T.C. Memo. 2009-217
UNITED STATES TAX COURT
ALPHONSE MOURAD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18038-05L. Filed September 17, 2009.
Alphonse Mourad, pro se.
Louise R. Forbes, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GALE, Judge: Pursuant to section 6330(d)(1),1 petitioner
seeks review of respondent’s determination to proceed with a levy
to collect unpaid income tax with respect to petitioner’s 1995
1
Unless otherwise noted, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
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and 1999 taxable years. Respondent concedes that petitioner is
entitled to challenge the underlying tax liability for those
years.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioner resided in Massachusetts when he filed the petition.
Petitioner was the sole shareholder of V&M Management, Inc.
(V&M Management), an S corporation, from 1994 and at all relevant
times thereafter. V&M Management owned and operated a 275-unit
apartment complex known as Mandela Apartments in Roxbury,
Massachusetts. On January 8, 1996, V&M Management filed a
petition for reorganization pursuant to chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the District of
Massachusetts in Boston. The bankruptcy court appointed an
independent trustee (the bankruptcy trustee) to administer the
reorganization.
On September 26, 1997, the bankruptcy court confirmed a plan
of reorganization, the crux of which involved selling Mandela
Apartments and its related property. On December 18, 1997, the
bankruptcy trustee sold Mandela Apartments and its related
property by means of an installment sale.2 In 1997 the
2
V&M Management’s corporate income tax returns list the sale
of Mandela Apartments and related property, such as appliances,
on several different Forms 6252, Installment Sale Income. For
(continued...)
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bankruptcy trustee and a limited partnership were coapplicants on
a low-income housing tax credit application seeking to secure
low-income housing tax credits for Mandela Apartments in
subsequent years.3 The trustee intended to syndicate the tax
credits to provide the funds to make payments to V&M Management’s
creditors.
The bankruptcy trustee prepared and filed Forms 1120S, U.S.
Income Tax Return for an S Corporation, on behalf of V&M
Management for taxable years 1997 through 1999. V&M Management’s
income tax returns for each of those years reported income from
the installment sale. V&M Management did not claim any low-
income housing tax credits on its income tax returns for any of
the years 1997 through 1999.
Petitioner received an extension for filing his income tax
return for his 1995 taxable year until October 15, 1996.
Petitioner filed an income tax return for 1995 that respondent
received on November 15, 1999. Petitioner reported a $5,613
income tax liability on his 1995 return but made no payment. On
March 20, 2000, respondent assessed the reported $5,613 tax
2
(...continued)
convenience, we refer to the sale of Mandela Apartments and
related property in the singular throughout this opinion.
3
In connection with the redetermination of petitioner’s 1997
Federal income tax liability, the Court of Appeals for the First
Circuit found that the credits had been awarded to the Mandela
Apartments’ new owners in 1998. Mourad v. Commissioner, 387 F.3d
27, 31 (1st Cir. 2004), affg. 121 T.C. 1 (2003).
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liability, as well as additions to tax under section 6651(a)(1)
and (2) of $1,263 and $1,235, respectively, and $2,608 of
interest.
Petitioner filed an income tax return for his 1999 taxable
year that was received by respondent on December 14, 2004.
Petitioner reported adjusted gross income of $310,692 and a tax
liability of $536,931 on the return. Respondent adjusted
petitioner’s reported tax liability downward to $107,502 and on
February 7, 2005, assessed that amount, as well as additions to
tax under section 6651(a)(1) and (2) of $24,188 and $26,876,
respectively, and interest of $45,898.
Respondent issued petitioner a notice of deficiency for his
1997 taxable year, and petitioner filed a Tax Court petition in
response thereto. In 2003 this Court issued its Opinion in
Mourad v. Commissioner, 121 T.C. 1 (2003). The Court in Mourad
sustained respondent’s deficiency determination for petitioner’s
1997 taxable year. In doing so, the Court determined inter alia
that petitioner was not entitled to claim low-income housing tax
credits in 1997. The Court’s decision was affirmed by the Court
of Appeals for the First Circuit. Mourad v. Commissioner, 387
F.3d 27 (1st Cir. 2004).
