T.C. Memo. 2013-197
UNITED STATES TAX COURT
PAMELA L. LENGUA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19255-12L. Filed August 27, 2013.
Pamela L. Lengua, pro se.
Halvor R. Melom, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: The petition in this case was filed in response to a
Notice of Determination Concerning Collection Action(s) under Section 6320
and/or 6330 (notice of determination) dated June 27, 2012, upholding a proposed
levy collection action for tax periods ending September 30 and December 31,
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[*2] 2008, and September 30 and December 31, 2009. Respondent has abated the
trust fund recovery penalty associated with the quarterly period ending September
30, 2008; therefore, that quarterly period is no longer in issue. See Kelby v.
Commissioner, 130 T.C. 79, 84-85 (2008), aff’d, 444 Fed. Appx. 950 (9th Cir.
2011). We must consider whether respondent’s determination to proceed with the
collection action regarding petitioner’s section 6672 liabilities for the remaining
periods in issue was an abuse of discretion.
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure. We round all monetary amounts to the
nearest dollar.
FINDINGS OF FACT
Petitioner resided in California when the petition was filed. Petitioner was
president of Hey Baby Enterprises, Inc. (HBE), a California corporation
incorporated in January 2008, at all times during 2008 and 2009.
HBE filed Forms 941, Employer’s Quarterly Federal Tax Return, for
quarterly periods ending September 30 and December 31, 2008, and September
30, 2009. HBE reported tax liabilities of $14,840, $16,988, and $12,602,
respectively. HBE did not file a Form 941 for the quarterly period ending
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[*3] December 31, 2009. Pursuant to section 6020(b), respondent filed a
substitute for return for HBE for that quarterly period showing a liability of
$32,138. HBE did not pay the tax liabilities in full for the periods in issue.
On March 10, 2010, respondent mailed a Letter 1153 to petitioner’s last
known address, notifying her of respondent’s intent to assess trust fund recovery
penalties (TFRPs) pursuant to section 6672 for the periods in issue. The Letter
1153 further notified petitioner that she could request a hearing in response.
Petitioner received the letter, but she did not request a hearing in response to it.
As of July 5, 2010, HBE had not fully paid the tax liabilities for the periods
in issue. Therefore, respondent assessed against petitioner TFRPs of $8,623,
$9,869, $7,002, and $7,167 for the quarterly periods ending September 30 and
December 31, 2008, and September 30 and December 31, 2009, respectively.
The assessed balance due for petitioner’s TFRP liability for the quarterly
period ending December 31, 2008, is currently $9,869; no amounts have been
credited against that liability. The assessed balance due for petitioner’s TFRP
liability for the quarterly period ending September 30, 2009, is currently $7,002;
no amounts have been credited against that liability. Finally, the assessed balance
due for petitioner’s TFRP liability for the quarterly period ending December 31,
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[*4] 2009, is currently $7,167; offsetting credits and debits of $18,006 were
applied on July 5, 2010.
On January 26, 2011, respondent sent petitioner a Letter 1058, Final Notice
of Intent to Levy and Notice of Your Right to Hearing, regarding her TFRP
liabilities for the periods in issue. On February 28, 2011, petitioner filed a Form
12153, Request for a Collection Due Process or Equivalent Hearing (CDP hearing
request). In the CDP hearing request petitioner wrote: “The amounts listed on the
final notice * * * of intent to levy, dated 1-26-11, are incorrect. Not all payments
have been credited. Actual amounts are lower.” She did not request any
collection alternatives.
On March 16, 2011, petitioner sent respondent a letter in which she claimed
that she was being assessed for her corporation’s tax liabilities, resulting in
“double liabilities”. On May 13, 2011, respondent sent petitioner a letter
explaining the Appeals process.
On February 2, 2012, the settlement officer sent petitioner a letter
scheduling a telephone CDP hearing for March 2, 2012. The February 2, 2012,
letter explained that the Appeals Office cannot approve an installment agreement
or accept an offer-in-compromise unless all estimated tax payments for the current
year’s income tax liability have been made. The February 2, 2012, letter also
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[*5] explained that delinquent estimated tax payments can be included in an
installment agreement, but the estimated tax payments must be paid in full before
an offer-in-compromise can be accepted. The February 2, 2012, letter noted that
petitioner had not made estimated tax payments for 2011. Additionally, the
February 2, 2012, letter requested that petitioner provide a completed Form 433-A,
Collection Information Statement for Wage Earners and Self-Employed
Individuals; a completed Form 443-B, Collection Information Statement for
Businesses, and other supporting documents; petitioner’s unfiled Federal income
tax return for 2009; and proof of estimated tax payments for 2009 (collectively,
the requested documents). Petitioner did not respond to the February 2, 2012,
letter.
