Johnston v. Comm'r

T.C. Memo. 2004-224

UNITED STATES TAX COURT

LARRY R. JOHNSTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5380-04L. Filed October 5, 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.

Held: Because P has advanced solely groundless
complaints in dispute of the notice of lien, R’s
determination to proceed with collection action is
sustained.

Held, further, damages under sec. 6673, I.R.C.,
are due from P and are awarded to the United States in
the amount of $3,000.

Larry R. Johnston, pro se.

Jonae A. Harrison, for respondent.
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MEMORANDUM OPINION

WHERRY, Judge: This case is before the Court on

respondent’s motion for summary judgment pursuant to Rule 121 and

to impose a penalty under section 6673.1 The instant proceeding

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. The issues for decision are:

(1) Whether respondent may proceed with collection action as so

determined, and (2) whether the Court should impose a penalty

under section 6673.

Background

Petitioner did not file a Federal income tax return for the

taxable years 1993, 1994, 1995, 1996, or 1997. Respondent

prepared substitutes for return and on September 14, 2000, issued

to petitioner notices of deficiency with respect to each of the

years 1993 through 1997. The notices were addressed to

petitioner at 1523 East Harmony, Mesa, Arizona 85204,

petitioner’s last known address and the current address reflected

on his Tax Court petition.

Petitioner responded to the notices with a letter dated

December 12, 2000, referencing, inter alia, attempts by the

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 3 -

Internal Revenue Service (IRS) “to circumvent taxpayers’ rights

by prompting them to petition the U.S. Tax Court”.2 Petitioner

at no time petitioned this Court for redetermination of the

amounts reflected in the notices. Respondent assessed the tax,

additions to tax, and interest amounts due for each year on

February 12, 2001. These assessments for the 5 years in issue

totaled $1,472,914.84. Respondent also sent notices of balance

due with respect to each year on February 12 and March 19, 2001.

On January 11, 2002, respondent issued to petitioner a Final

Notice - Final Notice of Intent To Levy and Notice of Your Right

To a Hearing with respect to his unpaid income tax liabilities

for 1993 through 1997. Respondent then on February 5, 2002,

issued to petitioner a Notice of Federal Tax Lien Filing and Your

Right to a Hearing Under IRC 6320. A Form 12153, Request for a

Collection Due Process Hearing, signed by petitioner on March 10,

2002, was apparently received by the IRS on March 12, 2002.

Petitioner checked boxes on the Form 12153 indicating

disagreement with both a “Filed Notice of Federal Tax Lien” and a

“Notice of Levy/Seizure”. He also apparently attached a

2
Neither the letter sent by petitioner in response to the
notices of deficiency nor the attachment to his Form 12153,
Request for a Collection Due Process Hearing, has been made a
part of the record in this case. Information regarding the
existence and contents of these documents is derived from
excerpts quoted in the Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330. Petitioner
has not alleged that the notice of determination is in any way
inaccurate in its recitation of such background information.
 - 4 -

statement setting forth frivolous arguments; e.g., “There is no

statute requiring me ‘to pay’ the income taxes at issue.”3

Settlement Officer Thomas L. Tracy (Mr. Tracy), of the IRS

Office of Appeals in Phoenix, Arizona, sent petitioner a letter

dated November 19, 2002, scheduling a hearing for December 10,

2002. The letter briefly outlined the hearing process, advised

that audio or stenographic recording of hearings was not allowed,

and explained the circumstances in which challenges to the

underlying liability would be barred by section 6330(c)(2)(B).

The letter also warned petitioner with respect to frivolous

arguments and sanctions therefor, citing pertinent cases and

administrative materials. Mr. Tracy enclosed with the letter

copies of, among other things, transcripts of petitioner’s

accounts, financial forms for petitioner’s completion, and

Pierson v. Commissioner, 115 T.C. 576 (2000) (discussing the

potential application of penalties where tax protesters persist

in bringing frivolous cases to this Court).

