T.C. Memo. 2013-281
UNITED STATES TAX COURT
CHRISTOPHER A. BIBBY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14687-12L. Filed December 12, 2013.
Danny M. Carr, for petitioner.
Timothy S. Murphy, Robert D. Heitmeyer, and John D. Davis, for
respondent.
MEMORANDUM OPINION
NEGA, Judge: This action was commenced in response to a Notice of
Determination Concerning Collection Action(s) Under Section 6320 and/or 6330
(notice of determination) with respect to petitioner’s 2007 and 2008 Federal
income tax liabilities. The remaining issue for decision is whether the settlement
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[*2] officer abused her discretion in denying petitioner relief from a jeopardy levy.
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.
Background
The stipulated facts are incorporated herein by reference. Petitioner resided
in Michigan at the time the petition was filed.
Petitioner filed tax returns for tax years 2007 and 2008. Respondent
determined that, largely as a result of $203,000 of overstated withholding credits,
petitioner received over $213,000 of refunds to which he was not entitled.
Petitioner admits spending the refunds for the following items: (1) $32,133.88 for
a used car; (2) $25,270 for offerings and tithes to his church; (3) $21,077 for
wedding and honeymoon expenses; (4) $61,815 on home repairs; (5) $9,482.50 for
tax return preparation and filing; (6) $1,955.66 on furniture purchases; and (7)
$36,365 for various items such as food, clothing, and bill payment. Petitioner
admits transferring his interest in his personal residence to a property holding
company wholly owned by petitioner and his wife. Petitioner also made a $25,000
loan to Diamond & Associates, in repayment of which Diamond & Associates
quitclaimed three properties to petitioner, which petitioner subsequently
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[*3] transferred to EMG, LLC, a separate business entity wholly owned by
petitioner and his wife. On April 14, 2011, respondent’s Frivolous Filers Unit
made math error assessments for petitioner’s claimed overwithholding credits and
issued Forms 3552, Notice of Tax Due on Federal Tax Return, for 2007 and 2008.
On July 25, 2011, respondent issued to petitioner a Notice CP504, Notice of Intent
to Levy, pertaining to petitioner’s liability for tax year 2007.
The case was then assigned to an Internal Revenue Service (IRS) revenue
officer who sought approval from IRS Counsel’s Office to issue a jeopardy levy.
Having received approval from IRS Counsel’s Office, the IRS revenue officer
issued a jeopardy levy against petitioner’s bank accounts and wages on December
2, 2011, in reference to petitioner’s 2007 and 2008 liabilities. On December 6,
2011, respondent issued a Letter 2439 (CG), Notice of Jeopardy Levy and Right to
Appeal, to petitioner. On December 15, 2011, respondent issued a Notice of
Federal Tax Levy and Your Right to Appeal Hearing to petitioner. On January 4,
2012, petitioner timely submitted a Form 12153, Request for a Collection Due
Process or Equivalent Hearing (section 6330).
An IRS settlement officer was assigned to the case. The IRS settlement
officer and petitioner’s counsel conducted a collection due process hearing on
February 23, 2012. The settlement officer relied on the revenue officer’s notes
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[*4] and the Integrated Data Retrieval System (IDRS) transcripts to verify that all
the requirements of applicable law or administrative procedure were met.
