T.C. Memo. 2008-192
UNITED STATES TAX COURT
ALBERT M. KUN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11988-06L. Filed August 12, 2008.
P filed a petition for review pursuant to sec.
6320, I.R.C., in response to a determination by R that
lien action was appropriate.
Held: R’s determination to proceed with collection
is sustained.
Albert M. Kun, pro se.
Margaret Burow, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case is before the Court on a petition
for review of a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of
determination).1 The issue for decision is whether respondent
may proceed with collection, in the form of a filed tax lien, for
the total amount of petitioner’s Federal income tax liabilities
for 1994, 2000, 2001, 2002, and 2003.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of the parties, with accompanying exhibits, are
incorporated herein by this reference.
Petitioner, a self-employed attorney, filed Federal income
tax returns for 1994, 2000, 2001, 2002, and 2003. For each of
those years petitioner reported a tax liability, which was
assessed, but has not paid any of the tax due.
On February 4, 2005, respondent sent petitioner a Notice of
Federal Tax Lien Filing and Your Right to a Hearing under IRC
6320 for 1994, 2000, 2001, 2002, and 2003. Petitioner was
informed that the notice of Federal tax lien had been filed a day
earlier, on February 3, 2005. On February 25, 2005, petitioner
filed a Form 12153, Request for a Collection Due Process Hearing,
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended.
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with respect to those 5 taxable years. As the basis for his
disagreement, he stated “STATUTE OF LIMITATIONS, WAIVER AND
ESTOPPEL.”
Petitioner and respondent’s settlement officer participated
in an in-person Appeals hearing on May 17, 2005. That same day
petitioner submitted an offer-in-compromise of $1,000 on the
basis of doubt as to liability and doubt as to collectibility.
Petitioner’s offer-in-compromise covered his Federal income tax
liabilities for 1991 through 2004. As of the date the lien at
issue was filed, for the 5 taxable years at issue in this case
alone, petitioner’s income tax liabilities exceeded $66,000. As
to those tax liabilities, petitioner, in his offer-in-compromise,
asserted only that “I DO NOT OWE THE TAX FOR THE YEAR 1994
BECAUSE THE STATUTE OF LIMITATIONS HAS RUN.”
Petitioner also provided a Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
Individuals, indicating that he was an unmarried, self-employed
attorney with total monthly income of $2,999 and total monthly
living expenses of $3,206.
The settlement officer informed petitioner that the offer-
in-compromise could not be considered at that time because some
of the years petitioner listed in the offer were still pending
before the Court of Appeals for the Ninth Circuit. On November
16, 2005, the Court of Appeals issued a decision affirming this
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Court’s decision in Kun v. Commissioner, T.C. Memo. 2004-209, in
which this Court had sustained respondent’s determination that a
notice of Federal tax lien filing was an appropriate enforcement
action with respect to petitioner’s 1995, 1996, 1997, 1998, and
1999 Federal income tax liabilities.2 Kun v. Commissioner, 157
Fed. Appx. 971 (9th Cir. 2005).
On June 8, 2006, respondent’s Appeals Office sent petitioner
the aforementioned notice of determination.3 Therein, the
Appeals Office determined that all legal and procedural
requirements for filing the notice of Federal tax lien had been
met. The Appeals Office rejected petitioner’s $1,000 offer-in-
compromise because his reasonable collection potential was
believed, on the basis of his financial statement and supporting
documentation, to be $10,652.4 The Appeals Office further noted
2
Petitioner filed a motion to vacate or revise the decision
entered by the Court in accordance with that Memorandum Opinion.
The Court denied that motion in a Supplemental Memorandum
Opinion. See Kun v. Commissioner, T.C. Memo. 2004-273. Therein,
the Court noted that petitioner was merely repeating his argument
“that respondent did not timely assess the liabilities in
question.” Id. The Court then concluded that “Petitioner failed
to present any evidence at trial in support of his contention
that his 1995-99 income tax liabilities were not timely assessed,
and that failure also infects his motion.” Id.
3
By that time, the Court of Appeals for the Ninth Circuit’s
decision had become final.
4
The $10,652 was petitioner’s “Net Realizable Equity in
assets”. The Appeals Office calculated that number by first
adding together the fair market value of petitioner’s assets,
which included, among other things, a checking account and a car.
(continued...)
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that petitioner was not in compliance with the filing and payment
requirements with respect to his 2005 taxable year.5
On June 23, 2006, petitioner filed a timely petition with
the Court contesting the notice of determination. At the time
the petition was filed, petitioner resided in California. A
trial was held on May 15, 2007, in San Francisco, California.
OPINION
I. Collection Action
A. Statute of Limitations
There is a 10-year limitations period for collection that
commences upon the assessment of the tax. Sec. 6502(a)(1). If a
hearing is requested under section 6320(a)(3)(B) or
6330(a)(3)(B), the collection action(s) that are the subject(s)
of the requested hearing and the running of any period of
limitations under section 6502 are suspended for the period
4
(...continued)
The Appeals Office then reduced the value of the noncash assets
by 20 percent to determine the “Quick Sale Value” and then
further reduced the value of petitioner’s encumbered or exempt
assets by the amount of the encumbrances or exempt amount.
