T.C. Memo. 2008-127
UNITED STATES TAX COURT
WILLIAM R. KOHLER AND PATRICIA M. KOHLER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18103-06L. Filed May 5, 2008.
William R. Kohler, pro se.
William C. Bogardus, for respondent.
MEMORANDUM OPINION
JACOBS, Judge:1 The petition in this case was filed in
response to a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of
1
This case was submitted to Judge Joseph H. Gale on Sept.
10, 2007. The Chief Judge reassigned this case to Judge Julian
I. Jacobs on Mar. 11, 2008.
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determination).2 Pursuant to section 6330(d), petitioners seek
our review of respondent’s determination upholding the proposed
levy to collect petitioners’ income tax liability for tax year
1995. The issue for decision is whether respondent’s proposed
levy action may proceed.
Background
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
the State of New York at the time they filed their petition.
Petitioners prepared a joint Form 1040, U.S. Individual
Income Tax Return, for 1995 in which they reported $93,623 of
adjusted gross income, $24,658 of tax, and $2,727 of withheld
amounts, resulting in $21,931 of tax owed. The return, which was
prepared with the assistance of a certified public accountant
(C.P.A.), showed that William R. Kohler is an attorney and
Patricia M. Kohler is a teacher. Petitioners’ C.P.A. signed and
dated the return September 27, 1997. The due date for
petitioners’ 1995 return, after extensions, was October 15, 1996.
In 2002 respondent advised petitioners that respondent had
not received any tax return for tax year 1995 from them. In
response, petitioners, on or about July 11, 2002, provided
2
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.
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respondent with a copy of their 1995 return. Respondent assessed
the tax shown on petitioners’ 1995 return on December 9, 2002,
and on the same day sent petitioners a letter advising them that
they owed $51,275.86 in tax, additions to tax, and interest.
In their ensuing correspondence with respondent, petitioners
did not explicitly state whether they had filed their 1995 return
before July 11, 2002, and, if so, the date on which the return
was filed. Instead, they pointed out that the 1995 return they
submitted in 2002 was a copy and requested that respondent advise
them as to whether respondent had found their “original” return.
The parties stipulated that petitioners do not contest the
balance due as shown on the 1995 return (i.e., $21,931) but
rather assert that the balance due accompanied the return.
Petitioners did not submit any evidence (such as a canceled check
or bank record) to corroborate their claim that they filed their
1995 return before July 11, 2002, or paid the $21,931 balance
due. In this respect, petitioners repeatedly asserted in several
letters to respondent: “It should be noted that tax payments
were made from an account which does not provide copies of
cancelled checks to the customer. Federal Regulation E does not
require the retention for this long a period.” Petitioners did
not aver that they did not have their own bank records from the
relevant period, nor did petitioners submit any documentation
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(such as correspondence with their bank) showing that they
attempted to obtain their bank records.
In support of their claim that they paid their 1995 tax,
petitioners informed respondent that they had contacted the State
of New York Department of Taxation and Finance, evidently in
2002, and had been advised that their 1995 State of New York
income tax return had been received by that office together with
payment of the tax due to the State of New York. Petitioners
averred (but offered no corroboration) that their 1995 Federal
income tax return was attached to their 1995 State of New York
income tax return.
Respondent’s written communications to petitioners include:
(1) Requests for clarification with respect to specific items on
the return; (2) notification, on January 22, 2003, that
respondent had removed the additions to tax for failure to file a
timely return and failure to timely pay the tax “based solely on
the fact that this was the first time you were required to file a
return”; (3) notices and demands for payment; (4) a statement of
account; and (5) assurance, on March 24, 2003, that respondent
did not have any record of having received petitioners’ 1995
return before 2002 and had no record of payment with respect to
tax year 1995.
Petitioners, on March 23 and April 9, 2003, reiterated their
claims and requested a conference with respondent’s
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representative. No further action was taken until November 2004
when respondent resumed his solicitations for payment.
Petitioners, in a letter dated December 2, 2004, reiterated their
claims including their request for a conference with respondent.
