T.C. Memo. 2009-301
UNITED STATES TAX COURT
WILLIAM RAY CESSNA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 30707-08L. Filed December 22, 2009.
William Ray Cessna, pro se.
Jeremy L. McPherson, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Respondent moved for summary judgment in
this section 63201 collection proceeding involving the filing of
a notice of Federal tax lien (NFTL). Petitioner objected,
1
All section references are to the Internal Revenue Code in
effect for the period under consideration. Rule references are
to the this Court’s Rules of Practice and Procedure.
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alleging, among other things, that the assessment period had
expired at the time of the issuance of the notice of deficiency
and that this matter was not ripe for summary judgment because
there was a dispute about material facts. The issues we consider
are: (1) Whether this matter is ripe for summary judgment;
(2) whether petitioner may contest the underlying 1999 tax
liability; (3) whether the period for assessment had expired at
the time of the issuance of the notice of deficiency; and (4)
whether respondent may proceed with collection.
Background
During 1993 petitioner’s wife Janice R. Cessna (deceased on
July 15, 2005) won the California State lottery under which she
was entitled to 20 annual payments. On February 18, 1999,
petitioner and his wife entered into a lottery prize assignment
agreement, which was approved by the California superior court on
March 24, 1999. Under the agreement Woodburn Sterling Capital,
LLC (Woodburn), was to pay petitioner and his wife $1,161,500 in
exchange for their assignment to Woodburn of their rights to
eight annual lottery payments.
On their 1999 joint Form 1040, U.S. Individual Income Tax
Return, filed October 24, 2000, petitioner and his wife reported
the $1,161,500 payment from Woodburn as long-term capital gain.
The address shown on petitioner and his wife’s 1999 return was
P.O. Box 39, McArthur, California 96056. In a notice of
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deficiency issued and mailed on August 30, 2002, to petitioner
and his wife at that address, respondent determined that the
$1,161,500 was ordinary income and that petitioner and his wife,
therefore, had a $234,540 income tax deficiency for 1999. On
November 25, 2002, petitioner and his wife petitioned this Court
in docket No. 18327-02.
On June 28, 2005, respondent’s and petitioner and his wife’s
executed stipulation to be bound was filed. In that stipulation,
the parties agreed to be bound by the outcome of two test cases.
In addition, petitioner and his wife agreed to the assessment of
the income tax deficiency after the issuance of an opinion
unfavorable to petitioner and his wife and before any appeal of
this Court’s opinion in the test cases. On November 7, 2006,
this Court issued, in the test cases, an opinion favorable to
respondent. See Womack v. Commissioner, T.C. Memo. 2006-240.
The decision was appealed and was affirmed by the Court of
Appeals for the Eleventh Circuit. See Womack v. Commissioner,
510 F.3d 1295 (11th Cir. 2007). On August 7, 2007, respondent,
in accord with the agreement to be bound, assessed a $234,540
income tax deficiency against petitioner and his wife. With
respect to petitioner and his wife’s deficiency proceeding at
docket No. 18327-02, no decision had been entered by this Court.
Respondent moved for entry of decision, and this Court entered a
decision on July 29, 2009.
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On September 19, 2007, respondent issued an NFTL for the
1999 tax year and on September 27, 2007, respondent sent
petitioner and his wife a Notice of Federal Tax Lien Filing and
Your Right to a Hearing Under IRC 6320. In response, on November
7, 2007, petitioner submitted a Form 12153, Request for a
Collection Due Process or Equivalent Hearing. On that form,
petitioner requested a hearing with respect to the lien filing.
He also checked the box which indicated that his spouse was alone
responsible for the tax liability (innocent spouse relief), but
he did not attach a Form 8857, Request for Innocent Spouse
Relief, as required on the Form 12153. Petitioner did not
suggest any collection alternatives, such as an offer-in-
compromise. Finally, petitioner contended that the NFTL was “in
violation of I.R.C. 6501”; i.e., that the period for assessment
had expired before respondent assessed the 1999 deficiency. In
correspondence exchanged during the administrative hearing
process, petitioner asked that any documents be sent to him at
“P.O. Box 39, McArthur, CA 96056-0039.” In all of his
correspondence with respondent’s personnel, petitioner raised
only the section 6501 issue, and he specifically indicated in a
letter dated August 27, 2008, that he did not wish to pursue
collection alternatives.
