T.C. Memo. 2004-48
UNITED STATES TAX COURT
EDWARD P. HEAPHY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6799-02L. Filed March 5, 2004.
Edward P. Heaphy, pro se.
Monica J. Miller, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
JACOBS, Judge: This case arises from petitioner’s request
for our review of respondent’s determination that respondent’s
filing of a Federal tax lien with respect to the collection of
petitioner’s unpaid tax liability for 1997 was appropriate. The
issue to be resolved is whether respondent abused his discretion
in making that determination. In his trial memorandum,
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respondent raised the issue of whether petitioner should be
required to pay a penalty pursuant to section 6673 for
instituting and/or maintaining this proceeding, and if so, the
amount thereof.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits submitted therewith are
incorporated herein by this reference.
At the time the petition was filed in this case, petitioner
resided in Ormond Beach, Florida. He is a real estate broker.
Petitioner submitted to the Internal Revenue Service (the
IRS) a document purporting to be his income tax return for 1997,
with zeros reported for amounts on all lines. The IRS did not
process that document. Rather, the IRS prepared a substitute
1997 return for petitioner on which $65,419 was reflected as
commission income.2 That amount was determined in part from a
third-party information return ($46,369) and in part from an
analysis of petitioner’s bank deposits ($19,050). The substitute
1997 return also reflected $463 of interest income.
1
All section references are to the Internal Revenue Code.
2
In deciding this case, it is not necessary for us to decide
whether the substitute return meets the requirements of sec.
6020(b). See, e.g., Swanson v. Commissioner, 121 T.C. 111, 112
n.1 (2003).
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On January 4, 2000, respondent issued a notice of deficiency
to petitioner with respect to 1997. In that notice, respondent
(relying on the information used in preparing the 1997 substitute
return3) determined that petitioner was liable for an income tax
deficiency of $8,644, a delinquency addition to tax under section
6651(a)(1) of $2,161, and an estimated tax addition to tax under
section 6654 of $462.44.
Petitioner received the notice of deficiency; he did not
contest respondent’s determinations by filing a petition in this
Court. On May 8, 2000, respondent assessed the determined
deficiency, the estimated tax addition, the late filing addition,
and statutory interest.
Petitioner failed to pay the assessed liabilities for 1997;
consequently, on November 13, 2000, the IRS filed a notice of
Federal tax lien.
On November 10, 2000, the IRS sent petitioner a notice
entitled “Notice of Federal Tax Lien Filing and Your Right to a
Hearing Under I.R.C. 6320” (the notice of Federal tax lien
filing) with respect to petitioner’s outstanding tax liability
for 1997. On November 22, 2000, petitioner submitted to the IRS
a Form 12153, Request for a Collection Due Process Hearing, dated
November 21, 2000, and an attachment thereto. In the attachment,
3
Petitioner was allowed estimated expenses of $33,298 on the
basis of the profit ratio shown on petitioner’s 1996 return.
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petitioner maintained: (1) He is not “statutorily” liable to pay
the taxes at issue; (2) he did not receive a valid notice of
deficiency in connection with the year at issue; and (3) he did
not receive
the statutory “notice and demand” for payment of the
taxes at issue * * *. If the appeals officer is going
to claim that a particular document sent to me by the
IRS was a “Notice and Demand” for payment, then I am
requesting that he also provide me with a T.D. or
Treas. Reg. which identifies that specific document as
being the official, statutory “Notice and Demand” for
payment.
On October 31, 2001, respondent’s Appeals Officer Charles R.
Kelly wrote petitioner to schedule the hearing as requested by
petitioner. In his letter, Appeals Officer Kelly stated:
The purpose of a Collection Due Process hearing is to
(1) verify that the IRS office collecting the tax has
met the requirements of various applicable law [sic]
and administrative procedures; (2) hear any relevant
issue relating to the unpaid tax; and (3) consider
whether the proposed collection action (lien) balances
the need for the efficient collection of the taxes with
any legitimate concern that you may have that any
collection action be no more intrusive than necessary.
You failed to file your 1997 tax return and the IRS
prepared a substitute return for you and issued you a
statutory notice of deficiency. The notice was sent to
your last known address at the time it was issued. I
am enclosing a copy of the statutory notice of
deficiency and the substitute return.
A challenge to the existence or amount of the tax
liability can only be made if a taxpayer did not
receive a statutory notice of deficiency or did not
otherwise have an opportunity to dispute that tax
liability. You were issued a statutory notice of
deficiency and failed to petition the Tax Court. You
have had the opportunity to dispute the tax liability.
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The underlying tax liability cannot be challenged at
the Collection Due Process hearing.
