122 T.C. No. 16
UNITED STATES TAX COURT
GREGORY IANNONE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17412-02L. Filed April 19, 2004.
P filed a timely petition for judicial review
pursuant to sec. 6330(d)(1)(A), I.R.C., in response to
a notice of determination by R to proceed with
collection of assessed tax liabilities for 1987, 1989,
and 1991. Subsequently, the Court granted respondent’s
Motion to Dismiss for Lack of Jurisdiction and to
Strike as to Taxable Year 1987.
Held: For the purpose of this collection
proceeding, the Appeals officer agreed to assume that
petitioner’s 1989 and 1991 tax liabilities were
discharged in bankruptcy. We will not remand this case
for a clearer articulation of the Appeals officer’s
determination relating to petitioner’s bankruptcy
discharge.
Held, further, the existing Federal tax lien that
attached to P’s property when he filed his bankruptcy
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petition was not extinguished as a result of his
bankruptcy discharge. Secs. 6321 and 6322, I.R.C.,
applied.
Held, further, no exemption to levy applies in
this case.
Held, further, R may proceed with collection by
levy as determined in the “NOTICE OF DETERMINATION
CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320
and/or 6330”.
Santo J. Bonanno, for petitioner.
Robert F. Saal, for respondent.
NIMS, Judge: This case arises from a petition for judicial
review filed in response to a “NOTICE OF DETERMINATION CONCERNING
COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330” (notice of
determination). Unless otherwise indicated, all section
references are to the Internal Revenue Code in effect at all
relevant times.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of the parties, with accompanying exhibits, are
incorporated herein by this reference. At the time the petition
was filed in this case, petitioner resided in Ringwood, New
Jersey.
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On June 16, 1997, petitioner filed a chapter 7 bankruptcy
petition, case no. 97-27076. Petitioner was granted a discharge
in his bankruptcy case on September 29, 1997.
On January 12, 2002, respondent issued to petitioner two
letters entitled “Final Notice - Notice of Intent to Levy and
Notice of Your Right to a Hearing”.
In response, petitioner sent to respondent a Form 12153,
Request for a Collection Due Process Hearing, dated January 15,
2002.
The Appeals officer assigned to review petitioner’s case
received and reviewed copies of transcripts for petitioner’s
income tax liabilities for 1989 and 1991 in order to verify that
the requirements of any applicable law or administrative
procedure had been met.
On July 9, 2002, petitioner met with the Appeals officer to
discuss the case, but they were unable to resolve the issues.
On October 8, 2002, respondent issued to petitioner the
aforementioned notice of determination concerning his 1987, 1989,
and 1991 income tax liabilities. In pertinent part, the notice
of determination states:
Based on the facts available, the required procedures
have been followed and the notice of intent to levy is
proper and appropriate. A conference was held on July
9, 2002 and we agreed that the taxes were
dischargeable, however the exempt property was subject
to our lien and levy. You were advised to consider
collection alternatives and have failed to do so. It
is therefore recommended, that the action by Compliance
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to levy will be sustained with respect to the exempt
property listed in your bankruptcy case number 97-
27076.
An attachment to the notice of determination, “Attachment -
Letter 3193, Notice of Determination”, in pertinent part, states:
IRC 6321 provides a statutory lien when a taxpayer
neglects or refuses to pay a tax liability after notice
and demand. Transcripts of your account show that the
IRS issued a first notice July 19, 1991 and a fourth
notice December 16, 1991 on your 1040 198712 [Federal
income tax liability for the 1987 tax year], a first
notice April 26, 1993 and a fourth notice May 17, 1993
on your 1040 198912 [Federal income tax liability for
the 1989 tax year], a first notice May 16, 1994 and a
fourth notice June 6, 1994 on your 1040 199112 [Federal
income tax liability for the 1991 tax year]. The
latest transcript in the file indicates the only
periods remaining open are the 198912 [the 1989 tax
year] and 199112 [the 1991 tax year] * * *.