5
Pursuant to the Internal Revenue Manual (IRM), an offer-in-
compromise “will be deemed not processable” if “All tax returns
for which the taxpayer has a filing requirement” are not filed.
1 Administration IRM (CCH), pt. 5.8.3.4.1(1), at 16,276 (Sept. 1,
2005). As of June 8, 2006, petitioner had not filed a 2005
Federal income tax return or an extension request. Nor had he
made estimated tax payments or had any tax withheld for that
year.
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during which the hearing and appeals thereof are pending. See
secs. 6320(c), 6330(e)(1).
Petitioner alleges in his petition that “respondent is
attempting to collect taxes for years in which the statute of
limitations has clearly run.” Petitioner is incorrect.
A Federal income tax deficiency and additions to tax were
assessed for each of the 5 tax years now at issue. The first
such assessment was for 1994 and was made on September 11, 1995.
Respondent filed the notice of Federal tax lien with respect to
the 5 taxable years now at issue, which included 1994, on
February 3, 2005, within the 10-year limitations period for
collection. In addition, on February 25, 2005, petitioner
requested a hearing with respect to his 1994, 2000, 2001, 2002,
and 2003 tax years. That request suspended (and continues to
suspend) the period of limitations on collection for 1994 and the
other tax years at issue. Respondent therefore is not time
barred from taking collection action with respect to 1994 (and
the other 4 years at issue).
Petitioner’s entire statute-of-limitations argument focuses
on whether the limitations period was also tolled by an offer-in-
compromise that he submitted on April 22, 2002, which he contends
was for 1995 and 1996, not 1994.6 That entire issue is a red
6
This is in response to a statement by the settlement
officer and an argument by respondent that the limitations period
(continued...)
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herring because, as explained above, the limitations period for
collection action as to 1994 remains open whether or not that
limitations period was tolled by petitioner’s April 2002 offer-
in-compromise.
B. General Rules Regarding an Appeals Hearing
If a taxpayer liable to pay taxes fails to do so after
demand for payment, the tax liability becomes a lien in favor of
the United States against all of the taxpayer’s real and personal
property and rights to such property. Sec. 6321. The lien
arises at the time the assessment is made and continues until the
liability is satisfied or becomes unenforceable by reason of
lapse of time. Sec. 6322. The Secretary is obliged to notify
the taxpayer within 5 business days that a notice of a Federal
tax lien has been filed and that administrative appeals are
available to the taxpayer. Sec. 6320(a). Upon timely request a
taxpayer is entitled to a hearing before the Internal Revenue
Service Office of Appeals regarding the propriety of the filing
of the lien. Sec. 6320(b). This hearing is conducted in
accordance with the procedural requirements of section 6330.
Sec. 6320(c).
6
(...continued)
for collection with respect to 1994 was tolled under sec. 6331(k)
and (i)(5) from April 2002 until 90 days after the Court of
Appeals for the Ninth Circuit’s November 2005 decision.
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The taxpayer is entitled to appeal the determination of the
Appeals Office, made on or before October 16, 2006, to the Tax
Court or a U.S. District Court, depending on the type of tax at
issue. Sec. 6330(d).7 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, 181-182 (2000). The Court reviews
any other administrative determination for an abuse of
discretion. Sego v. Commissioner, supra at 610; Goza v.
Commissioner, supra at 182. An abuse of discretion has occurred
if the “Commissioner exercised * * * [his] discretion
arbitrarily, capriciously, or without sound basis in fact or
law.” Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Aside from his statute of limitations argument, petitioner
raises no argument as to the underlying tax liabilities for the 5
taxable years at issue. See Boyd v. Commissioner, 117 T.C. 127,
130 (2001) (noting that an argument that the limitations period
on collection has run is a challenge to the underlying tax
liability that we review de novo). The only issue left to be
addressed is the rejection of petitioner’s offer-in-compromise.
7
Determinations made after Oct. 16, 2006, are appealable
only to the Tax Court. See Pension Protection Act of 2006, Pub.
L. 109-280, sec. 855, 120 Stat. 1019.
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C. Petitioner’s Offer-in-Compromise
Among the issues that may be raised at the Appeals Office
and are reviewed for an abuse of discretion are “offers of
collection alternatives” such as an offer-in-compromise. Sec.
6330(c)(2)(A)(iii). The Court reviews the Appeals officer’s
rejection of an offer-in-compromise to decide whether the
rejection was arbitrary, capricious, or without sound basis in
fact or law and therefore an abuse of discretion. Murphy v.
Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d 27 (1st
Cir. 2006); Woodral v. Commissioner, supra at 23.
Section 7122(a) authorizes the Secretary to compromise any
civil case arising under the internal revenue laws. In general,
the decision to accept or reject an offer, as well as the terms
and conditions agreed to, are left to the discretion of the
Secretary. Sec. 301.7122-1(c)(1), Proced. & Admin. Regs.
