T.C. Memo. 2010-235
UNITED STATES TAX COURT
GARY LEE COLVIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17167-09L. Filed October 26, 2010.
Gary Lee Colvin, pro se.
Chris Sheldon, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
JACOBS, Judge: The dispute between the parties concerns an
administrative determination by respondent’s settlement officer
to sustain the proposed imposition of a levy to collect
petitioner’s unpaid Federal income taxes for 2000. The issue
involved is whether, following a collection due process hearing
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pursuant to the requirements of section 6330(c), the settlement
officer’s determination constituted an abuse of discretion.
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
FINDINGS OF FACT
At the time petitioner filed his petition, he resided in
Texas.
Petitioner previously petitioned this Court with respect to
the underlying deficiency for 2000 in Colvin v. Commissioner,
docket No. 16557-04. A trial in that matter was held on January
10, 2006, and the last posttrial brief was submitted on June 6,
2006.
Before the Court issued an opinion, petitioner filed a
petition in bankruptcy dated September 5, 2006, under chapter 7
of the Bankruptcy Code with the U.S. Bankruptcy Court for the
District of Arizona. Petitioner listed the Internal Revenue
Service (IRS) as a creditor holding an unsecured nonpriority
claim with respect to his liability for unpaid 1999 income taxes
totaling $2,258.53. No liability for Federal income taxes for
2000 was listed.
Respondent did not file a proof of claim or otherwise
participate in the bankruptcy proceeding. Neither respondent nor
petitioner notified this Court of petitioner’s bankruptcy filing.
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On January 19, 2007, the bankruptcy court issued a discharge
order. Attached to that order was an “EXPLANATION OF BANKRUPTCY
DISCHARGE IN A CHAPTER 7 CASE”. Listed among “Debts that are Not
Discharged” were “Debts for most taxes”.
The docket sheet in docket No. 16557-04 does not indicate
that any action was taken by the Court between June 6, 2006, and
June 19, 2007. We filed our opinion in docket No. 16557-04 on
June 19, 2007. See Colvin v. Commissioner, T.C. Memo. 2007-157,
affd. 285 Fed. Appx. 157 (5th Cir. 2008). On September 14, 2007,
we entered a decision that petitioner had a $10,346 tax
deficiency for the year 2000.
On February 4, 2008, respondent assessed petitioner’s 2000
income tax. On July 7, 2008, respondent mailed petitioner a
Final Notice of Intent to Levy and Notice of Your Right to a
Hearing for his unpaid 2000 income tax liability. In response to
that notice, on August 11, 2008, petitioner filed a Form 12153,
Request for a Collection Due Process or Equivalent Hearing
(section 6330 hearing). On line 7 of Form 12153, which requires
the reason the taxpayer disagrees with the proposed collection
action, petitioner checked the “Other” box, listed his reason for
challenging the proposed levy as “Bankruptcy”, and noted: “This
debt was discharge [sic] pursuant to a chpt 7 bankruptcy
discharge dated January 19, 2007”. Petitioner raised no other
reason, such as collection alternatives.
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Respondent forwarded petitioner’s request for a section 6330
hearing to several Appeals Offices in States which were
considerable distances from petitioner’s residence. Thereafter,
petitioner and respondent exchanged a series of letters regarding
where the requested section 6330 hearing would be held, and
ultimately petitioner’s case was assigned to an Appeals Office in
Arizona, a location which petitioner found agreeable.
Respondent’s Appeals Office mailed correspondence to petitioner’s
Arizona residence, but petitioner was unaware of the
correspondence because he then resided in Texas. Eventually, the
problem was resolved, and respondent’s settlement officer and
petitioner held a section 6330 hearing on May 14, 2009.
At petitioner’s section 6330 hearing the sole argument
petitioner raised was that his 2000 tax debt was discharged in
bankruptcy. Petitioner maintained that the IRS had been listed
as a creditor in his bankruptcy petition but it had not submitted
a proof of claim. Thus, according to petitioner, the IRS lost
its opportunity to collect his unpaid 2000 taxes, and further, it
was in contempt of court. The settlement officer rejected
petitioner’s arguments.