On April 13, 2005, respondent sent petitioner a Final Notice
of Intent to Levy and Notice of Your Right to a Hearing for
petitioner’s 1995 and 1999 taxable years. Petitioner timely
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requested a hearing, and a telephone conference was conducted on
July 29, 2005. The only issues petitioner raised during the
hearing were challenges to the underlying tax liabilities.
Respondent issued petitioner a notice of determination
sustaining the proposed levy on August 24, 2005, and petitioner
timely filed a petition in response thereto.
OPINION
I. Background
Section 6331(a) authorizes the Secretary to levy upon
property and property rights of any person liable for taxes
(taxpayer) who fails to pay those taxes after notice and demand
for payment is made. Section 6331(d) provides that the levy
authorized by section 6331(a) may be made with respect to any
unpaid tax only if the Secretary has given written notice to the
taxpayer 30 days before levy. Section 6330(a) further requires
that the notice advise the taxpayer of the amount of the unpaid
tax and of the taxpayer’s right to a hearing.
If a hearing is requested, the hearing is to be conducted by
an officer or employee of the Commissioner’s Appeals Office with
no prior involvement with respect to the unpaid tax at issue.
Sec. 6330(b)(1), (3). The Appeals officer shall at the hearing
obtain verification that the requirements of any applicable law
or administrative procedure have been met. Sec. 6330(c)(1). The
taxpayer may raise at the hearing “any relevant issue relating to
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the unpaid tax or the proposed levy”. Sec. 6330(c)(2)(A). The
taxpayer may also raise challenges to the existence or amount of
the underlying tax liability at the hearing if the taxpayer did
not receive a statutory notice of deficiency with respect to the
underlying tax liability or did not otherwise have an opportunity
to dispute that liability. Sec. 6330(c)(2)(B). Amounts reported
as due on the taxpayer’s original return may also be challenged.
Montgomery v. Commissioner, 122 T.C. 1, 9-10 (2004).
At the conclusion of the hearing, the Appeals officer must
determine whether and how to proceed with collection and shall
take into account (1) the verification that the requirements of
any applicable law or administrative procedure have been met; (2)
the relevant issues raised by the taxpayer; (3) challenges to the
underlying tax liability by the taxpayer, where permitted; and
(4) 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).
With respect to determinations made before October 17,
2006,4 we have jurisdiction to review the Appeals Office’s
determination where we have jurisdiction over the type of tax
4
Pursuant to the Pension Protection Act of 2006, Pub. L.
109-280, sec. 855, 120 Stat. 1019, this Court has exclusive
jurisdiction to review determinations under sec. 6330, effective
for determinations made after the date which is 60 days after the
Aug. 17, 2006, date of enactment, or Oct. 16, 2006.
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involved in the case. Sec. 6330(d)(1)(A); see Iannone v.
Commissioner, 122 T.C. 287, 290 (2004). Generally, we consider
only those issues that the taxpayer raised during the section
6330 hearing. Giamelli v. Commissioner, 129 T.C. 107, 112-113
(2007); Magana v. Commissioner, 118 T.C. 488, 493 (2002).
However, the Appeals officer’s mandated verification under
section 6330(c)(1) that the requirements of any applicable law or
administrative procedure have been met is subject to review
without regard to a challenge by the taxpayer at the hearing.
Hoyle v. Commissioner, 131 T.C. ___ (2008).
Where it is properly at issue, we review the underlying tax
liability de novo; the Appeals officer’s determinations
concerning collection matters are reviewed for abuse of
discretion. See, e.g., Goza v. Commissioner, 114 T.C. 176, 181-
182 (2000).
