Richard and Mabel Kelby v. Commissioner

130 T.C. No. 6

UNITED STATES TAX COURT

RICHARD AND MABEL KELBY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13268-03L. Filed April 28, 2008.

Ps petitioned this Court for review of a notice of
determination issued under sec. 6330, I.R.C.
Thereafter, the case was remanded to R’s Appeals Office
three times; each time a supplemental notice of
determination was issued. On the third remand, R
conceded that Ps’ 1989 tax liability was fully
satisfied as of April 1990, and the parties agreed that
Ps’ remaining liabilities would be satisfied by an
installment agreement. Although the parties have
substantially settled this case, Ps contend that each
notice of determination must be separately reviewed in
light of their personal and financial status at the
time the notice was issued.

Held: Under sec. 6330, I.R.C., the Court reviews
the position taken by R’s Appeals Office in the last
supplemental notice of determination, not each notice
separately.
 -2-

William E. Taggart, Jr., for petitioners.

Rebecca Duewer-Grenville, for respondent.

OPINION

HAINES, Judge: This collection review case under section

6330 is before the Court on the parties’ cross-motions for entry

of decision.1

Background

The parties have substantially agreed on the elements of a

decision to be entered. However, they dispute certain aspects of

the decision.

The cause of this dispute begins with petitioners’ 1989

return. Petitioners contend that they timely filed their 1989

return in 1990. Respondent disagrees. Respondent’s transcripts

indicate that petitioners were issued a substitute for return in

1993 and that respondent filed petitioners’ joint 1989 tax return

in 1995 and then assessed the balance due on that return.

Petitioners claim that the return filed in 1995 was simply a copy

of the return they timely filed in 1990 and that any assessment

based on that return was erroneous. The parties agree that

petitioners’ 1989 return properly reported a tax liability of

1
Unless otherwise indicated, section references are to the
Internal Revenue Code as amended. Rule references are to the Tax
Court Rules of Practice and Procedure. Amounts are rounded to
the nearest dollar.
 -3-

$13,749 and a withholding credit of $8,764. Furthermore,

respondent concedes that petitioners are entitled to a credit of

the difference, $4,985, as of April 1990. The parties agree,

therefore, that petitioners’ 1989 tax liability is fully

satisfied.

On July 30, 2002, respondent issued petitioners a Notice of

Federal Tax Lien Filing and Notice of Your Right to a Hearing

with respect to 1989, 1993, 1995, 1996, and 1999. On August 30,

2002, petitioners requested an Appeals hearing under section

6330. Petitioners disputed that they owed tax with respect to

1989.2 They also disputed the lien on the grounds that it

deprived them of their sole source of emergency funds, equity in

their home.

Respondent’s Appeals Office issued a notice of determination

on July 10, 2003, allowing the collection action to proceed.

Petitioners timely filed a petition with this Court. On April

30, 2004, respondent moved for a remand of the case. The case

was subsequently remanded to Appeals. Meanwhile, the Court filed

its first opinion in this case, Kelby v. Commissioner, T.C. Memo.

2005-25, rejecting petitioners’ objection to the Court’s

retaining jurisdiction over the case for the duration of the

2
Petitioners did not dispute the liabilities for the other
years at issue.
 -4-

remand. The Court also rejected petitioners’ argument that the

notice of determination should be vacated or invalidated. Id.

On June 21, 2005, Appeals issued a supplemental notice of

determination, denying relief to petitioners. On July 15, 2005,

petitioners filed an amended petition, addressing additional

issues raised by the supplemental notice. On November 1, 2005,

respondent moved for a second remand to Appeals. The case was

subsequently remanded. On December 2, 2005, Appeals issued a

second supplemental notice of determination to petitioners. On

February 6, 2006, petitioners filed a second amended petition to

address issues raised by the second supplemental notice of

determination. On August 22, 2006, respondent again moved to

remand the case to Appeals. At a hearing on the motion for

remand on August 28, 2006, respondent conceded that petitioners

had no unpaid income tax liability for 1989. On October 18,

2006, the Court granted respondent’s motion, remanding the case

to Appeals for a third time.