The underlying assessment is valid and I am enclosing a
Form 4340 “Certificate of Assessments, Payments, and
Other Specific Matters” which verifies the assessment
is valid. A “Summary Record of Assessment” (23C) is
not necessary to verify an assessment. The United
States Tax Court has held that the Form 4340 is
sufficient to verify an assessment.
If you want a Collection Due Process hearing to discuss
collection alternatives to the lien, please call me on
or before November 9th. The arguments you raised in
your Collection Due Process request are not arguments
that can or will be discussed at the hearing. If I do
not hear from you by November 9th, I will assume you do
not wish a hearing. I will conduct the hearing based
on the case file and issue you a final determination
letter.
Substantial correspondence between petitioner and Appeals
Officer Kelly then followed. Ultimately, on February 5, 2002,
the hearing granted under section 6320 (a section 6320 hearing)
was held. Present at that hearing were petitioner, petitioner’s
wife (Wendy Zapert) acting under a power of attorney, Appeals
Officer Kelly, and a court reporter who was present at
petitioner’s request. Appeals Officer Kelly began the section
6320 hearing by summarizing the purpose for the hearing and
stating the events leading to petitioner’s being informed of the
notice of the filing of a tax lien. Appeals Officer Kelly stated
that he “verified by the review of the entire record that all
statutory, regulatory and administrative requirements for the
collection action has [sic] been met.” He asked whether
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petitioner had received the Form 4340, Certificate of
Assessments, Payments and Other Specified Matters, which he had
sent to petitioner. Petitioner replied that he had. Appeals
Officer Kelly then asked whether petitioner had any collection
alternatives to the tax lien. Petitioner did not respond to
Appeals Officer Kelly’s question. Rather, Ms. Zapert asserted
that petitioner had been denied a meeting with Appeals before the
notice of deficiency was issued. Bickering between Ms. Zapert
and Appeals Officer Kelly ensued, and the meeting was terminated
shortly thereafter. Petitioner never offered any collection
alternatives during the meeting.
On March 1, 2002, a Notice of Determination Concerning
Collection Action Under Section 6320 (Lien) of the Internal
Revenue Code was sent to petitioner. In that notice, respondent
determined that the filing of a Federal tax lien was an
appropriate collection action. Petitioner then filed a petition
with this Court under section 6330(d) disputing respondent’s
determination. See sec. 6320(c).
OPINION
Section 6321 imposes a lien in favor of the United States
upon all property and rights to property belonging to a person
liable for unpaid taxes after demand for payment has been made.
Within 5 business days after the day of filing the notice of
lien, the Secretary must notify in writing the person against
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whom the lien is filed (the taxpayer) that a tax lien was filed
and inform the taxpayer of his right to a hearing before an
impartial Appeals officer. Sec. 6320. Pursuant to section
6320(c) the hearing is to be conducted pursuant to the rules
provided in subsections (c), (d) (other than paragraph (2)(B)
thereof), and (e) of section 6330. If the Commissioner issues a
determination letter adverse to the position of the taxpayer, the
taxpayer may seek judicial review of the determination. Sec.
6330(d).
This Court has established the following standards of review
in considering whether a taxpayer is entitled to relief from the
Commissioner’s determination:
where the validity of the underlying tax liability is
properly at issue, the Court will review the matter on
a de novo basis. However, where the validity of the
underlying tax liability is not properly at issue, the
Court will review the Commissioner’s administrative
determination for abuse of discretion.
Sego v. Commissioner, 114 T.C. 604, 610 (2000).
Petitioner apparently has abandoned the positions he took in
the attachment to Form 12153. At his section 6320 hearing, as
well as at the trial in this case, petitioner claimed that
respondent’s filing of the tax lien against him should be
“declared null and void” because he was denied an administrative
hearing at the audit level before the issuance of the notice of
deficiency. Petitioner’s claim is meritless.
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Section 6330(c)(2) sets forth those matters that may be
raised at a section 6320 hearing. Specifically, pursuant to
section 6330(c)(2)(A), a person may raise any relevant issue
relating to the unpaid tax, including appropriate spousal
defenses, challenges to the appropriateness of the Commissioner’s
proposed collection actions, and offers of collection
alternatives. In addition, pursuant to section 6330(c)(2)(B), a
person may challenge the existence or amount of the underlying
tax liability if he/she did not receive a statutory notice of
deficiency for the tax liability or did not have an opportunity
to dispute it.
Whether petitioner was entitled to an administrative hearing
at the audit level before the issuance of the notice of
deficiency is not a relevant matter to be considered at the
section 6320 hearing.
Petitioner received a notice of deficiency for 1997; the
events that occurred, or did not occur, before the issuance of
the notice of deficiency are not relevant matters that can be
raised at the section 6320 hearing. Petitioner had an
opportunity to dispute respondent’s determinations, as set forth
in the notice of deficiency, as well as the arbitrariness of
those determinations. He failed to take advantage of this
opportunity by timely petitioning this Court. Because petitioner
received a notice of deficiency for 1997, the existence and/or
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amount of petitioner’s underlying 1997 tax liability is not a
relevant issue to be addressed at the section 6320 hearing. See
Sego v. Commissioner, supra at 609.