Petitioner submitted to the IRS settlement officer: Forms 433-A, Collection
Information Statement for Wage-Earners and Self-Employed Individuals; two
Forms 433-B, Collection Information Statement for Businesses, and
documentation supporting petitioner’s entries on all those forms. At the collection
due process hearing, petitioner’s counsel sought an installment agreement in
exchange for release of the levy on petitioner’s wages. The IRS settlement officer
found that petitioner’s Forms 433-A failed to disclose $24,265 of wage income
and $35,761 of income from the Freudenberg-Nok Co., reported on forms 1099-R,
Distributions from Pensions, Amenities, Retirements or Profit-Sharing Plans,
IRA’s, Insurance Contracts, etc. On March 22, 2012, the settlement officer
requested from petitioner’s representative clarification about the nature and
duration of the Freudenberg-Nok payments. Petitioner’s representative promised
to contact petitioner and fax a written verification to IRS Appeals, but no response
was forthcoming. During that same phone conversation petitioner’s representative
was informed that, among other issues, petitioner needed to address the equity
interests in the three real properties transferred by Diamond & Associates in
repayment of petitioner’s $25,000 loan. On the basis of the sum of petitioner’s
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[*5] disclosed and undisclosed income as well as petitioner’s disclosed monthly
expenses, the IRS settlement officer contacted petitioner’s counsel and conveyed
her decision that the wage levy did not constitute a financial hardship on
petitioner.
Still in pursuit of an installment agreement, petitioner’s counsel provided,
upon request of the IRS settlement officer, additional information listing the
disposition of the proceeds of the 2007 and 2008 refunds. One such item was the
equity interest in the three properties Diamond & Associates transferred to
petitioner, which petitioner then transferred to EMG, LLC. The IRS settlement
officer took the position that the three properties in question were petitioner’s
assets alone and suggested that they be transferred back to the direct and sole
ownership of petitioner. EMG, LLC, transferred the three properties by quitclaim
deed to petitioner and his spouse but not solely to petitioner. The IRS settlement
officer made clear that an installment agreement (and lifting of the jeopardy levy)
depended on: (1) the transfer of the three properties to petitioner’s sole ownership
and (2) the subsequent equity liquidation of the three properties. Petitioner could
not or would not agree to these conditions precedent.
The negotiations having broken down, petitioner requested a determination
letter. The IRS Appeals officer mailed the notice of determination to petitioner on
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[*6] May 8, 2012. Citing, inter alia, petitioner’s failure to provide certain
requested information regarding his expenditures and his finances, and his transfer
of title to the properties in a manner designed to shelter his equity, the notice of
determination sustained the jeopardy levy.
Under the stipulation, there is no dispute between the parties as to the
underlying tax liabilities. The parties have agreed to submit the case without trial
pursuant to Rule 122.
Discussion
Petitioner argues that the settlement officer failed to independently
determine the appropriateness or the legality of the jeopardy levy.
Respondent argues that the settlement officer independently balanced the
efficient collection of the tax with the legitimate concerns of petitioner and
determined that the jeopardy levy was not overly intrusive and that no better
method of collecting the tax was available.
If the Secretary believes that the assessment or collection of a tax deficiency
will be jeopardized by delay, he shall immediately assess the deficiency and issue
notice and demand for payment to the person liable for the payment of the tax.1
1
Pursuant to sec. 1.6851-1, Income Tax Regs., and sec. 301.6861-1, Proced.
& Admin. Regs., the Secretary authorizes certain IRS employees to determine
(continued...)
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[*7] Sec. 6861. The existence of one or more of the following conditions supports
a determination that collection of the tax is in jeopardy: (1) the taxpayer is or
appears to be designing quickly to depart from the United States or to conceal
himself or herself; (2) the taxpayer is or appears to be designing quickly to place
his, her or its property beyond the reach of the Government by removing it from
the United States, by concealing it, by dissipating it, or by transferring it to other
persons; (3) the taxpayer’s financial solvency is or appears to be imperiled. Sec.
1.6851-1(a), Income Tax Regs.; sec. 301.6861-1(a), Proced. &Admin. Regs.
Notice and demand may be issued for the immediate payment of a tax the
collection of which is determined to be in jeopardy. Sec. 6331(a). Upon a failure
or refusal to pay such tax, the Secretary may immediately levy upon the property
or rights to property of the person subject to the tax liability without regard to the
10-day period otherwise required under section 6331(a). Pursuant to section
6330(d), this Court has jurisdiction to review the determination of the IRS Appeals
Office with respect to a jeopardy levy. Dorn v. Commissioner, 119 T.C. 356, 359
(2002).