The hearing was subsequently rescheduled for January 7, 2003,

and a face-to-face conference between petitioner and Mr. Tracy

was held on that date. Following the hearing, respondent on

January 23, 2003, issued to petitioner the aforementioned Notice

of Determination Concerning Collection Action(s) Under Section

3
See supra note 2.
 - 5 -

6320 and/or 6330, sustaining the lien action.4 An attached

Collection Due Process Appeals Case Memorandum addressed the

verification of legal and procedural requirements, the issues

raised by the taxpayer, and the balancing of efficient collection

and intrusiveness. In light of the frivolous nature of the

arguments advanced by petitioner, the attachment also contained a

“Litigation Note” reading in part as follows: “At the hearing on

January 7, 2003, the taxpayer acknowledged receipt of the

documents sent with the appointment letter. I gave him another

copy of Pierson and again warned him of the potential for

sanctions upon frivolous litigation.”

Petitioner’s petition disputing the notice of determination

was filed with the Court on March 24, 2004. The petition makes

two assignments of error vis-a-vis respondent’s determination:

a. Error in failing to produce evidence that the
Commissioner certified and transmitted the supplemental
assessments list in accordance with 26 U.S.C. § 6204.

b. Error in failing to prove actual mailing of
the Notice of Assessment upon the Petitioner’s denial
of receipts of the Notice of Assessment.

Petitioner prays that this Court issue an order requiring

respondent to show cause why the determination should not be

4
The Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 also explained that
because petitioner’s Form 12153 was untimely with respect to the
notice of intent to levy, petitioner was entitled only to an
“equivalent hearing”, which is not subject to judicial review.
The resultant decision was that the proposed levy action should
be sustained.
 - 6 -

vacated; find the determination arbitrary, capricious, not

supported by the evidence, and unreasonable; vacate the January

23, 2003, determination; award petitioner costs and fees incurred

in the prosecution of this action; and afford such other relief

as the Court deems just and proper.5

After the pleadings were closed in this case, respondent on

August 26, 2004, filed the subject motion for summary judgment

and to impose a penalty. Petitioner filed a response objecting

to respondent’s motion on September 20, 2004. In the response,

petitioner focuses on contentions that respondent’s failure to

permit recording of the hearing necessitates a remand and that

his allegations and supporting affidavit of nonreceipt of the

“Notice of Assessment” require respondent to produce evidence of

proof of mailing.

Discussion

Rule 121(a) allows a party to move “for a summary

adjudication in the moving party’s favor upon all or any part of

the legal issues in controversy.” Rule 121(b) directs that a

decision on such a motion shall be rendered “if the pleadings,

answers to interrogatories, depositions, admissions, and any

other acceptable materials, together with the affidavits, if any,

5
The Court notes that to the extent that the petition seeks
reasonable administrative and/or litigation costs pursuant to
sec. 7430, any such claim is premature and will not be further
addressed. See Rule 231.
 - 7 -

show that there is no genuine issue as to any material fact and

that a decision may be rendered as a matter of law.”

The moving party bears the burden of demonstrating that no

genuine issue of material fact exists and that he or she is

entitled to judgment as a matter of law. Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994). Facts are viewed in the light most favorable to the

nonmoving party. Id. However, where a motion for summary

judgment has been properly made and supported by the moving

party, the opposing party may not rest upon mere allegations or

denials contained in that party’s pleadings but must by

affidavits or otherwise set forth specific facts showing that

there is a genuine issue for trial. Rule 121(d).

I. Collection Actions

A. 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
 - 8 -

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, 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;
 - 9 -

(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

the taxpayer to seek judicial review in the Tax Court or a

District Court, depending upon the type of tax. 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).]

B. Analysis

1. Appeals Hearing

The petition emphasizes petitioner’s claim that he was

denied the collection hearing to which he was entitled and seeks
 - 10 -

a remand to Appeals in order to allow a conference to be held.

Relevant caselaw precedent and regulatory authority, however,

indicate that the circumstances here are not such as to render

remand appropriate.

Hearings conducted under sections 6320 and 6330 are informal

proceedings, not formal adjudications. Katz v. Commmissioner,

115 T.C. 329, 337 (2000); Davis v. Commissioner, 115 T.C. 35, 41

(2000). There exists no right to subpoena witnesses or documents

in connection with these hearings. Roberts v. Commissioner, 118

T.C. 365, 372 (2002), affd. 329 F.3d 1224 (11th Cir. 2003);

Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002); Davis v.