Petitioner was afforded an opportunity at the section 6320
hearing to raise all relevant issues as set forth in section
6330(c)(2)(A), including offers of collection alternatives. He
failed to take advantage of that opportunity.4
Petitioner claims that there was an irregularity in the Form
4340 sent to him. As best we can understand petitioner’s
position, he complains that the Form 4340 was improperly signed
by Kathleen R. Bushnell, Accounting Branch Chief. This argument
is groundless.
Section 6301 provides that the Secretary has the power to
collect taxes. That power can be delegated to IRS District
Directors and in turn redelegated to local-level officials. See
sec. 301.6301-1, Proced. & Admin. Regs.; Delegation Order No. 198
(Rev. 5), Sept. 7, 2001. “The delegation of authority down the
chain of command, from the Secretary to the Commissioner of
Internal Revenue, to local IRS employees constitutes a valid
4
At trial, petitioner appeared to be willing to discuss
compromising his 1997 tax liability. He did not, however, make
any offer. Moreover, because petitioner failed to file a proper
tax return for 1998, 1999, 2000, or 2001 and appeared unwilling
to do so, the IRS (pursuant to its stated policy) would be
precluded from considering any offer in compromise made by
petitioner with respect to his 1997 unpaid tax liability. In any
event, if petitioner seriously wanted to propose a collection
alternative, he should have done so at the sec. 6320 hearing.
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delegation by the Secretary to the Commissioner, and a
redelegation by the Commissioner to the delegated officers and
employees.” Hughes v. United States, 953 F.2d 531, 536 (9th Cir.
1992) (citing section 301.7701-9, Proced. & Admin. Regs.).
The Internal Revenue Manual, pt. 21.2.3.4.2.1 (Oct. 1,
2002), provides that preparation of Form 4340 is “limited to a
few authorized persons only. These employees are in the
Compliance and Accounting Branch functions.” The person signing
the Form 4340 that related to petitioner’s 1997 tax liability was
the accounting branch chief of respondent’s local district
office, Kathleen R. Bushnell. Without contradictory evidence, we
have no reason to doubt that Ms. Bushnell was authorized to sign
the Form 4340.
Appeals Officer Kelly stated at the section 6320 hearing
(and we have no reason to believe otherwise) that he verified
that all statutory, regulatory, and administrative requirements
for the collection action involved herein (i.e., the filing of a
Federal tax lien) had been met, as required by section
6330(c)(1). Appeals Officer Kelly noted that (1) petitioner
failed to file a proper 1997 Federal income tax return; (2) a
statutory notice of deficiency was issued; (3) petitioner failed
to contest respondent’s determinations as set forth in the notice
of deficiency; (4) an assessment of the deficiency was made; (5)
proper balance due notices were issued; (6) when petitioner
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failed to pay the assessed liabilities, a Federal tax lien was
filed; (7) petitioner was notified by the notice of Federal tax
lien filing that the lien had been filed; and (8) petitioner
timely requested a hearing on Form 12153.
Appeals Officer Kelly was not required to rely on a
particular document to satisfy the verification requirements of
section 6330(c)(1). See Roberts v. Commissioner, 118 T.C. 365,
371 n.10 (2002), affd. 329 F.3d 1224 (11th Cir. 2003). He could
have relied on Form 4340 or another document. We note that the
record contains an individual master file transcript which would
have enabled Appeals Officer Kelly to satisfy the section
6330(c)(1) verification requirements.
In sum, we conclude that respondent did not abuse his
discretion in determining that the filing of a Federal tax lien
in the instant situation was appropriate.
We now turn to whether, pursuant to section 6673, we should
require petitioner to pay a penalty to the United States, and if
so, the amount thereof. Section 6673 provides, in part, that
whenever it appears to the Tax Court that proceedings before it
have been instituted or maintained by the taxpayer primarily for
delay or the taxpayer’s position in the proceeding is frivolous
or groundless, the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not in excess of
$25,000. Petitioner’s positions in this case are groundless.
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We have no doubt that petitioner, an educated individual,
maintained this proceeding primarily to delay the day the IRS
could collect taxes he owes for 1997. Petitioner has wasted the
time of respondent’s representatives, as well as the time of this
Court. We therefore impose a penalty of $3,000 on petitioner
under section 6673.
We have considered all the arguments and contentions made by
petitioner, and to the extent not discussed herein, we conclude
they are without merit and/or irrelevant.
To reflect the foregoing,
Decision will be entered for
respondent.