T.C. Memo. 2010-36
UNITED STATES TAX COURT
PERRY B. AND GLADYS M. WESTCOTT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22690-07L. Filed February 23, 2010.
Perry B. Westcott and Gladys M. Westcott, pro se.
Marty J. Dama, for respondent.
MEMORANDUM OPINION
MORRISON, Judge: This case arises from a petition filed by
Perry and Gladys Westcott in response to the IRS’s “Notice of
Determination Concerning Collection Actions(s) Under Section 6320
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and/or Section 6330.”1 We decide that the IRS did not abuse its
discretion in making the determinations reflected in the notice.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated in this opinion by this reference. At the time they
filed the petition, the Westcotts resided in Texas.
I. Levy Proceeding
The Westcotts jointly filed their 1998 income tax return on
July 2, 2001. The return had a blank for the Westcotts to fill
in their tax liability and a blank for the amounts they had
already paid towards that liability, but the record does not
reveal how the Westcotts reported these amounts on their 1998
return. On the return, the Westcotts reported that they owed
$46,721.87, i.e., $46,721.87 was their tax liability minus the
amounts they had already paid. The Westcotts did not pay the
$46,721.87 owed. They used the money with which they could have
paid the amount owed to buy a business. On March 4, 2002, the
IRS assessed the tax liability shown on the 1998 return, assessed
some penalties (the nature of which was not disclosed by the
record), and assessed underpayment interest.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code), and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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On August 17, 2002, the IRS sent the Westcotts a “Final
Notice of Intent to Levy and a Notice of Your Right to a
Hearing.” On August 20, 2002, Mr. Westcott alone filed Form
12153, “Request for a Collection Due Process Hearing,” in which
he claimed that “Taxes owed from 1998 are offset by losses in
1999 & 2000. Cannot find anyone, including IRS, to complete tax
return & we cannot do it ourselves & cannot afford CPA.” The
Westcotts subsequently filed their 1999 return. The exact date
that the 1999 return was filed is not revealed by the record--
except that the date was before February 24, 2003. The return
showed a business loss of $82,592 (reported on Schedule C, Profit
or Loss From Business), gross income of negative $80,090, and
adjusted gross income of negative $80,090. By letter dated
February 24, 2003, the Appeals officer notified Mr. Westcott that
the IRS had accepted the 1999 return and that he had accordingly
reduced the Westcotts’ unpaid 1998 tax liability to
“approximately” $29,000 by carrying back the 1999 business loss
as a net operating loss.2 He warned Mr. Westcott that he could
not entertain any collection alternatives (i.e., alternatives to
levying) because the Westcotts had not filed their 2000 and 2001
2
The Code generally permits a net operating loss to be
carried back to each of the 2 years preceding the year of the
loss and then carried forward to each of the 20 years following
the loss year. Sec. 172(a) and (b)(1)(A).
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returns.3 The Appeals officer referred them to low-income tax
preparation services in their area to assist them in preparing
their unfiled returns. But on March 7, 2003, he issued a notice
of determination to Mr. Westcott for the 1998 taxable year
sustaining the proposed levy. The notice acknowledged that only
the reduced 1998 tax liability of “about” $29,000 would be
subject to levy.
In June 2005, more than 2 years after the issuance of the
notice of determination, the Westcotts filed an income-tax return
for the 2000 tax year. They reported a business loss of $36,514
on Schedule C, negative $17,299 of total gross income, and
negative $17,299 of adjusted gross income. Sometime after March
7, 2003, the Westcotts filed income-tax returns for the tax years
2001 through 2004.
Mr. Westcott alone filed a petition with the Tax Court
challenging the IRS’s 2003 notice of determination regarding the
levy for the 1998 tax year. The Court issued a Memorandum
Opinion on November 9, 2006. See Westcott v. Commissioner, T.C.
Memo. 2006-245. The Court held that Mr. Westcott did not
introduce “any reliable evidence” to substantiate the 2000 loss.