After this third remand, the parties agreed that the 1989

liability had been fully satisfied. They further agreed on an

installment plan which would allow petitioners to satisfy their

1993, 1995, 1996, and 1999 income tax liabilities. On May 31,

2007, Appeals issued a third supplemental notice of

determination, accepting the installment plan but denying release

of the lien.
 -5-

On June 12, 2007, petitioners filed their third amended

petition. Although petitioners were not satisfied with the third

supplemental notice because of the failure to release the lien,

they declined to pursue further appeal to this Court and reached

the basis for a stipulated decision with respondent.

This case was called from the calendar in San Francisco,

California, on October 15, 2007. The parties reported to the

Court that the case had been substantially settled but that the

parties could not reach agreement on the wording of the decision

document. The Court instructed the parties that in lieu of an

agreement on the wording, they should file cross-motions for

entry of decision. The motions for entry of decision were filed

on October 29, 2007. On December 4, 2007, the parties filed

objections to each other’s motions.

Each party submitted a proposed decision document attached

to the respective motion. Respondent’s proposed decision

document states:

Pursuant to agreement of the parties in this case,
it is

ORDERED AND DECIDED: That the determinations set forth
in the Notice of Determination Concerning Collection
Action(s) under Section 6320 and/or 6330 issued to
petitioners on July 10, 2003, the Supplemental Notice
of Determination Concerning Collection Action(s) under
Section 6320 and/or 6330 issued to petitioners on June
25, 2005, the Second Supplemental Notice of
Determination Concerning Collection Action(s)under
Section 6320 and/or 6330 issued to petitioners on
December 2, 2005, and the Third Supplemental Notice of
Determination Concerning Collection Action(s) under
 -6-

Section 6320 and/or 6330 issued to petitioners on May
31, 2007 for Petitioners’ income tax liabilities for
the 1989, 1993, 1995, 1996, and 1999 upon which this
case is based, are sustained in full, except
The determinations in the above mentioned Notice of
Determination Concerning Collection Action(s) under
Section 6320 and/or 6330 and Supplemental Notices of
Determination Concerning Collection(s) with respect to
the 1989 income tax liability are not sustained because
the liability has been fully satisfied. The issues
associated with this taxable year are therefore moot.

It is further stipulated that petitioners are
entitled to a credit in the amount of $4,985.00 made on
April 15, 1990 and such credit shall be applied to
petitioners’ tax liability for the 1989 taxable year
and satisfies their liability for the 1989 taxable
year.

It is further stipulated that Petitioners are
entitled to further credits in the amount of $265.00 as
of August 18, 1995, $260.00 as of January 22, 1996,
$9.00 as of April 15, 2003, $91.00 as of October 16,
2003, $275.62 as of November 9, 2004, $1,063.00 as of
April 15, 2005, and $1,862.00 as of April 15, 2006 that
had been applied to the alleged liability of
Petitioners for their 1989 taxable year. These credits
shall be applied to petitioners’ outstanding
liabilities for the 1993, 1995, 1996, and 1999 taxable
years.

It is further stipulated that collection of
petitioners’ income tax liabilities for the 1993, 1995,
1996, and 1999 taxable years shall be made in
accordance with the terms of the May 31, 2006
Installment Agreement entered into between the parties
pursuant to the provisions of I.R.C. § 6159.

It is hereby stipulated that the Court may enter
the foregoing decision in this case.

Petitioners’ proposed decision document states:

Pursuant to agreement of the parties, it is
ORDERED AND DECIDED:

That the determination set forth in the NOTICE OF
DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
 -7-

SECTION 6320 issued on July 10, 2003, relating to
Petitioners’ August 30, 2002, request for a Collection
Due Process hearing is not upheld with respect
Petitioners’ allegedly owed, but unpaid, 1989 income
tax liability, and the supplemental determinations
issued with respect to the July 3, 2003, NOTICE OF
DETERMINATION on June 21, 2005, on December 2, 2005,
and on May 31, 2007, with respect to the petitioners’
1989 income tax liability are not upheld, and
Respondent’s 1995 assessment of an income tax liability
for 1989 against Petitioners is determined to be void.

