T.C. Memo. 2002-2
UNITED STATES TAX COURT
ESTATE OF DONNY DAVID DOSTER, DECEASED, JIMMY MACK DOSTER,
INDEPENDENT EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9411-00L. Filed January 4, 2002.
Walker Arenson and Robert A. Helms, for petitioner.
Carol B. Reeve, Marilyn S. Ames, and Gordon P. Sanz, for
respondent.
MEMORANDUM OPINION
FOLEY, Judge: The issues for decision are whether: (1)
Respondent’s reconsideration of his denial of the estate’s
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section 61611 extension request was an abuse of discretion; (2)
respondent’s denial of the estate’s request for abatement of a
section 6651(a)(2) addition to tax for failure to pay was an
abuse of discretion; and (3) respondent’s determination
sustaining the proposed collection action was an abuse of
discretion.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. When the petition was filed, petitioner’s
representative, Jimmy Mack Doster, Independent Executor
(executor), resided in Sulphur Springs, Texas. At the time of
his death, Donny David Doster was domiciled in Texas.
On February 5, 1997, Donny Doster and his wife, Judy Doster,
won a $35.3 million Texas lottery jackpot (Lotto), payable in 20
annual installments of $1,768,000. On March 15, 1997, the
Dosters formed Texas East-West Limited Partnership to collect and
invest the Lotto proceeds. Mr. and Mrs. Doster each received a
2-percent general partnership interest and a 48-percent limited
partnership interest.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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On July 30, 1997, Mr. Doster died. On that date, Mr.
Doster’s interest in the partnership, which passed to his estate,
consisted primarily of the right to receive half of each of the
19 remaining Lotto installments. Texas law prohibited the sale
or assignment of such installments.
I. Request for Extension of Time To Pay Estate Taxes
On April 29, 1998, the estate filed Form 706, United States
Estate Tax Return, reporting estate tax liability of $1,730,845.
The Form 706 stated that the gross estate’s value was $5,110,517,
which included Mr. Doster’s share of the partnership, valued at
$4,428,616. The Form 706 also stated that the estate was
entitled to deductions for funeral expenses, debts of decedent,
and interests passing to the surviving spouse of $55,019, $4,507,
and $243,850, respectively.
Accompanying the return was a payment of $346,169 and Form
4768, Application for Extension of Time to File a Return and/or
Pay U.S. Estate Taxes (extension request), in which the estate
sought permission to pay the $1,419,430 balance over 10 years.
The estate contended it had reasonable cause for an extension
because it could not “borrow * * * except at a rate of interest
higher than that generally available”, or sell its interest in
the Lotto installments. The estate further contended that
liquidation of the partnership interest would not yield a
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reasonable amount of proceeds and, thus, would result in undue
hardship.
II. Notice of Assessment and Demand for Payment
On June 1, 1998, respondent assessed the reported $1,730,845
estate tax liability, interest of $12,181, and a $17,308 section
6651(a)(2) addition to tax for failure to timely pay (addition to
tax). That day respondent sent the estate the notice of
assessment and demand for payment (notice and demand), which
included an explanation of the addition to tax and the procedure
to request relief.
III. Denial of Extension Request
On October 9, 1998, respondent denied the extension request
because:
A discretionary extension of time to pay for reasonable
cause under section 6161(a)(1) may not exceed 12 months
and under 6161(a)(2) may not exceed 10 years; therefore
you have to apply one year at a time & establish why
the executor can not full[y] pay the estate tax due.
There are sufficient estate assets (and partnership
assets) that the heirs can borrow against to satisfy
the Federal estate tax liability.
On October 19, 1998, the estate appealed the denial. On
December 8, 1998, and January 5, 1999, by teleconference, the
Appeals officer and the estate’s attorneys discussed the appeal.
