Custody of County Commissioner
6332 - Annotations- Property of Another
6332 - Annotations- Property in Custody of State Court
6332 - Annotations- Reasonable Cause
6332 - Annotations- Property Unlawfully Obtained
6333 - Annotations- No Levy Pending
6334 - Annotations- Child Support
6334 - Annotations- Amount of Exemption
6334 - Annotations- Books Furniture tools
6334 - Annotations- Homestead p1
6334 - Annotations- Homestead p2
6334 - Annotations- Homestead p3
6334 - Annotations- Clothing
6334 - Annotations- Disability Benefits
6334 - Annotations- Retirement Accounts p1
6334 - Annotations- Retirement Accounts p2
6334 - Annotations- Military Retirement Benifits
6334 - Annotations- Net Pay
6334 - Annotations- State Exemption Law
6334 - Annotations- Seaman's Wage Statute
6334 - Annotations- Social Security Benfits
6334 - Annotations- Prior Law
6334 - Annotations- Subsequently Receieved Wages
6334 - Annotations- Worker's Compensation
6335 - Annotations- Designation of Proceeds
6335 - Annotations- Bailment Lessor
6335 - Annotations- Damage Suit Against Collector p1
6335 - Annotations- Damage Suit Against Collector p2
6335 - Annotations- Husband and Wife
6335 - Annotations- Effect of Vacating Invalid Sale
6335 - Annotations- Homesteads p1
6335 - Annotations- Homesteads p2
6335 - Annotations- Homesteads p3
6335 - Annotations- Jeopardy Assessments
6335 - Annotations- Injunctive Relief
6335 - Annotations- Interest
6335 - Annotations- Minimum Price
6335 - Annotations- Jurisdiction
6335 - Annotations- Late Payment
6335 - Annotations- Place of Sale
6335 - Annotations- Notice of Adjournment
6335 - Annotations- Notice of Sale or Seizure p1
6335 - Annotations- Notice of Sale or Seizure p2
6335 - Annotations- Notice of Sale or Seizure p3
6335 - Annotations- Notice of Sale or Seizure p4
6335 - Annotations- Third-Party Interest p1
6335 - Annotations- Third-Party Interest p2
6335 - Annotations- Rescission
6335 - Annotations Seized Property Sale Report
6335 - Annotations--Prior Law
6335 - Annotations- Wrongful Sale
6330 Collection Due Process Hearing Requests
6330 - Annotations- Collection Due Process Notice
6330 - Annotations- Forms and Transcripts 1 p1
6330 - Annotations- Forms and Transcripts 1 p2
6330 - Annotations- Forms and Transcripts 1 p3
6330 - Annotations- Froms and Transcripts 1 p4
6330 - Annotations- Forms and Transcripts 1 p5
6330 - Annotations- Froms and Transcripts 2
6330 - Annotations- Hearing Procedures 1 p1
6330 - Annotations- Hearing Procedures 1 p2
6330 - Annotations- Hearing Procedures 1 p3
6330 - Annotations- Hearing Procedures 1 p4
6330 - Annotations- Hearing Procedures 2 p1
6330 - Annotations- Hearing Procedures 2 p2
6330 - Annotations- Hearing Procedures 2 p3
6330 - Annotations- Hearing Procedures 2 p4
6330 - Annotations- Hearing Procedures 3 p1
6330 - Annotations- Hearing Procedures 3 p2
6330 - Annotations- Hearing Procedures 3 p3
6330 - Annotations- Hearing Procedures 3 p4
6330 - Annotations- Hearing Procedures 4 p1
6330 - Annotations- Hearing Procedures 4 p2
6330 - Annotations- Hearing Procedures 4 p3
6330 - Annotations- Hearing Procedures 4 p4
6330 - Annotations- Hearing Procedures 5 p1
6330 - Annotations- Hearing Procedures 5 p2
6330 - Annotations- Hearing Procedures 5 p3
6330 - Annotations- Hearing Procedures 6 p1
6330 - Annotations- Hearing Procedures 6 p2
6330 - Annotations- Hearing Procedures 6 p3
6330 - Annotations- Impartial IRS Appeals Officers p1
6330 - Annotations- Impartial IRS Appeals Officers p2
6330 - Annotations- Issues Raised at Hearings 1 p1
6330 - Annotations- Issues Raised at Hearings 1 p2
6330 - Annotations- Issues Raised at Hearings 1 p3
6330 - Annotations- Issues Raised at Hearings 1 p4
6330 - Annotations- Issues Raised at Hearings 2 p1
6330 - Annotations- Issues Raised at Hearings 2 p2
6330 - Annotations- Issues Raised at Hearings 2 p3
6330 - Annotations- Issues Raised at Hearings 2 p4
6330 - Annotations- Issues Raised at Hearings 2 p5
6330 - Annotations- Issues Raised at Hearings 3 p1
6330 - Annotations- Issues Raised at Hearings 3 p2
6330 - Annotations- Issues Raised at Hearings 3 p3
6330 - Annotations- Issues Raised at Hearings 3 p4
6330 - Annotations- Issues Raised at Hearings 4 p1
6330 - Annotations- Issues Raised at Hearings 4 p2
6330 - Annotations- Issues Raised at Hearings 4 p3
6330 - Annotations- Issues Raised at Hearings 4 p4
Judical Review of Apepeals- Equivalent
Judical Review of Apepeals-District Co (1)
Judicial Review of Appeals-District Court p1
Judicial Review of Appeals-District Court p2
Judicial Review of Appeals-District Court p3
Judicial Review of Appeals-District Court p4
Judical Review of Apepeals-Filed in Wrong
Judicial Review of Appeals-Judicial Rev (1)
Judicial Review of Appeals-Judicial Review p1
Judicial Review of Appeals-Judicial Review p2
Judicial Review of Appeals-Judicial Review p3
Judicial Review of Appeals-Judicial Review p4
Judicial Review of Appeals-Judicial Review p5
Judicial Review of Appeals-Sovereign Immunity
Judicial Review of Appeals-Statute of Limitations
Judicial Review of Appeals-Tax Court 1 p1
Judicial Review of Appeals-Tax Court 1 p2
Judicial Review of Appeals-Tax Court 1 p3
Judicial Review of Appeals-Tax Court 1 p4
Judicial Review of Appeals-Tax Court 1 p5
Judical Review of Apepeals-Tax Court 2 p1
Judicial Review of Appeals-Tax Court 2 p2
Judicial Review of Appeals-Tax Court 2 p3
Judicial Review of Appeals-Timely Filing
6330 - Annotations- Prior Hearings p1
6330 - Annotations- Prior Hearings p2
6336 - Annotations- Injunctive Relief
6336 - Annotations- Value of Property
6337 - Annotations- Assignee
6337 - Annotations- Attempt to Assign
6337 - Annotations- Bankruptcy
6337 - Annotations- Fraud Right of Redemption
6337 - Annotations- Jurisdiction
6337 - Annotations- Periods for Redemption
6337 - Annotations- Proper Party
6337 - Annotations- Property Subject to Redemption
6337 - Annotations- Reaquisition by Prior Owner
6337 - Annotations- Representations
6337 - Annotations- Informal Redemption
6339 - Annotations- Effect of Faulty Transfer
6339 - Annotations- Sale of Taxpayers Real Property p1
6339 - Annotations- Sale of Taxpayers Real Property p2
6340 - Annotations- Purchaser of Property

 

Judicial Review of Appeals-Judicial Rev (1)


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6330 Annotations: Judicial Review of Appeals Determinations: Judicial Review- Levy

 

 

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

 

Part 2

 

 

[2005-1 USTC 50,377] William B. McDermott; et al., Plaintiffs-Appellants v. United States of America , Defendant-Appellee.

U.S. Court of Appeals, 9th Circuit; 04-16974, April 4, 2005 .

Affirming an unreported DC Ariz. decision.

[ Code Sec. 6330]

Collection of taxes: Judicial review: Motion to dismiss: Failure to oppose. --

Married taxpayers' pro se challenge to notices of determination that approved collection of their unpaid taxes was properly dismissed. The taxpayers failed to respond to the government's motion to dismiss the challenge, even after the court advised them of the consequences and gave them extra time to do so. The taxpayers also failed to challenge the lower court's determination on appeal.

William McDermott, pro se.

Before: Fletcher, Trott and Paez, Circuit Judges. *

Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.

MEMORANDUM **


William B. McDermott and Donna McDermott appeal pro se the district court's dismissal of their complaint challenging the Internal Revenue Service's notices of determination approving collection actions with respect to their unpaid 1996 and 2001 income taxes.

The district court did not err in dismissing the McDermotts' action pursuant to U.S. Dist. Ct. Rules D. Ariz. , Rule 1.10, for failure to file an opposition to the United States ' motion to dismiss, because the district court advised the McDermotts of the consequences of failing to respond and granted them an enlargement of time to file their response. Ghazali v. Moran, 46 F.3d 52, 53-4 (9th Cir. 1995). In addition, the McDermotts waived any challenge to the district court's determination that their action should be dismissed, because they have not addressed the district court's determination on appeal. Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1164 (9th Cir. 2003).

AFFIRMED.

* This panel unanimously finds this case suitable for decision without oral argument. Fed. R. App. P. 34(a)(2).

** This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3.

 

 

 

 

 

 

 

 

[2005-1 USTC 50,395] Living Care Alternatives of Utica, Inc., Plaintiff-Appellant v. United States of America , Internal Revenue Service, Defendant-Appellee.

U.S. Court of Appeals, 6th Circuit; 04-3194/3554, June 2, 2005 .

Affirming DC Ohio, 2004-1 USTC 50,167 and 2004-1 USTC 50,225.

[ Code Sec. 6330]

Hearing before levy: Collection Due Process hearing: Standard of review: Adequacy of record: Offer-in-compromise.  

Federal district courts, which reviewed Collection Due Process (CDP) determinations issued by IRS Appeals officers using an abuse of discretion standard, were not required to use a de novo standard because the taxpayer, a nursing home, did not challenge the underlying tax liabilities in the CDP hearings. The nursing home's argument that it was bad public policy to require it to pay taxes when it lacked the financial ability to meet federal regulatory standards governing the care of patients and its request to "remove" the tax liability were not challenges to the validity of the underlying liability. The reports issued by the Appeals officers in connection with their determinations included sufficient information to provide a basis for an abuse of discretion review. Furthermore, the refusal of the IRS to accept the nursing home's offers in compromise was not an abuse of discretion for numerous reasons, including the apparent failure to file the proper forms and financial information, its financial difficulties, and a previous default on an installment payment plan. It was also not necessary for the Appeals officers to consider whether the IRS would receive any revenue from the levy and sale of the nursing home's property due to existing liens of superior creditors, or whether the nursing home would have to close down due to the levy and sale. These considerations are properly made after the determination of the Appeals officer in a CDP hearing when the decision to actually levy upon the property is made.


Carla I. Struble, for plaintiff-appellant. Robert J. Branman, Rachel I. Wollitzer, Jonathan S. Cohen, Department of Justice, for defendant-appellee.

Before: Keith, Merritt and Clay, Circuit Judges.

OPINION


MERRITT, Circuit Judge: This opinion addresses separate appeals from two district court cases involving the same parties and almost identical issues. Plaintiff, Living Care Alternatives of Utica, Inc. ("Living Care"), appeals district court decisions affirming the Internal Revenue Service's Appeals Office decisions to allow tax liens and levies on Living Care's property for unpaid employment taxes for various periods between 1995 and 2001. These appeals require an interpretation of the new Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685. For the reasons set forth below, we affirm.

SUMMARY OF FACTS


Living Care owns and operates a nursing home facility in Licking County , Ohio , which has approximately thirty-five beds and forty employees and receives ninety percent of its revenue from Medicare and Medicaid billing. This revenue totals approximately $100,000 per month. Since the mid-1990's, Living Care has struggled to comply with its tax obligations. The taxes at issue in the instant cases are payroll taxes withheld from employees' paychecks and held in trust by the employer until payments are made to the government. From 1995 to 2001, Living Care has intermittently failed to forward the required taxes to the IRS. (Living Care I, Case No. 04-3194 involves annual payments for tax year 1999 and quarterly payments in 1999 and 2001; Living Care II, Case No. 04-3554 involves annual payments for tax years 1995, 1998 and 2000 and quarterly taxes for various quarters in 1995, 1996, 1999, 2000 and 2001). 1 Under a previous levy around 1996 or 1997, Living Care entered into an installment agreement with the IRS, but defaulted in 1999. The total current liability (including interest and penalties) is approximately $450,000, although Living Care points out it has paid its newly accrued taxes since July 2002.

In May 2001 and May 2002, the government sent Notices of Federal Tax Liens and Notices of Intent to Levy to Living Care, along with a notice of the taxpayer's right to request a hearing before the IRS Appeals Office, which the taxpayer timely invoked. Collection due process hearings were conducted by phone in March 2002 (Living Care II, Case No. 04-3554) and December 2002 (Living Care I, Case No. 04-3194). Notice of Determination letters denying Living Care's claims were mailed June 2002 and March 2003, respectively. Living Care appealed these decisions separately to the District Court for the Southern District of Ohio. In both cases, which were heard by different judges, the courts affirmed the IRS. 2 See Living Care Alternatives of Utica, Inc. v. United States ( Living Care I), No. 02:03-CV-0359, 2003 WL 23311523 (S.D. Ohio Dec. 12, 2003); Living Care Alternatives of Utica, Inc. v. United States (Living Care II) [ 2004-1 USTC 50,225], 312 F.Supp.2d 929 (S.D. Ohio 2004). Living Care now appeals these decisions.

ANALYSIS

I. Judicial Review of Collection Due Process Proceedings


Collection due process hearings were created by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 112 Stat. 685 ("the Restructuring and Reform Act"). 3 The method or standards for judicial review of these hearings is not yet settled, hence the problems in these cases. Prior to this Act, the IRS had the right to levy on taxpayer property without any prior opportunity for a hearing or procedural due process, so long as post-deprivation procedures were provided. The Supreme Court sustained this approach almost seventy-five years ago. See Phillips v. Commissioner [ 2 USTC 743], 283 U.S. 589, 595 (1931). While passage of the Restructuring and Reform Act does indicate Congress's intent to provide taxpayers with additional protection in the form of procedures prior to IRS action, it must be interpreted in this historical context. Tax liens and levies are not typical collection actions; the IRS has much greater latitude and leeway than a normal creditor. See generally Leslie Book, The Collection Due Process Rights: A Misstep or a Step in the Right Direction? 41 Hous. L. Rev. 1145 (2004) (discussing the history of due process in tax collection proceedings).

The Tax Code grants taxpayers the right to a hearing both on notice of lien and on notice of levy. See 26 U.S.C. 6320(b); 26 U.S.C. 6330(b). Proceedings are informal and may be conducted via correspondence, over the phone or face to face. See Treas. Reg. 601.106(c) & 301.6330-1, Q&A-D6. No transcript, recording, or other direct documentation of the proceeding is required. See id. 301.6330-1, Q&A-D6. Taxpayers do have a right to an impartial hearing officer "who has had no prior involvement with respect to the unpaid tax ... before the first hearing." 26 U.S.C. 6320(b)(3). A taxpayer may challenge his underlying tax liability at the collection due process hearing, only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." 26 U.S.C. 6330(c)(2)(B). Any other relevant issue relating to the unpaid tax may be raised during the hearing, including spousal defenses, challenges to the appropriateness of collection actions, and alternative collection options (such as posting of a bond, installment agreements, or offers in compromise). 26 U.S.C. 6330(c)(2)(A). By statute, the IRS Appeals Officer must: 1) conduct a verification that the IRS has met all legal requirements and fulfilled its procedural obligations to move forward with the lien or levy, 2) consider defenses and collection alternatives proffered by the taxpayer and, 3) make a determination that the "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." 26 U.S.C. 6330(c)(3) (emphasis added). This final balancing factor is novel in American tax law and injects into the calculus an equitable consideration for the taxpayer and his concerns. Not surprisingly, the taxpayer in the instant cases relies quite heavily on this factor in its arguments for relief.

On completion of his review, the Appeals Officer sends his final decision to the taxpayer in a Notice of Determination letter. The statutes then allow for judicial review of this determination by whatever federal court has jurisdiction over the underlying tax (either the Tax Court or the District Courts).

We review a district court's grant of summary judgment de novo. 4 Both the parties and the district court judges in these cases agreed that it was proper to review the IRS Appeals Office de novo with respect to decisions about the underlying tax liability and for abuse of discretion with respect to all other decisions, see Bartley v. United States, 343 F.Supp.2d. 649, 652 (N.D. Ohio 2004), but the parties disagreed about whether the underlying liability was actually challenged in these cases. See Part II.A., infra. Finally, the district court may only review issues that were originally raised in the collection due process hearing. See Treas. Reg. 301.6330-1(f)(2), Q-F5 & A-F5.

Judicial review of collection due process hearings presents a real problem for reviewing courts. Congress overlaid the Restructuring and Reform Act on a previous system that involved very little judicial oversight. The result is a surprisingly scant record, comprised almost exclusively of the parties' appellate briefs and the Notice of Determination letter. No transcript or official record of the hearing is required and, accordingly, one rarely exists. Since normal review of administrative decisions requires the existence of a record, see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971), overruled on unrelated grounds by Califino v. Sanders, 430 U.S. 99, 105 (1977), Congress must have been contemplating a more deferential review of these tax appeals than of more formal agency decisions. This might explain why, of six collection due process cases reviewed by the Sixth Circuit, five have been disposed of under our Court's Rule 34 and all six have been unpublished. None has overturned the IRS decision or required a remand. See Herip v. United States [ 2005-1 USTC 50,354], No. 02-4078, 2004 WL 1987302 (6th Cir. Sept. 2, 2004) (unpublished); Minion v. Commissioner [ 2004-1 USTC 50,161], No. 03-1337, 2003 WL 22434751 (6th Cir. Oct. 24, 2003) (unpublished); Wasson v. Commissioner [ 2003-1 USTC 50,337], No. 02-2134, 2003 WL 1516288 (6th Cir. Mar. 21, 2003) (unpublished); Hauck v. Commissioner [ 2003-1 USTC 50,445], No. 02-2301, 2003 WL 21005238 (6th Cir. May 2, 2003) (unpublished); Brown v. Commissioner [ 2003-1 USTC 50,148], No. 02-1630, 2002 WL 31863695 (6th Cir. Dec. 19, 2002) (unpublished); Diefenbaugh v. Weiss [ 2000-2 USTC 50,839], No. 00-3344, 2000 WL 1679510 (6th Cir. Nov. 3, 2000) (unpublished).

II. Living Care's Claims


Living Care raises four identical claims in each case. They will therefore be analyzed together.

A. District Court Applied an Incorrect Standard of Review

Living Care agrees with the government that, in order to receive a de novo review of the Appeals Officers' decisions, it had to have challenged the validity of the underlying tax liability at the collection due process hearings. Otherwise, the Appeals Officers' decisions are reviewed for abuse of discretion. 5

Living Care's evidence that it challenged the validity of the underlying liability is exceptionally weak. One of the Notice of Determination letters does not mention this issue at all and the other states "The underlying tax was not challenged." Living Care therefore argues that the Appeals Officers misconstrued and misunderstood its attempts to challenge the tax.

In large part, its argument is based on the premise that "nursing homes are different." Living Care's facility receives almost all of its income from government programs (Medicare and Medicaid) that require strict compliance with comprehensive regulatory regimes. These regimes limit the possibility for profit, control and limit admission of new patients, and mandate high standards in the areas of staffing, food, and medical care. Living Care argues that the regulatory regime became particularly oppressive starting in the mid 1990's.

These government mandated changes resulted in Living Care not being able to pay all its withholding obligations. The government required that Living Care meet the increased mandated care requirements and staffing requirements. Living Care did this and when the decision had to be made between paying for resident care and taxes, Living Care paid for the food, utilities, medications, staffing etc [sic] and delayed the payment of taxes --taxes were not simply refused or neglected.


Living Care Proof Br. (Case No. 04-3554) at 18. Living Care maintains that it relied on the above argument during the collection due process hearings and that this argument was equivalent to challenging the underlying liability itself. 6 Furthermore, it argues that the identical requests in its Complaints to the District Courts that the "tax liability be removed" also constituted a challenge to the validity of the liability.

The plain meaning of "challenging validity of the underlying tax liability" requires more than the taxpayer's actions in these cases. Passionately arguing that it is bad public policy to tax a nursing home that was trying in good faith to comply with a comprehensive regulatory scheme is not the same as challenging the validity of the tax. Similarly, requesting that a district court "remove" a tax liability does not constitute a claim at the IRS hearing and is not an assertion that the liability was not valid in the first place; to the contrary, it seems to be admitting it was valid and then requesting that payment be excused. Therefore, all aspects of the Appeals Officers' decisions are reviewed for abuse of discretion.

