T.C. Memo. 2007-35
UNITED STATES TAX COURT
ARTHUR W. & RITA C. MILLER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24308-05L. Filed February 8, 2007.
Arthur W. and Rita C. Miller, pro sese.
Nancy C. Carver, for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: This case is before the Court on respon-
dent’s motion for summary judgment (respondent’s motion). We
shall grant respondent’s motion.
Background
The record establishes and/or the parties do not dispute the
following.
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Petitioners resided in Catonsville, Maryland, at the time
they filed the petition in this case.
On or about April 15, 2001, petitioners jointly filed a
Federal income tax (tax) return (tax return) for their taxable
year 2000 (2000 return). Petitioners’ 2000 return showed tax of
$289,989, withholding credits of $18,634, estimated tax payments
of $96,780, and tax due of $174,575. When petitioners filed
their 2000 return, they paid only $1,000 of the tax due shown in
that return.
On June 11, 2001, respondent assessed the tax of $289,989
shown in petitioners’ 2000 return, an addition to tax under
section 6651(a)(2)1 of $1,735.75, and interest as provided by
law. On August 27, 2001, respondent made another assessment of
an addition to tax under section 6651(a)(2) of $2,734.02 and
interest as provided by law with respect to petitioners’ taxable
year 2000.
On or about March 25, 2002, petitioners filed an amended tax
return for their taxable year 2000 (petitioners’ amended 2000
return). On May 6, 2002, respondent processed petitioners’
amended 2000 return and abated tax for petitioners’ taxable year
2000 in the amount of $47,764. (We shall refer to any unpaid
assessed amounts with respect to petitioners’ taxable year 2000,
1
All section references are to the Internal Revenue Code in
effect at all relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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as well as interest as provided by law accrued after August 27,
2001, as petitioners’ unpaid 2000 liability.)
Respondent issued to petitioners the notice and demand for
payment required by section 6303(a) with respect to petitioners’
unpaid 2000 liability.
On or about August 13, 2002, petitioners jointly filed a tax
return for their taxable year 2001 (2001 return). Petitioners’
2001 return showed tax of $84,001, withholding credits of
$23,223, and tax due of $60,778. When petitioners filed their
2001 return, they did not pay the tax due shown in that return.
On September 9, 2002, respondent assessed the tax of $84,001
shown in petitioners’ 2001 return, additions to tax under sec-
tions 6651(a)(2) and 6654 of $2,303.19 and $1,519.45, respec-
tively, and interest as provided by law. (We shall refer to any
unpaid assessed amounts with respect to petitioners’ taxable year
2001, as well as interest as provided by law accrued after
September 9, 2002, as petitioners’ unpaid 2001 liability.)
Respondent issued to petitioners the notice and demand for
payment required by section 6303(a) with respect to petitioners’
unpaid 2001 liability.
On August 7, 2004, respondent sent to each petitioner a
final notice of intent to levy and notice of your right to a
hearing (notice of intent to levy) with respect to petitioners’
taxable year 2000. On the same date, respondent sent to each
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petitioner a notice of intent to levy with respect to petition-
ers’ taxable year 2001.
Respondent received a signed receipt from each petitioner
indicating that each petitioner received the notice of intent to
levy with respect to petitioners’ taxable year 2000 and the
notice of intent to levy with respect to petitioners’ taxable
year 2001.
On September 14, 2004, in response to the respective notices
of intent to levy with respect to petitioners’ taxable years 2000
and 2001, petitioners filed an offer-in-compromise with respon-
dent. Petitioners did not file Form 12153, Request for a Collec-
tion Due Process Hearing (Form 12153), with respondent in re-
sponse to those respective notices. Nor did petitioners submit
any other documents to respondent that could be construed as a
request for a hearing with respondent’s Appeals Office (Appeals
Office) with respect to the respective notices of intent to levy
relating to petitioners’ taxable years 2000 and 2001.
