T.C. Summary Opinion 2010-148
UNITED STATES TAX COURT
CARLOS J. MARTINEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11505-08S. Filed October 5, 2010.
Carlos J. Martinez, pro se.
A. Gary Begun, for respondent.
GOLDBERG, 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 indicated, subsequent
section references are to the Internal Revenue Code.
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The petition in this case arises from the issuance of a
notice of determination by the Los Angeles Appeals Office
allowing the Internal Revenue Service (IRS) to proceed with
collection by levy of petitioner’s unpaid assessed 2002 Federal
income tax liability.
The threshold issue for decision is whether petitioner was
entitled to contest his underlying liability for 2002 at the
collection hearing. If so, then the Court must decide the
correctness of adjustments set forth below that respondent had
previously determined in a notice of deficiency and assessed with
respect to petitioner’s 2002 Federal income tax return: (1)
Disallowance of dependency exemption deductions that petitioner
claimed for his two children; (2) disallowance of all of the
expenses that petitioner claimed on his Schedule C, Profit or
Loss From Business; (3) disallowance of the earned income tax
credit that petitioner claimed, which he computed using his two
children as qualifying dependents; and (4) an addition to tax
under section 6651(a)(1) for late filing. If petitioner was not
entitled to contest his underlying liability at the collection
hearing, then the Court must decide whether respondent abused his
discretion by sustaining the proposed levy collection action for
petitioner’s unpaid Federal income tax liability for 2002.
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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.1 When the petition was
filed, petitioner resided in California.
Petitioner married Cristofora M. Martinez in 1993. They had
two children born during their marriage: One born in 1994 and
the other in 1998.
Since at least 1995 and continuing through the date of
trial, including the year at issue, 2002, petitioner has
maintained a license as a registered process server. In 2002
petitioner was also attending Cal State part time at night
studying toward a master’s degree. Ms. Martinez started working
in 2002 at a hospital during the overnight shift as a certified
nurse assistant. Throughout the year petitioner lived with Ms.
Martinez and their two children in a two-bedroom apartment. The
children attended school during the day.
In March 2003 Ms. Martinez had the police remove petitioner
from their family apartment because of domestic violence. The
police detained petitioner but did not arrest or charge him.
1
Petitioner initially objected in writing and at trial to
several documents respondent proffered, stating that he had not
previously received copies of the documents. Petitioner,
however, after reviewing copies of the documents at trial,
withdrew his objections, and the Court received them into
evidence.
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Afterwards, petitioner never returned. He lived in his
automobile for a while, then began staying with a cousin. As of
the date of trial, petitioner still considered himself “legally
* * * homeless”. In May 2005 petitioner and Ms. Martinez
divorced.
From no later than early 2003 and possibly years earlier,
petitioner rented a U.S. Postal Service (Postal Service or PS)
post office box (P.O. box) that he used as his official mailing
address. Petitioner continued to use and listed on the petition
that he filed with this Court in May 2008 the same P.O. box as
his address.
Petitioner had an accountant prepare his 2002 Federal income
tax return. Petitioner listed the aforementioned P.O. box as his
filing address on the return. The accountant and petitioner
dated their signatures August 9, 2003, and petitioner mailed the
return on August 13, 2003, to the IRS. Petitioner did not
request or receive an extension of time to file the return.
Petitioner filed his 2002 return as single. He claimed a
dependency exemption deduction for each of his two children. He
reported that the process server activity was his sole source of
income. Petitioner attached a Schedule C to the return on which
he listed the same P.O. box as the address for his process server
activity. On the Schedule C, petitioner reported a net profit of
$5,553, which consisted of $29,682 in gross receipts and $24,129
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in business expense deductions. Petitioner also claimed an
earned income credit (EIC) of $2,070 for 2002. He attached to
his return a Schedule EIC, Earned Income Credit, on which he
claimed his two children as qualifying dependents for purposes of
calculating the EIC. Petitioner’s return resulted in a $1,285
overpayment, for which petitioner requested a full refund.