II. Challenges to the Underlying Tax Liability
The parties agree that petitioner did not receive a notice
of deficiency or otherwise have an opportunity to dispute his
underlying tax liabilities for 1995 and 1999. Therefore, the
underlying tax liabilities for 1995 and 1999 are properly at
issue, see Montgomery v. Commissioner, supra, and we review them
de novo.5 Petitioner bears the burden of proving that the
5
However, as discussed infra, petitioner is collaterally
estopped from contesting certain issues affecting his underlying
(continued...)
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underlying tax liabilities are incorrect.6 See Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
However, under section 7491(c) the Commissioner bears the
burden of production with respect to the additions to tax. In
order to meet that burden, the Commissioner must offer sufficient
evidence to indicate that it is appropriate to impose the
relevant addition. Higbee v. Commissioner, 116 T.C. 438, 446
(2001). Once the Commissioner meets his burden of production,
the taxpayer bears the burden of proving error in the
determination, including evidence of reasonable cause or other
exculpatory factors. Id. at 446-447.
A. 1995 Taxable Year
Petitioner reported a $5,613 income tax liability on his
1995 return but made no payments toward the liability.
Petitioner’s only challenge to the 1995 liability is his claim
that he is entitled to an investment interest expense
5
(...continued)
tax liability for 1999.
6
Petitioner failed to cooperate with respondent in preparing
this case for trial, including (by his own admission) spurning
respondent’s counsel’s requests for information and meetings
until the day before trial. Consequently, petitioner is not
entitled to any shift in the burden of proof with respect to the
underlying tax liabilities. See sec. 7491(a)(1) and (2)(B); see
also, e.g., Connors v. Commissioner, T.C. Memo. 2006-239, affd.
277 Fed. Appx. 122 (2d Cir. 2008); Krohn v. Commissioner, T.C.
Memo. 2005-145; Lopez v. Commissioner, T.C. Memo. 2003-142, affd.
on this issue without published opinion 116 Fed. Appx. 546 (5th
Cir. 2004).
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carryforward from his 1994 taxable year to reduce the 1995
liability.
A noncorporate taxpayer may deduct investment interest for
any taxable year only to the extent of any net investment income.
Sec. 163(d)(1). Any amount not allowed as a deduction because of
section 163(d)(1) may be carried forward to succeeding taxable
years. Sec. 163(d)(2).
Petitioner reported no investment income on his 1995 return
which could be offset by an investment interest expense
carryforward, and petitioner has adduced no evidence in this
proceeding that he had such investment income in 1995.7 In sum,
petitioner has not shown that his underlying tax liability for
1995 as reported on his return should be adjusted to account for
an investment interest expense carryforward. Accordingly, the
assessment of the amounts reported as due on the 1995 return was
proper.
With respect to the 1995 addition to tax under section
6651(a)(1), that section provides for an addition to tax for a
taxpayer’s failure to file a required return on or before the due
date of the return, including extensions, unless the failure to
7
We note, however, that petitioner attached a Form 4952,
Investment Interest Expense Deduction, to his 1995 return
claiming an investment interest expense of $965,226, which he
intended to carry forward to 1996. Petitioner was allowed to
carry forward and deduct a $965,226 investment interest expense
in his 1997 taxable year. See Mourad v. Commissioner, 121 T.C.
at 3 n.6.
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file is due to reasonable cause and not due to willful neglect.
Respondent introduced a Form 4340, Certificate of Assessments,
Payments, and Other Specified Matters, for petitioner’s 1995
taxable year, which records that petitioner received an extension
until October 15, 1996, to file his 1995 return and that
petitioner actually filed his return on November 15, 1999.
Petitioner reported sufficient income on his 1995 return to
obligate him to file an income tax return for that year. See
sec. 6012. Accordingly, respondent has met his burden of
production under section 7491(c) with respect to the section
6651(a)(1) addition to tax. Petitioner presented no evidence of
reasonable cause for his failure to timely file his 1995 return,
and we consequently conclude that the assessment of the section
6651(a)(1) addition to tax for 1995 was proper.
