Concert Staging Servs. v. Comm'r

T.C. Memo. 2011-231

UNITED STATES TAX COURT

CONCERT STAGING SERVICES, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3050-09L. Filed September 26, 2011.

Neil Deininger and Amy G. Hall, for petitioner.

William F. Castor, for respondent.

MEMORANDUM OPINION

LARO, Judge: Petitioner petitioned the Court under section

6330(d) to review the determination of respondent’s Office of

Appeals (Appeals) sustaining a proposed levy upon petitioner’s

property to collect $154,160 of employment taxes for the taxable

periods ended September 30, 2003, December 31, 2003, and March
 -2-

31, 2004, and unemployment taxes for 2003.1 The issues for

decision are: (1) Whether petitioner is entitled to relief from

additions to tax under section 6651(a)(2) and penalties under

section 6656(a) because of reasonable cause. We hold it is not;

(2) whether Appeals abused its discretion in denying petitioner’s

request to reallocate prior payments and deposits from the non-

trust-fund portion to the trust fund portion of petitioner’s

employment tax liabilities. We hold it did not; (3) whether

Appeals abused its discretion in denying petitioner’s request for

a face-to-face collection due process (CDP) hearing in Little

Rock, Arkansas (Little Rock). We hold it did not; (4) whether

Appeals abused its discretion in not granting petitioner a two-

part hearing to separately discuss the issue of respondent’s

allocation of petitioner’s payments to the non-trust-fund portion

of tax liabilities and the issue of petitioner’s proposed

collection alternatives. We hold it did not.2

1
Unless otherwise indicated, section references are to the
applicable version of the Internal Revenue Code (Code), and Rule
references are to the Tax Court Rules of Practice and Procedure.
Some dollar amounts are rounded.
2
We deem petitioner to have conceded issues raised in the
petition but not addressed on brief. See Palahnuk v.
Commissioner, 127 T.C. 118, 120 n.2 (2006), affd. 544 F.3d 471
(2d Cir. 2008); Harbor Cove Marina Partners Pship. v.
Commissioner, 123 T.C. 64, 66 (2004).
 -3-

Background

The parties submitted this case to the Court for decision

without trial. See Rule 122. The stipulation of facts and the

attached exhibits are incorporated herein by this reference. The

stipulated facts are found accordingly. When the petition was

filed, petitioner was an Arkansas corporation with its principal

place of business in Little Rock.

Petitioner operated as a stage production company from the

early 1980s until June 30, 2006. Michael Pinner (Mr. Pinner) was

petitioner’s sole shareholder and corporate officer at all

relevant times.

Petitioner filed Forms 941, Employer’s Quarterly Federal Tax

Return, for the taxable periods ended September 30, 2003,

December 31, 2003, and March 31, 2004 (collectively, employment

tax returns). Petitioner also filed Form 940, Employer’s Annual

Federal Unemployment (FUTA) Tax Return, for 2003 (unemployment

tax return). Petitioner failed to pay all of the taxes reported

on its employment tax returns and unemployment tax return

(collectively, unpaid tax liabilities). According to Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters, petitioner entered into an installment agreement with

respondent in connection with petitioner’s unpaid tax liabilities

on September 8, 2004.
 -4-

On January 17, 2008, respondent issued to petitioner a Final

Notice of Intent to Levy and Notice of Your Right to a Hearing

notifying petitioner that respondent proposed to levy upon

petitioner’s property to collect the following tax liabilities:

Additional
Form Tax Period Unpaid Amount Penalty1 Interest

941 9/30/03 $36,024 $11,278 $16,417
941 12/31/03 24,386 5,361 7,468
941 3/31/04 33,731 6,930 9,277
940 12/31/03 2,164 497 627
Total 96,305 24,066 33,789
1
We understand respondent’s reference to “additional
penalty” to relate to the addition to tax under sec. 6651(a)(2)
and penalties under sec. 6656(a).

On February 15, 2008, petitioner filed with Appeals a Form

12153, Request for a Collection Due Process or Equivalent

Hearing. The request proposed an installment agreement or

offer-in-compromise as collection alternatives to respondent’s

proposed levy. Petitioner also requested in an attachment to

Form 12153 that the additions to tax and penalties be abated

because of reasonable cause. Petitioner also contended that

respondent overstated the section 6656(a) penalty for the quarter

ended September 30, 2003. Petitioner further asserted that

respondent erred in failing to apply payments and deposits made

by petitioner or Mr. Pinner to the trust fund portion of taxes

due on petitioner’s employment tax returns (trust fund taxes).3

3
The trust fund taxes refer to taxes petitioner was required
to withhold from the wages of its employees and to hold in trust
(continued...)
 -5-

By letter dated February 18, 2008, petitioner requested a face-

to-face CDP hearing in Little Rock.

