T.C. Memo. 2010-59
UNITED STATES TAX COURT
JAMES J. KAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12545-07L. Filed March 29, 2010.
James J. Kay, pro se.
Heather D. Horton, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GALE, Judge: Pursuant to section 6330(d),1 petitioner seeks
review of respondent’s determination to sustain a notice of
Federal tax lien with respect to petitioner’s unpaid Federal
1
Unless otherwise noted, all section references are to the
Internal Revenue Code of 1986, as amended. All dollar amounts
have been rounded to the nearest dollar.
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income taxes for 1998 through 2002 and frivolous return penalty
for 1998. The issues for decision are: (1) Whether petitioner
is precluded from challenging his underlying tax liabilities for
those years; (2) whether respondent abused his discretion in
upholding the notice of Federal tax lien; and (3) whether the
Court should impose a penalty under section 6673(a)(1). At the
time the petition was filed, petitioner resided in Arizona.
FINDINGS OF FACT
I. Petitioner’s Unpaid Federal Income Tax Liabilities
Petitioner timely submitted to respondent a Form 1040, U.S.
Individual Income Tax Return, for taxable year 1998. The return
reported wages of $26,062 on line 7 but treated this amount as
adding up to zero for “total income” on line 22, resulting in
“adjusted gross income” of zero on line 33. Similarly, zeros
were entered on all lines for computing petitioner’s tax
liability. The jurat contained an asterisk referencing two pages
attached to the return which, inter alia, advised respondent that
petitioner’s compensation for his labor was not taxable and if
respondent believed otherwise it was respondent’s “duty to
provide me with the sections of the Internal Revenue Code * * *
which make me subject to the Internal Revenue income tax.”
Respondent subsequently examined the return and on March 3,
2000, issued a notice of deficiency to petitioner which
determined that the reported wages were taxable income, resulting
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in a deficiency of $2,869, and that petitioner was liable for a
negligence penalty under section 6662(a) and (b)(1) of $499.
Petitioner did not petition the Court for a redetermination with
respect to this notice. On August 7, 2000, respondent assessed
the deficiency and penalty for 1998, together with statutory
interest, and sent petitioner a statutory notice of balance due.
On September 4, 2000, respondent assessed a frivolous return
penalty under section 6702 with respect to petitioner’s 1998
return.
On January 10, 2003, petitioner filed untimely income tax
returns for taxable years 1999, 2000, and 2001, which reported
taxes due of $2,891, $2,869, and $2,569, respectively.
Petitioner failed to pay the taxes reported as due. On various
dates in February 2003 respondent assessed the reported taxes as
well as additions to tax under section 6651(a)(1) and (2) for
failure to file and pay timely for these years, together with
statutory interest, and sent petitioner statutory notices of
balance due.
Petitioner did not file a timely tax return for taxable year
2002. On June 2, 2004, respondent prepared a substitute for
return under section 6020(b) for 2002. Respondent issued a
notice of deficiency to petitioner dated July 20, 2004, which
determined a deficiency for 2002 of $2,351, together with an
addition to tax under section 6651(a)(1) of $682. Petitioner did
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not petition the Court for a redetermination with respect to this
notice. On December 13, 2004, respondent assessed the deficiency
and addition for 2002, together with statutory interest, and sent
petitioner a statutory notice of balance due.
As of December 20, 2007, petitioner had not filed Federal
income tax returns for 2003, 2004, or 2005.
II. Respondent’s Collection Actions
Respondent issued petitioner a Notice of Intent to Levy and
Notice of Your Right to a Hearing (2002 notice of levy) on
October 10, 2002, with respect to the unpaid tax and section 6662
penalty for 1998. Respondent’s Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, concerning
the deficiency and section 6662 penalty for 1998 indicates that
on November 26, 2002, respondent received a signed return receipt
with respect to the 2002 notice of levy. Petitioner did not
request a hearing with respect to the 2002 notice of levy.
On January 10, 2003, petitioner entered into an installment
agreement with respect to his tax liabilities for 1998 and 2002.
