535 RAMONA INC., PETITIONER v. COMMISSIONER
OF INTERNAL REVENUE, RESPONDENT
Docket No. 6443–07L. Filed September 14, 2010.
P challenges R’s right to proceed with collection of any
FUTA tax from P on the ground that, taking into account
credits against the tax under sec. 3302, I.R.C., for actual and
deemed contributions to a State employment fund, P has no
outstanding liability.
1. Held: We apply a de novo standard in reviewing P’s chal-
lenge to its underlying liability for FUTA tax.
2. Held, further, P has failed to carry its burden of proving
its entitlement to any sec. 3302, I.R.C., credit.
3. Held, further, Appeals’ determination to proceed with
collection of the assessments against P for 1996 is sustained.
William E. Taggart, Jr., for petitioner.
Shannon Edelstone, for respondent.
HALPERN, Judge: Respondent’s Appeals Office (Appeals)
has determined to proceed with the collection from petitioner
of Federal Unemployment Tax Act (FUTA) tax, a penalty, an
addition to tax, and interest for 1996. The crux of the parties’
disagreement is whether, for 1996, petitioner paid $17,553 to
the State of California.
Unless otherwise stated, all section references are to the
Internal Revenue Code in effect for 1996, and all Rule ref-
353
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354 135 UNITED STATES TAX COURT REPORTS (353)
erences are to the Tax Court Rules of Practice and Proce-
dure. We round all dollar amounts to the nearest dollar.
FINDINGS OF FACT
Some facts are stipulated and are so found. The stipulation
of facts, with accompanying exhibits, is incorporated herein
by this reference.
Background
Petitioner was organized in California in 1996 and, during
the second quarter of 1996, began operating a restaurant,
Nola, in Palo Alto, California. Petitioner had a payroll of 50
to 80 individuals by the end of 1996 and had payroll
expenses for the second, third, and fourth quarters of 1996.
For 1996, petitioner used a payroll service company,
ExpressPay Plus (ExpressPay), to prepare its payroll. In
connection with that service, ExpressPay withdrew various
amounts, on various dates, from petitioner’s account with
Wells Fargo Bank.
Respondent’s records reflect that, with respect to the last
three quarters of 1996, he received $2,582 of FUTA tax
deposits from petitioner.
On or about January 31, 1997, petitioner filed with the
Internal Revenue Service (IRS) a Form 940–EZ, Employer’s
Annual Federal Unemployment (FUTA) Tax Return, relating
to Nola’s 1996 payroll (the 1996 Form 940–EZ). The 1996
Form 940–EZ reported contributions of $17,553 to the Cali-
fornia unemployment fund, total taxable wages of $322,784,
a FUTA tax liability (0.8 percent of $322,784 1) of $2,582, and
total FUTA tax deposits of $2,582. The California State
reporting number on the 1996 Form 940–EZ, however, was
that of Avenir Restaurant Group, Inc. (Avenir), a corporation
owned substantially by the same individuals who own peti-
tioner.
1 The 0.8-percent multiplier is found on line 6 of the 1996 Form 940–EZ and represents the
difference between the Federal FUTA tax rate, which for 1996 was 6.2 percent, and the 5.4-
percent maximum rate for determining available credits against the tax under sec. 3302. In this
case, that amount, $2,582, is the difference between 6.2 percent of petitioner’s total taxable
wages of $322,784 (i.e., $20,013) and 5.4 percent of those wages (i.e., $17,430). The assumption
is that the taxpayer is entitled to a credit against its 6.2-percent FUTA tax liability because
of actual and deemed contributions (5.4 percent of total taxable wages) made to a State unem-
ployment fund.
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(353) 535 RAMONA INC. v. COMMISSIONER 355
In November 1998, the IRS asked California to certify that,
for 1996, petitioner had paid wages for services performed in
California and made contributions to the California
unemployment fund. In January 1999, the Califor-
nia Employment Development Department (EDD) reported to
the IRS that it had no record of petitioner’s paying any wages
in 1996. In March 1999, the IRS notified petitioner of the
discrepancy between the EDD report and the information on
the 1996 Form 940–EZ. Petitioner did not respond to the
notification, and, as a result, in May 1999, respondent
assessed an additional $17,430 of 1996 FUTA tax that peti-
tioner owed, along with a Federal tax deposit penalty of
$1,743 and interest of $3,730. Subsequently, respondent
assessed additional penalties, an addition to tax, and interest
and gave petitioner credit for small overpayments of subse-
quent employment tax liabilities.