On February 18, 2008, petitioner faxed to respondent Form

433-B, Collection Information Statement for Businesses, signed by

Mr. Pinner. On the Form 433-B, Mr. Pinner reported that

petitioner was out of business but owned real property. Mr.

Pinner reported that the property’s value was $56,000 and that it

was subject to a $72,000 encumbrance. Petitioner did not attach

supporting documentation regarding the encumbrance, though the

Form 433-B instructed petitioner to do so. The Form 433-B also

reported that a fire had destroyed a building and its contents

but that petitioner still owned “misc[ellaneous] equipment

scattered around the country of uncertain value”.

By letter dated March 28, 2008, a settlement officer with

Appeals (settlement officer) notified petitioner that a CDP

hearing had been scheduled by telephone for April 23, 2008. The

letter stated that the settlement officer could consider

collection alternatives only if petitioner submitted a completed

Form 433-B with supporting documentation, documentation

supporting petitioner’s claims as stated in Form 12153, and

3
(...continued)
for the United States. See sec. 7501(a); Mason v. Commissioner,
132 T.C. 301, 321 (2009).
 -6-

copies of Mr. Pinner’s 2006 and 2007 individual Federal income

tax returns.4

On April 9, 2009, petitioner resubmitted a copy of the

previously filed Form 433-B to Appeals without supporting

documentation. Petitioner also submitted a memorandum in support

of its position (memorandum). The memorandum stated that

petitioner was out of business and that petitioner’s main concern

was whether payments and deposits had been properly applied to

the trust fund portion of petitioner’s employment tax

liabilities, which was borne by Mr. Pinner as petitioner’s sole

responsible officer.5 The memorandum also claimed that certain

payments respondent allocated to the non-trust-fund portion of

employment taxes due for the quarter ended June 30, 2003 (June

2003 quarter), should be reallocated to the trust fund portion of

petitioner’s unpaid tax liabilities. Finally, the memorandum

stated that the Internal Revenue Service (IRS) did not prepare a

4
Mr. Pinner did not file his 2006 individual Federal income
tax return until Dec. 2, 2008. As of Dec. 18, 2008, Mr. Pinner
had not filed his 2007 individual Federal income tax return. The
record is not clear whether Mr. Pinner submitted his income tax
returns to Appeals.
5
The Commissioner may collect unpaid trust fund taxes from
an officer or employee within a company who is under a duty to
collect and pay over trust fund taxes. See secs. 6671(a) and
(b), 6672. This is commonly known as the trust fund recovery
penalty (TFRP). The individuals who are liable for the TFRP are
referred to as “responsible persons”. Mason v. Commissioner,
supra at 321. The TFRP assessed against a responsible person is
separate from the employer’s responsibility for the unpaid taxes.
Sec. 6672(a); Mason v. Commissioner, supra at 321.
 -7-

binding Form 433-D, Installment Agreement, formalizing

petitioner’s installment agreement with terms permitting

respondent to apply payments in the Government’s best interest.6

Attached to the memorandum were copies of 11 checks from

petitioner’s bank account totaling $27,500 and 2 checks totaling

$3,500 from Mr. Pinner’s personal bank account. All of the

checks bore the notation: “Trust Fund Only”.

On April 23, 2008, the settlement officer conducted a CDP

hearing with petitioner’s counsel by telephone. The settlement

officer stated that a face-to-face hearing could be held in

Oklahoma City, Oklahoma (Oklahoma City), but petitioner’s counsel

refused that invitation. Next, the settlement officer discussed

respondent’s application of petitioner’s Federal tax deposits and

payments to the trust fund and non-trust-fund portions of

petitioner’s unpaid tax liabilities. The settlement officer

stated that Mr. Pinner’s TFRP was not properly at issue because

Mr. Pinner had received a prior opportunity to appeal a CDP

notice with respect to the TFRP.

In a letter dated May 1, 2008, petitioner’s counsel

contended that, contrary to respondent’s assertion, neither

petitioner’s counsel nor petitioner signed or received Form 433-D

6
Sec. 301.6159-1(b)(1)(i)(B), Proced. & Admin. Regs.,
permits the Commissioner to require any installment agreement
entered into by the taxpayer and the IRS to include terms
protecting the interests of the Government. The terms of Form
433-D state that the IRS “will apply all payments on this
agreement in the best interest of the United States.”
 -8-

that permitted respondent to apply payments in the Government’s

best interest. The letter stated that petitioner requested an

installment agreement on or about August 31, 2004, and soon

thereafter petitioner and petitioner’s counsel received a Letter

2850, Approval of Request to Pay Taxes in Installments.