Commissioner, supra at 41-42. Taxpayers are entitled to be

offered a face-to-face hearing at the Appeals Office nearest

their residence. Where the taxpayer declines to participate in a

proffered face-to-face hearing, hearings may also be conducted

telephonically or by correspondence. Katz v. Commissioner, supra

at 337-338; Dorra v. Commissioner, T.C. Memo. 2004-16; sec.

301.6330-1(d)(2), Q&A-D6 and D7, Proced. & Admin. Regs.

Furthermore, once a taxpayer has been given a reasonable

opportunity for a hearing but has failed to avail himself or

herself of that opportunity, we have approved the making of a

determination to proceed with collection based on the Appeals

officer’s review of the case file. See, e.g., Taylor v.

Commissioner, T.C. Memo. 2004-25; Leineweber v. Commissioner,
 - 11 -

T.C. Memo. 2004-17; Armstrong v. Commissioner, T.C. Memo. 2002-

224; Gougler v. Commissioner, T.C. Memo. 2002-185; Mann v.

Commissioner, T.C. Memo. 2002-48. Thus, a face-to-face meeting

is not invariably required.

Regulations promulgated under sections 6320 and 6330

likewise incorporate many of the foregoing concepts, as follows:

Q-D6. How are CDP hearings conducted?

A-D6. * * * CDP hearings * * * are informal in
nature and do not require the Appeals officer or
employee and the taxpayer, or the taxpayer’s
representative, to hold a face-to-face meeting. A CDP
hearing may, but is not required to, consist of a face-
to-face meeting, one or more written or oral
communications between an Appeals officer or employee
and the taxpayer or the taxpayer’s representative, or
some combination thereof. * * *

Q-D7. If a taxpayer wants a face-to-face CDP
hearing, where will it be held?

A-D7. The taxpayer must be offered an opportunity
for a hearing at the Appeals office closest to
taxpayer’s residence or, in the case of a business
taxpayer, the taxpayer’s principal place of business.
If that is not satisfactory to the taxpayer, the
taxpayer will be given an opportunity for a hearing by
correspondence or by telephone. If that is not
satisfactory to the taxpayer, the Appeals officer or
employee will review the taxpayer’s request for a CDP
hearing, the case file, any other written
communications from the taxpayer (including written
communications, if any, submitted in connection with
the CDP hearing), and any notes of any oral
communications with the taxpayer or the taxpayer’s
representative. Under such circumstances, review of
those documents will constitute the CDP hearing for the
purposes of section 6330(b). [Sec. 301.6330-1(d)(2),
Q&A-D6 and D7, Proced. & Admin. Regs.]
 - 12 -

See also sec. 301.6320-1(d)(2) Q&A-D6 and D7, Proced. & Admin.

Regs. (nearly identical language except for final reference to

“section 6320(b)”. This Court has cited the above regulatory

provisions with approval. See, e.g., Taylor v. Commissioner,

supra; Leineweber v. Commissioner, supra; Dorra v. Commissioner,

supra; Gougler v. Commissioner, supra.

With respect to the instant matter, the record reflects that

petitioner and Mr. Tracy participated in a face-to-face hearing

on January 7, 2003. As regards petitioner’s complaints

concerning recording, on July 8, 2003, this Court issued Keene v.

Commissioner, 121 T.C. 8, 19 (2003), in which it was held that

taxpayers are entitled, pursuant to section 7521(a)(1), to audio

record section 6330 hearings. The taxpayer in that case had

refused to proceed when denied the opportunity to record, and we

remanded the case to allow a recorded Appeals hearing. Id.

In contrast, we have distinguished, and declined to remand,

cases where the administrative proceedings took place prior to

our opinion in Keene v. Commissioner, supra; where the taxpayer

had participated in an Appeals Office hearing, albeit unrecorded;

and where all issues raised by the taxpayer could be properly

decided from the existing record. E.g., id. at 19, 20; Frey v.

Commissioner, T.C. Memo. 2004-87; Durrenberger v. Commissioner,

T.C. Memo. 2004-44; Brashear v. Commissioner, T.C. Memo. 2003-

196; Kemper v. Commissioner, T.C. Memo. 2003-195.
 - 13 -

Stated otherwise, cases will not be remanded to Appeals, nor

determinations otherwise invalidated, merely on account of the

lack of a recording when to do so is not necessary and would not

be productive. See, e.g., Frey v. Commissioner, supra;

Durrenberger v. Commissioner, supra; Brashear v. Commissioner,

supra; Kemper v. Commissioner, supra; see also Lunsford v.