Thus the Court did not reduce his unpaid 1998 tax liability by
3
The regulations support the Appeals officer’s statement:
“the IRS does not consider offers to compromise from taxpayers
who have not filed required returns”. Sec. 301.6330-1(d)(2),
Q&A-D8, Proced. & Admin. Regs.
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carrying back the 2000 loss to the 1998 year. The Court also
rejected two arguments Mr. Westcott advanced in support of his
position that the Court should have invalidated the notice of
determination because the IRS failed to assist him in preparing
his 2000 tax return. Mr. Westcott’s first argument was, in the
words of the Court, that “section 6404(d) relating to the
abatement of tax implicitly required the IRS to prepare, or to
assist him in preparing, his tax return for his taxable year
2000.”4 Id. The Court responded:
Neither section 6404(d) nor any other provision in the
Internal Revenue Code requires the IRS to prepare, or
to assist in the preparation of, a tax return for any
taxpayer. See United States v. Barnett, 945 F.2d 1296,
1300 (5th Cir. 1991). We reject petitioner’s argument
that the IRS had a legal duty to prepare, or to assist
him in preparing, a tax return for his taxable year
2000 (or any other taxable year).
Id. Second, Mr. Westcott argued that the IRS violated his equal
protection rights by failing to assist him in preparing his Form
4
Sec. 6404(d) provides:
SEC. 6404(d). Assessments Attributable to Certain
Mathematical Errors by Internal Revenue Service.--In
the case of an assessment of any tax imposed by chapter
1 attributable in whole or in part to a mathematical
error described in section 6213(g)(2)(A), if the return
was prepared by an officer or employee of the Internal
Revenue Service acting in his official capacity to
provide assistance to taxpayers in the preparation of
income tax returns, the Secretary is authorized to
abate the assessment of all or any part of any interest
on such deficiency for any period ending on or before
the 30th day following the date of notice and demand by
the Secretary for payment of the deficiency.
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1040 (the income tax return for individuals) and Schedule C for
the 2000 tax year. The Court held that Mr. Westcott did not meet
his burden of establishing that the IRS’s failure to assist him
was premised on an impermissible basis such as race, religion, or
a desire to prevent the exercise of his constitutional rights.
Westcott v. Commissioner, supra. The Court therefore sustained
the notice of determination.
II. Lien Proceeding
On March 23, 2007, the IRS filed a notice of tax lien
against the Westcotts in the amount of $22,589.28 for their
unpaid 1998 tax liability.5 On April 3, 2007, ths IRS mailed to
the Westcotts a “Notice of Federal Tax Lien Filing and Your Right
to a Hearing Under IRC 6320.” On April 15, 2007, the IRS timely
received Form 12153, “Request for a Collection Due Process
Hearing,” from both Mr. and Mrs. Westcott. The Appeals officer
held a hearing with Mr. Westcott on August 16, 2007. At the
hearing, Mr. Westcott requested an abatement of tax and penalties
for the 1998 tax year because the IRS would not help him prepare
the couple’s tax returns for the taxable years 1998 through 2000.
5
It is unclear from the record how much of the $22,589.28
outstanding is attributable to tax due on the 1998 return, the
failure-to-pay penalty indicated in the record, and/or
underpayment interest. It is also unclear from the record why
the amount in the notice of tax lien is less than the
approximately $29,000 the Appeals officer determined was the
Westcotts’ 1998 tax liability after carrying back their 1999 net
loss.
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In the words of the Appeals officer, Mr. Westcott felt “he could
never find anyone to help him file his returns and therefore
should not be penalized for the length of time it took to file
his returns.” He asserted that section 6020(a) required the IRS
to assist him in preparing his return. But he said that IRS
employees at a walk-in center refused to help him because they
thought that his return was too complicated and beyond their
level of training. Mr. Westcott did not challenge the collection
method, i.e., the filing of the notice of tax lien. He did not
offer an alternative means of collection, or raise a spousal
defense to collection. Nevertheless, he expressed an interest in
having an opportunity to go to court to resolve his tax dispute.