Respondent sent petitioner a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330

(notice of determination) sustaining respondent’s proposed levy

on December 31, 2008. The notice of determination stated that

all payments made toward the unpaid tax liabilities had been

applied towards petitioner’s outstanding liability and that

petitioner’s challenge to the application of payments between the

trust fund and non-trust-fund portion was immaterial to the

amount of tax owed. The notice of determination further stated

that Appeals did not have jurisdiction to review whether payments

were misapplied to the June 2003 quarter because that quarter was

paid in full and not subject to the proposed levy. The notice of

determination conceded that respondent had overstated the section

6656(a) penalty for the quarter ended September 30, 2003, by

$2,451.71. The notice of determination rejected petitioner’s

proposed collection alternatives on account of petitioner’s

failure to produce supporting documentation and stated that

petitioner is not entitled to abatement of additions to tax and
 -9-

penalties because of the absence of reasonable cause. Petitioner

petitioned the Court in response to the notice of determination.

Discussion

Under section 6331(a), the Commissioner is authorized to

levy upon the property or property rights of a taxpayer who fails

to make payment for taxes due within 10 days after notice and

demand for payment. At least 30 days before a levy is made, the

Commissioner must notify the taxpayer in writing of the

opportunity to appeal the proposed levy at a CDP hearing held by

Appeals. See sec. 6330(a)(1), (b)(1). At the hearing, the

taxpayer may raise any relevant issue as to the propriety of the

proposed levy, including spousal defenses, challenges to the

collection action, and offers of collection alternatives. Sec.

6330(c)(2)(A); see also Sego v. Commissioner, 114 T.C. 604, 609

(2000). The taxpayer may also challenge the existence or amount

of the underlying tax liability if the taxpayer did not receive a

notice of deficiency or did not otherwise have an opportunity to

dispute the liability. Sec. 6330(c)(2)(B).

A taxpayer may petition the Court under section 6330(d) to

review Appeals’ determination. Where the validity of the tax

liability is properly at issue, we review Appeals’ determination

de novo. Sego v. Commissioner, supra at 610; Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000). Where the validity

of the tax liability is not properly at issue, we review Appeals’
 -10-

determination for abuse of discretion. Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 181-182. An abuse

of discretion occurs when Appeals’ determination is arbitrary,

capricious, or without sound basis in fact or law. See Murphy v.

Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d 27 (1st

Cir. 2006); Freije v. Commissioner, 125 T.C. 14, 23 (2005). We

first address petitioner’s claim for abatement of additions to

tax under section 6651(a) and penalties under section 6656.

I. Liability Under Sections 6651(a) and 6656

Where a taxpayer fails to timely pay tax shown on a return,

section 6651(a)(2) imposes an addition to tax equal to 0.5

percent of the required tax payment per month, not to exceed 25

percent in the aggregate. Section 6656(a) similarly imposes a

penalty on a taxpayer who fails to make any requisite Federal tax

deposits by the date prescribed. See also sec. 6656(b).

Additions to tax under section 6651(a)(2) and penalties under

section 6656 may be abated where a taxpayer proves that the

failure to pay was due to reasonable cause and not willful

neglect. See secs. 6651(a)(2), 6656(a); see also sec. 301.6651-

1(c)(1), Proced. & Admin. Regs. Petitioner does not dispute that

it failed to pay the unpaid tax liabilities but claims that these

additions to tax and penalties should be abated for reasonable

cause. We disagree.
 -11-

A taxpayer may challenge the Commissioner’s determination of

the underlying tax liability at a CDP hearing only if the

taxpayer did not receive a notice of deficiency or have any prior

opportunity to dispute the tax liability. Sec. 6330(c)(2)(B).

The underlying tax liability is any amount owed by a taxpayer,

including the deficiency, additions to tax, and statutory

interest. See Katz v. Commissioner, 115 T.C. 329, 338-339

(2000); McNair Eye Ctr., Inc. v. Commissioner, T.C. Memo. 2010-

81. The record does not establish, and respondent does not

contend, that petitioner received a notice of deficiency or that

petitioner had a prior opportunity to dispute the additions to

tax or penalties. Accordingly, we review de novo petitioner’s

entitlement to an abatement of the penalties and additions as

determined by respondent. See Downing v. Commissioner, 118 T.C.