On September 24, 2004, respondent rejected the offer-in-
compromise filed by petitioners with respect to petitioners’
taxable years 2000 and 2001.
On October 28, 2004, respondent filed a notice of Federal
tax lien with respect to petitioners’ taxable years 2000 and
2001.
On November 4, 2004, respondent issued to petitioners a
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notice of Federal tax lien filing and your right to a hearing
under IRC 6320 (notice of tax lien) with respect to petitioners’
taxable years 2000 and 2001.
On December 2, 2004, in response to the notice of tax lien,
petitioners filed Form 12153 (petitioners’ Form 12153) and
requested a hearing with the Appeals Office. In petitioners’
Form 12153, petitioners indicated that they did not agree with
the notice of tax lien that respondent had filed with respect to
petitioners’ taxable years 2000 and 2001. Petitioners attached a
document to petitioners’ Form 12153. That attachment stated in
pertinent part:
The debt, which is represented herein, is unfair and
inequitable. Extenuating circumstances exist. There
is an equal amount owed to us by the IRS in the form of
a credit that could satisfy this debt in full. This
credit in actuality represents an over assessment of
taxes.
Requiring payment up front in lieu of applying the
credit against the debt creates a situation that would
prevent us from ever recovering the credit (overpay-
ment). Also, since Mr. Miller is currently unemployed
this lien seriously damages his credit and his ability
to obtain suitable employment. [Reproduced literally.]
On May 24, 2005, the settlement officer with the Appeals
Office (settlement officer) assigned to consider petitioners’
Form 12153 with respect to the notice of tax lien relating to
petitioners’ taxable years 2000 and 2001 held a telephonic
conference (May 24, 2005 telephonic conference) with petitioners.
During that telephonic conference, petitioners and the settlement
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officer discussed the exercise by petitioners of certain incen-
tive stock options (ISO) and the effect of the alternative
minimum tax (AMT) on the tax consequences with respect to such
exercise. During the May 24, 2005 conference, petitioners agreed
that they owe the tax due shown in (1) petitioners’ 2000 return
as amended by petitioners’ amended 2000 return and (2) their 2001
return. However, petitioners claimed at that conference that the
AMT is unfair and that they are entitled to certain carryforward
credits. During the May 24, 2005 telephonic conference, the
settlement officer discussed collection alternatives with peti-
tioners and concluded that they had the ability to pay in full
from retirement and other assets petitioners’ unpaid 2000 liabil-
ity and petitioners’ unpaid 2001 liability. During that confer-
ence, petitioners advised the settlement officer that they did
not wish to submit another offer-in-compromise since respondent
had rejected the one that they had previously submitted in
response to the respective notices of intent to levy that they
received with respect to their taxable years 2000 and 2001.
Petitioners further indicated to the settlement officer during
the May 24, 2005 telephonic conference that they did not wish to
propose an installment agreement. The settlement officer told
petitioners during that conference that she intended to research
recent court cases addressing petitioners’ claim that the AMT is
unfair and that they are entitled to certain carryforward cred-
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its.
After the May 24, 2005 telephonic conference, the settlement
officer considered petitioners’ claim to certain carryforward
credits. As part of that consideration, the settlement officer
learned that Congress was considering proposed legislation to
address the ISO/AMT situation but had not enacted any law to deal
with that situation. As part of the settlement officer’s consid-
eration of petitioners’ claim to carryforward credits to their
taxable years 2000 and 2001, she also reviewed the Court’s
opinion in Speltz v. Commissioner, 124 T.C. 165 (2005), affd. 454
F.3d 782 (8th Cir. 2006).
