NEWMAN v. COMMISSIONER

T.C. Memo. 2002-135

UNITED STATES TAX COURT

GENE AND CIAO NEWMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5695-01L. Filed May 30, 2002.

Gene and Ciao Newman, pro sese.

Wendy S. Harris and Karen Lynne Baker, for respondent.

MEMORANDUM OPINION

ARMEN, Special Trial Judge: This matter is before the Court

on respondent’s Motion For Summary Judgment And To Impose A

Penalty Under I.R.C. Section 6673, as supplemented.1 Respondent

1
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.
 - 2 -

contends that there is no dispute as to any material fact with

respect to this lien and levy action and that respondent’s

determination to proceed with collection of petitioners’

outstanding tax liabilities for the taxable years 1993 through

1997 should be sustained as a matter of law.

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law." Rule 121(a) and (b); Sundstrand

Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965

(7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving

party bears the burden of proving that there is no genuine issue

of material fact, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment. Dahlstrom

v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

As explained in detail below, there is no genuine issue as

to any material fact, and a decision may be rendered as a matter
 - 3 -

of law. Accordingly, we shall grant respondent’s motion for

summary judgment.

Background

A. Petitioners’ Tax Returns

1. Taxable Years 1993 and 1994

Petitioner Gene Newman (petitioner) failed to file Federal

income tax returns for the taxable years 1993 and 1994. The

record shows that respondent prepared substitutes for returns for

petitioner for the taxable years 1993 and 1994. See sec.

6020(b).

2. Taxable Years 1995, 1996, and 1997

On or about April 15, 1996, April 15, 1997, and April 15,

1998, petitioners Gene and Ciao Newman (petitioners) submitted to

respondent a joint Form 1040, U.S. Individual Income Tax Return,

for each of the taxable years 1995, 1996, and 1997, respectively.

On petitioners’ Form 1040 for 1996, which form is representative

of petitioners’ Forms 1040 for all 3 taxable years, petitioners

entered zeros on applicable lines of the income portion of the

Form 1040, specifically including line 7 for wages, line 9 for

dividends, line 22 for total income, and lines 31 and 32 for

adjusted gross income. Petitioners also entered a zero on line

38 for tax and a zero on line 51 for total tax. Petitioners then

claimed a refund equal to the amount of Federal income tax that

had been withheld from their wages.
 - 4 -

Petitioners attached to their Forms 1040 for 1995, 1996, and

1997 various Forms W-2, Wage and Tax Statements, disclosing the

payment of wages to petitioners during the taxable years in

issue. By way of example, petitioners attached three Forms W-2

to their Form 1040 for 1996. The first Form W-2 for 1996 was

from Leonard’s Machine Shop in Sparks, Nevada; it disclosed the

payment of wages to petitioner in the amount of $10,788.69 and

the withholding of Federal income tax in the amount of $174.29.

The second Form W-2 for 1996 was from Northern Nevada Tool & Die,

Inc. in Reno, Nevada; it disclosed the payment of wages to

petitioner in the amount of $23,953.47 and the withholding of

Federal income tax in the amount of $692.04. The third Form W-2

for 1996 was from Chemex Labs, Inc., in Sparks, Nevada; it

disclosed the payment of wages to petitioner Ciao Newman in the

amount of $23,152.75 and the withholding of Federal income tax in

the amount of $516.15.

Petitioners also attached to their Forms 1040 for 1995,

1996, and 1997 a typewritten statement. The typewritten

statement that petitioners attached to their Form 1040 for 1996,

which statement is essentially identical to the statements that

petitioners attached to their other Forms 1040, stated, in part,

as follows:

We are submitting this statement as part of our
1996 income tax return.
 - 5 -

Even though we know that no section of the Internal
Revenue Code:

1) established an income tax “liability” * * * ;

2) provides that income taxes “have to be paid on the
basis of a return” * * * .

* * * * * * *

In addition to the above, we are filing even though:

3. The “Privacy Act Notice” that the face of this
return directs us to, states that we need only file a
return for “any tax” we may be “liable” for, and since
no Code section makes us “liable” for income taxes,
this Notice notifies us that we do not have to file an
income tax return.

* * * * * * *

It should also be noted that we had “zero” income
according to the Supreme Court’s definition of income
* * * .

The word “income” is not defined in the Internal
Revenue Code * * * but, as stated above, it can only be
a derivative of corporate activity.