In 2004, both petitioner and the IRS made further
inquiries. In letters dated May 6, 2004 (to the IRS), and April
4, 2006 (to petitioner), EDD reported that, with respect to
petitioner for 1996, neither taxable wages nor contributions
were reported to the department; the letters further stated
that petitioner’s account was ‘‘inactive for tax year 1996.’’ In
February 2009, EDD advised the IRS that petitioner’s
unemployment insurance account with California first
became active on January 1, 1999.
Levy Notice
On February 6, 2006, respondent issued to petitioner a
Final Notice of Intent to Levy and Notice of Your Right to
a Hearing (the levy notice) with respect to the additional
FUTA tax, interest, and penalties that respondent had
assessed but that petitioner had not paid. According to the
levy notice, petitioner owed $28,343, which consisted of
$16,137 of FUTA tax, $9,305 of accrued interest, and a late
payment penalty of $2,902.
Request for CDP Hearing
On February 24, 2006, in response to the levy notice, peti-
tioner timely requested a collection due process (CDP)
hearing, contending that the ‘‘originally filed 940EZ is cor-
rectly filed’’ and requesting that respondent ‘‘allow the credit
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356 135 UNITED STATES TAX COURT REPORTS (353)
and abate all penalties.’’ In August 2006, petitioner had a
CDP hearing with respect to the levy notice (the levy
hearing).
Lien Notice
On March 16, 2006, respondent recorded a notice of Fed-
eral tax lien indicating that petitioner had an assessed, but
unpaid, employment tax liability of $15,528 for 1996 (relating
to the May 24, 1999, assessment). On March 23, 2006,
respondent issued to petitioner a Notice of Federal Tax Lien
Filing and Your Right to a Hearing under IRC 6320 (the lien
notice) advising petitioner of the recorded lien for $15,528
and of its right, by April 24, 2006, to request a hearing. Peti-
tioner did not request a hearing in response to the lien
notice, and none was held.
Notice of Determination
On February 20, 2007, Appeals issued a Notice of Deter-
mination Concerning Collection Action(s) Under Section 6320
and/or 6330 (the notice of determination) by which an
Appeals officer determined that ‘‘all statutory and procedural
requirements’’ were followed and that the levy notice was
‘‘appropriate based on all available information’’. The notice
of determination sustained in full the levy notice. 2
Petition
In response to the notice of determination, petitioner
timely filed the petition and an amended petition.
OPINION
I. Introduction
We must determine whether respondent may proceed by
levy to collect the additional FUTA tax, penalties, and interest
that respondent claims petitioner owes (the disputed
liability). That, in large part, depends on whether petitioner
made contributions of $17,553 for 1996 to the California
2 The notice of determination states that petitioner’s only challenge to the proposed levy was
petitioner’s challenge to ‘‘the existence or amount of the tax liability.’’ It further states that peti-
tioner was informed that it was required (and, we presume, failed) ‘‘to provide either a State
Recertification letter or copies of the state returns and the front and back of the cancelled
checks to verify the timely or late contributions.’’
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(353) 535 RAMONA INC. v. COMMISSIONER 357
unemployment fund. Before we address that question, we
shall set forth some of the general rules governing our review
of collection matters, set forth the relevant FUTA and Cali-
fornia State tax provisions, summarize the parties’ argu-
ments, and address certain of respondent’s evidentiary objec-
tions. Finally, we shall state our analysis and conclusion.
II. Sections 6320, 6330, and 6331
Section 6331(a) authorizes the Secretary to levy against
property and property rights when a taxpayer liable for taxes
fails to pay those taxes within 10 days after notice and
demand for payment. Section 6331(d) requires the Secretary
to send the taxpayer written notice of the Secretary’s intent
to levy, and section 6330(a) requires the Secretary to send
the taxpayer written notice of his right to a hearing before
Appeals at least 30 days before any levy begins. A taxpayer
receiving a notice of Federal tax lien has hearing rights
similar to the hearing rights accorded to a taxpayer receiving
a notice of intent to levy. See sec. 6320(c).
