Annotations: Judicial Review of Appeals Determinations: Judicial
Notice of Levy
and Right to Hearing: Judicial Review of Appeals Determinations:
[2005-1 USTC ¶50,377] William B. McDermott; et al., Plaintiffs-Appellants v.
United States of America
Court of Appeals, 9th Circuit; 04-16974,
April 4, 2005
Affirming an unreported DC Ariz. decision.
Collection of taxes: Judicial review: Motion to dismiss:
Failure to oppose. --
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.
McDermott, pro se.
Fletcher, Trott and Paez, Circuit Judges. *
The court has designated this opinion as NOT FOR PUBLICATION.
Consult the Rules of the Court before citing this case.®
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
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
' 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
panel unanimously finds this case suitable for decision without
oral argument. Fed. R. App. P. 34(a)(2).
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.
Court of Appeals, 6th Circuit; 04-3194/3554,
June 2, 2005
Affirming DC Ohio, 2004-1
USTC ¶50,167 and 2004-1
Hearing before levy: Collection Due Process hearing: Standard
of review: Adequacy of record: Offer-in-compromise.
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
Carla I. Struble, for plaintiff-appellant. Robert J. Branman,
Rachel I. Wollitzer, Jonathan S. Cohen, Department of Justice, for
Keith, Merritt and Clay, Circuit Judges.
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
Living Care owns and operates a nursing home facility in
, 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.
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).
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.
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
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
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
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:
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.
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
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
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.
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.
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.
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).
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).
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)).
another section of its Brief, Living Care presents the argument
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.
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).
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,
U.S. District Court, No. Dist. Ill., East. Div.; No. 03 C 7394,
February 3, 2005
Collection Due Process hearing: Nominee lien: Judicial review:
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
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
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.
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."
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
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.
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
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).
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.
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
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.
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
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.
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
It is so ordered.
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. --
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. --
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.
[Code Secs. 6532 and 7405]
Erroneous refunds: Recovery by application of payments:
Necessity of assessment. --
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
Paul Freije, pro se; Diane L. Worland, for respondent.
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
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
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.
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.
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.
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.
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
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.
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.
further, other issues
raised by respondent's determination to proceed with the levies
for 1997, 1998, and 1999 determined.
Judge: Pursuant to section
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.
of the facts have been stipulated and are so found. The parties'
stipulations and attached exhibits are incorporated herein by this
resided in Franklin, Indiana, when the petition in this case was
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
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.
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.
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
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
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.
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
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:
$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
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;
$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";
$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."
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."
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
reduction in previously reported adjusted gross income for each of
those years and resulting refunds of $8,996.50 and $8,752.73,
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.
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.
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.
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.
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.
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
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]
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).
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
have jurisdiction to review the Appeals officer's determination
where we have jurisdiction over the type of tax involved in the
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
6330 hearing. See sec. 301.6330-1(f)(2), Q&A-F5,
Proced. & Admin. Regs.; see also Magana v. Commissioner
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).
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
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.
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
USTC ¶50,143], 49 F.3d 340 (7th Cir. 1995).
Claim of Payment
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
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).
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.
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(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).
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".
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.
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.
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,
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
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
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.
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.
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 --
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).]
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.
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.
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
June 3, 1997
, against any 1995 liability, as there would have been none.
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
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.
Application of 1999 Remittances to 1997 Liabilities
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.
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
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.
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.
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.
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.
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
May 29, 2000
. For the reasons outlined below, we conclude that a portion of
this assessment is invalid.
Freijes reported a tax due of $12,507 on the 1999 return, timely
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.
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.
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
the instant proceeding, respondent does not attempt to defend the
foregoing disallowances as a permissible application of section
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
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
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.
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.
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
55,783(M)], T.C. Memo. 2004-240; Tatum v.
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
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
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
6330(c)(1) that the Appeals officer verify compliance
with applicable law cannot be reconciled with an interpretation of
6330(c)(2)(B) that allows the Commissioner to avoid
compliance with section
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.
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.
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.
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
reflect the foregoing,
appropriate order will be issued.
Unless otherwise indicated, all section references are to the
Internal Revenue Code of 1986, as amended.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
we have routinely considered facts and issues in nondetermination
years in these circumstances. See, e.g., Landry v. Commissioner
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),
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
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
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.
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.
reversing entries were dated as of the original erroneous posting
(July 8, 1998). See supra note 5.
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.
19 See supra
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.
"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.
record does not disclose whether petitioner sought an abatement
6213(b)(2)) of the assessment made by respondent
pursuant to sec.
noted, no petition was filed in response to the notice of
deficiency for 1999.
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
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] * * *.
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
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
Secs. 6159, 6330,
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. --
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
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
C. Nwaneri, Nwaneri & Assocs., P.L.L.C., for plaintiff.
Michael R. Pahl, Department of Justice, for defendant.
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.
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
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
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.
A. Comfort Plus's motion for preliminary injunction
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
The Anti-Injunction Act provides in relevant part:
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.
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.
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).
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
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
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:
Verify that the IRS complied with all legal and administrative
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.
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.
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
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.
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.
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
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
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
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.
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.
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
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
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.
Based on the files, records, and proceedings herein, and for the
reasons stated above, IT IS ORDERED THAT:
Comfort Plus's Amended Motion to Remand Administrative Decision
[Docket No. 14] is DENIED.
