T.C. Memo. 2004-73
UNITED STATES TAX COURT
THOMAS C. JOHNSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3028-02L. Filed March 18, 2004.
P filed a petition for judicial review pursuant to
secs. 6320 and 6330, I.R.C., in response to a
determination by R to leave in place a filed notice of
Federal tax lien for the 1995, 1996, and 1999 years.
Held: Because (1) P is not entitled to dispute
his underlying tax liabilities for 1995 and 1996, (2) P
does not dispute his underlying liability for 1999, and
(3) the record does not establish any abuse of
discretion by R, R’s determination to proceed with
collection action is sustained.
Thomas C. Johnson, pro se.
Horace Crump, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case was filed in response to a Notice
of Determination Concerning Collection Action(s) Under Section
6320 and/or 6330.1 The issue for decision is whether respondent
may proceed with collection as so determined.
FINDINGS OF FACT
On November 12, 1998, respondent issued to petitioner
separate notices of deficiency for the 1995 and 1996 tax years.2
The notices reflected deficiencies of $1,123 and $3,518, for 1995
and 1996, respectively. The adjustments were based, for both
years, on disallowance of exemptions claimed by petitioner for
his two children and, for 1996, on disallowance of the earned
income credit and a change in filing status from head of
household to single. Petitioner and his wife, the children’s
mother, had separated in 1996. Petitioner received these notices
but did not file a petition for redetermination with the Tax
Court.
Petitioner was diagnosed with end stage renal disease in
August of 1999 and subsequently began kidney dialysis treatment.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended.
2
A statutory notice of deficiency for 1995 that had
previously been issued to petitioner on May 16, 1997, was
returned to respondent unclaimed and is not germane to this
proceeding.
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During the period surrounding his marital separation and the
onset of his illness, petitioner found it difficult to cope with
his financial affairs. He did not file Federal income tax
returns for 1997 or 1998. Petitioner then filed his 1999 return,
which was posted at the Internal Revenue Service Center on May
29, 2000. The return reported a tax liability that was not fully
paid either by withholdings or by any payment submitted with the
return. Respondent made no adjustments to petitioner’s 1999
reporting and accepted the return as filed.
Following assessments of petitioner’s tax liabilities for
1995, 1996, and 1999, respondent on or about September 5, 2000,
filed a notice of Federal tax lien with the Judge of Probate in
Mobile County, Alabama. The notice of lien reflected a total
unpaid balance of $7,235.61, comprising $1,726.20 for 1995,
$4,361.32 for 1996, and $1,148.09 for 1999. Then, on September
8, 2000, respondent issued to petitioner a Notice of Federal Tax
Lien Filing and Your Right to a Hearing Under IRC 6320 regarding
the just-described lien.
Respondent on October 10, 2000, received from petitioner a
Form 12153, Request for a Collection Due Process Hearing, with
the following explanation of his disagreement with the lien:
“12-31-95 and 12-31-96 is [sic] not correct. Would like to
explain at the hearing or over the phone”. Appeals Officer
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Daniel L. Shirah (Mr. Shirah) thereafter sent petitioner a letter
dated October 3, 2001, scheduling the requested conference.
A telephone conference between petitioner and Mr. Shirah was
conducted on October 19, 2001. During the conference there
ensued some discussion of collection alternatives, among other
things, and after the conference Mr. Shirah sent to petitioner
for his completion Form 656, Offer in Compromise, and Form 433-A,
Collection Information Statement for Wage Earners and Self-
Employed Individuals. Petitioner began filling out the documents
but never submitted completed forms to respondent.
On January 10, 2002, respondent issued to petitioner the
Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 sustaining proposed collection action.3
Petitioner on February 5, 2002, filed with the Tax Court an
imperfect petition challenging the notice. The petition
reflected that petitioner wished to have his case heard for two
reasons; i.e., he was experiencing hardship due to the disability
of end stage renal disease, and he had now found proof that his
liability was too great.
Petitioner then filed an amended petition on March 6, 2002,
consisting of 11 handwritten pages explaining his circumstances.
He indicated therein that the tax years involved were 1995
3
We note that the notice of determination refers in
apparent error to “levy”, rather than “lien”, action.
