WHITINGER v. COMMISSIONER

T.C. Summary Opinion 2005-163

UNITED STATES TAX COURT

DON EVAN AND VICKY KAY WHITINGER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8529-04S. Filed November 8, 2005.

Don Evan and Vicky Kay Whitinger, pro sese.

Catherine Campbell, for respondent.

CARLUZZO, Special Trial Judge: This case was heard pursuant

to the provisions of sections 6330(d) and 7463 of the Internal

Revenue Code of 1986, as amended, in effect at the time the

petition was filed.1 The decision to be entered is not

1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code of 1986, as amended, in effect
for the relevant period.
 - 2 -

reviewable by any other court, and this opinion should not be

cited as authority.

On April 29, 2004, respondent issued to petitioners a Notice

of Determination Concerning Collection Action(s) Under Section

6320 and/or 6330 for unpaid 1999 Federal income tax and related

liabilities. The issue for decision is whether respondent may

proceed with the collection activity proposed in that notice.

Background

Some of the facts have been stipulated and are so found. At

the time the petition was filed, petitioners resided in Lewiston,

Idaho.

As filed and relevant here, petitioners’ joint 1999 Federal

income tax return shows: (1) Adjusted gross income of $129,805,

which amount includes an $82,490 taxable distribution from an

individual retirement account; (2) a total tax liability of

$34,650; (3) withholding credits of $21,261; and (4) a tax due of

$13,794,2 which was not paid with, or following, the filing of

petitioners’ 1999 return. On May 29, 2000, respondent assessed

the tax reported on that return.

On September 12, 2001, respondent issued to petitioners a

notice of deficiency in which a $363 deficiency in their 1999

2
This amount includes a $408 estimated tax penalty also
reported on the return.
 - 3 -

income tax was determined.3 Petitioners timely petitioned this

Court in response to that notice, and in due course, respondent

assigned the case to Appeals Officer Jeffery L. Sherrill (Mr.

Sherrill) for settlement purposes.

On August 1, 2003, after reaching a proposed settlement with

Mr. Sherrill as to the 1999 deficiency, petitioners received a

letter from respondent’s Appeals Office that stated the proposed

settlement was “reflected in the [attached] stipulated-decision

document” that ultimately would be submitted to the Court. The

letter also stated that “If there is an amount due as a result of

this settlement, it would be to your advantage to pay the full

amount now.” The letter contains no reference to petitioners’

then-outstanding 1999 tax liability that had been previously

assessed based upon the amount of tax reported on their 1999

return. On August 20, 2003, a stipulated decision reflecting a

$363 deficiency in petitioners’ 1999 Federal income tax was

entered in petitioners’ deficiency case.

Following the entry of decision by the Court, petitioners

remitted a payment of $363 to respondent with respect to the 1999

deficiency. According to petitioners, Mr. Sherrill led them to

believe that their 1999 tax liability would be fully satisfied by

this payment.

3
The deficiency resulted from petitioners’ failure to
report certain gambling income.
 - 4 -

A Letter 1058, Final Notice of Intent to Levy and Notice of

Your Right to a Hearing, was sent to each petitioner by

respondent on September 13, 2003, with respect to their unpaid

1999 tax and related liabilities. After receiving the letter,

Mr. Whitinger contacted Mr. Sherrill and stated that petitioners

had been led to believe that the $363 payment “would take care of

all that we owe the IRS.” Mr. Sherrill informed Mr. Whitinger

that the $363 payment did not settle the unpaid tax reported on

petitioners’ 1999 return.

On or about October 6, 2003, respondent received a Form

12153, Request for a Collection Due Process Hearing, signed by

both petitioners. Petitioners again stated in their request that

their 1999 tax liability had been fully settled by the $363

payment. In addition, petitioners requested an “in person

hearing.”

On January 13, 2004, respondent’s San Jose Appeals Office

sent a letter to petitioners informing them about Appeals Office

review. The letter stated that the Appeals Office conducts

reviews by telephone, mail, and/or personal interviews and that

petitioners would be contacted by the Appeals Office “as quickly

as possible”.

Appeals Officer Colleen Cahill (Ms. Cahill) was assigned to

review petitioners’ case. Ms. Cahill reviewed the administrative
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file and determined that all of the applicable requirements of

law and administrative procedure had been met. Ms. Cahill was

aware that petitioners had received a notice of deficiency for

1999 and ultimately that a decision for that year had been

entered by the Court.

