Cain v. Comm'r

T.C. Memo. 2009-54

UNITED STATES TAX COURT

GENE A. CAIN, DECEASED, ELTA E. CAIN, SUCCESSOR-IN-INTEREST,
Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25151-06L.1 Filed March 12, 2009.

Hugo Torbet, for petitioner.

Neal O. Abreu, Margaret Martin, and Jeremy L. McPherson, for
respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PANUTHOS, Chief Special Trial Judge: This case is before

the Court on petitioner’s request for judicial review of an

1
This case was originally docketed as a small tax case in
accordance with petitioner’s election. Before trial petitioner
orally moved that the small case designation be removed. The
Court granted the request, and the S designation was stricken.
 - 2 -

Internal Revenue Service (IRS) determination to sustain a notice

of intent to levy to collect assessed backup withholding taxes

and additions to tax.

Pursuant to two Forms 2504-AD, Excise or Employment Tax—

Offer of Agreement to Assessment and Collection of Additional Tax

and Offer of Acceptance of Overassessment, respondent assessed

backup withholding taxes under section 3406 and additions to tax

for failure to file information returns required by section

6041A(a) as follows:

Additions to Tax
Year Backup Withholding Sec. 6651(a)(1)

1993 $4,271 $1,068
1994 4,411 1,103

This collection action requires us to decide whether the IRS

abused its discretion in determining that collection by levy may

proceed.

Unless otherwise indicated, all section references are to

the Internal Revenue Code, as amended.

FINDINGS OF FACT

Some of the facts have been stipulated, and we so find.

Petitioner was an attorney and resided in California when he

filed the petition.2 Between 1993 and 1995 petitioner practiced

2
After the case was submitted, petitioner’s counsel
informed the Court that petitioner died on Oct. 31, 2008. Elta
E. Cain is petitioner’s successor-in-interest under California
(continued...)
 - 3 -

law in California as a sole proprietor and paid paralegals and

attorneys for work they did for him. Petitioner did not withhold

taxes from payments to these workers. He also did not collect

taxpayer identification numbers (TINs) from these workers or

report the payments to the IRS.

The IRS examined records relating to petitioner’s payments

to these workers during 1993, 1994, and 1995. The examiner

concluded that the attorneys and paralegals in question worked

for petitioner as independent contractors and should not be

reclassified as employees. The examiner determined that

petitioner was liable for backup withholding on payments made to

these workers because of the workers’ failure to provide TINs to

petitioner. Petitioner was advised that the IRS would abate the

backup withholding to the extent that petitioner provided Forms

4669, Statement of Payments Received, from his payees. The

examiner provided blank forms to petitioner for this purpose.

However, petitioner did not return any Forms 4669 signed by his

workers.

In a letter dated March 12, 1998, the examiner explained

that as a result of petitioner’s failure to secure TINs for the

individuals he paid, petitioner was liable for backup withholding

2
(...continued)
law, and she has standing to represent his estate. Cf. Nordstrom
v. Commissioner, 50 T.C. 30 (1968). For convenience, we will
refer to Gene A. Cain as petitioner.
 - 4 -

tax under section 3406 and also liable for additions to tax,

because he failed to file returns reporting those payments as

required by section 6041A(a).

The amounts petitioner paid to paralegals and attorneys and

the examiner’s proposed taxes and additions to tax were as

follows:

Additions to Tax
Year Amounts Paid Tax Sec. 6651(a)(1)

1993 $30,969.18 $9,600.45 $2,400.11
1994 63,239.39 19,604.21 4,901.05
1995 58,382.55 18,098.87 4,524.73
Total 152,591.12 47,303.53 11,825.89

In the March 12, 1998, letter, the examiner also provided

petitioner an opportunity to confer with the regional Appeals

Office, instructing him to file a request for a conference within

30 days if he disagreed with the examiner’s proposed adjustments.

At a time not apparent from the record, petitioner requested

Appeals Office consideration. On August 31, 1998, an Appeals

officer (AO) confirmed the referral to Appeals and asked

petitioner to contact him to discuss the case.

In a September 3, 1998, letter, the AO confirmed a

conversation with petitioner and provided a schedule of the

amounts paid to each of eight workers in each of the years 1993,

1994, and 1995. The AO invited petitioner to provide statements

from his workers attesting to their receipt of the payments. The

statements were to contain the information required by Form 4669
 - 5 -

(since petitioner had expressed reluctance to ask his workers to

complete and sign the IRS form). In a November 9, 1998, letter,

the AO told petitioner he would hold the case open until November

30, 1998, but that his closing the case would not preclude a

later abatement following receipt of additional statements.

Petitioner mailed statements from some but not all of his

workers to the AO on November 30, 1998. Four of the eight

workers declared that they reported all funds received from

petitioner’s law practice on their Federal income tax returns.