1
(...continued)
whether the collection of a tax is in jeopardy.
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[*8] Section 6330 generally provides that the Commissioner cannot proceed with
levy on a taxpayer’s property until the taxpayer has been given notice and the
opportunity for a section 6330 hearing and, if dissatisfied, judicial review of the
administrative determination. In this case, the general requirement of section 6330
affording a prior opportunity for a hearing does not apply because respondent
made a finding under section 6331(a) that a jeopardy levy was appropriate.
Rather, pursuant to section 6330(f), petitioner is to be afforded an opportunity for
a hearing within a “reasonable period of time after the levy.” See Bussell v.
Commissioner, 130 T.C. 222, 236-237 (2008). Because the underlying liabilities
are not in issue here, we review the Appeals determination for abuse of discretion.
See Sego v. Commissioner, 114 T.C. 604, 610 (2000); see also Living Care
Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 631 (6th Cir. 2005)
(defining abuse of discretion as “clear taxpayer abuse and unfairness by the IRS”).
The administrative record indicates that, on March 22, 2012, the settlement
officer requested from petitioner’s representative clarification about the nature and
duration of the Freudenberg-Nok payments. Petitioner’s representative promised
to contact petitioner and fax a written verification to IRS Appeals. During that
same phone conversation petitioner’s representative was informed that, among
other issues, petitioner needed to address the equity interests in the three real
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[*9] properties. Neither petitioner nor petitioner’s representative ever conveyed
any additional information about the Freudenberg-Nok amounts. Petitioner did
not transfer the three properties to his sole ownership but instead requested a
determination letter.
Petitioner incorrectly claimed and received large tax refunds and then
proceeded to freely spend from those refunds. Petitioner also transferred certain
real property received in satisfaction of a loan to Diamond & Associates to EMG,
LLC, and then jointly to himself and his wife. We find that these facts justify the
determination to sustain the jeopardy levy because petitioner was quickly
dissipating the funds or otherwise attempting to put them beyond the reach of
respondent by transferring funds to third parties. It should also be noted that
petitioner has not disputed his tax liabilities. Petitioner did not fully cooperate
with the settlement officer’s reasonable information requests about sources of
unreported income and the transfer of certain real property other than to
petitioner’s direct ownership. In the light of petitioner’s failure to provide the
requested financial information regarding the Freudenberg-Nok amounts,
respondent’s denial of an installment agreement was not an abuse of discretion.
See McLaine v. Commissioner, 138 T.C. 228, 243 (2012) (finding that the
Appeals officer’s denial of an installment agreement was not an abuse of
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[*10] discretion where the taxpayer failed to provide requested financial
information); see also Orum v. Commissioner, 123 T.C. 1, 13 (2004) (“Installment
agreements are based upon the taxpayer’s current financial condition. * * * [T]he
Appeals officer could have reasonably rejected an installment agreement proposal
by petitioners on the basis of * * * petitioners’ failure to timely provide the
requested information.” (internal citations omitted)), aff’d, 412 F.3d 819 (7th Cir.
2005). In contrast, this Court finds that respondent afforded petitioner all legal
rights required under the Code and the regulations. The settlement officer
independently reviewed the revenue officer’s notes and the IDRS transcripts to
verify that all the requirements of applicable law or administrative procedure were
met. Her actions satisfied the verification requirements of section 6330(c)(1) and
(3)(A). We also find the settlement officer to have complied with the requirements
stated in section 6330(c)(3)(B) and (C). Upon review of the facts and the
administrative record, the Court finds that petitioner has failed to satisfy his
burden of proving that the IRS abused its discretion in this matter. Rather, the
Court finds that the facts and circumstances of the case, including petitioner’s
failure to fully cooperate, justified the jeopardy levy.
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[*11] To reflect the foregoing,
Decision will be entered
for respondent.