T.C. Memo. 2007-69
UNITED STATES TAX COURT
DAVID AND MONIKA ZISSKIND, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14621-05L. Filed March 27, 2007.
Timothy J. Burke, for petitioners.
Louise R. Forbes, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Petitioners filed a petition with this Court
in response to a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of
determination) for 1999.1 Pursuant to section 6330(d),
1
Unless otherwise indicated, all section references are to
(continued...)
- 2 -
petitioners seek review of respondent’s determination. The
issues for decision are: (1) Whether petitioners are liable for
an addition to tax under section 6651(a)(2); (2) whether
respondent abused his discretion by determining that petitioners
were not entitled to an abatement of interest under section
6404(e); and (3) whether respondent abused his discretion by
determining that a Federal tax lien was appropriately filed and
would remain in effect until petitioners’ tax liability was
satisfied.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, the supplemental stipulation of facts,
and the attached exhibits are incorporated herein by this
reference. At the time the petition was filed, petitioners
resided in South Boston, Massachusetts.
During 1999, David Zisskind (petitioner) was a self-employed
real estate developer and contractor. Petitioner owned an
interest in Mercer Properties, L.L.C. (Mercer). In April 1999,
Mercer sold real property developed by petitioner. In April or
May 1999, Mercer distributed profits of $156,857 from that sale
to petitioner. Petitioner knew that he would owe tax as a result
1
(...continued)
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
- 3 -
of the distribution. However, petitioner did not make any
estimated tax payments during 1999.
Despite their 1999 Federal income tax return’s being due on
August 15, 2000, petitioners filed their return on December 4,
2000. Petitioners reported the distribution of income from
Mercer, total income of $154,751, taxable income of $121,530, and
total tax of $42,159. Petitioners reported zero total payments,
an estimated tax penalty of $805, and a total amount due of
$42,964. Petitioners paid only $500 with their return.
On January 1, 2001, respondent assessed the total amount
petitioners reported due, an addition to tax of $7,589 under
section 6651(a)(1) for failure to timely file, and an addition to
tax of $1,895 under section 6651(a)(2) for failure to pay the
amount shown as tax on the return.
On November 27, 2002, petitioners submitted to respondent a
Form 656, Offer in Compromise, and a Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
Individuals. Petitioners proposed to pay $14,000 to compromise
their outstanding tax liability for 1999. Respondent found that
petitioners’ Form 433-A was insufficient, questioned the source
of several deposits into petitioners’ bank account, and
questioned their involvement in at least two limited liability
companies. On July 7, 2003, respondent requested more
information from petitioners. Respondent found the additional
- 4 -
information provided by petitioners unsatisfactory and returned
the offer-in-compromise forms to petitioners on April 27, 2004.
On April 29, 2004, respondent sent petitioners a Notice of
Federal Tax Lien and Your Right to a Hearing Under IRC 6320
(notice of Federal tax lien) for their outstanding tax liability
for 1999. At the time respondent issued the notice of Federal
tax lien, petitioners owed $29,414, including penalties and
interest.
On May 18, 2004, petitioners submitted to respondent a Form
12153, Request for a Collection Due Process Hearing (request for
a section 6330 hearing). Petitioners requested that an offer-in-
compromise or an installment agreement be entered into. However,
petitioners did not provide a Form 656, a Form 433-A, or an
installment agreement request.2
On June 17, 2004, Settlement Officer Maria Russo (Ms. Russo)
of respondent’s Boston Appeals Office was assigned to
petitioners’ case. On September 28, 2004, Timothy J. Burke (Mr.
Burke), petitioners’ attorney, telephoned Ms. Russo to discuss
petitioners’ request for a section 6330 hearing. On October 21,
2
At various times during their sec. 6330 hearing and
afterwards, petitioners requested an offer-in-compromise or an
installment agreement. In the notice of determination,
respondent determined that petitioners abandoned their request
for an offer-in-compromise and did not provide adequate financial
information so that an installment agreement could be considered.