Petitioner informed the AO that the remaining four workers failed

to respond to his letters requesting statements regarding his

payments to them.

The AO responded to petitioner’s November 30, 1998,

submission, stating that the statements petitioner provided did

not contain all the information required on Form 4669.

Nevertheless, the AO offered a compromise: the IRS would concede

the backup withholding and additions to tax for the workers from

whom petitioner received statements, if petitioner conceded the

backup withholding and additions to tax for the remaining

workers. The AO instructed petitioner to sign and return Forms

2504-AD if he chose to pursue this settlement.
 - 6 -

On March 11, 1999, petitioner signed Forms 2504-AD for 1993

and 1994,3 reflecting the following agreed amounts:

Additions to Tax
Year Backup Withholding Sec. 6651(a)(1)

1993 $4,271 $1,068
1994 4,411 1,103

Respondent executed the Forms 2504-AD on May 4, 1999, and on

May 12, 1999, the AO wrote to petitioner to inform him that the

settlement agreement had been approved. On June 28, 1999,

respondent assessed the agreed-upon amounts for 1993 and 1994,

plus interest, and sent petitioner statutory notices of balance

due. On August 2, 1999, respondent mailed petitioner a notice of

intent to levy.

For reasons not apparent from the record, the IRS placed

petitioner’s account in currently noncollectible (CNC) status on

October 2, 2000. It appears that petitioner was unaware that the

account had been placed in CNC status. The IRS issued a Final

Notice of Intent to Levy and Notice of Your Right to a Hearing on

March 6, 2006, and petitioner submitted Form 12153, Request for a

Collection Due Process Hearing, on March 10, 2006. Again for

reasons not apparent from the record, the IRS removed

petitioner’s account from CNC status on April 4, 2006.

3
Petitioner provided statements for each of the workers he
paid in 1995, resulting in respondent’s offering to concede all
of the backup withholding and additions to tax for 1995. Because
petitioner provided statements for only some of his workers for
1993 and 1994, tax and additions to tax remained for those years.
 - 7 -

In his request for a collection hearing, petitioner

described his disagreement with the proposed collection action as

follows:

Your “Final Notice” states that you previously asked for
payment. You have not. Assuming there is some validity to
your claim (there is not) why would you be entitled to an
assessment, late fees and interest for an amount never
previously requested?

A settlement officer (SO) in respondent’s Appeals Office

replied to petitioner’s request for a collection hearing with a

letter on July 17, 2006. The SO scheduled a telephone conference

for August 23, 2006 at 1 p.m., and told petitioner she would call

him at the number on his hearing request unless he told her the

proposed conference date would be inconvenient and arranged for

another date and time. In this letter the SO also stated that

petitioner could not challenge the existence or amount of the

underlying tax liability because he had a prior opportunity to

dispute the liability. Finally, the SO informed petitioner that

she could not consider collection alternatives unless petitioner

completed and submitted a Form 433-B, Collection Information

Statement for Businesses, and she asked petitioner to submit that

information within 14 days.

The SO sent petitioner another letter on August 23, 2006,

stating that she had not received any indication from petitioner

that the proposed conference date was inconvenient and that when

she called petitioner at the arranged time and using the
 - 8 -

telephone number petitioner provided, she was told that he was

unavailable. The SO also stated that she had not received any

information from petitioner in response to her July 2006 letter.

Finally, she informed petitioner that Appeals would make a

determination on the basis of the administrative file and allowed

him 14 days to submit the information required for Appeals to

consider collection alternatives, along with any documents

supporting the issues petitioner raised in his hearing request.

On November 16, 2006, the SO noted that petitioner had not

responded to her letters and had not submitted any information

beyond his hearing request.

The IRS issued a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330 on November

22, 2006. The notice of determination stated that: (1)

Petitioner did not present any information to dispute the

appropriateness of the proposed levy action; (2) he did not

submit any documentation to support consideration of collection

alternatives; (3) the SO verified that all legal and procedural

requirements had been satisfied; (4) the SO considered

petitioner’s claim that he did not receive any request for

payment of the taxes and additions to tax at issue and determined

not only that notice and demand for payment was mailed to

petitioner’s last known address but also that petitioner had

agreed to these assessments during his previous Appeals
 - 9 -

conference; and (5) the SO concluded that the collection action

properly balanced the need for efficient collection with the

legitimate concern that the collection action be no more

intrusive than necessary. The IRS sustained the notice of intent

to levy.

Petitioner filed a timely petition for lien or levy action

for 1993 and 1994, stating “The IRS states that I filed 941s in

1993 and 1994 without paying the taxes withheld. In truth, no

such forms were filled [sic] and I had no employees.”