B. Abuse of Discretion in the Balancing Analysis

The Tax Code requires that an IRS Appeals Officer, in making a final determination after a collection due process hearing, 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." 26 U.S.C. 6330(c)(3)(C). 7 There is little discussion or guidance about this requirement in legal scholarship or case law. But see, Book, The Collection Due Process Rights, supra, at 1185-93. In most cases, reviewing courts have merely affirmed the Appeals Officer's determination that he conducted the balancing test and that he found the results to be consistent with the decision to proceed with levying the property. See e.g., Jackling v. IRS[ 2005-1 USTC 50,159], 352 F.Supp.2d 129 (D. N.H. 2004); Elkins v. United States, No. 4:03-CV-97-1 (CDL), 2004 WL 3187094 (M.D. Ga. Sept. 29, 2004). One notable exception to this pattern is found in Mesa Oil, Inc. v. United States [ 2001-1 USTC 50,130], No. Civ.A. 00-B-851, 2000 WL 1745280 (D. Colo. Nov. 21, 2000) (unpublished), where an oil company fell behind in its payroll tax deposits over a six quarter period, totaling about $425,000. There the district court, reviewing an IRS Appeals Officer's collection due process hearing and Notice of Determination, remanded the case to the IRS for development of a more complete record and clarification of the reasoning behind the determination that the balancing test was met. The court was especially concerned that the Notice of Determination included "no statement of facts, no legal analysis, and no explanation of how or why the proposed levy balanced the need for collection with [the taxpayer's] interests" but merely a "blank recitation of the statute." Id. at *4; accord Cox v. United States [ 2004-2 USTC 50,404], 345 F.Supp.2d 1218 (W.D. Okla. 2004) (citing positively Mesa Oil's remand for further development of the record and ruling that balancing did not occur because the IRS erroneously believed taxpayer was ineligible for installment agreement). Mesa Oil's remand is an exception to the general practice of reviewing courts showing deference to Appeals Officers' conclusions regarding the balancing analysis.

In the instant appeals, Living Care presents three related arguments to support its claim that the balancing test was not met, or more accurately, that the Appeals Officers abused their discretion in conducting the balancing test. First, Living Care claims the Appeals Officers failed to include the existence of senior lienholders in their balancing analyses, in spite of the discussion of this fact during the hearings. 8 Second, the Officers failed to consider that, because of these senior lienholders, the net effect of an IRS levy would be to shut down the business without generating any tax revenue for the government. Since the IRS liens would be junior to existing creditors and the existing debt exceeded the value of the property, the IRS would collect nothing. Finally, in its Reply Brief in the Living Care II case (Case No. 04-3554), Living Care correctly alleges, albeit for the first time, that the IRS has a statutory duty to investigate, prior to executing a levy, the existence of liens on the property and determine "that the equity in such property is sufficient to yield net proceeds from the sale of such property to apply to [taxpayer's] liability." 26 U.S.C. 6331(j)(2)(C).

The government first responds that the Appeals Officers were aware of the other lienholders, as evidenced by the statement in the Notice of Determination from Living Care I that "[i]f the business sells, proceeds will be distributed according to priority of claims. (Lien priority)." In Living Care II, the government argues that Living Care's Request for Hearing makes no mention of these senior liens and that there is no evidence they were mentioned during the hearing. The lack of evidence from the hearing is potentially misleading since there is no formal record of the hearing and the government itself prepared the only account of what was discussed. The government's stronger argument, made in the alternative, is that even if the senior liens were raised and ignored, there is no requirement that the government consider in its balancing analysis whether it will receive any revenue from a levy and sale, or whether the business will have to close down due to the levy and sale. It cites several cases for these propositions. See Medlock v. United States, 325 F.Supp.2d 1064 (C.D. Cal. 2003); Cardinal Healthcare, Inc. v. United States [ 2002-2 USTC 50,582], No. 01-4300-JLF, 2002 WL 31002880 (S.D. Ill. July 25, 2002); Kitchen Cabinets, Inc. v. United States [ 2001-1 USTC 50,287], No. Civ.A.3:00CV0599M, 2001 WL 237384 (N.D. Tex. Mar. 6, 2001). The case law supports the proposition that the government is not required to continue subsidizing failing businesses by foregoing tax collection. Any other conclusion would create a bizarre tax system with perverse incentives for businesses to maintain themselves on the edge of insolvency in order to enjoy immunity from tax enforcement.

The government's response to Living Care's statutory argument (which the government first offered at oral argument since Living Care first raised the statute in its Reply Brief) is that the statutory duty has not yet arisen. All that the statute requires is that the IRS investigate the equity in a property prior to levying on it, not prior to the collection due process hearing. The only court that has apparently addressed this issue did so in the context of the collection due process verification requirement and agreed that the statutory investigation was not required prior to a collection due process hearing. In Medlock, 325 F.Supp.2d at 1079, the district court said:

Appeals Officer Rich was not required, during the [Collection Due Process] Appeal process, to determine whether the equity in Medlock's property was sufficient to yield net proceeds ... or investigate the status of Medlock's property .... According to the plain language of the relevant statutory sections, [6331(f) and 6331(j)] these actions must be taken before a taxpayer's property may be levied upon by the IRS but are prematurely raised at this stage of the collection process. Appeals Officer Rich's alleged failure to perform those actions therefore does not constitute a violation of [the collection due process statutes].


We agree with this reasoning and find no statutory violation arising from the IRS's failure to investigate at this time the available equity in the taxpayer's property. This failure cannot, therefore, provide the basis for overturning the Appeals Officers' balancing analyses or final decisions.

C. Insufficient Record for Review

Living Care includes this issue in its request for a de novo review by this court, "with a hearing that more closely resembles an evidentiary hearing and gives the taxpayer the opportunity to have what he presents actually recorded for future review." Living Care Proof Br. (Case No. 04-3554) at 37. Since it would be inappropriate for this Court to hold an evidentiary hearing under these circumstances, we consider this claim as a request to remand the cases either to the district courts or to the IRS for development of a more thorough record. Not surprisingly, Living Care cites Mesa Oil in support of its request. Only the court in Mesa Oil has gone so far as to remand to the IRS in a collection due process case with an order that the new hearing have a record "made either through audio tape recording, video tape recording, or stenographer." Mesa Oil [ 2001-1 USTC 50,130], 2000 WL 1745280 at *7. The court there expressed concern that the Notice of Determination's lack of analysis amounted to no record whatsoever and therefore did not allow for a meaningful review. While this is a conventional remedy in administrative law cases, it was extraordinary in the area of tax collection. As discussed earlier, the notion of due process in tax collection is not the same as in other areas of the law. The IRS has historically had broad discretion and the right to levy on property without any pre-seizure process. The 1998 reform did provide for additional procedural protections, but it still does not require the creation of a formal record and conventional administrative review. Admittedly, this makes application of the abuse of discretion standard quite difficult, but at the very least, in order to overturn the IRS decisions, we must be convinced that the type of taxpayer abuse that Congress sought to remedy has occurred in the case. Neither of these cases presents such egregious facts.

In both cases below, the District Courts distinguished the Notices of Determination they were reviewing from the one in Mesa Oil.

Unlike the court in Mesa Oil, this court has before it a report from the collection due process hearing which sets forth the issues raised by Living Care, as well as a discussion of those issues. The [Appeals Officer's] report explains the collection alternatives raised by Plaintiff and why those collection alternatives were impracticable and unreasonable. In the instant case the [Officer] enumerated specific reasons why the IRS's levy action and lien filing balanced the [needs of both parties.]


Living Care I, 2003 WL 23311523 at *3. And similarly, in Living Care II, "the [Appeals Officer's] Determination in this case is clearly more through [sic] and appropriate in its factual review and analysis than was the one which apparently confronted the court in Mesa Oil." Living Care II [ 2004-1 USTC 50,225], 312 F.Supp.2d at 935.

The Notices of Determination in these cases satisfy due process and provide a sufficient basis for an abuse of discretion review, as that standard is applied in tax levy and lien appeals.

D. Abuse of Discretion Not to Allow Offer in Compromise

While Living Care raises this claim in both cases, only the Notice of Determination in Living Care I contains problematic language, meaning the Living Care II claim is without merit.

One of the three areas that Appeals Officers must consider in making their final Determination is offers of collection alternatives made by the taxpayer. At both hearings, Living Care presented plans to either sell the business as a going concern and use the proceeds to pay its tax liabilities or to present an offer in compromise. Living Care rejected the possibility of an installment agreement, since such an agreement would have to be funded from company profits and Medicare and Medicaid billing generally do not allow for profit. Also, under a previous levy around 1996 or 1997, Living Care had entered into an installment agreement with the IRS, and then defaulted in 1999.

The Living Care II Notice of Determination (dated June 21, 2002), see J.A. (Case No. 04-3554) at 12, rejected these plans because the business had currently been on the market for over a year without generating a sale or contract and Living Care was not, at that time, current on its tax payments. The taxpayer must be current on payments for the previous two quarters to be eligible to submit an offer in compromise. These facts, coupled with Living Care's prior default in 1999 on its installment agreement, fully support the decision to reject the alternatives offered.

The Living Care I Notice of Determination (dated March 25, 2003), see J.A. (Case No. 04-3194) at 51, however, contains contradictory statements. On page 2, the Notice states, "Tax deposits are being made and the taxpayer appears to be current for both the 3rd and 4th quarters of 2002." Id. at 54. On page 6, in a section discussing the option of an offer in compromise, it states,

The two quarters preceding the current quarter are the 2nd and 3rd. The taxpayer owes tax for the 2nd; consequently, the taxpayer will not be eligible until the 1st quarter of 2003.... Therefore, as of the date of this report, the taxpayer is not eligible for an offer in compromise.


Id. at 58 (emphasis added). The hearing date in Living Care I was December 12, 2002. The date on the Notice of Determination was March 25, 2003. Either the Appeals Officer intended to express his eligibility determination in terms of the date of the hearing and simply made a typographical error, or he erroneously determined that Living Care was not eligible as of the date of the report, even though his statements on page 2 express recognition that Living Care had made the last two quarter's payments on time.

The government offers several valid responses. First, and most simply, that it was a mere typographical error that does not reach the level of abuse of discretion. This interpretation would have the Court focus on the date of the hearing, since both sides agree that at that time Living Care was not eligible to submit an offer in compromise. In the alternative, the government argues even if the Appeals Officer did misapply the law, Living Care still had an obligation to actually file an offer in compromise, which it failed to do. Therefore, even if it was eligible, its failure to file the proper financial paperwork and IRS forms led to the same result --a rejection of its collection alternatives. Finally, the government presents a litany of additional bases on which the Appeals Officer could have validly rejected Living Care's alternative collection option. These include Living Care's failure to meet the two quarters requirement as of the time of the hearing, its default under the previous installment payment plan in the late 1990's, the escalating amount of unpaid tax liability due to accruing interest and penalties, and the government's need to collect the taxes quickly because of Living Care's financial difficulties.

There is no need to rely on any one of these explanations alone. It is clear that the IRS was well within its discretion to reject Living Care's plan to present an offer in compromise. If the Appeals Officer mistakenly felt his hands were tied because of the two quarters requirement, there are administrative remedies available to point out such mistakes and allow the IRS an opportunity to re-examine its earlier decision. Treas. Reg. 301-6330-1(h)(1) ("The Appeals office that makes a determination under section 6330 retains jurisdiction over that determination, including any subsequent administrative hearings that may be requested by the taxpayer regarding levies and any collection action taken or proposed with respect to Appeals' determination."). But for this Court, reviewing the Appeals Officers' decisions for abuse of discretion, Living Care has failed to present sufficient evidence to justify a remand. Otherwise, without a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS, as contemplated by Congress, the judiciary will inevitably become involved on a daily basis with tax enforcement details that judges are neither qualified, nor have the time, to administer.

For the reasons discussed above, we affirm the decision of the District Courts in these cases.

1 Although the administrative hearing for Living Care II was held first, the District Court decided the case second. It will therefore be referred to as Living Care II.

2 Other tax periods were the subject of other collection due process hearings and at least three other district court appeals. According to Living Care's Briefs, these cases are awaiting various decisions in the district courts. See Living Care Proof Br. (Case No. 04-3554) at 21 n.7.

3 The Commissioner of Internal Revenue shall develop and implement a plan to reorganize the Internal Revenue Service. The plan shall ... eliminate or substantially modify the existing organization of the Internal Revenue Service which is based on a national, regional, and district structure; ... establish organizational units serving particular groups of taxpayers with similar needs; and ... ensure an independent appeals function within the Internal Revenue Service, including the prohibition of ex parte communications between appeals officers and other Internal Revenue Service employees to the extent that such communications appear to compromise the independence of the appeals officers.

The Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, 1001, 112 Stat. 685, 689 (1998).

4 The District Court in Living Care II [ 2004-1 USTC 50,225], 312 F.Supp.2d at 933, determined that motions for summary judgment make no sense in the context of judicial review of agency decisions. Therefore, the court treated the motions for summary judgment as cross-motions for judgment on the pleadings. Many courts, including this one, have allowed motions for summary judgment when reviewing collection due process hearings. See e.g., Herip v. United States [ 2005-1 USTC 50,354], No. 02-4078, 2004 WL 1987302 (6th Cir. Sept. 2, 2004) (unpublished).

5 Since the statute itself is silent as to the appropriate standard, the legislative history of the Restructuring and Reform Act is often cited for establishing this two-tiered approach.

Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal, no levy may take place during the pendency of the appeal. The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion.

Goza v. Commissioner [ CCH Dec. 53,803], 114 T.C. 176, 181 (2000) (quoting with approval H.R. Conf. Rept. No. 105-599, at 266 (1998)).

6 In another section of its Brief, Living Care presents the argument this way:

Here Living Care submits that the District Court erred in concluding that Living Care did not challenge the underlying tax liability. Living Care may not have talked "tax code" language, but it did talk the normal language of the nursing home business. Living Care explained the Catch 22 of government funding and mndates, [sic] where the government gives on the one hand and takes with the other. Government requirements ruled all aspects of operation and mandated that Living Care do and provide certain things, while at the same time kept out new residents and decreased occupancy, penalized the nursing home for low occupancy and decreased funding. Yet the government required the payment of taxes timely and then the payment of interest and penalties (but which Medicaid will not allowed to be reimbursed [sic]). This challenge was made by Living Care in language that has meaning to a nursing home operator. It may not be how an accountant, attorney or IRS agent would phrase such a challenge. But the taxpayer did challenge it in the Request for Hearing and at the hearing.

Living Care Proof Br. (Case No. 04-3554) at 32.

7 The other two issues that must be addressed are verification that applicable law and procedures were followed and other relevant issues raised at the hearing (such as defenses and collection alternatives). See 26 U.S.C. 6330(c).

8 Living Care also attempts to argue that the Appeals Officers disregarded all additional information provided during the hearing, instead relying only on the information in its Request for Hearing. This argument is undermined, at least in Living Care II, by statements in the Notice of Determination such as "During our conference you agreed that..." J.A. Living Care II (Case No. 04-3554) at 17, and "... you admitted during our conference that ..." Id. at 18.

 

 

 

 

 

 

[2005-1 USTC 50,418] Joel Forman and Rayna Forman (as Nominee), Plaintiffs v. United States of America, Department of the Treasury, Internal Revenue Service, Defendants.

U.S. District Court, No. Dist. Ill., East. Div.; No. 03 C 7394, February 3, 2005 .

[ Code Sec. 6330]

Collection Due Process hearing: Nominee lien: Judicial review: Standing. --

Jurisdiction was lacking over an individual's claim that the IRS improperly attached a lien to property held in his wife's name to satisfy his tax liabilities. The taxpayer lacked standing to contest the attachment of the lien to the property, which his wife held as his nominee, because he had no interest in the nominee's property. Therefore, the taxpayer would suffer no legal injury from the taking of the property to satisfy his tax liability. The taxpayer's wife also lacked standing to appeal the lien under Code Sec. 6330(d)(1) because she was not liable for the taxes owed.

MEMORANDUM, OPINION AND ORDER


ANDERSEN, District Judge: The plaintiffs in this case, Joel and Rayna Forman, filed a complaint on October 20, 2003 asking for judicial review of an adverse tax decision made by the defendant Internal Revenue Service ("IRS") Office of Appeals. The defendant filed a motion to dismiss the complaint for lack of jurisdiction, which was fully briefed as of October 1, 2004 . Subsequently, the plaintiffs sought to amend their complaint on October 15, 2004 , and later filed a motion for leave to file a second amended complaint on November 12, 2004 . Count I of the plaintiffs' second amended complaint restates the original civil action, asking for judicial review of the Office of Appeals' adverse tax decision. Count II is a new action brought by Rayna Forman to quiet title to the property at issue in this case.

This Court grants plaintiffs' motion for leave to file the second amended complaint. For the reasons stated below, however, the Court dismisses Count I of the second amended complaint after careful consideration of the briefs that were filed on the defendant's motion to dismiss the original complaint. Count II is not dismissed and Rayna Forman, acting on her own behalf, may adjudicate her claimed interest in the property that is subject to a Notice of Federal Tax Lien.

BACKGROUND


On October 23, 2000 , the IRS filed a Notice of Federal Tax Lien providing notice that its federal tax lien against Joel Forman attached to property held in the name of his wife, Rayna Forman, as his nominee. The property at issue is the couple's personal residence, located in Deerfield, Illinois. The tax lien identified on the Notice is for wagering excise taxes owed by Mr. Forman, which he was required to report on IRS Form 730 "Tax on Wagering" and IRS Form 11-C "Stamp Tax and Registration Return for Wagering."

On October 26, 2000 , the IRS sent to Joel Forman a "Notice of Federal Tax Lien Filing and Your Rights to a Hearing under IRC 6320." On November 20, 2000 , the IRS received Mr. Forman's request for a collection due process hearing, which specifically identified the Form 730 and Form 11-C wagering taxes at issue. Mr. Forman received a hearing on July 16, 2002 during which he did not challenge the assessment of the wagering taxes, nor the amount of his tax liability. He only argued against the designation of Rayna Forman as nominee and, therefore, that the tax lien should not attach to the couple's residence --property that is held solely in Rayna Forman name.

On September 18, 2003 , the IRS Office of Appeals in Chicago, Illinois issued a "Notice of Determination Concerning Collection Actions Under Section 6320 and/or Section 6330," finding that "the determination in Appeals is that the Nominee Lien was properly and correctly filed by Area 7 Compliance and that the filing of the Nominee Lien is fully sustained in Appeals." (Ex. 5, Def. Statement of Material Facts.)

STANDARD OF REVIEW


In ruling on a motion to dismiss, the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiffs. Szumny v. Am. Gen. Fin., Inc., 246 F.3d 1065, 1067 (7th Cir. 2001). Dismissal is proper only when it appears beyond a doubt that plaintiff can prove no set of facts to support the allegations in the claim. Hernandez v. City of Goshen, 324 F.3d 535, 537 (7th Cir. 2003). The purpose of a motion to dismiss is not to decide the merits of the challenged claims, but to test the sufficiency of the complaint. Weiler v. Household Fin. Corp., 101 F.3d 519, 524, n.1 (7th Cir. 1996).

DISCUSSION


Count I of the plaintiffs' second amended complaint asks for judicial review of the IRS Office of Appeal's decision to sustain the filing of the nominee lien. This Court dismisses Count I because each plaintiff is precluded from seeking judicial review on this issue.

I. Rayna Forman Cannot Avail Herself of 26 U.S.C. 6330(d)(1) Because She Is Not the Taxpayer


The statute providing authority to place a lien on taxpayer property instructs the Court regarding who may seek judicial review of an adverse appeal determination. Under the levy statute, 26 U.S.C. 6321, "[i]f any person liable to pay any tax neglects or refuses to pay ... the amount [owed] shall be a lien in favor of the United States upon all property and rights to property ... belonging to such person" (emphasis added). In Count I, Rayna Forman is purportedly exercising her right to judicial review under the statute. 26 U.S.C. 6330(d)(1) ("[T]he person may, within 30 days of a determination under this section, appeal such determination ... to a district court of the United States."). The right to judicial review set forth in 6330(d)(1), however, extends only to the "person liable to pay any tax," (i.e., the taxpayer) defined in 6321. Because Rayna Forman is not liable for the taxes owed (the lien was filed naming her only as nominee of Joel Forman), she cannot avail herself of the 6330(d)(1) right to judicial review of the appeal decision. Thus, Rayna Forman's Count I claim must be dismissed.