B. Respondent’s Deficiency Notices and Petitioners’

Responses

On May 4, 1998, respondent issued two notices of deficiency

to petitioner Gene Newman (petitioner). In the first notice,

respondent determined a deficiency in the amount of $2,036 in

petitioner’s Federal income tax for 1993 and an addition to tax

under section 6651(a)(1) in the amount of $475. In the second

notice, respondent determined a deficiency in the amount of

$1,781 in petitioner’s Federal income tax for 1994 and an
 - 6 -

addition to tax under section 6651(a)(1) in the amount of $440.

The deficiencies in income tax were based on respondent’s

determination that petitioner failed to report wage income,

unemployment compensation, and tip income.

On July 6, 1998, respondent received a letter (postmarked

June 26, 1998) from petitioner acknowledging receipt of the

notices of deficiency dated May 4, 1998, and challenging their

validity. Petitioner did not file a petition for redetermination

with the Court challenging the notices of deficiency dated May 4,

1998.

On September 11, 1998, respondent issued two joint notices

of deficiency to petitioners. In the first notice, respondent

determined a deficiency in the amount of $4,984 in petitioners’

Federal income tax for 1995 and an accuracy-related penalty under

section 6662(a) in the amount of $871. In the second notice,

respondent determined a deficiency in the amount of $8,030 in

petitioners’ Federal income tax for 1996 and an accuracy-related

penalty under section 6662(a) in the amount of $1,346. The

deficiencies in income tax were based on respondent’s

determination that petitioners failed to report wage income (1995

and 1996), unemployment compensation (1995), and a distribution

from an IRA (1996).
 - 7 -

On November 13, 1998, respondent received a letter (dated

November 8, 1998) from petitioners acknowledging receipt of the

notices of deficiency dated September 11, 1998, and challenging

their validity. Petitioners did not file a petition for

redetermination with the Court challenging the notices of

deficiency dated September 11, 1998.

On March 12, 1999, respondent issued a joint notice of

deficiency to petitioners. In the notice, respondent determined

a deficiency in the amount of $12,049 in petitioners’ Federal

income tax for 1997 and an accuracy-related penalty under section

6662(a) in the amount of $1,899.31. The deficiency in income tax

was based on respondent’s determination that petitioners failed

to report wage income, interest and dividends, capital gain, and

an IRA distribution.

On April 9, 1999, respondent received a letter (dated March

25, 1999) from petitioners acknowledging receipt of the notice of

deficiency dated March 12, 1999, and challenging its validity.

Petitioners did not file a petition for redetermination with the

Court challenging the notice of deficiency dated March 12, 1999.

Respondent subsequently made assessments against petitioners

for the deficiencies, additions to tax, and accuracy-related

penalties determined in the above-described notices of

deficiency. Respondent also made assessments against petitioners

for statutory interest. On the same day that the assessments
 - 8 -

were made, respondent issued to petitioners notices of balance

due informing petitioners that they owed taxes for the years in

question and requesting that they pay such amounts. Petitioners

failed to pay the amounts owing.

C. Respondent’s Collection Notices and Petitioners’

Response

On August 14, 2000, respondent mailed to petitioner a Final

Notice--Notice of Intent to Levy and Notice of Your Right to a

Hearing in respect of his outstanding tax liabilities for 1993

and 1994. Also on August 14, 2000, respondent mailed to

petitioners a Final Notice--Notice of Intent to Levy and Notice

of Your Right to a Hearing in respect of petitioners’ joint tax

liabilities for 1995, 1996, and 1997.

On August 22, 2000, respondent mailed to petitioner a Notice

of Federal Tax Lien Filing and Notice of Your Right to a Hearing

Under IRC 6320 in respect of his tax liabilities for 1993 and

1994. Also on August 22, 2000, respondent mailed to petitioners

a Notice of Federal Tax Lien Filing and Notice of Your Right to a

Hearing Under IRC 6320 in respect of petitioners’ joint tax

liabilities for 1995, 1996, and 1997. These two notices were

sent to petitioners in respect of notices of Federal tax lien

that respondent filed on August 17, 2000, with the County

Recorder for Washoe County, Nevada.
 - 9 -

On September 11, 2000, petitioners filed with respondent

Form 12153, Request for a Collection Due Process Hearing. The

request included, inter alia, a challenge to the existence of

petitioners’ underlying tax liabilities for 1993 through 1997 on

the ground that petitioners were never provided with a valid

notice of deficiency or notice and demand for payment.

Petitioners also requested verification from the Secretary that

all applicable laws and administrative procedures were followed

with regard to the assessment and collection of the taxes in

dispute.