The settlement officer raised collection alternatives with
petitioner. The settlement officer stated that petitioner did
not qualify for an offer-in-compromise because he had not filed
his Federal income tax return for 2006. As an alternative to
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submitting an offer-in-compromise, the settlement officer offered
petitioner an opportunity to enter into an installment agreement.
Petitioner declined this offer.
On June 18, 2009, a manager in respondent’s Appeals Office
sent petitioner a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 regarding the proposed
levy action for 2000. Attached to that notice was a copy of the
settlement officer’s determination letter which stated that (1)
the settlement officer verified that all legal and procedural
requirements with respect to the proposed levy were met, (2)
petitioner’s argument that his 2000 tax debt was discharged in
bankruptcy was rejected, and (3) the settlement officer
determined that the levy balanced the Government’s need for
efficient tax collection with petitioner’s expectation that the
collection action be no more intrusive than necessary. In
rejecting petitioner’s argument that his 2000 tax debt was
discharged in bankruptcy, the settlement officer noted that 11
U.S.C. sec. 507 (2006) provides that, except for certain
inapplicable exceptions, unassessed but assessable taxes are not
dischargeable in bankruptcy.
On July 16, 2009, petitioner filed a petition in this Court
requesting that we review respondent’s collection determination.
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OPINION
A. Standard of Review
This case involves a review of respondent’s determination to
proceed with collection of petitioner’s unpaid tax liabilities
for 2000 via levy. Section 6330 hearings concerning levies are
conducted in accordance with section 6330(c). At the section
6330 hearing a taxpayer may raise any relevant issues relating to
the unpaid tax, including spousal defenses, challenges to the
appropriateness of the collection action, and offers of
collection alternatives. A taxpayer 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 the liability. Sec. 6330(c)(2)(B); sec. 301.6330-
1(e)(3), Q&A-E2, Proced. & Admin. Regs. Petitioner not only
received a notice of deficiency but litigated the deficiency in
this Court; hence, he is precluded from raising the underlying
tax liability during his section 6330 hearing.
In making a determination following a collection hearing,
the Commissioner must consider: (1) Whether the requirements of
any applicable law or administrative procedure have been met, (2)
any relevant issues raised by the taxpayer, and (3) whether the
proposed collection action balances the need for efficient
collection of taxes with the legitimate concern that the
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collection action be no more intrusive than necessary. Sec.
6330(c)(3).
After the Commissioner issues a notice of determination
following the section 6330 hearing, a taxpayer has the right to
petition this Court for judicial review of the determination.
Sec. 6330(d)(1). Our review of the Commissioner’s determination
is subject to the provisions of section 6330.
The judicial review that we are required to conduct in
section 6330 cases focuses on the Commissioner’s determination.
Unless the tax liability of the taxpayer that is the subject of
the proceeding is properly at issue, we review the Commissioner’s
determination for abuse of discretion. Sego v. Commissioner, 114
T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176 (2000).
The existence and amount of petitioner’s tax liability for
2000 was previously decided by this Court. We therefore review
respondent’s determinations for abuse of discretion. An abuse of
discretion is defined as any action that is unreasonable,
arbitrary or capricious, clearly unlawful, or lacking sound basis
in fact or law. Thor Power Tool Co. v. Commissioner, 439 U.S.
522, 532-533 (1979); Woodral v. Commissioner, 112 T.C. 19, 23
(1999).
B. Whether Petitioner’s Deficiency for 2000 Was Discharged in
Bankruptcy
Petitioner’s principal argument is that his 2000 tax
obligation was discharged in bankruptcy, with the result that the
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obligation is not collectible. We have jurisdiction to decide
whether a tax liability for which collection is at issue was
discharged in bankruptcy. Washington v. Commissioner, 120 T.C.
114, 121 (2003); Thomas v. Commissioner, T.C. Memo. 2003-231.
Petitioner argues that 11 U.S.C. sec. 524(a)(1) (2006)
provides that a chapter 7 bankruptcy discharge “voids any
judgment at any time obtained, to the extent that such judgment
is a determination of the personal liability of the debtor with
respect to any debt discharged under section 727 * * * of this
title, whether or not discharge of such debt is waived”. He
further posits that 11 U.S.C. sec. 524(a)(2) (2006) enjoins
respondent from taking any action to recover the discharged debt
whether or not the discharge of the debt is waived.