Petitioners do not dispute this determination in their petition
or on brief, and we do not discuss the offer-in-compromise and
the installment agreement further.
- 5 -
2004, Mr. Burke sent a letter to Ms. Russo disputing petitioners’
liability for the additions to tax under section 6651(a)(1) and
(2).
Petitioners’ section 6330 hearing was held on December 16,
2004. During the hearing, petitioners contested their liability
for the additions to tax under section 6651(a)(1) and (2),
requested an abatement of interest under section 6404(e), and
requested the withdrawal of the Federal tax lien. Ms. Russo
informed petitioners they would not be liable for the additions
to tax under section 6651(a)(1) and (2) if they could establish
that their failure to timely file and pay was due to reasonable
cause. Ms. Russo requested that petitioners provide her with
additional information to establish reasonable cause.
Between January 31 and April 22, 2005, petitioners provided
Ms. Russo with bank statements, their 2000 Federal income tax
return, and other information intended to establish reasonable
cause for their failure to timely file and pay. On April 27,
2005, Ms. Russo advised petitioners that she would review the
information submitted and make her determination.
On July 1, 2005, respondent issued petitioners the notice of
determination. Respondent determined that petitioners
established their failure to timely file was due to reasonable
cause. Accordingly, respondent determined petitioners were not
liable for an addition to tax under section 6651(a)(1). However,
- 6 -
respondent determined petitioners were liable for an addition to
tax under section 6651(a)(2) because they did not establish that
their failure to pay the tax shown on their return was due to
reasonable cause.3 Respondent also determined petitioners were
not entitled to an abatement of interest. Because petitioners
“provided no concrete information as to how the collection would
be facilitated” if the notice of Federal tax lien were withdrawn,
respondent determined the Federal tax lien should not be
withdrawn. Respondent verified that all statutory and
administrative requirements were met and concluded that the
filing of the notice of Federal tax lien was appropriate.
In response to the notice of determination, petitioners
filed a petition with this Court on August 8, 2005.
OPINION
Section 6321 imposes a lien in favor of the United States on
all property and rights to property of a taxpayer liable for
taxes when a demand for payment of the taxes has been made and
the taxpayer fails to pay those taxes. Section 6320(a) provides
that the Secretary shall furnish the taxpayer with written notice
of a Federal tax lien within 5 business days after the notice of
lien is filed. Section 6320 further provides that the taxpayer
3
Because respondent found petitioners were not liable for
the addition to tax under sec. 6651(a)(1), respondent increased
the amount of the addition to tax under sec. 6651(a)(2) by $4,725
to $6,620.
- 7 -
may request an Appeals hearing within 30 days beginning on the
day after the 5-day period described above. Sec. 6320(a)(3)(B)
and (b)(1). Section 6320(c) provides that the Appeals hearing
generally shall be conducted consistent with the procedures set
forth in section 6330.
Section 6330(c) provides for review with respect to
collection issues such as the appropriateness of the
Commissioner’s proposed collection actions and the possibility of
collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may
also challenge the amount of the underlying tax liability if a
statutory notice of deficiency was not received or the taxpayer
did not otherwise have an opportunity to dispute the tax
liability. Sec. 6330(c)(2)(B).
Pursuant to section 6330(d)(1), within 30 days of the
issuance of a notice of determination the taxpayer may appeal the
determination to this Court if we have jurisdiction over the
underlying tax liability. 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);
Goza v. Commissioner, 114 T.C. 176, 181 (2000). Where the
validity of the underlying tax liability is not properly at
issue, however, the Court will review the Commissioner’s
determination for an abuse of discretion. Sego v. Commissioner,
supra at 610; Goza v. Commissioner, supra at 181.
- 8 -
Because the underlying income tax liability was self-
assessed, petitioners did not receive a notice of deficiency.
