T.C. Memo. 2006-29
UNITED STATES TAX COURT
ROGER L. SHERER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15976-04L. Filed February 21, 2006.
P seeks relief from a tax lien filed for 1999
under sec. 6330(d), I.R.C. P contests the income tax
liability assessed for 1999. R disputes whether P had
an opportunity to contest the 1999 liability and
asserts P refused receipt of the notice of deficiency.
However, P did not receive the notice of deficiency for
1999 which was mailed to two addresses, neither of
which was P’s residence at the time.
P did not file an income tax return for 1999. In
response to the Appeals officer in the communications
after his request for a hearing under sec. 6330,
I.R.C., P provided support for his claimed bases in
securities, the proceeds of the sale of which create
the 1999 liability. The Appeals officer declined to
consider P’s information until he filed a return for
1999. Since P did not file a 1999 return, R issued a
notice of determination.
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Held: P’s 1999 tax liability is properly before
this Court subject to de novo review, since P did not
receive the notice of deficiency for 1999 and did not
otherwise have an opportunity to dispute the liability.
Sego v. Commissioner, 114 T.C. 604 (2000),
distinguished.
Held further, P’s failure to file a return for
1999 does not bar consideration of P’s evidence of his
bases in securities sold in 1999. Upon consideration
of P’s evidence, the Court finds that P has no tax
liability for 1999 and accordingly, the collection
action is not upheld.
Roger L. Sherer, pro se.
Sean Gannon, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: The issues before us are whether petitioner
has received a notice of deficiency for 1999 or otherwise had an
opportunity to dispute his tax liability for 1999, and whether
petitioner is required to file a Federal income tax return to be
allowed his claimed bases in securities he sold in 1999.
The petition in this case was filed under section 6330(d)1
in response to a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of
determination) relating to a Federal tax lien filed for the
taxable year 1999.
1
Unless otherwise indicated, section references are to the
Internal Revenue Code as amended.
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FINDINGS OF FACT
The parties have stipulated some of the facts, and those
facts are included herein by this reference. Other evidence was
taken via testimony at trial.
At the time of the filing of the petition, petitioner
resided in Kingston, Illinois.
Petitioner has not filed a Federal income tax return for the
taxable year 1999. Pursuant to section 6020(b), respondent
prepared a substitute for return for petitioner for the taxable
year 1999 in July 2001. The substitute for return was based on
information respondent received from third parties showing
proceeds from sales of certain assets and interest income. On
July 11, 2002, respondent mailed a notice of deficiency to
petitioner related to the taxable year 1999, determining a
deficiency in income tax and additions to tax attributable to the
deficiency. Respondent used the address that petitioner had
shown on the income tax return he filed for the taxable year
1997. The 1997 return was the last return petitioner filed
before 2002.
Petitioner did not notify the Internal Revenue Service of
any change of address, and the July 11, 2002, notice of
deficiency was returned by the U.S. Postal Service (USPS) to
respondent. The envelope which contained the notice of
deficiency was stamped by the USPS with the word “Unclaimed”.
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On July 11, 2002, respondent mailed a duplicate notice of
deficiency to petitioner at another address. This second notice
of deficiency was also returned by the USPS, and the envelope
containing it was stamped “Unclaimed”. The second notice was
mailed on the basis of respondent’s attempts to find petitioner’s
current address using a “postal tracer research” procedure
provided by the USPS.
Petitioner did not reside at either of the addresses to
which the notice of deficiency was mailed on July 11, 2002, and
petitioner did not receive the notice of deficiency. As a
result, petitioner did not file a deficiency suit with this
Court. Respondent assessed the income tax deficiency and the
additions to tax on December 9, 2002. On December 9, 2002, and
January 13, 2003, petitioner was issued a notice of demand for
payment of the tax liability and the additions to tax for 1999.
On November 28, 2003, respondent filed with the Recorder of
Deeds, DeKalb County, Illinois, a notice of Federal tax lien with
respect to petitioner’s tax liability and the additions to tax.
On December 4, 2003, respondent mailed to petitioner at a third
address in Kingston, Illinois, a notice of Federal tax lien
filing with respect to the lien filed for the taxable year 1999.
On or about January 5, 2004, respondent received a timely Form
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12153, Request for Collection Due Process Hearing. In his Form
12153, petitioner contested only the tax liability.
On January 29, 2004, respondent mailed to petitioner a
letter advising him that his Form 12153 had been received and
that his request for a hearing was being processed. Petitioner
was further advised in this letter that he had not filed income
tax returns for the taxable years 1998, 1999, 2000, 2001, and
2002, and he was instructed to file said returns by February 12,
2004. He was further instructed that if he failed to file the
returns, the matter would be forwarded to respondent’s Appeals
Office for consideration of his request for a hearing.
Petitioner has acknowledged that he received the January 29,
2004, letter. Petitioner failed to file, as of the date of
trial, any income tax returns for the taxable years 1998 through
2002.
In an April 14, 2004, letter, the Appeals officer advised
petitioner to contact her and schedule a hearing. She also
advised petitioner that he should provide her with all
information he had in support of his position that his underlying
tax liability was in error, and that she could not offer him a
collection alternative in satisfaction of his tax liability for
1999 because he continued to fail to file his income tax returns.
