T.C. Summary Opinion 2007-67
UNITED STATES TAX COURT
ROBERT LINDLEY COWLEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24013-05S. Filed April 26, 2007.
Robert Lindley Cowley, pro se.
Jonathan J. Ono, for respondent.
HAINES, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed. Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other
case.
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Petitioner 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 1990,
1997, 1999 (years at issue).1 Pursuant to section 6330(d),
petitioner seeks review of respondent’s determination. The issue
for decision is whether petitioner is entitled to any relief from
respondent’s determination that collection may proceed.
The parties’ stipulation of facts and the attached exhibits
are incorporated herein by this reference. Petitioner resided in
Honolulu, Hawaii, when he filed his petition.
Petitioner did not file a Federal income tax return for 1990
and did not make estimated tax payments for 1990. Respondent
filed a substitute for return on June 7, 1993. Respondent mailed
petitioner notices of deficiency for 1990 on June 25 and November
9, 1993, to two separate addresses, determining that petitioner
owed a deficiency of $2,598, as well as additions to tax under
sections 6651(a) and 6654(a) of $650 and $171, respectively.
Petitioner did not file a petition with the Court to redetermine
the deficiency. On August 15, 1994, respondent assessed the tax
liability including penalties and interest for 1990.
1
Unless otherwise indicated, all section references are to
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.
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On March 13, 2003, petitioner submitted a Form 656, Offer in
Compromise (first offer-in-compromise), with completed Form 433-
A, Collection Information Statement for Wage Earners and Self-
Employed Individuals, offering $600 to compromise his outstanding
tax liabilities for 1990 through 2002.
On March 31, 2003, petitioner filed Form 1040, U.S.
Individual Income Tax Return, for 1999, reporting a tax liability
of $3,059 and payments of $2,752 and $1,292, which represented
tax withheld from 1999 and an overpayment credit from 1998,
respectively. Respondent disallowed the $1,292 overpayment
credit pursuant to section 6511.2
On April 28, 2003, the first offer-in-compromise was
returned because petitioner failed to file a Form 1040 for 1997.
On May 19, 2003, respondent assessed tax liabilities along
with penalties and interest for 1999.
On June 25, 2003, petitioner submitted a second Form 656
with a completed Form 433-A (second offer-in-compromise),
offering $200 to compromise his tax liabilities for 1980 through
2002.
2
The Internal Revenue Service determined the return for
1998 was not filed within 2 years from the time the tax was paid.
Petitioner’s credit from withheld taxes and excess FICA for 1998
was paid on April 15, 1999, and his 1998 Federal income tax
return was filed on May 5, 2003.
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On June 27, 2003, respondent received petitioner’s Form 1040
for 1997, reporting a tax liability of $2,069. He did not make
any estimated payments for 1997.
On July 28, 2003, the second offer-in-compromise was
returned because petitioner failed to file a Form 1040 for 1997.
Although respondent received the Form 1040 for 1997 on June 27,
2003, it was not processed until August 18, 2003. On August 18,
2003, respondent assessed the tax liability including penalties
and interest for 1997.
On November 25, 2003, petitioner submitted a third Form 656
with a completed Form 433-A (third offer-in-compromise). The
third offer-in-compromise was rejected because the amount offered
was less than the reasonable collection potential.3
On October 13, 2004, respondent mailed petitioner a Notice
of Federal Tax Lien Filing and Notice of Your Right to a Hearing
Under IRC 6320 (notice of Federal tax lien) for the years at
issue. The notice of Federal tax lien advised petitioner he was
entitled to request a hearing to appeal the collection action and
to discuss optional payment methods. On November 15, 2004,
petitioner submitted Form 12153, Request for a Collection Due
Process Hearing. In his request, petitioner asserted he earned
3
Petitioner was mailed his last rejection letter on Dec.
22, 2004, which gave him 30 days to respond and/or appeal. He
failed to timely file an appeal, and his offer-in-compromise was
closed Jan. 21, 2005.
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insufficient income to generate a tax liability in 1990, and he
did not have tax liabilities for 1997 and 1999 because he had
sufficient overpayment credits from subsequent tax years to
satisfy any outstanding tax liability. On June 1, 2005,
petitioner mailed a Form 433-A to respondent’s Appeals Office,
where his hearing request was being considered.
On October 17, 2005, Settlement Officer Kathleen Derrick
mailed petitioner a letter scheduling a telephonic hearing. The
letter informed petitioner he could not contest the underlying
income tax liability for 1990 because he had received a statutory
notice of deficiency for that year and had not filed a petition
in Tax Court. The letter also included literal transcripts for
1990 and 1997 through 2003 reflecting the balances due and the
payments that were applied to those years.4 The letter indicated
that if there were any “payments for which you believe you have
not been credited, please provide copies of cancelled checks for
these payments”.
On November 3, 2005, a telephonic hearing was held between
Ms. Derrick and petitioner, during which petitioner asserted he
did not owe any of the income tax liabilities for the years at
4
The transcripts indicated overpayment credits of $300 and
$678 were transferred from 2000 and 2001, respectively, and
applied to petitioner’s 1989 tax liability. The transcripts also
indicated overpayment credits of $1,309 and $677 were transferred
from 2002 and 2003, respectively, and applied to petitioner’s
1990 tax liability.