That the NOTICE OF DETERMINATION CONCERNING
COLLECTION ACTION(S) UNDER SECTION 6320 issued by
Respondent on July 10, 2003, relating to Petitioners’
August 30, 2002, request for a Collection Due Process
hearing with respect to tax liabilities of Petitioners
allegedly owed, but unpaid, for Petitioners’ 1993,
1995, 1996, and 1999 tax years is not upheld;

That the NOTICE OF DETERMINATION issued by
Respondent on July 10, 2003, relating to Petitioners’
August 30, 2002, request for a Collection Due Process
hearing with respect to tax liabilities of Petitioners
allegedly owed, but unpaid, for Petitioners’ 1993,
1995, 1996, and 1999 tax years, as supplemented by the
SUPPLEMENTAL NOTICE OF DETERMINATION CONCERNING
COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330
issued on June 21, 2005, is not upheld;

That the NOTICE OF DETERMINATION issued by
Respondent on July 10, 2003, relating to Petitioners’
August 30, 2002, request for a Collection Due Process
hearing with respect to tax liabilities of Petitioners
allegedly owed, but unpaid, for Petitioners’ 1993,
1995, 1996, and 1999 tax years, as supplemented by the
supplemental determination issued on June 21, 2005, and
as supplemented by the NOTICE OF DETERMINATION
CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320
and/or 6330 issued on December 2, 2005, is not upheld;

That the NOTICE OF DETERMINATION issued by
Respondent on July 10, 2003, relating to Petitioners’
August 30, 2002, request for a Collection Due Process
hearing with respect to tax liabilities of Petitioners
allegedly owed, but unpaid, for Petitioners’ 1993,
1995, 1996, and 1999 tax years, as supplemented by the
supplemental determinations issued on June 21, 2005,
 -8-

and December 2, 2005, and by the SUPPLEMENTAL NOTICE OF
DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
SECTION 6320 and/or 6330 issued on May 31, 2007, is
upheld with respect to the agreement of Petitioners and
Respondent regarding the terms and conditions of an
installment payment arrangement for the installment
payment by Petitioners of the unpaid income tax
liabilities of Petitioners for their 1993, 1995, 1996,
and 1999 tax years; and

That Petitioners are entitled to credits in the
amount of $265.00 as of August 18, 1995, $260.00 as of
January 22, 1996, $9.00 as of April 15, 2003, $91.00 as
of October 16, 2003, $275.62 as of November 9, 2004,
$1,063.00 as of April 15, 2005, and $1,862.00 as of
April 15, 2006, for amounts that were applied to
Petitioners’ allegedly owed, but, unpaid, tax liability
for their 1989 taxable year, which amounts shall be
applied to Petitioners’ outstanding income tax
liabilities for Petitioners’ 1993, 1995, 1996 and 1999
tax years.

Discussion

Before the Commissioner may levy on any property or property

right, the taxpayer must be provided written notice of the right

to request a hearing during the 30-day period before the first

levy. Sec. 6330(a). If the taxpayer requests a hearing, an

Appeals officer of the Commissioner must hold the hearing. Sec.

6330(b)(1). Within 30 days of the issuance of the Appeals

officer’s determination, the taxpayer may seek judicial review of

the determination. Sec. 6330(d)(1).

Where the validity of the underlying tax liability is

properly at issue, we 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
 -9-

liability is not properly at issue, however, we review the

Commissioner’s determination for an abuse of discretion. Sego v.

Commissioner, supra at 610; Goza v. Commissioner, supra at 181.

This case involves issues related to the underlying tax

liability under section 6330(c)(2)(B) and to collection

alternatives and the appropriateness of the collection action

under section 6330(c)(2)(A). The parties have agreed to the

material terms of a stipulated decision; namely, that petitioners

owe no tax for 1989 and that they will satisfy their remaining

liabilities via an installment agreement. However, the parties’

proposed decision documents differ in two key respects.

First, petitioners’ decision document seeks to void the 1995

assessment of their 1989 tax liability. Respondent would allow

petitioners a credit of the unpaid tax as of April 1990,

rendering all other issues concerning 1989 moot. Second, the

parties disagree as to whether, with respect to the years at

issue other than 1989, the original notice of determination and

the first and second supplemental notices of determination should

be sustained.

Petitioners’ 1989 Tax Liability

Petitioners contend that the allowance of a credit as of

April 1990 fully satisfying the 1989 liability renders

respondent’s 1995 assessment of the 1989 liability void.
 -10-

Respondent contends that the allowance of the credit renders all

other issues concerning petitioners’ 1989 liability moot.