Petitioner was represented by counsel and testified at the

trial in California. He argues that the final notice of intent

to levy was defective because it did not include the type, year,

and amount of the taxes respondent seeks to collect. The record

includes only the first page of the notice of intent to levy, and

this page does not identify either the type of tax, the periods

at issue, or the amounts of tax and additions to tax at issue.

The last sentence of this page reads: “We detail these charges,

known as Statutory Additions, on the following pages.” The page

also lists a number of enclosures, including two publications and

Form 12153.

Petitioner also argues that he never received any

communication from respondent indicating that respondent accepted

the compromise petitioner signed, and therefore the parties did

not have a contract and petitioner’s dispute over the underlying
 - 10 -

liabilities was never resolved. Petitioner argues in the

alternative that if the Court finds that the parties had an

agreement, then petitioner’s failure to receive notice and demand

for payment precludes respondent’s proposed collection action.

Finally, petitioner seeks equitable relief from interest and

additions to tax.

OPINION

We have jurisdiction under section 6330(d)(1) to review the

Commissioner’s determination that the levy notice was proper and

that the Commissioner may proceed to collect by levy.4

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 an 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

4
The Pension Protection Act of 2006, Pub. L. 109-280, sec.
855, 120 Stat. 1019, amended sec. 6330(d) and granted this Court
jurisdiction over all sec. 6330 determinations made after Oct.
16, 2006. Perkins v. Commissioner, 129 T.C. 58, 63 n.7 (2007).
The Internal Revenue Service (IRS) made the determination at
issue on Nov. 22, 2006.
 - 11 -

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 tax, additions to tax,

and/or penalties, then other aspects of the Commissioner’s

administrative determination sustaining the collection action

will be reviewed for an abuse of discretion. See Godwin v.

Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th

Cir. 2005).

At the collection hearing, a taxpayer may raise any relevant

issues relating to the unpaid tax or proposed levy, including

spousal defenses, challenges to the appropriateness of the

collection actions, and offers of collection alternatives. Sec.

6330(c)(2)(A). In addition, he may challenge the existence or

amount of the underlying tax liability, but only if he did not

receive a notice of deficiency or otherwise have an opportunity

to dispute such liability. Sec. 6330(c)(2)(B).

In making a determination following a collection hearing,

the Commissioner must consider: (1) Whether the requirements of

any applicable law or administrative procedure have been met, (2)

any relevant issues raised by the taxpayer, and (3) whether the

proposed collection action balances the need for efficient

collection with legitimate concerns that the collection action be

no more intrusive than necessary. Sec. 6330(c)(3).
 - 12 -

Petitioner challenges: (1) The sufficiency of the final

notice of intent to levy, arguing that section 6330(a)(3)(A)

requires that the notice state the amount of the unpaid tax; and

(2) the existence or amount of the underlying tax liability, in

that respondent did not accept his compromise, or if respondent

did accept it, then respondent never sent the notice and demand

which section 6303(a) requires him to send within 60 days of

assessment.

1. Notice of Intent To Levy

At trial petitioner argued for the first time that the

collection notice was defective because it did not include the

amount of the unpaid tax. He relied upon the portion of the

notice admitted at trial. The parties stipulated that the notice

submitted in evidence represented the first page of the final

notice of intent to levy. Furthermore, it appears (from the

received stamp showing a date of March 10, 2006, which the IRS

placed on that first page) that petitioner sent this copy of the

first page of the final notice of intent to levy to the IRS,

attached to his hearing request (which was also received on March

10, 2006).5

5
Petitioner also alleges that when he asked respondent’s
counsel whether respondent had provided him copies of the entire
administrative record, respondent’s counsel stated that he had
provided all documents he possessed and that he would search for
additional documents, but only if petitioner identified the
documents petitioner sought. Petitioner did not request a
(continued...)
 - 13 -

The notice itself references additional pages and states

that the statutory additions are detailed on those subsequent

pages. As indicated, the first page did not include either the

amount of the unpaid tax or the periods at issue. Yet the Form

12153 petitioner submitted to request the collection hearing

clearly stated his dispute with the levy action with respect to

tax years 1993 and 1994.

We are satisfied that the final notice of intent to levy

respondent issued to petitioner on March 6, 2006, contained the

information necessary to apprise petitioner of precisely which

taxes respondent proposed to collect by levy, including the

amount of the unpaid tax and the periods at issue (resulting in

petitioner’s accurate reference to tax years 1993 and 1994 in his

hearing request).

