T.C. Summary Opinion 2009-143
UNITED STATES TAX COURT
PERRY LAMONT CROUCH III, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25255-07S. Filed September 16, 2009.
Perry Lamont Crouch III, pro se.
Cindy Park, 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.
Petitioner seeks judicial review of respondent’s
determination to proceed with collection by levy of a tax
liability for taxable year 2001. The issue for decision is
whether respondent abused his discretion in sustaining the notice
of intent to levy.1
Background
Some of the facts have been stipulated, and we incorporate
the stipulation and the accompanying exhibits by this reference.
Petitioner lived in California when he filed the petition.
Petitioner worked as an “expert gang intervention
specialist”. He mediated gang disputes, attempting to resolve
problems between rival gangs and between gangs and the residents
of various California neighborhoods and communities. In 2001
petitioner was called to Moreno Valley after gang members took
over a senior citizen complex. Petitioner helped to resolve the
gang activity at that complex. He stayed in Moreno Valley during
1
Respondent filed a motion for summary judgment. Summary
judgment is a procedure designed to expedite litigation and avoid
unnecessary, time-consuming, and expensive trials. Fla. Peach
Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court
scheduled the motion for hearing during the trial session. The
Court concluded that holding a hearing on the motion would not
expedite the resolution of this case. Thus, the case was
submitted after petitioner testified and introduced evidence.
Respondent’s motion will be denied.
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the resolution and received reimbursement for his expenses. He
then returned to his home in Los Angeles.
Petitioner did not timely file a tax return for taxable year
2001. In 2003 respondent prepared a substitute for return for
2001. On April 13, 2004, respondent mailed a notice of
deficiency to petitioner, determining a $3,024 deficiency for
taxable year 2001, but the U.S. Postal Service (USPS) returned
the notice marked “forwarding order expired”. Respondent closed
this notice of deficiency and did not assess the amount
determined therein.2
On April 15, 2004, petitioner filed an amended return for
2001, and on August 17, 2004, he filed a second amended return
for 2001.3
On September 22, 2005, respondent mailed a notice of
deficiency for 2001 by certified mail to petitioner’s last known
address. The address on this notice of deficiency is the same as
the address petitioner listed on his petition. The USPS did not
return the September 22, 2005 notice of deficiency (hereinafter
notice of deficiency) to respondent. In the notice of deficiency
2
From respondent’s failure to assess the $3,024 deficiency,
we presume that respondent concluded that the returned notice of
deficiency was insufficient to support a valid assessment under
secs. 6201(a) and 6212(a) and (b).
3
The parties referred to the returns petitioner filed after
the substitute return as amended returns. For convenience, we
will use their designation for these filings.
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respondent explained that he denied petitioner’s claimed business
travel deduction because petitioner did not respond to
respondent’s request for supporting documentation. Respondent
determined a $2,358 deficiency for taxable year 2001, together
with a $352 addition to tax for petitioner’s failure to timely
file a 2001 Federal income tax return.4 Petitioner did not
petition this Court for redetermination of the deficiency, and
respondent assessed the deficiency, together with interest and
the late-filing addition to tax, on March 6, 2006. Respondent
also issued a notice and demand for payment on March 6, 2006.
On a date not apparent from the record, petitioner requested
audit reconsideration of the deficiency determination for taxable
year 2001.5 Respondent provided his final response to
petitioner’s request in a letter dated December 6, 2006, sent by
certified mail, and stating in part: “We have disallowed your
request for reconsideration, because you did not submit all the
required documentation.” The letter specifically stated that
respondent requested a police or fire department report
describing the fire petitioner claimed destroyed his 2001 tax
4
The record includes a copy of this notice of deficiency.
5
While the date of petitioner’s request for audit
reconsideration is unclear, a letter dated Aug. 28, 2006, from
respondent to petitioner seeks information in addition to
documents petitioner submitted on June 12, 2006. Thus,
petitioner must have requested reconsideration on or before June
12, 2006.
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records, but petitioner did not provide those documents. The IRS
employee who signed the reconsideration denial letter held the
position “Operations Manager, Examination”. Petitioner did not
claim this letter, and the USPS returned it, marked “unclaimed”,
to respondent.