Petitioner did not contact the settlement officer on March 2, 2012, for the
scheduled telephone CDP hearing. On March 2, 2012, respondent sent petitioner a
followup letter, asking her to provide the requested documents within 14 days. On
March 15 and 16, 2012, petitioner’s husband attempted to reach the settlement
officer by phone. The settlement officer declined to discuss the case with him.
On March 16, 2012, a telephone CDP hearing was held. Petitioner
explained that her corporate tax liabilities were before another settlement officer
and that she was seeking an installment agreement for those liabilities. The
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[*6] settlement officer extended the deadline for petitioner to submit the requested
documents to March 19, 2012.
On or around March 15, 2012, petitioner provided a Form 433-A and some
supporting documentation, which indicated that she had equity of $200,000 in her
home. The settlement officer estimated that petitioner’s residence was worth
$499,800 and was subject to an encumbrance of $179,000. On March 16, 2012,
petitioner sent respondent a letter which explained that HBE had made the
following voluntary payments: $3,400 on August 24, 2010; $2,500 on September
22, 2010; $2,500 on October 22, 2010; and $2,500 on November 24, 2010. The
settlement officer verified these payments and determined that they had been
applied to the quarterly period ending September 30, 2008. On May 11, 2012, the
settlement officer spoke with petitioner and suggested that she take out a loan to
pay her TFRP liabilities.
On June 27, 2012, respondent issue the notice of determination, sustaining
the levy and delaying collection until January 1, 2013. Respondent delayed
collection to give petitioner time to refinance the mortgage on her residence. In
the notice of determination the settlement officer verified that all requirements of
applicable law and administrative procedure had been met. The settlement officer
also determined that the collection action balanced the need for efficient collection
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[*7] of unpaid penalties with the legitimate concern that such actions be no more
intrusive than necessary.
On July 31, 2012, petitioner filed the petition with this Court, stating: “The
IRS has incorrectly imposed a civil penalty liability on me personally.”
OPINION
I. Trust Fund Recovery Penalty
Section 6672(a) imposes a penalty--commonly referred to as the TFRP--for
willfully failing to collect, account for, and pay over income and employment
taxes of employees. These penalties are assessed and collected in the same
manner as taxes against a person who is “an officer or employee of a corporation
* * * who as such officer, [or] employee * * * is under a duty to perform”, in this
case, the duties to which section 6672 refers. Sec. 6671(b). Such persons are
referred to as “responsible persons”, a term which may be broadly applied. Mason
v. Commissioner, 132 T.C. 301, 321 (2009).
The parties stipulated that petitioner is the responsible person for HBE; i.e.,
the person required to collect, truthfully account for, and pay over the tax
liabilities shown on the Forms 941 for HBE for the periods in issue. The parties
further stipulated that petitioner is liable for the TFRPs assessed on July 5, 2010.
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[*8] II. Scope of Review
Under certain circumstances a taxpayer may raise challenges in a CDP
proceeding to the Commissioner’s determination of his or her underlying tax
liabilities. See sec. 6330(c)(2)(B). A taxpayer may challenge in a CDP
proceeding the amount of the tax assessed by the Commissioner if he or she did
not receive a statutory notice of deficiency or did not otherwise have an
opportunity to dispute the tax liability. Id.; see also Montgomery v.
Commissioner, 122 T.C. 1, 7 (2004). Moreover, the Court will consider an
underlying tax liability on review only if the taxpayer properly raised the issue
during the CDP hearing. Giamelli v. Commissioner, 129 T.C. 107, 112-116
(2007); see also sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.
Where the assessments against the taxpayer are TFRPs, the Commissioner
does not issue or mail a notice of deficiency. See sec. 6212(a). Instead, in general
the Commissioner must provide the taxpayer with a notice of the TFRPs (section
6672(b) notice) before assessment. Sec. 6672(b)(1). A Letter 1153 provides a
taxpayer with a section 6672(b) notice and the means of protesting a proposed
TFRP administratively with the Commissioner. Mason v. Commissioner, 132 T.C.
at 317. We have held that the receipt of Letter 1153 constitutes an opportunity to
dispute the taxpayer’s liability within the meaning of section 6330(c)(2)(B). E.g.,
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[*9] Solucorp, Ltd. v. Commissioner, T.C. Memo. 2013-118; Morgan v.
Commissioner, T.C. Memo. 2011-290.
On March 10, 2010, respondent sent petitioner a Letter 1153 notifying her
of respondent’s intent to assess TFRPs for the periods in issue. Petitioner received
it, but she did not respond to it or contest the proposed amounts. Petitioner thus
had a prior opportunity to challenge the underlying liabilities. See Mason v.