* * * * * * *
A formal conference was held on July 9, 2002 and you
challenged the existence of the liability, and
appropriateness of the levy action by Compliance. It
was determined that the bankruptcy may have discharged
the 1040 [Federal income tax] liabilities for 198712,
198912, and 199112 [the 1987, 1989, and 1991 tax
years]. However, there was exempt property listed in
the amount of $41,500 in Schedule C of your voluntary
[bankruptcy] petition and you were advised that further
research was necessary to determine if our federal tax
lien attaches to that exempt property for purposes of
levy action. * * *
* * * * * * *
You filed a Chapter 7 Bankruptcy Petition on June 16,
1997, bearing case number 97-27076 listing all years
from * * * [1987] through * * * [1993]. You further
stated the IRS never objected to discharge for any
reason. Discharge for all years was granted by Order
dated September 29, 1997. There was also some
indication that the 1040 198912 and 1991[1]2 [Forms
1040 for the 1989 and 1991 tax years] were not filed
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and you did not keep copies after seven years.
Systemic records show that the IRS filed these returns
as substitute for returns, based on information
documents received. Nonetheless, it was agreed upon at
our conference that the liabilities for your 1040 for
198712, 198912, and 199112 [Federal income tax
liabilities for 1987, 1989, and 1991] might be
dischargeable.
After further research it has been determined that
notwithstanding the fact that your income taxes may be
dischargeable, the Service’s liens survive the
bankruptcy. * * * Furthermore, Section 522(C)(2)(B)
expressly provides that exempt property remains subject
to properly filed tax liens even though the underlying
tax claims may have been discharged. * * *
The debtor’s schedules indicate there is a 401K plan
with, Unitex Textile, to which the Service’s liens
would attach. * * *
In response to the notice of determination, petitioner filed
the petition in the instant case with respect to the 1987, 1989,
and 1991 tax years.
On September 22, 2003, respondent filed a Motion to Dismiss
for Lack of Jurisdiction and to Strike as to Taxable Year 1987.
On September 22, 2003, the Court granted respondent’s motion.
OPINION
I. General Rules
Section 6331(a) authorizes the Commissioner to levy against
property and property rights where a taxpayer liable for taxes
fails to pay them within 10 days after notice and demand for
payment is made. Section 6331(d) requires the Secretary to send
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notice of an intent to levy to the taxpayer, and section 6330(a)
requires the Secretary to send a written notice to the taxpayer
of his right to a hearing.
Section 6330(b) affords taxpayers the right to a hearing
before an impartial Appeals officer. Pursuant to section
6330(b)(2), a taxpayer is entitled to only one hearing regarding
the tax period relating to the amount of unpaid tax.
Section 6330(c)(1) requires that the Appeals officer obtain
verification that the requirements of any applicable law or
administrative procedure have been met. Section 6330(c)(2)(A)
provides that the taxpayer may raise at the hearing “any relevant
issue relating to the unpaid tax or the proposed levy” including
spousal defenses, challenges to the appropriateness of collection
actions, and alternatives to collection.
Section 6330(c)(3) provides that a determination of the
Appeals officer shall take into consideration the verification
under section 6330(c)(1), the issues raised by the taxpayer, and
whether the proposed collection action balances the need for the
efficient collection of taxes with the legitimate concern of the
taxpayer that any collection action be no more intrusive than
necessary.
Where the Appeals office issues a notice of determination to
the taxpayer following an administrative hearing regarding a
levy, section 6330(d)(1) provides that the taxpayer will have 30
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days following the issuance of the determination to file a
petition for review with the Tax Court or a Federal District
Court, as appropriate. The taxpayer may appeal the determination
to the Tax Court, rather than a Federal District Court, if the
Tax Court generally has jurisdiction over the type of tax
involved in the case. Sec. 6330(d)(1)(A); Downing v.
Commissioner, 118 T.C. 22, 26 (2002); Landry v. Commissioner, 116
T.C. 60, 62 (2001). Section 6330(e)(1) suspends the levy action
until the conclusion of the hearing and any judicial review of
the determination.
Where the underlying tax liability is properly at issue in
the hearing, we review that issue on a de novo basis. Goza v.