The parties agree petitioners have not had an opportunity to
dispute their liability for the addition to tax under section
6651(a)(2). Therefore, we review de novo whether petitioners are
liable for the addition to tax under section 6651(a)(2). See
Downing v. Commissioner, 118 T.C. 22, 29 (2002); Ramirez v.
Commissioner, T.C. Memo. 2005-179; Godwin v. Commissioner, T.C.
Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th Cir. 2005).
However, we review for an abuse of discretion respondent’s
determinations rejecting an abatement of interest and sustaining
the Federal tax lien. See Downing v. Commissioner, supra at 29;
Ramirez v. Commissioner, supra; Godwin v. Commissioner, supra;
see also sec. 6404(h)(1).
A. Addition to Tax Under Section 6651(a)(2)
Section 6651(a)(2) imposes an addition to tax for failure to
pay the amount shown as a tax on a return by the date prescribed
(determined with regard to any extension of time for payment).
Section 7491(c) requires respondent to carry the burden of
production with respect to the addition to tax for failure to
pay. Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To
meet his burden of production, respondent must come forward with
sufficient evidence indicating that it is appropriate to impose
the addition to tax. Id. Once respondent meets this burden,
- 9 -
petitioners must come forward with evidence sufficient to
persuade the Court that they are not liable for the addition to
tax.
The parties stipulated that petitioners did not pay their
tax liability for 1999 when it was due. Respondent’s Form 4340,
Certificate of Assessments, Payments, and Other Specified
Matters, indicates that, at the time of trial, petitioners still
had an outstanding tax liability for 1999. Further, petitioner
testified that petitioners have not paid their outstanding tax
liability for 1999. We find that, on these facts, respondent has
met his burden of production under section 7491(c).
Petitioners may avoid the addition to tax if they can
establish that their failure to timely pay was due to reasonable
cause and not due to willful neglect. Sec. 6651(a). A showing
of reasonable cause requires a taxpayer to demonstrate that he
exercised ordinary business care and prudence but nevertheless
was unable to pay the tax within the prescribed time. Sec.
301.6651-1(c)(1), Proced. & Admin. Regs. The taxpayer will be
considered to have exercised ordinary business care and prudence
if he made reasonable efforts to conserve sufficient assets in
marketable form to satisfy his tax liability and nevertheless was
unable to pay all or a portion of the tax when it became due.
Id.
- 10 -
Petitioner knew that he would owe tax as a result of the
distribution of profits from Mercer, but petitioners failed to
make estimated tax payments and paid only $500 when they filed
their return. Nevertheless, petitioners argue they had
reasonable cause for their failure to timely pay their full tax
liability because they made reasonable efforts to conserve
sufficient assets in marketable form to satisfy their tax
liability but were nevertheless unable to pay the tax when it
became due. Petitioners assert they invested the profits
received from Mercer with Merrill Lynch “into stocks like Intel
and high tech stocks and things that were safe”. However,
petitioners assert that “Merrill Lynch lost it”, leaving
petitioners unable to satisfy their tax obligations. Petitioner
testified that he believed he was making a conservative
investment and he “thought it was the same thing as a bank.”
While petitioners provided Ms. Russo with bank statements to
support their contention that they were unable to pay their
outstanding tax liability, they did not provide Ms. Russo with
information regarding their investment with Merrill Lynch. Other
than petitioner’s testimony, there is no evidence in the record
concerning petitioners’ investment with Merrill Lynch, or that
such an investment was even made. Other than stating they
invested in “stocks like Intel and high tech stocks”, petitioners
have not specifically identified what stocks they invested in.
- 11 -
Petitioners provided the Court with no information
indicating when their investment became worthless. In fact,
petitioners did not claim a capital loss on their 2000 Federal
income tax return, indicating that their investment did not
become worthless in 2000. Without this information, we cannot
determine whether petitioners had the ability to pay their tax
liability when it was due.
There is no evidence in the record regarding whether
petitioners exercised ordinary business care and prudence in
monitoring their investment. Additionally, given that petitioner
was a self-employed real estate developer and contractor, we do
not find credible his testimony that he thought investing with
Merrill Lynch was the same thing as depositing the money with a
bank.