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through 1999 and concluded the amended petition with the
following statement:
I also feel that my actual tax bill should be
1995--204 possible
1996--2400 + reasonable penalties
1997--500 + reasonable penalties
1998--700 + reasonable penalties
1999--1100 + reasonable penalties
$4900
I beg the court to have mercy on me and waive this my
entire tax bill and remove the lein [sic] on my credit
record. I’m sorry and plan to never again let this
happen. [reproduced without certain handwritten
punctuating or graphical markings]
At the time the petition and the amended petition were filed,
petitioner resided in the State of Alabama.
On May 6, 2002, respondent moved to dismiss for lack of
jurisdiction and to strike insofar as the case related to 1997
and 1998, on the ground that no determination concerning
collection action(s) had been made for those years. This motion
was granted, and respondent thereafter answered the petition as
it related to 1995, 1996, and 1999.
On August 22, 2003, respondent filed a motion for summary
judgment, which was calendared for hearing at the Court’s October
20, 2003, Mobile, Alabama, trial session. Both parties appeared
and were heard, and the motion for summary judgment was taken
under advisement. However, because the Court at that time also
advised that it appeared unlikely that the motion would be
granted in its entirety, the parties proceeded to try the case on
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the merits. In these circumstances, the Court shall now deny
respondent’s motion for summary judgment as moot.
OPINION
I. Collection Actions--General Rules
Section 6321 imposes a lien in favor of the United States
upon all property and rights to property of a taxpayer where
there exists a failure to pay any tax liability after demand for
payment. The lien generally arises at the time assessment is
made. Sec. 6322. Section 6323, however, provides that such lien
shall not be valid against any purchaser, holder of a security
interest, mechanic’s lienor, or judgment lien creditor until the
Secretary files a notice of lien with the appropriate public
officials. Section 6320 then sets forth procedures applicable to
afford protections for taxpayers in lien situations.
Section 6320(a)(1) establishes the requirement that the
Secretary notify in writing the person described in section 6321
of the filing of a notice of lien under section 6323. This
notice required by section 6320 must be sent not more than 5
business days after the notice of tax lien is filed and must
advise the taxpayer of the opportunity for administrative review
of the matter in the form of a hearing before the Internal
Revenue Service Office of Appeals. Sec. 6320(a)(2) and (3).
Section 6320(b) and (c) grants a taxpayer who so requests the
right to a fair hearing before an impartial Appeals officer,
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generally to be conducted in accordance with the procedures
described in section 6330(c), (d), and (e).
Section 6330(c) addresses the matters to be considered at
the hearing:
SEC. 6330(c). Matters Considered at Hearing.--In
the case of any hearing conducted under this section--
(1) Requirement of investigation.--The
appeals officer shall at the hearing obtain
verification from the Secretary that the
requirements of any applicable law or
administrative procedure have been met.
(2) Issues at hearing.--
(A) In general.--The person may raise at
the hearing any relevant issue relating to
the unpaid tax or the proposed levy,
including--
(i) appropriate spousal defenses;
(ii) challenges to the
appropriateness of collection actions;
and
(iii) offers of collection
alternatives, which may include the
posting of a bond, the substitution of
other assets, an installment agreement,
or an offer-in-compromise.
(B) Underlying liability.--The person
may also raise at the hearing challenges to
the existence or amount of the underlying tax
liability for any tax period if the person
did not receive any statutory notice of
deficiency for such tax liability or did not
otherwise have an opportunity to dispute such
tax liability.
Once the Appeals officer has issued a determination
regarding the disputed collection action, section 6330(d) allows
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the taxpayer to seek judicial review in the Tax Court or,
depending upon the circumstances, a U.S. District Court. In
considering whether taxpayers are entitled to any relief from the
Commissioner’s determination, this Court has established the
following standard of review:
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).]
II. Challenges to Underlying Liabilities
As indicated in the above quotation of section
6330(c)(2)(B), challenges to the underlying tax liability may be
raised only where the taxpayer did not receive a notice of
deficiency or otherwise have an opportunity to dispute such
liability.
A. 1995 and 1996
With respect to 1995 and 1996, petitioner conceded to
Mr. Shirah during his Appeals Office hearing that he had received
the notices of deficiency issued by respondent. Thus, regardless
of the validity of the arguments submitted by petitioner in his
petition and amended petition concerning the adjustments made by
respondent to his 1995 and 1996 returns, he is precluded from
raising those disputes in this proceeding. The Court concludes
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that petitioner may not challenge his underlying tax liabilities
for 1995 and 1996.