Commissioner, 114 T.C. 176, 181-182 (2000). Where the underlying
tax liability is not at issue, however, we review the
determination to see whether there has been an abuse of
discretion. Id. In this case, respondent’s determination
regarding whether petitioner’s unpaid tax liabilities may be
collected by levy requires an interpretation of bankruptcy law.
If respondent’s determination was based on erroneous views of the
law and petitioner’s unpaid liabilities may not be collected by
levy, then we must reject respondent’s view and find that there
was an abuse of discretion. See, e.g., Swanson v. Commissioner,
121 T.C. 111, 119 (2003); Ramsdell v. Commissioner, T.C. Memo.
2003-317.
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II. Discharge in Bankruptcy
Respondent contends that the notice of determination is
ambiguous as to whether petitioner’s 1989 and 1991 income tax
liabilities were discharged in bankruptcy. Respondent points to
language in both the notice of determination and the attachment
to the notice of determination to support his contention.
Respondent notes that while the notice of determination states
that “we agreed that the taxes were dischargeable”, the
attachment states both that “the bankruptcy may have discharged
the 1040 liabilities” and that “it was agreed upon at our
conference that the liabilities * * * might be dischargeable.”
Respondent requests that we remand this case to respondent’s
Appeals office in order for an Appeals officer to make a clear
determination as to whether petitioner’s 1989 and 1991 tax
liabilities were discharged in bankruptcy.
Petitioner argues that the Appeals officer agreed with
petitioner that petitioner’s 1989 and 1991 tax liabilities were
discharged in bankruptcy. Petitioner further argues that the
issue of remand was not raised prior to or at trial, and
consequently should be disregarded.
After review of the notice of determination and the
attachment thereto, we conclude that the Appeals officer agreed
to assume that petitioner’s 1989 and 1991 tax liabilities were
discharged in bankruptcy for the purpose of this collection
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proceeding. While we acknowledge that the language could have
been more precise as to this assumption, when considered in its
entirety, the notice of determination indicates that the Appeals
officer was willing to assume that petitioner’s 1989 and 1991 tax
liabilities were discharged in bankruptcy and instead focus
solely on whether the discharge prevents respondent from pursuing
collection by levy. We find nothing inappropriate about this
decision by the Appeals officer, especially in a case such as
this where more than 10 years have passed since the relevant
returns were due, and both parties claim to have destroyed most,
if not all, of the relevant documents because of this passage of
time.
As a consequence of our conclusion that the Appeals officer
assumed the aforementioned discharge, we need not ourselves also
address the question of whether petitioner received a discharge
in bankruptcy with respect to his 1989 and 1991 tax liabilities.
III. Collection by Levy
Petitioner contends that a New Jersey law exempts his
section 401(k) retirement account from levy. See N.J. Stat. Ann.
sec. 25:2-1(b) (West Supp. 2003). Petitioner contends that this
exemption applies here so as to prevent collection by levy.
Petitioner cites In re Yuhas, 104 F.3d 612 (3d Cir. 1997),
as support for his claim that his section 401(k) retirement
account is exempt from Federal tax lien and levy. In that case,
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the court held that, by operation of a New Jersey statute, N.J.
Stat. Ann. sec. 25:2-1(b) (West Supp. 2003), the debtor’s
individual retirement account (IRA) was excluded from the chapter
7 bankruptcy estate, pursuant to 11 U.S.C. sec. 541(c)(2)(2000).
In re Yuhas, 104 F.3d at 613. In re Yuhas did not involve a
Federal tax lien or levy, nor did it involve post-discharge
collection activity.
Moreover, even if the holding of In re Yuhas were applicable
and required the exclusion of petitioner’s section 401(k)
retirement account from the chapter 7 bankruptcy estate, a
Federal tax lien against the section 401(k) retirement account
would not be extinguished or otherwise affected. See U.S. I.R.S.
v. Snyder, 343 F.3d 1171, 1178 (9th Cir. 2003). The lien would
continue to exist, but outside of bankruptcy. Id. Petitioner’s
reliance on In re Yuhas, supra, is thus misplaced, and that case
has no application in the instant case.
