T.C. Summary Opinion 2007-144
UNITED STATES TAX COURT
WARREN D. WARD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13066-05S. Filed August 20, 2007.
Warren D. Ward, pro se.
Gavin L. Greene, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of sections 6330(d) and 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. Unless otherwise
indicated, subsequent section references are to the Internal
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Revenue Code, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
This proceeding arises from a petition for judicial review
filed in response to a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330 (notice of
determination) issued to petitioner in June 2005 and supplemented
in October 2006. Pursuant to section 6330(d), petitioner seeks
review of respondent’s determination sustaining a proposed levy
for the taxable years 1997, 1998, and 1999.
After concessions,1 the issues for decision are: (1)
Whether respondent correctly determined petitioner’s underlying
tax liability for the years at issue; and (2) whether respondent
abused his discretion by sustaining the proposed levy. The
parties filed cross-motions for summary judgment pursuant to Rule
121(a). For the reasons discussed below, we shall grant
respondent’s motion and deny petitioner’s motion.
Background
Petitioner resided in Whittier, California, when the
petition was filed.
During the years at issue, petitioner worked for Viking
Freight, Inc. (Viking Freight), which was later acquired by
FedEx. Petitioner filed a Federal income tax return for 1997.
1
Respondent concedes unreported income of $13 and $14 for
1997 and 1999, respectively, and an addition to tax under sec.
6651(a)(2) for 1997.
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Although petitioner attached a Form W-2, Wage and Tax Statement,
showing that petitioner earned $20,2952 from Viking Freight, the
1997 return reports no income and no tax liability. Because
petitioner did not file a Federal income tax return for 1998 or
1999, respondent prepared substitutes for returns for those years
based on Forms W-2 and other third-party information documents.
Respondent assessed a $500 civil penalty against petitioner
under section 6702 for filing a frivolous tax return for 1997.
Respondent also determined a deficiency in income tax for each of
the years 1997, 1998, and 1999 and issued petitioner separate
notices of deficiency for each year. Petitioner did not petition
the Court in response to any of the notices. Respondent assessed
the tax reflected in the notices of deficiency and, on the same
dates as the assessments were made, issued petitioner statutory
notices of balance due.
After petitioner failed to make payment, respondent issued a
notice of intent to levy.3 Petitioner timely submitted a Form
12153, Request for a Collection Due Process Hearing.
Petitioner’s case was assigned to a settlement officer, who
conducted an administrative hearing with petitioner by
correspondence. The settlement officer considered both the civil
2
All dollar amounts are rounded to the nearest dollar.
3
The notice of intent to levy also included civil penalties
assessed under sec. 6702 for the taxable years 1993 through 1996.
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penalty and the income tax liabilities that had been assessed.
The settlement officer ultimately concluded that the proposed
levy should be sustained. Respondent issued a notice of
determination with respect to the civil penalty and a separate
notice of determination for the income tax liabilities.
Petitioner filed a timely petition with the Court. By Order
dated May 4, 2006, we dismissed this case for lack of
jurisdiction to the extent petitioner sought review of the notice
of determination concerning the civil penalty. The Order makes
clear that we have jurisdiction only with respect to the notice
of determination that addresses petitioner’s income tax
liabilities.4
After a hearing in June 2006, we remanded this case to
respondent’s Office of Appeals, and petitioner’s case was
assigned to a different settlement officer. The settlement
officer provided petitioner with several documents, including
4
Our jurisdiction to review the Commissioner’s collection
activity requires that we have jurisdiction over the underlying
type of tax involved, Andre v. Commissioner, 127 T.C. 68, 70
(2006), and historically we have not had jurisdiction to review
the sec. 6702 penalty, Van Es v. Commissioner, 115 T.C. 324,
328-329 (2000). On Aug. 17, 2006, Congress enacted the Pension
Protection Act of 2006 (the Act), Pub. L. 109-280, 120 Stat. 780.
The Act amends sec. 6330(d)(1) to give the Tax Court jurisdiction
to review the Commissioner’s collection activity regardless of
the underlying type of tax involved. However, the amendment to
sec. 6330(d)(1) is effective only for determinations made after
Oct. 16, 2006. Act sec. 855, 120 Stat. 1019. Because the
determination in this case was made before that date, we lack
jurisdiction to review the sec. 6702 penalty.
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Forms 4340, Certificate of Assessments, Payments, and Other
Specified Matters, for the years at issue. The settlement
officer requested that petitioner submit, inter alia, tax returns
for 2004 and 2005 and a Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals.
