T.C. Summary Opinion 2010-28
UNITED STATES TAX COURT
M. MURRAY & ELEANOR MANTELL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17907-08S. Filed March 9, 2010.
Bruce E. Mantell, for petitioners.
Brian J. Bilheimer, 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 in effect for the year in issue.
Petitioners seek judicial review of the Internal Revenue
Service (IRS) determination to proceed with collection by levy of
a tax liability for fiscal year 2005. The issues for decision
are: (1) Whether the case is moot since the 2005 underpayment
has now been satisfied and (2) if the case is not moot, whether
respondent improperly sustained the levy.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners are husband
and wife and resided in New Jersey at the time of the petition.
Mr. Mantell (petitioner) worked as a salesman for over 40
years before retiring in late 2004 or early 2005. On the advice
of his accountant, petitioner elected for his business a fiscal
year ending August 31 for purposes of filing Federal income tax
returns. Petitioners also adopted this fiscal year for their
personal income taxes. Using the August 31 fiscal year,
petitioners were required to make quarterly estimated tax
payments on December 15, February 15, May 15, and September 15.
In the early 1990s the IRS began applying one or more of the
estimated tax payments to years other than those petitioners
intended. As a result, IRS records reflected underpayments for
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some years and overpayments for other years. Petitioners
consistently filed income tax returns showing four estimated tax
payments and an overpayment to be applied forward. IRS records
typically reflected an overpayment year followed by a year with
an underpayment.
At some point before 2005 the IRS began processing the
income tax returns and estimated tax payments on a calendar year
ending December 31. The record does not reflect that respondent
has ever made a determination that petitioners were not eligible
to file returns on a fiscal year basis. Petitioners have
continued to file returns and make estimated tax payments on a
fiscal year basis.
Petitioners’ counsel contacted the IRS many times after the
first misapplication of payments. In some years petitioners were
successful in getting the IRS to apply the payments as intended.
In such circumstances the IRS sometimes abated interest and
penalties.1 In 2003 petitioners’ counsel enlisted the help of
the Taxpayer Advocate’s Office in resolving the problem of the
proper application of estimated payments, interest, and additions
1
The IRS listed on the Forms 4340, Certificate of
Assessments, Payments, and Other Specified Matters, multiple
entries for “failure to pay tax penalty.” Both secs. 6651(a)(2)
(failure to pay tax) and 6654 (failure to pay estimated tax)
provide for additions to tax and not penalties. Although these
additions to tax are described throughout the record as
penalties, we shall refer to them hereinafter as additions to tax
as set forth in the Internal Revenue Code.
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to tax. The outcome of that effort resulted in an agreement
which made changes to the application of payments. Some of the
additions to tax and interest were abated. The change in account
balances was not necessarily in accord with petitioners’
requests. There is no evidence that amended returns were filed
to reflect the agreement amounts. As a result, the confusion of
proper application of payments continued.
Respondent’s records reflect the tax assessed (per the
return filed) for fiscal year 2005 as $25,777 and a requested
carryforward of $2,198. Respondent’s fiscal year 2005 Form 4340,
Certificate of Assessments, Payments, and Other Specified
Matters, reflects the following payments by petitioners:
Payment IRS
Payment Due Received Designation Amount
12/15/04 12/13/04 Estimated tax $5,500
deposit
2/15/05 2/6/05 Overpaid credit 5,500
(OC)1
5/15/05 5/12/05 OC 5,500
9/15/05 9/23/05 Subsequent 5,500
payment
12/15/04 OC2 3,975
Total 25,975
1
The 2004 Form 4340 lists six estimated tax payments for the
2004 fiscal year. Two of these payments were applied to the 2005
fiscal year and they appear on the 2005 Form 4340 as “Overpaid
Credit From Prior Tax Period.”
2
The Dec. 15, 2004, payment was the carryforward amount the
IRS allowed petitioners to apply to their 2005 tax liability,
based on their election to do so on their 2004 income tax return.
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The IRS issued a Final Notice of Intent to Levy and Notice
of Your Right to a Hearing (notice of intent to levy) dated
January 26, 2008. The notice of intent to levy reflects a
balance of $2,661.80 for the fiscal year 2005, including
additions to tax and interest.
Petitioners’ collection due process (CDP) hearing request
was received on February 28, 2008, by the IRS. The CDP hearing
was held on May 21, 2008. Petitioners’ counsel requested
abatement of interest and additions to tax for multiple years and
that certain estimated payments for various years be applied to
other years. The settlement officer abated all of the additions
to tax and all but $303.69 of interest for the fiscal year ending
August 31, 2005. At the time of the hearing, there remained a
balance due for the fiscal year 2005. Petitioners’ counsel did
not propose any collection alternatives. After the hearing, the
IRS issued the Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of
determination) sustaining the proposed levy.
Petitioners filed a petition disputing the notice of
determination with the Court on July 21, 2008.2 After the CDP
hearing, respondent applied a portion of a $21,000 estimated tax
2
The petition also attempted to raise a dispute as to tax
years 2003 and 2004. Respondent filed a motion to dismiss for
lack of jurisdiction and to strike as to taxable years 2003 and
2004 on Aug. 3, 2009.