On August 29, 2007, the IRS issued a notice of determination
in which it sustained the filing of the tax lien. The notice
stated that the Westcotts had not disputed their unpaid tax
liability in the second hearing, had not offered any collection
alternative on their own accord, and had failed to provide a
financial information statement and supporting documents required
for the Appeals officer to consider collection alternatives.
Mr. Westcott filed a one-page letter with this Court on
October 2, 2007 stating his “intention to appeal a ‘Letter of
Determination’ decision of the [IRS].” He requested that
appropriate forms be sent to him so that he could file a
petition. This Court considered his one-page letter to be a
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petition and issued an order requiring that the Westcotts file an
amended petition. Together, the Westcotts timely filed an
amended petition on November 13, 2007, in which they stated:
Title 26, Section 6020a of the Tax Code requires
(dozens of case law define “may” as meaning “must” in
statutes or constitutional provisions). I.R.S. errs in
refusing taxpayer one-on-one assistance in preparing
tax return. Since 1999 taxpayer has requested
assistance and has been refused. The attached
determination notice does not address this issue.
However, taxpayer appealed the determination notice
solely on 6020a grounds. Appeals ignored taxpayer
position. Taxpayer requests all taxes - penalties +
interest be abated for years 1998 thru 2004.6 [sic]
The IRS filed its answer to the amended petition on January 16,
2008. In the answer, the IRS did not argue that the new case was
barred by collateral estoppel. (Collateral estoppel, explained
in greater detail below, is a doctrine that prevents parties from
relitigating an issue heard and decided by a court.) At a
pretrial hearing in Dallas on December 2, 2008, Mr. Westcott
appeared before the Court and admitted that the only argument he
was asserting was that section 6020(a) of the Internal Revenue
Code requires the IRS to assist taxpayers individually in
preparing their returns. The pretrial hearing continued on the
next day. Mr. Westcott stated:
6
The IRS filed a Motion to Dismiss for Lack of Jurisdiction
and to Strike as to the Taxable Years 1999, 2000, 2001, 2002,
2003, and 2004 on Nov. 29, 2007. The Court granted the motion on
Jan. 8, 2008 because the IRS had not issued notices of
determination for the tax years 1999 through 2004.
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Respondent’s position that the previous case I had
in Tax Court settled the issue that I’m bringing is
actually incorrect.
The issue at that time of filing that case, I had
no idea that 6020(a) existed. I was filing on a
constitutional basis because I felt it was just grossly
unfair to assist one group of taxpayers and not assist
others.
I had no empirical evidence of that other than
just an instinctive sense of fairness that that doesn’t
seem to be right, so that’s why I brought that case.
It didn’t have anything to do with 6020(a).
At the pretrial hearing, Mr. Westcott executed a stipulation of
facts and agreed to submit the case without a trial under Rule
122. Mrs. Westcott subsequently ratified the stipulation of
facts and consented to submit the case under Rule 122 on October
12, 2009.
The Westcotts’ short opening brief reiterates, in cryptic
language, the argument made more clearly at the pretrial hearing,
that section 6020(a) requires the IRS to assist them in preparing
their return. It states that “[w]hen any entity promulgates a
required form, inherent in the promulgation process is the
obligation to provide whatever assistance the user needs to
complete the form.” It also declares that “Issues to be decided
include whether or not Rules of Abatement apply. Or any other
statute. And how much tax, interest, and penalties would be owed
if assistance had been provided when requested. [sic]” In its
answering brief, the IRS argues that the Westcotts “are
collaterally estopped from raising the issue that the Internal
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Revenue Service is required to prepare their 1998 or any other
income tax return.” The IRS asserts that the issue the Westcotts
raised in the lien hearing was the same issue raised in the levy
hearing even though they relied on a different Code section for
their argument (i.e., section 6020(a) instead of 6404(d)). The
IRS also claims that section 6330(c)(2)(B) prohibits the
Westcotts from challenging the merits of their 1998 tax liability
by demanding an abatement of taxes, penalties, and underpayment
interest because they had a prior opportunity to be heard before
this Court in the levy proceeding. The IRS concludes that the
Appeals officer did not abuse her discretion and that the
collection action was appropriate.