II. The Court Lacks Jurisdiction Over Joel Forman Because He Has No Standing to Contest the Filing of a Notice of Federal Tax Lien Naming Rayna Forman


The essence of Mr. Forman's lawsuit is that he does not have an interest in the property held in his wife's name, and therefore, her property cannot be used to satisfy his tax liability. He states in the complaint that he "transferred his interest in the residence to plaintiff Rayna Forman on July 11, 1990 , because he began the risky venture of trading on the Mercantile Exchange." (Pl. Compl. 12.) Because Mr. Forman cannot be legally injured but can only benefit from the taking of property in Rayna Forman's name to satisfy his tax liability, he lacks standing to challenge the IRS's Notice of Federal Tax Lien against what he maintains is her property.

The standing doctrine is grounded in the case-or-controversy requirement of Article III of the Constitution. See Bennett v. Spear, 520 U.S. 154, 167 (1997) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). The "irreducible constitutional minimum of standing" consists, in part, on the requirement that the plaintiff must have "suffered or is threatened by injury in fact to a cognizable interest," which must be "(a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical." Warth v. Seldin, 422 U.S. 490, 498 (1975).

Having disclaimed any interest in the property, Mr. Forman cannot now point to having suffered a legal injury by the filing of a nominee Notice of Federal Tax Lien naming Rayna Forman. If Mr. Forman insists that he has no interest in the property, as he does, then he cannot assert that he is legally injured by the lien. Therefore, Mr. Forman lacks standing to appeal the naming of Rayna Forman as nominee, and this Court lacks jurisdiction to hear the action brought by him.

CONCLUSION


The plaintiffs' motion for leave to file a second amended complaint [17-1] is granted. Count I of the second amended complaint, however, is dismissed. Count II of the complaint, Rayna Forman's action to quiet title, remains. The defendants' motion to dismiss the original complaint [8-1] is denied as moot. This case is referred to Judge Arlander Keys for discovery supervision on Count II.

It is so ordered.

 

 

 

 

 

[Dec. 56,095] Joseph Paul Freije v. Commissioner.

Dkt. No. 932-02L , 125 TC --, No. 3, July 14, 2005 .

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

[Code Sec. 6213]
Collection Due Process hearing: Opportunity to dispute underlying liability: Math errors. --

The IRS's disallowance as math errors of, among other items, deductions for legal fees and post office box expenses was inappropriate. At trial, the IRS conceded that those items were not appropriately correctable under the math error provision, but argued that the court should consider the validity of the deductions de novo, under Code Sec. 6330(c)(2)(B), since the taxpayer had not had any previous opportunity to dispute the underlying tax liability. The court declined, finding that the IRS could not use the review of an improper math error correction as a back door to raise an issue on which it had not issued a notice of deficiency. The taxpayer's right to dispute the underlying tax liability in a Code Sec. 6330 proceeding does not cure an assessment made in violation of the taxpayer's right to a deficiency proceeding.


[Code Sec. 6330]
Collection Due Process hearing: Judicial review: Tax Court jurisdiction: Collection alternative: Opportunity to dispute underlying liability: Application of payments: Math errors: Erroneous refunds. --

An IRS Appeals officer's determination to proceed with levies to collect unpaid liabilities was an abuse of discretion because of various infirmities in the proposed levies. The taxpayer's proposed collection alternative, an offer to pay twenty-five cents per year at issue was frivolous, and the Appeals officer's rejection of it was not an abuse of discretion. The court had jurisdiction to consider the taxpayer's liability and payments made for earlier years in determining the validity of the liens under challenge. Improper applications of payments to recover an erroneous refund made levies for subsequent years unsustainable, nor could a levy be approved for an item improperly disallowed as a math error and never considered in deficiency proceedings. --CCH.


[Code Secs. 6532 and 7405]
Erroneous refunds: Recovery by application of payments: Necessity of assessment. --

An Appeals officer's determination to proceed with levies to collect unpaid taxes was an abuse of discretion because of various infirmities in the proposed levies. The IRS attempted to collect an erroneous refund without a new assessment by applying the taxpayer's subsequent payments to the refund year. This method of recovering an erroneous refund is prohibited under R.E. O'Bryant (CA-7, 95-1 USTC 50,143), and, therefore, the payments should have been applied to later assessments. The failure to so apply those payments resulted in the levies for those later years being unsustainable.

Joseph Paul Freije, pro se; Diane L. Worland, for respondent.

P timely petitioned for review under sec. 6330(d), I.R.C., of R's determination to proceed with levies to collect unpaid Federal income taxes for 1997, 1998, and 1999.

P claimed in his Appeals hearing and herein that the proposed levy for 1997 should not be sustained because a remittance he made in 1997 with respect to his Federal income tax liability for that year was instead applied improperly by R against a tax liability alleged by R to exist for 1995. Consequently, P contends, R is attempting to collect a tax that has been paid. R contends that this Court lacks jurisdiction to consider 1995, a year that was not the subject of a notice of determination, to ascertain whether a liability existed for that year, to which the 1997 remittance was applied.

Held: P's claim concerning the disposition of his 1997 remittance is a relevant issue relating to the unpaid tax for 1997, and we have jurisdiction to consider facts and issues arising in 1995, a year not the subject of the notice of determination, insofar as they are relevant to computing the unpaid tax for 1997.

Held, further, since P's Federal income tax return and payment for 1995 were untimely, resulting in the assessment of additions to tax for late filing and payment, R's application of P's 1997 remittance against the 1995 liability was proper.

 

In July 1998, P mailed a check to R for $1,776. R posted the check to P's 1997 account for the erroneous amount of $11,776. As $11,776 exceeded all unpaid assessments for 1997, R issued P a refund for 1997 of $5,513 in August 1998. After subsequently discovering his error, R applied four of P's 1999 remittances, totaling $6,500, to P's 1997 account. P claimed in his hearing request and herein that he had not received proper credit for all payments made with respect to 1999.

Held: R's application of P's 1999 remittances to P's 1997 account to recoup the erroneous nonrebate refund for 1997 contravenes O'Bryant v. United States [95-1 USTC 50,143], 49 F.3d 340, (7th Cir. 1995). These 1999 remittances should have been applied against unpaid taxes that are the subject of the instant levies. Consequently, the levies must be reconsidered by R on remand.

P claimed in his Appeals hearing and herein that the proposed levy for 1999 should not be sustained because R improperly changed the amounts shown as due on P's Federal income tax return for 1999. R concedes that he disallowed, pursuant to sec. 6213(b)(1), I.R.C., certain miscellaneous itemized deductions claimed on that return and made an assessment based thereon without issuing a notice of deficiency to P as required by sec. 6213(a), I.R.C. As a consequence, R contends, P is entitled in the instant proceeding to de novo review under sec. 6330(c)(2)(B), I.R.C., of his entitlement to these deductions, with any modifications resulting from the Court's review to be reflected in the amount of the assessment and levy.

Held: the 1999 levy, insofar as it is based on the disallowance of P's miscellaneous itemized deductions, may not proceed, as the assessment upon which it is based is invalid; de novo review pursuant to sec. 6330(c)(2)(B), I.R.C., may not cure an assessment that is invalid for failure to comply with sec. 6213(a), I.R.C. Consequently, the 1999 levy must be reconsidered by R on remand.

Held, further, other issues raised by respondent's determination to proceed with the levies for 1997, 1998, and 1999 determined.

GALE, Judge: Pursuant to section 6330(d),1 petitioner seeks review of respondent's determination to proceed with collection by levy of income tax liabilities with respect to petitioner's 1997, 1998, and 1999 taxable years. The issue for decision is whether respondent may proceed with proposed levies for liabilities not conceded by him for 1998 and 1999.

FINDINGS OF FACT

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

Petitioner resided in Franklin, Indiana, when the petition in this case was filed.

Petitioner and his spouse (Mrs. Freije; collectively, the Freijes) obtained an automatic 4-month extension (until August 15, 1996 ) to file their joint Federal income tax return for the 1995 taxable year (1995 return).2 The 1995 return, untimely filed on November 18, 1996 , reported tax due of $8,281.61 and was accompanied by a payment of $3,005.47 which, when added to the withholding credits listed of $5,276.14, satisfied the tax reported as due. Nonetheless, the untimely filing and payment triggered additions to tax for late filing and late payment, as well as interest, totaling $838.27, which was assessed on December 23, 1996 .

 

On June 3, 1997 , respondent received a $2,800 remittance from the Freijes. The record does not disclose whether this remittance was designated for any purpose. Respondent applied $869.46 of this remittance to the foregoing assessment for 1995 (plus an additional assessment of interest) and refunded the balance to the Freijes. The Freijes also made remittances to respondent of $2,300 on June 10, 1997 , and $1,500 on October 6, 1997 , that respondent treated as payments of estimated tax for 1997.

The Freijes timely filed a joint Federal income tax return for the 1997 taxable year (1997 return) reporting a tax due of $21,510, listing withholding credits of $4,134, and claiming estimated tax payments of $6,600.3 A payment of $4,000 was sent with the 1997 return. The $21,510 in tax reported as due on the 1997 return, as well as additions to tax for late payment and failure to pay estimated tax, plus interest, were assessed on June 8, 1998. Subsequent remittances of $2,000 each were credited against the Freijes' 1997 liability on May 3 and June 1, 1998. On or about July 6, 1998, petitioner mailed a check for $1,776 to respondent.4 This check was erroneously posted to the Freijes' 1997 account in the amount of $11,776 on July 8, 1998, which amount exceeded all assessments for 1997. As a consequence, respondent issued the Freijes a refund of $5,513 on August 3, 1998. At a time not disclosed in the record, respondent corrected the $10,000 error by reversing $10,000 of the $11,776 previously credited.5 Subsequent remittances made by the Freijes in 1999 without designation for any year, totaling $6,500, were posted to their 1997 account as follows: $1,800 on May 26, 1999; $2,400 on June 16, 1999; $1,200 on July 9, 1999; and $1,100 on July 26, 1999.

The Freijes timely filed a joint Federal income tax return for the 1998 taxable year (1998 return) reporting a tax due of $11,686 and no withholding credits or estimated tax payments. (The Freijes' actual withholding credits for 1998 were $4,094.) A payment of $3,000 was sent with the 1998 return. Subsequent remittances of $1,000 and $1,587 were credited against their 1998 liability on April 19 and October 27, 1999 , respectively.

The Freijes timely filed a joint Federal income tax return for the 1999 taxable year (1999 return) reporting a tax due of $12,507.05, listing withholding credits of $4,318.96, and claiming estimated tax payments of $15,616.6 On or about May 29, 2000 , respondent issued a notice to the Freijes, at the address they entered on the 1999 return, concerning the 1999 return and entitled "We Changed Your Estimated Tax Total --You Have An Amount Due". The notice indicated that the 1999 return had been changed as follows: (i) Taxable income had been increased from the $43,531 reported to $53,399, resulting in an increase in the tax shown as due on the return from $12,507.05 to $15,265; and (ii) estimated tax payments had been reduced from the $15,616 reported to $6,000. On the same date as the notice, respondent assessed the increased tax of $15,265, without issuing a statutory notice of deficiency to the Freijes.

On December 27, 2000 , respondent sent a letter to the Freijes with attached workpapers that explained in greater detail the foregoing changes made to the 1999 return. With respect to the reduction in the claimed estimated tax payments, the letter advised that the Freijes' 1999 account showed 1999 estimated tax payments of only $6,000, consisting of two payments of $3,000 on November 10 and December 17, 1999 .7 With respect to the increase in taxable income, the letter advised that the $9,868 increase in taxable income (from the reported $43,531 to $53,399) consisted of the following items:

(i) $1,000 increase in income as a result of a discrepancy in that amount between the figure entered for adjusted gross income at the bottom of the first page of the 1999 return ($73,273) and the figure entered for adjusted gross income at the top of the second page ($72,273);

(ii) a $320 increase in income resulting from the disallowance of a casualty or theft loss in that amount claimed on the 1999 return, on the grounds that the claimed loss did not consider the limitation of such losses to amounts in excess of 10 percent of adjusted gross income;

 

(iii) $20 increase in income resulting from the disallowance of a miscellaneous deduction for "P.O. Box" claimed on the 1999 return, explained in the letter as follows: "Misc Deductions: A post office box is not a deductible expense";

(iv) $8,528 increase in income resulting from the disallowance of a miscellaneous deduction for "Lawyers" claimed on the 1999 return, explained in the letter as follows: "Other Misc Deductions: Lawyers are not a deductible expense. They are deductible if the fees are paid to produce or collect taxable income or are in connection with the determination, collection, or refund of a tax."

On February 7, 2001 , respondent issued to the Freijes a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for income tax, interest, and penalties for taxable years 1997, 1998, and 1999. On February 18, 2001 , respondent received a Form 12153, Request for a Collection Due Process Hearing, from petitioner (but not Mrs. Freije) regarding respondent's proposed collection action for the foregoing years. As grounds for disagreeing with the proposed collection action, petitioner wrote as follows, "I am scheduled for audit in Greenwood IN. You people have falsely accused me of writing a bad check for $10,000.00. You deny receiving over $13,000.00 in estimated taxes. * * * I have amended 1997, 1998, 1999. You owe me over $24,000.00."

On February 27, 2001, the Freijes filed an amended Federal income tax return for 1997, claiming an increase in itemized deductions of $14,9408 and a resulting refund of $6,395. On March 27, 2001, the Freijes filed amended Federal income tax returns for 1998 and 1999, claiming a $14,9409 reduction in previously reported adjusted gross income for each of those years and resulting refunds of $8,996.50 and $8,752.73, respectively.10

On or about April 30, 2001 , an Appeals officer of respondent sent petitioner a letter advising him that a conference would be scheduled in the future. In May 2001, petitioner advised the Appeals officer that he did not wish to appear in person in respondent's office to attend a face-to-face meeting in connection with a hearing.

On June 4, 2001 , petitioner and the Appeals officer discussed petitioner's request by telephone. During that conversation, petitioner advised the Appeals officer that he would be willing to "pay 25 cents per year for 1997, 1998, and 1999, call it even, and then start afresh with the year 2001." The Appeals officer advised petitioner that this proposed collection alternative to the levy was not acceptable. Later that day, petitioner left voice-mail messages for the Appeals officer seeking information concerning changes respondent made to his 1995, 1996, 1997, and 1998 returns that resulted in additional tax, additions to tax, and interest for those years as well as information concerning why payments intended for one year had been applied to other years. Petitioner further advised the Appeals officer that his problems began with his 1995 taxes. In addition, petitioner advised the Appeals officer of petitioner's claim that respondent had altered petitioner's check for $1,776 (intended as payment of his 1997 taxes) so that it was posted for $11,776, which, according to petitioner, resulted in his being falsely accused by respondent of writing a bad check for $10,000.

On November 26, 2001 , a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioner. In the notice, the Appeals officer determined that all applicable laws and administrative procedures had been satisfied. With respect to petitioner's expressed concerns about his 1995 taxes, the Appeals officer explained that a remittance submitted by petitioner in 1997 and intended by him to be applied to that year's taxes was instead applied to 1995 taxes because the return and payment for 1995 had been received late, triggering an assessment of additions to tax and interest for that year to which the 1997 payment had been applied. With respect to 1997, the Appeals officer determined that, because respondent's incorrect posting of petitioner's $1,776 check as $11,776 had resulted in an erroneous refund with respect to 1997, the assessed failure to pay addition to tax would be abated. As for the remaining liabilities that were the subject of the levy, the Appeals officer determined: "The tax owed is from the original return for 1997, 1998 and 1999. Therefore, I recommend the government sustain the tax liability for * * * [those tax periods]." Concluding that the proposed levy represented an appropriate balancing of the need for efficient collection with the concern that the collection action be no more intrusive than necessary, the Appeals officer determined that the proposed levy could proceed.

On January 14, 2002 , petitioner filed a timely petition with this Court for review of the determination. The petition assigns a litany of errors to the determination, including (i) that respondent changed petitioner's 1995 through 1999 returns without notifying him; (ii) that respondent altered a check petitioner submitted in connection with the erroneous posting of his $1,776 payment as $11,776 for 1997; and (iii) that respondent denied receipt of certain payments petitioner made. Petitioner seeks as a remedy a refund of all Federal income taxes he paid for taxable years 1995 through 2001.

After the petition was filed, on March 11, 2002 , respondent issued a notice of deficiency to the Freijes with respect to their 1999 taxable year. In the notice of deficiency, respondent determined, inter alia, that the Freijes were not entitled to the $320 casualty loss claimed in the 1999 return but were entitled to miscellaneous deductions of $8,935 (subject to the 2-percent limitation of section 67(a)). On the same day that the notice of deficiency was issued, respondent issued a claim disallowance letter to the Freijes, denying their claims for refund in their amended returns filed for 1997, 1998, and 1999. No petition was filed in this Court with respect to the notice of deficiency for 1999.

At trial and in his posttrial brief, respondent conceded that collection of petitioner's outstanding liability for 1997, representing that portion of the erroneous refund for 1997 that had not been collected, was prohibited by section 6532(b).

OPINION

Section 6331(a) authorizes the Secretary to levy upon property and property rights of a taxpayer liable for taxes who fails to pay those taxes within 10 days after notice and demand for payment is made. Section 6331(d) provides that the levy authorized in section 6331(a) may be made with respect to any "unpaid tax" only if the Secretary has given written notice to the taxpayer 30 days before the levy. Section 6330(a) requires the Secretary to send a written notice to the taxpayer of the "amount of the unpaid tax" and of the taxpayer's right to a section 6330 hearing at least 30 days before any levy is begun. This notice need only be given once for "the taxable period to which the unpaid tax specified in * * * [the levy notice] relates." Sec. 6330(a)(1).

If a section 6330 hearing is requested, the hearing is to be conducted by Appeals, and, at the hearing, the Appeals officer conducting it must verify that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(b)(1), (c)(2). The taxpayer is entitled to one hearing with respect to "the taxable period to which the unpaid tax specified in * * * [the levy notice] relates." Sec. 6330(b)(2). The taxpayer may raise at the hearing "any relevant issue relating to the unpaid tax or the proposed levy". Sec. 6330(c)(2)(A). The taxpayer may also raise challenges to the existence or amount of the underlying tax liability at a hearing if the taxpayer did not receive a statutory notice of deficiency with respect to the underlying tax liability or did not otherwise have an opportunity to dispute that liability. Sec. 6330(c)(2)(B). The underlying tax liability that may be challenged includes amounts reported as due on a return. Montgomery v. Commissioner [Dec. 55,501], 122 T.C. 1 (2004).

 

At the conclusion of the hearing, the Appeals officer must determine whether and how to proceed with collection and shall take into account (i) the verification that the requirements of any applicable law or administrative procedure have been met, (ii) the relevant issues raised by the taxpayer, (iii) challenges to the underlying tax liability by the taxpayer, where permitted, and (iv) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary. Sec. 6330(c)(3).

We have jurisdiction to review the Appeals officer's determination where we have jurisdiction over the type of tax involved in the case. Sec. 6330(d)(1)(A); see Iannone v. Commissioner Dec. [Dec. 55,618], 122 T.C. 287, 290 (2004). Generally, we may consider only those issues that the taxpayer raised during the section 6330 hearing. See sec. 301.6330-1(f)(2), Q&A-F5, Proced. & Admin. Regs.; see also Magana v. Commissioner [Dec. 54,765], 118 T.C. 488, 493 (2002). Where the underlying tax liability is properly at issue, we review the determination de novo. E.g., Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181-182 (2000). Where the underlying tax liability is not at issue, we review the determination for abuse of discretion. Id. at 182. Whether an abuse of discretion has occurred depends upon whether the exercise of discretion is without sound basis in fact or law. See Ansley-Sheppard-Burgess Co. v. Commissioner [Dec. 50,547], 104 T.C. 367, 371 (1995).

Petitioner, proceeding pro se, seeks a refund of all income taxes paid for taxable years 1995 through 2001. Our jurisdiction in this case is confined, however, to a review of the Appeals officer's determination approving a levy to collect unpaid tax liabilities for 1997, 1998, and 1999. We shall treat petitioner as contesting the Appeals officer's determination for all years, and consider his arguments to the extent they have any bearing thereon. In particular, we find that petitioner's communications with the Appeals officer may be fairly construed as proposing a collection alternative, and as raising the issue that payments he made with respect to the years in issue were not properly accounted for by respondent and that the tax reported as due on his returns for some or all of the years in issue was changed inappropriately by respondent.11

Proposed Collection Alternative

We can readily dispose of petitioner's proposed collection alternative. His offer of 25 cents per year for 1997, 1998, and 1999 is frivolous, and the Appeals officer's rejection of it was not an abuse of discretion.