22, 29 (2002).

Respondent bears the burden of producing evidence that the

imposition of additions to tax and penalties is appropriate. See

sec. 7491(c); see also Higbee v. Commissioner, 116 T.C. 438, 446

(2001). The parties agree that petitioner failed to timely make

tax payments and Federal tax deposits, and on that basis we

conclude that respondent has carried his burden. Petitioner thus

bears the burden of proving that respondent’s determination is

inappropriate because the failure to pay was due to reasonable
 -12-

cause. United States v. Boyle, 469 U.S. 241, 245 (1985); see

also Higbee v. Commissioner, supra at 448.

Reasonable cause exists if petitioner can establish that it,

through Mr. Pinner, “exercised ordinary business care and

prudence * * * and was nevertheless either unable to pay the tax

or would suffer an undue hardship * * * if * * * [it] paid on the

due date.” Sec. 301.6651-1(c)(1), Proced. & Amin. Regs.7 Courts

have characterized this as a heavy burden. See, e.g., United

States v. Boyle, supra at 245; Valen Manufacturing Co. v. United

States, 90 F.3d 1190, 1193 (6th Cir. 1996); Roberts v.

Commissioner, 860 F.2d 1235, 1241 (5th Cir. 1988), affg. T.C.

Memo. 1987-391. The determination of whether a taxpayer

exercised ordinary business care and prudence is based on “all

the facts and circumstances of the taxpayer’s financial

situation, including the amount and nature of the taxpayer’s

expenditures in light of the income”. Sec. 301.6651-1(c)(1),

Proced. & Admin. Regs. A heightened standard for reasonable

cause applies when trust fund taxes are at issue. See sec.

301.6651-1(c)(2), Proced. & Admin. Regs. (noting by way of

7
We note that regulations under sec. 6656 describe
“reasonable cause” only as to first-time depositors. See sec.
301.6656-1, Proced. & Admin. Regs. However, we have often looked
to sec. 6651(a)(2) and regulations thereunder for guidance in
determining reasonable cause under sec. 6656 as we have found the
two sections to be analogous. See, e.g., Charlotte’s Office
Boutique, Inc. v. Commissioner, 121 T.C. 89, 109 (2003), affd.
425 F.3d 1203 (9th Cir. 2005); Custom Stairs & Trim, Ltd. v.
Commissioner, T.C. Memo. 2011-155.
 -13-

example that what would ordinarily be considered reasonable cause

might not be considered as such when trust fund taxes are at

issue); see also McNair Eye Ctr., Inc. v. Commissioner, supra.

Petitioner argues that it has reasonable cause for failure

to pay its taxes because it lacked sufficient funds to both

satisfy its tax liabilities and remain in operation. In a

statement he forwarded to Appeals requesting abatement of

penalties, Mr. Pinner claimed that petitioner’s business began to

suffer after the September 11, 2001, attacks at the World Trade

Center where it was staging a series of events. Mr. Pinner

stated that as a result of the attacks, petitioner lost staging

structures and equipment and incurred significantly higher

insurance rates that hurt its business. Mr. Pinner also alleged

that petitioner subsequently reduced personnel and business

expenses, and Mr. Pinner sold his houseboat and took out a second

mortgage on his Colorado ranch in order to provide additional

funding for petitioner. We are not persuaded that these events,

even if true, establish that petitioner exercised ordinary

business care and prudence or that it was unable to pay or would

suffer undue hardship if required to pay on the due date.

Petitioner has not produced evidence to support the claim

that Mr. Pinner sold his houseboat and took out a second mortgage

in order to raise additional funds for petitioner.8 Nor has

8
Mr. Pinner also claimed that petitioner lost all of its
(continued...)
 -14-

petitioner offered evidence to support its financial status at

the time the taxes were due. As this case was submitted for

decision without trial pursuant to Rule 122, we have no occasion

to observe Mr. Pinner making these self-serving statements.

Especially given the lack of corroborating evidence in support of

Mr. Pinner’s statements, we are simply unwilling to credit the

claim that petitioner exercised ordinary business care and

prudence. See Watts v. Commissioner, T.C. Memo. 2009-103. We

therefore sustain respondent’s determination that petitioner is

liable for additions to tax under section 6651(a)(2) and

penalties under section 6656.

II. Allocations of Payments Between Trust Fund and Non-Trust-
Fund Tax Liabilities

Petitioner next challenges respondent’s application of its

payments and deposits to the non-trust-fund portion rather than

the trust fund portion of its employment tax liabilities.

