T.C. Memo. 2010-150
UNITED STATES TAX COURT
WILLIAM R. TINNERMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21270-08L. Filed July 13, 2010.
Donald W. Wallis and Steven L. Zakrocki, for petitioner.
Randall L. Eager, for respondent.
MEMORANDUM OPINION
COHEN, Judge: This case was commenced in response to
notices of determination concerning collection action sustaining
the filing of a Federal tax lien and a notice of intent to levy
with respect to civil penalties, additions to tax, and income tax
deficiencies due from petitioner for periods from 1996 to 2002.
Each of the amounts in dispute was the subject of prior
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litigation and decisions against petitioner. The issues for
decision are whether the notices of determination were an abuse
of discretion and whether a penalty under section 6673 should be
imposed against petitioner. All section references are to the
Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
Background
All of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Florida at the time that he filed his
petition.
The Internal Revenue Service (IRS) assessed frivolous return
penalties against petitioner under section 6702 for 1996, 1997,
and 1998. A final notice of intent to levy with respect to those
penalties was sent to petitioner on December 19, 2003.
Petitioner requested a collection due process (CDP) hearing under
section 6330, and a notice of determination sustaining the
proposed collection action was ultimately sent to petitioner.
Petitioner filed a petition in this Court at docket No. 10187-04L
challenging the notice of determination, but that case was
dismissed for lack of jurisdiction on September 14, 2004.
On October 12, 2004, petitioner filed an appeal of the
notice of determination regarding the section 6702 penalties with
the U.S. District Court for the Middle District of Florida. On
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May 11, 2005, the District Court case was dismissed with
prejudice. On November 4, 2005, the District Court judgment was
affirmed by the Court of Appeals for the Eleventh Circuit. Among
other things, the Court of Appeals, in its unpublished per curiam
opinion, explained that petitioner
has not presented a single meritorious argument * * *.
In fact, he only claimed he had not participated in any
activity that would bring out tax liability, the
Internal Revenue Code and Regulations did not apply to
him, and he was not yet considered a taxpayer. He also
refused to participate in the telephonic CDP hearing
offered to him and failed to use the faxed
correspondence with the appeals officer as an
opportunity to raise meritorious challenges to his tax
liability. He was provided an opportunity to be heard
but did not take advantage of it. * * * [Tinnerman v.
IRS, 156 Fed. Appx. 111, 112-113 (11th Cir. 2005).]
The Court of Appeals held that the District Court did not err in
granting the IRS’ motion for judgment on the pleadings.
Petitioner failed to file timely tax returns for 1999,
2000, 2001, and 2002. The IRS prepared a substitute for return
under section 6020(b) for each year and determined in two
statutory notices of deficiency (one for 1999, 2000, and 2001,
and a separate one for 2002) deficiencies and additions to tax
for petitioner’s failure to file, failure to pay, and failure to
pay estimated taxes for each year. Petitioner filed petitions in
this Court in response to both notices of deficiency. The cases
(the deficiency cases) were consolidated for trial and resulted
in the opinion filed November 14, 2006, as Tinnerman v.
Commissioner, T.C. Memo. 2006-250. As set forth in that opinion,
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the Court concluded that petitioner received income passed
through from his solely owned S corporation and was required to
file returns for the years in issue, that his failures to file
were fraudulent, that the additions to tax were appropriate, and
that his frivolous arguments justified a penalty of $10,000 under
section 6673. Decisions were entered in each case on November
21, 2006, and were not appealed. The income taxes, additions to
tax, and penalties were assessed for 1999 through 2002.
On October 23, 2007, the IRS issued a Final Notice of Intent
to Levy and Notice of Your Right to a Hearing with respect to the
amounts assessed for 1999 through 2002 pursuant to the decisions
entered November 21, 2006. On November 6, 2007, the IRS issued a
Notice of Federal Tax Lien Filing and Your Right to a Hearing
under IRC 6320 with respect to the income tax liabilities for
1999 through 2002, the section 6673 penalties imposed by this
Court, and the section 6702 penalties for 1996 through 1998.
Petitioner requested a hearing by a letter dated November 19,
2007, in which he denied that he was a taxpayer, denied that he
was required to file any return, and denied that he was involved
in any taxable activities (i.e., the same arguments characterized
as meritless by the Court of Appeals in its November 4, 2005,
opinion). Attached to his letter was a stack of documents,
approximately 2-1/2 inches high, expounding on his frivolous
contentions.