On August 23, 2005, the settlement officer held a face-to-
face Appeals Office hearing with petitioners (August 23, 2005
hearing). At that hearing, petitioners and respondent discussed
the proposed legislation pending in Congress that addressed the
ISO/AMT situation. They exchanged views as to whether petition-
ers would be able to submit an offer-in-compromise to respondent
in which they would claim certain carryforward credits as set
forth in that proposed legislation and would request abatement
for public policy reasons of the remainder of petitioners’ unpaid
2000 liability and petitioners’ unpaid 2001 liability. Petition-
ers also requested at the August 23, 2005 hearing that respondent
abate the additions to tax and interest that respondent assessed
with respect to their taxable years 2000 and 2001. The settle-
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ment officer informed petitioners that respondent was charged
with enforcing the law as it was written, and not as it was set
forth in proposed legislation.
On or about October 20, 2005, the settlement officer who had
been assigned to handle petitioners’ taxable years 2000 and 2001
was transferred to a managerial position. As a result, another
settlement officer with the Appeals Office (second settlement
officer) was assigned to consider that matter.
The second settlement officer reviewed the administrative
file relating to petitioners’ taxable years 2000 and 2001 and
sent petitioners a letter dated October 26, 2005 (second settle-
ment officer’s October 26, 2005 letter). The second settlement
officer’s October 26, 2005 letter stated in pertinent part:
I have been reassigned your Collection Due Process
(CDP) request regarding the filing of the Notice of
Federal Tax Lien for the above referenced tax periods
[2000 and 2001] * * *.
I have thoroughly reviewed your file including all
previous correspondences and administrative history
records. I am well versed in the AMT/ISO issue as this
is a widely debated issue now before Congress. I am
also personally familiar with Mr. Timothy Carlson, his
Coalition for Tax Fairness (CTF), and their proposed
legislation before Congress (H.R. 3385) to enact retro-
active changes to the application of AMT for the thou-
sands of individuals in your current situation.
However, as you have been previously advised, the IRS
has taken the position that we will not consider or
accept an Offer in Compromise under the provisions of
Effective Tax Administration-Public Policy when the
basis for the Offer is that the imposition of the tax
law, specifically the AMT, is in and of itself unjust
and inequitable. Our position has recently been upheld
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in the widely publicized Speltz v. Commissioner case
(of which Mr. Carlson and CTF were integrally in-
volved); where the court determined that the IRS did
not abuse its discretion in not accepting the Speltz’s
Offer in Compromise, further stating that it is not the
IRS’ purview to override tax laws when they appear
inequitable. The ability to modify, alter or eliminate
tax laws rests solely with Congress.
By your own admission, you have sufficient resources to
pay these outstanding liabilities, but feel that you
should not be required to do so. The IRS will not
accept any Offer from you under these circumstances.
The Offer program was established to provide relief to
those taxpayers who could not fully pay their tax
obligations. It was also designed to provide relief to
those taxpayers who could fully pay their taxes, but
doing so would cause significant economic hardship.
Neither of these situations has been demonstrated in
your case.
Ms. Colbert has previously advised you that the Notice
of Federal Tax Lien filing will be sustained, and I
agree with that decision. The tax was legally due and
owing at the time the Lien was filed. As all legal and
procedural requirements were met, I believe that this
action was proper.
Although Ms. Colbert indicated that she would consider
possible abatements of penalties on your account, I do
not agree with this. You have been assessed the Fail-
ure to Pay penalty on both 2000 and 2001. Because you
have the ability to pay, but are refusing to do so at
this time, I do not believe that you meet the criteria
for relief of this penalty under Reasonable Cause.
For 2001, you have also been assessed the Estimated Tax
Penalty. You did not make any estimated tax payments
as required by law due to your insufficient federal
income tax withholding for the year. You have provided
no documentation to illustrate why you were unable to
make the estimated payments, therefore I again do not
believe that you meet the criteria for relief of this
penalty under the Reasonable Cause provisions.
At this point, I believe that we are at an impasse with
your account. Appeals believes that you have the
ability to fully pay your tax liabilities, but you have
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expressed that you do not want to fulfill this obliga-
tion. Because you have provided no other alternatives
on this account, our only action at this time is to
close your CDP request, sustaining the Lien filing, and
issuing the required Notice of Determination.