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payment, which was intended by petitioners as an estimated tax
payment for 2008 but deemed an overpayment in 2007, to satisfy
the outstanding balance for 2005. Respondent indicates that he
no longer seeks to enforce the levy. Accordingly, respondent now
argues that the case is moot.
Discussion
We have jurisdiction under section 6330(d)(1) to review
respondent’s determination that the notice of intent to levy was
proper and that respondent may proceed to collect by levy.3
In reviewing the Commissioner’s decision to sustain
collection actions, where the validity of the underlying tax
liability is properly at issue, the Court reviews the
Commissioner’s 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). The Court reviews
any other administrative determination regarding proposed
collection actions for an 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).
3
The Pension Protection Act of 2006, Pub. L. 109-280, sec.
855, 120 Stat. 1019, amended sec. 6330(d) and granted this Court
jurisdiction over all sec. 6330 determinations made after Oct.
16, 2006. Perkins v. Commissioner, 129 T.C. 58, 63 n.7 (2007).
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At the collection hearing, a taxpayer may raise any relevant
issues relating to the unpaid tax or proposed levy, including
spousal defenses, challenges to the appropriateness of the
collection actions, and offers of collection alternatives. Sec.
6330(c)(2)(A). In addition, he may challenge the existence or
amount of the underlying tax liability, but only if he did not
receive a notice of deficiency or otherwise have an opportunity
to dispute such liability. Sec. 6330(c)(2)(B).
Mootness
The Tax Court is a court of limited jurisdiction; we may
exercise jurisdiction only to the extent expressly authorized by
Congress. See Henry Randolph Consulting v. Commissioner,
112 T.C. 1, 4 (1999). Our jurisdiction in this case is
predicated upon section 6330(d)(1), which gives the Tax Court
jurisdiction “with respect to such matter” as is covered by the
final determination in a requested hearing before the Appeals
Office. See Davis v. Commissioner, 115 T.C. 35, 37 (2000).
“Thus, our jurisdiction is defined by the scope of the
determination” that the Appeals officer is required to make.
Freije v. Commissioner, 125 T.C. 14, 25 (2005).
Petitioners seek an instruction by the Court, directing
respondent to apply certain estimated tax payments to certain
fiscal years. The notice of determination, however, concerns
only the 2005 fiscal year. Our jurisdiction in this case is
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confined, therefore, to review of the Appeals officer’s
determination sustaining a levy to collect an unpaid tax
liability for 2005.
We note that in Freije the taxpayer sought to dispute a
payment intended for a determination year (1997) but applied to a
nondetermination year (1995). In such circumstances, we
concluded that our jurisdiction extends in appropriate
circumstances to years other than those in which the tax
liability arose. Here there has not been an application of
payments from the determination year to a nondetermination year.
In Greene-Thapedi v. Commissioner, 126 T.C. 1 (2006), the
taxpayer brought a case in the Tax Court disputing a notice of
determination sustaining a levy for her 1992 tax liability.
After the filing of the petition, the Commissioner applied an
overpayment from the 1999 taxable year to the 1992 tax liability,
which resulted in full payment of the 1992 tax liability. Id. at
4. Consequently, the Commissioner asserted that the case was
moot since he claimed there was no amount due and he was no
longer pursuing a collection action. Id. at 6. The Court held
the case was moot and noted that an offset under section 6402
does not constitute a levy action and accordingly is not a
collection action subject to review in a section 6330 proceeding.
Id. at 7-8; see also Boyd v. Commissioner, 124 T.C. 296, 300
(2005), affd. 451 F.3d 8 (1st Cir. 2006); sec. 301.6330-1(g)(2),
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Q&A-G3, Proced. & Admin. Regs. (an offset is a nonlevy collection
action that the IRS may take during the suspension period
provided in section 6330(e)(1)).
Respondent asserts that there is no unpaid liability for the
determination year upon which a levy could be based and has
stated that he is no longer pursuing the proposed levy.
Accordingly, the proposed levy for petitioners’ 2005 tax
liability is moot.
Respondent abated all failure to pay additions to tax at the
time of the CDP hearing, and only the unpaid tax and interest
remained on the account. The right to challenge the existence
and amount of an underlying tax liability encompasses the right
to challenge the existence and amount of disputed interest
thereon. Urbano v. Commissioner, 122 T.C. 384, 389-390 (2004).
Whatever right petitioners may have to challenge the existence
and amount of their underlying tax liability in this proceeding
arises only in connection with their challenge to the proposed
collection action. Greene-Thapedi v. Commissioner, supra at 8.
Inasmuch as the proposed levy is moot, petitioners have no
independent basis to challenge the existence or amount of their
underlying tax liability in this proceeding and we need not reach
that issue.4 Id. For the reasons discussed herein, respondent’s
4
Had this case not been moot, it would appear that
petitioners would be entitled to dispute the underlying liability
(continued...)
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motion to dismiss for lack of jurisdiction and to strike as to
taxable years 2003 and 2004 will be granted.
We have considered all of petitioners’ contentions and
arguments that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
To reflect the foregoing,
An appropriate order and
order of dismissal will be
entered.
4
(...continued)
under sec. 6330(c)(2)(B). Petitioners received no notice of
deficiency and otherwise had no opportunity to dispute the
underlying liability.