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Petitioner’s request for a hearing was acknowledged
by the IRS Appeals team manager, and, on February 26, 2008, an
Appeals settlement officer (the settlement officer) sent a letter
to petitioner proposing to schedule a conference. On March 1,
2008, petitioner sent the settlement officer 177 pages of
documents that he titled “The Federal Judiciary & Internal
‘indirect’ Federal Taxation” in which he expounded on his view,
among other things, that income taxes did not apply to him, that
he was not required to file tax returns, that this Court’s
jurisdiction did not apply to him, and that IRS procedures had
not been followed with respect to assessment of the tax
liabilities in issue. In several subsequent letters, petitioner
declined either a face-to-face or telephone conference with the
settlement officer, denied that there was any requirement to file
a return or pay a tax, and asserted that the IRS records
contained unspecified and unidentifiable “irregularities”. Among
other things, petitioner argued that despite the limitation on
arguments concerning the underlying tax liabilities when a
taxpayer has received a notice of deficiency under section
6330(c)(2)(B), he was entitled to challenge: “the character of
the liability assessed”; the validity of the notice of
deficiency; and the method of assessment of the taxes in dispute.
Petitioner failed to offer any collection alternatives or to
present any financial information upon which collection
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alternatives could be considered. During the exchange of
correspondence, and as the parties have stipulated, petitioner
raised no legitimate issues.
On July 31, 2008, two Notices of Determination Concerning
Collection Actions(s) Under Section 6320 and/or 6330 were sent to
petitioner sustaining the lien filing and the proposed levy. The
notices set out a determination that the requirements of law and
administrative procedure had been met and explained that the need
for efficient collection justified the intrusiveness of the
collection action. The notices further explained that petitioner
had declined a telephone hearing and chosen a correspondence
hearing; petitioner had presented only frivolous or groundless
issues; petitioner had not complied with his filing obligations;
and petitioner had failed to provide financial information or
collection alternatives.
In the petition, petitioner asserted “Procedural Due Process
Violations involving nonfiled returns”, including failure to
specify certain forms used in assessment and in recording of the
lien. He stated the facts upon which he relied as follows:
(c) When no return is filed, without IRM reporting
requirements consistent with IRM provisions in 3.21.3.2
thru 2.9 (01-01-2008) and subsequent SB/SE
“instructions” to prepare a Substitute for Return (SFR)
applicable to the property distribution at issue, no
jurisdiction over the “presumed” underlying tax
liability exists. Statutory and constitutional
provisions prohibit it.
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Although petitioner initially requested Birmingham, Alabama,
as the place of trial, he moved to change the place of trial to
Columbia, South Carolina, asserting that counsel in Greenville,
South Carolina, had agreed to represent him but only if the place
of trial was Columbia. Thereafter, however, counsel located in
St. Augustine, Florida, entered their appearances. The case was
set for trial in Columbia on March 1, 2010. On February 18,
2010, respondent filed a motion for summary judgment and to
impose a penalty under section 6673 and a motion to permit levy.
The parties thereafter executed the stipulation and agreed to
submit the case fully stipulated. The motion for summary
judgment and the motion to permit levy were denied as untimely
because the case would not be resolved any sooner than it would
be if decided on the stipulation. Insofar as respondent’s motion
seeks a penalty under section 6673, it remains pending. After
the briefs were filed, respondent filed a motion seeking a
penalty against petitioner’s counsel under section 6673(a)(2).
Discussion
Section 6321 imposes a lien in favor of the United States on
all property and property rights of a taxpayer liable for taxes
after a demand for the payment of the taxes has been made and the
taxpayer fails to pay. The lien arises when the assessment is
made. Sec. 6322. The IRS files a notice of Federal tax lien to
preserve priority and put other creditors on notice. See sec.
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6323. 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.
The hearing generally shall be conducted consistent with
procedures set forth in section 6330(c), (d), (e), and (g). Sec.
6320(c). Similarly, before proceeding with a levy, the IRS must
issue a final notice of intent to levy and notify the taxpayer of
the right to an administrative hearing. Sec. 6330(a) and (b)(1).