D. The Appeals Office Hearing

On January 30, 2001, petitioners attended an administrative

hearing conducted by Appeals Officer Donna Fisher. At the

hearing, the Appeals officer provided petitioners with Forms

4340, Certificates of Assessments, Payments, and Other Specified

Matters for the years 1993 through 1997. During the hearing,

petitioners requested that the Appeals officer identify the

statutory provisions establishing petitioners’ liability for

Federal income taxes and provide verification that all applicable

laws and administrative procedures were followed in the

assessment and collection process. Petitioners were informed

that the Forms 4340 provided to them were sufficient to satisfy

the verification requirement of section 6330(c)(1). The Appeals

officer terminated the hearing after petitioners declined to
 - 10 -

discuss collection alternatives.

E. Respondent’s Notices of Determination

On April 2, 2001, respondent’s Appeals Office issued to

petitioner separate Notices of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 with regard

to his tax liabilities for 1993 through 1997. In the notices,

the Appeals Office stated that respondent’s determination to

proceed with collection by way of levy should be sustained and

that the filing of the notices of Federal tax lien was

appropriate.

Also on April 2, 2001, respondent’s Appeals Office issued to

petitioner Ciao Newman a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 with regard

to her tax liabilities for 1995 through 1997. In the notice, the

Appeals Office stated that respondent’s determination to proceed

with collection by way of levy should be sustained and that the

filing of the notice of Federal tax lien was appropriate.

F. Petitioners’ Petition and Motion To Dismiss

On April 30, 2001, petitioners filed with the Court a

Petition for Lien or Levy Action seeking review of respondent’s

notices of determination.2 The petition includes the following

allegations: (1) The Appeals officer failed to obtain

2
At the time that the petition was filed, petitioners
resided in Reno, Nevada.
 - 11 -

verification from the Secretary that the requirements of any

applicable law or administrative procedure were met as required

under section 6330(c)(1); (2) the Appeals officer failed to

identify the statutes making petitioners liable for Federal

income taxes; and (3) petitioners were denied the opportunity to

challenge (a) the appropriateness of the collection action, and

(b) the existence or amount of their underlying tax liabilities.

Concurrently with the filing of their petition, petitioners

filed a Motion to Dismiss for Lack of Jurisdiction in which they

asked the Court to “declare invalid the ‘Determination’ at issue,

since the appeals officer issued the ‘Determination’ without

conducting the CDP hearing as requested by petitioner according

to law.” Petitioners attached to their motion a Memorandum of

Law in which they repeated many of the allegations in the

petition. Petitioners also alleged:

there is no Code Section that authorizes IRS employees
to attribute to petitioners more taxes then [sic] they
reported on their tax returns. Since income taxes are
based on “self-assessment,” petitioners can only owe in
taxes, the amount reported on their tax returns, which,
in this case, were correctly reported as “zero.”

By Order dated August 27, 2001, the Court denied

petitioners’ motion to dismiss.

G. Respondent’s Motion for Summary Judgment

As stated, respondent filed a Motion For Summary Judgment

And To Impose A Penalty Under I.R.C. Section 6673. Respondent

contends that petitioners are barred under section 6330(c)(2)(B)
 - 12 -

from challenging the existence or amount of their underlying tax

liabilities in this proceeding because petitioners received

notices of deficiency for the taxes in question. Respondent also

contends that the Appeals officer’s review of the Forms 4340,

which forms were provided to petitioners during the Appeals

Office hearing, satisfied the verification requirement of section

6330(c)(1). Finally, respondent contends that petitioners’

behavior warrants the imposition of a penalty under section 6673.

Petitioners filed an Objection to respondent’s motion.

Thereafter, pursuant to notice, respondent’s motion was called

for hearing at the Court's motions session in Washington, D.C.

Following the hearing, respondent filed a supplement to his

motion, and petitioners filed a Supplemental Objection and a

Response to respondent’s motion, as supplemented.

Discussion

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of a person when a demand for

the payment of the person’s liability for taxes has been made and

the person fails to pay those taxes. Such a lien arises when an

assessment is made. Sec. 6322. Section 6323(a) requires the

Secretary to file notice of Federal tax lien if such lien is to

be valid against any purchaser, holder of a security interest,

mechanic’s lienor, or judgment lien creditor. Lindsay v.

Commissioner, T.C. Memo. 2001-285.
 - 13 -

Section 6320 provides that the Secretary shall furnish the

person described in section 6321 with written notice of the

filing of a notice of lien under section 6323. The notice

required by section 6320 must be provided not more than 5

business days after the day of the filing of the notice of lien.