In a September 23, 2008, letter, respondent’s settlement
officer advised petitioner that he was not entitled to challenge
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the underlying tax liability because he had received a notice of
deficiency and pursued the opportunity to contest it in the Tax
Court. The settlement officer also explained that the period for
assessment had automatically been extended under section 6503
during the pendency of the deficiency proceeding in the Tax
Court. Along with that same letter, petitioner was provided a
Form 4340, Certificate of Assessments, Payments, and Other
Specified Matters, reflecting all account activity for
petitioner’s 1999 tax year.
In response to the September 23, 2008, letter, petitioner,
in an October 11, 2008, letter, alleged that “No Notice of
Deficiency was ever sent to Mr. Cessna.” He also reiterated his
claim that the assessment period had expired before assessment.
Although petitioner had requested a face-to-face meeting with the
settlement officer, a telephone conference was held on September
18, 2008, during which the focus of the conversation was the
notice of deficiency and petitioner’s claim that the assessment
was untimely.
Ultimately, on November 22, 2008, respondent issued a notice
of determination sustaining the collection activity of the filing
of an NFTL with respect to petitioner’s 1999 tax liability.
Petitioner appealed respondent’s determination to this Court. In
his petition, he alleged that the period for assessment had
expired under section 6501 because the notice of deficiency was
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sent to his former accountant and not to petitioner or his wife.
On the basis of the alleged failure to send a notice of
deficiency to petitioner or his wife, petitioner contends that
the administrative process for his collection case was flawed and
that the period for assessment had expired before the date of
assessment. Petitioner did not allege entitlement to a
collection alternative or to any other relief such as under
section 6015 (innocent spouse).
Respondent filed a motion for summary judgment contending
essentially that petitioner is not entitled to question the
underlying merits of his 1999 tax liability; the period for
assessment had not expired before the assessment of the 1999
deficiency; petitioner has not requested any relief upon which
respondent could act; and the settlement officer had complied
with all administrative requirements.
Petitioner opposed the granting of summary judgment,
contending essentially that there is a genuine issue of material
fact; respondent’s personnel did not comply with administrative
requirements; and the 1999 assessment was made beyond the 3-year
period.
Discussion
Summary Judgment
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Fla. Peach Corp. v.
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Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted with respect to a legal issue, if there is “no genuine
issue as to any material fact and * * * a decision may be
rendered as a matter of law.” Rule 121(a) and (b); Craig v.
Commissioner, 119 T.C. 252, 259-260 (2002); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994).
Petitioner contends that the stipulation to be bound by the
outcome of the test cases (entered into in the deficiency case)
does not limit petitioner’s right or opportunity to have a
hearing under section 6320 and does not limit petitioner’s right
to question whether the period for assessment had expired when
respondent assessed the 1999 tax liability. As to that
contention, petitioner has mistaken a legal question for a
question of fact. The stipulation to be bound is included in the
materials before the parties and the Court and there is no
ambiguity in its content. Petitioner’s rights to a hearing and
to question the assessment period are governed by applicable law.
Petitioner contends that the 1999 notice of deficiency was
not sent to him and his wife but instead was sent to his
accountant. It is upon that basis that petitioner argues that
the period for assessment had expired. This question can be
addressed by reference to the documents presented to the Court.
Petitioner and respondent presented the same documents addressing
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the question of the notice of deficiency and its mailing. Both
parties interpret those documents the same way. Accordingly,
there is no genuine issue of material fact that additional
evidence would resolve. Under those circumstances, the facts of
the controversy between the parties are established and this
matter is ripe for summary judgment.
Period for Assessment
Section 6501(a) provides the general rule that the
Commissioner must assess within 3 years after the return was
filed. Petitioner and his wife’s 1999 joint return was filed
October 24, 2000. The 1999 income tax deficiency was assessed on
September 27, 2007, more than 3 years from the filing of the
return. Within the 3-year period, on August 30, 2002, respondent
mailed a notice of deficiency to petitioner and his wife, and on
November 25, 2002, they filed a petition with this Court.