After the hearing, an Appeals officer must determine
whether and how to proceed with collection, taking into
account, among other things, collection alternatives the tax-
payer proposed and whether any proposed collection action
balances the need for the efficient collection of taxes with the
legitimate concern of the taxpayer that the collection action
be no more intrusive than necessary. See sec. 6330(c)(3). The
taxpayer may raise its underlying liability at the hearing if
it did not receive any statutory notice of deficiency for the
liability or did not otherwise have an opportunity to dispute
the tax liability. Sec. 6330(c)(2)(B).
Respondent concedes that petitioner was entitled to, and
did, raise its underlying liability (i.e., the disputed liability)
at the levy hearing and that the disputed liability is properly
before the Court. With respect to the disputed liability, we
review the record made here and not the administrative
record made before Appeals, and we apply a de novo
standard of review. See Sego v. Commissioner, 114 T.C. 604,
610 (2000); Goza v. Commissioner, 114 T.C. 176, 181–182
(2000); cf. Porter v. Commissioner, 132 T.C. 203, 210 (2009)
(de novo standard of review for cases brought under section
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358 135 UNITED STATES TAX COURT REPORTS (353)
6015(f )). Petitioner bears the burden of proof. See Rule
142(a). 3
III. Relevant FUTA and California State Tax Provisions
A. FUTA Provisions
For 1996, section 3301(1) imposes on every employer a 6.2-
percent excise tax with respect to wages paid to its
employees. Under section 3306(b), wages subject to tax
include (with certain exceptions not here relevant) ‘‘all remu-
neration for employment’’ that does not exceed $7,000 for the
calendar year.
Section 3302 allows taxpayers credits against that tax for
certain actual and deemed contributions to State unemploy-
ment funds. Section 3302(a) provides a credit for actual con-
tributions to such funds during the taxable year (the normal
credit). Section 3302(b) provides an additional credit (the
additional credit)
equal to the amount, if any, by which the contributions [the taxpayer is]
required to * * * [pay] with respect to the taxable year were less than the
contributions such taxpayer would have been required to pay if throughout
the taxable year he had been subject under such State law to the highest
rate applied thereunder * * * [or] 5.4 percent, whichever rate is lower.
The additional credit allows employers with good experience
ratings (and thus a lower State contribution rate) to avoid
paying more Federal tax than those employers with bad
experience ratings. In pertinent part, section 31.3302(b)–2(b),
Employment Tax Regs., provides that the additional credit
shall not be allowed unless the taxpayer submits
To the district director a certificate of the proper officer of each State
(with respect to the law of which the additional credit is claimed) showing
for the taxpayer—
(1) The total remuneration with respect to which contributions were
required to be paid by the taxpayer under the State law with respect to
such calendar year; and
(2) The rate of contributions applied to the taxpayer under the State law
with respect to such calendar year.
3 Sec. 7491(a)(1), which, under certain circumstances, shifts the burden of proof, is limited in
its application to factual issues ‘‘relevant to ascertaining the liability of the taxpayer for any
tax imposed by subtitle A or B’’ of the Internal Revenue Code. The factual issue in this case
is whether petitioner is entitled to a credit under sec. 3302 against its liability for FUTA taxes
imposed by sec. 3301, which is in subtit. C. Therefore, sec. 7491(a)(1) is inapplicable.
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(353) 535 RAMONA INC. v. COMMISSIONER 359
Section 3302(c)(1) limits the credits against the tax
imposed by section 3301 to 90 percent of that tax. In
applying the 90-percent limit on total credits, however, the
tax is computed at a deemed rate of 6 percent rather than
at the actual 6.2-percent rate. See sec. 3302(d)(1). Thus, in
effect, total credits may not exceed 5.4 percent (90 percent ×
6 percent) of the employer’s FUTA wage base.