A debtor under chapter 7 of the Bankruptcy Code is generally
granted a discharge of all debts that arose before the filing of
the bankruptcy petition “‘[e]xcept as provided in section 523 of
this title.’” Hosack v. IRS, 282 Fed. Appx. 309, 313 (5th Cir.
2008) (quoting 11 U.S.C. sec. 727(b) (2000)). Concomitantly, 11
U.S.C. sec. 524(a) provides that such a discharge:
(1) voids any judgment at any time obtained, to the
extent that such judgment is a determination of the personal
liability of the debtor with respect to any debt discharged
under section 727, 944, 1141, 1228, or 1328 of this title,
whether or not discharge of such debt is waived;
(2) operates as an injunction against the commencement
or continuation of an action * * * to collect, recover or
offset any such debt as a personal liability of the debtor,
whether or not discharge of such debt is waived; and
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(3) operates as an injunction against the commencement
or continuation of an action * * * except a community claim
that is exempted from discharge under section 523 * * *.
Thus, while 11 U.S.C. sec. 727(b) (2006) generally
discharges a bankrupt debtor’s debt, and 11 U.S.C. sec. 524(a)
generally voids any judgment and enjoins the collection of the
debts of a bankrupt debtor, both sections provide that they do
not so operate if 11 U.S.C. sec. 523 (2006) applies.
Title 11 U.S.C. sec. 523(a)(1)(A) provides, in relevant
part, that a “discharge under section 727 * * * of this title
does not discharge an individual debtor from any debt * * * for a
tax * * * of the kind and for the periods specified in section
507(a)(3) or 507(a)(8) of this title, whether or not a claim for
such tax was filed or allowed”.
Title 11 U.S.C. sec. 507(a)(8) grants priority status for
unsecured income or gross receipts tax claims of governmental
units in certain circumstances. Title 11 U.S.C. sec.
507(a)(8)(A)(iii) gives priority status for taxes “other than a
tax of a kind specified in 11 U.S.C. section 523(a)(1)(B) or
523(a)(1)(C), not assessed before, but assessable, under the
applicable law or by agreement, after the commencement of the
case”.
Petitioner’s 2000 tax liability involves a tax described in
11 U.S.C. sec. 507(a)(8)(A)(iii); consequently, petitioner’s 2000
tax liability is not dischargeable pursuant to 11 U.S.C. sec.
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523(a).1 Petitioner’s tax deficiency for 2000 was not assessed
before the commencement of his bankruptcy case because his
liability had not as yet been determined by this Court. However,
petitioner’s 2000 tax obligation remained assessable because the
period of limitations for assessment was tolled by respondent’s
mailing of the notice of deficiency and by petitioner’s filing a
petition in this Court. See sec. 6503(a)(1). A tax that is
unassessed but still assessable at the time one files for
bankruptcy is not discharged in a chapter 7 bankruptcy. In
Hosack v. IRS, supra at 313, the Court of Appeals for the Fifth
Circuit stated:
Thus, pertinent to this matter, a Chapter 7 discharge does
not serve to discharge a debtor from liability for
delinquent income tax that was unassessed at the time the
debtor filed for bankruptcy but still assessable by law,
regardless of whether the IRS filed a claim in the debtor’s
bankruptcy case.
See Martinez v. United States, 323 Bankr. 650, 652 (Bankr. E.D.
La. 2005) (“A tax that is assessable, but not assessed, before
the bankruptcy petition is filed will not be discharged.”), affd.
96 AFTR 2d 2005-5473, 2005-2 USTC par. 50,524 (E.D. La. 2005).
That respondent did not file a proof of claim does not
affect this conclusion. A nondischargeable tax debt is not
affected by the failure to file a proof of claim. See Queen v.
IRS, 148 Bankr. 256, 258 (S.D. W. Va. 1992) (“The fact that the
1
Petitioner’s tax deficiency does not fall into any of the
exceptions specified in 11 U.S.C. sec. 523(a)(1)(B) or (C).