1997

Although respondent now concedes he may not collect the unpaid balance of petitioner's 1997 liability by levy, we nonetheless find it necessary to consider that year because, first, petitioner claims that payments that were intended to satisfy his 1997 liability were instead applied to 1995. If these payments were improperly applied to 1995, then respondent's computation (and assessment) of the additions to tax for late payment and failure to pay estimated tax for 1997 would be incorrect.12 Second, respondent applied $6,500 of remittances made by the Freijes in 1999 to their 1997 liability, even though all assessments of the 1997 liability were extinguished by respondent's crediting of petitioner's $1,776 check as $11,776 on July 8, 1998 . Although neither party has addressed the issue, as discussed more fully below, respondent's application of the Freijes' 1999 remittances to their 1997 account contravenes O'Bryant v. United States [95-1 USTC 50,143], 49 F.3d 340 (7th Cir. 1995).



Claim of Payment

With respect to petitioner's contention that certain 1997 payments were improperly applied to 1995, respondent argues that we lack jurisdiction to consider 1995, citing Lister v. Commissioner [Dec. 55,020(M)], T.C. Memo. 2003-17. We disagree. We held in Lister, a Memorandum Opinion, that our jurisdiction under section 6330(d)(1) was confined to the years that were the subject of the notice of determination, where the taxpayer had attempted in the petition to put in issue all years subsequent to the 2 years covered by the notice. Here, petitioner's claim is that a payment intended for 1997, a year that was a subject of the notice of determination (determination year), was instead applied to a liability for 1995, a year that was not a subject of the notice of determination (nondetermination year).

We do not read Lister as precluding our consideration of facts and issues arising in nondetermination years where those facts and issues are relevant to a taxpayer's claim that the tax which is the subject of a collection action has been paid. As discussed below, we believe our jurisdiction extends in appropriate circumstances to years other than those in which the tax liability sought to be collected arises.

Our jurisdiction under section 6330 covers the "determination" of the Appeals officer who conducted the hearing requested under that section. See sec. 6330(d)(1)(A) ("the Tax Court shall have jurisdiction with respect to [the determination of an Appeals officer under section 6330]"). Section 6330(c)(3) prescribes the matters that the Appeals officer's determination "shall" take into consideration, which include "the issues raised under paragraph (2) [of section 6330(c)]". Paragraph (2) of section 6330(c) entitles the person upon whose property the Commissioner seeks to levy (the taxpayer) to raise at the hearing "any relevant issue relating to the unpaid tax or the proposed levy", par. (2)(A), and, if he did not receive any statutory notice of deficiency for, or otherwise have an opportunity to dispute, the underlying tax liability, he may also raise "challenges to the existence or amount of the underlying tax liability for any tax period", par. (2)(B).

Thus, our jurisdiction is defined by the scope of the determination, which must take into consideration, if raised by the taxpayer, "any relevant issue relating to the unpaid tax or the proposed levy" and, in certain circumstances, "challenges to the existence or amount of the underlying tax liability for any tax period".

There is no question that petitioner raised the issue of a remittance made in 1997 having been applied (improperly, in petitioner's view) to satisfy a 1995 liability, as the determination discusses his claim and traces the application of the remittance.13 The question is whether the propriety of applying the 1997 remittance to satisfy the 1995 liability is a "relevant issue relating to the unpaid tax or the proposed levy". If so, we have jurisdiction, as the statute required the determination to take into consideration the issue and our jurisdiction encompasses the determination. For the reasons discussed below, we conclude our jurisdiction is not confined to the year (or period) to which the unpaid tax relates, as respondent contends, but extends to facts and issues in nondetermination years where they are relevant to computing the unpaid tax.

In interpreting the scope of section 6330(c)(2), we note first that the legislative history indicates that Congress intended a broad construction of the issues that a taxpayer was entitled to raise under that section. "In general, any issue that is relevant to the appropriateness of the proposed collection against the taxpayer can be raised at the pre-levy hearing." H. Conf. Rept. 105-599, at 265 (1998), 1998-3 C.B. 747, 1019.

 

Second, considering the terms of the statute in their ordinary meaning, a "relevant issue relating to the unpaid tax or the proposed levy" surely includes a claim, such as the one here, that the "unpaid tax" has in fact been satisfied by a remittance that the Commissioner improperly applied elsewhere. Both section 6331, which empowers the Commissioner to impose a levy, and section 6330, which requires the Commissioner to afford a hearing before proceeding with a levy and provides our jurisdiction to review his determination to proceed with a levy, contemplate an "unpaid tax". Secs. 6330(a)(1), (3)(A), (b)(2) and (3), (c)(2)(A), 6331(d)(1) (emphasis added). Since an "unpaid tax" is the sine qua non of the Commissioner's authority to levy, we believe a claim directed at the status of the tax as "unpaid" is a "relevant issue relating to the unpaid tax or the proposed levy". Sec. 6330(c)(2)(A). Meaningful review of a claim that a tax sought to be collected by levy has been paid, by means of a remittance or an available credit, will typically require consideration of facts and issues in nondetermination years, as those years may constitute the years to which a remittance was applied or from which a credit originated.14

Finally, we note that, notwithstanding respondent's present position, the Appeals officer interpreted the statute to require her consideration of petitioner's claim that certain remittances intended for 1997 had been applied improperly to 1995. The determination specifically addresses this claim, and traces the application of the Freijes' June 3, 1997 , remittance to an outstanding liability for 1995 representing an assessment for failure to file and failure to pay additions to tax as well as interest.

For the foregoing reasons, we hold that our jurisdiction under section 6330(d)(1)(A) encompasses consideration of facts and issues in nondetermination years where the facts and issues are relevant in evaluating a claim that an unpaid tax has been paid.

In reaching this conclusion, we are mindful that in the case of our deficiency jurisdiction, section 6214(b) imposes limitations on our jurisdiction with respect to years other than the year for which a deficiency has been determined. Section 6214(b) provides that, in redetermining a deficiency of income tax for any taxable year, this Court "shall consider such facts with relation to the taxes for other years * * * as may be necessary correctly to redetermine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other year * * * has been overpaid or underpaid." In interpreting this provision --

We have distinguished our authority under section 6214(b) to compute a tax for a year not before the Court from our lack of authority under that same section to "determine" a tax for such year. In Lone Manor Farms, Inc. v. Commissioner [Dec. 32,403], 61 T.C. 436, 440 (1974), affd. without published opinion 510 F.2d 970 (3d Cir. 1975), we stated that section 6214(b) "does not prevent us from computing, as distinguished from `determining', the correct tax liability for a year not in issue when such a computation is necessary to a determination of the correct tax liability for a year that has been placed in issue." Hill v. Commissioner [Dec. 46,928], 95 T.C. 437, 439-440 (1990).]

Thus, section 6214(b) does not foreclose our authority (i) to consider facts and issues in a nondeficiency year and on the basis thereof compute the tax liability for that year (regardless of the tax liability reported by the taxpayer or assessed by the Commissioner), or (ii) to employ the recomputed tax liability in redetermining the tax liability for the year for which a deficiency was determined. The limiting conditions of section 6214(b) are that the computation of the other year's tax liability be necessary to the redetermination of the tax liability at issue and that our recomputation not constitute a determination of the other year's liability for any other purpose.

There is no statutory provision comparable to section 6214(b) that limits the jurisdiction granted by section 6330(d)(1)(A). Nonetheless, our holding conforms to the principles of section 6214(b). We conclude that our jurisdiction under section 6330(d)(1)(A) extends to the consideration of facts and issues in a nondetermination year only insofar as the tax liability for that year may affect the appropriateness of the collection action for the determination year. In exercising that jurisdiction, we do not determine whether any collection action with respect to the nondetermination year may proceed, but only whether collection action may proceed in the determination year.

Having decided our jurisdiction to consider facts and issues in 1995, we turn to consideration of petitioner's claim that his 1997 liability had been paid. In an effort to demonstrate that respondent had not properly credited him with payments he made to satisfy his 1997 liabilities, petitioner testified that he had timely filed his 1995 return. If the 1995 return had been timely filed, then the $3,005.47 payment submitted with that return, when added to withholding credits, would have fully satisfied the tax reported as due on the 1995 return, and no additions to tax for late filing or late payment would have been owed. As a consequence, it would not have been proper for respondent to apply (as he did) a portion of the $2,800 payment received from the Freijes on June 3, 1997 , against any 1995 liability, as there would have been none.

However, we have found that the 1995 return was untimely filed on November 18, 1996. We based that finding on an evaluation of the parties' respective evidence. Respondent offered from his records a certified copy of a completed Form 1040, U.S. Individual Income Tax Return, for 1995 bearing the Freijes' signatures, with a "received" stamp of November 18, 1996, and with a date of "11-16-96" entered next to the signatures. The Form 4340 for 1995 likewise indicates a filing date for the return of November 18, 1996. Petitioner offered a Form 1040 with a date of "1-16-96" entered next to the signatures. In addition, petitioner offered a copy of his check to the IRS, bearing a date of "1-16-96". This copy had no bank markings indicating it had been negotiated, which petitioner explained was due to the fact that it was a copy of the check made before mailing it to the IRS. Petitioner also produced a copy of the negotiated version of the same check, yet this copy bore a date of "11-16-96", consistent with a November 1996 filing.15 Moreover, petitioner produced a copy of a request for an automatic 4-month extension of time for filing the 1995 return, with the signatures thereon dated February 10, 1996. The Form 4340 for 1995 indicates that a 4-month extension was granted. Yet petitioner offers no convincing explanation why, if he filed a return for 1995 in January 1996 as he claims, he sought a filing extension in February 1996. Given the significant contradictory evidence, petitioner's self-serving claim that he filed a return for 1995 in January 199616 is not credible.

Because petitioner's 1995 return and accompanying payment were untimely, respondent assessed additions to tax for late filing and late payment for that year. As a consequence, respondent was entitled to apply the June 2, 1997 , payment submitted by the Freijes, which it has not been shown was designated for any year, in satisfaction of his 1995 liability. See Rev. Rul. 73-305, 1973-2 C.B. 43. Therefore, respondent's assessment of the additions to tax for late payment and failure to pay estimated tax for 1997 was correct.

Respondent's Application of 1999 Remittances to 1997 Liabilities

On or about July 6, 1998 , petitioner mailed a check for $1,776 to respondent. This check was erroneously posted to the Freijes' 1997 account in the amount of $11,776 on July 8, 1998 . As this amount exceeded all unpaid assessments for 1997, respondent issued the Freijes a refund of $5,513 for that year on August 3, 1998 . Sometime after August 3, 1998 , respondent became aware of the $10,000 error and made reversing entries on the Freijes' 1997 account.17 However, no assessments were recorded subsequent to the August 3, 1998 , refund. Respondent thereafter applied four remittances made by the Freijes in 1999, totaling $6,500, to their 1997 account.

Respondent's application of these 1999 remittances to the Freijes' 1997 account in an effort to recover the erroneous refund contravenes O'Bryant v. United States, [95-1 USTC 50,143], 49 F.3d 340 (7th Cir. 1995). In O'Bryant, the Court of Appeals for the Seventh Circuit, to which an appeal in this case would ordinarily lie, held that the Commissioner may not use his postassessment collection powers to recover an erroneous nonrebate refund. In that case, the taxpayer made a payment that satisfied an outstanding assessment. The Commissioner mistakenly credited the payment to the taxpayer's account twice and consequently issued the taxpayer a refund in the amount of the payment plus interest. Upon discovering his mistake, the Commissioner recovered a portion of the refund by levy and by applying overpayments and remittances from other years to the taxpayer's account for the year of the refund, without having made another assessment. The Court of Appeals concluded that, since the assessment had been extinguished by the taxpayer's payment, the Commissioner could not employ his summary collection powers in the absence of an assessment, but instead had to recover the erroneous refund through an erroneous refund action under section 7405.18

Respondent has applied $6,500 in 1999 remittances to the Freijes' 1997 account in an effort to recover the erroneously refunded $5,513 (plus interest, presumably). Under O'Bryant, he may not do so. Instead, these 1999 undesignated remittances, under respondent's then-applicable procedures, see Rev. Rul. 73-305, supra, should have been applied to satisfy outstanding assessments for 1998. Had the 1998 assessments been thereby satisfied, presumably some portion of these 1999 remittances would have been available for application to the Freijes' 1999 account. Consequently, we conclude that the levies for 1998 and 1999 should not be sustained in their present form, as the unpaid tax for each year may be affected by the proper application of the $6,500 in 1999 remittances by the Freijes.

1998

Respondent has conceded that the Appeals officer's determination to proceed with the levy with respect to petitioner's 1998 liability failed to take into account $4,094 of withholding credits of Mrs. Freije that were not listed on the 1998 return.

The only specific dispute of his 1998 liability that we can identify as having been raised by petitioner arises by virtue of the Freijes' amended return for 1998.19 In the amended return, the Freijes claimed a reduction in 1998 adjusted gross income of $14,940, which was calculated as reducing the tax due from the $11,686 originally reported to $7,097.50.20 While petitioner may dispute in this proceeding the amount reported as due on the 1998 return, see Montgomery v. Commissioner [Dec. 55,501], 122 T.C. 1 (2004), there is no merit to the grounds on which petitioner now disputes the amount reported as due on the 1998 return. Petitioner testified that he claimed a $14,940 reduction in adjusted gross income on the amended return for 1998 because this was an amount by which an agent of respondent, upon examination of the 1999 return, proposed to increase the Freijes' adjusted gross income for 1999. Without more, we see no merit in petitioner's challenge to the underlying liability for 1998.

The Appeals officer's determination to proceed with the levy has not taken into account, however, the $4,094 in withholding credits of Mrs. Freije to which respondent concedes the Freijes are entitled, or the $6,500 in 1999 remittances that were improperly applied to the Freijes' 1997 account. Given these infirmities, the determination that the levy for 1998 could proceed without modification was an abuse of discretion.

1999

The unpaid tax for 1999 that is sought to be collected by the levy at issue includes an assessment of tax of $15,265 (as well as an estimated tax addition to tax and interest) that respondent made on May 29, 2000 . For the reasons outlined below, we conclude that a portion of this assessment is invalid.

The Freijes reported a tax due of $12,507 on the 1999 return, timely filed on April 15, 2000 . However, on May 29, 2000 , pursuant to what respondent concedes was a so-called math error notice under section 6213(b)(1), respondent adjusted various items reported on the 1999 return, resulting in an increase in the reported tax to $15,265, which was assessed on the same date.

 

Section 6213(b)(1) in general allows the assessment of tax in excess of that shown on a return (i.e., without resort to the deficiency procedures of sections 6211-6216) in cases where the additional amount of tax is attributable to "a mathematical or clerical error appearing on the return". Section 6213(g)(2) defines "mathematical or clerical error" for this purpose generally as an error in addition, subtraction, multiplication, or division shown on a return; an incorrect use of an IRS table if apparent from the existence of other information on a return; an item entry on a return which is inconsistent with another entry of the same or another item on the return; an omission of information which is required to be supplied on a return to substantiate an entry; an entry on a return of a deduction in an amount which exceeds a statutory limit if the items entering into the computation of the limit appear on the return; and various other instances not pertinent here. See sec. 6213(g)(2)(A)-(M).

As noted in our findings of fact, respondent's "math error" adjustments to the 1999 return included a correction of inconsistent entries for adjusted gross income and of a casualty loss claimed without regard to the limitation of such losses to amounts exceeding 10 percent of adjusted gross income. We have no quarrel with these adjustments, as they fall squarely within the provisions of section 6213(b)(1).21 See sec. 6213(g)(2)(C), (E). However, respondent also purported to disallow, pursuant to section 6213(b)(1), an "other miscellaneous" deduction (i.e., a miscellaneous deduction not subject to the 2-percent limitation of section 67(a)) of $8,528 claimed on Schedule A, Itemized Deductions, of the return for "Lawyers" and a "miscellaneous" deduction (i.e., one subject to the 2-percent limitation) of $20 claimed on the Schedule A for a "P.O. Box".

In the instant proceeding, respondent does not attempt to defend the foregoing disallowances as a permissible application of section 6213(b)(1).22 Instead, respondent takes the position that, because the miscellaneous deductions were disallowed pursuant to a "math error" notice under section 6213(b)(1) without the issuance of a notice of deficiency, petitioner did not have any previous "opportunity to dispute" the underlying tax liability within the meaning of section 6330(c)(2)(B). Thus, respondent reasons, petitioner is entitled to dispute the underlying tax liability associated with the disallowed deductions in the present section 6330 proceeding, and we are urged to undertake de novo review under section 6330 of petitioner's entitlement to those deductions. In respondent's view, such de novo review should result in petitioner's 1999 liability's being adjusted to reflect an allowance of $7,701.25 of the claimed miscellaneous deduction for legal fees (the amount that respondent concedes petitioner has substantiated in this proceeding), reduced pursuant to section 67(a) by an amount equal to 2 percent of adjusted gross income.

Petitioner contends that he has substantiated the full $8,528 deduction claimed on the 1999 return and that, in connection with the examination of his 1999 return, respondent's agent allowed his claimed deduction for legal fees. The notice of deficiency for 1999, issued after the notice of intent to levy for that year, provides some corroboration for petitioner's claim, in that it allowed $8,935 in miscellaneous deductions (subject to the 2-percent limitation) without further specifying the basis for the allowance.23 As to any possible discrepancy in respondent's treatment of the legal fees deduction in the instant proceeding and his treatment in the notice of deficiency (and any consequent inconsistency in the assessment that respondent became entitled to make when the Freijes defaulted with respect to the notice of deficiency24 ), respondent takes the position on brief that we should undertake a de novo determination of petitioner's entitlement to the claimed deduction for legal fees pursuant to section 6330(c)(2)(B) and that any such determination will generally be binding on the parties in any subsequent litigation under the doctrine of collateral estoppel. Accordingly, respondent represents, respondent will "make any necessary adjustments" to the liability to conform to our decision.

 

We reject respondent's contention that we should undertake de novo review of petitioner's entitlement to the miscellaneous deductions claimed. The assessment of the 1999 liability made pursuant to the math error notice, which the levy at issue in this proceeding seeks to collect, is simply invalid insofar as it results from the disallowance of petitioner's miscellaneous deductions claimed on the 1999 return. That portion of the assessment violated section 6213(a), which generally prohibits the assessment of a deficiency without affording the taxpayer the opportunity to petition for redetermination of the deficiency in this Court.25 Cf. Israel v. Commissioner [Dec. 55,217(M)], T.C. Memo. 2003-198, affd. [2004-1 USTC 50,198] 88 Fed. Appx. 941 (7th Cir. 2004). In our view, respondent's failure to show that the disallowance of the miscellaneous deductions fell within the "math error" exception, or some other exception, to the proscription of section 6213(a) on assessments without deficiency procedures is fatal to that portion of the math error assessment that is based on the disallowance of the miscellaneous deductions.

Respondent in effect seeks to cure the defect in the math error assessment by conceding petitioner the opportunity to dispute the disallowance in this proceeding. While it is true that section 6330(c)(2)(B) provides that a taxpayer whose property is the subject of a proposed levy may dispute the "underlying tax liability" if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability", that provision should not be construed to allow respondent to employ it to perfect an assessment made in derogation of section 6213(a). We have previously construed the phrase "did not receive any statutory notice of deficiency" as used in section 6330(c)(2)(B) as encompassing the situation where a notice of deficiency, though mailed by the Commissioner, was not in fact received by the taxpayer. See Calderone v. Commissioner [Dec. 55,783(M)], T.C. Memo. 2004-240; Tatum v. Commissioner [Dec. 55,125(M)], T.C. Memo. 2003-115. Respondent would have us extend the meaning of that phrase to encompass the situation where a taxpayer did not receive any notice of deficiency because the Commissioner failed to issue one, in violation of section 6213(a).

We decline to do so. Such an interpretation would contravene the intent underlying section 6330, a measure intended to expand taxpayers' rights in collection actions. See S. Rept. 105-174, at 67 (1998), 1998-3 C.B. 537, 603. Under the interpretation of section 6330(c)(2)(B) urged by respondent, de novo review in a section 6330 proceeding could substitute for the taxpayer's right to a deficiency proceeding under sections 6211-6216. A taxpayer's rights in the former proceeding are more circumscribed than in the latter.26 Moreover, such a construction would conflict with other provisions of section 6330. Section 6330(c)(1) and (3) requires, in connection with the hearing provided under section 6330, that the Appeals officer obtain verification "that the requirements of any applicable law or administrative procedure have been met" and that he take such verification into account in determining whether the levy should proceed. One requirement of applicable law is the mandate of section 6213 that, except in certain cases, including those involving termination or jeopardy assessments, an opportunity for preassessment judicial review precede the assessment or collection of any deficiency, generally defined to encompass income tax in excess of the amount reported on a return. Thus, the requirement of section 6330(c)(1) that the Appeals officer verify compliance with applicable law cannot be reconciled with an interpretation of section 6330(c)(2)(B) that allows the Commissioner to avoid compliance with section 6213(a).