B. California Unemployment Insurance Code
Pursuant to Cal. Unemp. Ins. Code sec. 675 (West 1986),
an employer is subject to the California unemployment com-
pensation system if, during any day within the current or
preceding calendar year, the employer has or had ‘‘in employ-
ment one or more employees * * * [to whom it pays or paid
wages] in excess of one hundred dollars ($100) during any
calendar quarter.’’ Employment includes ‘‘an individual’s
entire service’’ performed in California. Id. sec. 602. Wages
means ‘‘all remuneration payable to an employee for personal
services’’ that does not exceed $7,000 during any calendar
year. Id. secs. 926, 930. Thus, the California wage base is
identical to the Federal FUTA wage base. The actual contribu-
tion rate for each employer generally depends on the ratio of
the employer’s reserve account (i.e., the employer’s
unemployment insurance contributions to California) to its
average base payroll, both as of a ‘‘computation date’’. Id.
secs. 977, 1026. The maximum contribution rate is 5.4 per-
cent of wages, which equals the highest rate that may be
used in determining a taxpayer’s additional tax under section
3302(b). Id. sec. 977.
IV. Arguments of the Parties
In their opening and reply briefs, the parties frame the
issue regarding alleged unpaid FUTA taxes as a dispute over
whether petitioner has satisfied its burden of proving that it
did, in fact, make unemployment insurance contributions to
California of $17,553 as stated on its 1996 Form 940–EZ,
thereby entitling it to the credit taken on that return.
Rule 151(e) governs the content of briefs and provides that
all briefs shall contain, among other things, proposed
findings of fact (with ‘‘references to the pages of the tran-
script or the exhibits or other sources relied upon to support
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360 135 UNITED STATES TAX COURT REPORTS (353)
the * * * [proposed finding]’’), a concise statement of the
points on which the party relies, and the party’s argument,
‘‘which sets forth and discusses the points of law involved
and any disputed questions of fact.’’ At the conclusion of the
trial, the Court specifically instructed counsel for the parties
to incorporate in the discussion (argument) section of their
briefs cross-references to any proposed findings of fact on
which they relied. Petitioner’s counsel has failed both to fol-
low that instruction and to include in petitioner’s opening
brief a statement, concise or not, of the points on which peti-
tioner relies. We have done our best to understand
petitioner’s arguments, but, particularly with respect to the
crucial question of how the evidence in the case supports
petitioner’s claim that it paid $17,553 to California, the fail-
ures of petitioner’s counsel make petitioner’s arguments
somewhat unclear. 4
Petitioner argues that respondent’s disallowance of any
credit for the $17,553 that petitioner reported on its 1996
Form 940–EZ as paid to the California unemployment fund
was apparently based on erroneous information Respondent received from
EDD. Respondent’s disallowance of $17,430.33 of credit apparently was the
result of a difference in association of Federal Identification Numbers with
EDD Employer Identification Numbers on the respective records of
Respondent and EDD.
EDD confirmed that it received substantial sums of money in 1996
under * * * the EDD number under which Petitioner reported to
Respondent that it had paid unemployment insurance to the State of Cali-
fornia. * * *
Apparently in support of that argument (we say apparently
because, as stated, petitioner’s counsel has failed to cross-ref-
erence petitioner’s arguments and proposed findings of fact),
petitioner proposes a number of facts for us to find. First,
ExpressPay (1) ‘‘deposited the employment taxes, and paid
the related charges, associated with * * * [petitioner’s 1996]
payroll’’ and (2) ‘‘prepared the federal and California employ-
ment tax returns associated with * * * [petitioner’s] 1996
payroll’’. Second, ExpressPay ‘‘withdrew funds for the payroll
taxes and related charges required to be deposited or paid in
4 The record is not small, consisting in part of 370 pages of trial transcript and hundreds of
pages of written exhibits admitted into evidence. Petitioner’s counsel further failed to follow our
briefing instructions by omitting a detailed table of contents to petitioner’s approximately 24
pages of proposed findings of fact.
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(353) 535 RAMONA INC. v. COMMISSIONER 361
connection with * * * [petitioner’s 1996 payroll]’’. Third,
most pertinently, ExpressPay ‘‘made payments in the total
amount of $17,552.98 to the State of California for unemploy-
ment insurance relating to * * * [petitioner’s 1996 pay-
roll]’’. 5
Respondent’s argument is straightforward: Petitioner is
entitled to no credit against its 1996 FUTA tax because it has
failed to show that, for 1996, it made any unemployment
fund contribution to California.