Petitioner contends that a challenge to respondent’s application

of its payments to the non-trust-fund portion of its employment

tax liabilities (non-trust-fund taxes) is a challenge to the

“existence or amount of the underlying tax liability” under

8
(...continued)
equipment because of a burglary and a fire, plunging it further
into financial difficulties. These events, however, occurred
after the closing of the business in 2006 and could not have been
the cause of petitioner’s inability to satisfy its tax
liabilities in 2003 and 2004. Therefore, we cannot conclude that
these events constitute reasonable cause for petitioner’s failure
to pay its taxes on time. See sec. 301.6651-1(c)(1), Proced. &
Admin. Regs.
 -15-

section 6330(c)(2)(B) and is subject to de novo review. We

disagree.

In Kovacevich v. Commissioner, T.C. Memo. 2009-160, we held

that “questions about whether a particular check was properly

credited to a particular taxpayer’s account for a particular tax

year are not challenges to his underlying tax liability”. See

also Orian v. Commissioner, T.C. Memo. 2010-234. Our holding in

Kovacevich is consistent with our interpretation of the phrase

“underlying tax liability” in prior cases, where we determined

that the “underlying tax liability” challenged by a taxpayer

under section 6330(c)(2)(B) refers to any amount owed by a

taxpayer pursuant to tax laws. See, e.g., Katz v. Commissioner,

115 T.C. at 338-339; McNair Eye Ctr., Inc. v. Commissioner, T.C.

Memo. 2010-81. We reasoned in Kovacevich that a challenge to the

proper crediting of checks to a particular tax year is not a

challenge to the underlying tax liability because such an inquiry

does not raise questions of the amount of tax imposed by the Code

for a particular tax year, but instead presents the question of

whether that liability remains unpaid. Petitioner’s challenge to

respondent’s allocation of petitioner’s payments and deposits

similarly raises the question of the amount of tax liability

remaining unpaid. We are mindful that the allocation of payments

between trust fund and non-trust-fund taxes affects Mr. Pinner’s

TFRP liabilities, but the reallocation of payments between trust
 -16-

fund and non-trust-fund taxes does not change the amount of tax

petitioner owes. We therefore review Appeals’ decision not to

reallocate petitioner’s payments for abuse of discretion. See

Orian v. Commissioner, supra; Kovacevich v. Commissioner, supra;

see also Davis v. United States, 961 F.2d 867, 878 (9th Cir.

1992).

A. Allocation of Undesignated Federal Tax Deposits

Petitioner argues that the settlement officer abused his

discretion in declining to reallocate four undesignated Federal

tax deposits ratably to the trust fund and non-trust-fund taxes

due for the quarter ended December 31, 2003. We disagree.

Petitioner claims that Internal Revenue Manual (IRM) pt.

5.7.4.3(6) (Apr. 13, 2006), requires that the IRS ratably apply

undesignated Federal tax deposits between trust fund and non-

trust-fund tax liabilities when the payments correspond with the

amount of Federal tax deposits due from a taxpayer. Petitioner

relies on a note to IRM pt. 5.7.4.3(6) which states:

If the taxpayer established that the deposit was in the
amount required by Treasury Regulation 31.6302-1(c)
* * * the FTD [Federal tax deposit] was considered a
designated payment and applied to * * * [the non-trust-
fund and the trust fund portions of tax] for the
specific period covered by the FTD, even before June
19, 2000. The taxpayer must provide payroll records
that show the composition of the FTD. The records must
reflect exactly how much of the FTD was employer FICA,
employee FICA, and income tax withheld. * * *

The main text of IRM pt. 5.7.4.3(6) states that if notification

of a TFRP assessment was issued before June 19, 2000, any
 -17-

undesignated payments received through December 31, 2002, will

first be applied to the non-trust-fund portion of tax, then to

collection costs, penalty, and interest, and lastly to the trust

fund portion of tax. The note thus states an exception to the

general method for payment application referenced in the body of

IRM pt. 5.7.4.3(6). As the TFRP assessment against Mr. Pinner

relates to taxable quarters in 2003 and 2004, notification of the

TFRP assessment could not have been issued before June 19, 2000.

Moreover, petitioner asserts on brief that the four Federal tax

deposits were made between October 27 and November 28, 2003. As

respondent received the undesignated payments after December 31,

2002, and issued the notification of a TFRP assessment after June

19, 2000, IRM pt. 5.7.4.3(6) and its accompanying note is not

applicable to petitioner’s case.

