Klingenberg v. Comm'r

T.C. Memo. 2011-247

UNITED STATES TAX COURT

ELDO KLINGENBERG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15355-09L. Filed October 20, 2011.

P filed a petition for review of a lien filing pursuant
to sec. 6320, I.R.C., in response to R’s determination
that the collection action was appropriate.

Held: R’s determination is sustained.

Gary L. Zerman, for petitioner.

Najah J. Shariff, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: This case is before the Court on a petition

filed on August 10, 2009, for review of a Notice of Determination

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

(notice of determination).1 Petitioner seeks review of

respondent’s determination to proceed with his filed tax lien.

The collection action stems from a substitute for return

respondent prepared pursuant to section 6020(b) for petitioner’s

2005 tax year. The issue for decision is whether respondent’s

settlement officer abused his discretion in determining the

proposed collection action was appropriate.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulations,

with accompanying exhibits, are incorporated herein by this

reference. At the time the petition was filed, petitioner

resided in California.

Petitioner is a self-employed plumber who holds a plumbing

contractor’s license issued in 1977. He is also a habitual

nonfiler who last filed a Federal income tax return for tax year

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended.
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1990.2 For tax year 2005 petitioner neither filed a Federal

income tax return nor made any payments on his account.

On September 10, 2007, respondent filed a substitute for

return under section 6020(b) for petitioner’s 2005 tax year.

The substitute for return showed income of $2,194 from “Stock and

Bond Transaction Proceeds” and $59,733 from “Nonemployee

Compensation”. It also listed a section 6651(a)(1) failure to

file addition to tax of $3,934.34, a section 6651(a)(2) failure

to pay addition to tax of $1,486.31, a section 6654 failure to

pay estimated tax addition to tax of $701.41, and interest,

computed to October 10, 2007, of $2,846.71.

At trial respondent introduced a copy of petitioner’s “Wage

and Income Transcript” corroborating the income shown on the

substitute for return. It shows a Form 1099-B, Proceeds From

Broker and Barter Exchange Transactions, listing the payer as

“Computershare Shareholders Services Inc” and indicating that the

recipient, petitioner, received $2,194 of income from “Stocks and

Bonds”. It also shows two Forms 1099-MISC, Miscellaneous Income,

2
Respondent has introduced a coded transcript commonly
referred to as an “INFOLI transcript”. The Court has admitted
this exhibit on the basis of testimonial evidence as to the
meaning of this transcript by Appeals Officer Patrick Lin, who is
now retired from the Internal Revenue Service. However, in the
future this Judge will be reluctant to admit a coded transcript
that does not include the codes, particularly when a certified
plain English transcript should be available.
 - 4 -

one showing “Mojave Desert Bank N. A.” as the payer and

petitioner as the recipient of $53,916 of “Non-Employee

Compensation” and the other showing “Metzler Construction” as the

payer and petitioner as the recipient of $5,817 of “Non-Employee

Compensation”.

On November 13, 2007, respondent sent petitioner a notice of

deficiency for his 2005 tax year by certified mail to his last

known address. Petitioner’s address has not changed since 2005.

Petitioner did not petition the Court for redetermination of the

deficiency. On March 24, 2008, respondent assessed a deficiency

of $17,486, delinquency-related additions to tax of $6,032.67,

and an estimated tax addition to tax of $701.41 for the 2005 tax

year.

On June 12, 2008, respondent mailed petitioner a Letter

3172, Notice of Federal Tax Lien Filing and Your Right to A

Hearing under IRC 6320, advising that respondent had on the same

day filed a notice of Federal tax lien (NFTL) for tax year 2005.

Respondent received petitioner’s Form 12153, Request for a

Collection Due Process Hearing, dated July 16, 2008, on July 23,

2008.3 In this Form 12153 petitioner had checked the box for

3
The parties stipulated that petitioner’s collection due
process (CDP) hearing request was timely filed. The CDP hearing
request was received on July 23, 2008, which is after the
(continued...)
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withdrawal of the tax lien. In an attachment to the Form 12153

petitioner requested a face-to-face hearing and seemed to

question the validity of the assessment of his 2005 tax

liability, claiming that “I don’t believe I am liable for the

assess [sic] tax seeing that I NEVER had a chance to challenge it

before”. In the alternative, petitioner asserted, inter alia

that

If this liability is indeed a proper assessment and can
be proven that it is authentic and owed, I would like
to discuss what collection alternatives are available
to me, to include, but not limited to Offer in
Compromise, Installment Agreements, and any other
payment arrangements that may be available to me.