Sec. 6320(a)(2). Section 6320 further provides that the person

may request administrative review of the matter (in the form of

an Appeals Office hearing) within 30 days beginning on the day

after the 5-day period. Section 6320(c) provides that the

Appeals Office hearing generally shall be conducted consistent

with the procedures set forth in section 6330(c), (d), and (e).

Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to pay such tax within 10 days after

notice and demand for payment, the Secretary is authorized to

collect such tax by levy on the person’s property. Section

6331(d) provides that at least 30 days before enforcing

collection by levy on the person's property, the Secretary is

obliged to provide the person with a final notice of intent to

levy, including notice of the administrative appeals available to

the person.

Section 6330 generally provides that the Commissioner cannot

proceed with collection by levy until the person has been given

notice and the opportunity for an administrative review of the

matter (in the form of an Appeals Office hearing) and, if
 - 14 -

dissatisfied, with judicial review of the administrative

determination. See Davis v. Commissioner, 115 T.C. 35, 37

(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000).

Section 6330(c) prescribes the matters that a person may

raise at an Appeals Office hearing. In sum, section 6330(c)

provides that a person may raise collection issues such as

spousal defenses, the appropriateness of the Commissioner's

intended collection action, and possible alternative means of

collection. Section 6330(c)(2)(B) provides that the existence

and amount of the underlying tax liability can be contested at an

Appeals Office hearing only if the person did not receive a

notice of deficiency for the taxes in question or did not

otherwise have an earlier opportunity to dispute the tax

liability. See Sego v. Commissioner, 114 T.C. 604, 609 (2000);

Goza v. Commissioner, supra. Section 6330(d) provides for

judicial review of the administrative determination in the Tax

Court or a Federal District Court, as may be appropriate.

A. Summary Judgment

Petitioners argue that the assessments made against them are

invalid because respondent failed to demonstrate that petitioners

are subject to the Federal income tax. Petitioners’ argument

fails for two reasons. First, there is no dispute in this case

that petitioners received notices of deficiency with regard to

the years in issue and that they ignored the opportunity to file
 - 15 -

a petition for redetermination with this Court. See sec.

6213(a). Under the circumstances, section 6330(c)(2)(B) bars

petitioners from challenging the existence or the amount of their

underlying tax liabilities for the years 1993 through 1997 in

this collection review proceeding.

In addition to the bar imposed by section 6330(c)(2)(B),

petitioners’ arguments that they are not subject to the Federal

income tax are frivolous and groundless. See Nestor v.

Commissioner, 118 T.C. 162, 165 (2002); Goza v. Commissioner,

supra. As the Court of Appeals for the Fifth Circuit has

remarked: "We perceive no need to refute these arguments with

somber reasoning and copious citation of precedent; to do so

might suggest that these arguments have some colorable merit."

Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984). Suffice it

to say that petitioners are taxpayers who are subject to the

Federal income tax on their wages and other sources of income.

See secs. 1(a), (d); 61(a)(1), (3), (4), (7), (11); 72; 85;

408(d); 7701(a)(1), (14).

Petitioners next argue that the Appeals officer failed to

obtain verification from the Secretary that the requirements of

all applicable laws and administrative procedures were met as

required by section 6330(c)(1). We reject petitioners’ argument

because the record establishes that the Appeals officer obtained

and reviewed transcripts of account (Forms 4340) for petitioners’
 - 16 -

taxable years 1993 through 1997.

Federal tax assessments are formally recorded on a record of

assessment. Sec. 6203. “The summary record, through supporting

records, shall provide identification of the taxpayer, the

character of the liability assessed, the taxable period, if

applicable, and the amount of the assessment.” Sec. 301.6203-1,

Proced. & Admin. Regs.

Section 6330(c)(1) does not require the Commissioner to rely

on a particular document to satisfy the verification requirement

imposed therein. Roberts v. Commissioner, 118 T.C. n.10

(2002); Weishan v. Commissioner, T.C. Memo. 2002-88; Lindsey v.

Commissioner, T.C. Memo. 2002-87; Tolotti v. Commissioner, T.C.