Respondent issued a Notice of Intent to Levy and Notice of
Your Right to a Hearing to petitioner, and petitioner timely
requested a collection hearing. In his hearing request
petitioner explained that his original receipts had been
destroyed and that he provided the IRS with “the requested
information” in 2006.
At the collection hearing petitioner challenged the
underlying tax liability for 2001 and declined to discuss any
collection alternatives. The settlement officer (SO) refused to
address the underlying tax liability.
Respondent issued a notice of determination that recited:
(1) The SO’s verification that applicable legal and
administrative procedures had been followed; (2) that respondent
sent petitioner a notice of deficiency which the USPS did not
return, which petitioner neither confirmed nor denied receiving,
and from which petitioner did not file a petition for
redetermination; (3) that petitioner’s previous request for audit
reconsideration was a prior opportunity to dispute the tax for
2001 and precluded his challenging the underlying liability in
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the collection hearing; (4) that petitioner did not want to
discuss or consider any collection alternatives; and (5) that
collection by levy properly balances the need for efficient
collection with petitioner’s concern that the collection action
be no more intrusive than necessary. Respondent sustained the
notice of intent to levy.
In his petition seeking judicial review of respondent’s
determination to sustain the levy action, petitioner raised only
challenges to the underlying tax liability.
At trial respondent’s counsel stated that if the Court
should decide that petitioner is eligible to challenge the
underlying tax liability, then respondent would ask the Court to
remand the case for Appeals Office consideration of the
liability. As a result of this request, the trial focused on the
section 6330 hearing and the notice of determination and did not
address the existence or amount of the 2001 tax liability.
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.
Section 6330(a) requires the Secretary at least 30 days before
beginning any levy to send a written notice to the taxpayer of
the amount of the unpaid tax and of the taxpayer’s right to a
section 6330 hearing.
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If the taxpayer requests a section 6330 hearing, a
settlement officer or Appeals officer in the IRS’s Appeals Office
who has had no prior involvement with the unpaid taxes at issue
conducts the hearing. Sec. 6330(b)(1), (3). At the hearing the
officer shall obtain verification that the requirements of any
applicable law or administrative procedure have been met. Sec.
6330(c)(1). The taxpayer may raise any issue relevant to the
unpaid tax or the proposed levy. Sec. 6330(c)(2)(A). The
taxpayer may also challenge the existence or amount of the
underlying tax liability, but only if he did not receive a
statutory notice of deficiency or did not otherwise have an
opportunity to dispute that liability. Sec. 6330(c)(2)(B);
Montgomery v. Commissioner, 122 T.C. 1 (2004). An opportunity to
dispute the underlying liability that precludes a taxpayer from
challenging the liability at the hearing includes a prior
opportunity for a conference with the Appeals Office when the
taxpayer availed himself of that opportunity. Perkins v.
Commissioner, 129 T.C. 58, 63 (2007); Lewis v. Commissioner, 128
T.C. 48, 61 (2007); see also sec. 301.6330-1(e)(3), Q&A-E2,
Proced. & Admin. Regs.
After the hearing the officer must determine whether and how
to proceed with collection and shall consider: (1) The
administrative and procedural verification; (2) the relevant
issues raised by the taxpayer; (3) where permitted, challenges to
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the underlying tax liability; and (4) whether any proposed
collection action properly balances the need for efficient
collection of taxes with the taxpayer’s legitimate concern that
the collection action be no more intrusive than necessary. Sec.
6330(c)(3).
In reviewing a notice of determination sustaining a
collection action, where the validity of the underlying tax
liability is properly at issue, the Court reviews the
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). If the Court finds that a taxpayer is
liable for deficiencies, additions to tax, and/or penalties, then
the 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).
If the liability is not properly at issue, the Court reviews the
administrative determination 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).
Section 6330(c)(4) expressly provides that a taxpayer, at a
collection hearing before the Appeals Office, may not raise
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issues that he previously raised and that were considered in a
previous collection proceeding or in any other administrative or
judicial proceeding in which he meaningfully participated.
Magana v. Commissioner, 118 T.C. 488, 492 (2002); see also sec.
301.6330-1(e)(1), Proced. & Admin. Regs. Section 6330(c)(4) in
effect codifies the legal doctrines of res judicata and
collateral estoppel in their application to collection
proceedings. Wooten v. Commissioner, T.C. Memo. 2003-113.
