T.C. Memo. 2006-127
UNITED STATES TAX COURT
JOHN P. AND SHARON LYNN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5948-05L. Filed June 19, 2006.
John P. and Sharon Lynn, pro se.
Timothy B. Heavner, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WELLS, Judge: Pursuant to section 6330(d), petitioners seek
judicial review of respondent’s determination to proceed with a
proposed levy concerning petitioners’ 1994 Federal income tax
liability. The issue to be decided is whether respondent’s
determination was an abuse of discretion. All section references
are to the Internal Revenue Code, as amended.
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FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulated facts and the accompanying exhibits are
incorporated herein by this reference.
Petitioners are husband and wife. At the time of the filing
of the petition, petitioners resided in Portsmouth, Virginia.
Petitioner John P. Lynn is hereinafter individually referred to
as petitioner.
Petitioners timely filed a joint 1994 Federal income tax
return, reporting a tax liability of $3,671.51 and withholding
of $38.27. Petitioners did not submit a payment with their 1994
tax return.
On October 15, 1996, petitioners signed a Form 433-D,
Installment Agreement, with respect to petitioners’ 1990 and 1994
tax years (the installment agreement).1 Revenue Officer N.
Mitchell signed the installment agreement as the “originator”.
Pursuant to the installment agreement, petitioners agreed to pay
their 1990 and 1994 Federal income tax liability as follows:
1
With respect to petitioners’ 1990 tax year, the installment
agreement dated Oct. 15, 1996, superseded a prior installment
agreement dated Feb. 12, 1993 (the prior installment agreement).
The entire tax liability set forth on the prior installment
agreement relates to a sec. 6672 trust fund penalty of $5,689.71.
We note that we do not have jurisdiction over collection of sec.
6672 trust fund penalties, sec. 6672(c)(2), but that our
jurisdiction in the instant case over petitioners’ 1994 Federal
income tax liability is not affected by that circumstance.
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I/We agree that the federal taxes shown above, plus all
penalties and interest provided by law, will be paid as
follows: $100.00 will be paid on October 24, 1996 and
$100.00 will be paid no later than the 24th of each
month thereafter until the total liability is paid in
full.
Additionally, petitioners agreed to the following conditions:
While this agreement is in effect, [petitioners] must
file all federal tax returns and pay any taxes [that
petitioners] owe on time.
* * * * * * *
If [petitioners] don’t meet the conditions of this
agreement, [respondent] will cancel it, and may collect
the entire amount [that petitioners] owe by levy on
[petitioners’] income, bank accounts, or other assets,
or by seizing [petitioners’] property.
* * * * * * *
[Respondent] will apply all payments on this agreement
in the best interest of the United States.
Pursuant to the installment agreement, petitioners submitted
monthly $100 payments to respondent. From October of 1996
through December of 1997, respondent applied the payments to
petitioners’ 1990 and 1994 liabilities as follows:
Date recorded Amount of payment Tax year
10/23/96 $100 1990
11/25/96 100 1994
12/18/96 100 1994
1/17/97 100 1990
2/20/97 57 1994
3/30/97 100 1994
4/24/97 100 1994
5/29/97 100 1994
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6/26/97 100 1990
7/25/97 100 1990
8/25/97 100 1990
9/25/97 100 1990
10/23/97 100 1990
11/20/97 100 1990
12/22/97 100 1990
On or about December 4, 1996, petitioners submitted an offer-in-
compromise with respect to petitioners’ 1990 liability.
Respondent rejected the offer-in-compromise on February 22, 1997.
From January of 1998 until March of 2003, respondent applied
petitioners’ monthly $100 payments exclusively to petitioners’
1990 liability.2 Petitioners failed to file tax returns with
respect to their 1999, 2000, 2001, 2002, and 2003 tax years,3 and
respondent terminated the installment agreement in 2003.
On September 10, 2004, respondent issued to petitioners a
Final Notice of Intent to Levy and Notice of Your Right to a
Hearing with respect to petitioners’ 1994 tax year. The notice
asserted an unpaid tax in the amount of $1,603.56, accrued
interest in the amount of $2,217.08 and a “late payment penalty”
in the amount of $624.82. Petitioners timely requested an
administrative hearing before respondent’s Appeals Office
pursuant to section 6330 (section 6330 hearing).
2
From January of 1998 until March of 2003, respondent
applied 63 separate $100 payments to petitioners’ 1990 liability
and zero payments to petitioners’ 1994 liability.
3
As of the date of the trial, petitioners had still not
filed tax returns with respect to their 1999, 2000, 2001, 2002,
and 2003 tax years.