Although the parties exchanged correspondence over the next
few months, petitioner did not provide the requested information.
Respondent issued petitioner a Supplemental Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 (supplemental notice) on October 2, 2006. The
supplemental notice sustains the proposed levy and states that
applicable legal and administrative requirements were met.
In February 2007, the parties filed cross-motions for
summary judgment.5 Respondent and petitioner each filed an
objection, and petitioner filed a reply to the objection.
Discussion
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted with respect to all or any part of the legal issues in
controversy “if the pleadings, answers to interrogatories,
depositions, admissions, and any other acceptable materials,
5
Respondent had filed an earlier motion for summary
judgment on Apr. 11, 2006, which we denied without prejudice.
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together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that a decision may be
rendered as a matter of law.” Rule 121(a) and (b); Sundstrand
Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965
(7th Cir. 1994); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).
The moving party bears the burden of proving that there is no
genuine issue of material fact, and factual inferences will be
read in a manner most favorable to the party opposing summary
judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985);
Jacklin v. Commissioner, 79 T.C. 340, 344 (1982). Because we
find there is no genuine issue of material fact, summary judgment
is appropriate.
Section 6331(a) authorizes the Secretary to levy upon
property and property rights of a taxpayer liable for taxes who
fails to pay those taxes within 10 days after a notice and demand
for payment is made. Section 6331(d) provides that the levy may
be made only if the Secretary has given written notice to the
taxpayer 30 days before the levy. Section 6330(a) requires the
Secretary to send a written notice to the taxpayer of the amount
of the unpaid tax and of the taxpayer’s right to a section 6330
hearing at least 30 days before the levy is begun.
If a section 6330 hearing is requested, the hearing is to be
conducted by the Office of Appeals, and the Appeals officer
conducting it must verify that the requirements of any applicable
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law or administrative procedure have been met. Sec. 6330(b)(1)
and (c)(1). The taxpayer may raise at the hearing any relevant
issue relating to the unpaid tax or the proposed levy. Sec.
6330(c)(2)(A). The taxpayer also may raise challenges to the
existence or amount of the underlying tax liability at a hearing
if the taxpayer did not receive a statutory notice of deficiency
with respect to the underlying tax liability or did not otherwise
have an opportunity to dispute that liability. Sec.
6330(c)(2)(B); Montgomery v. Commissioner, 122 T.C. 1 (2004).
This Court has jurisdiction under section 6330 to review the
Commissioner’s administrative determinations. Sec. 6330(d);
Iannone v. Commissioner, 122 T.C. 287, 290 (2004). Where the
validity of the underlying tax liability is properly at issue, we
review the determination de novo. Where the underlying tax
liability is not at issue, we review for abuse of discretion.
Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 182 (2000).
I. The Underlying Tax Liability
Respondent concedes that the underlying tax liability is
properly at issue.6 In the notices of deficiency, respondent
6
While copies of the notices of deficiency were attached to
respondent’s pleadings, respondent was unable to produce evidence
that petitioner received the notices. Accordingly, respondent
considered the underlying tax liability at the administrative
hearing and agrees that petitioner may raise the issue in this
proceeding. See sec. 6330(c)(2)(B).
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determined that petitioner had unreported wage income for each of
the years at issue. For the taxable years 1998 and 1999,
respondent also determined additions to tax under sections
6651(a)(1) and 6654(a).
A. Unreported Income
Gross income includes all income from whatever source
derived, including compensation for services. Sec. 61(a)(1). In
general, the Commissioner’s determinations set forth in a notice
of deficiency are presumed correct, and the taxpayer bears the
burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under
certain circumstances, the burden of proof as to factual matters
shifts to the Commissioner. Sec. 7491(a). However, petitioner
has neither alleged that section 7491(a) applies nor established
his compliance with the requirements of section 7491(a)(2)(A) and
(B) to substantiate items, maintain records, and cooperate fully
with respondent’s reasonable requests. Petitioner therefore
bears the burden of proof.7
7
But for the provisions of sec. 7463(b), this case would be
appealable to the Court of Appeals for the Ninth Circuit (Court
of Appeals). See sec. 7482(b)(1)(A). We therefore follow the
law of that court. Golsen v. Commissioner, 54 T.C. 742, 757
(1970), affd. 445 F.2d 985 (10th Cir. 1971). In order for the
presumption of correctness to apply in a case involving
unreported income, the Court of Appeals has held that the
Commissioner “must show some minimal evidence linking the
taxpayer to the source of that income”. Palmer v. IRS, 116 F.3d
1309, 1312-1313 (9th Cir. 1997). Although it is unclear whether
(continued...)