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). Following
the hearing the Appeals Office must make a determination whether
the lien filing was appropriate and is required to consider: (1)
Whether the Secretary has met the requirements of applicable law
and administrative procedure; (2) the relevant issues raised by
the taxpayer; and (3) whether the proposed collection action
appropriately balances the need for efficient collection of taxes
with the taxpayer’s concerns that the collection action be no
more intrusive than necessary. Sec. 6330(c)(3).
Where a taxpayer’s underlying tax liability is not in
dispute, the Court reviews the IRS’ determination for abuse of
discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000);
Goza v. Commissioner, 114 T.C. 176, 182 (2000). To establish an
abuse of discretion, the taxpayer must show that the decision
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complained of is arbitrary, capricious, or without sound basis in
fact or law. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007)
(citing Woodral v. Commissioner, 112 T.C. 19, 23 (1999)); see
Keller v. Commissioner, T.C. Memo. 2006-166, affd. 568 F.3d 710
(9th Cir. 2009). In reviewing for abuse of discretion, we
generally consider only the arguments, issues, and other matters
that were raised at the CDP hearing or otherwise brought to the
attention of the IRS Appeals Office. Giamelli v. Commissioner,
supra at 115; Magana v. Commissioner, 118 T.C. 488, 493 (2002).
In his pretrial memorandum, petitioner described the “issues
on the merits” as follows:
1. Whether this Court should impose a penalty
under I.R.C. section 6673.
2. Whether the Appeals Settlement Officer in the
Hearing below abused his discretion by failing to
follow the requirement imposed by I.R.C. section
6330(c)(3)(B) that he consider all of the relevant
issues relating to the unpaid tax or the proposed levy
that were raised by Petitioner at the Hearing below.
3. The validity -- not the existence, not the
amount, but rather the validity -- of the underlying
tax liability, which is at issue as a result of
Respondent’s failure to follow, in his endeavor to
assess that liability, all material, relevant and
applicable rules and regulations that govern the
assessment process.
We agree that the first item is an issue here. With respect to
the second, we can find no abuse of discretion in the settlement
officer’s not addressing petitioner’s arguments when the parties
have stipulated that petitioner raised no legitimate issues
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during the hearing. Even without that stipulation, we would
reach the same conclusion.
The third item identified in petitioner’s pretrial
memorandum and subsequently briefed at great length by petitioner
is merely a rephrasing of an argument made by petitioner during
his correspondence hearing. Thus, it is also an argument
described in the stipulation as not legitimate. The argument is
obviously intended to avoid the provision in section
6330(c)(2)(B) that a taxpayer may raise at the hearing
“challenges to the existence or amount of the underlying tax
liability * * * 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.” On analysis,
however, petitioner’s arguments are no more than recycled
versions of his contentions that he is not a taxpayer and has no
liability to file Federal income tax returns.
By way of example, petitioner’s brief sets out his premises
as follows:
The case stems from I.R.C. section 1368(b)
distributions to Petitioner of earnings and profits for
which Petitioner did not file an individual income tax
return. Pursuant to I.R.C. section 1363(b) and (c),
the distributing corporation determined that the I.R.C.
section 1366(a) and (b) character and source of the
separately stated Form 8825 property was neither
“national” (federal) nor “alien” (foreign) income.
Based on that determination and on Petitioner’s non-
excise, individual circumstance (i.e. Petitioner
acquired citizenship without legislative act, and
Petitioner was domiciled within one of the 50 United
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States), the corporation classified the distribution
for federal income tax purposes as items of exempt
income subject to the expense provisions of I.R.C.
section 1.265-1. Pursuant to I.R.C. section 6037(a)
and (c)(4), the corporation issued to Petitioner a Form
K-1 identifying the distribution as just described.
Respondent never has challenged the corporation’s
statutory requirement to make a corporate level
determination of the distribution’s exempt status, nor
has Respondent ever challenged the accuracy of the
information that the corporation reported on the Form
K-1.
An examiner in Respondent’s SB/SE Division
notified Petitioner that an information return had
reported a distribution to Petitioner for the periods
at issue and that Petitioner was required to file a
return that reported Petitioner’s receipt of the
distribution. Petitioner disagreed on the grounds that
the distribution was not subject to reporting, and he
refused to execute the I.R.C. section 6020(a)
Substitute for Return (“SER”) that was prepared by
SB/SE for each period. SB/SE determined a deficiency
in tax, and, by its apparent authority under I.R.C.
section 6212, it notified Petitioner of the same.