As a general practice, the IRS allows a taxpayer to

designate the application of voluntary tax payments. See Amos v.

Commissioner, 47 T.C. 65, 69 (1966); Rev. Proc. 2002-26, 2002-1

C.B. 746; see also Jehan-Das, Inc. v. United States (In re Jehan-

Das, Inc.), 925 F.2d 237, 238 (8th Cir. 1991). In the absence of

a designation by the taxpayer regarding the application of

payments, the IRS generally applies payments in a manner that

best serves its interest. See Davis v. United States, supra at

878; Emshwiller v. United States, 565 F.2d 1042, 1046 (8th Cir.

1977). The IRS has long followed the policy of applying
 -18-

undesignated payments to non-trust-fund taxes before trust fund

taxes, see IRM pt. 1.2.14.1.3(1) (June 9, 2003), and many courts

have endorsed that policy, see Slodov v. United States, 436 U.S.

238, 252 n.15 (1978); Jehan-Das, Inc. v. United States (In re

Jehan-Das, Inc.), supra at 238; United States v. Schroeder, 900

F.2d 1144, 1149 (7th Cir. 1990) (and cases cited thereat). We

thus find that the settlement officer did not abuse his

discretion in determining that respondent may apply petitioner’s

undesignated Federal tax deposits to non-trust-fund taxes for the

quarter ended December 31, 2003.

B. Designated Payments

Petitioner next claims that Appeals’ refusal to reallocate

payments designated by petitioner and Mr. Pinner as trust fund

tax payments, but treated by respondent as non-trust-fund taxes,

was an abuse of discretion. In particular, petitioner refers the

Court to payments related to those at issue in this case, and a

quarter not at issue in this case; namely, the June 2003 quarter.

1. Petitioner’s Designated Payments

Petitioner contends that the settlement officer abused his

discretion in affirming respondent’s refusal to honor the “Trust

Fund Only” designation marked on payments petitioner made.

Respondent counters that the settlement officer did not abuse his

discretion because petitioner had entered into an installment

agreement which gave respondent broad authority to apply payments
 -19-

in the best interest of the Government. Petitioner replies that

it never “signed” or received Form 433-D and that the payment

designation as “Trust Fund Only” must be respected.

Section 301.6159-1(d), Proced. & Admin. Regs., provides that

where a taxpayer has entered into an installment agreement the

IRS “may take actions to protect the interests of the government”

with regard to the unpaid tax liability unless the installment

agreement states otherwise. See IRM pt. 5.14.7.5 (Mar. 30,

2002). In a letter to Appeals dated May 1, 2008, petitioner’s

counsel stated that petitioner requested an installment agreement

on or about August 31, 2004. That letter further stated that

petitioner and its counsel received a Letter 2850, Approval of

Request to Pay Taxes in Installments, notifying them that

respondent had approved an installment agreement.

Moreover, the record contains petitioner’s account

transcripts, which reflect that petitioner had entered into an

installment agreement. Forms 4340 submitted by the parties

indicate that petitioner entered into an installment agreement

with respondent on September 8, 2004, in connection with its

unpaid tax liabilities. The existence of this installment

agreement is further evidenced by the assignment of status 60 to

petitioner’s accounts as shown in petitioner’s employment tax

account transcripts. Respondent’s internal policy indicates that

status 60 is assigned only with the receipt of a completed Form
 -20-

433-D formalizing an installment agreement. See IRM pt.

5.14.7.4.2(9). An Integrated Collection System entry dated

August 14, 2007, similarly states that petitioner was in “stat

60” and that petitioner was in compliance with its installment

payments.

While petitioner asserts that it never “signed” or received

any Form 433-D formalizing an installment agreement, it does not

state that an installment agreement was not entered into.9 On

the basis of respondent’s regularly kept business records, we

infer that an installment agreement was entered into. See United

States v. Ahrens, 530 F.2d 781, 785 (8th Cir. 1976) (“The

presumption of regularity supports the official acts of public

officers and, in the absence of clear evidence to the contrary,

courts presume they have properly discharged their official

duties.”). Nor has petitioner come forward with evidence showing

that the installment agreement contained any terms prohibiting

respondent from applying payments to non-trust-fund taxes before

9
The IRM states that Form 433-D could be used to execute an
installment agreement without obtaining the signature of the
taxpayer on the form. See IRM pt. 5.14.1.4.3(7)-(8) (July 1,
2002). While we express concern over respondent’s inability to
produce a copy of the installment agreement which petitioner
purportedly entered into, petitioner bears the burden of proving
that it did not “sign” or receive a copy of the Form 433-D. As
this case was submitted under Rule 122, we could not observe Mr.
Pinner at trial. We are thus unable to accept the allegations
that no Form 433-D was “signed” or received by petitioner or
petitioner’s counsel, especially when the IRS’ account
transcripts reflect that such an installment agreement was
entered into.
 -21-

trust fund taxes. We therefore find that respondent may protect

the interests of the Government by applying payments to non-

trust-fund taxes for the taxable quarters at issue and for the

June 2003 quarter pursuant to section 301.6159-1(d), Proced. &

Admin. Regs.