The IRS froze the refund. In April 2004 the IRS mailed to
petitioner at his P.O. box address a letter requesting
documentation to support his dependency exemption deductions,
Schedule C expenses, and EIC for 2002. Petitioner did not
respond.
Respondent issued a notice of deficiency dated June 17,
2004, to petitioner determining a deficiency in petitioner’s 2002
Federal income tax of $8,160 and an addition to tax of $1,375 for
late filing under section 6651(a)(1). The deficiency arose from
respondent’s disallowance of the two claimed dependency
exemptions deductions, all of the claimed Schedule C business
expense deductions, and the entire earned income tax credit and
determination of a computational increase in petitioner’s self-
employment tax.
Respondent sent the notice of deficiency by certified mail
to petitioner’s last known address, his P.O. box. The Postal
Service left a notice in petitioner’s P.O. box informing him that
he had received certified mail. Petitioner did not claim the
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notice of deficiency, and the Postal Service returned the notice
of deficiency to respondent with a stamp on the envelope marking
it as “unclaimed”.
Because petitioner did not file a petition with the Court in
response to the notice of deficiency, the IRS on November 22,
2004, assessed the deficiency, addition to tax, and interest for
2002. On February 9, 2005, the IRS filed a Federal tax lien for
unpaid income taxes for 2001-2003 in the county where petitioner
resided. In a further attempt to collect petitioner’s unpaid
2002 and 2003 Federal income tax liabilities, respondent sent a
Final Notice of Intent to Levy and Notice of Your Right to a
Hearing (final notice) dated December 22, 2006, to petitioner at
his P.O. box. Petitioner’s total unpaid liabilities at this time
were $11,969.29 and $520.02 for 2002 and 2003, respectively.2
Petitioner responded to this final notice by filing a Form
12153, Request for a Collection Due Process or Equivalent
Hearing, dating his request as January 9, 2007. Petitioner’s
envelope listed his P.O. box as his return address.
In response to the Form 12153, a settlement officer reviewed
the IRS’ files, confirmed that the IRS had followed the proper
administrative procedures before issuing the final levy notice,
2
After filing this petition, petitioner paid his 2003
Federal income tax liability in full. Respondent moved to
dismiss the case with regard to tax year 2003 on the ground of
mootness, which the Court granted. Therefore, 2002 is the only
year remaining at issue.
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and sent a letter to petitioner at his P.O. box scheduling a
telephone collection hearing for July 19, 2007. The letter also
informed petitioner that a discussion of collection alternatives
was not possible unless petitioner completed the enclosed Form
433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals. The settlement officer made the
conference call at the appointed time, but the telephone number
that petitioner had provided on the Form 12153 had been
disconnected.
Four days later, petitioner called the settlement officer.
He stated that he had exhausted his ability to pay, questioned
how he could have a liability for 2002 in excess of $12,000 when
his gross income for the year was only $5,553, and requested a
face-to-face hearing. The settlement officer transferred the
case to another settlement officer who was in a location
convenient to petitioner. The new settlement officer reviewed
petitioner’s file, determined again that the IRS had followed the
proper administrative procedures, noted that petitioner had
previously filed an offer-in-compromise for 2002, and scheduled
an in-person hearing for October 2, 2007. Petitioner appeared at
the appointed time.
At the hearing petitioner attempted to contest his unpaid
underlying income tax liability for 2002 by contending that he
was entitled to: (1) The two disallowed dependency exemption
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deductions; (2) the disallowed Schedule C business expense
deductions; and (3) the disallowed earned income tax credit.
Petitioner did not provide documentation to support his
entitlement to the disallowed deductions or the disallowed EIC.
Petitioner did not bring a completed Form 433-A and stated that
he did not have a bank account, he was living with his cousin,
and instead of maintaining his process server activity he now
helped people fill out documents for courts. The settlement
officer suggested another offer-in-compromise as a collection
alternative. Petitioner was receptive, and the settlement
officer gave petitioner until the end of the month to complete
Form 433-A and Form 656, Offer in Compromise.
