T.C. Memo. 2005-222
UNITED STATES TAX COURT
THOMAS J. & GISELLA SABATH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 378-04L. Filed September 26, 2005.
Gregory A. Stout, for petitioners.
Stephen J. Neubeck, for respondent.
MEMORANDUM OPINION
LARO, Judge: Petitioners petitioned the Court under section
6330(d) to review a determination made by the Commissioner‘s
Office of Appeals (Appeals) as to their 1986 and 1990 through
1997 Federal income tax liability.1 While petitioners alleged in
1
Unless otherwise indicated, section references are to the
(continued...)
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their petition that their underlying tax liability for those
years was different from that shown as due in respondent’s
records, respondent alleged in his answer that this Court was
without jurisdiction to determine petitioners’ underlying tax
liability for any of those years because petitioners had the
opportunity to dispute the liability in their previous bankruptcy
case.
Subsequent to the filing of the petition, Gisella Sabath
(decedent) died. Thereafter, Thomas J. Sabath (petitioner in the
singular) and respondent moved the Court to dismiss this case,
insofar as it pertains to decedent, for lack of prosecution.2
Petitioner and respondent also filed with the Court a stipulation
asking that we enter a decision that includes a statement as to
the amount of petitioner’s unpaid income tax for each of the
subject years. We ordered petitioner and respondent to show
cause why the Court may enter a decision against petitioner that
includes a finding of his underlying tax liability. We referred
them to Kendricks v. Commissioner, 124 T.C. 69 (2005), where we
1
(...continued)
applicable versions of the Internal Revenue Code.
2
In this motion, petitioner and respondent have represented
to the Court that no one is currently authorized to act on behalf
of decedent’s estate, that decedent had three “heirs at law”, and
that the names and addresses of those heirs were as stated in the
motion. Pursuant to Nordstrom v. Commissioner, 50 T.C. 30
(1968), we shall notify those heirs of this action before
deciding the motion to dismiss as to decedent.
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recently held that a submission by the Internal Revenue Service
(IRS) in the taxpayer’s bankruptcy proceeding of a proof of claim
for unpaid Federal income taxes meant that the taxpayers had the
opportunity to dispute that liability for purposes of section
6330(c)(2)(B) and, accordingly, deprived us of the ability to
decide that liability. We directed petitioner and respondent to
discuss whether petitioner had a previous opportunity during
petitioners’ bankruptcy proceeding to dispute the underlying tax
liability for any or all of the subject years. Petitioner and
respondent argue in response to our order that Washington v.
Commissioner, 120 T.C. 114 (2003), allows the Court to determine
the amount of Federal income tax owing after a bankruptcy
proceeding.
We decide whether we may enter a decision as to petitioner
that reflects a determination of his underlying tax liability.
We hold we may not.
Background
We draw the following recitations from the pleadings and
other parts of the record. We set forth these recitations solely
for the purpose of this Memorandum Opinion. Petitioners resided
in Cincinnati, Ohio, when their petition was filed with the
Court.
Petitioners operated a landscaping business for nearly 30
years and failed to make estimated tax payments on their
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self-employment income. In 1991 and 1992, respondent assessed
petitioners’ Federal income tax liabilities for 1986 and 1991,
respectively.
On June 25, 1993, petitioners filed for bankruptcy under
chapter 13 of the Bankruptcy Code in the Southern District of
Ohio, Western Division. The IRS filed a proof of claim in the
case on or about September 8, 1993, and an amended proof of claim
approximately 3 months later. Petitioners raised no objection to
the IRS’s claims. On separate occasions between 1994 and 1998,
respondent assessed petitioners’ Federal income tax liability for
1992 through 1997.
On January 5, 1999, the bankruptcy court entered an order
granting a requested modification of the plan concerning the
IRS’s claims. The modification stated that any tax liability not
fully paid under the plan would survive discharge. The
bankruptcy court issued petitioners a discharge on February 25,
1999, and closed the case on March 5, 1999. Afterwards,
respondent proposed a levy to collect the subject years’
surviving tax liabilities, and petitioners challenged the amounts
that respondent asserted were due.
On May 9, 2001, respondent sent petitioners a Letter 1058,
Notice of Intent to Levy and Your Right to a Due Process Hearing,
as to the subject years. Petitioners requested the referenced
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hearing, and Appeals held the hearing with petitioners on May 23,
2002. Petitioners subsequently submitted an offer in compromise.
On December 10, 2003, Appeals issued to petitioners a notice
of determination stating that the proposed levy was appropriate.
The notice stated that petitioners had raised two issues as to
the levy: (1) Whether the liability sought by respondent was
correct, and (2) whether respondent should have accepted their
offer in compromise. As to the first issue, Appeals determined
that respondent had correctly determined the amount of the
liability. As to the second issue, Appeals determined that
petitioners did not qualify for an offer in compromise because
they had not filed Form 943, Employer’s Annual Tax Return for
Agricultural Employees, and Form 1040, U.S. Individual Income Tax
Return, as required for 2002.
In their petition to this Court, petitioners challenged the
amount of tax remaining unpaid as a result of the bankruptcy case
and requested that the Court review their payment history and
respondent’s assessments of interest and penalties. Petitioners
alleged that the amount of tax set forth in the notice of
determination was based on the following errors: (1) Respondent
incorrectly assessed penalties and interest during the pendency
of petitioners’ bankruptcy proceeding; (2) respondent misapplied
payments made during the proceeding to interests and penalties
rather than to principal; and (3) respondent failed to consider
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petitioners’ offer in compromise based on the incorrect
assumption that they did not file the referenced tax returns for
2002.
