T.C. Memo. 2005-237
UNITED STATES TAX COURT
JEROME J. NORRIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20763-04L. Filed October 11, 2005.
Jerome J. Norris, pro se.
Cleve Lisecki, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GERBER, Chief Judge: Petitioner, pursuant to section
6330(d),1 seeks review of respondent’s determination to proceed
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at all relevant times, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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with collection by levy of petitioner’s 2002 tax liability. We
decide whether respondent may proceed with the proposed levy.
FINDINGS OF FACT
Petitioner resided in Potomac, Maryland, at the time his
petition was filed in this case. He has practiced intellectual
property law for approximately 35 years. On or about April 15,
2003, petitioner, along with his spouse, timely filed a joint
income tax return for the 2002 taxable year reflecting a balance
due of $51,349.00. Petitioner paid $26,305.00 with the return,
leaving an unpaid balance of $25,044.00. Thereafter, petitioner
entered into a payment arrangement with respondent to pay the
2002 income tax liability (including penalties and interest)
according to the following schedule:
Due Date Payment
June 16, 2003 $13,348.24
Oct. 17, 2003 13,348.24
Total 26,696.48
Petitioner, rounding the agreed payments to the nearest dollar,
made electronic payments to respondent in accord with the agreed
schedule, as follows:
Approximate Payment Date Payment
June 16, 2003 $13,348.00
Oct. 17, 2003 13,348.00
Total 26,696.00
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On March 22, 2004, respondent sent petitioner a notification
for petitioner’s 2002 tax period, reflecting that petitioner had
a balance of income tax due for 2002 of 48 cents. In addition,
respondent advised that petitioner was liable for a $175.44 late
payment penalty and $264.08 in additional interest. Accordingly,
respondent’s notice reflected a total balance due of $440.00 for
2002, as follows:
Income tax $.48
Late payment penalty 175.44
Interest 264.08
Total 440.00
On April 6, 2004, petitioner filed a Form 12153, Request for
a Collection Due Process Hearing. Petitioner explained to
respondent that his payments discharged his liability in full and
that the notification sent by respondent represented “a colossal
blunder”. On September 2, 2004, petitioner and an Appeals
officer discussed these matters by telephone.
On September 29, 2004, respondent sent petitioner a Notice
of Determination Concerning Collection Action(s) Under Section
6320 and/or 6330, sustaining the proposed levy. In that notice,
respondent indicated: “If taxpayers are on an installment
agreement, they are charged a late payment penalty and interest
on the unpaid balance until they pay the amount they owe in
full.” In response, petitioner timely filed a petition with this
Court challenging the proposed levy.
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OPINION
This case presents a controversy over de minimis amounts in
which litigants persist in order to maintain principles they hold
firmly. In large part, the controversy concerns the tax effect
that petitioner’s rounding of 48 cents on his agreed payment
schedule had on the 2002 tax liability. The total amount in
dispute is $440.00 out of a total $53,001.00, or less than 1
percent of the liability reported on petitioner’s 2002 return.
We must decide this dispute even though the cost of the parties’
pursuit of their principles will far exceed the amount in
dispute.
Respondent, relying on what appears to be an abbreviated
statement of petitioner’s 2002 tax account, contends that he
should be allowed to pursue collection. Petitioner contends that
he met his agreed payment obligations and that there is no
outstanding collectible balance for his 2002 tax year.
Section 6331(a) authorizes the Commissioner to levy on
property and property rights if a taxpayer fails to pay a tax
liability after notice and demand. Sections 6331(d) and 6330(a),
however, require the Secretary to send written notice to the
taxpayer of the intent to levy and of the taxpayer’s right to a
hearing before collection. 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
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spousal defenses, challenges to the appropriateness of collection
actions, and alternatives to collection. Section 6330(c)(1)
requires that the Appeals officer obtain verification that the
requirements of any applicable law or administrative procedure
have been met.
When an Appeals officer issues a determination regarding a
disputed collection action, a taxpayer may seek judicial review
with the Tax Court if the Tax Court has jurisdiction over the
underlying tax liability. Sec. 6330(d); see Davis v.
Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner, 114
T.C. 176, 179 (2000). The underlying tax liability may include
the tax deficiency, additions to tax, and statutory interest.
Katz v. Commissioner, 115 T.C. 329, 339 (2000).
The underlying tax liability may be questioned if the
taxpayer “did not receive any statutory notice of deficiency for
such tax liability or did not otherwise have an opportunity to
dispute such tax liability.” Sec. 6330(c)(2)(B). Where the
validity of the underlying tax liability is properly at issue,
the Court will review the matter de novo. Sego v. Commissioner,
114 T.C. 604, 610 (2000). Where the validity of the underlying
tax is not at issue, the Court will review the Commissioner’s
administrative determination for an abuse of discretion. Id.;
Goza v. Commissioner, supra at 181-182.
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Because petitioner was not issued a notice of deficiency and
he did not previously have the opportunity to dispute the
underlying tax liability, he may question the validity of the
underlying tax liability, and we review respondent’s
determination de novo. See Montgomery v. Commissioner, 122 T.C.
1, 9 (2004).
Petitioner contends that he had a payment arrangement under
which two payments totaling $26,696.48 by the dates stated would
completely satisfy his 2002 tax liability, including interest and
penalties that accrued to the date of the last payment.
Petitioner further contends that he made timely payments of the
required amounts (less 24 cents each rounded down in conformity
with respondent’s conventions) and that his 2002 tax liability is
therefore satisfied. Petitioner believes that the $439.52 in
interest and penalties arose from a “phantom” 48 cents that
petitioner contends did not remain unpaid because of a permitted
rounding method.
In response, respondent contends that the $439.52 of
interest and penalties would have accrued irrespective of whether
petitioner paid the 48 cents. To support this contention,
respondent attempted to show that interest and penalties would
have accrued on the $25,044 that remained unpaid at the time
petitioner filed his return.
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Generally, petitioner bears the burden of proof. See Rule
142(a). Section 7491 may shift the burden to the Commissioner in
certain circumstances, but petitioner does not contend, and has
not shown, that he has satisfied the prerequisites of section
7491. Accordingly, the burden remains with petitioner regarding
any determination of a tax liability.
The Commissioner bears the burden of production with respect
to any penalty or addition to tax. Sec. 7491(c). To meet this
burden, the Commissioner must come forward with sufficient
evidence indicating that it is appropriate to impose the relevant
penalty or addition to tax. Higbee v. Commissioner, 116 T.C.
438, 446 (2001).
With respect to both petitioner’s tax liability and the
additions thereon, the only evidence presented shows that
petitioner’s liability has been satisfied. Petitioner credibly
testified that he made timely payments of tax, penalties, and
interest in conformity with the payment arrangement to which he
had agreed. In addition, respondent’s records indicate that
petitioner was placed on an installment agreement on June 16,
2003, when he made his first payment, and respondent admitted at
trial that there was an agreement to extend the period in which
petitioner had to pay the tax liability.
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Respondent, on the other hand, presented no evidence
concerning the calculation or timing of the disputed penalties
and interest. The only evidence respondent offered was an
abbreviated statement that had been sent to petitioner that
reflected an amount of interest and penalties without any
specific underlying assessment data. This document is not a
statement of account and appears to be an unofficial document.
Although respondent is correct that interest and penalties would
normally accrue on petitioner’s $25,044 unpaid tax liability,
petitioner’s agreed payments were set at a total of $26,696,
indicating that the agreed payments did include penalties and/or
interest. Respondent presented no evidence showing that
penalties and interest accrued in excess of the amount petitioner
paid.
Petitioner’s credible testimony coupled with respondent’s
own records concerning the agreed payment arrangement thus
constitutes sufficient evidence to challenge respondent’s
determination. Respondent, however, has not presented any
evidence to refute petitioner’s testimony or to support the
amounts in dispute. Petitioner has thus met his burden of
showing that the disputed amounts are in error, and respondent
has not met his burden of showing that it was appropriate to
impose the penalties in dispute. Accordingly, we hold that it
was an abuse of discretion to proceed with collection activities.
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To reflect the foregoing,
Decision will be entered
for petitioner.