Commissioner, 117 T.C. 183, 189 (2001).

A principal scenario falling short of the necessary or

productive standard exists where the taxpayers rely on frivolous

or groundless arguments consistently rejected by this and other

courts. See, e.g., Frey v. Commissioner, supra; Brashear v.

Commissioner, supra; Kemper v. Commissioner, supra. Here,

because the contentions advanced by petitioner throughout the

administrative process and before the Court are of this nature,

and because petitioner in fact received an in-person conference,

this case is closely analogous to those just cited. The record

does not indicate that any purpose would be served by remand. We

conclude that all pertinent issues relating to the propriety of

the collection determination can be decided through review of the

materials before us.

2. Review of Underlying Liabilities

Statutory notices of deficiency for 1993, 1994, 1995, 1996,

and 1997 were issued to petitioner. Petitioner has at no time

alleged that he did not receive these notices, and the record
 - 14 -

indicates that petitioner sent communications referencing the

notices, making clear that these documents were received.

Hence, because petitioner received valid notices of

deficiency and did not timely petition for redetermination, he is

precluded under section 6330(c)(2)(B) from disputing his

underlying tax liabilities in this proceeding. Any remaining

contentions raised during the administrative proceedings

generally challenging the “existence” of any statute imposing or

requiring him to pay income tax warrant no further comment. See

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

3. Review for Abuse of Discretion

Petitioner has also made various arguments relating to

aspects of the assessment and collection procedures that we

review for abuse of discretion. 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).

Federal tax assessments are formally recorded on a record of

assessment in accordance with section 6203. The Commissioner is

not required to use Form 23C in making an assessment. Roberts v.

Commissioner, 118 T.C. at 369-371. Furthermore, section
 - 15 -

6330(c)(1) mandates neither that the Appeals officer rely on a

particular document in satisfying the verification requirement

nor that the Appeals officer actually give the taxpayer a copy of

the verification upon which he or she relied. Craig v.

Commissioner, 119 T.C. 252, 262 (2002); Nestor v. Commissioner,

118 T.C. at 166.

A Form 4340, for instance, constitutes presumptive evidence

that a tax has been validly assessed pursuant to section 6203.

Davis v. Commissioner, 115 T.C. at 40 (and cases cited thereat).

Consequently, absent a showing by the taxpayer of some

irregularity in the assessment procedure that would raise a

question about the validity of the assessments, a Form 4340

reflecting that tax liabilities were assessed and remain unpaid

is sufficient to support collection action under section 6330.

Id. at 40-41. We have specifically held that it is not an abuse

of discretion for an Appeals officer to rely on Form 4340, Nestor

v. Commissioner, supra at 166; Davis v. Commissioner, supra at

41, or a computer transcript of account, Schroeder v.

Commissioner, T.C. Memo. 2002-190; Mann v. Commissioner, T.C.

Memo. 2002-48, to comply with section 6330(c)(1).

Here, the record contains Forms 4340 for 1993, 1994, 1995,

1996, and 1997, indicating that assessments were made for the

year and that taxes remain unpaid. Petitioner has cited no
 - 16 -

irregularities that would cast doubt on the information recorded

thereon.

In addition to the specific dictates of section 6330, the

Secretary, upon request, is directed to furnish to the taxpayer a

copy of pertinent parts of the record of assessment setting forth

the taxpayer’s name, the date of assessment, the character of the

liability assessed, the taxable period, if applicable, and the

amounts assessed. Sec. 6203; sec. 301.6203-1, Proced. & Admin.

Regs. A taxpayer receiving a copy of Form 4340 has been provided

with all the documentation to which he or she is entitled under

section 6203 and section 301.6203-1, Proced. & Admin. Regs.

Roberts v. Commissioner, supra at 370 n.7. This Court likewise

has upheld collection action where taxpayers were provided with

literal transcripts of account (so-called MFTRAX). See, e.g.,

Frank v. Commissioner, T.C. Memo. 2003-88; Swann v. Commissioner,

T.C. Memo. 2003-70. The November 19, 2002, letter to petitioner

from Mr. Tracy enclosed copies of transcripts of account for the

relevant years.