“Respondent has previously stated that ‘Because section
6330(c)(2)(B) explicitly applies to challenges to tax liability,
section 6330(c)(4) with its more stringent requirement of
meaningful participation applies to non-liability issues.’”
Lewis v. Commissioner, supra at 52 n.4 (quoting Office of Chief
Counsel Notice CC-2003-016 at 20 (May 29, 2003) and noting that
the Commissioner restated this position in Office of Chief
Counsel Notice CC-2006-019 at 33 (Aug. 18, 2006)). Moreover,
respondent has not argued section 6330(c)(4) as grounds to
preclude petitioner’s challenge to the underlying liability.
Accordingly, we decide this issue solely with respect to section
6330(c)(2)(B). See id.
The SO refused to consider petitioner’s challenge to the
underlying tax liability on two grounds: (1) Respondent sent
petitioner a notice of deficiency, and (2) petitioner’s challenge
to the liability was considered when he requested audit
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reconsideration. Respondent argues that petitioner’s receipt of
the notice of deficiency and participation in the audit
reconsideration procedure each independently satisfy section
6330(c)(2)(B) and precludes petitioner’s challenging the
underlying tax liability during the section 6330 hearing.
There is no dispute that respondent mailed the notice of
deficiency to petitioner’s last known address or that the USPS
did not return the notice to respondent. Likewise, there is no
dispute that petitioner meaningfully participated in the audit
reconsideration he requested. However, petitioner alleges that
he did not actually receive the notice of deficiency, and he
asserts that the decision made by a manager in an IRS examination
function to reject his audit reconsideration request should not
prevent him from having a fair opportunity for an impartial
review of his underlying tax liability.
Although petitioner testified that his wife and stepdaughter
were authorized to sign for his deliveries when he was away from
home and trusted neighbors were authorized to sign for deliveries
when the family was away, the record does not contain any
evidence that anyone signed for the notice of deficiency.
Petitioner claims he did not receive the notice of deficiency
until the Taxpayer Advocate’s office provided him with a copy in
January 2008. He testified credibly about consistently
responding to mailings from the IRS (and the record supports his
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diligence), and he explained that if he had received the notice
of deficiency he surely would have timely responded.
Respondent demonstrated and the parties stipulated that
respondent mailed the notice of deficiency to petitioner’s last
known address by certified mail. However, respondent did not
provide any evidence of delivery or actual receipt. Respondent
relies on the presumption of official regularity and argues that
because the notice was properly addressed and deposited with the
USPS as certified mail, it must have been delivered to
petitioner.
The Commissioner is authorized to issue a notice of
deficiency by mailing it using certified or registered mail to
the taxpayer’s last known address. Sec. 6212(a) and (b). The
notice of deficiency is valid independent of receipt by the
taxpayer. See Pietanza v. Commissioner, 92 T.C. 729, 736 (1989),
affd. without published opinion 935 F.2d 1282 (3d Cir. 1991).
The parties’ stipulation satisfies the requirements of sections
6212 and 6213(a). Thus, the notice of deficiency and the
subsequent assessment are valid.
In contrast, under the plain language of section
6330(c)(2)(B) only actual receipt of the notice of deficiency
will preclude a challenge to the underlying tax liability in a
section 6330 hearing on the ground that a taxpayer had the chance
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to petition this Court following his receipt of the notice of
deficiency but failed to file the petition.
This is a close case. Respondent has no record of any
returned receipt for the delivery of the notice of deficiency,
and petitioner admits he authorized certain others to sign for
his deliveries. Respondent did not present any direct evidence
of receipt by petitioner or anyone who may have been authorized
to receive his mail. Under the circumstances, specifically
petitioner’s credible testimony and his history of promptly
responding to tax-related notices, we are not convinced that
petitioner received the notice of deficiency. See Butti v.
Commissioner, T.C. Memo. 2006-66. Petitioner has rebutted the
presumption of delivery, and we hold that in the absence of any
proof of actual delivery, the mailing of the notice of deficiency
was not sufficient grounds for the SO to refuse to consider
petitioner’s challenge to the underlying tax liability during the
section 6330 hearing.
Section 6330(c)(2)(B) is stated in the disjunctive; either
receipt of a notice of deficiency or a prior opportunity to
dispute the underlying liability will prevent a taxpayer’s
disputing the liability again during the section 6330 hearing.