No further action or correspondence took place between the
parties until November 2005 when respondent again solicited
payment of petitioners’ 1995 tax. Petitioners, on December 7,
2005, once again reiterated their claims and requested a
conference with respondent. No further action or correspondence
took place between the parties until February 20, 2006, when
respondent issued a Letter 1058, Final Notice of Intent to Levy
and Notice of Your Right to a Hearing (final notice of intent to
levy). In response to respondent’s letter, petitioners requested
a hearing with respondent’s Office of Appeals. Pursuant to
petitioners’ request, a face-to-face hearing pursuant to section
6330 was held on July 12, 2006.
At their section 6330 hearing, petitioners reiterated all of
the claims they had made in their correspondence and asserted
that their 1995 return was timely filed and that their 1995 tax
timely paid. Petitioners did not explain how their 1995 return
dated September 27, 1997, could have been timely. According to
petitioners, respondent’s delay until 2002 in notifying them that
respondent had not received their 1995 return resulted in their
being unable to produce supporting bank records. When
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petitioners were asked how they could have failed to notice that
the check they submitted in payment of Federal income tax had
never been cashed, petitioners responded that they had not
noticed the discrepancy “due to the fact that the account was
linked to a securities account and that market fluctuations as
well as debits determined net asset value balances.” Petitioners
did not formally propose any collection alternative, nor did they
request abatement of interest. According to the notes of the
hearing compiled by respondent’s Appeals officer, petitioners
indicated that they would petition this Court upon receipt of a
notice of determination and would thereafter attempt to negotiate
a settlement with respondent’s Area Counsel.
On August 11, 2006, respondent issued a notice of
determination sustaining the proposed levy. The notice of
determination states that petitioners provided no evidence that
they filed a return for 1995 before submitting a copy of the 1995
return to respondent on July 11, 2002, and notes that petitioners
did not file returns for any tax year from 1996 through 2002.
On September 6, 2006, petitioners timely petitioned this
Court for review of respondent’s determination, asserting that
they never received a formal notice of assessment and that
respondent unjustifiably failed to consider their alternative
collection proposals. Petitioners posit that the doctrine of
laches prevents respondent from asserting his claim.
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The parties stipulated that petitioners offered to
compromise their dispute for $21,931 (the amount of tax shown as
owed on the return but not the interest that respondent seeks to
collect) in a letter to respondent’s counsel dated July 12, 2007.
Discussion
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 notice and demand
for payment. Section 6331(d) provides that the levy authorized
in section 6331(a) may be made with respect to any unpaid tax
only after the Secretary has notified the person in writing of
his intention to make the levy at least 30 days before any levy
action is begun. Section 6330 elaborates on section 6331 and
provides that upon a timely request a taxpayer is entitled to a
collection hearing before the IRS Office of Appeals. Sec.
6330(a)(3)(B), (b)(1). A request for a collection hearing must
be made within the 30-day period commencing on the day after the
date of the section 6330 notice. Sec. 6330(a)(3)(B); sec.
301.6330-1(b)(1), Proced. & Admin. Regs.
If a section 6330 hearing is requested, the hearing is to be
conducted by the Office of Appeals, and, at the hearing, the
Appeals officer conducting it must verify that the requirements
of any applicable law or administrative procedure have been met.
Sec. 6330(b)(1), (c)(1). The taxpayer may raise at the hearing
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“any relevant issue relating to the unpaid tax or the proposed
levy”. Sec. 6330(c)(2)(A).
Section 6330(c)(2)(B) provides that a person may challenge
“the existence or amount of the underlying tax liability for any
tax period if the person did not receive any statutory notice of
deficiency for such tax liability or did not otherwise have an
opportunity to dispute such tax liability.” Petitioners did not
receive a notice of deficiency for 1995 or otherwise have an
opportunity to dispute their liability. Therefore, petitioners
are entitled to challenge the existence or amount of the 1995 tax
liability. See Landry v. Commissioner, 116 T.C. 60, 62 (2001).
At the conclusion of the hearing, the Appeals officer must
determine whether and how to proceed with collection and take
into account: (i) The relevant issues raised by the taxpayer,
(ii) challenges to the underlying tax liability by the taxpayer,
where permitted, and (iii) whether any proposed collection action
balances the need for the efficient collection of taxes with the
legitimate concern of the taxpayer that the collection action be
no more intrusive than necessary. Sec. 6330(c)(3).