Petitioner further contends that the IRS’ policy of giving

non-trust-fund taxes priority over trust fund taxes “repudiate[s]

the trust fund theory”. According to petitioner, payments of tax

must first be applied to satisfy the trust fund portion of a

taxpayer’s liability. Contrary to petitioner’s assertion that

the “trust fund theory” is “embodied” in section 7501, we find

that section 7501 neither explicitly nor implicitly prescribes a

hierarchy for application of payments to trust fund and non-

trust-fund taxes. We have stated previously that we will not

question the IRS’ determination of what payment application

method is in the best interest of the United States. See

Bierhaalder v. Commissioner, T.C. Memo. 1995-307. Respondent’s

practice of prioritizing the payment of non-trust-fund taxes is

reasonable because, consistent with the purpose of section 6672,

it enables the Commissioner “‘to reach those responsible for the

corporation’s failure to pay the taxes which are owing.’” See

Olsen v. United States, 952 F.2d 236, 239 (8th Cir. 1991)

(quoting Newsome v. United States, 431 F.2d 742, 745 (5th Cir.

1970)). Accordingly, we find that the settlement officer did not
 -22-

abuse his discretion in denying petitioner’s request to

reallocate designated payments from non-trust-fund to trust fund

taxes.

2. Mr. Pinner’s Designated Payment

Petitioner also contends that a $1,000 payment made by check

from Mr. Pinner’s personal bank account should have been applied

to the TFRP assessed against Mr. Pinner and not to petitioner’s

non-trust-fund taxes. We are unable to agree for two reasons.

First, Mr. Pinner indicated on the check that the payment was for

“Trust Funds Only”. As Mr. Pinner is not personally liable for

non-trust-fund taxes, that designation would be unnecessary

unless Mr. Pinner was making payments on behalf of petitioner.

Second, as this case was submitted under Rule 122, we have no

evidence that Mr. Pinner intended to apply that payment towards

his TFRP liability. We thus find that petitioner has failed to

carry its burden of proving that the payment Mr. Pinner made was

not a payment made on behalf of petitioner under an installment

agreement. Accordingly, we find that the settlement officer did

not abuse his discretion in affirming respondent’s application of

Mr. Pinner’s $1,000 payment to petitioner’s non-trust-fund taxes.

III. Denial of Face-to-Face Hearing in Little Rock

Petitioner also contends that the settlement officer abused

his discretion in refusing to conduct a face-to-face hearing with

petitioner in Little Rock. Because this is not a challenge to
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the underlying tax liability, we review this issue for abuse of

discretion. See Sego v. Commissioner, 114 T.C. at 610; Goza v.

Commissioner, 114 T.C. at 181-182.

The regulations interpreting section 6330 provide that a

“CDP hearing may, but is not required to, consist of a face-to-

face meeting”. Sec. 301.6330-1(d)(2), Q&A-D6, Proced. & Admin.

Regs. (emphasis added); see also Katz v. Commissioner, 115 T.C.

329, 337 (2000). A taxpayer will ordinarily be offered a face-

to-face hearing if the taxpayer presents in the CDP request

relevant and nonfrivolous issues relating to the proposed levy.

Sec. 301.6330-1(d)(2), Q&A-D7, Proced. & Admin. Regs; see also

Golditch v. Commissioner, T.C. Memo. 2010-260. In the case of a

taxpayer business, the location of that hearing is the Appeals

office closest to the taxpayer’s principal place of business.

Sec. 301.6330-1(d)(2), Q&A-D7, Proced. & Admin. Regs. Finally,

the regulations provide that if a face-to-face hearing is not

held, a hearing conducted by telephone, by correspondence, or by

review of documents will suffice for purposes of section 6330(b).

See id.

As documented in the notice of determination, the settlement

officer offered petitioner a face-to-face hearing in Oklahoma

City. Because petitioner’s counsel refused that arrangement, the

settlement officer held the CDP hearing by telephone. As the

settlement officer has complied with the procedure promulgated in
 -24-

the regulations, we find that he did not abuse his discretion in

refusing petitioner’s request for a face-to-face hearing in

Little Rock.