On various dates in February 2003 petitioner entered into
installment agreements with respect to his tax liabilities for
1999, 2000, and 2001. Between August 2004 and January 2005
petitioner made sporadic payments on his 1998 tax liability
before defaulting.
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On June 9, 2005, respondent issued petitioner a Notice of
Intent to Levy and Notice of Your Right to a Hearing (2005 notice
of levy) with respect to his unpaid taxes for 1999 through 2002
and the section 6702 penalty for 1998. Respondent’s Forms 4340
concerning the unpaid taxes for 1999 through 2002 and the section
6702 penalty for 1998 indicate that on July 7, 2005, respondent
received a signed return receipt with respect to the 2005 notice
of levy. Petitioner did not request a hearing with respect to
the 2005 notice of levy.
Respondent filed the notice of Federal tax lien at issue on
November 2, 2006. Respondent sent petitioner a Notice of Federal
Tax Lien Filing and Your Right to a Hearing Under Section 6320
(CDP notice) on November 8, 2006. The CDP notice advised
petitioner that respondent filed the notice of Federal tax lien
because of his unpaid income taxes for 1998 through 2002 and
section 6702 penalty for 1998. Respondent enclosed a Form 12153,
Request for a Collection Due Process Hearing, with the CDP
notice. Petitioner completed the Form 12153, supplying the
following explanation of his disagreement with the lien: “I
dispute that the taxpayer status has created or represents an
actual tax liability for me.” On December 11, 2006, petitioner
hand-carried the form to respondent’s local office in Tucson,
Arizona, which accepted the form and stamped it received by that
office on the same date. The form also bears a stamp indicating
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that it was received by respondent’s Appeals Office on December
28, 2006.
Respondent’s Appeals Office assigned petitioner’s case to a
settlement officer. The settlement officer took the position, on
the basis of the date petitioner’s Form 12153 was received by the
Appeals Office, that the Form 12153 was untimely filed.
Accordingly, the settlement officer determined that petitioner
was entitled to an equivalent hearing and on March 9, 2007, sent
petitioner a letter scheduling the hearing by telephone for April
6, 2007. In the letter the settlement officer advised petitioner
that the issues raised in his hearing request were frivolous and
that she would consider: (1) Whether respondent met the
requirements of any applicable law or administrative procedure;
(2) any nonfrivolous issues petitioner wished to discuss; and (3)
whether petitioner owed the amount asserted as due, but only if
petitioner had no prior opportunity to dispute it with the
Appeals Office or did not receive a statutory notice of
deficiency. In the letter the settlement officer also advised
petitioner that if he wanted her to consider collection
alternatives he should submit a completed Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
Individuals, submit a statement indicating what account
resolution he was proposing, and file Federal income tax returns
due for 2003, 2004, and 2005. She also warned petitioner that
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the Tax Court was empowered to impose sanctions of up to $25,000
for instituting or maintaining a case primarily for delay or for
taking a position that is frivolous or groundless.
Petitioner mailed the settlement officer a letter dated
April 1, 2007, in which he advanced various frivolous arguments,
including disputing his status as a U.S. citizen and taxpayer.
On April 6, 2007, the settlement officer conducted an
equivalent hearing with petitioner. According to the settlement
officer’s case activity report, during the hearing petitioner
advanced only frivolous arguments and did not want to discuss a
resolution.
On April 26, 2007, the Appeals Office sent petitioner a
Decision Letter Concerning Equivalent Hearing Under Section 6320
and/or 6330 sustaining the notice of Federal tax lien. The
decision letter stated that petitioner had failed to raise any
nonfrivolous issues, offer a reasonable collection alternative,
submit the requested Form 433-A, or file delinquent tax returns.
Accordingly, the Appeals Office upheld the filing of the notice
of Federal tax lien.
Petitioner filed a timely petition contesting the decision
letter. In his petition petitioner stated: “I seek an
understanding of what the IRS bases * * * [its] claim upon going
back to the very jurisdiction to tax an individual, if, indeed,
an individual is actually liable here. If the taxpayer is
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liable, what is the nexus, if any, between me and the taxpayer
* * *?”