On October 17, 2007, the settlement officer received from
petitioner the two requested forms, which were incomplete. The
settlement officer forwarded the forms to the IRS centralized
processing unit for offers-in-compromise. Under doubt as to
collectibility, petitioner offered $500 to settle in full his
unpaid liabilities for 1999 through 2002. Petitioner indicated
that he was living with a relative, that he had monthly income
and expenses of $1,000 and $1,310, respectively, and that his
only assets were $48 in cash on hand and a 2003 car with a fair
market value of $1,500 and a current loan balance of $4,324.13.
On February 15, 2008, petitioner orally withdrew his offer-
in-compromise because he was unable or unwilling to provide
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certain supporting documentation that the IRS had requested. The
settlement officer wrote to petitioner requesting that he propose
another collection alternative within the next 3 weeks.
Petitioner did not respond with any other collection alternative.
Consequently, in a notice of determination dated April 16, 2008,
the Appeals team manager sustained the proposed levy collection
action.
Discussion
I. Standard of Review
If a taxpayer neglects or refuses to pay a Federal income
tax liability within 10 days after notice and demand for payment,
the Commissioner may collect the tax by levy upon the person’s
property. Sec. 6331(a). The Commissioner generally must provide
the taxpayer written notice of the right to a hearing before the
levy is made. Sec. 6330(a). Upon a timely request, the taxpayer
is entitled to an administrative hearing before an impartial
officer or employee of the Appeals Office. Sec. 6330(b).
Following the hearing, the Appeals officer must determine whether
the collection action is to proceed, taking into account the
verification the Appeals officer has made, the issues raised by
the taxpayer at the hearing, and whether the collection action
balances the need for the efficient collection of taxes with the
legitimate concern of the taxpayer that any collection action be
no more intrusive than necessary. Sec. 6330(c)(3).
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At the hearing a taxpayer may raise any relevant issue,
including appropriate spousal defenses, challenges to the
appropriateness of the collection action, and possible collection
alternatives. Sec. 6330(c)(2)(A). A taxpayer may contest the
validity of the underlying income tax liability, but only if the
taxpayer did not receive a notice of deficiency or otherwise have
an opportunity to dispute the underlying income tax liability.
See sec. 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609
(2000). The phrase “underlying tax liability” includes the
deficiency, additions to tax, and statutory interest. Katz v.
Commissioner, 115 T.C. 329, 339 (2000). We will now apply the
law to the facts and circumstances of this case.
II. Whether Petitioner May Challenge the Underlying Liability
Section 6212(a) and (b)(1) provides that a valid notice of
deficiency has been issued if it is mailed to the taxpayer’s last
known address. Where the Commissioner produces a properly
executed Postal Service Form 3877 showing that the IRS sent a
notice of deficiency by certified mail to the taxpayer at the
individual’s last known address, the presumption of official
regularity arises. The presumption creates a strong indication
that the IRS mailed the notice and that the Postal Service
delivered or offered the notice for delivery at the address to
which it was sent. In the absence of clear evidence to the
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contrary, receipt of the notice will be presumed. See Sego v.
Commissioner, supra at 611.
Where the taxpayer does not dispute the existence of the
notice of deficiency, the Commissioner’s production of a properly
completed PS Form 3877 is sufficient evidence by itself, absent
evidence to the contrary, that the Commissioner properly mailed
the notice of deficiency to the taxpayer. United States v.
Zolla, 724 F.2d 808, 810 (9th Cir. 1984);3 Coleman v.
Commissioner, 94 T.C. 82, 91 (1990). Thus, the Commissioner’s
strict compliance with PS Form 3877 mailing procedures raises a
presumption of official regularity in favor of the Commissioner.
United States v. Zolla, supra; Coleman v. Commissioner, supra.
A taxpayer’s self-serving claim that he did not receive a
notice of deficiency standing alone is generally insufficient to
rebut the presumption of official regularity. See Sego v.