In a case where the validity of the Commissioner’s

assessment or the proposed lien or levy is not fairly in dispute

and the liability that is the subject of the proposed lien or

levy has been fully satisfied, we have held that a proceeding

under section 6330 challenging the proposed collection action is

moot. Greene-Thapedi v. Commissioner, 126 T.C. 1, 7 (2006); see

also Gerakios v. Commissioner, T.C. Memo. 2004-203 (dismissing

the collection review proceeding as moot where the parties agreed

that there was no unpaid liability upon which a lien or levy

could be based after the taxpayer had paid the liability in

full); Chocallo v. Commissioner, T.C. Memo. 2004-152 (dismissing

the case as moot where the Commissioner acknowledged the tax

liability was improperly assessed and agreed that there was no

unpaid tax liability upon which a levy could be based).

In each of Greene-Thapedi, Gerakios, and Chocallo the entire

case was rendered moot because the liabilities for all tax years

at issue were paid. In this case the liability related to a

single year, 1989, is no longer at issue. Respondent still

proposes to collect unpaid taxes with respect to other years.

Nevertheless, we see no reason to apply a different standard to a

single year out of many years at issue when the liability for

that single year has been fully satisfied. Therefore,
 -11-

respondent’s proposed wording, deciding that the issues related

to 1989 are moot, is entirely appropriate. Issues related to the

other years before the Court are not moot.

Whether To Sustain the Notice of Determination and the
Supplemental Notices of Determination

Petitioners would have the Court include language in the

decision document specifically not upholding with respect to the

years at issue other than 1989: (1) The notice of determination,

(2) the notice of determination as supplemented by the first

supplemental notice of determination, and (3) the notice of

determination as supplemented by the first and second

supplemental notices of determination.3 Petitioners would then

have the Court sustain the notice of determination as

supplemented by the first, second, and third supplemental notices

of determination with respect to the years at issue other than

1989. Respondent would have the Court sustain the notice of

determination and the supplemental notices of determination in

full, except with respect to the 1989 liability which was fully

satisfied.

3
Petitioners’ argument here is substantially different from
their argument discussed in Kelby v. Commissioner, T.C. Memo.
2005-25. At that time, petitioners argued that the notice of
determination must be vacated because respondent’s Appeals Office
would lack the authority to make a new decision in the case if
the notice was not vacated. As evidenced by the resolution of
this case, petitioners were mistaken.
 -12-

Petitioners argue that each determination must be separately

reviewed with respect to the question of respondent’s abuse of

discretion. Petitioners further argue that separate reviews are

necessary in cases such as this one where respondent makes

several determinations, each based on the personal and financial

status of the taxpayers at that time.

Respondent argues that each of the supplemental notices of

determination supplements the previous notices. Respondent

further argues that independent review of the notice of

determination and the supplemental notices is contrary to the

express provision of section 6330 that taxpayers are entitled to

a single hearing per tax period. We agree. However,

respondent’s proposed decision document does not accurately

reflect his argument.

It is well settled that a taxpayer is entitled to a single

hearing under section 6330 with respect to the year to which the

unpaid liability relates. Sec. 6330(b)(2); Freije v.

Commissioner, 125 T.C. 14, 22 (2005). Therefore, when the Court

remands a case to Appeals, the further hearing is a supplement to

the taxpayer’s original section 6330 hearing, not a new hearing.4

4
Contrary to petitioners’ assertion, the remand of a case
does not necessarily mean that the Commissioner abused his
discretion. We remand a case to Appeals when the taxpayer did
not have a proper hearing and the new hearing is necessary or
will be productive. Lunsford v. Commissioner, 117 T.C. 183, 189
(2001); Lites v. Commissioner, T.C. Memo. 2005-206; Day v.
(continued...)
 -13-

Drake v. Commissioner, T.C. Memo. 2006-151, affd. 511 F.3d 65

(1st Cir. 2007). “The resulting section 6330 hearing on remand

provides the parties with the opportunity to complete the initial

section 6330 hearing while preserving the taxpayer’s right to

receive judicial review of the ultimate administrative

determination.” Id. (emphasis added).

