HOREJS v. COMMISSIONER

T.C. Memo. 2002-240

UNITED STATES TAX COURT

JOHN THURMAN & ELAINE SHERYL HOREJS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8928-01L. Filed September 25, 2002.

John Thurman & Elaine Sheryl Horejs, pro sese.

Anne W. Durning and Sheara L. Gelman, for respondent.

MEMORANDUM OPINION

PANUTHOS, Chief 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 amended, filed

pursuant to Rule 121.1 Respondent contends that there is no

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 -

dispute as to any material fact with respect to this lien action,

and that (with concessions discussed below) respondent’s notice

of determination 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); see

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

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

summary judgment, as amended.
 - 3 -

Background

A. Substitute For Returns and Petitioners’ First Amended

Returns

Petitioners failed to file timely Federal income tax returns

for 1992, 1993, and 1994. On January 23, 1995, respondent

prepared a substitute for return with respect to petitioners’

taxable year 1992. See sec. 6020(b). On August 30, 1995,

respondent prepared substitutes for return with respect to

petitioners’ taxable years 1993 and 1994. Id.

On October 2, November 3, and December 11, 1995, petitioners

submitted and respondent accepted late-filed original tax returns

for the taxable years 1992, 1993, and 1994, respectively. Each

of the above-referenced returns showed taxes due. On February

12, 1996, respondent assessed the taxes shown as due on those

returns, plus late filing penalties, and estimated tax penalties

as follows:

Additions to Tax
Year Income Tax Sec. 6651(a)(1) Sec. 6654

1992 $4,978 $1,245 $217
1993 2,521 335 50
1994 4,194 1,049 218

On February 12, 1996, respondent also assessed statutory interest

in the amounts of $1,612.91, $291.73, and $418.28 for the taxable

years 1992, 1993, and 1994, respectively. On February 12, 1996,

respondent sent petitioners notices of balance due, informing

petitioners that they had tax liabilities for 1992, 1993, and
 - 4 -

1994 and requesting that they pay them. Petitioners failed to

do so.

B. Respondent’s Notice of Deficiency and Petitioners’

Response

On March 27, 1996, respondent issued a notice of deficiency

to petitioners. In the notice, respondent determined

deficiencies in and additions to petitioners’ Federal income

taxes for 1992, 1993, and 1994 as follows:

Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654

1992 $16,224 $4,056 $ 708
1993 22,621 5,656 954
1994 21,054 5,263 1,092

Respondent determined that petitioners failed to substantiate

business deductions claimed on their tax returns for the years in

question. Respondent also determined that petitioners failed to

report as income a premature distribution from a retirement plan

during 1993.

By letter dated June 18, 1996, petitioners returned the

notice of deficiency to respondent. Petitioners’ letter stated

in pertinent part:

This presentment is denied and is dishonored * * *.

Further, we do hereby affirm that we cannot be required
to file or pay income taxes under the compelled benefit
of using Federal Reserve Notes because we have reserved
all our rights under the Common Law through the Uniform
Commercial Code at 1-207. We are among the national
citizenry of the continental united States. We are
 - 5 -

non-resident aliens to the federal territory. We have
never had any income from the federal United States.

Petitioners failed to file a petition for redetermination

with the Court challenging the notice of deficiency.

C. Additional Assessments

On August 26, 1996, respondent assessed the deficiencies and

additions to tax for 1992, 1993, and 1994 determined in the

notice of deficiency dated March 27, 1996, as well as statutory

interest. On August 26, 1996, respondent sent petitioners

notices of balance due, informing petitioners that they had tax

liabilities for 1992, 1993, and 1994 and requesting that they pay

them. Petitioners failed to do so.

D. Petitioners’ Amended Returns

On or about November 9, 1998, petitioners submitted to

respondent Forms 1040X, Amended U.S. Individual Income Tax

Return, for the taxable years 1992, 1993, and 1994. Petitioners

reported that they had no taxable income during the years in

question. Petitioners also asserted that they had erroneously

reported taxable income on their original tax returns.

Petitioners claimed a refund in the amount of $500 for 1992. By

notice dated June 10, 1999, respondent denied petitioners’ refund

claim.

E. Respondent’s Final Notice and Petitioners’ Response

On April 27, 2000, respondent sent petitioners a Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC
 - 6 -

6320 in respect of their outstanding liabilities for 1992, 1993,

and 1994. On May 13, 2000, petitioners submitted to respondent

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

challenging respondent’s Notice of Federal Tax Lien Filing.