On December 8, 1998, the estate’s attorneys provided copies of a
loan application rejection from the executor’s bank and, on
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January 22, 1999, a copy of the partnership’s limited partnership
agreement. The Appeals Office (Appeals) informed petitioner’s
counsel that it was sustaining respondent’s denial. In a letter
dated February 11, 1999 (Appeals’ denial), respondent informed
the estate that the estate’s creditors must be paid before
beneficiaries; the estate had sufficient liquidity to pay the
tax; and the estate could borrow additional funds if necessary.
On February 9, 1999, respondent sent the estate a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing.
On March 3, 1999, respondent received the estate’s Request for a
Collection Due Process Hearing, Form 12153. At the section 6330
hearing (hearing), on April 28, 1999, the estate presented
evidence that it had sought to obtain a loan to pay the tax.
Between May 5, 1999, and June 15, 2000, the Appeals officer and
the estate’s attorneys had several telephone conferences to
discuss the estate’s continued efforts to secure a loan and
various other issues raised at the hearing.
IV. Denial of Abatement Request
On June 16, 1999, more than 1 year after respondent sent the
notice and demand, the estate requested an abatement of the
section 6651(a)(2) addition to tax (request for abatement). On
June 30, 1999, respondent denied the estate’s request and
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asserted that the estate had not shown that its failure to pay
was due to reasonable cause.
Effective September 1, 1999, the Texas legislature amended
Tex. Govt. Code Ann. sec. 466.410 (Vernon Supp. 2001) to allow
assignment of future lottery payments. On September 9, 1999, the
estate appealed respondent’s abatement request denial and
asserted that, prior to the September 1 effective date, neither
the estate nor the partnership could have borrowed against the
lottery proceeds to pay the estate tax. Appeals, on February 10,
2000, concluded that the estate had sufficient liquidity to pay
the estate tax and sustained respondent’s denial of the request
for abatement.
V. Section 6330 Proceedings
On August 9, 2000, Appeals issued a Notice of Determination
Concerning Collection Action(s) Under Section 6320 and/or 6330
(determination), sustaining respondent’s collection efforts.
Appeals determined:
The North Texas Appeals office previously heard the
appeal and denied the extension after an administrative
conference in February of 1999. The Appeals Officer
found that the estate as of February 1999 had
sufficient cash flow to pay the taxes and/or had the
ability to borrow to pay the taxes.
During the course of the CDP proceeding you raised the
issue of abating the penalties under IRC §6551(a)(2).
Your request was referred to the North Texas District
of the I.R.S. for administrative consideration. Your
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request was denied. You appealed the decision and the
matter was referred to an Appeals Officer who was not
previously involved in the CDP.
The Appellate conferee found that the executor did not
exercise ordinary business care and prudence and
sustained the assertion of the penalty.
· We have reconsidered your request for extension of
time to pay and have concluded that the decision
of the appellate conferee was correct and not an
abuse of discretion.
· We have reviewed your request for abatement of the
penalty and have concluded that the decision of
the appellate conferee was correct and not an
abuse of discretion. We did not find that your
failure to pay the estate tax was due to
reasonable cause. Since you have previously had
an opportunity to dispute this penalty liability
in an administrative appeals proceeding, this is
not an issue appropriately raised under IRC §
6330.
During the section 6330 proceedings, respondent offered, but
the estate refused to accept, an installment agreement that would
divert the estate’s partnership income stream to respondent until
the tax liability was satisfied.
Discussion
I. Court’s Review of Extension Request Denial
Section 6330 provides taxpayers a right to a hearing before
respondent levies on their property. Pursuant to section
6330(c)(2) the taxpayer may raise, at the hearing, relevant
issues relating to the unpaid tax. A taxpayer may not raise an
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issue previously raised and considered in a hearing or other
administrative or judicial proceeding in which the taxpayer
participated meaningfully. Sec. 6330(c)(4) (preclusion rule).
The resulting determination must take into consideration the need
for efficient tax collection as well as the legitimate concerns
of the taxpayer that any collection action be no more intrusive
than necessary. Sec. 6330(c)(3)(C). This Court has jurisdiction
to review such determination upon a timely taxpayer request.