Petitioners have not established that they made a
“reasonable efforts to conserve sufficient assets in marketable
form”. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs.
Petitioners have failed to show that their failure to timely pay
the amount of tax shown on their return was due to reasonable
cause and not due to willful neglect. Therefore, we hold that
petitioners are liable for an addition to tax under section
6651(a)(2) as respondent determined.
- 12 -
B. Abatement of Interest Under Section 6404(e)
Section 6404(e)(1) provides that the Secretary may abate the
assessment of interest that accrued as the result of any
unreasonable error or delay by an officer or employee of the
Internal Revenue Service in performing a ministerial or
managerial act. However, section 6404(e)(1) also provides that
“an error or delay shall be taken into account only if no
significant aspect of such error or delay can be attributed to
the taxpayer involved, and after the Internal Revenue Service has
contacted the taxpayer in writing with respect to such deficiency
or payment.”
The Court may order abatement if the Secretary abuses his
discretion by failing to abate interest. Sec. 6404(h)(1). In
order to prevail, a taxpayer must prove the Commissioner
exercised his discretion arbitrarily, capriciously, or without
sound basis in fact or law. Woodral v. Commissioner, 112 T.C.
19, 23 (1999); Nelson v. Commissioner, T.C. Memo. 2004-34.
Petitioners argue that respondent abused his discretion by
failing to abate interest that accrued “due to the Respondent’s
unnecessary delay in resolving the present matter”. Petitioners
assert respondent delayed in returning to them the offer-in-
compromise forms submitted on November 27, 2002, and failed to
meet with petitioners despite several requests to do so.
- 13 -
Petitioners have not shown that respondent caused any
unreasonable error or delay in the evaluation of their offer-in-
compromise forms submitted on November 27, 2002. Moreover, any
delays in processing the offer-in-compromise were attributable in
significant part to petitioners’ failure to provide the revenue
officer with requested information or clarification of other
information.
Petitioners’ assertion that respondent failed to meet with
them to resolve this case despite several attempts by petitioners
to do so is without support. Petitioners provided no specific
information regarding who they tried to contact or when.
Additionally, Ms. Russo’s casenotes indicate that she promptly
responded to all telephone calls and correspondence.
Petitioners have failed to establish that respondent caused
any unreasonable errors or delays in the performance of a
ministerial or managerial act. Therefore, petitioners have
failed to show that respondent abused his discretion by rejecting
their request for an abatement of interest. We hold that
respondent did not abuse his discretion by rejection petitioners’
request for an abatement of interest.
C. Appropriateness of the Federal Tax Lien
During their section 6330 hearing, petitioners requested
that respondent release the Federal tax lien. However,
petitioners did not allege in their petition that respondent
- 14 -
erred by determining that the Federal tax lien should not be
withdrawn. At trial, petitioner testified that the Federal tax
lien was affecting his business and petitioners would be able to
pay their taxes if the lien was removed. On brief, petitioners
requested that the Court find as a fact that “The Petitioner
believes that if the Federal Tax Lien was taken off, he would be
able to earn money to pay his 1999 tax liability.” However,
petitioners did not argue on brief that respondent abused his
discretion by determining that the Federal tax lien should not be
withdrawn.
Rule 331(b)(4) provides that, in a lien or levy action, the
petition must include “Clear and concise assignments of each and
every error which the petitioner alleges to have been committed
in the notice of determination. Any issue not raised in the
assignments of error shall be deemed to be conceded.” Because
petitioners did not allege in their petition that respondent
abused his discretion by determining that the Federal tax lien
should not be withdrawn and because petitioners did not address
it on brief, we find that petitioners have conceded the issue.
Therefore, we hold that respondent did not abuse his discretion
by determining that a Federal tax lien was appropriately filed
and would remain in effect until petitioners’ tax liability was
satisfied.
- 15 -
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.