Within 30 days after the Office of Appeals issues a notice
of determination, the taxpayer may appeal the determination to
the Tax Court if we have jurisdiction over the underlying tax
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liability, sec. 6330(d)(1), as we do in the instant case.3 We
review de novo respondent’s determinations insofar as the
existence or amount of the underlying liability is properly at
issue. See Davis v. Commissioner, 115 T.C. 35, 39 (2000); Goza
v. Commissioner, 114 T.C. 176, 181 (2000).
Petitioners insist that they timely filed their 1995 return
and that payment of their 1995 tax accompanied their return.4
Petitioners bear the burden of proving these claims. See Rule
142(a). They have failed to do so.
The copy of petitioners’ 1995 return that was stipulated
into evidence indicates that it was prepared by petitioners’
C.P.A. on September 27, 1997, which is after the date the return
was due. Therefore, it is difficult to understand how this
return could have been filed timely.
Respondent’s records indicate that the 1995 return was filed
on July 11, 2002 (after respondent notified petitioners that
respondent had not received their 1995 return). The record is
devoid of any evidence that would permit us to conclude that
3
We note that the Pension Protection Act of 2006, Pub. L.
109-280, sec. 855, 120 Stat. 1019, amended sec. 6330(d)(1) to
provide that for determinations made after Oct. 16, 2006, the Tax
Court has jurisdiction to review the Commissioner’s collection
activity regardless of the type of underlying tax involved.
4
Because respondent abated the failure to timely file and
failure to pay additions to tax, the timing of the filing of the
return is relevant only insofar as it tends to establish whether
and when payment of the tax was made and the point at which
interest, if any, stopped accumulating.
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respondent received but lost petitioners’ return and alleged tax
payment. We need not, and do not, accept petitioners’ claim that
they filed their 1995 return earlier than July 11, 2002.
Further, without substantiation, we cannot accept petitioners’
assertion that they paid the $21,913 balance of tax owed for
1995.5
We interpret petitioners’ complaint that they did not
receive a formal notice of assessment as a claim that
respondent’s Appeals officer, in sustaining the proposed levy
action, did not verify that the requirements of any applicable
law or administrative procedure were met as required by section
6330(c)(1).
Section 6201(a)(1) requires the Secretary to assess all
taxes determined by the taxpayer as shown on the taxpayer’s
return. Section 6203 provides that such assessment shall be made
by recording the liability of the taxpayer in the office of the
Secretary in accordance with rules or regulations prescribed by
the Secretary and that upon request of the taxpayer the Secretary
5
In their posttrial brief petitioners stated that they, “by
contesting the underlying tax liability, ipso facto contested
that any interest was due thereon.” Because we find that
petitioners have not shown that they paid their 1995 tax, it
follows that they are liable for interest on their underpayment
as provided in sec. 6601(a). Even if we construe petitioners’
claim as one for abatement of interest under sec. 6404(h)(1), we
do not have jurisdiction to consider it because petitioners did
not make a claim to the Appeals officer that interest be abated
or otherwise redetermined. See Giamelli v. Commissioner, 129
T.C. 107, 113 (2007).
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shall furnish the taxpayer a copy of the record of the
assessment.6 Section 6501(a) requires the tax to be assessed
within 3 years after the return is filed. We have found that
petitioners failed to carry their burden of showing that their
1995 return was filed before July 11, 2002. The parties
stipulated into evidence respondent’s Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, which shows
that respondent received petitioners’ 1995 return for the first
time in July 2002 and that assessment of the tax shown on the
return was made on December 9, 2002. We and other courts have
held that Form 4340 constitutes presumptive proof of a valid
assessment. Davis v. Commissioner, supra at 40 (and cases cited
thereat).
Petitioners have cited no irregularities that would cast
doubt on the reliability of the information recorded on Form 4340
with respect to their 1995 tax. Therefore, we find that
petitioners’ 1995 tax was validly assessed.
