T.C. Summary Opinion 2009-142
UNITED STATES TAX COURT
MARK RUPERT KNOP, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5472-08S. Filed September 15, 2009.
Mark Rupert Knop, pro se.
Melissa C. Quale, for respondent.
DEAN, Special Trial Judge: This case was heard under the
provisions of section 7463 of the Internal Revenue Code as in
effect when the petition was filed. Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
and this opinion should not be treated as precedent for any other
case. Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code of 1986, as amended.
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The petition was filed in response to a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 (notice of determination). Pursuant to section
6330(d), petitioner seeks review of respondent’s proposed levy
action with respect to his income tax liability for 1983. The
issues for decision are whether: (a) Petitioner may challenge
the existence or amount of the underlying tax liability, (b)
petitioner is entitled to an abatement of interest on his tax
liability, and (c) respondent’s determination to proceed with
collection action was an abuse of discretion.
Background
The stipulation of facts, the first and second supplemental
stipulation of facts, and the exhibits received into evidence are
incorporated herein by reference. When the petition was filed,
petitioner resided in California.
Petitioner’s Tax Liability
In 1983 petitioner, a limited partner, held a 2.857-percent
interest in the Contra Costa Jojoba Research Partners Partnership
(partnership). Respondent and the partnership timely executed
Form 872-O, Special Consent to Extend the Time to Assess Tax
Attributable to Items of a Partnership, for 1983.1 Respondent
1
Paul Vallely, Tax Matters Partner, signed the Form 872-O
for the partnership.
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sent the partnership notification of the commencement of an
examination in care of Paul Vallely on August 12, 1985.
Petitioner filed his Federal income tax return for 1986 in
August 1987. The address on the return was his post office box
in Alameda, California.
On April 12, 1989, respondent sent the partnership, in care
of Paul Vallely, Tax Matters Partner (TMP), a notice of final
partnership administrative adjustment (FPAA).2 A copy of the
FPAA was sent by certified mail to petitioner at his post office
box in Alameda, California, on May 30, 1989. The partnership,
through a partner other than the TMP, timely filed a petition
with the Court to dispute the proposed adjustments. See sec.
6226(b)(1).
In 1994 the partnership entered into a stipulation to be
bound by the outcome of docket No. 7619-90. In January 1998 the
Court in Utah Jojoba I Research v. Commissioner, T.C. Memo. 1998-
6, sustained the Commissioner’s adjustments in that case.
Although the Court provided an opportunity for each partner in
the partnership to object to entry of decision, none who
responded was willing to prosecute the partnership-level
2
The partnership proceeding was governed by the procedural
rules of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, sec. 402(a), 96 Stat. 648, codified as secs.
6221-6233. Under sec. 6221, the tax treatment of partnership
items is determined at the partnership level.
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proceeding. In April 2005 the Court ordered that the partnership
item adjustments as set forth in the FPAA issued to the
partnership be sustained. In its order and decision, the Court,
citing section 6230(f), noted that “While it appears that the tax
matters partner, who is also the petitioner, may have failed to
fulfill his duties and obligations as tax matters partner, such
failure” would not invalidate the partnership-level proceeding.
On April 10, 2006, respondent sent petitioner a notice of
deficiency determining additions to tax for negligence under
section 6653(a)(1) for 1983 for affected items related to the
partnership adjustment. See secs. 6230(a)(2), 6231(a)(5). The
assessment of the affected items is not at issue here.
On May 1, 2006, respondent assessed the additional tax that
petitioner owed as a result of the tax determined at the
partnership level. Petitioner received in May 2006 Notice CP22E,
explaining the increase in his 1983 tax liability due to his
partnership proceeding as well as the interest accrued as a
result of the unpaid tax.
Respondent’s Collection Activity
Respondent sent petitioner a Final Notice, Notice of Intent
to Levy, and Notice of Your Right to a Hearing in September 2006
with respect to his 1983 tax liability. Petitioner filed a
timely Form 12153, Request for a Collection Due Process Hearing.
On his Form 12153 petitioner stated that he had “never received
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any notice from the IRS regarding this issue” until he received
the May 2006 Notice CP22E. Petitioner further alleged that “I
have lived at 1895 Geneva Street in San Jose, California from May
of 1990 to June 19th of 2006.” Petitioner added that 2 years
before living at the above address he lived in Fremont,
California. Petitioner requested that the levy not be enforced
“due to the amount of time that has passed” without his being
informed and that “all late fees” be waived.