B. 1999
With respect to the 1999 year, the unpaid balance of
$1,148.09 is based on the tax liability self-reported by
petitioner on his filed return. Petitioner in his amended
petition indicated that he believed his liability for 1999 should
be $1,100. At trial, however, petitioner explained that he had
just rounded the figure in preparing the amended petition and did
agree to the $1,148.09 amount. Therefore, while section
6330(c)(2)(B) does not preclude taxpayers from challenging self-
reported liabilities, Montgomery v. Commissioner, 122 T.C. ___,
___ (2004) (slip op. at 14), it is clear that petitioner does not
propose to do so here.
III. Review for Abuse of Discretion
In light of our conclusions supra regarding challenges to
the underlying liabilities, disposition of this case rests upon
whether the record reflects an abuse of discretion on the part of
respondent in determining to proceed with collection efforts in
the form of a filed lien. Action constitutes an abuse of
discretion under this standard where arbitrary, capricious, or
without sound basis in fact or law. Woodral v. Commissioner, 112
T.C. 19, 23 (1999). The Court considers whether the Commissioner
committed an abuse of discretion in rejecting a taxpayer’s
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position with respect to any relevant issues, including those
items enumerated in section 6330(c)(2)(A); i.e., spousal
defenses, challenges to the appropriateness of the collection
action, and offers of collection alternatives.
Here, petitioner apparently expressed interest in an offer
in compromise. Section 7122(a), as pertinent here, authorizes
the Secretary to compromise any civil case arising under the
internal revenue laws. Regulations promulgated under section
7122 set forth three grounds for compromise of a liability: (1)
Doubt as to liability, (2) doubt as to collectibility, or (3)
promotion of effective tax administration. Sec. 301.7122-1(b),
Proced. & Admin. Regs.4 With respect to the third listed ground,
a compromise may be entered to promote effective tax
administration where: (1)(a) Collection of the full liability
would cause economic hardship; or (b) exceptional circumstances
exist such that collection of the full liability would undermine
4
Sec. 301.7122-1, Proced. & Admin. Regs., contains an
effective date provision stating that the section applies to
offers in compromise pending on or submitted on or after July 18,
2002. Sec. 301.7122-1(k), Proced. & Admin. Regs. Previous
temporary regulations by their terms apply to offers in
compromise submitted on or after July 21, 1999, through July 19,
2002. Sec. 301.7122-1T(j), Temporary Proced. & Admin. Regs., 64
Fed. Reg. 39027 (July 21, 1999). Because the final and temporary
regulations do not differ materially in substance in any way
relevant here, and for purposes of simplicity and convenience,
the final regulations will be cited. We further note that
temporary regulations are entitled to the same weight and binding
effect as final regulations. Peterson Marital Trust v.
Commissioner, 102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d
Cir. 1996).
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public confidence that the tax laws are being administered in a
fair and equitable manner; and (2) compromise will not undermine
compliance by taxpayers with the tax laws. Sec. 301.7122-
1(b)(3), Proced. & Admin. Regs.
To enable the Commissioner to evaluate a taxpayer’s
qualification for an offer in compromise, and particularly in the
face of allegations of economic hardship, the taxpayer must
submit complete financial data. Petitioner, however, has
admitted that he never supplied a completed Form 656 or 433-A to
respondent. Hence, although the Court is sympathetic to the
economic difficulties brought on by petitioner’s marital
separation and medical condition, it cannot be said that
respondent acted arbitrarily or capriciously in determining to
leave in place the filed lien when petitioner submitted no offer
in compromise or documentation of his financial circumstances.
Petitioner at trial communicated an interest in pursuing an
offer in compromise on a prospective basis, and the Court would
encourage these efforts. Nonetheless, as of the January 10,
2002, date of the notice of determination, the record does not
reveal any abuse of discretion on the part of respondent. We
shall sustain respondent’s collection efforts in the form of a
filed Federal tax lien.
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To reflect the foregoing,
An appropriate order
denying respondent’s motion
for summary judgment and
decision for respondent will
be entered.