In their petition, petitioners contend that respondent
unjustifiably failed to consider their alternative collection
6
Respondent assessed petitioners’ 1995 tax on Dec. 9, 2002,
and sent petitioners a notice and demand for payment on the same
day. Petitioners do not contend and the record does not show
that they requested a copy of the record of the assessment of the
1995 tax which respondent failed to provide, nor do they cite any
statutory authority for their claim that they were entitled to a
“formal notice of assessment” beyond that provided for in sec.
6203.
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proposals. The parties stipulated that at the hearing
petitioners offered to pay $5,000 (or $10,000, according to the
Appeals officer’s notes) in satisfaction of their 1995 tax
liability. They further stipulated that petitioners offered to
settle their dispute for $21,931 (the amount of the tax shown as
owed on the return but not the interest that respondent seeks to
collect) in a letter to respondent’s counsel dated July 12, 2007,
but that no formal offer-in-compromise was submitted.
Section 7122(a) permits the Secretary to compromise any
civil case arising under the internal revenue laws. Section
7122(c) requires the Secretary to prescribe guidelines for
officers and employees of the IRS to determine whether an offer-
in-compromise is adequate and should be accepted to resolve a
dispute. Compromises may be made on three grounds: (1) Doubt as
to liability; (2) doubt as to collectibility; and (3) promotion
of effective tax administration. This third ground is further
divided between cases in which collection of the full liability
would cause the taxpayer economic hardship and cases in which it
would not. Sec. 301.7122-1(b), Proced. & Admin. Regs.
Petitioners do not articulate what might be the grounds upon
which respondent would be permitted to compromise their
liability, and they admit that they did not submit an offer-in-
compromise as required by the applicable guidelines. On this
sparse record, which is devoid of evidence concerning
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petitioners’ collection potential, we have no basis on which to
find that any offer petitioners made was an acceptable amount.
Therefore, we cannot find that respondent abused his discretion
when he declined to accept petitioners’ oral offer to extinguish
their tax liability for $5,000 (or $10,000). In addition, we
cannot find (insofar as the matter may be before us for review)
that respondent abused his discretion by refusing petitioners’
offer, contained in a letter to respondent’s counsel following
submission of their case, to pay $21,931 in satisfaction of their
liability which, at the date of the notice of intent to levy,
amounted to $44,537.91. Thus, we sustain respondent’s
determination in this regard.
Finally, we consider petitioners’ claim that respondent is
barred by laches from collecting their 1995 tax. Laches is an
equitable doctrine which “prohibits a party from asserting a
claim following an unreasonable delay by such party when there
has been a change in circumstances during such delay which would
result in severe prejudice against an opposing party should the
claim be permitted.” Tregre v. Commissioner, T.C. Memo. 1996-
243, affd. without published opinion 129 F.3d 609 (5th Cir.
1997). It is well settled that the United States is generally
not subject to the doctrine of laches in enforcing its rights.
United States v. Summerlin, 310 U.S. 414, 416 (1940); Guaranty
Trust Co. v. United States, 304 U.S. 126 (1938). Instead, the
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“timeliness of government claims is governed by the statute of
limitations enacted by Congress.” Fein v. United States, 22 F.3d
631, 634 (5th Cir. 1994).7 Moreover, statutes of limitation are
strictly construed in favor of the Government where limitation is
sought to bar the rights of the Government. Allnutt v.
Commissioner, __ F.3d __ (4th Cir., April 23, 2008), affg. T.C.
Memo. 2002-311.
Section 6502(a)(1) provides that where the tax has been
timely assessed, it may be collected by levy if the levy is made
within 10 years after the assessment. Respondent timely assessed
petitioners’ 1995 tax on December 9, 2002, and issued his final
notice of intent to levy on February 20, 2006, well within the
10-year period of section 6502(a)(1). Therefore, the periods of
limitations of sections 6501 and 6502 did not operate to prevent
respondent from pursuing a levy action against petitioners.
Respondent’s determination that the Federal tax levy was
appropriate is sustained.
To reflect the foregoing,
Decision will be entered
for respondent.
7
While it is the IRS’s policy to notify taxpayers when they
have not timely filed returns, the IRS has no statutory
obligation to do so. Grandelli v. Commissioner, T.C. Memo. 2008-
55.