I will hold you account open for 10 days from the date
of this letter if you want to discuss any alternatives.
If I do not hear from you, and/or viable alternatives
are not presented for review, I will proceed with the
formal closure of your account. [Reproduced liter-
ally.]
On November 5, 2005, petitioners sent a letter (November 5,
2005 letter) in response to the second settlement officer’s
October 26, 2005 letter. Petitioners’ November 5, 2005 letter
stated in pertinent part:
We are seeking a settlement in good faith. We would
like to clarify a few statements that were contained in
the letter dated 26 October 2005. You noted, “By your
own admission, you have sufficient resources to pay
these outstanding liabilities, but feel that you should
not be required to do so”. We honestly stated up
front, that the only assets we had, and still only
have, is the home we live in, and our retirement ac-
count. We don’t have any bank accounts or stock or
hidden treasures. We paid the IRS every available
dollar. We liquidated everything except the house and
retirement to pay what we have so far.
The point that we are trying to convey is that it
wouldn’t be fair to force us to take an irretrievable
action (selling our home) to pay tax on a phantom
liability. You state that we did not demonstrate that
it would cause significant economic hardship. We
believe that forcing us to sell the roof over our head
is an economic hardship.
We were assessed taxes on profits we didn’t realize.
We were taxed on what you thought we would make in
profit when we sold the stock. That never happened.
We paid taxes on income we didn’t receive.
Nowhere in your letter do you mention our $124,000
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credit that the IRS owes us. The only way anyone can
generate credits is if you overpay taxes. It’s like we
are giving the government a tax-free loan. The govern-
ment gets to keep the full overpayment, we’re forced to
sell our home then we will be given back $3,000 per
year. My husband is 60 years old and I am 58 we will
never in our lifetime get back all the overpaid taxes.
* * * We addressed our situation from day one with
payments until we both lost our jobs. We have been
trying to work things out reasonably. As subsequent
tax years were filed a credit was generated. Meaning
that we overpaid our taxes.
We are not asking you to modify, alter or eliminate tax
laws. We are respectfully asking that realize that we
have paid sufficient tax to cover our liability. The
only way to pay these phantom taxes is to sell our
home. If you ask us to sell our home and pay the taxes
we will be overpaying our tax obligation. We don’t
believe that Congress intended for this to happen.
This is really an accounting issue. The credit gener-
ated should offset the tax liability. [Reproduced
literally.]
At no time during the consideration by the Appeals Office of
petitioners’ Form 12153 with respect to the notice of tax lien
relating to their taxable years 2000 and 2001 did petitioners
provide Form 433-A, Collection Information Statement for Individ-
uals, or any other documentary evidence relating to their finan-
cial status or their financial situation at and after the respec-
tive times their 2000 return and 2001 return were filed. Al-
though collection alternatives were discussed at the Appeals
Office’s consideration of petitioners’ Form 12153 with respect to
the notice of tax lien relating to their taxable years 2000 and
2001, at no time during the Appeals Office consideration of that
matter did petitioners submit an offer-in-compromise, installment
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agreement, or other collection alternative.
On November 28, 2005, the Appeals officer issued to peti-
tioners a notice of determination concerning collection action(s)
under section 6320 and/or 6330 (notice of determination). The
notice of determination stated in pertinent part: “The filing of
the Notice of Federal Tax Lien is sustained by the Appeals office
at this time.” An attachment to the notice of determination
stated in pertinent part:
Type of Tax Period CDP Notice Date CDP Received
1040 12/31/2000, 12/31/2001 11/04/2004 12/2/2004
SUMMARY AND RECOMMENDATION
Appeals has verified, or received verification, that
applicable laws and administrative procedures have been
met, has considered all issues raised, and has balanced
the proposed collection action with the legitimate
concern that such action be no more intrusive than
necessary as required by IRC §6330(c)(3).
