T.C. Summary Opinion 2008-128
UNITED STATES TAX COURT
JONATHAN L. HALL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11674-06S. Filed September 22, 2008.
Jonathan L. Hall, pro se.
Jay A. Roberts, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect at the time 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
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indicated, subsequent section references are to the Internal
Revenue Code, as amended.
This case is before the Court on petitioner’s request for
review of the Internal Revenue Service (IRS) Appeals Office
(Appeals) determination to sustain the filing of a Federal tax
lien with respect to petitioner’s 2000 through 2003 income tax
liabilities. After a concession, the issue before the Court is
whether respondent abused his discretion in sustaining the lien
filing with respect to petitioner’s income tax liabilities for
taxable years 2001 through 2003.1
Background
Petitioner resided in Virginia when he filed the petition.
The parties filed a stipulation of facts and a supplemental
stipulation of facts, with attached exhibits. We find those
facts and incorporate the stipulations by this reference.
Petitioner worked as a laborer during 2000, 2001, 2002, and
2003 (the years in issue). Petitioner received Forms 1099-MISC,
Miscellaneous Income, for each of the years in issue. He
reported his earnings and claimed various expenses for each year
on Schedule C, Profit or Loss From Business, and he reported a
1
Respondent conceded that the Federal tax lien for 2000
would be withdrawn because the lien was filed reflecting a zero
balance owed for 2000. After the filing, the Internal Revenue
Service (IRS) assessed a collection fee, interest, and an
addition to tax for failure to pay tax reported on a return. At
trial respondent’s counsel agreed that the IRS would abate the
remaining 2000 balance and withdraw the lien for 2000.
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self-employment tax liability for each year. Petitioner had no
Federal income tax withheld from the payments he received, and he
made no estimated tax payments. He filed balance due returns for
the years in issue and did not remit payment with those returns.
In 2002 petitioner entered into an installment agreement and
made payments toward his outstanding tax liabilities, but he
defaulted on the installment agreement in 2005, when he stopped
making payments. Respondent filed the notice of Federal tax lien
on May 3, 2005, and mailed a Notice of Federal Tax Lien Filing
and Your Right to a Hearing Under IRC 6320, dated May 4, 2005, to
petitioner. Petitioner timely submitted Form 12153, Request for
a Collection Due Process Hearing, and received a date for a
telephone hearing. The day before the scheduled hearing,
petitioner called the Appeals officer and asked to postpone the
hearing for 90 days. The officer refused the delay but allowed
petitioner additional time to submit information he wanted
considered. Petitioner submitted nothing beyond his initial
hearing request, and the officer issued a Notice of Determination
Concerning Collection Action(s) Under Section 6320 and/or 6330
(notice of determination), sustaining the lien filing.
Petitioner timely petitioned for judicial review of the
notice of determination. In response to motions from respondent,
the Court granted a continuance and remanded the case so that
Appeals could provide petitioner a face-to-face collection
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hearing. Appeals assigned a different settlement officer (SO) to
conduct the hearing on remand. Before the hearing the SO
informed petitioner that Appeals could not consider collection
alternatives without: (1) Proof of his current compliance with
Federal income tax obligations, including tax return filing and
estimated tax payments; and (2) completed collection information
form(s), with supporting documentation.2
On April 30, 2007, the SO and his supervisor met with
petitioner for several hours. Petitioner sought withdrawal of
the notice of lien on account of hardship and the adverse effect
on his credit, and he requested currently noncollectible (CNC)
status as a collection alternative. The SO refused to consider
collection alternatives during the meeting because petitioner had
not provided proof of compliance or the requested collection
information before or at the meeting.
During the collection hearing petitioner asserted that he
had been improperly classified as an independent contractor by
the people for whom he provided services during the years in
2
The settlement officer (SO) stated that petitioner was not
entitled to challenge the underlying tax liabilities in the
collection hearing because he had had a prior opportunity to so
challenge; i.e., when he received a notice of intent to levy
dated Apr. 16, 2005 (before the May 4, 2005, notice of Federal
tax lien filing). However, the Apr. 16, 2005, levy notice, which
is the subject of another case, docket No. 26741-06S, involves
petitioner’s tax liabilities for tax year 2004 only, not any of
the years at issue in this case (2000 through 2003). In any
event, the SO afforded petitioner the opportunity to challenge
the underlying tax liabilities at the hearing.
