T.C. Memo. 2013-256
UNITED STATES TAX COURT
JOHN FRANCIS BARRETT AND CAROL BARRETT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1576-12L. Filed November 12, 2013.
Jeffrey D. Moffatt, for petitioners.
Fred Edward Green, Jr., for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This case was commenced in response to a notice of
determination concerning collection action(s) under section 6320 and/or 6330 that
sustained a levy to collect petitioners’ unpaid Federal income tax liabilities for
2002 and 2009. The issue for decision is whether collateral estoppel effect should
-2-
[*2] be given to decisions in earlier cases determining that different taxes for
different years were “currently not collectible” and, if not, whether the
determination was an abuse of discretion. All section references are to the Internal
Revenue Code in effect at all relevant times.
All of the material facts are contained in the administrative record of the
exchanges between petitioners’ counsel and the Appeals Office. That record has
been stipulated. The stipulated facts are incorporated in this opinion by this
reference. Brief testimony by John Francis Barrett (petitioner) and certain exhibits
were offered at trial and were treated as an offer of proof. Because they were not
brought to the attention of the Appeals Office during the administrative hearing
and petitioners have not suggested any exception to the general rule that such
material may not be considered, respondent’s objections to the proferred testimony
and extraneous exhibits will be sustained. See Giamelli v. Commissioner, 129
T.C. 107, 115 (2007); Magana v. Commissioner, 118 T.C. 488, 493 (2002).
FINDINGS OF FACT
Petitioners resided in California when they filed their petition. Petitioner
was a party to four previous cases in this Court involving his liabilities for unpaid
employment taxes and related penalties. Those cases were docket Nos. 29261-
07L, 22946-08L, 30320-08L, and 30321-08L (employment tax cases). Petitioner
-3-
[*3] Carol Barrett was not a party to the employment tax cases. The petition in
docket No. 29261-07L erroneously referred to a notice of deficiency and income
tax as well as periods for unpaid employment taxes that were not the subject of the
notice of determination upon which that case was based. The erroneous references
were stricken by Court order. None of the employment tax cases was commenced
in response to a notice of determination regarding petitioners’ joint income tax
liabilities. No decision was or could have been rendered in those cases with
respect to petitioners’ joint income tax liabilities.
After the employment tax cases were set for trial, on the joint motion of the
parties they were remanded to the Appeals Office for further consideration. From
February 16 to November 18, 2010, the parties to the employment tax cases
negotiated a settlement. On December 29, 2010, those cases were resolved by
agreement of the parties, and stipulated decisions were entered providing for
abatement of certain penalties. These decisions stated that “[t]he balance of the
unpaid underlying liabilities for Form 941 employment tax liabilities * * * [for the
quarterly periods in issue] will be placed in a Currently Not Collectible status due
to the petitioner’s financial hardship.” The agreed balances of the unpaid
employment tax liabilities totaled $84,110.
-4-
[*4] On April 21, 2011, the Internal Revenue Service (IRS) sent petitioners a
Final Notice of Intent to Levy and Notice of Your Right to a Hearing (April 21,
2011, notice) with respect to unpaid income tax liabilities for 2002 and 2009. As
of the date of the notice, the assessed account balance for those two years was
$9,845.18.
On May 3, 2011, petitioners filed Form 12153, Request for a Collection
Due Process or Equivalent Hearing, in response to the April 21, 2011, notice.
Petitioners did not dispute their underlying tax liabilities for 2002 and 2009.
On September 29, 2011, an Appeals account resolution specialist (AARS)
sent to petitioners a letter scheduling a telephone conference call in response to
their request for a hearing. The letter advised petitioners of their right to a full
hearing but stated: “In order to meet the requirements for a face-to-face
conference, you must be in full compliance of all required tax returns, estimated
tax payments/federal tax deposits and submit financial information.” The letter
proposed “a streamline installment agreement (IA) in the amount of $340.00, due
on the 28th of each month beginning on November 28, 2011” and stated: “If you
are unable to pay this amount please complete and return the enclosed Form 433-A
[Collection Information Statement for Wage Earners and Self-Employed
Individuals]”. Petitioners’ counsel responded to the September 29, 2011, letter
-5-
[*5] with copies of materials from the employment tax cases and requested that the
joint income tax liabilities of petitioners be deemed uncollectible and that
penalties be abated based upon the decisions in the employment tax cases.
During a telephonic hearing on November 8, 2011, petitioners’ counsel
asserted that the decisions in the employment tax cases included petitioners’
personal income tax liabilities; that res judicata established that the income tax
liabilities were currently not collectible; and that res judicata negated the
requirement to submit updated or additional information regarding the status of
petitioners’ liabilities as currently not collectible. The AARS advised petitioners’
counsel that, pursuant to the Internal Revenue Manual, updated financial
information was required to determine whether petitioners qualified for currently
not collectible status. Petitioners declined the streamline installment agreement
that the AARS proposed, and they declined to provide any updated financial
information. They did not propose an installment agreement or offer-in-
compromise at any time during the administrative process. They did not state with
specificity any facts or grounds adequate to raise an issue of abatement of income
tax penalties.
Petitioners’ case was transferred to an Appeals settlement officer for
disposition. The settlement officer researched the employment tax cases and
-6-
[*6] determined that petitioners’ income tax liabilities were not included in the
decisions. The settlement officer verified that the requirements of all applicable
laws and administrative procedures had been met. On December 23, 2011, the
Appeals Office issued the notice of determination sustaining the proposed levy.