Respondent then issued a Notice of Deficiency.
From that point, petitioner’s argument is that the section 6020
provisions do not apply to his income as he characterizes it and
that procedures set out in the Internal Revenue Manual were not
followed. He then argues that because the notices of deficiency
were invalid, his petitions in the deficiency cases were invalid,
and the Court lacked jurisdiction to enter the decisions
sustaining the deficiencies, additions to tax, and penalties. In
addition to seeking removal of the lien, he concludes:
Furthermore, the Court must withdraw and vacate
all Opinions, Orders and Decisions previously issued by
this Court against Petitioner for all periods at issue,
including I.R.C. section 6702 penalties for periods
1996-1998 involving identical circumstances. None of
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the filed Form 1040X amended returns for those years
can be “frivolous” since there is no requirement that a
return be filed at all. Therefore, Respondent should
be ordered to refund the amounts shown due on those
returns.
He ignores the fact that the section 6702 penalties were
sustained by the District Court and the Court of Appeals for the
Eleventh Circuit, after this Court ruled that it lacked
jurisdiction over them.
Petitioner misstates the substance of this Court’s opinion
in the deficiency cases, which concluded that petitioner had
taxable income passed through from his solely owned corporation
and was required to file returns for the years in issue. His
central premise is that the distributions from the corporation
were not properly the subject of substitutes for returns.
Neither a return nor a substitute for return is a prerequisite to
a notice of deficiency, however. See Schiff v. United States,
919 F.2d 830, 832-833 (2d Cir. 1990); Roat v. Commissioner, 847
F.2d 1379, 1381-1382 (9th Cir. 1988); Hartman v. Commissioner, 65
T.C. 542, 546 (1975); see also Brenner v. Commissioner, T.C.
Memo. 2004-202, affd. 164 Fed. Appx. 848, 850 (11th Cir. 2006);
McDonald v. Commissioner, T.C. Memo. 1992-586; McCarthy v.
Commissioner, T.C. Memo. 1989-479. The existence or absence of a
substitute for return under section 6020 is thus irrelevant to
the validity of the statutory notice. (It is only relevant to
additions to tax under section 6651(a)(2), as discussed in
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Tinnerman v. Commissioner, T.C. Memo. 2006-250 (citing Cabirac v.
Commissioner, 120 T.C. 163, 170 (2003)). See Wheeler v.
Commissioner, 127 T.C. 200, 209-210 (2006), affd. 521 F.3d 1289
(10th Cir. 2008).) To the extent that all of petitioner’s
arguments depend on the claimed invalidity of substitutes for
returns prepared under section 6020(b), they all fail to affect
the propriety of the lien or the proposed levy.
Whether or not petitioner’s current untenable arguments were
made or addressed in the prior case, they relate to the existence
of the underlying liabilities, and his current attempt to
recharacterize them as relating to the “validity” of the
liabilities is fallacious. His repetitious claims were not
issues that could be raised during the section 6330 hearing. See
sec. 6330(c)(2)(B). The settlement officer was correct in his
response and did not abuse his discretion in refusing to address
petitioner’s arguments. We decline to address them further here.
See Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984). To do
so would be to indulge petitioner’s dilatory tactics. As
discussed below, persisting in frivolous arguments for purposes
of delay is a basis for sanctions against a party and/or counsel
to a party.
The settlement officer satisfied his obligation under
section 6330 with respect to verification that the requirements
of any applicable law or administrative procedure have been met.
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See Hoyle v. Commissioner, 131 T.C. 197, 202-203 (2008). That
obligation does not involve providing any particular form to the
taxpayer and is generally satisfied by reliance on a Form 4340,
Certificate of Assessments, Payments, and Other Specified
Matters, absent a showing of irregularity in the assessment.
Roberts v. Commissioner, 118 T.C. 365, 371 (2002), affd. 329 F.3d
1224 (11th Cir. 2003).
Although petitioner claims that the Forms 4340 in this case
contained irregularities, his arguments are simply a refrain of
the claim that all of the actions taken by the IRS are invalid
because he had no obligation to file tax returns. The parties
have stipulated to transcripts reflecting assessments of the
underlying liabilities, and petitioner has not identified any
credible irregularity or deficiency in the assessment procedures
or in the lien or levy procedures.