We accordingly hold that petitioner's opportunity in a section 6330 proceeding to dispute the underlying tax liability does not cure an assessment made in derogation of his right under section 6213(a) to a deficiency proceeding.

As a consequence, the determination to proceed with collection of that portion of the math error assessment based on the disallowance of the Freijes' miscellaneous deductions was error as a matter of law and accordingly an abuse of discretion. The Appeals officer's verification that the requirements of applicable law had been met was incorrect. The statement in the notice of determination that the tax owed for 1999 "is from the original return" is wrong; it overlooks the adjustments to the return improperly claimed as math errors under section 6213(b)(1). Accordingly, the levy to collect the foregoing portion of the 1999 assessment may not proceed.

Conclusion

Respondent has conceded that the determination to proceed with the levy for 1997 should not be sustained, and that the determination to proceed with the levy for 1998 failed to take into account $4,094 in withholding credits. With respect to the levies for 1998 and 1999, we have found that $6,500 in remittances made by the Freijes in 1999 were unlawfully applied to their 1997 account and should have been available to satisfy liabilities for 1998 and/or 1999.27 Thus, the unpaid tax for those years, upon which the levies are based, may not be correct. Further, we have found that a portion of the 1999 assessment on which the levy for 1999 is based is invalid.

Given the various infirmities in the proposed levies for 1998 and 1999, which demonstrate that the determination to proceed with the 1998 and 1999 levies in full was an abuse of discretion, we shall remand the determination for those years to the Office of Appeals for reconsideration.

To reflect the foregoing,

An appropriate order will be issued.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended.

2 Our findings with respect to the Freijes' 1995 taxable year are based in part on Ex. 21-R, a certified copy of a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, covering the Freijes' individual income taxes for that year. At trial, we reserved ruling on the admissibility of the exhibit, because of uncertainty concerning whether respondent's counsel had identified and provided a copy of it to petitioner at least 14 days before trial, as required by the Court's standing pretrial order. We allowed petitioner to make a submission after trial with respect to the admissibility of Ex. 21-R. On the basis of petitioner's submission and the entire record in this case, we conclude that petitioner has failed to show prejudice from any failure to receive a copy of Ex. 21-R at least 14 days before trial. We accordingly hereby admit Ex. 21-R.

3 The figure of $6,600 in claimed estimated tax payments for 1997 apparently reflected the Freijes' understanding that the three remittances they submitted to respondent during 1997 (i.e., $2,800, $2,300, and $1,500, for a total of $6,600) constituted estimated tax payments for that year. However, as noted, respondent applied a portion of the initial $2,800 remittance to the Freijes' 1995 liability and refunded the balance. Consequently, the total 1997 estimated tax payments recorded in the Freijes' account when their 1997 return was filed equaled $3,800 (i.e., the total of the latter two 1997 remittances), not the $6,600 reported on the 1997 return.

4 If respondent had not applied a portion of the Freijes' 1997 remittance of $2,800 to their 1995 liability, the $1,776 remittance of July 6, 1998, would have resulted in total remittances for 1997 of $20,510, or $1,000 less than the tax reported as due on the 1997 return.

5 While this reversing entry is dated July 8, 1998, on the Freijes' Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for 1997, we conclude that it did not occur on that date, as the refund triggered by the erroneous posting of this amount was issued almost 1 month later. We are persuaded that respondent did not become aware of the error until sometime after this refund was issued to the Freijes.

6 According to the Forms 4340 in the record, the total remittances made by the Freijes during 1999, exclusive of the $3,000 payment submitted with the 1998 return, were $15,087. Insofar as the record discloses, these remittances were not designated by the Freijes for any taxable year.

7 As noted, the Forms 4340 in the record state that the Freijes made remittances during 1999 that totaled $15,087; however, respondent applied $6,500 and $2,587 against the Freijes' 1997 and 1998 liabilities, respectively.

8 This figure equaled the portion of an increase in the Freijes' income for 1999 that had been proposed in an examination of the 1999 return, with which petitioner disagreed.

9 These figures were likewise designed to offset the same proposed examination increase in the Freijes' income for 1999 with which petitioner disagreed. See supra note 8.

10 The 1998 and 1999 amended returns both claimed amounts for estimated tax payments that were different from the amounts claimed in the original returns for those years.

11 We shall also assume, without deciding, that by mentioning his amended returns for 1998 and 1999 in his request for a hearing, petitioner thereby raised challenges at the hearing to the underlying tax liabilities as originally reported in the 1998 and 1999 returns. Regardless of whether these issues are treated as having been raised, there is no effect on the outcome because the challenges, as discussed infra, have no merit.

While petitioner also mentioned his amended return for 1997 in his hearing request, we conclude that any issue thereby raised is moot as a result of respondent's concession that the levy for 1997 should not proceed.

12 Had the Freijes' June 3, 1997, remittance of $2,800 (which was undesignated insofar as the record discloses) not been applied in part against their 1995 liability, we assume respondent would have treated it as a payment of estimated tax for 1997, as he did with respect to the Freijes' $2,300 remittance made 1 week later on June 10, 1997, and their $1,500 remittance made on Oct. 6, 1997. There is evidence that the Freijes intended all of the foregoing remittances to be payments of estimated tax for 1997, in that they reported in the 1997 return the total of these three remittances ($6,600) as the amount of estimated tax paid.

On this record, given the Freijes' myriad remittances, we are unable to conclude that a change in the unpaid liability for 1997 would have had no impact on the computation of any additions to tax for untimely payment in 1998 and 1999.

13 There is also no dispute that the Freijes made the claimed remittance of $2,800 on or about June 3, 1997, as the Form 4340 for 1995 records a payment in that amount on that date.

14 Indeed, we have routinely considered facts and issues in nondetermination years in these circumstances. See, e.g., Landry v. Commissioner [Dec. 54,224], 116 T.C. 60 (2001) (untimely claim for application of overpayments from nondetermination years); Leineweber v. Commissioner [Dec. 55,518(M)], T.C. Memo. 2004-17 (claim that overpayment in determination year was applied to nondetermination year for which period of limitation on collection had expired); Tedokon v. Commissioner [Dec. 54,964(M)], T.C. Memo. 2002-308 (same as Landry); Lee v. Commissioner [Dec. 54,875(M)], T.C. Memo. 2002-233 (same as Landry), affd. [2003-2 USTC 50,623] 70 Fed. Appx. 471 (9th Cir. 2003); Kazunas v. Commissioner [Dec. 54,827(M)], T.C. Memo. 2002-188 (existence of overpayment in nondetermination year); Sponberg v. Commissioner [Dec. 54,816(M)], T.C. Memo. 2002-177 (claim that Commissioner had not accounted for all payments in nondetermination years, which if accounted for would result in overpayments available for application to determination years). Apparently no issue was raised in the foregoing cases concerning our jurisdiction to consider facts and issues arising in nondetermination years.

15 As to the discrepancy in the "1-16-96" and "11-16-96" dates on the two copies of the same check he wrote as payment of his 1995 taxes, petitioner testified that the check bore the "1-16-96" date when he mailed it to respondent, which implies that someone at the IRS altered the check by adding the numeral "1" to the month indicator in the date.

This claim arouses greater suspicion when considered in light of the fact that petitioner is also claiming that someone at the IRS altered the numeral "1" on another of his checks; namely, the check for $1,776 intended as payment towards his 1997 taxes that was erroneously posted by respondent as a payment of $11,776. That check is also in evidence and contains inconsistent entries designating its amount; namely, a numeric entry of "$1,1776.00" [sic] and a written entry of "One thousand seven hundred seventy six" dollars.

The recurrent manipulation of the numeral "1" on petitioner's checks undermines the credibility of both his claims that IRS personnel altered his checks. We need not resolve the dispute concerning the $1,776 check, however, given respondent's concession that his effort to recover the erroneous 1997 refund resulting from the incorrect posting of this check is barred by sec. 6532(b). Nonetheless, one is left with the singular sensation that petitioner's recurrent problems with the numeral "1" are too similar to be explained by malfeasance on the part of IRS employees.

16 Petitioner also claims that he filed a return for 1995 in July 1996 and offered into evidence a purported copy of that return, which respondent has no record of receiving. In light of the greater weight of the evidence, discussed above, that he filed the 1995 return in November 1996, we are likewise unpersuaded that petitioner filed in July 1996.

17 The reversing entries were dated as of the original erroneous posting (July 8, 1998). See supra note 5.

18 The Court of Appeals declined to decide whether, as the Commissioner contended, he had a further option of recovering the refund through a suit begun within the limitations period of sec. 6501, without regard to sec. 7405.

19 See supra note 11.

20 Because the Freijes claimed, for the first time in the amended return for 1998, that they were entitled to 1998 credits for withholding and estimated taxes of $4,094 and $12,000, respectively, the refund claimed in the 1998 amended return was $8,996.50, an amount exceeding the difference between the tax reported as due on the original versus the amended return.

21 The "math error" notice also indicated that the Freijes' estimated tax payments for 1999 totaled $6,000 rather than the $15,616 claimed on the 1999 return. As previously noted, additional remittances totaling $6,500 and $2,587, made by the Freijes in 1999 but undesignated, were applied to their 1997 and 1998 liabilities, respectively.

22 The record does not disclose whether petitioner sought an abatement (under sec. 6213(b)(2)) of the assessment made by respondent pursuant to sec. 6213(b)(1).

23 As noted, no petition was filed in response to the notice of deficiency for 1999.

24 The record does not disclose whether an assessment was made after the Freijes failed to file a petition with respect to the notice of deficiency for 1999. The Form 4340 covering 1999 that is in the record was generated before the issuance of the notice of deficiency. However, respondent's counsel represents on brief that petitioner has a liability for 1999 that is based on the notice of deficiency, as distinguished from the liability based on the math error notice.

25 Sec. 6213(a) provides in part:

Except as otherwise provided in * * * [the case of certain termination or jeopardy assessments] no assessment of a deficiency in respect of any tax imposed by subtitle A * * * and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until * * * [a] notice [of deficiency] has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period [in which the taxpayer may petition the Tax Court for redetermination of the deficiency] * * *.

26 For example, a taxpayer must petition this Court for review within 30 days of a determination under sec. 6330, see sec. 6330(d)(1), whereas he has 90 days or, if outside the United States, 150 days to petition with respect to a notice of deficiency, see sec. 6213(a). See also Sarrell v. Commissioner [Dec. 54,494], 117 T.C. 122 (2001) (no expanded filing period under sec. 6330 for notices of determination addressed to persons outside the United States).

27 If the $6,500 in 1999 remittances that was applied to the 1997 account is applied to the 1998 account, the result may be that the $2,587 in 1999 remittances that was applied to 1998 may be available to satisfy 1999 liabilities.

 

 

 

 

 

 

 

[2005-2 USTC 50,494] Comfort Plus Health Care, Inc., Plaintiff v. Commissioner of Internal Revenue Service, Defendant.

U.S. District Court, Dist. Minn.; Civ. 04-4963 (JNE/JGL), July 14, 2005 .

[ Code Secs. 6159, 6330, 6651 and 7421]

Tax Court: Failure to pay federal employment taxes: Collection Due Process hearing: Abuse of discretion: Administrative record: Verification of tax liability: Reasonable cause: Federal tax lien: Offers in compromise. --

The IRS did not abuse its discretion in determining to proceed with collection actions against the taxpayer. The Appeals officer had no prior involvement in the determination of the taxpayer's unpaid taxes and, thus, did not violate the impartiality requirement under Code Sec. 6330(b)(3). In addition, because the taxpayer failed to supply evidence to dispute the record, the Appeals officer did not abuse his discretion in determining that the transcripts accurately stated the tax owed. Furthermore, the Tax Court confirmed that the Appeals officer's decision contained sufficient information for judicial review, and indicated that he performed the required balancing of the need for efficient collection of taxes against the legitimate concern that the action be no more intrusive than necessary. Finally, the taxpayer's request for injunctive relief against the IRS's collection actions was denied. The IRS was entitled to summary judgement on the taxpayer's claims, and the Taxpayer's Bill of Rights did not provide an exception to the anti-injunction provisions of Code Sec. 7421.

Patrick C. Nwaneri, Nwaneri & Assocs., P.L.L.C., for plaintiff. Michael R. Pahl, Department of Justice, for defendant.

ORDER


ERICKSEN, District Judge: Comfort Plus Health Care, Inc. (Comfort Plus) brought this action against the Commissioner of Internal Revenue Service (IRS) to obtain judicial review of a determination of an IRS Appeals Officer (AO). 1 The case is before the Court on Comfort Plus's motions to remand the case to the IRS for further administrative proceedings, for a preliminary injunction, and for a new hearing to consider newly discovered evidence, and on the IRS's motions for summary judgment and to strike exhibits. For the reasons set forth below, the Court denies Comfort Plus's motions and grants the IRS's motions.

I. BACKGROUND


Comfort Plus is engaged in the business of providing in-home health care. Comfort Plus claims that two employees engaged in fraudulent activities from 1998 to 2002 that cost Comfort Plus approximately $400,000. Comfort Plus contends that these losses caused it to unintentionally default in payment of federal employment taxes.

On March 15, 2004, the IRS served Comfort Plus with a Notice of Intent to Levy. In a letter dated March 30, 2004, the IRS cla imed that Comfort Plus owed taxes and penalties totaling more than $400,000. In that letter, the IRS also indicated the possibility of abating penalties by correcting certain tax forms, but noted that it had not received any amended returns. The IRS also indicated that it would not consider a payment agreement because Comfort Plus had defaulted on two payment agreements, "continued to pyramid" tax liability, was not staying current with its Federal tax deposits, and appeared to be insolvent. On April 16, 2004, the IRS filed a Notice of Federal Tax Lien.

Comfort Plus exercised its right to a collection-due-process (CDP) hearing under 26 U.S.C. 6330 (2000), which provides for the right to a hearing before a levy may be made on any property or right to property. The evidence before the AO included the IRS Transcripts of assessments and payments (Transcripts) and a spreadsheet submitted by Comfort Plus entitled "Tax Analysis & Reconciliation." Comfort Plus claims the latter was prepared by its accountant and demonstrates a tax liability of approximately $123,000. Comfort Plus did not provide the AO any underlying documentation to support its tax analysis. In a Notice of Determination dated November 30, 2004, the AO found that the filing of the Notice of Federal Tax Lien and Notice of Intent to Levy were appropriate.

On December 8, 2004, Comfort Plus filed this action to obtain judicial review of the Notice of Determination. In its Complaint, Comfort Plus claims (1) that the IRS wrongfully determined that it owes taxes and penalties totaling more than $400,000, (2) that it is entitled to abatement of penalties because its failure to pay was due to reasonable cause, and (3) that the IRS wrongfully denied Comfort Plus other relief it sought, such as an offer-in-compromise and an installment plan.

II. DISCUSSION


A. Comfort Plus's motion for preliminary injunction

On May 26, 2005 , Comfort Plus withdrew its initial motions for a temporary restraining order and a preliminary injunction. On June 13, 2005 , Comfort Plus filed an "Urgent Motion for Preliminary Injunction." The motion seeks to restrain the IRS from levying on or seizing any property of Comfort Plus, enforcing any collection action against Comfort Plus, closing down Comfort Plus's business, or compelling Comfort Plus to declare bankruptcy pursuant to any Federal Tax Lien, pending the determination of this suit.

The Anti-Injunction Act provides in relevant part:

Except as provided ... no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.


26 U.S.C. 7421(a) (2000). "The manifest purpose of 7421 is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for a refund." Enochs v. William Packing & Navigation Co. [ 62-2 USTC 9545], 370 U.S. 1, 7-8 (1962). However, "if it is clear that under no circumstances could the Government ultimately prevail" and "equity jurisdiction otherwise exists," collection may be enjoined. Id. As discussed below, a review of the administrative record reveals that the IRS has a chance of ultimately prevailing. In fact, the IRS is entitled to summary judgment on Comfort Plus's claims. Therefore, the Court denies Comfort Plus's request for injunctive relief pursuant to the Anti-Injunction Act. 2

B. Motion to strike

The IRS moves to strike three exhibits on which Comfort Plus relies, specifically Comfort Plus's fraud audit summary report and the felony guilty plea petitions of two former employees. Because these exhibits were not part of the administrative record, the IRS argues they are outside of the scope of this Court's review. Comfort Plus has submitted no evidence demonstrating that these exhibits were part of the administrative record. In fact, its own exhibits appear to demonstrate otherwise. In addition, the IRS has submitted the sworn declaration of Michael R. Pahl, wherein Pahl states that the above documents were not part of the administrative record. Because the Court's review is limited to the administrative record, see Hart v. United States [ 2003-2 USTC 50,680], 291 F.Supp.2d 635, 642 (N.D. Ohio 2003), the Court strikes the exhibits.

C. Motions to remand and for summary judgment

Comfort Plus asks the Court to remand the Notice of Determination to the IRS for a new appeal hearing because (1) the AO was not impartial, (2) the AO failed to make an adequate record of the administrative proceedings so as to damage Comfort Plus's right to judicial review, and (3) the AO did not consider whether the proposed collection action balances the need for efficient collection of taxes with the taxpayer's legitimate concern that the action be no more intrusive than necessary. The Court reviews the validity of tax assessments de novo and other AO determinations for an abuse of discretion. See Borchardt v. Comm'r of Internal Revenue, 338 F. Supp. 2d 1040, 1043 (D. Minn. 2004).

The IRS opposes Comfort Plus's motion to remand and also moves for summary judgment. Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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). The moving party "bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the nonmoving party to respond by submitting evidentiary materials that designate "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

1. Jurisdiction

As a threshold matter, the IRS contends that the Court lacks jurisdiction to consider Comfort Plus's allegations regarding tax liability for periods that it did not request a CDP hearing within 30 days of the Notice of Intent to Levy, as required by 26 U.S.C. 6330. It is undisputed that Comfort Plus did not request a hearing within the required time for certain quarters of unpaid employment taxes, which are set forth in Exhibit O attached to the Complaint. Accordingly, the Court lacks subject-matter jurisdiction over any disputes regarding these quarters. See Living Care Alternatives of Utica v. United States [ 2004-1 USTC 50,225], 312 F.Supp.2d 929, 932 (S.D. Ohio 2004). Nevertheless, because Comfort Plus's allegations are not quarter-specific, the Court still must address all issues raised by Comfort Plus.

2. Impartial appeals officer

Comfort Plus argues that this case must be remanded to the IRS for a second CDP hearing because the AO was not impartial. In support of its argument, Comfort Plus relies exclusively on a letter sent to Comfort Plus by the AO on August 27, 2004, after Comfort Plus requested a CDP hearing. The August 27, 2004 letter reads in relevant part:

Your request for a Collection due Process hearing has been referred to Appeals for consideration. In reviewing your case, I see that the IRS has filed multiple Notices of Federal Tax Lien and issued multiple Notices of Intent to Levy and you disagree with these actions....

To give you an idea of how the Collection Due Process works, I've enclosed an Appeals Orientation Guide that explains the Appeals process. In short, my role as an Appeals Settlement Officer is to:

1. Verify that the IRS complied with all legal and administrative procedures.

My review of your case file indicates that the proper procedures were followed in filing the Notices of Federal tax Lien and issuing the Notices of Intent to Levy. The Revenue Officer advised the taxpayer of his Power of Attorney of the pending actions. These actions were undertaken due to noncompliance of the business.

Comfort Plus claims that the language used in the letter demonstrates that the AO violated the statute's impartiality mandate by substantively reviewing the matter prior to the hearing.

Section 6330(b)(3) requires that the CDP hearing "be conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax ... before the first hearing." The statute does not define the meaning of "prior involvement." At least one court has noted that certain text following IRS Treasury Regulation 301.6330-1T explains:

Prior involvement by an employee or officer of Appeals includes participation or involvement in an Appeals hearing (other than a CDP hearing held under either section 6320 or section 6330) that the taxpayer may have had with respect to the tax and the tax period shown on the CDP notice.

See MRCA Info. Servs. v. United States [ 2000-2 USTC 50,683], 145 F.Supp.2d 194, 200 (D. Conn. 2000).

Based on the record, there is no evidence that the AO in this case had the type of prior "involvement with respect to the unpaid tax" that is contemplated by the statute. While the AO reviewed the status, arguments, and procedural requirements of Comfort Plus's file prior to the hearing, there is no evidence that the AO had any prior involvement in the determination of the amount of taxes owed or played any substantive role in a prior hearing other than the CDP hearing held under section 6330. Comfort Plus maintains that the AO must not prepare for the hearing by reading the file, but instead must come to the hearing tabula rasa. The Court notes the dis tinction between preparation and impartiality and rejects the argument. Accordingly, the Court denies the motion to remand insofar as Comfort Plus asserts the AO was not impartial.