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Respondent’s Appeals Office assigned the case to Settlement
Officer A.T. Munson, who had no prior involvement with
petitioners’ 1994 tax liability. On February 3, 2005, Settlement
Officer Munson conducted a face-to-face conference with
petitioner. During the conference, petitioner contended that
respondent did not properly apply payments made under the
installment agreement to petitioners’ 1994 liability and that
respondent improperly terminated the installment agreement.
Additionally, petitioner stated that petitioners intended to
contest in court the penalties and interest related to their 1994
liability. Settlement Officer Munson informed petitioner that
respondent applied the disputed payments to petitioners’ 1990
liability rather than petitioners’ 1994 liability and that
respondent terminated the installment agreement because
petitioner did not file tax returns or pay taxes owed with
respect to petitioners’ 1999, 2000, 2001, 2002, and 2003 tax
years.
On February 25, 2005, respondent’s Appeals Office issued a
Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330, sustaining the proposed levy.
Petitioners timely petitioned the Court. The petition set forth
the following reasons for relief: “IRS not fullfilling [sic]
original agreement. Subsequently causing significant additional
penalty and interest to accumulate. Much anguish and
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frustration. We feel relief of penalty and interest will be
satisfactory solution.”
OPINION
Section 6330 provides that no levy may be made on any
property or right to property of a person unless the Secretary
first notifies the person in writing of the right to a hearing
before respondent’s Appeals Office. Section 6330(c)(1) provides
that the Appeals officer must verify at the hearing that
applicable laws and administrative procedures have been followed.
At the hearing, the person may raise any relevant issue relating
to the unpaid tax or the proposed levy, including appropriate
spousal defenses, challenges to the appropriateness of collection
actions, and collection alternatives. Sec. 6330(c)(2)(A). The
person may challenge the existence or amount of the underlying
tax liability, however, only 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.
Sec. 6330(c)(2)(B). In the instant case, petitioners do not
challenge the existence or the amount of the underlying
liability. Consequently, we review respondent’s determination
for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604,
610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).
Petitioners contend that they and Revenue Officer Mitchell
orally agreed that petitioners’ payments under the installment
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agreement would be applied first to petitioners’ 1994 liability
until such liability was extinguished and then to petitioners’
1990 liability. Additionally, petitioners contend that, but for
respondent’s misapplication of the payments to petitioners’ 1990
liability, the payments would have extinguished petitioners’ 1994
liability, and petitioners would not have incurred the related
penalties and interest. Furthermore, petitioners contend that
their position is supported by the installment agreement’s
listing of the 1994 tax year before the 1990 tax year and by
respondent’s application of six payments during 1996 and 1997 to
petitioners’ 1994 liability.
Respondent contends that, with the exception of several
payments applied to petitioners’ 1994 tax liability while
respondent considered the offer-in-compromise with respect to
petitioners’ 1990 tax year, petitioners’ payments were applied to
the earliest tax year covered by the installment agreement; i.e.,
1990, in accordance with respondent’s standard operating
procedures. Accordingly, respondent contends that respondent
properly applied petitioners’ payments in the best interest of
the United States pursuant to the terms of the installment
agreement and that the determination of respondent’s Appeals
Office was not an abuse of discretion.
The record does not support petitioners’ contentions.
Payments not applied to petitioners’ 1994 liability were applied
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to petitioners’ 1990 tax liability. Petitioner has provided no
credible evidence that respondent agreed to apply petitioners’
payments first to petitioners’ 1994 tax liability until such
liability was extinguished. On the contrary, the written terms
of the installment agreement provided that “[respondent] will
apply all payments on this agreement in the best interest of the
United States.” Petitioners have neither contended nor provided
evidence that respondent’s application of petitioners’ payments
was not in the best interest of the United States. Consequently,
we conclude that respondent properly applied petitioners’
payments under the installment agreement.
Moreover, the terms of the installment agreement required
petitioners to timely file Federal income tax returns and pay
taxes due and provided that respondent would cancel the
installment agreement if petitioners failed to comply with the
terms of the agreement. As noted above, petitioners failed to
file Federal income tax returns and pay taxes with respect to
their 1999, 2000, 2001, 2002, and 2003 tax years. Consequently,
we conclude that respondent properly terminated the installment
agreement.
During the section 6330 hearing, Settlement Officer Munson
provided petitioner with the opportunity to raise any relevant
issue relating to the unpaid tax or the proposed levy, and, as
described above, Settlement Officer Munson appropriately
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addressed the issues raised by petitioner. Furthermore, the
record demonstrates that Settlement Officer Munson properly
verified that all applicable laws and administrative procedures
were followed and balanced the need for the efficient collection
of taxes with the concern that the collection action be no more
intrusive than necessary.
On the basis of the foregoing, we hold that the
determination of respondent’s Appeals Office to proceed with the
collection of petitioners’ tax liabilities for 1994 was not an
abuse of discretion.
To reflect the foregoing,
Decision will be entered for
respondent.