Comfort Plus's Urgent Motion for Preliminary Injunction [Docket
No. 41] is DENIED.
IRS's Motion for Summary Judgment [Docket No. 21] is GRANTED.
IRS's Motion to Strike [Docket No. 35] is GRANTED.
Comfort Plus's Motion for a New Hearing to Consider Newly
Discovered Evidence Prior to Judgment [Docket No. 44] is DENIED.
Comfort Plus's Complaint [Docket No. 1] is DISMISSED WITH
LET JUDGMENT BE ENTERED ACCORDINGLY.
Court has jurisdiction over this matter pursuant to 26 U.S.C. §6330(d)(1)(B)
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.
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.
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. --
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.
D. Carifee and Pamela A. Carifee, pro sese; Alvin A. Ohm,
FINDINGS OF FACT AND OPINION
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.
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.
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."
October 6, 2003
, respondent's Collection Division contacted petitioners' attorney
by telephone concerning the Requests for a Collection Due Process
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
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."
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(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:
6330(c). Matters Considered At Hearing. --In the case
of any hearing conducted under this section --
* * * * * *
Issues at Hearing. --
In General. --The person may raise at the hearing any relevant
issue relating to the unpaid tax or proposed levy, including --
appropriate spousal defenses;
challenges to the appropriateness of collection actions; and
offers of collection alternatives, which may include the posting
of a bond, the substitution of other assets, an installment
agreement, or an offer-in-compromise.
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.
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).
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.
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
53,938], 114 T.C. 604, 610 (2000); Goza v.
53,803], 114 T.C. 176, 181 (2000).
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.
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
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.
reflect the foregoing,
will be entered for respondent.
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.
Individuals: Notice of deficiency: Redetermination: Frivolous
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
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
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:
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).
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
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
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.
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.
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. --
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
[Code Secs. 6320 and 6330]
Collection Due Process hearing: Notice of determination: Abuse
of discretion: Judicial review. --
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.
and Lois Etkin, pro se; Michelle L. Maniscalco, for
FINDINGS OF FACT AND OPINION
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
issues for decision are:
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.
Did respondent abuse his discretion in upholding the proposed levy
6330 in the notice of determination for petitioners'
taxable year 1999? We hold that respondent did not abuse his
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.
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
Taxable Year Unpaid Balance
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
respondent assessed a $1,292.31 addition to tax for failure to
file a timely return for the taxable year 2000 under section
A. Notices of Determination for the Taxable Years 1997,
1998, and 1999
Final Notices of Intent To Levy
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
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
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
Notice of Federal Tax Lien
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
6320 for taxable years 1997-99.
Lois Etkin's Request for Innocent Spouse Relief
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.
The Appeals Officer's Consideration of Petitioners' Proposed
Installment Agreements During Their Hearing for the Taxable Years
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.
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.
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.
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.
Notices of Determination and Decision Letter Issued for the
Taxable Years 1997-99
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.
addition, in a Form 866-A, Explanation of Items, the Appeals
Office denied petitioner Lois Etkin's claim for equitable relief
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.
The Taxable Year 2000 Hearing
Notice of Federal Tax Lien
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
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
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.
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.
Notice of Determination for the Taxable Year 2000
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. 126.96.36.199(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.
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
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.
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.
53,938], 114 T.C. 604, 610 (2000); Woodral v.
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.
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
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
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
Background on Proposed Installment Agreements
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
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 188.8.131.52, 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. 184.108.40.206(2) (2000). Under IRM sec. 220.127.116.11(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. 18.104.22.168(6) (2004)
and 22.214.171.124(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).
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. 126.96.36.199(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.
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
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.
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.
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
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.
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).
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.
55,039(M)], T.C. Memo. 2003-34 (citing IRM pt.
188.8.131.52.1 (July 1, 2002), pt. 184.108.40.206(5) (Mar. 30, 2002), pt.
220.127.116.11.3.1(1) and (5) (Oct. 1, 2001), pt. 18.104.22.168.4.10(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.
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
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.
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.
have also contended that respondent abused his discretion in
refusing to consider "excessive necessary" and
"conditional" expenses. Under IRM sec. 22.214.171.124(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.
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.
126.96.36.199(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.
54,757(M)], T.C. Memo. 2002-129 (citing 2
Administration, Internal Revenue Manual (CCH), sec.
188.8.131.52(8)(a), at 17,655). Respondent was therefore within his
discretion to reject petitioners' proposed installment agreement.
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
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
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.
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.
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
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:
The requesting spouse filed a joint return for the taxable year
for which relief is sought;
relief is not available to the requesting spouse under section
6015(b) or (c);
the requesting spouse applies for relief no later than 2 years
after the date of the Commissioner's first collection activity
July 22, 1998
the liability remains unpaid;
no assets were transferred between the spouses as part of a
there were no disqualified assets transferred to the requesting
spouse by the nonrequesting spouse; and
the requesting spouse did not file the return with fraudulent
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
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
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
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
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.
reflect the foregoing,
will be entered for respondent.
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.
Revenue Manual (IRM), sec. 184.108.40.206(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. 220.127.116.11(2) (2000).
Etkin received a notice of determination in response to her
request for relief under sec.
6015 and was notified that she could petition a
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
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
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. 18.104.22.168 (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
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
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.
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
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.
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.
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.