Petitioner, a mortgage broker, supplied the Appeals officer
who conducted his section 6330 hearing with both Form 433-A,
Collection Information Statement for Wage Earners and Self-
Employed Individuals, and Form 433-B, Collection Information
Statement for Businesses, as well as additional financial
information.
Discussion
Section 6330
Section 6330 generally provides that the Commissioner cannot
proceed with collection by way of a levy until the taxpayer has
been given notice and the opportunity for an administrative
review of the matter (in the form of an Appeals Office hearing)
and, if dissatisfied, judicial review of the administrative
determination. See Davis v. Commissioner, 115 T.C. 35, 37
(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000). The
taxpayer requesting the hearing may raise any relevant issue with
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regard to the Commissioner’s intended collection activities,
including spousal defenses, challenges to the appropriateness of
the collection action, and offers of collection alternatives.
Sec. 6330(c); Sego v. Commissioner, 114 T.C. 604, 609 (2000);
Goza v. Commissioner, supra at 180.
Where the validity of the tax liability is not properly part
of the appeal, the taxpayer may challenge the determination of
the Appeals officer for abuse of discretion. Sego v.
Commissioner, supra at 609-610; Goza v. Commissioner, supra at
181-182. The taxpayer may raise challenges “to the existence or
amount of the underlying tax liability”, however, only 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 argues that it is unfair for respondent to
attempt collection of interest and “late fees” on the tax that he
admittedly owes for 1983.3 According to petitioner, it is, in
part, unfair because he does not recall being notified by
respondent that the partnership was to be examined or that he was
to be assessed additional tax as a result of the partnership
adjustment. It is also unfair, he argues, because paying his
3
Except with reference to deficiency procedures, under sec.
6601(e)(1), Interest treated as tax, references to underpaid tax
include interest on the tax. The term “tax” also includes
additions to the tax, additional amounts, and penalties. Sec.
6662(a)(2).
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liability would require withdrawing money from his retirement
account or selling his interest in his home.
The Partnership Liability
Mailing of the FPAA
Section 6223(a) and (d)(2) requires that the Secretary mail
a copy of the FPAA to each partner entitled to notice within 60
days of the mailing of the FPAA to the TMP. Petitioner suggests
that he never received a copy of the FPAA because it was not sent
to his proper address. The FPAA was sent to petitioner at his
post office box in Alameda, California, on May 30, 1989.
Petitioner’s 1986 Federal income tax return was filed in August
1987, indicating the post office box as his address. Petitioner
alleges that he lived in Fremont, California, starting in 1988.
Generally, a taxpayer’s last known address is the address
that appears on the taxpayer’s most recently filed and properly
processed return “unless the Internal Revenue Service (IRS) is
given clear and concise notification of a different address.”
Sec. 301.6212-2(a), Proced. & Admin. Regs. At trial, however,
petitioner admitted that in 1989 “I still had the PO box. I
don’t know if the PO box was effective at that time.” When
asked by the Court whether he had notified the Internal Revenue
Service in 1988 or 1989 that the post office box was no longer
his proper address, he replied: “No, I did not.” Neither
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petitioner nor respondent produced a copy of petitioner’s 1987 or
1988 Federal income tax return.
The last known address doctrine is derived from section
6212(b)(1), which provides that a notice of deficiency is
sufficient if it is mailed to the taxpayer at his last known
address. Under section 6230(a), however, the normal deficiency
procedures do not apply to the unified partnership audit and
litigation procedures, except under circumstances not relevant
here. Notices related to partnership proceedings are issued
under section 6223. Section 6223, unlike section 6212, does not
use the term “last known address”. For purposes of issuing the
notices specified in section 6223(a), including an FPAA, the
Commissioner is required to use names, addresses, and profits
interests as shown on the partnership return for the year at
issue as modified by additional information furnished by the tax
matters partner or any other person in accordance with
regulations prescribed by the Secretary. Sec. 6223(c)(1) and
(2). The procedure for furnishing additional information
regarding partners for the year at issue was found at sec.
301.6223(c)-1T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.
6784 (Mar. 5, 1987).4 Under the regulation:
In addition to the information on the partnership return and
that supplied on statements filed under this section, the
4
The temporary regulations have been replaced by permanent
regulations. See sec. 301.6223(c)-1, Proced. & Admin. Regs.
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Service may use other information in its possession (for
example, a change in address reflected on a partner's
return) in administering subchapter C of chapter 63 of the
Code. However, the Service is not obligated to search its
records for information not expressly furnished under this
section. [301.6223(c)-1T(f), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 6784 (Mar. 5, 1987).]