OPINION
I. Jurisdiction
Respondent now concedes, and we agree for purposes of our
jurisdiction, that petitioner’s hand-carried request for a
hearing was timely. See sec. 301.6091-1(b)(1), (c), Proced. &
Admin. Regs. Consequently, the decision letter he received is
treated as a notice of determination. See Craig v. Commissioner,
119 T.C. 252, 259 (2002). As the decision letter was issued
after October 16, 2006, we likewise have jurisdiction to review
respondent’s collection action with respect to the section 6702
penalty.2
II. Collection Hearing Procedure
Section 6320(a) requires the Secretary to send written
notice to the taxpayer of the filing of a notice of lien and of
the taxpayer’s right to an administrative hearing on the matter.
At the hearing a taxpayer may raise any relevant issue, including
challenges to the appropriateness of the collection action and
possible collection alternatives. Sec. 6330(c)(2)(A). A
2
Sec. 6330(d)(1) was amended by the Pension Protection Act
of 2006 (PPA), Pub. L. 109-280, sec. 855, 120 Stat. 1019, to
confer exclusive jurisdiction on this Court to review all
collection actions, regardless of the tax involved, effective for
determinations made 60 days after the date of enactment of the
PPA (Aug. 17, 2006), or Oct. 16, 2006. Id. sec. 855(b), 120
Stat. 1019; see also Callahan v. Commissioner, 130 T.C. 44, 48
n.4 (2008).
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taxpayer may challenge the existence or amount of the underlying
tax liability, but only if the taxpayer did not receive a notice
of deficiency or otherwise have an opportunity to dispute the tax
liability. See sec. 6330(c)(2)(B); Sego v. Commissioner, 114
T.C. 604, 609 (2000). The phrase “underlying tax liability”
includes the tax deficiency, additions to tax, penalties, and
statutory interest. Katz v. Commissioner, 115 T.C. 329, 339
(2000).
Following the hearing the Appeals Office must issue a notice
of determination concerning the proposed collection action. In
making the determination the Appeals officer is required to take
into consideration: (1) His verification that the requirements
of applicable law and administrative procedure have been met; (2)
relevant issues raised by the taxpayer; and (3) whether the
proposed collection action appropriately balances the need for
efficient collection of taxes with a taxpayer’s concerns
regarding the intrusiveness of the proposed collection action.
Sec. 6330(c)(3). If the taxpayer disagrees with the
determination, the taxpayer may seek judicial review by
petitioning this Court. Sec. 6330(d).
III. Whether Petitioner May Challenge the Underlying Tax
Liabilities
Respondent contends that section 6330(c)(2)(B) precludes
petitioner from challenging the existence or amount of his
underlying tax liabilities for 1998 through 2002 because
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petitioner had a prior opportunity to dispute them. The 2002 and
2005 notices of levy covered petitioner’s unpaid taxes and
penalties for all years at issue, including the frivolous return
penalty for 1998. The Forms 4340 in evidence record that signed
return receipts for the notices of levy were received by
respondent, and petitioner has not disputed that he received the
notices of levy. Therefore, petitioner previously had an
opportunity to dispute the underlying liabilities and is
precluded from doing so now under section 6330(c)(2)(B). See
Bell v. Commissioner, 126 T.C. 356, 358 (2006) (“This statutory
preclusion is triggered by the opportunity to contest the
underlying liability, even if the opportunity is not pursued.”
(Emphasis added.)).
IV. Review of the Determination for Abuse of Discretion
Because the validity of the underlying tax liability is not
properly at issue, we review the determination for abuse of
discretion. See Sego v. Commissioner, supra at 610; Goza v.
Commissioner, 114 T.C. 176, 182 (2000). In reviewing for abuse
of discretion under section 6330(d)(1), generally we consider
only arguments, issues, and other matters that were raised at the
section 6330 hearing or otherwise brought to the attention of the
Appeals Office. Giamelli v. Commissioner, 129 T.C. 107, 115
(2007); see also sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin.