V. Evidentiary Issues
At trial, we reserved ruling on respondent’s objections to
four exhibits petitioner proffered. The first three relate to
petitioner’s 1996 operations. They are Exhibit 20–P, a page
from petitioner’s tax liability register; Exhibit 21–P, a tax
status ledger report for the third and fourth quarters of
1996; and Exhibit 22–P, a year-to-date register (run date
12/30/96). The fourth exhibit, Exhibit 40–P, purports to be a
page from a tax liability register for Avenir (run date
12/30/96). Respondent objects to the four documents on var-
ious grounds, including, with respect to all of them, that they
constitute inadmissible hearsay. At the conclusion of the
trial, we ordered the parties to address on brief respondent’s
objections to all four exhibits.
Petitioner’s opening brief contains a section entitled
‘‘Findings of Fact Dependent on Contested Documents’’. Peti-
tioner supports those proposed findings with references to
Exhibits 20–P and 21–P but with no reference to either
Exhibit 22–P or Exhibit 40–P. We assume, therefore, that
petitioner does not rely on the latter two exhibits to support
its arguments, and we shall not consider them further. We
shall not rule on the admissibility of Exhibits 20–P and
21–P because, in considering their admissibility, we have
read them, and, even were we to overrule respondent’s objec-
tions, petitioner would still fail to carry its burden of proof.
5 Alternatively, petitioner states: ‘‘For * * * [1996], ExpressPay Plus made California unem-
ployment insurance payments in the total amount of $17,552.98 on behalf of Petitioner.’’
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362 135 UNITED STATES TAX COURT REPORTS (353)
VI. Analysis
A. Petitioner’s Failure To Prove Any Unemployment Insur-
ance Contribution to California for 1996
Petitioner has failed to support the findings of fact that it
relies on in support of its argument that, for 1996, it made
unemployment insurance contributions of $17,553 to Cali-
fornia.
In support of its proposed findings that ExpressPay depos-
ited employment taxes on its behalf and prepared the associ-
ated tax returns, petitioner principally relies on the testi-
mony of its accountant, J. Kelly Monaghan, who testified
about the operation of payroll services in general but con-
ceded that he had not been involved in any way with
ExpressPay and was not familiar with its business practices
or day-to-day routines. Petitioner also relies on stipulations
that (1) petitioner used ExpressPay’s services for 1996 and
(2) ExpressPay withdrew money from petitioner’s account.
Finally, petitioner relies on the testimony of Gregory H. St.
Claire, who organized petitioner, and who testified that peti-
tioner used ExpressPay to prepare its payroll. While none of
that evidence is inconsistent with petitioner’s proposed
findings of fact, none of it directly supports them. And, of
course, we have the evidence of EDD reporting that, with
respect to petitioner, no taxable wages and contributions
were reported to the department for 1996 and petitioner’s
unemployment insurance account with California first
became active on January 1, 1999. Petitioner has failed to
convince us that ExpressPay deposited employment taxes on
its behalf and prepared the associated tax returns.
While there is adequate support for petitioner’s proposed
finding that ExpressPay prepared petitioner’s 1996 payroll
and, in connection with its payroll duties, withdrew funds
from Wells Fargo bank, petitioner has not convinced us that
ExpressPay withdrew funds from that bank and paid $17,553
(or any lesser amount) to California for unemployment insur-
ance relating to petitioner’s 1996 payroll. Petitioner’s prin-
cipal support for its argument that ExpressPay made
unemployment insurance contributions to California on its
behalf is Exhibit 20–P, the page from petitioner’s tax liability
register, and Exhibit 21–P, petitioner’s tax status ledger
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(353) 535 RAMONA INC. v. COMMISSIONER 363
reports for the third and fourth quarters of 1996. At best,
those documents suggest total contributions on petitioner’s
behalf of $12,589. But they do not prove that any amount
was actually paid to California for 1996, only that the fore-
going amount may have been owed. Indeed, the stipulated
Wells Fargo bank statements, while showing that with-
drawals were made from the account during 1996, do not
indicate the purpose of the withdrawals, and we do not dis-
cern any connection between those withdrawals and the
amounts reflected in the tax status ledger report. Again, we
have before us the EDD reports, which state that petitioner
reported nothing, paid nothing, and had no relationship with
the department in, or for, 1996.