With respect to the 1995 addition to tax under section
6651(a)(2), that section provides for an addition to tax for a
taxpayer’s failure to timely pay any amount shown as tax on an
income tax return, unless such failure is due to reasonable cause
and not due to willful neglect. We have found no error in the
underlying tax liability for 1995, and the Form 4340 for 1995
records that petitioner failed to pay the tax reported on his
1995 return. Accordingly, respondent has met his burden of
production with respect to the section 6651(a)(2) addition to
tax. As petitioner has adduced no evidence indicating that his
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failure to pay the tax was due to reasonable cause and not due to
willful neglect, the assessment of the section 6651(a)(2)
addition to tax was proper.8
B. 1999 Taxable Year
Petitioner filed his return for 1999 on December 14, 2004.
Attached to the 1999 return was a Schedule K-1 (Form 1120S),
Shareholder’s Share of Income, Credits, Deductions, etc., from
V&M Management. The return reported adjusted gross income of
$310,692 and a tax liability of $536,739 (the amount listed as a
net section 1231 gain on the Schedule K-1 from V&M Management).
Respondent reduced this liability to $107,502 pursuant to section
6213(b)(1).
Notwithstanding the position he took on the return,
petitioner argues that he should not be taxed on passthrough
income earned by his S corporation while it was in chapter 11
bankruptcy reorganization. He contends that the bankruptcy
trustee was the real owner of V&M Management when its assets were
sold and that he was no longer the actual owner of V&M Management
in 1999. Petitioner further argues that the assets of V&M
Management were sold in 1997 and he should therefore have no
income from V&M Management in 1999. Petitioner argues in the
alternative that if he is liable for taxes in 1999 from the sale
8
Petitioner has made no claim for abatement or otherwise
disputed the interest assessed with respect to the 1995 tax
liability.
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of V&M Management’s assets, then he should be entitled to offset
the tax with low-income housing credits.
Petitioner has previously argued to this Court that V&M
Management’s bankruptcy filing caused him to cease to be
obligated for V&M Management’s tax liability. Petitioner’s
argument was considered and rejected by this Court and the Court
of Appeals for the First Circuit. See Mourad v. Commissioner,
121 T.C. 1 (2003), affd. 387 F.3d 27 (1st Cir. 2004). In Mourad,
we held that the filing of a bankruptcy petition for
reorganization neither terminates an S corporation’s tax status
nor creates a separate taxable entity. Petitioner’s argument
that V&M Management’s bankruptcy proceeding extinguished his
obligation for V&M Management’s taxes is therefore incorrect.
Petitioner was the sole shareholder of V&M Management, an S
corporation, when its assets were sold in 1997, and any
installment sale income passed through to petitioner.9 See sec.
1366.
V&M Management reported the sale of its assets on its
corporate income tax returns for 1997, 1998, and 1999 as an
installment sale, with installment sale income in each of those
9
As this Court observed in Mourad v. Commissioner, 121 T.C.
at 6, there is no unfairness in taxing petitioner on his
passthrough income from V&M Management while the corporation is
in bankruptcy, given petitioner’s receipt of prior tax benefits
from V&M Management’s S corporation status and the reduction of
petitioner’s taxable income from V&M Management’s depreciation
deductions.
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years. See generally sec. 453. V&M Management’s 1999 return
reported the installment sale gain for that year as $536,931, all
of which was listed on the Schedule K-1 issued to petitioner for
that year. Petitioner attached a copy of the Schedule K-1 to his
1999 return but reported the $536,931 of installment sale gain as
his tax due for the year. Respondent adjusted the reported
liability downward pursuant to the “math error” procedures of
section 6213(b)(1). Petitioner’s contention that he could not
have had income from V&M Management in 1999 because the sale
occurred in 1997 is contradicted by V&M Management’s returns.