Discussion
Before the IRS can forcibly collect tax from a taxpayer, it
must first assess the tax. If the taxpayer refuses to pay the
assessment, the IRS can then seize the property of the taxpayer
through its power of levy.7 Before the IRS can levy on property,
it must first offer the taxpayer a section 6330 hearing.
7
“The levy enables the Service to gain custody of taxpayer’s
property whether in the possession of the taxpayer or third
parties.” Elliott, Federal Tax Collections, Liens and Levies,
par. 13.01, at 13-6 (2d ed. 2008). “The * * * levy does not
determine whether the government’s rights to the seized property
are superior to those of other claimants; the levy does, however,
protect the government against diversion or loss while such
claims are being resolved.” Id.
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Levy is not the only means of collecting an unpaid tax. The
assessment by the IRS automatically creates a Government property
interest, called a lien, in all property owned by the taxpayer,
and even in property later acquired by the taxpayer. Sec. 6321.
The tax lien is not effective against four important classes of
third parties until the IRS files a notice of lien with the
appropriate state or local government in which the property is
located. Sec. 6323(a) and (f). The IRS is required to notify
the taxpayer within 5 business days after it files a notice of
lien. Sec. 6320(a)(1) and (2). Within 30 days after the
expiration of the 5-business-day period for sending the
notification, the taxpayer is permitted under section
6320(a)(3)(B) to request a hearing with the IRS Appeals Office.
Thus, hearings concerning IRS levies are provided for in
section 6330, and hearings concerning the filing of a notice of
tax lien are provided for in section 6320. The rules that govern
the scope of a lien hearing are borrowed from the statutory
provisions that govern a levy hearing. Sec. 6320(c).8 Section
6330(c)(2) sets forth what issues can be raised by the taxpayer
at a levy hearing, and, by operation of section 6320(c), it also
governs what issues can be raised by the taxpayer at a lien
hearing. Section 6330(c)(2) provides:
8
Sec. 6320(c) provides that “For the purposes of this
section subsections (c), (d) (other than paragraph (2)(B)
thereof), (e), and (g) of section 6330 shall apply.”
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(2) Issues at hearing.--
(A) In general.--The person may raise at the
hearing any relevant issue relating to the unpaid tax
or the proposed levy, including--
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of
collection actions; and
(iii) offers of collection alternatives,
which may including the posting of a bond, the
substitution of other assets, an installment
agreement, or an offer-in-compromise.
(B) Underlying liability.--The person may also
raise at the hearing challenges to the existence or
amount of the underlying tax liability for any tax
period if the person did not receive any statutory
notice of deficiency for such tax liability or did not
otherwise have an opportunity to dispute such tax
liability.
The duties of the hearing officer in a levy hearing (and
therefore also a lien hearing) are set forth in section
6330(c)(3). That provision requires the hearing officer to make
a “determination”, and in making the determination the hearing
officer must “take into consideration * * * the issues raised
under [section 6330(c)(2)]”.
Once the hearing officer has made the determination
described above, the Tax Court can review the determination.
Sec. 6330(d)(1). Where the existence or amount of the underlying
tax liability is properly at issue, the Court will review the
determination de novo. In cases involving taxpayers who do not
dispute the existence or amount of their underlying tax liability
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(or who are not permitted to do so because they had a prior
opportunity to dispute it), the Court will review the
determination of the Appeals officer for abuse of discretion.