On May 24, 2004, petitioner mailed to the Appeals officer a
copy of a Form 1099-MISC, Miscellaneous Income, issued to
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petitioner for the year 1999 from Bear, Stearns Securities Corp.
(Bear Stearns) and a two-page summary in which he reported his
cost bases in the stocks and bonds sold during 1999, with the
exception of securities in the Bidwell Co. (Bidwell) described in
the Form 1099-MISC. The Bear Stearns information petitioner
presented showed cost bases for those securities purchased in
1999. Petitioner also claimed a $21,228 mortgage interest
expense for the taxable year 1999 in his letter. This expense
was supported by third-party documentation. Respondent did not
allow this mortgage interest expense in preparing the substitute
for return for 1999. In a reply letter dated June 14, 2004, the
Appeals officer advised petitioner to file an income tax return
for the taxable year 1999 in order to obtain credit for the cost
bases he reported in his summary and for the mortgage interest
expense he claimed. Also in the letter of June 14, 2004, the
Appeals officer advised petitioner that she would be issuing a
notice of determination, sustaining respondent’s proposed lien
collection action, should petitioner fail to file an income tax
return for the year 1999 by June 18, 2004. Petitioner received
the June 14, 2004, letter. Petitioner did not file an income tax
return for 1999. On July 9, 2004, the Appeals officer attempted
to contact petitioner via telephone. Petitioner did not respond.
The Appeals officer issued a notice of determination to
petitioner on August 4, 2004, sustaining the proposed lien action
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relating to petitioner’s income tax liability for the taxable
year 1999, including the liability for the additions to tax. The
Appeals officer took the position in the notice of determination
that petitioner’s failure to file an income tax return for the
year 1999 supported the position that the proposed lien balance
should be sustained and prevented her from considering the
information petitioner submitted concerning his bases and
mortgage interest deductions.
On September 2, 2004, petitioner filed a timely petition in
this Court challenging the underlying liability for the taxable
year 1999.
OPINION
Respondent’s initial position is that petitioner failed to
accept the notice of deficiency for 1999 which was mailed to him,
and therefore he loses his right to pursue objections to the
underlying tax liability in this proceeding. Sec. 6330(c)(2)(B).
Petitioner maintains he did not receive the notice of deficiency
and therefore he may contest the underlying tax liability in this
proceeding. We have found as fact that petitioner did not live
at either of the addresses to which the notice of deficiency was
sent and that he never received it. There was not a deliberate
refusal of delivery. These facts distinguish this case from Sego
v. Commissioner, 114 T.C. 604 (2000). While the notice of
deficiency was mailed to the last known address and is valid,
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petitioner nevertheless did not live at the address when the
notice was mailed and did not otherwise have an opportunity to
dispute the liability for 1999. Petitioner raised the underlying
tax liability before the Appeals Office and is entitled to a
hearing regarding his liability for the Federal income tax in
1999.
Respondent’s position regarding the underlying tax liability
is that petitioner failed to raise that question properly before
the Appeals Office by failing to file a Federal income tax return
as requested by the Appeals officer. We must determine whether
petitioner’s failure to submit an income tax return for 1999
prevents the consideration of petitioner’s claims regarding his
bases and interest deductions. Our review of petitioner’s tax
liability under section 6330(c)(2)(B) is de novo. See Goza v.
Commissioner, 114 T.C. 176, 181 (2000) (quoting the legislative
history of section 6330, H. Conf. Rept. 105-599, at 266 (1998)).
In deficiency cases, this Court has allowed deductions
normally claimed on Schedule A, Itemized Deductions, to taxpayers
who have not filed income tax returns. See, e.g., Robertson v.
Commissioner, T.C. Memo. 2000-100, affd. 15 Fed. Appx. 467 (9th
Cir. 2001). There are stronger reasons to permit petitioner to
substantiate his bases because only the gains from the sales are
gross income. See sec. 61(a)(3). We see no material distinction
between precedent and the present case, and we will review the
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evidence petitioner submitted to the Appeals Office and his
testimony to determine his tax liability.
Petitioner seeks to establish his bases in assets that were
sold in the taxable year. Although it would have obviously been
preferable had petitioner filed a return for 1999, we find
petitioner’s testimony regarding his bases to be credible and to
be corroborated in large part by the documentation he submitted
to the Appeals Office. On the basis of our de novo review of
this evidence, we find petitioner had a capital loss for the
taxable year 1999 before considering the sale of Bidwell stock
for $9,625. Petitioner presented no evidence regarding his basis
in that stock, but the loss established by the evidence we have
accepted exceeds the Bidwell sale proceeds and the $232 in
interest income petitioner received in 1999. In addition,
petitioner’s mortgage interest deduction is consistent with
documentary evidence respondent presented, and it is allowable.
Accordingly, we find on the evidence before us that petitioner
does not have an outstanding tax liability for 1999. On this
record, there is no tax liability to collect for 1999.
Therefore, respondent’s collection action regarding tax and
additions to tax for 1999 is not sustained.
To reflect the foregoing,
Decision will be entered
for petitioner.