Petitioners’ request stated that “there is no valid assessment

against us.”

F. The Appeals Office Hearing

On March 23, 2001, Appeals Officer Angela M. Carmouche

(the Appeals officer) conducted an Appeals Office hearing that

petitioners attended. By letter dated April 23, 2001, the

Appeals Office forwarded to petitioners Forms 4340, Certificate

of Assessments, Payments, and Other Specified Matters, with

regard to their taxable years 1992, 1993, and 1994. Copies of

the Forms 4340, dated March 27, 2001, are attached to

respondent’s Motion for Summary Judgment, which was served on

petitioners. The Appeals Office also provided petitioners with a

copy of the Court’s opinion in Pierson v. Commissioner, 115 T.C.

576 (2000).

G. Respondent’s Notice of Determination

On July 2, 2001, respondent sent petitioners a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330. The notice stated that the Appeals Office had

determined that it “should not restrict the appropriate

collection action.”
 - 7 -

H. Petitioners’ Petition

On July 11, 2001, petitioners filed with the Court a

petition for lien or levy action seeking review of respondent’s

notice of determination.2 On August 2, 2001, petitioners filed

an amended petition which includes allegations that: (1) The

Appeals officer failed to obtain verification from the Secretary

that the requirements of any applicable law or administrative

procedure were met as required under section 6330(c)(1); and

(2) petitioners never received a notice and demand for payment of

the disputed taxes.

I. Respondent’s Motion for Summary Judgment

As indicated, respondent filed a Motion For Summary Judgment

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

there is no dispute as to a material fact and that respondent is

entitled to judgment as a matter of law. In particular,

respondent contends that because petitioners received the notice

of deficiency dated March 27, 1996, they cannot challenge the

existence or amount of the income tax deficiencies and additions

to tax determined in the notice for 1992, in this proceeding.

Respondent further contends that the Appeals officer’s review of

Forms 4340 with regard to petitioners’ accounts for 1992, 1993,

and 1994 satisfied the verification requirement imposed under

2
At the time that the petition was filed, petitioners
resided in Burley, Idaho.
 - 8 -

section 6330(c)(1) and demonstrates that petitioners were issued

notices and demands for payment on the same dates that respondent

entered the assessments in question. Finally, respondent argued

that petitioners’ behavior warranted the imposition of a penalty

under section 6673. Respondent subsequently filed an amendment

to his motion for summary judgment correcting a citation therein.

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.

Counsel for respondent appeared at the hearing and offered

argument in support of respondent’s motion. In lieu of appearing

at the hearing, petitioners filed a written statement with the

Court pursuant to Rule 50(c).

Following the hearing, the Court directed respondent to file

a further amendment to his motion addressing the question whether

respondent’s determination of additions to tax under section

6654, as set forth in the notice of deficiency dated March 27,

1996, and subsequently assessed, was correct. Respondent filed a

second amendment to his motion conceding that he had erroneously

determined and improperly assessed additions to tax under section

6654 in the amounts of $708, $954, and $1,092, for the taxable

years 1992, 1993, and 1994, respectively.3 Transcripts of

3
The addition to tax under sec. 6654, which is imposed
when an individual taxpayer fails to pay estimated tax, is
(continued...)
 - 9 -

account attached to respondent’s second amendment to his motion

show that respondent has moved to abate the erroneous

assessments. In light of the erroneous assessments, respondent

seeks to withdraw his request that the Court impose a penalty on

petitioners pursuant to section 6673. Petitioners filed an

objection to the second amendment to respondent’s motion for

summary judgment. While petitioners appear to accept the

concessions made by respondent, they nevertheless continue to

object to respondent’s motion for summary judgment as amended.

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

3
(...continued)
computed by reference to the amount of tax reported by a taxpayer
on his original return or, if no return is filed, by reference to
the tax for such year. Sec. 1.6654-1(a)(1), Income Tax Regs.
Sec. 6665(b)(2) provides that the Court’s normal jurisdiction to
redetermine a deficiency under sec. 6213(a) does not encompass
the addition to tax under sec. 6654, except where no return is
filed for the taxable year.

As previously discussed, although respondent initially
prepared substitutes for return for the years 1992, 1993, and
1994, respondent subsequently accepted petitioners’ late-filed
original returns and, on Feb. 12, 1996, assessed additions to tax
under sec. 6654 based on the taxes that petitioners reported due
in those returns.