Petitioner also contends that Appeals must grant it a face-

to-face hearing in Little Rock, pursuant to the Internal Revenue

Service Restructuring and Reform Act of 1998 (RRA), Pub. L. 105-

206, sec. 3465(b), 112 Stat. 768. That section provides that

“The Commissioner * * * shall ensure that an appeals officer is

regularly available within each State.” Petitioner acknowledges

on brief that Appeals had scheduled settlement officers to

conduct face-to-face CDP hearings with taxpayers in Little Rock

before and after petitioner’s CDP hearing, but apparently not on

a date agreeable to petitioner. Appeals also offered petitioner

a face-to-face hearing in Oklahoma City even though a CDP hearing

is not required to consist of a face-to-face meeting. Sec.

301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs. On the basis of

the record as a whole, we are satisfied that Appeals has made its

officers “regularly available” as required by RRA section

3465(b). Accordingly, we conclude that Appeals did not abuse its

discretion in failing to hold a face-to-face hearing with

petitioner in Little Rock.

IV. Whether Petitioner Is Entitled to a Two-Part Determination

Petitioner argues that Appeals abused its discretion in not

bifurcating the CDP hearing to separately consider petitioner’s
 -25-

underlying tax liability and its proposed collection

alternatives. According to petitioner, Appeals prematurely

considered petitioner’s proposed collection alternatives before a

determination was made as to the amount of its underlying tax

liability. We understand petitioner to argue that it should be

allowed to delay its discussion of proposed collection

alternatives until Appeals has reached its determination on

petitioner’s request to reallocate payments and deposits to its

trust fund taxes.

Petitioner relies on Borges v. United States, 317 F. Supp.

2d 1276 (D.N.M. 2004), which held that Appeals abused its

discretion when it issued a notice of determination rejecting a

proposed collection alternative before it determined the correct

amount of taxes owed by the taxpayers. Petitioner’s reliance on

Borges is misplaced. The taxpayers in Borges challenged the

amount of their total tax liability at their CDP hearing, and the

settlement officer issued her notice of determination before

determining the amount of the taxpayers’ tax liability. In the

instant case, however, the settlement officer issued a notice of

determination which determined the tax liabilities owed by

petitioner, including an abatement of $2,452 in Federal tax

deposit penalty for the quarter ended September 30, 2003. Thus,

unlike the rejection in Borges, the settlement officer’s
 -26-

rejection of petitioner’s proposed collection alternatives was

not premature.

The regulations under section 6330 allow for more than one

CDP hearing with respect to a tax period in two limited

circumstances. First, Appeals may conduct more than one CDP

hearing if different types of tax are involved in the proposed

levy; e.g. employment tax liability and income tax liability.

Sec. 301.6330-1(d)(2), Q&A-D1, Proced. & Admin. Regs. Second,

where the same type of tax is involved, Appeals may conduct more

than one CDP hearing if the amount of unpaid tax has changed

because of an additional assessment of tax or an additional

assessment of penalties for that period. Id. Petitioner’s case

does not fall into either of these circumstances. We thus hold

that Appeals was not required to bifurcate the CDP hearing to

separately review the trust fund tax allocation and petitioner’s

proposed collection alternatives.

The settlement officer verified that the requirements of

applicable law or administrative procedure with respect to the

proposed levy had been met. He considered all relevant issues

presented by petitioner and determined that the proposed levy

action was no more intrusive than necessary. Although petitioner

proposed an installment agreement or an offer-in-compromise as a

collection alternative to respondent’s proposed levy, Mr. Pinner

failed to provide the supporting financial information requested
 -27-

by Appeals. The settlement officer determined that collection

alternatives could not be considered because petitioner failed to

provide supporting documentation, especially with regard to the

equity in petitioner’s remaining assets. We conclude that it was

not an abuse of discretion to reject petitioner’s proposed

collection alternatives given the lack of information surrounding

the remaining equity in petitioner’s assets. See McClanahan v.

Commissioner, T.C. Memo. 2008-161 (finding that a settlement

officer did not abuse her discretion in rejecting a taxpayer’s

collection alternatives where that taxpayer refused to disgorge

the realizable equity in life insurance policies). We conclude

that the settlement officer satisfied his obligation to

petitioner under section 6330.

V. Conclusion

We have considered all arguments made by the parties, and to

the extent not discussed above, we conclude that those arguments

are irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.