A corollary to the fact that a taxpayer is entitled to one

hearing is that the Commissioner’s Appeals Office makes a single

determination, which may or may not be supplemented. When a case

is remanded to Appeals and supplemental determinations are

issued, the position of the Commissioner that we review is the

position taken in the last supplemental determination.5

From the fact that the position of the Commissioner that we

review is the position taken in the determination as

supplemented, as opposed to each determination separately, it

follows that we need not consider the Commissioner’s position

stated in prior notices of determination. This emanates not from

4
(...continued)
Commissioner, T.C. Memo. 2004-30.
5
We also decide today Ginsberg v. Commissioner, 130 T.C. ___
(2008), holding that we lack jurisdiction to review a
supplemental notice of determination when we did not have
jurisdiction to review the original notice. In this case we had
jurisdiction to review the original notice and therefore we have
jurisdiction over all supplemental notices. Although a
supplemental notice of determination does not provide the Court
jurisdiction under sec. 6330(d), when we have jurisdiction over
the matter we will review the supplemental determination.
 -14-

a finding that the Commissioner abused his discretion in the

original determination, as petitioners suggest, but rather from

the fact that the issuance of the supplemental notice of

determination would generally make it unnecessary for the Court

to review the Commissioner’s position taken before the

determination was supplemented.

In Sapp v. Commissioner, T.C. Memo. 2006-104, the Court

remanded a section 6330 case to Appeals for further hearing.

After conducting the hearing, Appeals issued a supplemental

notice of determination. At trial the taxpayer alleged certain

errors with respect to the original notice of determination. The

Court found the taxpayer’s allegations of error with respect to

the original notice moot because the taxpayer received a

supplemental notice.

Similarly, in Drake v. Commissioner, supra, a section 6330

case was remanded to Appeals for further hearing. After that

hearing a supplemental notice of determination was issued. The

taxpayer contended that the original section 6330 hearing was not

held in good faith. The Court held that because the taxpayer

received a hearing in good faith on remand, the issue was moot.6

6
We note that the Court addressed certain issues with
respect to the original notice, specifically the taxpayer’s Fifth
Amendment concerns regarding sec. 6330 hearings in general and
the taxpayer’s argument that he submitted a viable collection
alternative during the original hearing. Drake v. Commissioner,
T.C. Memo. 2006-151, affd. 511 F.3d 65 (1st Cir. 2007).
 -15-

The third supplemental notice of determination in this case

addresses all relevant issues addressed in the prior notices

except the 1989 liability. Specifically, the third notice

addresses petitioners’ eligibility for collection alternatives

and whether the lien was more intrusive than necessary and

confirms that all legal and procedural requirements were met.

The third supplemental notice, therefore, makes it unnecessary

for the Court to consider the prior notices.

For these reasons, respondent’s wording that all the notices

of determination are sustained with the exception of

determinations relating to the 1989 liability is improper.

Petitioners’ wording sustaining the notice of determination as

supplemented by the first, second, and third supplemental notices

with respect to the years at issue other than 1989 is proper and

will be included in the Court’s decision. Petitioners’ proposed

wording specifically not sustaining the prior notices of

determination is repetitive and unnecessary. The Court will

enter a decision which states in relevant part:

ORDERED AND DECIDED: That the NOTICE OF DETERMINATION
CONCERNING COLLECTION ACTIONS(S) UNDER SECTION 6320
issued by respondent on July 10, 2003, relating to
petitioners’ August 30, 2002, request for an Appeals
hearing, as supplemented by the NOTICES OF
DETERMINATION issued on June 21, 2005, December 2,
2005, and May 31, 2007, is sustained in full, except

The determinations in the above mentioned NOTICES OF
DETERMINATION with respect to petitioners’ 1989 income
tax liability are not sustained because the liability
 -16-

has been fully satisfied. The issues associated with
petitioners’ 1989 tax year are therefore moot.

Whether Petitioners Are Entitled to an Award of Costs

The Court understands that much of this dispute arises from

the requirement in section 7430 that in order to receive an award

of costs, taxpayers must prove that they substantially prevailed

with respect to the most significant issue or issues presented.

See sec. 7430(a). The Court makes no judgment at this time as to

the validity of petitioners’ claim. Petitioners may file a

motion for litigation and administrative costs within 30 days

after the service of this Opinion. See Rules 231(a), 331(b).

To reflect the foregoing,

An appropriate order and decision

will be entered.