Commissioner, 132 T.C. at 317-318; Solucorp, Ltd. v. Commissioner, T.C. Memo.
2013-118. Consequently, petitioner was precluded from challenging the
underlying liabilities during her CDP hearing.
Petitioner disputes the underlying liabilities in her petition, claiming that the
section 6672 penalties were duplicative of her corporation’s employment tax
liabilities, that her corporation is on an installment agreement, and that payments
made by her corporation have not been properly credited. Because petitioner was
precluded from challenging the underlying liabilities during her CDP hearing, she
is likewise precluded from challenging them before this Court.
Even if petitioner could challenge her underlying liabilities before this
Court, her claims would fail. Petitioner does not dispute that she, as the president
of her corporation, has the power to ensure that it complies with its legal
obligation regarding employment taxes. The liability imposed on responsible
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[*10] persons pursuant to section 6672 is separate and distinct from an employer’s
liability for trust fund taxes. Mason v. Commissioner, 132 T.C. at 321; see also
Solucorp, Ltd. v. Commissioner, at *12. Consequently, the Commissioner is not
required to attempt to collect the underlying trust taxes from the employer before
attempting to collect section 6672 penalties against a responsible person pursuant
to section 6672. See Mason v. Commissioner, 132 T.C. at 321; see also United
States v. Huckabee Auto Co., 783 F.2d 1546, 1549 (11th Cir. 1986); Hornsby v.
IRS, 588 F.2d 952, 954 (5th Cir. 1979). Petitioner’s liabilities for section 6672
penalties are separate and distinct from HBE’s Form 941 tax liabilities. See
Freeman v. Commissioner, T.C. Memo. 2011-38.
Because the validity of the underlying liabilities as determined by the
Commissioner are not properly in issue, we review the determination for abuse of
discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 181-182 (2000).
III. Abuse of Discretion
An abuse of discretion occurs if the Appeals Office exercises its discretion
“arbitrarily, capriciously, or without sound basis in fact or law.” Woodral v.
Commissioner, 112 T.C. 19, 23 (1999); see also Keller v. Commissioner, 568 F.3d
710, 716 (9th Cir. 2009), aff’g in part T.C. Memo. 2006-166.
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[*11] Section 6330(c)(3) requires the settlement officer to consider the following
during a CDP hearing: (1) whether the requirements of any applicable law or
administrative procedure have been met; (2) any issues appropriately raised by the
taxpayer; and (3) whether the 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. See also Lunsford v.
Commissioner, 117 T.C. 183, 184 (2001). We note that the settlement officer in
this case properly based her determination on the factors specified by section
6330(c)(3).
Petitioner did not request any collection alternatives at the hearing. In
addition, petitioner filled out a Form 433-A on March 15, 2012, and provided
supporting documents. The Form 433-A states that petitioner had no monthly
income, had $300 in her bank account, and had $200,000 of equity in a residence.
The settlement officer estimated that the value of the residence was $499,800, with
an encumbrance of $179,000, which left $321,000 in available equity. The
settlement officer concluded that petitioner would have sufficient assets to pay her
liabilities if she obtained a loan. The levy action was suspended in order to give
petitioner time to refinance the mortgage on her residence.
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[*12] The settlement officer did not abuse her discretion by determining that
petitioner did not qualify for collection alternatives because petitioner had
sufficient assets to pay the liabilities in full. We have held that there is no abuse
of discretion for failing to consider a collection alternative when the taxpayer
failed to submit a collection alternative for review. See Kendricks v.
Commissioner, 124 T.C. 69, 79 (2005). Moreover, it is proper to include the
equity in real estate owned by the taxpayer in a computation of available assets.
See Sullivan v. Commissioner, T.C. Memo. 2009-4. The Internal Revenue
Manual pt. 5.15.1.26(3) (May 9, 2008) states that “[t]he equity in real estate
should be pursued as a means to full[y] pay or reduce the tax liability.” It also
instructs Appeals officers to ask the taxpayer to secure a loan and that the
taxpayer’s “[r]efusal to pro-actively seek a loan will be considered refusal to pay”.
Id.; see also Antioco v. Commissioner, T.C. Memo. 2013-35, at *19. The
settlement officer gave petitioner time to arrange a loan. Consequently, we hold
that the settlement officer did not abuse her discretion in upholding the proposed
collection action.
We have considered the other arguments of the parties, and they are either
without merit or need not be addressed in view of our resolution of the issue.
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[*13] To reflect the foregoing,
Decision will be entered
for respondent.