Lunsford v. Commissioner, 117 T.C. 183, 185 (2001); Goza v.
Commissioner, 114 T.C. 176, 181-182 (2000). The latter inquiry
hinges on whether the IRS’s application of its discretion was
“arbitrary, capricious, or without sound basis in fact or law.”
Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral v.
Commissioner, 112 T.C. 19, 23 (1999). As explained below, the
Westcotts may not contest their underlying tax liability, and
thus we review the determination for abuse of discretion.
We consider the only issue the Westcotts raised at their
lien hearing, which is whether section 6020(a) required the IRS
to prepare their income tax returns for 1999 through 2000, and
whether the IRS’s failure to do so entitles the Westcotts to be
relieved of their tax liability and penalties. Section
6330(c)(2)(B) permits taxpayers to contest their “underlying tax
liability” in collection due process hearings only if they did
not receive a notice of deficiency or did not otherwise have an
opportunity to be heard. The phrase “underlying tax liability”
in this context includes the liability of the Westcotts for both
tax and penalties. Vence v. Commissioner, 297 Fed. Appx. 827,
829 (11th Cir. 2008), affg. a Summary Judgment Order and Decision
of this Court dated Jan. 9, 2008; Montgomery v. Commissioner, 122
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T.C. 1, 7 (2004); Fransen v. Commissioner, T.C. Memo. 2007-237.
Mr. Westcott was barred from contesting the tax liability and
penalties because he had a prior opportunity to dispute them
during his levy hearing, an opportunity he pursued.9 Sec.
6330(c)(2)(B); Spain v. Commissioner, T.C. Memo. 2009-82; Newsome
v. Commissioner, T.C. Memo. 2007-111; see also Bell v.
Commissioner, 126 T.C. 356, 358-359 (2006); sec. 301.6320-
1(e)(3), Q&A-E7, Proced. & Admin. Regs. In the lien hearing for
the same tax year, he was therefore limited to making appropriate
spousal defenses, challenging the appropriateness of collection
actions, and proposing collection alternatives. See sec.
6330(c)(2)(A). Mr. Westcott did not pursue any of these avenues,
and the IRS properly followed all procedures. Therefore, the IRS
did not abuse its discretion in sustaining the filing of the
notice of tax lien with respect to Mr. Westcott.
Mrs. Westcott was not a party to the levy hearing. However,
her failure to participate was her choice. She was listed as an
addressee on the Final Notice of Intent to Levy and a Notice of
Your Right to a Hearing, but she did not request a hearing
9
It should be noted that Mr. Westcott was not prohibited
from contesting the underlying tax liability in his levy case
even though it was self-reported and summarily assessed. This
Court has held “that section 6330(c)(2)(B) permits petitioners to
challenge the existence or amount of the tax liability reported
on their original income tax return [if] * * * they have not
received a notice of deficiency * * * and they have not otherwise
had an opportunity to dispute the tax liability in question.”
Montgomery v. Commissioner, 122 T.C. 1, 9 (2004).
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(either separately or jointly with her husband). Her failure to
request a hearing in response to the notice is dispositive. The
regulations state that
The existence or amount of the underlying liability for
any tax period specified in the CDP Notice may be
challenged only if the taxpayer did not have a prior
opportunity to dispute the tax liability. If the
taxpayer previously received a CDP Notice under section
6330 with respect to the same tax and tax period and
did not request a CDP hearing with respect to that
earlier CDP Notice, the taxpayer already had an
opportunity to dispute the existence or amount of the
underlying tax liability.
Sec. 301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs. Thus, just
as the receipt of a notice of deficiency constitutes an
opportunity to dispute the underlying tax liability, see sec.
6330(c)(2)(B), so does the receipt of a notice of intent to levy.