The outstanding tax liabilities of the Miller’s are the
result of self-assessed returns in which credits from
withholding and estimated tax payments were insuffi-
cient to cover the amount of Income Tax and Alternative
Minimum Tax on each return. They are in full compli-
ance for filing through tax year 2004, and have no
other outstanding liabilities than the ones at issue
under this Due Process request.
The administrative file indicates that the Miller’s
have previously submitted several Offers in Compromise,
all of which have been denied, citing that they have
the ability to pay their taxes in full via equity in
assets and future income potentials. They have also
been given the option of entering into an Installment
Agreement to resolve these liabilities, but have chosen
not to do so.
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At the Appeals level, the Miller’s participated in
several teleconferences and a face-to-face conference,
as well as exchanged numerous correspondences with this
office. At no time during Appeals consideration of
this account did the Miller’s present a viable alterna-
tive to resolve their outstanding taxes. The issues
raised by the Miller’s were as follows:
1. They requested relief from penalties and
interest. A review of the account tran-
scripts indicates that they were assessed the
Failure to Pay penalty for both years and the
Estimated Tax Penalty for tax year 2001.
They did not however, provide any documenta-
tion to illustrate why they were unable to
make sufficient estimated tax payments for
2001, or why they were now unable to satisfy
these liabilities. They simply requested to
have the penalties and associated interest
removed from their account because they felt
that they should not have to pay them, as
required by law. They were advised that they
did not meet the reasonable cause criteria to
abate the penalties, and that there were no
current IRS initiatives to waive penalty and
interest assessments on those individuals
owing AMT taxes.
2. They requested to have their future AMT cred-
its offset to pay the current outstanding
liabilities. They were advised that this is
not legal under current tax law legislation,
and that neither the office of Appeals, nor
any other operating division within the IRS
could negotiate such a settlement.
The Miller’s raised no other pertinent issues other
than to state that the application of the AMT was
unfair and inequitable, and they should not be forced
to pay taxes on this “phantom income”.
The Miller’s have never provided financial information
to Appeals as requested. By their own admission, they
have the resources to pay these taxes, but feel that it
would be unfair to make them use their equity in as-
sets, primarily their residence and a retirement ac-
count, to satisfy these debts.
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As no viable options have been presented for consider-
ation, further Appeals consideration of this account is
not warranted.
The filing of the Notice of Federal Tax Lien is sus-
tained by the Appeals office at this time. [Reproduced
literally.]
In the petition that petitioners filed commencing the
instant case, petitioners alleged:
We respectfully request the release of the lien applied
against us and the abatement of the associated penalty
and interest. Sufficient taxes have been paid to cover
our tax debt which is evidenced by the AMT credit due
us for $120,868 that the IRS currently holds.
Discussion
The Court may grant summary judgment where there is no
genuine issue of material fact and a decision may be rendered as
a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner,
98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).
Petitioners filed a response (petitioners’ response) to
respondent’s motion in which they oppose the granting of that
motion. According to petitioners,
The significant issue of material fact which is not
conceded is that the Collection Due Process hearing
should have considered the penalty assessment. * * *
the penalty waiver is justified because the estimated
tax penalties and failure to pay penalties were gener-
ated as a result of faulty tax advice.
* * * Petitioners raised the issue of propriety of
assessment of the penalties at the CDP hearing. It was
an abuse of discretion for the CDP officer to decline
to consider the penalty waiver request. The case of
Bell, 126 T.C. No. 18 (2006) cited by Respondent is
applicable because it references challenge to the
entire tax liability. A penalty abatement request may
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be processed by the Service at any time and is in that
respect materially different from a challenge to the
underlying tax liability
* * * the burden of proof for purpose of challeng-
ing the penalty in the CDP hearing is not merely abuse
of discretion. The CDP officer should have developed
the penalty waiver request.
* * * the penalty may be waived in a situation
where a taxpayer fails to properly report and pay the
alternative minimum tax if the taxpayer relied on
professionals, as was the case here. Montgomery, 127
T.C. No. 3 (2006).