Furthermore, petitioner’s argument with regard to section

6204 is groundless. Section 6204(a) addresses supplemental

assessments and specifies: “The Secretary may, at any time

within the period prescribed for assessment, make a supplemental

assessment whenever it is ascertained that any assessment is

imperfect or incomplete in any material respect.” Section
 - 17 -

6204(b) renders supplemental assessment of deficiencies subject

to the restrictions of section 6213. Section 6204 has no bearing

here in that respondent assessed petitioner’s liabilities for

each year in issue on February 12, 2001, after following standard

deficiency procedures. The Court concludes that petitioner’s

complaints regarding the assessments or verification are

meritless.

Petitioner has denied receiving “the Notice of Assessment”,

apparently referring to the notice and demand for payment that

section 6303(a) establishes should be given within 60 days of the

making of an assessment. However, a notice of balance due

constitutes a notice and demand for payment within the meaning of

section 6303(a). Craig v. Commissioner, supra at 262-263. The

Forms 4340 indicate that petitioner was sent such notices of

balance due for each of the tax years involved.

Petitioner argues that his sworn denial of receipt of the

“Notice of Assessment” shifts to respondent the burden of proving

actual mailing of these notices. Yet petitioner has never

addressed, much less denied, receipt of the notices of balance

due reflected in the Forms 4340. Accordingly, he has raised no

genuine issue of material fact as to the accuracy of the Forms

4340 showing compliance with the pertinent statutory

requirements.
 - 18 -

Thus, with respect to those issues enumerated in section

6330(c)(2)(A) and subject to review in collection proceedings for

abuse of discretion, petitioner has not raised any spousal

defenses, valid challenges to the appropriateness of the

collection action, or collection alternatives. As this Court has

noted in earlier cases, Rule 331(b)(4) states that a petition for

review of a collection action shall contain clear and concise

assignments of each and every error alleged to have been

committed in the notice of determination and that any issue not

raised in the assignments of error shall be deemed conceded. See

Lunsford v. Commissioner, 117 T.C. at 185-186; Goza v.

Commissioner, 114 T.C. 176, 183 (2000). For completeness, we

have addressed various points advanced by petitioner during the

administrative process, but the items listed in section

6330(c)(2)(A) were not pursued even during those proceedings.

Accordingly, the Court concludes that respondent’s determination

to proceed with collection of petitioner’s tax liabilities was

not an abuse of discretion. The Court will grant respondent’s

motion for summary judgment.6

6
To the extent that petitioner in his response to
respondent’s motion argues that summary judgment should be
granted sua sponte in his favor as the nonmoving party, any such
action would be unwarranted for the reasons discussed in the
text.
 - 19 -

II. Section 6673 Penalty

Section 6673(a)(1) authorizes the Court to require the

taxpayer to pay a penalty not in excess of $25,000 when it

appears to the Court that, inter alia, 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. In Pierson v Commissioner, 115 T.C. at 581, we

warned that taxpayers abusing the protections afforded by

sections 6320 and 6330 through the bringing of dilatory or

frivolous lien or levy actions will face sanctions under section

6673. We have since repeatedly disposed of cases premised on

arguments akin to those raised herein summarily and with

imposition of the section 6673 penalty. See, e.g., Craig v.

Commissioner, 119 T.C. at 264-265 (and cases cited thereat).

With respect to the instant matter, we are convinced that

petitioner instituted this proceeding primarily for delay.

Throughout the administrative and pretrial process, petitioner

advanced contentions and demands previously and consistently

rejected by this and other courts. He submitted lengthy

communications quoting, citing, using out of context, and

otherwise misapplying portions of the Internal Revenue Code,

regulations, court decisions, and other authorities. Moreover,

petitioner has explicitly been alerted to Pierson v.

Commisssioner, supra, and use of sanctions in analogous
 - 20 -

situations. It is inappropriate that taxpayers who promptly pay

their taxes should have the cost of government and tax collection

improperly increased by frivolous arguments already fully

considered and rejected by the courts.

Hence, petitioner received fair warning but has persisted in

disputing respondent’s determination. The Court concludes that a

section 6673 penalty of $3,000 should be awarded to the United

States in this case. To reflect the foregoing,

An appropriate order

granting respondent’s motion

and decision for respondent

will be entered.