Miller v. Commissioner, T.C. Memo. 2007-35. Because she had an
opportunity to dispute the underlying tax liabilities in response
to the levy notices, and, if necessary, to file a petition with
the Tax Court to challenge an adverse administrative decision,
Mrs. Westcott is precluded from contesting the underlying tax
liability in this case. See Bell v. Commissioner, supra at 358-
359; Nelson v. Commissioner, T.C. Memo. 2009-108; Tufft v.
Commissioner, T.C. Memo. 2009-59; Awlachew v. Commissioner, T.C.
Memo. 2007-365, affd. 312 Fed. Appx. 348 (1st Cir. 2009);
Castleman v. Commissioner, T.C. Memo. 2007-143; Miller v.
Commissioner, supra. She did not make any appropriate spousal
defenses, challenge the appropriateness of collection actions, or
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propose any collection alternatives. See sec. 6330(c)(2)(A). We
therefore sustain the lien against Mrs. Westcott as well.10
10
The IRS also argues that the doctrine of collateral
estoppel precludes the Westcotts from relitigating the issue of
whether the IRS has an obligation to assist them with preparation
of their income tax returns. Collateral estoppel, or issue
preclusion, “forecloses relitigation of issues actually litigated
and necessarily decided in a prior suit.” Johnston v.
Commissioner, 119 T.C. 27, 42 (2002) (citing Parklane Hosiery Co.
v. Shore, 439 U.S. 322, 326 n.5 (1979)); see also Montana v.
United States, 440 U.S. 147, 153 (1979) (“[O]nce an issue is
actually and necessarily determined by a court of competent
jurisdiction, that determination is conclusive in subsequent
suits based on a different cause of action involving a party to
the prior litigation.”) (citing Parklane Hosiery Co. v. Shore,
supra at 326 n.5); Commissioner v. Sunnen, 333 U.S. 591, 598-599
(1948); 1 Restatement, Judgments 2d, sec. 27 (1982). Collateral
estoppel serves “the dual purpose of protecting litigants from
the burden of relitigating an identical issue and of promoting
judicial economy by preventing unnecessary or redundant
litigation.” Meier v. Commissioner, 91 T.C. 273, 282 (1988); see
also Raju v. Rhodes, 7 F.3d 1210, 1214 (5th Cir. 1993). The
requirements for applying collateral estoppel are:
(1) The issue in the second suit must be identical
in all respects with the one decided in the first suit.
(2) There must be a final judgment rendered by a
court of competent jurisdiction.
(3) Collateral estoppel may be invoked against
parties and their privies to the prior judgment.
(4) The parties must actually have litigated the
issues and the resolution of these issues must have
been essential to the prior decision.
(5) The controlling facts and applicable legal
rules must remain unchanged from those in the prior
litigation.
Mitchell v. Commissioner, 131 T.C. __, __ (2008) (slip op. at 19-
20) (citing Peck v. Commissioner, 90 T.C. 162, 166-167 (1988),
affd. 904 F.2d 525 (9th Cir. 1990)); Affiliated Foods, Inc. v.
(continued...)
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In reaching our holding, 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.
10
(...continued)
Commissioner, 128 T.C. 62, 71-72 (2007) (citing Peck v.
Commissioner, supra at 166-167). The consequence of collateral
estoppel is that “once an issue is raised and determined, it is
the entire issue that is precluded, not just the particular
arguments raised in support of it in the first case.” Yamaha
Corp. of Am. v. United States, 961 F.2d 245, 254 (D.C. Cir.
1992); Weiner v. United States, 255 F. Supp. 2d 624, 643 (S.D.
Tex. 2002) (citing Yamaha Corp. of Am. v. United States, supra at
254). The IRS asserts that for purposes of the applicability of
collateral estoppel, the Westcotts’ interpretation of sec.
6020(a) is merely a new argument in support of the larger,
already-litigated issue of whether the IRS has an obligation to
prepare their income tax returns. In light of our holding under
sec. 6330(c)(2)(B), we need not decide whether collateral
estoppel precludes the Westcotts from raising their sec. 6020(a)
argument.