Regs. However, we review whether the Appeals officer verified
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compliance with applicable law under section 6330(c)(1) without
regard to whether the taxpayer raised it as an issue at the
Appeals hearing. Hoyle v. Commissioner, 131 T.C. 197, 202-203
(2008). The Appeals Office abuses its discretion if its
“discretion has been exercised arbitrarily, capriciously, or
without sound basis in fact.” Mailman v. Commissioner, 91 T.C.
1079, 1084 (1988).
Petitioner has not advanced any argument or presented any
evidence that would allow us to conclude that the determination
to sustain the lien was arbitrary, capricious, or without
foundation in fact, or otherwise an abuse of discretion. See,
e.g., Giamelli v. Commissioner, supra at 112, 115.
The record indicates that the only issues petitioner raised
throughout the section 6330 administrative process, in his
petition, and at trial were frivolous tax-protester arguments.3
We do not address petitioner’s frivolous arguments with somber
reasoning and copious citations of precedent, as to do so might
suggest that these arguments possess some degree of colorable
merit. See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir.
1984).
3
For example, at trial petitioner testified that he was born
an American citizen but “was not born a [U.S.] taxpayer”. He
also testified that “the United States is a corporation” to which
he holds no “allegiance”, and that therefore the United States
may not tax him.
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Petitioner has not submitted Form 433-A or offered a
collection alternative. Given his failure to file returns for
2003, 2004, and 2005, he would in any event not be eligible to
have one considered. See Orum v. Commissioner, 412 F.3d 819, 821
(7th Cir. 2005), affg. 123 T.C. 1 (2004); Nelson v. Commissioner,
T.C. Memo. 2009-108; Pavlica v. Commissioner, T.C. Memo. 2007-
163; Rodriguez v. Commissioner, T.C. Memo. 2003-153; Londono v.
Commissioner, T.C. Memo. 2003-99; McCorkle v. Commissioner, T.C.
Memo. 2003-34. According to respondent’s decision letter, the
settlement officer verified through transcript analysis that
valid assessments of the underlying tax liabilities were made for
all years, including the frivolous return penalty for 1998.
Petitioner has not disputed the foregoing. Certified transcripts
of account for each year are in the record, and they demonstrate
compliance with assessment procedures. We accordingly find that
the settlement officer verified that all requirements of
applicable law and administrative procedure were met.4 Further,
the settlement officer concluded that the filing of the notice of
Federal tax lien balanced the need for efficient collection of
taxes with concerns that the collection action be no more
4
Given that the underlying tax liability for 1998 is not
subject to challenge in this proceeding, we have no occasion to
consider whether petitioner is liable for a negligence penalty
under sec. 6662(b)(1) for 1998 when respondent determined that
the return he filed for that year was a frivolous return within
the meaning of sec. 6702. See Williams v. Commissioner, 114 T.C.
136, 143 (2000).
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intrusive than necessary. On the basis of the foregoing, we
conclude that respondent did not abuse his discretion in
sustaining the notice of Federal tax lien.
V. Section 6673 Penalty
Respondent filed a motion to impose a penalty under section
6673. Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay to the United States a penalty in an amount not
to exceed $25,000 whenever the taxpayer’s position is frivolous
or groundless or the taxpayer has instituted or pursued the
proceeding primarily for delay. In Pierson v. Commissioner, 115
T.C. 576, 581 (2000), we issued an unequivocal warning to
taxpayers concerning the imposition of a penalty under section
6673(a) on those taxpayers who abuse the protections afforded by
sections 6320 and 6330 by instituting or maintaining actions
under those sections primarily for delay or by taking frivolous
or groundless positions in such actions. In respondent’s March
9, 2007, letter, respondent warned petitioner of the possibility
of sanctions for making frivolous arguments. The Court issued a
pretrial order on December 14, 2007, that advised petitioner
about section 6673(a)(1) and likewise warned of the possibility
of penalties if petitioner continued to advance frivolous
arguments.
Nonetheless, petitioner asserted patently frivolous
arguments in his petition, in response to the Court’s December
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14, 2007, order, and at trial. We accordingly shall impose a
penalty of $500 on petitioner pursuant to section 6673(a)(1).
To reflect the foregoing,
An appropriate order and
decision will be entered.