On January 26, 2004, Ms. Cahill received from petitioners a

copy of respondent’s January 13, 2004, letter with handwritten

remarks by Mr. Whitinger. Specifically, Mr. Whitinger stated

that petitioners had paid $363 which is “what the Court has

ordered for taxable year 1999” and that petitioners “do not owe

any more for taxable year 1999.”

On January 30, 2004, Ms. Cahill held a telephone hearing

with Mr. Whitinger. Mr. Whitinger asserted that the $363 payment

made by petitioners was a full settlement of their 1999

liability. Specifically, Mr. Whitinger claimed that petitioners

were informed by Mr. Sherrill that their $363 payment was in full

satisfaction of their 1999 tax liability. Petitioners offered no

substantiation other than Mr. Whitinger’s own statement to

support their contention. During the telephone hearing, Ms.

Cahill informed Mr. Whitinger that their $363 payment was for

their 1999 deficiency and that the taxes reported as due on

petitioners’ 1999 return remained unpaid. Ms. Cahill suggested
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to Mr. Whitinger that petitioners file an offer-in-compromise

with respect to their 1999 tax liability.4

On January 30, 2004, Ms. Cahill sent petitioners the

necessary offer-in-compromise forms, including Form 656,

Application for Offer in Compromise, and Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, to be completed and returned to respondent.

Subsequently, Ms. Cahill received from petitioners a completed

Form 656. However, petitioners did not include Form 433-A or the

appropriate filing fee. Ms. Cahill informed petitioners that

both Form 433-A and the filing fee must be submitted before

respondent could process their offer-in-compromise. At no time

did petitioners submit to respondent Form 433-A or the filing

fee.

Ms. Cahill reviewed respondent’s administrative record but

could not verify petitioners’ claim that they were informed by

Mr. Sherrill that their $363 payment made with respect to the

1999 deficiency was a full settlement of their 1999 tax

liability. Ms. Cahill again spoke with Mr. Whitinger to inform

petitioners as to their available options and to advise them that

the amount of tax due as reported on petitioners’ 1999 return

remained unpaid.

4
Petitioners had previously submitted an offer-in-
compromise prior to receiving the notice of deficiency. This
offer-in-compromise was rejected by respondent on Mar. 7, 2001.
 - 7 -

On April 29, 2004, respondent sent to petitioners a Notice

of Determination Concerning Collection Action(s) Under Section

6320 and/or 6330 for the 1999 taxable year. In the notice,

respondent determined that all applicable laws and administrative

procedures had been satisfied and that petitioners had proposed

an offer-in-compromise but failed to provide any financial

information or documentation and to pay the filing fee.

Respondent also determined that petitioners had paid the $363

deficiency for 1999, but that the original tax due of $13,389 as

reported on their 1999 return remained unpaid. Concluding that

the proposed levy represented an appropriate balancing of the

need for efficient collection with the concern that the

collection action be no more intrusive than necessary, respondent

determined that the proposed levy could proceed.

On May 24, 2004, petitioners submitted a timely petition to

this Court for review of the determination.

Discussion

A. Petitioners’ Contentions

In their petition, petitioners contend that respondent’s

representatives were “dishonest” and that petitioners would

suffer economic hardship if they were required to pay the amount

due as reported on their 1999 return. Petitioners argue that

their payment of the amount due in the notice of deficiency for

1999 was a full settlement of their 1999 tax liability.
 - 8 -

Petitioners also now attack the validity of respondent’s

determination because they were not given an “in person” hearing

as requested in their Form 12153.

B. Sections 6330 and 6331

Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to pay such tax within 10 days after

notice and demand for payment, then the Secretary is authorized

to collect such tax by levy upon the person’s property. Section

6331(d) provides that, at least 30 days before enforcing

collection by way of a levy on the person’s property, the

Secretary is obliged to provide the person with a final notice of

intent to levy, including notice of the administrative appeals

available to the person.

Section 6330 generally provides that the Commissioner cannot

proceed with collection by levy until the person has been given

notice and the opportunity for an administrative review of the

matter (in the form of an Appeals Office hearing) and, if

dissatisfied, with judicial review of the administrative

determination. See Davis v. Commissioner, 115 T.C. 35, 37

(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000).

If a section 6330 hearing is requested, the hearing is to be

conducted by respondent’s Appeals Office, and, at the hearing,

the Appeals officer conducting it must verify that the

requirements of any applicable law or administrative procedure
 - 9 -

have been met. Sec. 6330(b)(1), (c)(1). Section 6330(c)

prescribes the matters that a taxpayer may raise at an Appeals

Office hearing. Section 6330(c)(2)(A) provides that a taxpayer

may raise at the hearing “any relevant issue relating to the

unpaid tax or proposed levy”, including spousal defenses and

collection alternatives. Additionally, the taxpayer may

challenge the existence or amount of the underlying tax liability

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).