Thus, we must also consider whether petitioner had such an
opportunity independent of the notice of deficiency.
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It is unclear precisely when petitioner sought audit
reconsideration or what triggered his request. See supra note 5.
As indicated, respondent mailed the notice of deficiency on
September 22, 2005, followed by a statutory notice of balance due
and assessment on March 6, 2006. Sometime presumably in 2005 or
2006 petitioner requested audit reconsideration. Petitioner
submitted some documentation on June 12, 2006, and respondent
requested additional information regarding petitioner’s allegedly
destroyed records on August 28, 2006. Finally, an Examination
operations manager denied petitioner’s request for
reconsideration on December 6, 2006, on the grounds that
petitioner had not provided all the required information.
Respondent argues that the audit reconsideration petitioner
requested was a prior opportunity to dispute his 2001 tax
liability. There are two problems with this argument: (1) The
audit reconsideration was not an independent review of
petitioner’s liability because the centralized reconsideration
unit in the IRS Examination function and not the IRS Appeals
Office handled the request for reconsideration; and (2) the
letter respondent sent to petitioner at the end of the process
indicates that respondent disallowed the request for
reconsideration, not that he reviewed and affirmed the audit
results. We presume, arguendo, that respondent denied
petitioner’s request because the documents he provided were
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insufficient to change the deficiency determined in the notice of
deficiency and that respondent provided petitioner an adequate
opportunity to present his case for audit reconsideration.
However, we still must decide whether audit reconsideration
by employees in the same operational unit (Examination Division)
that prepared the substitute for return, examined petitioner’s
amended returns, and determined the deficiency for 2001 suffices
as a prior opportunity to dispute the 2001 tax liability under
section 6330(c)(2)(B).
Section 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs., is
applicable for requests for section 6330 hearings made on or
after November 16, 2006, and provides as follows:
An opportunity to dispute the underlying liability includes
a prior opportunity for a conference with Appeals that was
offered either before or after the assessment of the
liability. An opportunity for a conference with Appeals
prior to the assessment of a tax subject to deficiency
procedures is not a prior opportunity for this purpose.
It is apparent from the record that the IRS’s centralized
reconsideration unit, represented by an operations manager in the
IRS Examinations function, handled petitioner’s audit
reconsideration request. Thus, we are satisfied that audit
reconsideration did not provide petitioner with an opportunity
for either an Appeals Office conference or Appeals Office
consideration of his liability.
We concluded in Lewis v. Commissioner, 128 T.C. 48 (2007),
that the legislative history of the Internal Revenue Service
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Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401,
112 Stat. 746, indicates that Congress intended to preclude
taxpayers who were previously afforded a conference with the
Appeals Office from raising their underlying liability again in a
section 6330 hearing and before this Court. We upheld section
301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs., because the
regulation implements the congressional mandate in a reasonable
manner, and we stated that “we read sec. 6330(c)(2)(B) to allow a
taxpayer who has had neither a conference with Appeals nor an
opportunity for a conference with Appeals to raise the underlying
liability in a collection review proceeding before Appeals and
this Court.” Id. at 61 n.9; see also Montgomery v. Commissioner,
122 T.C. at 10 (taxpayers permitted to challenge their underlying
tax liability where they did not receive a notice of deficiency
or have an opportunity for Appeals Office consideration of their
underlying tax liability).
Petitioner did not have an Appeals conference or an
opportunity for an Appeals conference before the section 6330
hearing. The audit reconsideration was not performed by the
Appeals Office, and the SO did not permit petitioner to challenge
the underlying tax liability during the section 6330 hearing.
Under the circumstances (nonreceipt of the notice of
deficiency and no prior opportunity for Appeals Office
consideration of the underlying tax liability), it was an abuse
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of discretion for the SO to uphold the levy action without
considering petitioner’s challenge to his 2001 tax liability.
In appropriate circumstances we may remand a case to the
Appeals Office to provide a hearing under section 6330(b). See
Lunsford v. Commissioner, 117 T.C. 183, 189 (2001); Harrell v.
Commissioner, T.C. Memo. 2003-271. We will remand this case with
instructions to respondent to offer petitioner an Appeals Office
conference during which he may challenge the underlying tax
liability for taxable year 2001.
An appropriate order will be
issued.