Memo. 2002-86; Duffield v. Commissioner, T.C. Memo. 2002-53;

Kuglin v. Commissioner, T.C. Memo. 2002-51. In this regard, we

observe that the transcripts of account on which the Appeals

officer relied, and which she furnished to petitioners during the

hearing, contained all the information prescribed in section

301.6203-1, Proced. & Admin. Regs. See Weishan v. Commissioner,

supra; Lindsey v. Commissioner, supra; Tolotti v. Commissioner,

supra; Duffield v. Commissioner, supra; Kuglin v. Commissioner,

supra.3

3
In their motion to dismiss, see supra p. 11, petitioners
alleged that the Appeals officer did not provide them with a copy
of the verification. We note that sec. 6330(c)(1) does not
(continued...)
 - 17 -

We likewise reject petitioners’ assertion, first raised

during the Appeals Office hearing, that they never received a

notice and demand for payment for the amounts in dispute. In

particular, during the Appeals Office hearing, petitioners argued

that a notice of balance due does not constitute a notice and

demand for payment.

The requirement that the Secretary issue a notice and demand

for payment is set forth in section 6303(a), which provides in

pertinent part:

SEC. 6303(a). General Rule.-–Where it is not
otherwise provided by this title, the Secretary shall,
as soon as practicable, and within 60 days, after the
making of an assessment of a tax pursuant to section
6203, give notice to each person liable for the unpaid
tax, stating the amount and demanding payment thereof.

The transcripts of account that the Appeals officer provided to

petitioners during the Appeals Office hearing show that

respondent issued to petitioners notices of balance due on the

same date that respondent made assessments against petitioners

for the taxes, additions to taxes, and penalties in dispute in

this case. We hold that such notices of balance due constitute

notices and demand for payment within the meaning of section

6303(a). See, e.g., Hughes v. United States, 953 F.2d 531, 536

3
(...continued)
require the Appeals officer to provide the taxpayer with a copy
of the verification at the administrative hearing. Nestor v.
Commissioner, 118 T.C. 162, 166 (2002). In any event, as stated
above, the Appeals officer did, in fact, provide petitioners with
Forms 4340, Certificates of Assessments, Payments, and Other
Specified Matters for the years 1993 through 1997.
 - 18 -

(9th Cir. 1992); Weishan v. Commissioner, supra; see also Hansen

v. United States, 7 F.3d 137, 138 (9th Cir. 1993).

Petitioners have not alleged any irregularity in the

assessment procedure that would raise a question about the

validity of the assessments or the information contained in the

transcripts of account. See Davis v. Commissioner, 115 T.C. 35,

40-41 (2000); Mann v. Commissioner, T.C. Memo. 2002-48.

Accordingly, we hold that the Appeals officer satisfied the

verification requirement of section 6330(c)(1). Cf. Nicklaus v.

Commissioner, 117 T.C. 117, 120-121 (2001).

Petitioners have failed to raise a spousal defense, make a

valid challenge to the appropriateness of respondent’s intended

collection actions, or offer alternative means of collection.

These issues are now deemed conceded. Rule 331(b)(4). In the

absence of a justiciable issue for review, we conclude that

respondent is entitled to judgment as a matter of law sustaining

the notices of determination dated April 2, 2001.

B. Imposition of a Penalty Under Section 6673

We turn now to that part of respondent’s motion that moves

for the imposition of a penalty under section 6673.

As relevant herein, section 6673(a)(1) authorizes the Tax

Court to require a taxpayer to pay to the United States a penalty

not in excess of $25,000 whenever it appears that proceedings

have been instituted or maintained by the taxpayer primarily for
 - 19 -

delay or that the taxpayer's position in such proceeding is

frivolous or groundless. The Court has indicated its willingness

to impose such penalty in lien and levy cases, Pierson v.

Commissioner, 115 T.C. 576, 580-581 (2000), and has in fact

imposed a penalty in several such cases, Roberts v. Commissioner,

118 T.C. (2002) (imposing a penalty in the amount of

$10,000); Yacksyzn v. Commissioner, T.C. Memo. 2002-99 (imposing

a penalty in the amount of $1,000); Watson v. Commissioner, T.C.

Memo. 2001-213 (imposing a penalty in the amount of $1,500).

We are convinced petitioners instituted the present

proceeding primarily for delay. In this regard, it is clear that

petitioners regard this proceeding as nothing other than as a

vehicle to protest the tax laws of this country and to espouse

their own misguided views, which we regard as frivolous and

groundless. In short, having to deal with this matter wasted the

Court's time, as well as respondent's.

Under the circumstances, we shall grant that part of

respondent’s motion that moves for the imposition of a penalty in

that we shall impose a penalty on petitioners pursuant to section

6673(a)(1) in the amount of $1,000.
 - 20 -

In order to give effect to the foregoing,

An order granting respondent's

motion, as supplemented, and

decision for respondent will be

entered.