At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection, taking into

account, among other things, collection alternatives proposed by

the taxpayer and whether any proposed collection action balances

the need for the efficient collection of taxes with the

legitimate concern of the taxpayer that the collection action be

no more intrusive than necessary. See sec. 6330(c)(3).

Section 6330(d)(1) provides that if the Appeals Office

issues a notice of determination to the taxpayer following a

section 6330 hearing regarding a levy action, then the taxpayer

will have 30 days following the issuance of such determination

letter to file a petition for review with this Court or a Federal

District Court, as may be appropriate. See Offiler v.

Commissioner, 114 T.C. 492, 498 (2000).
 - 10 -

We have jurisdiction to review the Appeals officer’s

determination if we have jurisdiction over the type of tax

involved in the case. Sec. 6330(d)(1)(A); see Iannone v.

Commissioner, 122 T.C. 287, 290 (2004). If the underlying tax

liability is properly at issue, we review the determination de

novo. Goza v. Commissioner, supra at 181-182. If the underlying

tax liability is not at issue, we review the determination for

abuse of discretion. Id. at 182. In reviewing for an abuse of

discretion under section 6330(d)(1), generally we consider only

arguments, issues, and other matters that were raised at the

section 6330 hearing or otherwise brought to the attention of the

Appeals officer. Magana v. Commissioner, 118 T.C. 488, 493

(2002); see also sec. 301.6330-1(f)(2), Q&A-F5, Proced. & Admin.

Regs. Whether an abuse of discretion has occurred depends upon

whether the exercise of discretion is without sound basis in fact

or law. See Ansley-Sheppard-Burgess Co. v. Commissioner, 104

T.C. 367, 371 (1995).

C. Standard of Review

Section 6330(c)(2)(B) provides that a person may challenge

“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.” We have held that

“it is reasonable to interpret the term ‘underlying tax
 - 11 -

liability’ as a reference to the amounts that the Commissioner

assessed for a particular tax period.” Montgomery v.

Commissioner, 122 T.C. 1, 7 (2004). Thus, “‘underlying tax

liability’ may encompass an amount assessed following the

issuance of a notice of deficiency under section 6213(a), an

amount ‘self-assessed’ under section 6201(a), or a combination of

such amounts.” Id. at 7-8.

The plain language of section 6330(c)(2)(B) bars a taxpayer

who has received a notice of deficiency from challenging his or

her underlying tax liability for that year (whether the liability

was self-assessed or assessed as a deficiency) in a collection

review proceeding inasmuch as the person was afforded a prior

opportunity to challenge such liability under the deficiency

procedures. See id. at 8. In contrast, where a person has not

received a notice of deficiency and has not had a prior

administrative or judicial opportunity to challenge the amounts

the Commissioner assessed, section 6330(c)(2)(B) provides that

such person may challenge the underlying tax liability as part of

the collection review procedure. Id.

Petitioners’ 1999 return shows a tax due to be paid.

Petitioners made no payment with respect to that tax with or

following the filing of their 1999 return. Because certain

income was omitted from petitioners’ 1999 return, respondent

issued a notice of deficiency to them for that year. After
 - 12 -

receiving the notice of deficiency, petitioners filed a petition

in this Court. That case was concluded without trial by entry of

a decision on August 20, 2003. The decision provided that there

was a “deficiency in income tax due from the petitioners for the

taxable year 1999 in the amount of $363.00.”

At the Appeals Office hearing and at trial in this case,

petitioners argued that payment of the 1999 deficiency entirely

extinguished any 1999 tax liability that was otherwise then-

outstanding, including the amount that resulted from the tax

reported due on their 1999 return. At the time of filing their

petition in their deficiency case, petitioners could have

challenged the tax liability reported due on their 1999 return,

but they did not.5

Petitioners received a notice of deficiency for 1999 and had

an opportunity to dispute their underlying tax liability for that

year.6 It follows that petitioners are barred under section

6330(c)(2)(B) from challenging the existence or amount of their

5
Petitioners’ case is distinguishable from Montgomery v.
Commissioner, 122 T.C. 1, 9 (2004), which held that sec.
6330(c)(2)(B) permits a taxpayer to challenge the existence or
amount of the tax liability reported on the original return if
they “have not received a notice of deficiency * * * and they
have not otherwise had an opportunity to dispute the tax
liability in question.”
6
In the present case, petitioners’ “underlying tax
liability” consists of the amount that petitioners reported due
on their 1999 tax return along with statutory interest and
penalties and the amount assessed following the issuance of the
notice of deficiency. See Montgomery v. Commissioner, supra.
 - 13 -