In short, we are unable to make the findings of fact that
petitioner proposes in support of its argument that, for 1996,
it made unemployment insurance contributions of $17,553 to
California. Indeed, petitioner has failed even to propose
findings of fact that would support its argument that it
should receive credit for payments to California that were
reported to the IRS as having been made under Avenir’s State
reporting number. Petitioner has failed to prove that, for
1996, it made any unemployment insurance contribution to
California.
B. No Credit Allowed
Section 3302(a) allows the normal credit for actual con-
tributions to State unemployment funds. Since petitioner has
failed to prove that it made any contribution to the Cali-
fornia unemployment fund for 1996, petitioner is entitled to
no normal credit.
To claim the additional credit provided for in section
3302(b), petitioner must satisfy the State certification
requirement imposed by section 31.3302(b)–2(b), Employment
Tax Regs. Petitioner has failed to adduce evidence (indeed,
even to claim) that the requirement has been satisfied. Peti-
tioner is not entitled to the additional credit.
Petitioner is entitled to no section 3202(a) or (b) credit in
determining its FUTA liability for 1996. Respondent did not
err in assessing an additional $17,430 of 1996 FUTA tax.
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364 135 UNITED STATES TAX COURT REPORTS (353)
C. Penalties
The levy notice listed a late payment penalty of $2,902.
Respondent has assessed an addition to tax under section
6651(a)(2) for failure to pay the tax shown on a return and
a penalty under section 6656 for failure to make deposit of
taxes. In neither the petition nor the amended petition does
petitioner assign error to any addition to tax or penalty, and
petitioner does not in its briefs raise any reasonable cause
defense. See secs. 6651(a)(2), 6656(a). Respondent has shown
an adequate ground for imposing the addition to tax and the
penalty, and we shall sustain them.
D. Jurisdiction Over the Notice of Tax Lien
The issue here is not clear. At trial, petitioner, for the first
time, raised some question as to the propriety of the lien
notice. Petitioner’s witness, Mr. Monaghan (petitioner’s
accountant), who participated in the levy hearing, did not
recall that there was any discussion of the lien. As noted,
petitioner did not request a hearing, pursuant to section
6320(a)(3)(B), regarding the lien notice, and none was held.
Petitioner, in its opening brief, proposes that we find facts
consistent with the issuance of the lien notice, but petitioner
does not further discuss the lien or raise any issue with
respect to it. Respondent, in his opening brief, argues that
we have no jurisdiction over the lien notice. In response (and
apparently in disagreement), petitioner argues that one of
the opportunities available to taxpayers at a CDP hearing is
the right to offer collection alternatives, see sec.
6330(c)(2)(A)(iii), and that the recording of a lien is a collec-
tion alternative. Petitioner then suggests that, by recording
the lien before the levy hearing, respondent has proposed a
collection alternative that petitioner might have offered and
that, therefore, ‘‘[i]t would be wasteful to require a second
request for a CDP hearing in order to place in issue a matter
that already appears to * * * be in issue.’’
Aside from the inconsistency of suggesting that petitioner
might have offered a collection alternative (a lien against its
assets) that it obviously opposes, petitioner’s implicit argu-
ment that there is something that we must consider with
respect to the lien notice fails because of the absence of any
evidence that the lien notice (or any other collection alter-
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(353) 535 RAMONA INC. v. COMMISSIONER 365
native) was even discussed at the hearing and the absence
of any reference to it in the notice of determination. Under
those circumstances, we agree with respondent that this case
is governed by Offiler v. Commissioner, 114 T.C. 492, 498
(2000), in which we held that our ‘‘jurisdiction under section
6330(d) is dependent on the issuance of a valid notice of
determination and a timely petition for review.’’ Because nei-
ther the notice of determination nor the petition referred to
the propriety of the lien notice, we lack jurisdiction under
section 6330(d) to consider the lien notice.
VII. Conclusion
The Appeals officer’s determination affirming the levy
notice against petitioner for 1996 is sustained. Respondent
may proceed by levy to collect the disputed liability.
An appropriate order and decision will be
entered.
f
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