On October 3, 2008, respondent informed petitioner that he

had received the case for consideration in the Los Angeles

Appeals Office on September 5, 2008. Then on April 15, 2009,

Settlement Officer Patrick S. Lin (Officer Lin) sent petitioner a

letter acknowledging receipt of petitioner’s Form 12153

requesting a CDP hearing and scheduling a telephone CDP hearing

on May 1, 2009. In that letter, Officer Lin advised petitioner

that if that date was not convenient for him, or if he would

prefer that the conference be held by correspondence, petitioner

3
(...continued)
statutory deadline for filing. However, there is no evidence in
the record of when the request was mailed. As petitioner’s
petition was timely filed with this Court and we do not look
behind the notice of determination, this has no effect on this
Court’s jurisdiction. See Lunsford v. Commissioner, 117 T.C.
159, 164-165 (2001).
 - 6 -

was to inform Officer Lin within 14 days of the date of the

letter.

Officer Lin’s April 15, 2009, letter also explained that

You will be allowed a face-to-face conference upon
providing the following documents: (a) a Collection
Information Statement (CIS) for Wage Earners &
Self-Employed Individuals (Form 433A); (b) a CIS for
Business (Form 433B) for your plumbing business; & (c)
supplemental financial information/documents listed on
CIS’s Forms 433A & 433B and are ready to discuss any
nonfrivolous issue, including collection alternatives
to resolve your liability.

The letter cautioned petitioner in bold type that

You will be allowed a face-to-face conference on any
nonfrivolous issue; however you will need to provide
the nonfrivolous issue in writing or by calling me
within 14 days from the date of this letter (i.e ., by
04/29/2009) before a face-to-face conference will be
scheduled.

Officer Lin also explained to petitioner that eligibility for

collection alternatives required that petitioner file tax returns

for tax years 2006 and 2007 and verify that his 2008 and 2009

estimated tax payments had been made.

On April 17, 2009, Officer Lin accessed the U.S. Postal

Service (USPS) Web site in order to confirm that the deficiency

notice had been delivered to petitioner. Officer Lin’s activity

record states that the “SND [statutory notice of deficiency] was

delivered to TP’s UPS Store mail box on 11/21/2007 at 11:40

a.m.”, which his testimony credibly corroborated at trial.

At the appointed time, Officer Lin called petitioner for the

CDP telephone conference. Unable to reach petitioner, Officer
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Lin left a voicemail. On that same day, May 1, 2009, Officer Lin

mailed petitioner a followup letter. That letter set forth

petitioner’s failure to participate in the scheduled CDP

telephone conference and noted his failure to comply with the

requirements for collection alternatives eligibility. In this

letter Officer Lin asked petitioner to “please contact me by

Friday, 05/08/2009 and to provide me with the documents listed in

my 04/15/2009 letter, also by 05/08/2009”. The letter further

warned petitioner that “If no response to this letter is received

by 05/08/2009, a Notice of Determination will be issued to

sustain the filing of the Notice of Federal Tax Lien (NFTL).”

On May 4, 2009, Officer Lin received an undated letter from

petitioner postmarked April 29, 2009, in which petitioner stated

he was “responding to your letter dated April 15, 2009, regarding

the tax year 2005”. Petitioner stated that “I will not be able

to participate in this telephone conference you scheduled for May

1, 2009”, but offered the hope that “we can agree on another

date, sometime in the near future”.

Petitioner’s undated letter made it clear that he was

interested only in a face-to-face CDP hearing. First he demanded

that Officer Lin provide “the rules and procedures that were

followed to determine I was not qualified for a face-to-face

hearing.” He then stated:

I am fully aware that Face-to-Face Conferences are
available for taxpayers to raise valid collection
 - 8 -

alternatives or other relevant issues pertaining to the
lien and levy. Please understand that I have every
intention to discuss relevant issues, so please do not
expect that collection alternatives to be the only
relevant issue that will be discussed. I expect this
hearing to be conducted according to the IRS’ own rules
and regulations. As such, I trust that I would be able
to dispute the liability in the CDP Hearing, because I
had no prior opportunity to dispute it.

Petitioner also explained that he did “not recall receiving

a notice of deficiency * * *. Please provide proof as to where

the Notice of Deficiency was mailed and proof that I received

it.”