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issue because he earned insufficient income in 1990 and had
sufficient overpayments from subsequent tax years to satisfy any
tax liabilities for 1997 and 1999. Petitioner also informed Ms.
Derrick that he was unsure whether he received the notice of
deficiency for 1990 because he was transient at that time.
On November 21, 2005, respondent’s Appeals Office issued
petitioner a notice of determination sustaining the filing of the
notice of Federal tax lien. In the notice of determination, Ms.
Derrick found that the 1990 notice of deficiency was mailed to
the correct address, and as a result petitioner could not dispute
the underlying liability for such year. She also found that
petitioner’s overpayment credits did not satisfy his outstanding
tax liabilities for 1997 and 1999 because the credits were used
to offset petitioner’s 1990 tax liability.5 Additionally, Ms.
Derrick explained that petitioner was barred from using the
$1,292 credit from 1998 to offset his outstanding tax liabilities
because the 1998 return was filed more than 2 years from the time
the tax was paid.6 Petitioner refused to discuss any collection
alternatives during the hearing.
5
Ms. Derrick’s determination did not indicate petitioner’s
overpayment credits were also used to offset his outstanding
liability in 1989. See supra note 4.
6
See supra note 2. Petitioner did not raise this issue at
trial.
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In response to the notice of determination, petitioner filed
his petition with this Court on August 25, 2005.
I. Standard of Review
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).7 The underlying tax
liability is properly at issue if the taxpayer did not receive a
statutory notice of deficiency or otherwise have an opportunity
to dispute the tax liability. Sec. 6330(c)(2)(B); see Behling v.
Commissioner, 118 T.C. 572, 576-577 (2002).
Where the validity of the underlying tax liability is not
properly at issue the Court will review the Commissioner’s
determination for abuse of discretion. Sego v. Commissioner,
supra at 610; Goza v. Commissioner, supra at 181. The abuse of
discretion standard requires the Court to decide whether the
Commissioner’s determination was arbitrary, capricious, or
without sound basis in fact or law. Woodral v. Commissioner, 112
T.C. 19, 23 (1999); Keller v. Commissioner, T.C. Memo. 2006-166;
Fowler v. Commissioner, T.C. Memo. 2004-163.
7
The term “underlying tax liability” under sec.
6330(c)(2)(B) includes amounts self-assessed under sec. 6201(a),
together with penalties and interest. Sec. 6201(a)(1);
Montgomery v. Commissioner, 122 T.C. 1, 9 (2004); sec.
301.6201-1, Proced. & Admin. Regs.
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II. Tax Year 1990
Respondent mailed petitioner two notices of deficiency for
1990. On cross-examination by respondent’s counsel, petitioner
admitted receiving the notice of deficiency for 1990. Therefore,
petitioner’s underlying income tax liability for 1990 is not
properly at issue, and this Court will review respondent’s
determination for 1990 for abuse of discretion.
At the hearing, petitioner did not challenge the
appropriateness of the intended method of collection, discuss
collection alternatives, or raise a spousal defense. See sec.
6330(c)(2)(A). Petitioner raised only arguments he was precluded
from contesting; i.e., that he does not owe the underlying income
tax liability because he did not earn enough income to be taxed.
Therefore, this Court concludes respondent’s determination
to proceed with collection of the tax liability assessed against
petitioner for 1990 was not an abuse of discretion.
III. Tax Years 1997 and 1999
Petitioner was not issued a notice of deficiency for tax
years 1997 or 1999, and he did not otherwise have a prior
opportunity to dispute the tax liabilities. Therefore,
petitioner’s underlying tax liabilities for 1997 and 1999 are at
issue, and this Court will review respondent’s determination for
1997 and 1999 de novo.
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During the hearing and at trial, petitioner contended he did
not owe Federal income tax liabilities for 1997 and 1999 because
he had sufficient overpayment credits from subsequent tax years
to satisfy any liability for such years. The taxpayer bears the
burden of proving the Commissioner’s determinations are
incorrect. See Rule 142(a).
The parties stipulated respondent’s literal transcripts of
account for petitioner’s 1990 and 1997 through 2003 tax years.
The transcripts reflected, inter alia, all payments received by
respondent for petitioner’s tax liabilities. The balances that
remained were consistent with the amounts respondent is
attempting to collect.
Petitioner did not produce any evidence supporting
unreported payments to offset his outstanding tax liabilities.
At trial, he merely testified that he did not owe a tax
liabilities for 1997 or 1999. This Court cannot assume
petitioner previously paid the tax liabilities respondent is
attempting to collect without credible evidence showing
petitioner made greater payments to respondent than those
reflected in the transcripts.
At trial petitioner also claimed he filed two tax returns
for 1999. He testified the first was timely filed by him and the
second untimely return filed on March 31, 2003, was filed by his
attorney. Petitioner did not produce any documentation to
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support that his 1999 return was filed timely. Thus, petitioner
did not meet his burden of proof.
Accordingly, this Court finds that respondent correctly
determined that collection could proceed for 1997 and 1999. See
Boyd v. Commissioner, 117 T.C. 127, 131-132 (2001).
In reaching these holdings, the Court has considered all
arguments made and, to the extent not mentioned, concludes that
they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be
entered for respondent.