Respondent argues that, even if petitioner received a
discharge in bankruptcy with regard to his 1989 and 1991 tax
liabilities, any property that belonged to petitioner when he
filed his bankruptcy petition is still encumbered in rem by a
Federal tax lien. Respondent argues that a State law cannot
operate to divest or exempt petitioner’s section 401(k)
retirement account from the Federal tax lien. Respondent
contends that collection by levy is appropriate. We agree.
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Pursuant to section 6321, the Government of the United
States obtains a lien against “all property and rights to
property, whether real or personal” of any person liable for
taxes when a demand for payment of that person’s taxes has been
made and that person neglects or refuses to pay those taxes.
Section 6322 provides that such lien arises automatically on the
date of the assessment and continues until the tax liability is
satisfied or the statute of limitations bars enforcement of the
lien.
Federal tax liens are not extinguished by personal discharge
in bankruptcy. 11 U.S.C. sec. 522(c)(2)(B) (2000); see also
Johnson v. Home State Bank, 501 U.S. 78, 84 (1991). A discharge
of personal liability in bankruptcy “extinguishes only one mode
of enforcing a claim--namely, an action against the debtor in
personam--while leaving intact another--namely, an action against
the debtor in rem.” Johnson v. Home State Bank, 501 U.S. at 84.
Any existing Federal tax liens remain in effect and attach to
assets owned prior to the date of filing the bankruptcy petition.
11 U.S.C. sec. 522(c)(2)(B) (2000); In re Connor, 27 F.3d 365,
366 (9th Cir. 1994) (“A preexisting lien on property, however,
remains enforceable against that property even after an
individual’s personal liability has been discharged.”).
The attachment to the notice of determination states that
“The debtor’s [petitioner’s] schedules [attached to his
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bankruptcy petition] indicate there is a 401K plan [section
401(k) retirement account] with, Unitex Textile, to which the
Service’s liens would attach.” Petitioner has introduced no
evidence that the Federal tax lien was defective. Thus, when
petitioner filed for bankruptcy, there was a valid and existing
Federal tax lien on at least his section 401(k) retirement
account.
Section 6331(a) provides:
If any person liable to pay any tax neglects or
refuses to pay the same * * *, it shall be lawful for
the Secretary to collect such tax * * * by levy upon
all property and rights to property (except such
property as is exempt under section 6334) belonging to
such person or on which there is a lien provided in
this chapter for the payment of such tax. * * *
Section 6334(a) exempts from levy: (1) Wearing apparel and
school books; (2) fuel, provisions, furniture, and personal
effects; (3) books and tools of a trade, business, or profession;
(4) unemployment benefits; (5) undelivered mail; (6) certain
annuity and pension payments; (7) workmen’s compensation; (8)
judgments for support of minor children; (9) certain amounts of
wages, salary, and other income; (10) certain service-connected
disability payments; (11) certain public assistance payments;
(12) assistance under the Job Training Partnership Act (since
repealed); and (13) certain residences. Petitioner does not
contend, nor do we find, that any of these exemptions applies to
petitioner’s section 401(k) retirement account.
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Section 6334(c) provides: “Notwithstanding any other law of
the United States * * *, no property or rights to property shall
be exempt from levy other than the property specifically made
exempt by * * * [section 6334(a)]”. Additionally, section
301.6334-1(c), Proced. and Admin. Regs., provides that “No
provision of a State law may exempt property or rights to
property from levy for the collection of any Federal tax.”
Consequently, we reject petitioner’s contention that his section
401(k) retirement account is exempt from levy by operation of a
New Jersey statute.
The existing Federal tax lien that attached to petitioner’s
property when he filed his bankruptcy petition was not
extinguished as a result of his bankruptcy discharge.
Furthermore, no exemption to levy applies in the instant case.
IV. Conclusion
The Appeals officer correctly determined that respondent may
proceed with collection by levy.
To reflect the foregoing,
Decision will be entered
for respondent.