The statute places on the partnership the burden of informing the
Commissioner of changes in the addresses of the partners and the
partnership. Sec. 6230(e); Utah Bioresearch 1984, Ltd. v.
Commissioner, T.C. Memo. 1989-612. Petitioner has produced no
evidence to show that respondent did not comply with the
requirements of the statute and the regulations issued
thereunder.
Petitioner is held to have received the FPAA. He will be
treated as having been a party to the action filed in this Court
and able to have participated in the litigation. See sec.
6226(c). Because petitioner had an opportunity to dispute his
tax liability during the partnership litigation, he was
prohibited from challenging the liability at the section 6330
hearing and at trial. Sec. 6330(c)(2)(B); Giamelli v.
Commissioner, 129 T.C. 107, 113 (2007); sec. 301.6330-1(f)(2),
Q&A-F5, Proced. & Admin. Regs.
Interest on the Liability
For tax years beginning before July 31, 1996, the
Commissioner may abate interest assessed on any deficiency or
payment of tax to the extent that any error or delay in payment
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of the tax is attributable to the erroneous or dilatory
performance of a ministerial act by an officer or employee of the
Commissioner and the taxpayer caused no significant aspect of the
delay. Sec. 6404(e)(1). A ministerial act is a procedural or
mechanical act that does not involve the exercise of judgment or
discretion by the Commissioner. Sec. 301.6404-2T(b)(1),
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987).
In 1996 Congress amended section 6404(e)(1) to permit
abatement of interest that accrues as a result of an
“unreasonable” error or delay in performing a ministerial or
“managerial” act. Taxpayer Bill of Rights 2, Pub. L. 104-168,
sec. 301(a), 110 Stat. 1457 (1996). The 1996 amendment applies
to deficiencies or payments for tax years beginning after July
30, 1996. Id. sec. 301(c), 110 Stat. 1457. A decision
concerning the application of Federal or State law is not a
managerial act. Sec. 301.6404-2(b)(1), Proced. & Admin. Regs.
Petitioner has failed to show that there was an erroneous or
dilatory performance of a ministerial act or an unreasonable
error or delay by respondent in performing a ministerial or
managerial act.
Collection Alternatives
The Appeals officer stated in the notice of determination
that she examined all collection alternatives. Petitioner’s
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collection alternatives are limited because he has assets that
are more than sufficient to fully pay his outstanding tax
liability. The parties agree, however, that petitioner’s current
living expenses exceed his income, making an installment
agreement inappropriate.
A taxpayer may request that his Federal income tax liability
be designated as currently not collectible where, on the basis of
the taxpayer’s assets, equity, income, and expenses, he has no
apparent ability to make payments on the outstanding tax
liability. Foley v. Commissioner, T.C. Memo. 2007-242. Although
petitioner’s income was not sufficient to meet his stated monthly
living expenses, he has funds in an individual retirement account
and equity in his personal residence that are worth a multiple of
his tax liability. His account cannot, therefore, be considered
currently not collectible.
If the liability of a taxpayer can be collected in full but
would create an economic hardship, the Commissioner can consider
an offer-in-compromise (OIC) to promote effective tax
administration. Sec. 301.7122-1(b)(3), Proced. & Admin. Regs.;
Internal Revenue Manual (IRM) pt. 5.8.11.2.1(1) (Sept. 1, 2005).
Among the factors to be considered in making an economic hardship
determination are whether the taxpayer is incapable of earning a
living and whether he is unable to borrow against equity in his
assets. Id. pt. 5.8.11.2.1(6). The existence of economic
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hardship, however, does not require that an OIC be accepted. Id.
pt. 5.8.11.2.1(10). Further, tax liabilities associated with
abusive tax avoidance transactions will not generally be
compromised under effective tax administrative procedures. Id.
pt. 5.8.11.2.2.
Petitioner has presented no other possible alternatives.
Abuse of Discretion
The issue for the Court to decide is whether respondent
abused his discretion in determining to pursue the intended
collection action.
An abuse of discretion is a decision based on an erroneous
conclusion of law or where the record contains no evidence on
which a decision could rationally have been based. Premium Serv.
Corp. v. Sperry & Hutchinson Co., 511 F.2d 225, 229 (9th Cir.
1975). Because petitioner did not present viable alternatives to
collection, the Court finds that respondent’s determination to
pursue the intended collection action was not an abuse of
discretion.
To reflect the foregoing,
Decision will be entered
for respondent.