Sec. 6330(d). Where the underlying liability is not properly at
issue, we review respondent’s determination for abuse of
discretion. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).
After conducting administrative proceedings, on February 11,
1999, Appeals sustained respondent’s denial of the extension
request. At the hearing, the estate sought review of the
Appeals’ denial. Respondent contends that, pursuant to the
section 6330(c)(4) preclusion rule, the estate may not raise and
respondent is not required to address the Appeals’ denial. The
estate contends that issues raised in proceedings conducted
before January 19, 1999, section 6330’s effective date, are not
subject to the section 6330(c)(4) preclusion rule.
We agree with respondent that there is no authority for the
estate’s contention that section 6330(c)(4) limits the definition
of a “previous administrative * * * proceeding” to one occurring
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after section 6330's effective date. See Goza v. Commissioner,
supra at 182-183 (holding that receipt of a notice of deficiency
issued prior to January 19, 1999, precluded the taxpayer from
challenging the underlying liability). We need not decide
whether review of Appeals’ denial of the extension request is
precluded by section 6330(c)(4) because the Appeals’ denial was
raised by the estate and reconsidered by respondent. Indeed,
respondent stated in the determination: “We have reconsidered
your request for extension of time to pay and have concluded that
the decision of the appellate conferee was correct and not an
abuse of discretion.” In sustaining the extension denial, the
Appellate conferee asserted his objection to allowing
distributions to the beneficiary prior to payment of the estate’s
tax liability, and found unpersuasive the estate’s contention
that it could not pay the estate tax liability because it could
not “borrow * * * except at a rate of interest higher than that
generally available”. Respondent’s refusal to reverse the
Appellate conferee’s decision was not an abuse of discretion.
II. The Request for Abatement
The estate contends that it was entitled to raise, and have
considered at the hearing, its request for abatement. Respondent
contends that this issue could not be raised during the hearing
because the estate took advantage of the opportunity to challenge
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the addition to tax in a separate administrative proceeding. We
need not determine whether the request for abatement was
appropriately precluded because it was raised by petitioner and
considered and rejected by respondent. Indeed, the determination
letter states that “We have reviewed your request for abatement
of the penalty and have concluded that the decision of the
appellate conferee was correct and not an abuse of discretion.
We did not find that your failure to pay the estate tax was due
to reasonable cause.” The estate failed to establish reasonable
cause for its failure to pay timely the estate tax. We conclude
that this determination was not an abuse of discretion.
III. Court Review of Collection Alternatives
It was appropriate for respondent to consider the estate’s
request for an extension insofar as it was proposed or considered
as a collection alternative. We conclude that respondent’s
rejection of such request was not an abuse of discretion.
Respondent is required, pursuant to section 6330(c)(3)(C),
to 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.” See also H. Conf. Rept. 105-599 at
264 (1998), 1998-3 C.B. 747, 1018. Respondent did so, even
though his consideration of this issue was sometimes couched as a
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review of the Appeals’ denial. Respondent offered to allow the
estate to pay the tax and addition to tax by diverting all of the
estate’s partnership income to respondent until the liability is
satisfied (i.e., approximately 2 years). The estate refused this
offer, insisting that it had a right to make payments over 10
years (i.e., the same contention made in the estate’s request for
extension).
As respondent pointed out in numerous letters to petitioner,
the estate should pay respondent prior to distributing assets to
the beneficiaries. Although the estate had a right to only half
of the annual payments, the estate’s share of the installments
could have paid off the estate’s Federal estate tax liability in
approximately 2 years. In addition, in September 1999, Texas law
changed, allowing the sale or assignment of the payment stream,
almost a year before the Appeals officer issued the
determination. To the extent respondent considered installment
payments as a collection alternative, there was no abuse of
discretion.
Contentions we have not addressed are moot, irrelevant, or
meritless.
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To reflect the foregoing,
Decision will be entered
for respondent.