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issue. Petitioner claimed that the alleged employer paid him a
lower “employee hourly rate” and not a higher “independent
contractor rate”. Petitioner attempted to challenge the
underlying tax liabilities solely on the basis that respondent
should determine his proper classification. The SO observed that
the outstanding liabilities resulted from petitioner’s filing his
returns as an independent contractor and discussed petitioner’s
submitting amended Federal income tax returns for any years
petitioner considered himself an employee as well as petitioner’s
submitting Form SS-8, Determination of Worker Status for Purposes
of Federal Employment Taxes and Income Tax Withholding.
Petitioner did not provide any documentation to support a
challenge to the existence or amounts of the underlying tax
liabilities for the years at issue.
Petitioner also argued that the liens should be removed to
allow him to obtain credit so he could purchase a computer. The
SO and his supervisor explained that one purpose of the tax liens
is to prevent a taxpayer from acquiring additional debt that
could compete for funds needed to pay tax liabilities.
The SO allowed petitioner additional time to submit proof of
current compliance with his Federal income tax obligations and to
provide the collection information required to evaluate
collection alternatives. Using the information petitioner
submitted after the hearing, which indicated that petitioner did
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not have assets available for collection and did not have
positive monthly disposable income, the SO determined that the
only collection alternative available was to place petitioner’s
account in CNC status.
Petitioner did not submit any amended returns or a Form SS-8
to the SO. On September 7, 2007, the SO issued a Supplemental
Notice of Determination Concerning Collection Actions Under
Section 6320 and/or 6330 (supplemental notice of determination),
determining that petitioner’s account would be placed in CNC
status and that the liens would remain in place.
At trial petitioner sought judicial determination of his
classification (employee vs. independent contractor) and removal
of the Federal tax liens. Respondent conceded the employment
question, agreeing to accept whichever status petitioner
preferred.3
3
Respondent’s counsel indicated that recalculating
petitioner’s taxes as an employee would result in more taxes due
than the amounts reflected in petitioner’s original returns filed
as an independent contractor; although petitioner would be liable
for only one-half of the self-employment taxes if he filed as an
employee, he would lose the deductions for one-half of the self-
employment taxes and the expenses he originally listed on
Schedules C, Profit or Loss From Business, would be reported on
Schedules A, Itemized Deductions, where they would be subject to
the 2-percent floor imposed by sec. 67 on miscellaneous itemized
deductions (here, unreimbursed employee business expenses) and
would displace or compete with his standard deduction.
Petitioner refused to stipulate his employment status.
The Court instructed petitioner that, without an express
agreement by both parties, the issue would be decided on the
(continued...)
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Discussion
In reviewing the Commissioner’s decision to sustain
collection actions, where the validity of the underlying tax
liability is properly at issue, the Court reviews the
Commissioner’s determination of the underlying tax liability 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 regarding proposed
collection actions for abuse of discretion. Sego v.
Commissioner, supra at 610; Goza v. Commissioner, supra at 182.
An abuse of discretion occurs when the exercise of discretion is
without sound basis in fact or law. Murphy v. Commissioner, 125
T.C. 301, 308 (2005), affd. 469 F.3d 27 (1st Cir. 2006). If the
Court finds that a taxpayer is liable for deficiencies and
additions to tax, then the Commissioner’s administrative
determination sustaining the collection action will be reviewed
for abuse of discretion. See Downing v. Commissioner, 118 T.C.
22, 31 (2002); Godwin v. Commissioner, T.C. Memo. 2003-289, affd.
132 Fed. Appx. 785 (11th Cir. 2005).
Section 6320(c) provides that Appeals’ conduct of collection
hearings that challenge Federal tax lien filings shall generally
be consistent with the procedures set forth in section 6330(c),
3
(...continued)
basis of his returns as filed. No oral or written agreement as
to petitioner’s employment status was made part of the record.
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(d), and (e). At the hearing the Appeals officer is required to
verify that “the requirements of any applicable law or
administrative procedure have been met.” Sec. 6330(c)(1); see
also sec. 6330(c)(3)(A). The Appeals officer is also required to
address whether the proposed collection action balances the need
for efficient tax collection with the legitimate concern that any
collection action be no more intrusive than necessary. Sec.
6330(c)(3)(C). The taxpayer may raise “any relevant issue
relating to the unpaid tax or the proposed levy”. Sec.