3. Failure to create an adequate record

Comfort Plus argues that the AO's decision contains insufficient information for meaningful judicial review on several issues and asks the Court to remand the matter for a new CDP hearing. The IRS, on the other hand, contends that the AO's decision contains enough information to permit judicial review and moves for summary judgment on the disposition of these issues.

a. Challenge to tax owed


In its Complaint, Comfort Plus challenges the amount of tax and penalties owed. Specifically, Comfort Plus contends that the AO failed to credit overpayments. The parties dispute the standard of review. According to Comfort Plus, this portion of the AO's decision should be reviewed de novo. The IRS argues that because Comfort Plus's claim centers on its assertion that the AO failed to properly credit Comfort Plus's tax payments, this decision is reviewed for an abuse of discretion.

The Complaint does not determine the nature or extent of this review of the Notice of Determination. Instead, the scope of the Court's review under section 6330(d) is limited to issues properly raised and considered during the CDP hearing. See Living Care [ 2004-1 USTC 50,225], 312 F.Supp.2d at 934. The record shows that the validity of the underlying taxes was not at issue before the AO. Instead, the AO considered and rejected Comfort Plus's claim that the IRS failed to credit overpayments. Therefore, the Court will review the AO's determination as to the amount of tax and penalties owed for an abuse of discretion.

The IRS asserts that the Transcripts reflect that Comfort Plus owes approximately $468,000. Comfort Plus does not dispute that the Transcripts reflect that amount. Based on its own spreadsheets, Comfort Plus contends it owes less money because the IRS failed to properly credit various overpayments. Comfort Plus also claims that the AO failed to point out what makes the Transcripts correct and failed to disprove the accuracy of Comfort Plus's spreadsheets. At the CDP hearing, however, Comfort Plus did not present any underlying evidence of the payments it contends were not credited. Instead, Comfort Plus relied on its spreadsheets without any indication that the accountant who prepared the spreadsheets had personal knowledge of any failure on the part of the IRS to credit overpayments.

IRS Certificates of Assessments and Payments are sufficient to establish the validity of federal tax assessments. United States v. Gerards, 999 F.2d 1255, 1256 (8th Cir. 1993); United States v. Langert [ 95-2 USTC 50,504], 902 F.Supp. 999, 1002 (D. Minn. 1995). The AO reviewed Comfort Plus's spreadsheets and determined that they contained numerous errors. In addition, the AO noted that he reviewed the records and found no lost payments or outstanding credit balances. Because Comfort Plus failed to bring forth competent underlying evidence to dispute the Transcripts, such as checks or federal tax deposits not credited, the Court concludes that the AO did not abuse his discretion in determining that the Transcripts accurately set forth the tax owed. In addition, the Court finds that the AO's decision contains sufficient information for judicial review. Therefore, the Court denies Comfort Plus's motion to remand and grants the IRS's motion for summary judgment on this issue. 3

b. Abatement of penalties


Comfort Plus also challenges the AO's decision not to abate penalties or interest on the ground that Comfort Plus had "reasonable cause" for its failure to pay employment tax. Specifically, Comfort Plus claims that the fraud of its two employees account for the existence of the alleged deficiency in some trust fund taxes. The Court reviews the AO's determination as to the appropriateness of the collection activity for abuse of discretion.

The IRS is authorized to abate certain penalties upon a showing of reasonable cause by the taxpayer. See 26 U.S.C. 6651 (2000). The Code of Federal Regulations sets forth the standards a taxpayer must meet to demonstrate reasonable cause for failure to pay taxes:

A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship ... if he paid on the due date. ... A taxpayer will be considered to have exercised ordinary business care and prudence if he made reasonable efforts to conserve sufficient assets in marketable form to satisfy his tax liability and nevertheless was unable to pay all or a portion of the tax when it became due.

26 C.F.R. 301.6651-1.

In his August 27, 2004 , letter to Comfort Plus, the AO explained in detail the requirements for a proper request for penalty relief. For example, the AO explained that Comfort Plus must identify specific payments for which it seeks relief and that it must pay the tax due before the IRS will abate a penalty for failure to pay for reasonable cause. The AO also informed Comfort Plus that the IRS would examine its compliance history to determine overall payment patterns. In the Notice of Determination, the AO noted that both the Revenue Officer and the Settlement Officer gave Comfort Plus specific instructions on how to prepare and perfect a request for penalty abatement. The AO also noted that Comfort Plus neither prepared nor perfected such a request. In addition, the record contains no evidence that Comfort Plus could have paid its taxes but for the employee embezzlement. Finally, the AO noted that Comfort Plus still owed back taxes and that the Transcripts demonstrated Comfort Plus's history of failing to comply with employment tax obligations.

For these reasons, the Court finds that the AO did not abuse his discretion in determining that Comfort Plus's penalties and interest should not be abated and, therefore, grants the IRS's motion for summary judgment on this issue. In addition, the Court finds that the AO's decision contains sufficient information on the issue of abatement of penalties to allow for judicial review and, therefore, denies Comfort Plus's motion to remand.

c. Rejecting an offer-in-compromise or installment plan


Comfort Plus asserts that the AO abused his discretion by failing to consider alternate collection methods, including an offer-in-compromise or installment plan. The IRS is authorized to enter into installment agreements if it determines that the agreement will facilitate collection of the liability. 26 U.S.C. 6159(a) (2000). The IRS has the discretion to accept or reject any proposed installment agreement. 26 C.F.R. 301.6159-1(b).

In the Notice of Determination, the AO noted that Comfort Plus failed to prepare the required form for a written offer-in-compromise. In addition, the AO explained that the starting point for an Offer in Compromise is the tax due and noted that Comfort Plus had only offered "five cents on the dollar." The AO also explained that Comfort Plus's offer to pay installments of $1,000 per month was wholly inadequate in light of its total balance due. Finally, the AO noted that "no documentation has been provided that would support the abatement of the civil penalties." Comfort Plus claims, without citation to any authority, that the IRS's failure to counter-offer was improper. Comfort Plus further contends that the IRS's primary basis for rejecting an offer-in-compromise or installment plan was an erroneous belief that Comfort Plus was not current on its second quarter 2004 payments.

The Court finds that the AO's decision contains sufficient information for judicial review and denies Comfort Plus's motion to remand. Moreover, even if Comfort Plus is correct in claiming that it was current on its 2004 taxes, there is an adequate basis for the AO's determination that Comfort Plus did not meet all of the requirements of an offer- in-compromise. See MRCA Info. Servs. [ 2000-2 USTC 50,683], 145 F.Supp.2d at 199 (explaining the task of the court is not to determine whether in its opinion an installment agreement would be appropriate, but to determine whether there is an adequate basis in law for the AO's decision). Therefore, the Court finds that the AO did not abuse his discretion in rejecting an offer- in-compromise or installment agreement. Accordingly, the Court grants the IRS's motion for summary judgment on this issue.

4. Balancing need for efficient collection of taxes with the taxpayer's legitimate concern that the action be no more intrusive than necessary.

The AO, in making his determination, must consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. 6330(c)(3). Comfort Plus claims that the AO failed to perform this balancing because he did not consider certain hardships Comfort Plus would suffer if forced to make full and immediate payment of its past taxes due. Comfort Plus also argues that the AO failed to consider that Comfort Plus is "current in its payment of taxes due for the current year."

In a nearly four-page, single-spaced decision, the AO set out the history and present status of Comfort Plus's tax problems that led to the CDP hearing, which Comfort Plus participated in via telephone. The AO presented and addressed the individual issues raised by Comfort Plus, concluded that the full balance was legally due and owing, and noted that Comfort Plus had neglected or refused to pay. The AO also concluded that the Notice of Federal Tax Lien balances the efficient collection of taxes with Comfort Plus's concern that the collection be no more intrusive than necessary. In light of the facts and circumstances in the record, the Court finds that the AO did not fail to perform the required balancing. Accordingly, the Court denies Comfort Plus's motion to remand. In addition, the Court concludes that the decisio n to enforce the federal tax lien in this case was not an abuse of discretion.

5. Assessment of penalties for failure to pay tax for second quarter of 2004

In the Notice of Determination, the AO concluded that Comfort Plus "failed to make proper federal tax deposits in the proper amounts by the proper deadlines." Comfort Plus claims, based on the post-Notice of Determination affidavit testimony of its CEO, that it was current on its taxes for the second quarter of 2004. However, Comfort Plus did not provide the AO any underlying documentation to support this assertion prior to the AO's decision. Comfort Plus also asserts that the AO abused his discretion in determining that a penalty was properly assessed for Comfort Plus's failure to pay tax for the second quarter of 2004 because the AO refused to allow Comfort Plus additional time to resolve the dispute with the IRS Service Center before making his decision. There is no record evidence that Comfort Plus requested additional time. In addition, Comfort Plus does not cite to any authority requiring an AO to delay collection for the stated grounds. Accordingly, the Court finds that the AO did not abuse his discretion in determining that Comfort Plus failed to timely pay its second quarter 2004 taxes and grants the IRS's motion for summary judgment on this issue.

D. Comfort Plus's motion for new hearing to consider newly discovered evidence

Comfort Plus argues it has newly discovered evidence that demonstrates the IRS failed to forward to the AO documents that reveal employee embezzlement. According to Comfort Plus, the embezzlement caused it to default on its tax payments. Comfort Plus also asserts that this evidence implicitly reveals that the AO did not address the issue of embezzlement and, for that reason, the decision should be remanded.

The documents identified by Comfort Plus are a "fraud audit summary" and the felony guilty plea petitions of two former employees. After reviewing these documents, the Court finds that consideration of these document s would not alter the outcome of the case. The "fraud audit summary" was apparently prepared by, or on behalf of, Comfort Plus and, like its "Tax Analysis & Reconciliation" spreadsheets, is not supported by any underlying documentation. In addition, neither the "fraud audit summary" nor the guilty pleas establish that Comfort Plus could have paid its taxes but for employee embezzlement. Accordingly, the Court denies Comfort Plus's motion for a new hearing to consider newly discovered evidence.

III. CONCLUSION


Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:

1. Comfort Plus's Amended Motion to Remand Administrative Decision [Docket No. 14] is DENIED.

2. Comfort Plus's Urgent Motion for Preliminary Injunction [Docket No. 41] is DENIED.

3. IRS's Motion for Summary Judgment [Docket No. 21] is GRANTED.

4. IRS's Motion to Strike [Docket No. 35] is GRANTED.

5. Comfort Plus's Motion for a New Hearing to Consider Newly Discovered Evidence Prior to Judgment [Docket No. 44] is DENIED.

6. Comfort Plus's Complaint [Docket No. 1] is DISMISSED WITH PREJUDICE.


LET JUDGMENT BE ENTERED ACCORDINGLY.

1 The Court has jurisdiction over this matter pursuant to 26 U.S.C. 6330(d)(1)(B) (2000).

2 The Court is troubled by Comfort Plus's decision to file a second motion for a preliminary injunction in light of the fact that counsel for Comfort Plus withdrew Comfort Plus's initial motions for injunctive relief in the face of the IRS's assertion that the Anti-Injunction Act applied.

3 The Court notes that the result would be the same under the less deferential de novo standard of review. This is because, as explained above, there is nothing in the administrative record to support Comfort Plus's claim that it owed less money than the amount reflected in the Transcripts.

 

 

 

 

 

[Dec. 56,152(M)] Larry D. Carifee and Pamela A. Carifee v. Commissioner.

Dkt. No. 4502-04L , TC Memo. 2005-224, September 27, 2005 .

[Appealable, barring stipulation to the contrary, to CA-5]

[Code Sec. 6330]
Liens and levies: Collection Due Process hearing: Determination to proceed with collection. --

The IRS did not abuse its discretion when it decided to proceed with collection against a married couple who did not contest their income tax liability but claimed that they had insufficient assets to pay the amount owed. The taxpayers did not assert any spousal defenses, make any challenges to the appropriateness of the collection actions or offer collection alternatives, other than an offer in compromise that was going to be submitted at an unspecified future date. This offer, however, was never submitted. Furthermore, the taxpayers did not show up at the Collection Due Process hearing and did not submit any financial information requested by the hearings officer.

Larry D. Carifee and Pamela A. Carifee, pro sese; Alvin A. Ohm, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: Petitioners filed a petition in response to respondent's Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (Notice of Determination).1 Petitioners allege that they have insufficient assets to pay their income tax liability for the year 2000.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time they filed the petition, petitioners resided in Lewisville, Texas.

On August 20, 2003 , respondent mailed to each of the petitioners, individually, a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. By letter dated September 16, 2003 , petitioners' attorney mailed to respondent two Forms 12153, Request for a Collection Due Process Hearing, one for each petitioner, which stated that petitioners "have insufficient income and assets to full pay the outstanding tax liabilities for 2000, [and] they would like to propose either an Installment Payment Agreement or an Offer in Compromise."

On October 6, 2003 , respondent's Collection Division contacted petitioners' attorney by telephone concerning the Requests for a Collection Due Process Hearing (section 6330 hearing). On December 12, 2003 , respondent's Appeals Office in Dallas, Texas, wrote petitioners' attorney concerning the requests for a section 6330 hearing asking that petitioners provide certain items of financial information prior to the hearing in order for respondent's Appeals Office to consider alternative methods of collection. By letter dated December 22, 2003 , respondent's Dallas Appeals Office notified petitioners' attorney that the section 6330 hearing was scheduled for January 14, 2004 . By letter dated December 22, 2003 , petitioners' attorney notified respondent that he no longer represented petitioners. On January 14, 2004 , respondent's Appeals Office called petitioners directly to determine whether petitioners still wanted the hearing held. Petitioners did not return the call and did not show up for the hearing. Moreover, petitioners did not submit any financial information to the hearing officer and did not submit an offer in compromise.

On February 17, 2004 , respondent issued to petitioners a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 sustaining the proposed collection action as petitioners "did not respond to the letters issued setting conferences" and "No agreement or viable option could be discussed since they [petitioners] did not show up for the hearings set or submit anything in writing either."

OPINION

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

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

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

* * * * * * *

(2) Issues at Hearing. --

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

(I) appropriate spousal defenses;

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

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

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

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

Although section 6330 does not prescribe the standard of review that the Court is to apply in reviewing the Commissioner's administrative determinations, we have stated that, where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181 (2000). Where the validity of the underlying tax liability is not properly at issue, however, the Court will review the Commissioner's administrative determination for abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000); Goza v. Commissioner [Dec. 53,803], 114 T.C. 176, 181 (2000).

At the trial and in their petition, petitioners did not contest their income tax liability for 2000 but made a claim that they could not pay their tax liability at this time. We therefore review respondent's determination to proceed with the levy action for an abuse of discretion.

Petitioners did not assert in the petition any spousal defenses, any challenges to the appropriateness of the collection actions, or any offers of collection alternatives other than an offer in compromise that was going to be submitted at an unspecified future date but was never submitted. See sec. 6330(c)(2)(A). These issues are now deemed conceded. Rule 331(b)(4). Petitioners also did not submit any financial information to the hearing officer. Accordingly, we conclude that respondent did not abuse his discretion by determining to proceed with collection.

 

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

To reflect the foregoing,

Decision 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.

 

 

 

 

 

 

[2005-2 USTC 50,602] Sherilyn Jo Gallegos, Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee. George Gallegos III, Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee. Richard Dean Rudd, Jr., Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee.

U.S. Court of Appeals, 10th Circuit; 04-9011, 04-9012, 04-9013, October 7, 2005 .

Unpublished opinion affirming unreported Tax Court orders.

[ Code Sec. 6330]

Individuals: Notice of deficiency: Redetermination: Frivolous arguments. --

The Tax Court's dismissal of several petitions for redetermination of tax deficiencies for failure to state a justiciable claim was affirmed. The petitions, even construed liberally, contained nothing but frivolous and groundless arguments. The individuals' arguments that the IRS lacked jurisdiction and authority to issue the deficiency notices and that they must have a contract or other beneficial relationship with the federal government before they can be compelled to pay income taxes were rejected. Further, their claims that the federal government cannot act upon "sovereign people" but only upon states and that the Internal Revenue Manual contained a "secret default process" completely lacked legal merit and were patently frivolous.

Before: Ebel, Hartz and McConnell, Circuit Judges.

Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.

ORDER AND JUDGMENT *


MCCONNELL, Circuit Judge: After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of these consolidated appeals. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are therefore ordered submitted without oral argument.

In January 2004, respondent issued notices of income tax deficiencies to petitioners for the taxable years 1999, 2000, and 2001. Respondent asserted that the deficiencies arose because petitioners had failed to report wages and income derived from a subchapter S corporation. In October 2004, petitioners filed petitions for a redetermination of the deficiencies in the United States Tax Court. In November 2004, the Tax Court dismissed the petitions, concluding that petitioners had failed to state a claim upon which relief could be granted. Specifically, the Tax Court concluded as follows:

[Tax Court] Rule 34(b)(4) requires that a petition filed in this Court contain clear and concise assignments of each and every error that the taxpayer alleges to have been committed by the Commissioner in the determination of the deficiencies and the additions to tax in dispute. Rule 34(b)(5) further requires that the petition contain clear and concise lettered statements of the facts on which the taxpayer bases the assignments of error. See Jarvis v. Commissioner [ CCH Dec. 38,959], 78 T.C. 646, 658 (1982).

The petition[s] filed in this case [do] not satisfy the requirements of Rule 34(b)(4) and (5). There is neither assignment of error nor allegation of fact in support of any justiciable claim. Rather, the petition[s] contain[] nothing but frivolous and groundless arguments.


Tax Court Records for Case Nos. 7204-04, 7205-04, and 7210-04, Doc. 9 at 2.

Petitioners have filed timely appeals in this court challenging the Tax Court's dismissal orders, and the appeals have been consolidated for procedural purposes. We have jurisdiction over the consolidated appeals under 26 U.S.C. 7482(a)(1), and "[w]e review de novo the Tax Court's dismissals for failure to state a claim." Fox v. Comm'r [ 92-2 USTC 50,375], 969 F.2d 951, 952 (10th Cir. 1992). In addition, because petitioners are proceeding pro se, we review their pleadings liberally. See Haines v. Kerner, 404 U.S. 519, 520 (1972). Having conducted the required de novo review, we agree with the Tax Court that, even construed liberally, the petitions at issue in this appeal contain nothing but frivolous and groundless arguments. Accordingly, we affirm the Tax Court's dismissal of the petitions. For the reasons set forth herein, we also conclude that these appeals are frivolous.

As a starting point, we reject petitioners' claim that the Internal Revenue Service lacked jurisdiction and authority to issue the deficiency notices. Despite petitioners' claim to the contrary, the federal government's taxation power is not limited to the District of Columbia or other federal enclaves. See United States v. Collins [ 91-2 USTC 50,554], 920 F.2d 619, 629 (10th Cir. 1990) ("For seventy-five years, the Supreme Court has recognized that the sixteenth amendment authorizes a direct nonapportioned [income] tax upon United States citizens throughout the nation, not just in federal enclaves, ...; efforts to argue otherwise have been sanctioned as frivolous.") (citations omitted).

Petitioners are also mistaken when they argue that they must have a "nexus" with the federal government in the form of a contract or other beneficial relationship before they can be compelled to pay federal income taxes. See United States v. Sloan [ 91-2 USTC 50,388], 939 F.2d 499, 501 (7th Cir. 1991) ("All individuals, natural or unnatural, must pay federal income tax on their wages, regardless of whether they requested, obtained or exercised any privilege from the federal government.") (quotation omitted). Likewise, petitioners' argument that the "Federal Government cannot act upon sovereign people, only upon the states," Aplts. Opening Br. at 20, is patently wrong if petitioners mean that the federal government does not have the power to tax individual citizens. All citizens of the United States are liable for income taxes, and every person born in the United States is a citizen of the United States. 26 C.F.R. 1.1-1(a), (b), and (c); cf. Lonsdale v. United States [ 90-2 USTC 50,581], 919 F.2d 1440, 1448 (10th Cir. 1990) (rejecting argument that individual who is a citizen of a state is not a person under the Internal Revenue Code as "completely lacking in legal merit and patently frivolous").

We also reject petitioners' claim that the "Internal Revenue Manual Reveals Secret Default Process Used by Commissioner's Delegates." Aplts. Opening Br. at 10 (emphasis omitted). Simply put, none of the administrative or Tax Court proceedings in this matter can be characterized as involving a "secret default."