Section 6503(a) provides that the period for assessment shall be
suspended for the period the Secretary is prohibited from making
the assessment or, among other reasons, until the decision of the
Tax Court becomes final and for 60 days thereafter. As
previously noted, a decision was entered in the deficiency case
(docket. No. 18327-20) on July 29, 2009.
Because respondent issued a notice of deficiency and
petitioner filed a petition with this Court before the expiration
of the normal 3-year period for assessment, the period was
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suspended. At the time of the assessment during 2007, this
Court’s decision had not become final, and accordingly, the
period remained suspended and the assessment was timely.
Petitioner also contends that he did not receive a notice of
deficiency.2 Assuming arguendo that petitioner did not receive
the notice of deficiency, that fact is rendered irrelevant
because a petition was timely filed and petitioner had the
opportunity to contest respondent’s determination. For purposes
of the suspension of the assessment period, it would suffice that
respondent mailed a notice to petitioner and/or that a proceeding
was commenced. Receipt of the notice is not required to stay or
suspend the assessment period.
Whether Petitioner May Contest the Underlying Liability
We agree with respondent that petitioner is precluded from
contesting the underlying deficiency. That is so because
petitioner already had the opportunity to contest the underlying
income tax deficiency in this Court. See sec. 6330(c)(2)(B).
2
Petitioner alleges that the notice was sent to his former
accountant instead of him. Documentation clearly reflects that a
notice of deficiency was timely mailed to petitioner at the
address shown on his tax return, which is the same address that
petitioner used in the administrative proceeding that preceded
this case. It is possible that a copy or duplicate of the notice
was also sent to petitioner’s representative, but that fact does
not, in these circumstances, change the outcome.
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The Administrative Proceeding
Petitioner has questioned the administrative proceeding to
the extent that he did not have a face-to-face hearing; and he
has also made the blanket allegation that respondent’s settlement
officer did not comply with the statutory requirements.
If the taxpayer requests a section 6330 hearing, an officer
in the IRS’ Appeals Office with no prior involvement in the case
is to conduct the hearing. Sec. 6330(b)(1), (3). At the hearing
the officer is to verify 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
collection action. Sec. 6330(c)(2)(A). The taxpayer may also
challenge the existence or amount of the underlying tax liability
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).
Petitioner received a notice of deficiency and proceeded to
this Court. The underlying liability which is the subject of the
collection action is the one adjudicated in this Court.
Accordingly, petitioner was not entitled to question the
underlying liability, and we review respondent’s actions under an
abuse of discretion standard. See Sego v. Commissioner, 114 T.C.
604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182
(2000).
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After the hearing the officer must determine whether and how
to proceed with collection and shall consider: (1) The
administrative and procedural verification; (2) relevant
issues raised by the taxpayer; (3) where permitted, challenges to
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).
There was substantial correspondence between petitioner and
respondent’s personnel. In that correspondence and in
petitioner’s request for a hearing he mainly raised the question
of whether the period for assessment had expired before
respondent assessed the 1999 deficiency. Respondent’s personnel
explained in a similar manner as we have in this opinion that the
assessment period remained open at the time of the assessment.
Petitioner did check the box indicating that he was seeking
innocent spouse relief, but he did not follow up on that request
or even mention it in any correspondence or during the telephone
conference afforded to him. He did not raise or further pursue
that issue during the administrative proceeding or with this
Court.
The record reveals that respondent’s settlement officer did
comply with the requirements of section 6330(c)(3). Petitioner
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did not request collection alternatives, nor did he indicate the
he had any documentation other than what he proffered with his
correspondence and his filings with this Court. Petitioner
agreed to and participated in a telephone hearing. The absence
of a face-to-face hearing was of no significance in this setting.
In sum the settlement officer addressed each and every argument
raised and pursued by petitioner. Under these circumstances,
there was no abuse of discretion and respondent is entitled to
proceed with collection.
To reflect the foregoing,
An appropriate order and
decision will be entered.