On May 4, 2009, Officer Lin responded to petitioner’s

undated letter, reiterating that a face-to-face CDP hearing would

require that petitioner provide completed Forms 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, and 433-B, Collection Information Statement for

Businesses, along with supplemental financial information and

documents listed on those forms and communicate a nonfrivolous

issue. Officer Lin further explained that the Internal Revenue

Manual (IRM) prohibited face-to-face hearings for taxpayers who

do not present any nonfrivolous arguments. Officer Lin then set

a final deadline of May 12, 2009, for petitioner to provide the

requested documents.

Petitioner did not respond to Officer Lin’s May 4, 2009,

letter or comply with the May 12, 2009, deadline. Officer Lin

then prepared an Appeals case memorandum on May 19, 2009,
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sustaining the filing of the NFTL, and on May 22, 2009,

respondent issued petitioner a notice of determination to that

effect.

On August 10, 2009, petitioner timely filed a petition with

the Court in which he stated that “Respondent failed to provide

Petitioner with a face-to-face Collection Due Process (CDP)

Hearing, which Petitioner requested to have audio recorded.

Petitioner was also not given the chance to challenge the

underlying tax liability or collection alternatives.”

On April 14, 2010, respondent filed a motion for summary

judgment, and on April 16, 2010, this Court ordered petitioner to

file a response to the motion by May 10, 2010. On June 2, 2010,

petitioner lodged petitioner’s objection to respondent’s motion

for summary judgment and filed a motion for leave to file it out

of time. On June 9, 2010, this Court granted petitioner’s motion

to accept petitioner’s objection to respondent’s motion for

summary judgment out of time and denied respondent’s motion for

summary judgment. A trial was held on June 17, 2010, in Los

Angeles, California. Petitioner did not personally appear at the

trial.

OPINION

I. Standard of Review

Section 6330(c)(2)(B) permits challenges to the existence or

amount of the underlying liability in collection proceedings only
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where the taxpayer did not receive a notice of deficiency or

otherwise have an opportunity to challenge the liability. If the

validity of the underlying tax is not properly at issue, we will

review the Commissioner’s administrative determination for abuse

of discretion. Goza v. Commissioner, 114 T.C. 176, 181-182

(2000). However, where the validity of the underlying tax

liability is properly at issue, the Court will review the matter

on a de novo basis.4 Id.

A. Administrative Record Rule

Petitioner argues that the administrative record rule, in

which the Court’s review is limited solely to the administrative

record, applies. Petitioner objects to the “plethora of evidence

on this appeal” this Court supposedly allowed.

This Court held in Robinette v. Commissioner, 123 T.C. 85,

101 (2004), revd. 439 F.3d 455 (8th Cir. 2006), that we are not

limited to the administrative record in reviewing CDP

determinations. However, under the Golsen rule, we follow the

law of the Court of Appeals for the Ninth Circuit, to which this

case, absent a stipulation to the contrary, is appealable. See

Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d

4
On brief petitioner somewhat bafflingly argues that “the
Tax Court erroneously conducted a de novo review of the CDPH and
allowed the government to attempt to establish receipt of the
NOD.” However, petitioner’s principal argument, that he never
received the notice of deficiency and is therefore entitled to
challenge the underlying liability, would require this Court to
review the administrative determination de novo.
 - 11 -

985 (10th Cir. 1971). That court has limited the review of the

administrative determination to the administrative record. See

Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009) (“our

review is confined to the record at the time the Commissioner’s

decision was rendered”), affg. T.C. Memo. 2006-166 (and affg. and

vacating decisions in related cases). Therefore, the

administrative record rule applies in this case.

There is an exception to the administrative record rule in

the Ninth Circuit by which “The extra-record inquiry is limited

to determining whether the agency has considered all relevant

factors and has explained its decision.” Friends of the Payette

v. Horseshoe Bend Hydroelectric Co., 988 F.2d 989, 997 (9th Cir.

1993). In Asarco, Inc. v. EPA, 616 F.2d 1153, 1159 (9th Cir.

1980), the Court of Appeals for the Ninth Circuit explained that

A satisfactory explanation of agency action is
essential for adequate judicial review, because the
focus of judicial review is not on the wisdom of the
agency’s decision, but on whether the process employed
by the agency to reach its decision took into
consideration all the relevant factors.

Although on brief petitioner objects, the testimony of

Officer Lin explaining on what and why he made his administrative

determinations is not extrarecord evidence. The processes

employed by the settlement officer who made the administrative

determination and the documents that respondent had admitted

during Officer Lin’s testimony (i.e., on what he based his

determinations) are part of the administrative record. The mere
 - 12 -

fact that petitioner did not stipulate the documents does not

remove them from the administrative record.