underlying tax liability for 1999 in this proceeding. See Goza

v. Commissioner, 114 T.C. at 180-181. Because the underlying tax

liability is not properly at issue, we review for abuse of

discretion, respondent’s determination to proceed with collection

of petitioners’ 1999 tax liability. Id. at 182. Accordingly, we

must decide whether respondent exercised his discretion

arbitrarily, capriciously, or without sound basis in fact or law.

Woodral v. Commissioner, 112 T.C. 19, 23 (1999); see also Fargo

v. Commissioner, T.C. Memo. 2004-13.

D. Offer-in-Compromise

During the Appeals Office hearing, Ms. Cahill informed

petitioners that they could submit an offer-in-compromise as a

collection alternative. Following the hearing, Ms. Cahill

provided petitioners with the necessary forms to file.

Petitioners submitted to Ms. Cahill Form 656. However,

petitioners failed to submit both Form 433-A and the filing fee.

Ms. Cahill notified petitioners that the offer-in-compromise

could not be processed without these items. At no time did

petitioners submit either of these items.

The Commissioner will not process an offer-in-compromise

that lacks sufficient financial information to evaluate its

acceptability. See sec. 301.7122-1(d)(2), Proced. & Admin.

Regs.; see also Rodriguez v. Commissioner, T.C. Memo. 2003-153.

Petitioners failed to submit to respondent the required financial
 - 14 -

information and the filing fee with the offer-in-compromise. Ms.

Cahill notified petitioners that the offer-in-compromise was

incomplete and gave them additional time to submit both of these

items. After petitioners chose not to avail themselves of the

opportunity to submit these items, Ms. Cahill did not process

petitioners’ offer-in-compromise.

We find that Ms. Cahill did not exercise her discretion with

respect to petitioners’ offer-in-compromise arbitrarily,

capriciously, or without sound basis in fact or law.

E. Financial Hardship

In their petition, petitioners allege that payment of their

1999 tax liability would be an “extreme financial hardship”, but

the record in this case contains little, if any, support for that

allegation. The notice of determination indicates that

petitioners failed “to provide any financial information or

documentation proving special circumstances.” Petitioners did

not supply a current Form 433-A, or other current financial

information to respondent, despite several requests to do so by

Ms. Cahill. Having failed to respond to respondent’s requests

for certain financial information, petitioners are hardly in a

position to challenge respondent’s determination on the basis of

an alleged financial hardship. See Newstat v. Commissioner, T.C.

Memo. 2004-208.
 - 15 -

F. Face-to-Face Hearing

At trial, petitioners raised the issue that they failed to

receive an in-person Appeals Office hearing as requested in their

Form 12153. In Katz v. Commissioner, 115 T.C. 329, 337-338

(2000), we held that the oral and written communications between

the taxpayer and the Appeals officer constituted a section 6330

hearing and that a face-to-face meeting is not required.

Additionally, section 301.6330-1(d)(2), Q&A-D6, Proced. & Admin.

Regs., provides:

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. * * *

After receiving petitioners’ request for a hearing,

respondent sent petitioners a letter which stated that the

Appeals Office review could be conducted by telephone, mail,

and/or personal interviews. Shortly thereafter, Mr. Whitinger

discussed petitioners’ case with Ms. Cahill via telephone.

During the telephone hearing, Mr. Whitinger continued to contend

that petitioners’ 1999 tax liability had been satisfied by the

payment of the 1999 deficiency. Ms. Cahill and Mr. Whitinger

also discussed an offer-in-compromise as a collection

alternative.
 - 16 -

We conclude that the telephone conference was the Appeals

officer’s attempt to accommodate petitioners, that Mr. Whitinger

and the Appeals officer did in fact discuss petitioners’ case

over the telephone, and that the Appeals officer heard and

considered all of petitioners’ arguments. See Katz v.

Commissioner, supra; Dorra v. Commissioner, T.C. Memo. 2004-16;

see also sec. 301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs.

Accordingly, we find that the Appeals officer heard all of

petitioners’ arguments during the telephone hearing and that the

telephone hearing qualified as a section 6330 hearing.

G. Conclusion

Respondent has satisfied all of the requirements of section

6330 and may proceed with the proposed collection action as set

forth in the April 29, 2004, Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

for respondent.