Petitioner has demonstrated no error in V&M Management’s
reporting of its 1999 income or in respondent’s adjustment of
petitioner’s 1999 tax liability.
Petitioner alternatively argues that he should be allowed to
offset any tax for 1999 by means of low-income housing credits
that the bankruptcy trustee secured for Mandela Apartments.
Section 38 provides for a general business credit, which includes
a low-income housing credit under section 42. Section 39
provides rules under which an unused section 38 credit may be
carried back or forward to other taxable years. Under section
42, an owner of a qualified low-income building is allowed to
claim a low-income housing credit for any year only if, and to
the extent that, the owner receives a housing credit allocation
from a State or local housing credit agency. Sec. 42(h)(1)(A),
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(7)(D). The credit allocation is deemed made when part I of Form
8609, Low-Income Housing Credit Allocation Certification, is
completed and signed by an authorized officer of the housing
credit agency. Sec. 1.42-1T(d)(8)(ii), (e)(1), Temporary Income
Tax Regs., 52 Fed. Reg. 23437 (June 22, 1987). Further, to be
eligible for the credit, a taxpayer is required to file a
completed Form 8609 and a Form 8586, Low-Income Housing Credit,
with his return for each year the credit is claimed. Sec. 1.42-
1T(h)(2), Temporary Income Tax Regs., 52 Fed. Reg. 23439 (June
22, 1987).10
Petitioner has not demonstrated his entitlement to a low-
income housing credit for 1999. V&M Management sold Mandela
Apartments on December 14, 1997, so V&M Management was not an
owner of Mandela Apartments in 1999. Thus, the only way
petitioner could be entitled to offset his 1999 tax with a low-
income housing credit attributable to the Mandela Apartments
would be if he were entitled to carry forward a credit from 1997
or from an earlier year in which V&M Management owned Mandela
Apartments.
In Mourad v. Commissioner, 121 T.C. 1 (2003), this Court
considered petitioner’s income tax liability for 1997, including
10
As applicable for 1999, these requirements were contained
in sec. 1.42-1T(h)(2), Temporary Income Tax Regs., 52 Fed. Reg.
23439 (June 22, 1987). Effective Jan. 27, 2004, the temporary
regulation was replaced with sec. 1.42-1(h), Income Tax Regs.
T.D. 9112, 2004-1 C.B. 523.
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his claim that he was entitled to a low-income housing credit for
that year, and determined that he was not entitled to any such
credit. The issue of petitioner’s entitlement to a low-income
housing credit for 1997 was fully litigated and resolved in that
case, and petitioner is therefore precluded from relitigating it.
“When an issue of fact or law is actually litigated and
determined by a valid and final judgment, and the determination
is essential to the judgment, the determination is conclusive to
a subsequent action between the parties, whether on the same or a
different claim.” 1 Restatement, Judgments 2d, sec. 27 (1982);
see also Montana v. United States, 440 U.S. 147, 153-154 (1979).
The Court’s determination that petitioner was not entitled to the
credit for 1997 was a necessary component of the Court’s
determination of petitioner’s 1997 tax liability in Mourad, and
this Court’s decision in that case is a valid and final judgment,
affirmed on this issue on appeal. Thus, collateral estoppel11
bars petitioner from claiming that he was entitled to a low-
income housing credit in 1997.12
11
Respondent has made no claim that sec. 6330(c)(4) limits
the issues petitioner may raise, and we therefore do not consider
the applicability of that section.
12
Petitioner attached to his posttrial brief a Feb. 26,
1998, letter that petitioner apparently believes shows that low-
income housing credits were awarded to Mandela Apartments in 1997
(notwithstanding the Court of Appeals finding that the credits
were awarded in 1998. See supra note 3.). Material attached to
posttrial briefs is not competent evidence. Rule 143(b); Evans
(continued...)