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government did not file a claim in the plaintiff-debtor’s
bankruptcy proceeding is irrelevant; the penalty assessment is
not discharged and the IRS may seek to recover from the debtor
post-discharge.”), affd. per curiam 16 F.3d 411 (4th Cir. 1994);
Kinney v. IRS, 123 Bankr. 889, 891 (Bankr. D. Nev. 1991) (in
chapter 11 proceeding, “The IRS’s failure to file timely a proof
of claim would, at most, result in a loss of the right to payment
under the plan. However, a creditor with a nondischargeable debt
can collect outside the plan as well as under the plan.”).
Petitioner’s tax liability for 2000 therefore falls squarely
within the bankruptcy discharge exception of 11 U.S.C. sec.
523(a)(1)(A). In summation, (1) petitioner’s 2000 tax liability
was not discharged, and (2) respondent is not enjoined from
commencing a collection action with respect to that liability.
Petitioner also contends that (1) respondent violated the
automatic stay provision of 11 U.S.C. sec. 362(a)(8) (2006) as a
consequence of not notifying the Court of petitioner’s bankruptcy
proceeding, and (2) that failure invalidated the deficiency
proceeding. We do not agree with petitioner’s contention.
Regardless of whether notification was provided to the Court, we
took no action in petitioner’s case while petitioner’s bankruptcy
proceeding was in progress. Thus, petitioner was not harmed.
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C. Whether Petitioner Was Entitled To Raise His Underlying Tax
Liability at His Section 6330 Hearing
Petitioner further maintains that respondent abused his
discretion by not allowing petitioner to dispute his underlying
tax liability for 2000 at the section 6330 hearing. The
underlying tax liability for 2000 that respondent seeks to
collect was the subject of a notice of deficiency that petitioner
received and was resolved in a matter before this Court. As
noted supra p. 6, pursuant to section 6330(c)(2)(B), petitioner
is precluded from challenging the existence or amount of the
underlying tax liability for 2000 in this proceeding.
Petitioner cites Montgomery v. Commissioner, 122 T.C. 1
(2004), in support of his position. That case is inapplicable in
that it involved a section 6330 hearing for a taxpayer who had
not had a previous opportunity to contest the underlying
deficiency.
D. Timeliness of Respondent’s Assessment
Petitioner asserts that “the tax court decision did not
become final until September 17, 2008”, after the Court of
Appeals upheld our decision. Therefore, according to petitioner,
respondent’s assessment of petitioner’s income tax on February 4,
2008, was premature and thus an abuse of discretion.
The record does not indicate that petitioner raised this
issue at his section 6330 hearing. Regardless, petitioner is
incorrect in his analysis. Section 6213(a) bars the Commissioner
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from assessing a tax liability until our decision becomes final,
and section 7481 makes our decisions final only when all
opportunities for appeal have been exhausted. But section 7485
trumps this by providing that assessment shall be stayed during
an appeal only if the taxpayer posts a bond. There is no
evidence that petitioner posted a bond. See Kovacevich v.
Commissioner, T.C. Memo. 2009-160 n.4. Therefore, respondent was
permitted to assess petitioner’s income tax when we entered a
decision in docket No. 16557-04 on September 14, 2007.
E. Other Matters Considered at the Section 6330 Hearing
Section 6330(c)(1) and (3) provides that the settlement
officer must (1) verify that the requirements of applicable law
and administrative procedure have been met, and (2) consider
whether the proposed collection action balances the need for the
efficient collection of taxes with the legitimate concern of the
taxpayer that any collection be no more intrusive than necessary.
The notice of determination states that the settlement officer
verified that the requirements of all applicable law and
administrative procedure were met and determined that the levy
appropriately balanced the need for efficient collection of taxes
with petitioner’s concern that the collection action be no more
intrusive than necessary. We are satisfied that the mandates of
section 6330(c)(1) and (3) have been met.
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We have considered all of petitioner’s arguments, and to the
extent not discussed herein, we find them to be without merit
and/or irrelevant.
To reflect the foregoing,
Decision will be entered
for respondent.