Finally, there is no merit to petitioners' claim that they "exercised [their] right to equal treatment under the law by performing the same administrative default process upon the IRS that the IRS uses upon the people." Id. at 15. As with their other frivolous arguments, petitioners have failed to put forth any relevant legal authority to support their claim that respondent "defaulted" during the administrative proceedings in this case.

The Tax Court's dismissal orders are AFFIRMED. We also DENY each and every request for relief that petitioners have made in their appellate briefs and any other filings submitted to this court.

* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

 

 

 

 

 

 

 

[Dec. 56,174(M)] Davis and Lois Etkin v. Commissioner.

Dkt. Nos. 7627-02L , 17722-03L , TC Memo. 2005-245, October 20, 2005 .

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

[Code Sec. 6015]
Innocent spouse relief: Equitable relief. --

An IRS Appeals officer's rejection of a spouse's request for equitable relief under Code Sec. 6015(f) did not constitute an abuse of discretion because all of the seven threshold conditions set forth in Rev. Proc. 2000-15, 2000-1 CB 447, were not satisfied. The nonrequesting husband added his wife's name on the deed of his house and transferred a boat and a car to her shortly after their tax liabilities arose and the IRS's notice of levy was received. Because the couple did not provide any logical or substantial reason for the transfer, the Appeals officer correctly concluded that the transfer had a tax-avoidance purpose and constituted a transfer of disqualified assets. In addition, the evidence showed that, at the time the requesting spouse signed the returns, she should have known that the tax for the years in question would not be paid.


[Code Secs. 6320 and 6330]
Collection Due Process hearing: Notice of determination: Abuse of discretion: Judicial review. --

An IRS Appeals officer properly rejected married taxpayers' proposed installment agreement to settle their outstanding tax liabilities. Despite the Appeals officer's repeated requests, the couple failed to provide updated financial information or substantiation for any of the expenses claimed on their previously submitted financial statement. The Appeals officer also did not abuse his discretion when he rejected the wife's request for equitable relief under Code Sec. 6015(f). There was a transfer of disqualified assets between the spouses and the evidence showed that, at the time the requesting spouse signed the returns, she should have known that the tax for the years in question would not be paid.

Davis and Lois Etkin, pro se; Michelle L. Maniscalco, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: These consolidated cases concern: (1) A notice of determination concerning collection action (notice of determination) upholding liens under section 6320 for petitioners' taxable years 1997 through 1999; (2) a notice of determination upholding a levy under section 6330 for petitioners' taxable year 1999; (3) a notice of determination upholding a lien for petitioners' taxable year 2000.

The issues for decision are:

(1) Did respondent abuse his discretion in upholding the liens under section 6320 in the notices of determination for petitioners' taxable years 1997, 1998, 1999, and 2000? We hold that respondent did not abuse his discretion.

(2) Did respondent abuse his discretion in upholding the proposed levy under section 6330 in the notice of determination for petitioners' taxable year 1999? We hold that respondent did not abuse his discretion.

(3) Did respondent abuse his discretion in denying petitioner Lois Etkin equitable relief under section 6015(f) for the taxable years 1997, 1998, 1999, and 2000? We hold that respondent did not abuse his discretion.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioners Davis Etkin and Lois Etkin have been married and resided together at all times in Schenectady, New York, since 1990. Davis Etkin is the former president of Off-Track Betting Organization. Lois Etkin is a retired school teacher with a master's degree in education. Petitioners filed joint income tax returns for 1997, 1998, 1999, and 2000. They reported tax liabilities due, but these liabilities were not fully paid either by withholdings or by any payment submitted with the returns. The balance owed in each return is allocable to the income of both petitioners. Respondent has not determined a deficiency against either petitioner for the taxable years at issue. Petitioners' joint income tax returns for the taxable years 1997 through 2000 showed the following unpaid balances:                                                                              

                        Taxable Year            Unpaid Balance    
                            1997                    $18,504
                            1998                     28,448
                            1999                     12,421
                            2000                     14,359
                                                          

Respondent assessed the following additions to tax under sections 6654(a) and 6651(a)(2) in connection with the unpaid balances:

 

                                                                                  
                                                                                  
                        Additions to Tax                   
         
Taxable Year              Sec. 6651(a)(2)               Sec. 6654(a)       
                                                                                  
                                                                          
1997                        $712.12                      $701.00
1998                       1,093.80                     1,103.00
1999                         248.42                       525.22
2000                         646.15                       675.54
                                                                          

Further, respondent assessed a $1,292.31 addition to tax for failure to file a timely return for the taxable year 2000 under section 6651(a)(1).1


A. Notices of Determination for the Taxable Years 1997, 1998, and 1999

1. Final Notices of Intent To Levy

On June 26 and May 16, 2000 , respectively, respondent issued to petitioners Forms 1058, Final Notices of Intent to Levy and Notice of Your Right to a Hearing, as required by section 6330(a), with respect to unpaid liabilities for the taxable years 1997 and 1998. On September 28, 2000 , respondent issued to petitioners Form 1058 for the taxable year 1999.

On October 12, 2000 , petitioners submitted Form 12153, Request for a Collection Due Process Hearing, in response to the May, June, and September final notices of intent to levy, requesting a hearing for the taxable years 1997-99. Petitioners' Form 12153 was timely submitted in response to the September 2000 notice of intent to levy for the taxable year 1999. However, petitioners' request for a hearing under section 6330 for the taxable years 1997 and 1998 was untimely submitted. Accordingly, respondent provided an "equivalent" hearing under section 301.6330-1(i), Proced. & Admin. Regs., as to the proposed levy for the taxable years 1997 and 1998. In addition, petitioners filed Form 2848, Power of Attorney and Declaration of Representative, conferring on their C.P.A., Robert Kristel, the authority to represent petitioners at their hearing for the taxable years 1997-99.

2. Notice of Federal Tax Lien

On October 4, 2000 , respondent issued a notice of Federal tax lien, as required by section 6320(a), for petitioners' 1997-99 tax years. On October 12, 2000 , petitioners timely submitted Form 12153 requesting a hearing under section 6320 for taxable years 1997-99.

3. Lois Etkin's Request for Innocent Spouse Relief

On December 14, 2000 , respondent received from Lois Etkin Form 8857, Request for Innocent Spouse Relief, for her taxable years 1997-99. On her Form 8857, Lois Etkin claimed that it would be inequitable to hold her liable for petitioners' joint income taxes because (1) she relied on Davis Etkin to prepare the income tax returns and pay the taxes, and (2) she believed that her withholding was sufficient to pay her income taxes for the aforementioned taxable years. In addition, Lois Etkin submitted to respondent a completed Questionnaire for Requesting Spouse during the course of the hearing for the taxable years 1997-99.

 

4. The Appeals Officer's Consideration of Petitioners' Proposed Installment Agreements During Their Hearing for the Taxable Years 1997-99

In January 2000, before any notices of liens or proposed levies were issued, petitioners proposed to the revenue agent handling their case an installment agreement to satisfy their joint income tax liabilities for the taxable years 1997-99. The installment agreement required payments of $800 a month over 5 years. Petitioners made payments from November 2000 until September 2003. On December 6, 2000 , the revenue agent rejected petitioners' proposed January 2000 installment agreement and referred the case to the Appeals Office to fulfill petitioners' request for a hearing. In their Form 12153, petitioners again requested an installment agreement and claimed that the monthly payments previously determined by the revenue agent exceeded their ability to pay.

The Appeals officer engaged in a series of phone calls and letters with petitioners' representative concluding sometime in November 2001. On July 12, 2001, the Appeals officer mailed to petitioners a letter offering them the opportunity to have a face-to-face conference on July 25, 2001, for the taxable years 1997-99. At petitioners' representative's request, the Appeals officer rescheduled the conference for September 12, 2001, at the Appeals Office. Neither petitioners nor their representative appeared for the September 12, 2001, conference. On November 9, 2001, respondent mailed to petitioners a followup letter giving them 2 weeks to raise any additional issues regarding the lien or intent to levy. Petitioners' representative then contacted the Appeals officer and, on behalf of petitioners, proposed an installment agreement requiring monthly payments of $800 over 5 years to pay their outstanding tax liability of $55,362.13, which terms were the same terms the revenue agent in charge of petitioners' case had previously rejected. The only financial information available to the Appeals officer in the administrative record was a Form 433-A, Collection Information Statement (the financial statement), that petitioners submitted in October 2000 to the revenue agent reviewing their case. This statement reflected total monthly income of $15,630.77 and total monthly expenses of $16,816.01. On the basis of the information provided in the financial statement and the procedures of the Internal Revenue Manual (IRM), the revenue agent disallowed certain expenses and determined that petitioners could afford to pay $4,912 per month for the first year and $7,106 per month thereafter. By the time the Appeals Office reviewed petitioners' case, the financial statement was more than 12 months old and thus outdated. Given the age of the financial statement, the information on petitioners' 2000 income tax return, and the Appeals officer's conversations with petitioners' representative, the Appeals officer determined that the financial statement did not reflect their current financial status. The Appeals officer informed petitioners' representative that he did not have sufficient financial information to make a determination as to their installment agreement proposal and requested updated financial information. Petitioners' representative informed the Appeals officer that he could not rely on the financial statement in the administrative record because petitioners' financial circumstances had changed.

Petitioners' representative agreed to provide the Appeals officer with updated financial statements from petitioners by December 31, 2001 , but never did so. The lack of an updated financial statement compelled the Appeals officer to use the financial statement and the information on petitioners' taxable year 2000 income tax return to determine petitioners' eligibility for the proposed installment agreement. The Appeals officer determined that certain expenses petitioners claimed on the financial statement were not allowable under the provisions of the IRM. Therefore, the Appeals officer could not take those expenses into account in determining how much petitioners were able to pay.

5. Notices of Determination and Decision Letter Issued for the Taxable Years 1997-99

 

On March 21, 2002 , respondent issued a final notice of determination upholding the Federal tax lien for the taxable years 1997-99. Respondent also issued a notice of determination upholding the Federal tax levy for the taxable year 1999. Further, respondent issued a decision letter concerning the equivalent hearing under section 6330 for the taxable years 1997 and 1998 in which respondent upheld the proposed levy actions. At the time the notices were issued, petitioners' outstanding income tax liability was $55,362.13. In analyzing petitioners' claims, the Appeals officer denied petitioners' offer of an installment agreement and determined that: (1) Pursuant to their proposed installment agreement, only $48,000 would have been paid towards their total outstanding liability of $55,362.13; (2) petitioners were delinquent in paying their joint income tax liability for the taxable year 2000 and had not made any estimated tax payments for the taxable year 2001; and (3) the revenue agent was correct in his determination that petitioners' proposed installment agreement was unacceptable because they could afford to pay $4,912 per month in the first year and $7,106 per month in the years thereafter.

In addition, in a Form 866-A, Explanation of Items, the Appeals Office denied petitioner Lois Etkin's claim for equitable relief under section 6015(f) for the taxable years 1997-99. In analyzing Lois Etkin's entitlement to equitable relief under section 6015(f), the Appeals officer relied on the following factors: (1) Lois Etkin was married to and still residing with Davis Etkin; (2) Davis Etkin did not abuse Lois Etkin; (3) Lois Etkin failed to establish that she would suffer economic hardship if relief was not granted; (4) Lois Etkin derived a significant benefit from not paying the tax liabilities; (5) some of the tax due in each year at issue was attributable to Lois Etkin's income; (6) there were perceptible asset transfers between petitioners; and (7) Lois Etkin was well educated and knew or had reason to know that the tax liabilities would not be paid and were not solely attributable to Davis Etkin. Further, petitioners did not offer any evidence to rebut the Appeals officer's determination.

B. The Taxable Year 2000 Hearing

1. Notice of Federal Tax Lien

On April 5, 2002 , respondent filed a notice of Federal tax lien in the County of Schenectady, New York, for the taxable year 2000. On April 11, 2002 , respondent issued to petitioners the notice of Federal tax lien filing and a Form 1058. On May 3, 2002 , petitioners timely submitted a Form 12153 requesting a hearing under section 6320. On their Form 12153, petitioners claimed (as they had in the Form 12153 for the 1997-99 tax years) that respondent requested monthly payments that greatly exceeded their ability to pay and requested an installment agreement. Along with petitioners' Form 12153, Lois Etkin submitted a Form 8857, requesting innocent spouse relief, claiming that she believed her withholding was sufficient to pay her income taxes, and that her husband had assumed responsibility for the filing of their income tax return and payment of their joint tax liability for the taxable year 2000. Although petitioners incurred an additional income tax liability for the taxable year 2000 of $17,759.51, petitioners made payments towards their outstanding joint income tax liabilities for the taxable years 1997 and 2000, which reduced their total outstanding income tax liability from $55,362.13 on March 21, 2002 , to $45,776.13 on September 16, 2003 .

The factors petitioner Lois Etkin set forth for entitlement to section 6015(f) equitable relief for the taxable year 2000 are virtually identical to the factors set forth in her claim for equitable relief associated with the taxable years 1997-99.

2. Hearing

 

During a phone call to the Appeals officer on August 13, 2003 , petitioners proposed an installment agreement to satisfy their outstanding joint liabilities for the taxable years 1997 through 2000. The proposed agreement provided that petitioners would pay $762.94 per month, which would have fully satisfied their outstanding income tax liability of $45,776.13 within 5 years. On July 21, 2003 , the Appeals Office issued a letter to petitioners informing them that Lois Etkin was not entitled to equitable relief under section 6015(f) and inviting petitioners to raise any additional issues regarding their hearing. Petitioners did not have legal representation during the hearing for the taxable year 2000. After a phone call with the Appeals officer in response to the Appeals Office's July 21, 2003 , letter, petitioners agreed to raise any additional issues by mail within 10 days, but failed to do so. The Appeals officer followed the administrative procedures which require requesting a new or updated financial statement if the financial information is more than 12 months old and/or the information is no longer accurate. Despite his requests, petitioners did not provide updated financial information. Because of petitioners' failure to provide updated financial information, and the fact that the only financial information in the administrative record remained the financial statement, the Appeals officer considered the financial information from the hearing for the taxable years 1997-99.

3. Notice of Determination for the Taxable Year 2000

On September 16, 2003 , respondent issued a notice of determination upholding the proposed lien under section 6320 for the taxable year 2000. On the same date, respondent also issued a notice of determination denying Lois Etkin equitable relief under section 6015(f). The Appeals officer concluded that even though petitioners proposed to fully pay their outstanding income tax liabilities over 5 years, they did not qualify for the 5-year rule as set forth by IRM sec. 5.15.1.3(4) (2000)2 because (1) they did not provide the Appeals officer with an updated financial statement from which the Appeals officer could determine petitioners' income and allowable expenses, and (2) they failed to provide substantiation for their expenses as required by the IRM.

As to Lois Etkin's claim for equitable relief under section 6015(f), respondent considered the following factors dispositive of the issue: (1) Lois Etkin signed a joint income tax return with her husband for the taxable year 2000, while the hearing was taking place for the taxable years 1997-99; and (2) she was well educated. On the basis of these two factors, respondent determined that Lois Etkin had reason to know when she signed the 2000 income tax return that the tax liability would not be paid. As a result of this determination and Lois Etkin's failure to meet some of the requirements set forth in Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. 447, 448, respondent denied Lois Etkin's claim for relief under section 6015(f).

OPINION

Sections 6320 and 6330 provide for Tax Court review of the Commissioner's administrative determinations to proceed with liens and levies. Where the validity of the underlying tax liability is at issue, the Court will review the matter de novo. Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 39 (2000). However, petitioners have not challenged the validity of the underlying tax liability. Because the underlying tax liability and section 6015(b) and (c) is not at issue, the Court will review respondent's administrative determinations for abuse of discretion; that is, whether the determinations were arbitrary, capricious, or without sound basis in fact or law. See Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000); Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999). We note that we do not have jurisdiction under section 6330(d) to review petitioners' claims contesting the proposed levy actions for the taxable years 1997 and 1998. Section 301.6330-1(b), Proced. & Admin. Regs., provides that the taxpayer must request the section 6330 hearing within the 30-day period commencing on the day after the date of the notice of intent to levy. Failure to do so results in the taxpayer's being allowed only an "equivalent hearing". Section 301.6330-1(i)(2), Q&A-15, Proced. & Admin. Regs., generally provides that a taxpayer may not obtain court review of the decision following an equivalent hearing. Petitioners did not file their Forms 12153 within the 30-day period following the 1997 and 1998 notices of intent to levy. Therefore, we lack jurisdiction to review respondent's decision to uphold the levy actions for the taxable years 1997 and 1998.

Notwithstanding our lack of jurisdiction to review the upheld levy actions under section 6330 for the taxable years 1997 and 1998, we have statutory jurisdiction to consider petitioners' challenge to the liens under section 6320, as well as Lois Etkin's claim for equitable relief under section 6015(f) for each of the taxable years at issue, including 1997 and 1998. Section 6320(c) incorporates section 6330(c), (d), and (e) by reference (with the exception of section 6330(d)(2)(B)). Section 6330(c)(2)(A) gives the taxpayer the right to raise any relevant spousal defenses in connection with the hearing. Section 6330(d) is the specific provision that governs our jurisdiction to review a proposed collection action. Therefore, this Court has jurisdiction over petitioners' sections 6320 and 6015(f) claims for each of the taxable years at issue.3

I. Respondent Did Not Abuse His Discretion Rejecting Petitioners' Proposed Installment Agreements, and Upholding the Proposed Actions to Collect Petitioners' Joint Income Tax Liabilities for the Taxable Years 1997, 1998, 1999, and 2000

A. Background on Proposed Installment Agreements

Section 6159 authorizes the Commissioner to enter into installment agreements with taxpayers to satisfy their tax liabilities if the Commissioner determines that such agreements will facilitate the collection of the liability. The IRM, together with sections 301.6159-1, 301.6320-1, and 301.6330-1, Proced. & Admin. Regs., establishes the IRS procedures for determining whether an installment agreement will facilitate collection of the liability. This Court has previously upheld the Commissioner's determinations based in part on the provisions of the IRM. See, e.g., Orum v. Commissioner [Dec. 55,681], 123 T.C. 1, 13 (2004) (upholding the Commissioner's determination because of the taxpayers' failure to timely provide requested information regarding their current financial condition in accordance with IRM guidelines), affd. [2005-2 USTC 50,444] 412 F.3d 819 (7th Cir. 2005); McCorkle v. Commissioner [Dec. 55,039(M)], T.C. Memo. 2003-34 (the taxpayer was not current in her filing and paying obligations, and therefore the Commissioner under the IRM guidelines rejected her proposed installment agreement); Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129 (upholding settlement officer's proposed monthly installment agreements computed under IRM guidelines).

When determining whether a taxpayer's proposed installment agreement will facilitate collection of the liability under section 6159, the Internal Revenue Service makes a financial analysis of the taxpayer's monthly income and expenses and the taxpayer's ability to pay. See Schulman v. Commissioner, supra. We have previously held that consideration of a taxpayer's ability to pay is reasonable in the Commissioner's determination of whether a proposed installment agreement is acceptable. See id. In determining the amount taxpayers are able to pay, the IRS allows taxpayers to claim certain expenses to offset their income. Those procedures contain guidelines for allowable expenses, which include necessary and conditional expenses. See id. (citing IRM (CCH), sec. 5.15.1 to 5.15.1.4, at 17,653-17,660). "Necessary" expenses are those that provide for a taxpayer's health and welfare and/or the production of income. See IRM sec. 5.15.1.3(2) (2000). Under IRM sec. 5.15.1.3(4) (2000), the Appeals officer is permitted to allow "excessive necessary" and "conditional" expenses when examining a taxpayer's financial statement, provided that the tax liability, including all accruals, will be paid within 5 years. "Conditional" expenses are any expenses other than "necessary" expenses. See IRM secs. 5.15.1.7(6) (2004) and 5.15.1.3(3) (2000). Further, all expenses must be substantiated in order to be allowable. See Schulman v. Commissioner, supra (sustaining the Appeals officer's disallowance of unsubstantiated expenses).

 

Sections 301.6320-1(e) and 301.6330-1(e), Proced. & Admin. Regs., provide that the taxpayers are obligated to provide all requested information, including financial statements, throughout the course of the hearing. In addition, IRM sec. 5.15.1.1(8) (2004) states that financial statements submitted by taxpayers in the course of a hearing should be updated if they are older than 12 months. This Court has previously upheld the Commissioner's determination that a proposed installment agreement was unacceptable on account of the taxpayer's failure to provide updated financial statements. See Orum v. Commissioner, supra at 13.