Petitioner has concocted multiple theories, based in part on
the Internal Revenue Manual, to support his premise that the
determination of tax liability on his income has not been and
cannot be accomplished. In other words, he would draw a
“conjurer’s circle” around his tax liability. See United States
v. Sullivan, 274 U.S. 259, 264 (1927). The Internal Revenue
Manual, however, does not have the force of law and is not
binding against respondent in litigation; it does not confer any
rights on the taxpayer. See, e.g., Fargo v. Commissioner, 447
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F.3d 706, 713 (9th Cir. 2006), affg. T.C. Memo. 2004-13; Carlson
v. United States, 126 F.3d 915, 922 (7th Cir. 1997); Tavano v.
Commissioner, 986 F.2d 1389, 1390 (11th Cir. 1993), affg. T.C.
Memo. 1991-237; Barnes v. Commissioner, 130 T.C. 248, 255-256
(2008).
Moreover, petitioner’s arguments take items out of context
and assert that use of a particular form for one purpose means
that it can be used only for that purpose, to the exclusion of
others. Such interpretative arguments have been consistently
rejected and referred to by terms such as “inane” and
“preposterous”. United States v. Latham, 754 F.2d 747, 750 (7th
Cir. 1985); see also United States v. Morse, 532 F.3d 1130, 1132-
1133 (11th Cir. 2008); United States v. Ward, 833 F.2d 1538, 1539
(11th Cir. 1987) (per curiam) (interpreting “include” as a term
of limitation is “utterly without merit”); United States v. Rice,
659 F.2d 524, 528 (5th Cir. 1981) (describing the defendant’s
argument as a “frivolous non-sequitur”).
Challenges to the authority of the IRS to enforce the tax
laws have been consistently rejected for decades, and frivolous
arguments have been the basis for sanctions by all courts that
have reviewed them. See, e.g., United States v. Morse, supra at
1132-1133; Madison v. United States, 758 F.2d 573, 574 (11th Cir.
1985). Petitioner’s contentions are merely stale and recycled
versions of unsuccessful arguments that he has made since 1996.
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As the Court of Appeals for the Tenth Circuit described the
situation in Lonsdale v. United States, 919 F.2d 1440, 1448 (10th
Cir. 1990), “We are confronted here with taxpayers who simply
refuse to accept the judgments of the courts.” In this
collection context, there is an unavoidable inference that his
purpose was primarily for delay. See Roberts v. Commissioner,
329 F.3d at 1229. His conduct is precisely the type to which
section 6673 applies. A penalty will be awarded to the United
States in the amount of $25,000.
The attention of petitioner’s counsel is directed to Rule
3.1 of the Model Rules of Professional Conduct of the American
Bar Association (Model Rule 3.1), applicable here under Rule
201(a), and to section 6673(a)(2). See Takaba v. Commissioner,
119 T.C. 285, 296-305 (2002); Nis Family Trust v. Commissioner,
115 T.C. 523, 547-553 (2000); see also Powell v. Commissioner,
T.C. Memo. 2009-174; Edwards v. Commissioner, T.C. Memo. 2003-
149, affd. 119 Fed. Appx. 293 (D.C. Cir. 2005). We recognize
that counsel cooperated in presenting this case on the
stipulation, but the filings in responses to motions and in
briefs demonstrate reckless disregard of the facts and the
settled law and contentions so lacking in merit as to be
frivolous, dilatory, and subject to sanctions. See, e.g, United
States v. Patridge, 507 F.3d 1092, 1095-1097 (7th Cir. 2007)
(counsel was sanctioned in part for arguing that a collection
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hearing could be used to contest previously determined
substantive liabilities); Johnson v. Commissioner, 116 T.C. 111
(2001), affd. 289 F.3d 452, 456-457 (7th Cir. 2002); see also
United States v. Collins, 920 F.2d 619, 624-628 (10th Cir. 1990);
United States v. Nelson (In re Becraft), 885 F.2d 547, 548 (9th
Cir. 1989) (sanctions were imposed on counsel in criminal cases,
notwithstanding greater leeway generally allowed under Model Rule
3.1); Charczuk v. Commissioner, 771 F.2d 471 (10th Cir. 1985),
affg. T.C. Memo. 1983-433. We will deny respondent’s motion for
a penalty against counsel under section 6673(a)(2). However, we
issue this warning for the future to present counsel and to those
similarly situated.
For the reasons explained above,
A decision sustaining the
notices of determination will
be entered.