2. Underlying Tax Liability

The taxes at issue are employment taxes, for which

respondent was not required to issue a notice of deficiency under

section 6212.6

5
(...continued)
complete copy of the Mar. 6, 2006, final notice of intent to
levy. We note that petitioner submitted a copy of only the first
page of the notice of determination when he filed his petition
and amended petition with the Court.
6
The Commissioner must issue a notice of deficiency with
respect to a deficiency determination in respect of any tax
imposed by subtitle A (income taxes), subtit. B (estate and gift
taxes), and certain excise taxes in subtit. D. Sec. 6212(a).
(continued...)
 - 14 -

In Lewis v. Commissioner, 128 T.C. 48 (2007), another case

involving tax liabilities which could be assessed without issuing

a notice of deficiency (to wit, a section 6651(a) addition to tax

for failure to file in a situation not involving a deficiency

determination), we considered the limitation imposed by section

6330(c)(2)(B) on a taxpayer’s ability to raise challenges to the

underlying tax liability in a collection proceeding after he had

previously challenged those liabilities. We held that “A

conference with the Appeals Office provides a taxpayer a

meaningful opportunity to dispute an underlying tax liability.”

Id. at 61.

Following the March 12, 1998, letter, petitioner challenged

the determination of the examining agent. In prosecuting this

appeal, petitioner provided documents to the AO. As a result of

this information (which petitioner had not provided to the

examining agent), the AO offered to compromise petitioner’s

liability. Petitioner agreed, and petitioner and respondent

signed Forms 2504-AD memorializing the agreement. (Petitioner

signed on March 11, 1999; respondent, on May 4, 1999.) The IRS

assessed the amounts reflected on those forms on June 28, 1999.

6
(...continued)
The employment taxes and additions to tax that the IRS seeks to
collect in this case are codified in subtits. C and F,
respectively, and are not subject to deficiency procedures and
the limitations on assessment of sec. 6213.
 - 15 -

Petitioner contends that he did not receive the AO’s March

12, 1999, letter informing him that respondent had accepted the

settlement proposal and that he did not receive the June 28,

1999, notice and demand for payment. We need not and do not make

a finding as to whether petitioner received the AO’s letter or

the notice and demand for payment because IRS records indicate

that the IRS mailed both documents to petitioner’s last known

address.7 It is clear that petitioner not only had the

opportunity to dispute the underlying tax liabilities but also

availed himself of the opportunity for Appeals Office

consideration when he challenged the examining agent’s

determination, provided additional documents to the AO, and

negotiated a substantial reduction in the backup withholding and

additions to tax.

Respondent was authorized to assess the backup withholding

without petitioner’s agreement and without issuing a notice of

deficiency. See supra note 6. Petitioner’s signing the Forms

2504-AD establishes his participation in an Appeals conference

during which he disputed these liabilities. As a result,

petitioner is not entitled to challenge the underlying tax

liabilities again in the collection review hearing or in this

7
The notice and demand requirement of sec. 6303(a) is
satisfied by a mailing to a taxpayer’s last known address. Proof
of receipt is not required. See Otto’s E-Z Clean Enters., Inc.
v. Commissioner, T.C. Memo. 2008-54.
 - 16 -

proceeding.8 Sec. 6330(c)(2)(B); Lewis v. Commissioner, supra at

62; sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs.

Petitioner appears to be particularly distressed by the fact

that respondent did not immediately seek to collect the assessed

tax liabilities and in fact a number of years passed before

respondent’s issuing the final notice of intent to levy. While

the record does not fully explain the basis for the CNC status

and the years without collection action, we note that petitioner,

an attorney, does not indicate that he took any action after

agreeing to the assessment. To this extent, petitioner

participated in the delay of the collection of the tax

liabilities to which he had agreed.

Conclusion

The notice of determination indicates that the SO considered

relevant issues petitioner raised, whether the IRS met the

requirements of applicable law and administrative procedure, and

whether the proposed collection action balances collection

efficiency and intrusiveness. Petitioner did not pursue any

collection alternatives or raise any spousal defenses.

8
Similarly, where a taxpayer consents to a proposed
deficiency and waives restrictions on assessment, the
Commissioner need not issue a notice of deficiency, and that
taxpayer’s waiver of the opportunity to challenge the deficiency
prevents his contesting the underlying tax liability in a
collection hearing and in this Court. Aguirre v. Commissioner,
117 T.C. 324, 327 (2001); Deutsch v. Commissioner, T.C. Memo.
2006-27, affd. 478 F.3d 450 (2d Cir. 2007).
 - 17 -

Petitioner’s previous opportunity to dispute the underlying tax

liabilities and his agreement to assessment of the liabilities

prevent him from challenging those liabilities again.

The SO satisfied the requirements of section 6330, and we

conclude that the IRS’s decision sustaining the proposed levy

action was neither erroneous nor an abuse of discretion.

We have considered all arguments made, and, to the extent

not mentioned, we conclude that they are moot, irrelevant, or

without merit.

To reflect the foregoing,

Decision will be entered

for respondent.