* * * The tax and interest assessments are not at
issue in this case. [Reproduced literally.]
We conclude that there are no genuine issues of material
fact regarding the questions raised in respondent’s motion. In
that motion and the declaration and the exhibits attached
thereto, respondent has represented facts relating to the resolu-
tion of respondent’s motion, none of which petitioners dispute,
including the facts surrounding the mailing and the receipt by
each petitioner of a final notice of intent to levy with respect
to each of petitioners’ taxable years 2000 and 2001. Petitioners
do not dispute that respondent mailed such notices, that peti-
tioners received such notices, and that petitioners failed to
request an Appeals Office hearing in response to such notices.
Petitioners had an opportunity to challenge the respective
underlying tax liabilities for their taxable years 2000 and 2001
when each petitioner received a notice of intent to levy with
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respect to each of those years.2 In response to such notices,
petitioners declined to request an Appeals Office hearing.
Instead, they decided to file an offer-in-compromise with respon-
dent.
Nonetheless, during the consideration by the Appeals Office
of petitioners’ notice of tax lien with respect to petitioners’
taxable years 2000 and 2001, the settlement officer and the
second settlement officer, although not required to do so,
considered whether to abate the additions to tax under sections
6651(a)(2) and 6654 that respondent assessed with respect to
petitioners’ taxable year 2000 and/or their taxable year 2001.
As reflected in the attachment to the notice of determination
upon which this case is based, the second settlement officer
concluded that petitioners had failed to establish reasonable
cause to abate such additions to tax.
An Appeals officer may, within such officer’s sole discre-
tion, consider issues that are precluded from consideration under
section 6330(c)(2)(B). However, consideration of any such
2
We reject petitioners’ position that “A penalty abatement
request * * * is in that respect materially different from a
challenge to the underlying tax liability.” The Court has held
that the phrase “underlying tax liability” in sec. 6330(c)(2)(B)
is “a reference to the amounts that the Commissioner assessed for
a particular tax period.” Montgomery v. Commissioner, 122 T.C.
1, 7 (2004). What the Court concluded in Montgomery applies in
the instant case: “petitioners’ underlying tax liability con-
sists of the amount that petitioners reported due on their tax
return along with statutory interest and penalties.” Id. at 8.
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precluded issues does not allow the Court to consider such issues
in a case filed in response to a notice of determination.
Behling v. Commissioner, 118 T.C. 572, 578 (2002); sec. 301.6320-
1(e)(3), Q&A-E11, Proced. & Admin. Regs.
A taxpayer may raise challenges to the existence or the
amount of the taxpayer’s underlying tax liability if the taxpayer
did not receive a notice of deficiency or did not otherwise have
an opportunity to dispute the tax liability, sec. 6330(c)(2)(B),
including the tax liability reported in the return that such
taxpayer filed, Montgomery v. Commissioner, 122 T.C. 1 (2004).
In the instant case, although petitioners did not receive a
notice of deficiency, they had the opportunity after they re-
ceived the notices of intent to levy to dispute the additions to
tax under sections 6651(a)(2) and 6654 that respondent assessed.
They failed to do so. On the instant record, we find that
petitioners may not challenge the existence or the amount of the
underlying tax liability for each of their taxable years 2000 and
2001, including any additions to tax, that respondent assessed.
Where the validity of the underlying tax liability is not
properly placed at issue, the Court will review the determina-
tions of the Commissioner of the Internal Revenue for abuse of
discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza
v. Commissioner, 114 T.C. 176, 181-182 (2000).
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Based upon our examination of the record before us, we find
that respondent did not abuse respondent’s discretion in making
the determinations in the notice of determination with respect to
petitioners’ taxable years 2000 and 2001.
We have considered all of the contentions and arguments of
the parties that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
On the record before us, we shall grant respondent’s motion.
To reflect the foregoing,
An order granting respondent’s
motion and decision for respondent
will be entered.