Commissioner, supra at 611. In addition, a taxpayer cannot
defeat actual receipt by deliberately refusing delivery. Sego v.
Commissioner, supra at 610-611; Stein v. Commissioner, T.C. Memo.
2004-124; Carey v. Commissioner, T.C. Memo. 2002-209.
Petitioner does not dispute the existence of the notice of
deficiency, and he admits the IRS addressed the notice to his
last known address. He asserts, however, that he did not
3
If this case were appealable, which it is not because
petitioner elected sec. 7463 small tax case procedures, the
appeal would lie in the Court of Appeals for the Ninth Circuit.
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deliberately refuse to accept delivery of the notice of
deficiency. Instead, petitioner contends that the Postal Service
returned the notice of deficiency to the IRS before he had time
to claim the delivery because during this period, he checked his
P.O. box no more often than once a week, and at times 2 or 3
weeks would pass before he returned to check the P.O. box.
At trial the Court received into evidence a copy of the
notice of deficiency that respondent sent by certified mail on
June 17, 2004, to petitioner at his last known address, the P.O.
box he had listed on his 2002 Federal income tax return that he
had filed in August 2003. The Court also received into evidence
a properly executed PS Form 3877, dated June 17, 2004, which
recorded that a notice of deficiency was sent by certified mail
to petitioner at his last known address.
Petitioner’s claim that he did not receive the notice of
deficiency because he infrequently checked his mailbox is
insufficient to rebut the presumption of official regularity that
the notice of deficiency was delivered to or offered for delivery
at his last known address consistent with the PS Form 3877
certified mail list dated June 17, 2004.
Respondent followed official procedure by providing the June
17, 2004, certified mail list, demonstrating that the notice of
deficiency was sent, by certified mail, to petitioner’s last
known address. The Postal Service left notice for petitioner,
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but the notice of deficiency remained unclaimed. The Postal
Service returned the notice to respondent marked “unclaimed”.
Petitioner is therefore deemed to have been in receipt of
the notice of deficiency. Accordingly, he is not entitled to
challenge his underlying income tax liability. See Sego v.
Commissioner, 114 T.C. at 611; Goza v. Commissioner, 114 T.C.
176, 182 (2000).
III. Review of the Notice of Determination for Abuse of
Discretion
When the validity of the underlying tax liability is not
properly at issue, as is the case here, the Court reviews the
notice of determination for abuse of discretion. Sego v.
Commissioner, supra at 610; Goza v. Commissioner, supra at 182.
We have jurisdiction to review Appeals Office determinations
upholding levy actions. Sec. 6330(d)(1). Generally, the Court
will 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. Magana v. Commissioner, 118
T.C. 488, 493 (2002). The Appeals Office abuses its discretion
if the taxpayer shows that the Appeals Office’s actions were
arbitrary, capricious, or without sound basis in fact. Mailman
v. Commissioner, 91 T.C. 1079, 1084 (1988).
Petitioner initially proposed an offer-in-compromise during
his hearing, but he later orally withdrew the offer. The only
other argument petitioner advanced was a challenge to his
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underlying liability. He has not presented any other evidence
demonstrating that the determination to sustain the levy was
arbitrary, capricious, or without foundation in fact, or
otherwise an abuse of discretion.
This Court has consistently held that there is no abuse of
discretion in sustaining a levy when the taxpayer fails to
propose any collection alternatives. See Kendricks v.
Commissioner, 124 T.C. 69, 79 (2005); Cavazos v. Commissioner,
T.C. Memo. 2008-257. Here: (1) The Appeals Office verified that
all requirements of applicable law and administrative procedure
were met and that the proposed levy balanced the need for
efficient collection of taxes with concerns that the collection
be no more intrusive than necessary; and (2) petitioner failed to
provide all of the information that the settlement officers
requested and did not provide a serious collection alternative.
Accordingly, the Court finds that respondent did not abuse his
discretion in sustaining the proposed collection action.
To reflect the foregoing,
Decision will be entered
for respondent.