In answer, respondent alleged that petitioners were
precluded by section 6330(c)(2)(B) from litigating in this
proceeding the amount or existence of their underlying tax
liability. According to respondent, the amount of taxes owed by
petitioners, the amount of their payments, the application of
those payments, the rates and accrual of interest, and all other
relevant matters alleged by petitioners in their petition to be
improper had been within the scope and jurisdiction of the
bankruptcy court, and petitioners had the full opportunity in
their bankruptcy proceeding to challenge the amounts and
existence of any taxes under the jurisdiction of the bankruptcy
court.
On March 14, 2005, approximately 3 weeks after respondent’s
answer was filed, petitioner and respondent filed with the Court
a stipulation of settlement asking the Court to enter a decision
against petitioner fixing an agreed-upon amount of unpaid income
taxes (inclusive of additions to tax, penalties, and interest) as
of March 15, 2005.
Discussion
Respondent and petitioner ask the Court to enter a decision
fixing an agreed-upon amount of petitioner’s unpaid Federal
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income taxes (inclusive of additions to tax, penalties, and
interest) as of March 15, 2005. We must decide whether we are
authorized to do so. When the Court lacks the authority to
consider an issue, the Court does not have the power to decide
it. Cf. Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxite de
Guinee, 456 U.S. 694, 702 (1982); Brown v. Commissioner, 78 T.C.
215, 217-218 (1982). While neither party challenges our
authority to render this decision, the parties cannot confer such
authority upon us by their conduct or consent. Cf. California v.
LaRue, 409 U.S. 109, 112 n.3 (1972); Mitchell v. Maurer, 293 U.S.
237, 243 (1934).
Where issues related to the taxpayer’s underlying tax
liability were properly raised in a section 6330 proceeding, we
may review the determination of that liability. See sec.
6330(d)(1); see also sec. 6330(c)(2)(B). Section 6330(c)(2)(B),
dealing with notice and opportunity for hearing before levy,
provides that in the case of any hearing conducted under section
6330, a person may raise “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.” Because petitioners did not receive a
notice of deficiency regarding any of the subject years, they
were permitted to challenge the existence or amount of their
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underlying tax liability at issue if they did not “otherwise have
an opportunity to dispute such tax liability.” Id. The mere
fact that Appeals in petitioners’ section 6330 hearing considered
a claim as to the existence or amount of their underlying tax
liability does not necessarily mean that this Court may do
likewise. See Behling v. Commissioner, 118 T.C. 572 (2002).
Section 301.6330-1(e)(3), Q&A-E11, Proced. & Admin. Regs.,
provides the following illustrative question and answer:
Q-E11. If an Appeals officer considers the merits of a
taxpayer’s liability in a [collection due process (CDP)]
hearing when the taxpayer had previously received a
statutory notice of deficiency or otherwise had an
opportunity to dispute the liability prior to the issuance
of a notice of intention to levy, will the Appeals officer’s
determination regarding those liability issues be considered
part of the Notice of Determination?
A-E11. No. An Appeals officer may consider the
existence and amount of the underlying tax liability as a
part of the CDP hearing only if the taxpayer did not receive
a statutory notice of deficiency for the tax liability in
question or otherwise have a prior opportunity to dispute
the tax liability. * * * In the Appeals officer’s sole
discretion, however, the Appeals officer may consider the
existence or amount of the underlying tax liability, or such
other precluded issues, at the same time as the CDP hearing.
Any determination, however, made by the Appeals officer with
respect to such a precluded issue shall not be treated as
part of the Notice of Determination issued by the Appeals
officer and will not be subject to any judicial review.
* * * Even if a decision concerning such precluded issues
is referred to in the Notice of Determination, it is not
reviewable by a district court or the Tax Court because the
precluded issue is not properly part of the CDP hearing.
This Court recently held that when the IRS submits a proof
of claim for an unpaid Federal tax liability in a taxpayer’s
bankruptcy action, the taxpayer had the opportunity to dispute
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the liability for purposes of section 6330(c)(2)(B). See
Kendricks v. Commissioner, 124 T.C. 69 (2005). We noted that 11
U.S.C. sec. 505(a) (2000) empowers a bankruptcy court in a
bankruptcy proceeding to determine “the amount or legality of any
tax, any fine or penalty relating to a tax, or any addition to
tax, whether or not previously assessed, whether or not paid, and
whether or not contested before and adjudicated by a judicial or
administrative tribunal of competent jurisdiction.” In that
respondent in this case filed a proof of claim in petitioners’
previous bankruptcy case, we conclude on the basis of Kendricks
that petitioner had the opportunity to dispute his underlying tax
liability before commencing this lawsuit and thus may not do so
in this proceeding.
Respondent and petitioner rely upon Washington v.
Commissioner, 120 T.C. 114 (2003). We conclude that this
reliance is misplaced. In Washington, the taxpayers challenged
the appropriateness of respondent’s proposed collection action
because, they stated, a bankruptcy court had discharged them from
the unpaid tax liabilities underlying the proposed action. Id.
at 120 n.9. Section 6330(c)(2)(A)(ii) specifically provides that
a person may challenge the appropriateness of a collection action
at a hearing conducted under section 6330. Here, by contrast,
petitioner makes no assertion that the bankruptcy court
discharged him from any of the liabilities now sought by
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respondent. Instead, petitioner specifically challenges the
amount of the liability. The fact that the amount of his unpaid
tax liability is no longer in dispute on account of his
settlement is of no consequence to us. Our ability to decide
petitioner’s underlying tax liability “‘depends on the state of
things at the time of the action brought,’” Keene Corp. v.
United States, 508 U.S. 200, 208 (1993) (quoting Mollan v.
Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824)), and not on the
state of things when we enter our decision in the action.
Accordingly,
An appropriate order will be
issued.