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Petitioner does not deny that he worked for Viking Freight
during the years at issue or that he received compensation for
his services. In fact, petitioner attached a Form W-2 from
Viking Freight to his 1997 tax return. Petitioner’s payroll
records for 1998 and 1999 likewise indicate that petitioner
received wage income in the amounts shown in the notices of
deficiency. Respondent’s determination on this issue is
sustained.
B. Addition to Tax Under Section 6651(a)(1)
If a Federal income tax return is not timely filed, an
addition to tax will be assessed “unless it is shown that such
failure is due to reasonable cause and not due to willful
neglect”. Sec. 6651(a)(1). The Commissioner has the burden of
production with respect to the liability of any individual for an
addition to tax under section 6651(a)(1). Sec. 7491(c). The
burden of showing reasonable cause under section 6651(a) remains
on petitioner. Higbee v. Commissioner, 116 T.C. 438, 446-448
(2001).
Respondent has met his burden of production. Petitioner
does not deny that he failed to file a tax return for 1998 or
7
(...continued)
this rule applies in the context of sec. 6330, see Aston v.
Commissioner, T.C. Memo. 2003-128 n.2, respondent has connected
petitioner with the source of the wage income through the Forms
W-2, as well as payroll records. Thus, respondent’s
determination is entitled to the presumption of correctness.
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1999. Petitioner introduced no evidence establishing reasonable
cause. Respondent’s determination on this issue is sustained.
C. Addition to Tax Under Section 6654(a)
Section 6654(a) provides for an addition to tax “in the case
of any underpayment of estimated tax by an individual”. This
addition to tax is mandatory unless one of the statutorily
provided exceptions applies. See sec. 6654(e); Grosshandler v.
Commissioner, 75 T.C. 1, 20-21 (1980). There is no exception for
reasonable cause or lack of willful neglect. Estate of Ruben v.
Commissioner, 33 T.C. 1071, 1072 (1960).
Respondent bears the burden of production with respect to
the addition to tax under section 6654(a). Davis v.
Commissioner, T.C. Memo. 2005-160. To meet this burden,
respondent must show that petitioner had a “required annual
payment”. Wheeler v. Commissioner, 127 T.C. 200, 210-212 (2006).
The required annual payment equals the lesser of (1) 90 percent
of the tax shown on the return for the taxable year (or 90
percent of the tax for such year if no return is filed), or (2)
100 percent of the tax shown on the individual’s return for the
preceding taxable year (if the individual filed a return for that
preceding year). Sec. 6654(d)(1)(B).
Because petitioner had a tax liability for each of the years
at issue, he had an obligation to make estimated tax payments for
1998 and 1999. See Wheeler v. Commissioner, supra at 211. The
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Forms 4340 do not indicate, nor does petitioner contend, that he
made any such payments for 1998 or 1999. Respondent therefore
has met his burden of production. As petitioner has not shown
that any of the statutory exceptions are applicable, respondent’s
determination on this issue is sustained.
II. The Proposed Levy
Petitioner asserts that respondent failed to satisfy the
requirements of section 6330. Specifically, petitioner contends
that he was not given notice and demand for payment of tax as
required by section 6303(a).
In general, section 6303(a) provides that the Secretary
shall give notice and demand for payment to the taxpayer within
60 days of making an assessment of tax. A settlement officer may
rely on Form 4340 to verify that a notice and demand for payment
was sent to the taxpayer. See Hansen v. United States, 7 F.3d
137, 138 (9th Cir. 1993); Clough v. Commissioner, T.C. Memo.
2007-106 n.6.
The Forms 4340 for 1997, 1998, and 1999 show that respondent
issued petitioner timely notices of balance due, which constitute
notice and demand for payment within the meaning of section
6303(a). Clough v. Commissioner, supra n.7; Standifird v.
Commissioner, T.C. Memo. 2002-245, affd. 72 Fed. Appx. 729 (9th
Cir. 2003). Petitioner has failed to present any credible
evidence that notice and demand was not issued as indicated on
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the Forms 4340. We therefore conclude that notices and demands
were properly issued. Because the record indicates that
respondent also satisfied the remaining requirements of section
6330(c)(1), we sustain respondent’s determination to proceed with
the levy, except to the extent of respondent’s concessions. See
supra note 1; see also Burke v. Commissioner, 124 T.C. 189,
195-196 (2005) (holding that a Form 4340 satisfies the
verification requirements of section 6330(c)(1)).
To reflect the foregoing,
An appropriate order and
decision will be entered.