6330(c)(2)(A). The taxpayer is also entitled to challenge “the
existence or amount of the underlying tax liability” if he “did
not receive any statutory notice of deficiency for such tax
liability or did not otherwise have an opportunity to dispute
such tax liability.” Sec. 6330(c)(2)(B).
Petitioner did not receive a notice of deficiency or
otherwise have an opportunity to dispute the underlying tax
liabilities before the collection hearings concerning the liens
filed for the years at issue.4 Therefore, he may challenge the
4
Respondent was not obliged to issue a notice of deficiency
to petitioner because the assessments were entered under sec.
6201(a)(1), based on the amounts petitioner reported due on his
tax returns, along with statutory interest and additions to tax.
Moreover, sec. 6211(a) excludes from the definition of a
deficiency the tax that taxpayers report due on their returns.
Montgomery v. Commissioner, 122 T.C. 1, 16-17 (2004). As
mentioned supra note 2, the April 2005 levy notice did not
address the years at issue in this case and thus did not provide
an opportunity to dispute the underlying tax liabilities for 2000
(continued...)
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existence or amounts of his underlying tax liabilities for tax
years 2000 through 2003. See Montgomery v. Commissioner, 122
T.C. 1, 7-9 (2004). Although petitioner repeatedly questioned
whether he was properly classified as an independent contractor
rather than an employee, he did not challenge the reporting of
his income as self-employment income by filing a Form SS-8 or any
amended returns with the SO or by submission of evidence at
trial. Thus, while petitioner was entitled to challenge the
underlying tax liabilities, he made no such challenge during the
administrative collection proceeding or at trial. The SO did not
make any determination as to petitioner’s underlying tax
liabilities. Accordingly, the underlying tax liabilities remain
as petitioner reported. With respect to collection alternatives,
we review the SO’s determination for abuse of discretion.
Petitioner relied upon section 6323(j)(1)(A), (C), and (D)
to argue that the liens should be withdrawn.
Section 6323(j)(1)(A) allows for withdrawal of liens that
were filed prematurely. The SO verified that the taxes were
properly assessed, that the IRS sent notice and demand for
payment to petitioner, and that petitioner defaulted on the 2002
installment agreement. The liens were not filed prematurely.5
4
(...continued)
through 2003.
5
According to the Internal Revenue Manual, pt. 5.16.1.1.4
(continued...)
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Petitioner did not submit any evidence showing that
withdrawal of the liens would facilitate collection, see sec.
6323(j)(1)(C), or would be in the best interest of petitioner and
the United States, see sec. 6323(j)(1)(D). Petitioner argued
that removing the liens would enhance his ability to earn income,
which would increase his future income subject to tax, increase
the amount of tax he would owe and pay in future years, and
enable him to make payments on his outstanding liabilities. He
provided no support for these contentions. Petitioner introduced
evidence that his application for credit to purchase a new
computer was denied and asserted that the computer would be
helpful in his business. However, petitioner did not show how
the computer would lead to increased income or how its lack would
keep petitioner from earning a living. Petitioner’s assertion
that removal of the liens would facilitate collection and would
be in the United States’ best interest is only conjectural.
5
(...continued)
(Sept. 19, 2005), the filing of a Federal tax lien is a
requirement of placing petitioner’s account in currently
noncollectible (CNC) status, which status petitioner had
requested from the Automated Collection function. Contrary to
petitioner’s contentions, IRS records do not reflect that his
account was ever placed in CNC status. It appears that
petitioner’s request for CNC status may have triggered the lien
filing, but his challenge to the lien filing prevented the
Secretary from applying CNC status until his collection appeal
was finally resolved. This case resolves his appeal, and, as
mentioned, the Sept. 7, 2007, supplemental notice of
determination reflects the SO’s determination that petitioner was
eligible for CNC status.
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Petitioner failed to prove that the liens should be
withdrawn pursuant to section 6323(j).
The SO verified that the legal and administrative
requirements had been met and considered whether the proposed
collection actions properly balanced collection efficiency and
intrusiveness.
On the basis of the record, we conclude that respondent
satisfied the requirements of section 6330(c) and did not abuse
his discretion in sustaining the notice of Federal tax lien for
tax years 2001 through 2003. As discussed supra note 1,
respondent has agreed to remove the lien for 2000 and to abate
the remaining balance due for that year only. Respondent’s
determination as to the liens for 2001 through 2003 is sustained.
To reflect the foregoing,
An appropriate order and
decision will be entered.