OPINION
Section 6330 provides for notice and an opportunity for a hearing before a
levy proposed by the IRS to collect unpaid taxes may proceed. Under section
6330(c)(2)(A), a taxpayer may raise any relevant issue at a hearing, including
“challenges to the appropriateness of collection actions”, and may make “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.” A taxpayer
is expected to provide all relevant information requested by the Appeals Office for
its consideration of the facts and issues involved in the hearing. See sec.
301.6330-1(e)(1), Proced. & Admin. Regs. Such information is especially
necessary when the proposed collection alternative is to have collection suspended
on the ground that the liabilities are “currently not collectible”. See Pitts v.
Commissioner, T.C. Memo. 2010-101, slip op. at 18. Where there is no dispute as
to the underlying liabilities, we review the actions of the Appeals Office, including
that Office’s interpretation of law, for abuse of discretion. See Weber v.
-7-
[*7] Commissioner, 138 T.C. 348, 355 (2012); Swanson v. Commissioner, 121
T.C. 111, 119 (2003).
Petitioners have not disputed their underlying liabilities or that the Appeals
Office performed the necessary verification under section 6330(c)(1). Throughout
the administrative process and during this case, petitioners have relied solely on
their view of res judicata, even though neither the parties nor the liabilities in the
employment tax cases were the same as those in this case and relevant facts would
have changed with the passage of time. Currently not collectible is by definition a
status subject to reevaluation. Petitioners refused to provide the information
required for reevaluation of their ability to pay, by installments or otherwise, the
liabilities for income tax for 2002 and 2009 that were a fraction (less than 12%) of
petitioner’s unpaid employment tax liabilities. Meanwhile, a year passed between
the settlement of the employment tax cases and the issuance of the notice of
determination in this case.
Moreover, petitioners do not recognize the distinction between res judicata
and collateral estoppel. As this Court recently explained in Koprowski v.
Commissioner, 138 T.C. 54, 59-62 (2012) (citing, among other cases, Allen v.
McCurry, 449 U.S. 90, 94 (1980)), res judicata applies to a final judgment on the
merits of an action and precludes relitigation of issues that were or could have
-8-
[*8] been raised in that action. Petitioners’ joint income tax liabilities for 2002
and 2009 were not and could not have been raised in cases involving petitioner’s
employment tax liabilities for various quarterly periods. Res judicata does not
apply to the circumstances here.
Under the doctrine of collateral estoppel, once a court has decided an issue
of fact or law necessary to its judgment, that decision may preclude relitigation of
the same issue in a suit on a different cause of action. Collateral estoppel
precludes relitigation not only in connection with the cause of action previously
litigated but even in connection with different claims or causes of action. Id. at
61.
For collateral estoppel to apply to an issue, among other things the issue to
be decided in the second case must be identical to the issue decided in the first
case; the parties must have actually litigated the issue and the resolution of the
issue must have been essential to the prior decision; and the controlling facts and
legal principles must remain unchanged. Hi-Q Pers., Inc. v. Commissioner, 132
T.C. 279, 289 (2009); Monahan v. Commissioner, 109 T.C. 235, 240 (1997).
Unlike res judicata, which binds the parties as to any matter that might have been
offered, collateral estoppel applies only to issues that were actually litigated in the
first case. Koprowski v. Commissioner, 138 T.C. at 61. “The rule of collateral
-9-
[*9] estoppel provides that ‘[w]hen an issue of fact or law is actually litigated and
determined by a valid and final judgment, and the determination is essential to the
judgment, the determination is conclusive in a subsequent action between the
parties, whether on the same or a different claim.’” Id. at 61-62 (emphasis added
in Koprowski) (quoting 1 Restatement, Judgments 2d, sec. 27 (1982)).
Collateral estoppel does not apply to the circumstances here. A well-
established principle is that the Commissioner may challenge in a succeeding year
what was accepted in a previous year. See Auto Club of Mich. v. Commissioner,
353 U.S. 180, 183-184 (1957); Demirjian v. Commissioner, 457 F.2d 1, 6-7 (3d
Cir. 1972), aff’g 54 T.C. 1691 (1970). Petitioner’s employment tax cases were not
actually litigated; they were settled. In United States v. Int’l Bldg. Co., 345 U.S.
502 (1953), the Supreme Court held that the Government was not collaterally
estopped from rearguing a position it had conceded in a previous year, even if the
concession was the basis of a court decision. The Supreme Court concluded that
the Government’s position had not been fully litigated in the earlier proceeding
and that the prior decision of this Court based on the Government’s concession
was “only a pro forma acceptance by the Tax Court of an agreement between the
parties to settle their controversy for reasons undisclosed.” Id. at 505. The
Supreme Court’s rationale and holding apply equally to this case. See also Sawyer
- 10 -
[*10] Trust of May 1992 v. Commissioner, 133 T.C. 60, 79-81 (2009); Massaglia
v. Commissioner, 33 T.C. 379, 386 (1959), aff’d, 286 F.2d 258 (10th Cir. 1961);
Rodkey v. Commissioner, T.C. Memo. 2009-238.
Petitioners’ reliance on the doctrines of res judicata and collateral estoppel,
during the administrative proceedings and in this case, has no support in the facts
or the law, and the Appeals Office representatives were correct in rejecting it.
Petitioners refused to provide updated financial information that was appropriately
requested, rejected the installment agreement offered by the Appeals Office, and
offered no other collection alternative. Under these circumstances, there was no
abuse of discretion in the determination to sustain the proposed collection action.
See Kendricks v. Commissioner, 124 T.C. 69, 79 (2005); Wright v. Commissioner,
T.C. Memo. 2012-24; Schmerman v. Commissioner, T.C. Memo. 2010-135; Pitts
v. Commissioner, T.C. Memo. 2010-101.
To reflect the foregoing,
Decision will be entered
for respondent.