Respondent also determined additions to tax under sec. 6654
in the notice of deficiency dated Mar. 27, 1996. As indicated,
respondent now concedes that such additions to tax were
erroneously determined (and improperly assessed) inasmuch as
petitioners had previously filed original returns reporting taxes
due. See Weir v. Commissioner, T.C. Memo. 2001-184.
 - 10 -

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 a 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.

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).

See, e.g., 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
 - 11 -

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 challenge the assessments made against them on

the ground that the notice of deficiency dated March 27, 1996, is

invalid. However, the record shows that petitioners received the

notice of deficiency and disregarded the opportunity to file a

petition for redetermination with this Court. See sec. 6213(a).

It follows that section 6330(c)(2)(B) generally bars petitioners

from challenging the existence or amount of their underlying tax

liabilities in this collection review proceeding.4

4
As previously discussed, on Feb. 12, 1996, respondent
entered assessments for taxes and additions to tax under secs.
6651(a)(1) and 6654 based upon the taxes that petitioners
reported due in their late-filed original returns. Inasmuch as
the underlying taxes were “self-assessed”, these items were not
subject to redetermination under the Court’s normal deficiency
jurisdiction. See secs. 6201(a)(1), 6211(a)(1), 6665(b).
Although it is arguable whether sec. 6330(c)(2)(B) barred
petitioners from challenging these particular assessments,
petitioners did not specifically dispute these items. Moreover,
(continued...)
 - 12 -

Even if petitioners were permitted to challenge the validity

of the notice of deficiency, petitioners’ arguments 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, 1417

(5th Cir. 1984). Suffice it to say that petitioners are

taxpayers subject to the Federal income tax, see secs. 1(a)(1),

7701(a)(1), (14), and that compensation for labor or services

rendered constitutes income subject to the Federal income tax,

see sec. 61(a)(1); United States v. Romero, 640 F.2d 1014, 1016

(9th Cir. 1981).

We likewise reject petitioners’ argument 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). The record shows

that the Appeals officer obtained and reviewed Forms 4340 with

regard to petitioners’ taxable years 1992, 1993, and 1994.

Federal tax assessments are formally recorded on a record of

4
(...continued)
petitioners do not point to any discrepancy in the record or set
forth specific facts that would suggest that there is a genuine
issue for trial whether these items were properly assessed. See
Rule 121(d).
 - 13 -

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. 365, 371 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 Forms 4340 on which the Appeals officer relied

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.

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

Forms 4340. See Davis v. Commissioner, 115 T.C. 35, 41 (2000);

Mann v. Commissioner, T.C. Memo. 2002-48. Accordingly, we hold

that the Appeals officer satisfied the verification requirement
 - 14 -

of section 6330(c)(1). Cf. Nicklaus v. Commissioner, 117 T.C.

117, 120-121 (2001).

Petitioners also contend that they never received a notice

and demand for payment for 1992, 1993, or 1994. 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 Forms 4340 that the Appeals officer relied on during the

administrative process show that respondent sent petitioners

notices of balance due on the same dates that respondent made

assessments for the taxes and additions to tax in question. A

notice of balance due constitutes a notice and demand for payment

within the meaning of section 6303(a). See, e.g., Hughes v.

United States, 953 F.2d 531, 536 (9th Cir. 1992); Weishan v.

Commissioner, supra; see also Hansen v. United States, 7 F.3d

137, 138 (9th Cir. 1993).

Petitioners have failed to raise a spousal defense, make a

valid challenge to the appropriateness of respondent’s intended

collection action, or offer alternative means of collection.

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

circumstances, we conclude that respondent is entitled to
 - 15 -

judgment as a matter of law sustaining the notice of

determination dated July 2, 2001, with the noted concession of

the assessments of the additions to tax under section 6654,

determined in the notice of deficiency dated March 27, 1996.

B. Section 6673

Respondent originally moved for the imposition of a penalty

on petitioners under section 6673.5 However, in light of

respondent’s concession of additions to tax under section 6654,

as set forth in the notice of deficiency dated March 27, 1996,

and afterwards assessed, respondent seeks to withdraw his request

for the imposition of a penalty. Under the circumstances, the

portion of respondent’s motion for summary judgment, as

supplemented, that seeks the imposition of penalty under section

6673 will be deemed withdrawn.

In order to give effect to the foregoing,

An Order and Decision will

be entered granting respondent’s

motion for summary judgment, as

amended.

5
As relevant herein, sec. 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
delay or that the taxpayer’s position in such proceeding is
frivolous or groundless.