However, regulations promulgated under section 7122 provide that
“No offer to compromise may be rejected solely on the basis of
the amount of the offer without evaluating that offer under the
provisions” of the regulations “and the Secretary’s policies and
procedures regarding the compromise of cases.” Sec. 301.7122-
1(f)(3), Proced. & Admin. Regs.
The grounds for compromise of a tax liability are doubt as
to liability, doubt as to collectibility, and promotion of
effective tax administration. Sec. 301.7122-1(b), Proced. &
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Admin. Regs. Petitioner based his offer-in-compromise on doubt
as to collectibility, which “exists in any case where the
taxpayer’s assets and income are less than the full amount of the
liability.”8 Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. In
determining the taxpayer’s ability to pay, the individual facts
and circumstances of the taxpayer’s case are considered and the
taxpayer is permitted “to retain sufficient funds to pay basic
living expenses.” Sec. 301.7122-1(c)(2), Proced. & Admin. Regs.
Petitioner contends that it was an abuse of discretion for
respondent’s settlement officer to reject his offer-in-compromise
without considering “the Bankruptcy Exemption”, apparently a
California statute that allegedly exempts from creditors certain
property belonging to a debtor in bankruptcy.9 Respondent
asserts that because petitioner raised the issue of a potential
bankruptcy filing for the first time at trial, the issue is not
relevant as to whether respondent’s settlement officer abused his
discretion. As to the merits of petitioner’s argument,
respondent asserts that any State law exemption is not effective
against a Federal tax lien and that, in any event, because the
8
In the interest of completeness, petitioner also based his
offer-in-compromise on doubt as to liability with respect to the
1994 taxable year on the basis that the applicable limitations
period on collections had run with respect to that taxable year.
We have already addressed that issue.
9
The statute referred to by petitioner is Cal. Civ. Proc.
Code sec. 703.140(b)(1) (West Supp. 2008).
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notice of Federal tax lien was filed before petitioner would have
filed a bankruptcy petition, the Federal tax lien would continue
to attach to any exempt property.
In reviewing the Commissioner’s decision to reject an offer-
in-compromise for abuse of discretion, we cannot consider issues
that were not raised before the Commissioner’s Appeals Office.
See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007) (“We hold
today that we do not have authority to consider section
6330(c)(2) issues that were not raised before the Appeals
Office”); Magana v. Commissioner, 118 T.C. 488, 493 (2002) (“in
our review for an abuse of discretion under section 6330(d)(1) of
respondent’s determination, generally we consider only arguments,
issues, and other [matters] that were raised at the collection
hearing or otherwise brought to the attention of the Appeals
Office”); sec. 301.6330-1(f)(2), Q&A-F5, Proced. & Admin. Regs.
There is nothing in the record reflecting that petitioner
raised the issue of a potential bankruptcy filing before the
Appeals Office, nor does petitioner assert, at least in a
comprehensible manner, to the contrary.10 Moreover, respondent
is correct that the notice of Federal tax lien filed in February
10
In his reply brief petitioner appears to point to
respondent’s brief, or some other document, in what might
constitute an effort to demonstrate that petitioner raised the
bankruptcy issue before the Appeals Office. We remain
unpersuaded that petitioner raised the issue before the Appeals
Office.
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2005 would survive a subsequent bankruptcy filing by petitioner,
regardless of any California statute. See 11 U.S.C. sec.
522(c)(2)(B) (2006) (providing that exempt property remains
subject to a properly filed tax lien even though the underlying
tax claim may have been discharged); Iannone v. Commissioner, 122
T.C. 287, 293 (2004) (“Federal tax liens are not extinguished by
personal discharge in bankruptcy.”).
Because the settlement officer based his decision on an
analysis of financial information provided by petitioner
indicating a reasonable collection potential in excess of $1,000,
see supra p. 4, and on the fact that petitioner was not in
compliance with Federal income tax laws, see supra note 5,
respondent’s settlement officer did not abuse his discretion in
rejecting petitioner’s offer-in-compromise. We shall therefore
sustain respondent’s determination to proceed with collection by
lien.
II. Section 6673(a)(1) Penalty
Although respondent does not ask the Court to impose a
penalty upon petitioner under section 6673(a)(1), the Court may
impose such a penalty sua sponte. See Pierson v. Commissioner,
115 T.C. 576, 581 (2000).
Petitioner is an attorney with a longstanding habit of
failing to pay Federal income tax. As an attorney, he knew or
should have known that he was instituting this case primarily for
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delay. Indeed, both of his arguments--the argument regarding the
statute of limitations and the argument regarding bankruptcy--are
clearly groundless in light of the relevant statutes and this
Court’s caselaw. His dilatory tactics are further evidenced by
the fact that he raised an unsupported statute-of-limitations
argument in his prior Tax Court case. See supra note 2. Because
we are convinced that petitioner instituted this case primarily
in order to delay collection, we shall impose upon petitioner a
$1,500 penalty pursuant to section 6673(a)(1).
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
An appropriate order and
decision will be entered.