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With respect to years before 1997, petitioner has neither
claimed nor introduced any evidence showing that he was entitled
to low-income housing credits for any pre-1997 year. This
precludes any demonstration that petitioner was entitled to a
carryforward of a low-income housing tax credit from an earlier
year to 1999 under section 39.13 We therefore conclude that
petitioner is not entitled to offset his 1999 tax by means of a
low-income housing credit. Accordingly, the assessment of the
1999 tax was proper.
With respect to the 1999 addition to tax under section
6651(a)(1), respondent introduced a Form 4340 for petitioner’s
1999 taxable year, which recorded that petitioner filed his
12
(...continued)
v. Commissioner, 48 T.C. 704, 709 (1967), affd. per curiam 413
F.2d 1047 (9th Cir. 1969); Hoang v. Commissioner, T.C. Memo.
2006-47. The letter was not offered as evidence at trial and is
hearsay. In any event, because the issue of petitioner’s
entitlement to low-income housing credits in 1997 was litigated
in Mourad v. Commissioner, 121 T.C. 1 (2003), petitioner is
collaterally estopped from further contesting the issue in this
proceeding. The letter petitioner would have us consider was
written before the decision in Mourad v. Commissioner, 387 F.3d
27 (1st Cir. 2004), and thus would not prevent the operation of
collateral estoppel. See Lea, Inc. v. Commissioner, 69 T.C. 762,
769-770 (1978).
13
In Mourad v. Commissioner, 121 T.C. at 3, this Court also
found that V&M Management never claimed low-income housing tax
credits for 1995 or 1996 and that petitioner did not file a
return for 1996. Since petitioner makes no claim in this
proceeding that he is entitled to low-income housing tax credit
carryforwards from those years, we find it unnecessary to decide
whether he is collaterally estopped from doing so.
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return on December 14, 2004. The Form 4340 does not indicate
that petitioner had been granted an extension to file his 1999
return. In the absence of any other evidence, we conclude the
return was due on April 15, 2000. See sec. 6072(a).
Petitioner’s 1999 income was sufficient to obligate him to file
an income tax return for that year. See sec. 6012. Accordingly,
respondent has met his burden of production under section 7491(c)
with respect to the section 6651(a)(1) addition to tax.
Petitioner presented no evidence of reasonable cause for his
failure to timely file his 1999 return, and we consequently
conclude that respondent’s assessment of the section 6651(a)(1)
addition to tax was appropriate.
Petitioner’s 1999 return showed $536,931 as the tax due.
Respondent reduced that amount to $107,502 and computed an
addition to tax under section 6651(a)(2) on the lesser amount.
The Form 4340 for petitioner’s 1999 tax year shows that he failed
to pay any tax with respect to 1999. Accordingly, respondent has
met his burden of production with respect to the section
6651(a)(2) addition to tax. As petitioner has adduced no
evidence indicating that his failure to pay the tax was due to
reasonable cause and not due to willful neglect, we conclude that
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respondent’s assessment of the section 6651(a)(2) addition to tax
was appropriate.14
III. Other Requirements
Petitioner did not raise any issues at his hearing other
than the underlying tax liabilities. The Appeals officer
verified that the requirements of applicable law and
administrative procedure had been met through the examination of
computer records. He further took into account whether the
proposed collection action balanced the need for the efficient
collection of taxes with the legitimate concern of petitioner
that the collection action be no more intrusive that necessary.
See sec. 6330(c)(3). Petitioner has identified no specific
infirmities in the foregoing not heretofore addressed which would
suggest any abuse of discretion by the Appeals officer.
We therefore hold that respondent may proceed with the levy
that is the subject of the notice of determination at issue.
To reflect the foregoing,
Decision will be entered
for respondent.
14
Petitioner has made no claim for abatement or otherwise
disputed the interest assessed with respect to the 1999 tax
liability.