B. Respondent Did Not Abuse His Discretion Upholding the Proposed Collection Actions and Rejecting Petitioners' Proposed Installment Agreement During the Hearing for the 1997-99 Taxable Years

Petitioners argue that respondent abused his discretion in rejecting the terms of their proposed installment agreement for the taxable years 1997-99 of $800 per month over 5 years and sustaining the proposed collection actions. Petitioners' main reasons are that (1) the Appeals officer arbitrarily set an amount that was suitable for petitioners to pay monthly, and (2) the Appeals officer did not fully take into account the financial and health conditions of petitioners. We disagree.

The primary flaw in petitioners' argument is that petitioners failed to provide more updated financial information despite the Appeals officer's repeated requests.4 The Appeals officer properly followed the administrative procedures requiring him to request a new or updated financial statement if the financial information in the administrative file is more than 12 months old and/or the information is no longer accurate. After petitioners failed to appear for their September 12, 2001 , face-to-face hearing, the Appeals officer informed petitioners through their representative that he did not have sufficient financial information to make a determination on their installment agreement proposal. Then the Appeals officer invited petitioners to submit additional information to assist in his consideration of their proposed installment agreement, but petitioners never sent him any information. Despite the Appeals officer's multiple requests to either petitioners or their representative, petitioners did not submit updated financial information. As a result, we find that the Appeals officer could have reasonably rejected an installment agreement proposal by petitioners on account of their failure to timely provide the requested information. See Orum v. Commissioner, supra.

Given petitioners' failure to provide the requested updated financial statement, respondent considered the financial statement in determining whether to accept petitioners' proposed installment agreement. If petitioners had paid $800 a month for 5 years pursuant to their proposed installment agreement, only $48,000 would have been paid towards their total outstanding liability of $55,362.13. Since they did not offer an alternative installment proposal, the revenue agent calculated a reasonable payment expectation, applying the reasonable expense criteria5 of the IRM to reach a payment plan that would reflect their actual ability to pay off the tax liability timely. Petitioners argue that respondent abused his discretion in determining that their proposed installment agreement did not reflect their ability to pay and thus upholding the revenue agent's determination, based on the financial statement, that petitioners could afford to pay $4,912 per month for the first year, and $7,106 per month thereafter. Petitioners further argue that the record does not reflect the reasoning behind the revenue agent's calculation of what they can afford to pay and suggest it may be a subjective opinion. Petitioners also suggest that the Appeals Office simply took the actions of the revenue agent at face value without coming to an independent determination of what was an acceptable payment plan.

We conclude that respondent did not abuse his discretion in determining that petitioners' proposed installment agreement did not reflect their ability to pay. We also conclude that respondent did not base his determination of petitioners' proposed installment agreement on a subjective formula. The revenue agent computed the monthly installment payment under the guidelines of the IRM. This Court has previously found determinations following from computations under the IRM to be a proper exercise of the Commissioner's discretion. See Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129. The revenue agent applied these procedures and disallowed certain expenses. The Appeals officer acknowledged at trial that he was not bound by the revenue agent's determination. However, the Appeals officer properly reviewed the revenue agent's computations, which were based upon the financial statement, and found them to be correct. Therefore, those computations were not based on any arbitrary determination, and petitioners' argument is without merit.

Petitioners set forth a litany of factors that they argue the Appeals officer did not take into account in assessing their ability to pay, such as Davis Etkin's age, heart condition, gall bladder removal, and other health-related problems. In addition, petitioners cite the termination of Davis Etkin by his employer and the denial of benefits, along with $200,000 in fines and restitution payments that Davis Etkin was required to make in connection with his sentence for defrauding the Government and bribery. Petitioners' argument is without merit because petitioners failed to submit an updated financial statement that reflected these alleged changes in their financial situation. See Orum v. Commissioner [Dec. 55,681], 123 T.C. 1 (2004).

In addition, the Appeals officer exercised proper discretion in rejecting petitioners' proposed installment agreement because petitioners were not in full compliance with their filing and payment obligations. See Orum v. Commissioner [2005-2 USTC 50,444], 412 F.3d at 820; McCorkle v. Commissioner [Dec. 55,039(M)], T.C. Memo. 2003-34 (citing IRM pt. 5.14.1.4.1 (July 1, 2002), pt. 5.14.9.3(5) (Mar. 30, 2002), pt. 5.19.1.3.3.1(1) and (5) (Oct. 1, 2001), pt. 5.19.1.5.4.10(1)-(2) (Oct. 1, 2001)). Petitioners were delinquent in paying their joint income tax liability for the taxable year 2000 and had not made any estimated tax payments for the taxable year 2001. Therefore, respondent did not abuse his discretion in denying petitioners' proposed installment agreement.

C. Respondent Did Not Abuse His Discretion Upholding the Proposed Collection Actions and Rejecting Petitioners' Proposed Installment Agreement During the Collection Due Process Hearing for the 2000 Taxable Year

During petitioners' hearing for the taxable year 2000, they proposed an installment agreement whereby they would fully pay their outstanding tax liabilities in equal monthly installments over 5 years. Petitioners contend that respondent abused his discretion by rejecting their proposed installment agreement.

Petitioners' position is without merit because of their repeated failure to provide respondent with updated financial statements. See Orum v. Commissioner [Dec. 55,681], 123 T.C. at 13. During the course of the communications associated with the hearing for the taxable year 2000, the Appeals officer requested updated financial statements in order to consider petitioners' proposed installment agreement. By this time, the financial statement was over 3 years old. Petitioners had previously acknowledged in connection with their hearing for the taxable years 1997-99 that their circumstances had changed from the facts shown in the financial statement, and that the Appeals officer could no longer rely on the financial statement. Clearly, respondent could not make an objective determination of the viability of petitioners' proposed installment agreements on the basis of such outdated information. Respondent, therefore, did not abuse his discretion in denying petitioners' proposed installment agreement on the basis of their failure to comply with his request for updated financial information. See id.

Petitioners have also contended that respondent abused his discretion in refusing to consider "excessive necessary" and "conditional" expenses. Under IRM sec. 5.15.1.3(4) (2000), the "five-year" rule states that the Appeals officer may consider any "excessive necessary" or "conditional" expenses if the taxpayers can show that they can fully pay their outstanding income tax liabilities over 5 years. Respondent argues that he was unable to consider any "conditional" or "excessive necessary" expenses because petitioners did not provide an updated financial statement or substantiate any of the expenses that they claimed on the statement available to respondent. We agree with respondent.

Sections 301.6320-1(e)(1) and 301.6330-1(e)(1), Proced. & Admin. Regs., require that "Taxpayers will be expected to provide all relevant information requested by Appeals, including financial statements, for its consideration of the facts and issues involved in the hearing." (Emphasis added.) IRM sec. 5.15.1.1(8) (2004) requires financial statements reviewed for purposes of determining the viability of proposed installment agreements to be no more than 12 months old. As we have repeatedly observed, petitioners did not meet this requirement. The Appeals officer properly requested a new or updated financial statement, but petitioners did not comply with that request. Respondent, thus, did not have any basis other than the previous evaluation on which to consider petitioners' proposed installment agreement. In the previous evaluation of the financial statement, the revenue agent disallowed many of petitioners' claimed expenses because they did not conform with the expenses allowable under the provisions of the IRM. Had respondent relied upon the financial statement, he would have reached the same conclusions as the previous evaluation for the taxable years 1997-99. As a result, respondent did not abuse his discretion in following the applicable procedures using the only information provided to him, which justifiably led to the same conclusions as those reached in the hearing for the taxable years 1997-99. In addition, petitioners' proposal did not qualify for the 5-year rule because they failed to provide substantiation for the "conditional" and "excessive necessary" expenses listed on their financial statement. See Schulman v. Commissioner [Dec. 54,757(M)], T.C. Memo. 2002-129 (citing 2 Administration, Internal Revenue Manual (CCH), sec. 5.15.1.3(8)(a), at 17,655). Respondent was therefore within his discretion to reject petitioners' proposed installment agreement.

II. Respondent Did Not Abuse His Discretion When He Denied Equitable Relief Pursuant to Section 6015(f) to Lois Etkin for the Taxable Years 1997, 1998, 1999, and 2000

We note this case involves unpaid tax liabilities for the years in issue. Because no understatements of tax or deficiencies are involved, Lois Etkin does not qualify for relief under section 6015(b) or (c). See sec. 6015(b)(1) and (c)(1); Washington v. Commissioner [Dec. 55,120], 120 T.C. 137, 146-147 (2003). Therefore, our review is limited to section 6015(f), which permits in certain circumstances relief from joint and several liability for unpaid taxes. See Ewing v. Commissioner [Dec. 54,766], 118 T.C. 494, 497 (2002). Section 6015(f) grants the Commissioner discretion to grant equitable relief from tax liability to a spouse if, taking into account all the facts and circumstances, it is inequitable to hold the spouse liable for any unpaid tax or any deficiency (or any portion of either) and relief is not available under section 6015(b) or (c). In order to prevail, Lois Etkin must demonstrate that respondent abused his discretion by acting arbitrarily, capriciously, or without sound basis in fact or law. See Jonson v. Commissioner [Dec. 54,641], 118 T.C. 106, 125 (2002), affd. [2004-1 USTC 50,122] 353 F.3d 1181 (10th Cir. 2003); Butler v. Commissioner [Dec. 53,869], 114 T.C. 276, 289-290, (2000). Lois Etkin bears the burden of proving that respondent abused his discretion in denying her equitable relief under section 6015(f). See Rule 142(a); Alt v. Commissioner [Dec. 54,961], 119 T.C. 306, 311 (2002), affd. [2004-1 USTC 50,279] 101 Fed. Appx. 34 (6th Cir. 2004); Ogonoski v. Commissioner [Dec. 55,561(M)], T.C. Memo. 2004-52.

Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. 447, 448, prescribes guidelines that will be considered in determining whether an individual qualifies for equitable relief under section 6015(f).6 This Court has upheld the use of the guidelines specified in Rev. Proc. 2000-15, supra, and has analyzed the factors listed therein, in reviewing the Commissioner's negative determinations under section 6015(f). See, e.g., Washington v. Commissioner, supra at 147-152. Rev. Proc. 2000-15, sec. 4.01, lists seven threshold conditions that must be satisfied before the Commissioner will consider a request for equitable relief under section 6015(f). Those conditions are:

 

(1) The requesting spouse filed a joint return for the taxable year for which relief is sought;

(2) relief is not available to the requesting spouse under section 6015(b) or (c);

(3) the requesting spouse applies for relief no later than 2 years after the date of the Commissioner's first collection activity after July 22, 1998 ;

(4) the liability remains unpaid;

(5) no assets were transferred between the spouses as part of a fraudulent scheme;

(6) there were no disqualified assets transferred to the requesting spouse by the nonrequesting spouse; and

(7) the requesting spouse did not file the return with fraudulent intent.

Respondent concedes that threshold conditions (1), (2), (3), (4), and (7) have been met. However, respondent contends that Lois Etkin does not satisfy threshold conditions (5) and (6) because Davis Etkin added Lois Etkin to the deed for his house, and he transferred a car and a boat to Lois Etkin after they became delinquent in paying taxes. Respondent contends that the addition of Lois Etkin's name to the deed for their marital residence within the 2 years preceding March 28, 2001, and the transfer to Lois Etkin of a jointly owned car and boat between March 28, 2001, and January 1, 2003,7 were part of a fraudulent scheme to frustrate the collection of their delinquent taxes. Further, respondent argues that these assets constitute "disqualified assets" and that therefore Lois Etkin also fails to meet the sixth threshold requirement. Section 6015(c)(4)(B)(i) provides that a "disqualified asset" is any property or right to property transferred to an individual making the election by the other person filing the joint return if the principal purpose of the transfer is the avoidance of tax or the payment of tax.8 If disqualified assets are transferred to the requesting spouse by the nonrequesting spouse, relief will be available only to the extent that the liability exceeds the value of those disqualified assets. Rev. Proc. 2000-15, sec. 4.01(6). Petitioners presented no evidence of the value of the disqualified assets. However, on the basis of the figures on the financial statement, the combined value of the home, the boat, and the automobile is at least $210,000.9

Petitioners' only rebuttal to respondent's contentions is that Davis Etkin transferred this property to Lois Etkin because of their marriage. However, this argument loses much of its credibility in light of the fact that Davis Etkin transferred the property to Lois Etkin over 10 years after they were married. In addition, the transfer of the house occurred proximately to the filing of the liens for the taxable years 1997-99 and before the April 2002 Federal tax lien was filed for the taxable year 2000. The car and the boat were transferred to Lois Etkin after the levies for the taxable years 1997-99 were filed and very close to the filing of the notice of Federal tax lien on April 5, 2002.10 Previous cases have upheld the Commissioner's determination that the taxpayer did not meet the threshold factors under Rev. Proc. 2000-15, sec. 4.01(6), on the basis of the sequence of events and the proximity of the transfer to any action on behalf of the IRS. See, e.g., Ohrman v. Commissioner [Dec. 55,332(M)], T.C. Memo. 2003-301. In Ohrman, the taxpayers entered into a separation agreement shortly after the Commissioner proposed adjustments to their tax liability. The result of the separation agreement was the transfer of assets from the taxpayer's husband to her. The husband, however, continued to pay all of the expenses, and the taxpayer continued to engage in a marital relationship with her husband. The Commissioner concluded that the transfer of assets between the taxpayers was an effort to shield those assets from the Commissioner's attempt to collect the tax liability. The Commissioner based his conclusion on the proximity of the transfer to the taxpayer's learning of the potential liability. Given that there was no logical reason for the transfer that could be substantiated and that the transfer was proximate to the inception of the taxpayer's knowledge of the liability for the taxable years in question, the Commissioner determined that the purpose of the transfer was to avoid tax, and thus the taxpayer did not meet the sixth threshold condition of Rev. Proc. 2000-15, sec. 4.01. In particular, the Commissioner concluded that the taxpayer received a transfer of disqualified assets. This Court upheld the Commissioner's determination.

Davis Etkin added Lois Etkin's name to the deed of their marital residence within 2 years preceding March 28, 2001, and transferred their jointly owned car and boat between March 2001 and January 2003. These transfers took place shortly after their tax liabilities arose, and the transfer of the car and the boat took place after petitioners received the notice of intent to levy on their property. Further, Davis Etkin claimed that the transfers were made because of his marriage to Lois Etkin; however, the record shows that Lois and Davis Etkin have been married since 1990 and that Davis Etkin owned the house before he married Lois Etkin. In addition, Davis Etkin did not convert ownership of the car or boat to joint ownership; rather, he transferred the assets solely to Lois Etkin. Petitioners have not produced any evidence that the principal purpose of the transfer was not to avoid the payment of tax. Further, petitioners have not provided any other logical or substantial reason for the transfer.11 Nor have petitioners shown the value of the disqualified assets. Therefore, we conclude that Lois Etkin has failed to satisfy the sixth threshold requirement of Rev. Proc. 2000-15, sec. 4.01 and thus does not qualify for equitable relief under section 6015(f). Because we decided that Lois Etkin received a transfer of disqualified assets from Davis Etkin, we conclude that Lois Etkin does not meet all seven of the threshold conditions of Rev. Proc. 2000-15, sec. 4.01.12

In addition, we find adequate support in the record to sustain the Appeals officer's determination that Lois Etkin, when signing the returns, should have known that the tax for the years in question would not be paid. Lois Etkin possessed sufficient knowledge and education to understand that she was signing a joint income tax return showing a balance due for the year in question. She simply relied on Davis Etkin's assertions that he would pay the liability late through installment payments. Further, Lois Etkin had specific notice that her tax liability for the taxable year 2000 would remain unpaid because she signed the joint income tax return for the taxable year 2000, showing a significant balance due, while her request for innocent spouse relief was being considered for the taxable years 1997-99. Accordingly, we conclude that respondent did not abuse his discretion by acting arbitrarily, capriciously, or without sound basis in fact in denying Lois Etkin's request for equitable relief under section 6015(f).

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

To reflect the foregoing,

Decisions will be entered for respondent.

1 Petitioners received an extension of time to file their joint income tax return for the tax year 2000 until Oct. 15, 2001; however, they did not file it until Nov. 23, 2001.

2 Internal Revenue Manual (IRM), sec. 5.15.1.3(4) (2000) provides for a "five-year" rule that excessive necessary and conditional expenses may be allowed if the tax liability, including projected accruals, will be fully paid within 5 years. "Excessive necessary" and "conditional expenses" are expenses that do not meet the test for "necessary expenses", which must provide for a taxpayer and his family's health and welfare and/or the production of income. See IRM sec. 5.15.1.3(2) (2000).

3 Lois Etkin received a notice of determination in response to her request for relief under sec. 6015 and was notified that she could petition a stand-alone sec. 6015 case under sec. 6015(e). See sec. 301.6330-1(i)(2), Q&A-15, Proced. & Admin. Regs. Lois Etkin did not file such a petition. Nevertheless, we have jurisdiction over the sec. 6015(f) claims for each taxable year at issue pursuant to sec. 6320(c).

4 Petitioners allege that there is an updated 2002 financial statement on file with the Appeals office. Respondent is not aware of the existence of such a document. Although this Court's review is not limited to the evidence in the administrative record, Robinette v. Commissioner [Dec. 55,698], 123 T.C. 85 (2004), petitioners did not introduce such evidence at any juncture, including at trial. We merely have petitioners' assertion that it exists. Therefore, because of the lack of substantive documentation of this alleged financial statement and petitioners' failure to introduce it into evidence for this Court to consider, we are unable to acknowledge its existence.

5 Pursuant to the criteria in the IRM, the Appeals officer determined that a number of the expenses petitioners claimed on their financial statements were not allowable. See IRM sec. 5.15.1.3 (2000).

6 On Aug. 11, 2003, the Commissioner issued Rev. Proc. 2003-61, 2003-2 C.B. 296, which supersedes Rev. Proc. 2000-15, 2000-1 C.B. 447, effective for requests for relief pending on or after Nov. 1, 2003, for which no preliminary determination letter has been issued as of Nov. 1, 2003. Rev. Proc. 2003-61, supra, does not apply in this case because petitioners' request for relief was denied before the effective date.

7 Respondent derives these dates from the representations made by Lois Etkin on two different Innocent Spouse Questionnaires for Electing Spouse that were submitted on Mar. 28, 2001, and Jan. 1, 2003. The first form was submitted for the consideration of Lois Etkin's sec. 6015(f) claim in connection with petitioners' hearing for the taxable years 1997-99, and the second form was submitted in connection with the consideration of Lois Etkin's sec. 6015(f) claim in connection with petitioners' hearing for the taxable year 2000. On the March 2001 questionnaire, Lois Etkin stated under penalty of perjury that Davis Etkin added her name to the title of the home "within the last year or two." In completing his portion of the form, Davis Etkin stated that no assets were transferred between him and Lois Etkin except for the house. By the time Lois Etkin submitted the second questionnaire pertaining to the sec. 6015(f) relief request for the taxable year 2000 in January 2003, the answer to this question changed. Lois Etkin stated that her husband had transferred a jointly owned car and a boat to her. Therefore, respondent deduced that the house had been transferred within 2 years (or less) before Mar. 28, 2001, and that the boat and the car had been transferred between Mar. 28, 2001, and Jan. 1, 2003. When asked at trial about the exact dates, petitioners were unable to recall.

8 Sec. 6015(c)(4)(B)(ii)(I) provides a presumption that any transfer which is made after the date which is 1 year before the date on which the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals is sent shall be presumed to have as its principal purpose the avoidance of tax or the payment of tax. Respondent does not rely on this presumption in this case since there was no notice of deficiency or of proposed deficiency.

9 Given the outdated nature of the statement, it is plausible that these values have slightly fluctuated; however, this does not concern us in light of the fact that the estimate exceeds the tax liability by approximately 400 percent.

10 We determined, on the basis of petitioners' sworn statements, that the boat and the car were transferred sometime between Mar. 28, 2001, and Jan. 1, 2003. The notice of Federal tax lien for the taxable year 2000 was filed on Apr. 5, 2002.

11 In Ohrman v. Commissioner [Dec. 55,332(M)], T.C. Memo. 2003-301, there was a dispute as to who bears the burden of proving that the taxpayer did or did not receive a transfer of disqualified assets. The Court in Ohrman refrained from resolving the dispute because "the preponderance of the evidence establishes that the principal purpose of the transfer was the avoidance of tax." We are also convinced that the preponderance of the evidence resolves the issue in this case and therefore do not need to determine who has the burden of proof.

12 Since we conclude that the transfer of assets had a principal purpose of avoiding tax, and therefore Lois Etkin fails to satisfy one of the threshold conditions resulting in her disqualification from equitable relief, it is unnecessary for us to consider respondent's contention that the transfer was part of a fraudulent scheme by petitioners.

 

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