The testimony of Steven De La Cruz from the USPS falls

squarely within the exception enunciated by the Court of Appeals

discussed above. His testimony merely explained the mechanics of

certified mail to the Court. It is clear from Officer Lin’s

testimony that he already had such knowledge and it was part of

his administrative determination.

B. Whether Petitioner Received a Notice of Deficiency

Petitioner argues that he never had an opportunity to

dispute his underlying tax liability. In his undated letter to

Officer Lin, petitioner stated that he could “not recall

receiving a notice of deficiency”. However, petitioner never

expressly stated that he did not receive the notice of

deficiency.

The presumption of official regularity and delivery arises

if the record reflects that the notice of deficiency was properly

mailed to the taxpayer. Sego v. Commissioner, 114 T.C. 604, 611

(2000); see also United States v. Zolla, 724 F.2d 808 (9th Cir.

1984). Proper mailing includes mailing by certified mail to the

taxpayer’s last known address. Sego v. Commissioner, supra at

611. If the presumption applies, this Court may find that

petitioner received the notice if he fails to rebut the

presumption. See Conn v. Commissioner, T.C. Memo. 2008-186.
 - 13 -

Where the presumption of official regularity and delivery arises,

receipt of the notice of deficiency will be presumed in the

absence of strong evidence to the contrary. A taxpayer’s

self-serving claim that he did not receive a notice of deficiency

will generally be insufficient to rebut the presumption. Casey

v. Commissioner, T.C. Memo. 2009-131.

Respondent has shown that the notice of deficiency was

mailed by certified mail to petitioner’s last known mailing

address, which is also his current mailing address. The notice

of deficiency was not returned to respondent as undeliverable,

and Officer Lin testified that he personally checked the USPS Web

site for delivery confirmation. Therefore, respondent is

entitled to the presumption of official regularity.

At trial, petitioner’s counsel, handicapped by the fact that

petitioner did not appear, made much ado about nothing. He

repeatedly asked Officer Lin why he did not contact the Postal

Service for a scanned image of the signature.5 Officer Lin

explained that his Appeals Office does not have the budget to pay

for the scanned image and the Web site verification is free.

Officer Lin also explained that he had even given petitioner the

opportunity to verify delivery for himself by including the

5
Petitioner’s counsel attempted to have introduced documents
from another case showing that respondent has in some instances
paid for the scanned images. We note that even if these
documents had been admitted at trial, they would have had no
effect on the result of this case.
 - 14 -

tracking number of the notice of deficiency in his May 4, 2009,

letter.

We find that petitioner received the notice of deficiency

and therefore we will review respondent’s administrative

determination for abuse of discretion. See Sego v. Commissioner,

supra at 610; Goza v. Commissioner, 114 T.C. at 181.

II. Review for Abuse of Discretion

Section 6320(a) and (b) provides that a taxpayer shall be

notified in writing by the Commissioner of the filing of a notice

of Federal tax lien and provided with an opportunity for an

administrative hearing. An administrative hearing under section

6320 is conducted in accordance with the procedural requirements

of section 6330. Sec. 6320(c).

If an administrative hearing is requested, the hearing is to

be conducted by the Appeals Office. Secs. 6320(b)(1),

6330(b)(1). At the hearing, the Appeals officer conducting it

must verify that the requirements of any applicable law or

administrative procedure have been met. Secs. 6320(c),

6330(c)(1). The taxpayer may raise any relevant issue with

regard to the Commissioner’s intended collection activities,

including spousal defenses, challenges to the appropriateness of

the proposed lien, and alternative means of collection. Sec.

6330(c)(2)(A); see also Sego v. Commissioner, supra at 609; Goza

v. Commissioner, supra at 180. Taxpayers are expected to provide
 - 15 -

all relevant information requested by Appeals, including

financial statements, for its consideration of the facts and

issues involved in the hearing. Secs. 301.6320-1(e)(1),

301.6330-1(e)(1), Proced. & Admin. Regs.

A. Denial of a Face-to-Face Hearing

Petitioner repeatedly argues that he was entitled to a face-

to-face hearing. Although a section 6330 hearing may consist of

a face-to-face conference, a proper hearing may also occur by

telephone or by correspondence under certain circumstances.

Lunsford v. Commissioner, 117 T.C. 183, 189 (2001); Katz v.

Commissioner, 115 T.C. 329, 337-338 (2000); sec. 301.6330-

1(d)(2), Q&A-D6, Proced. & Admin. Regs.

Petitioner never raised any nonfrivolous issue. He

repeatedly demanded that Officer Lin explain the procedures or

laws that were followed and argued that he did not have the

opportunity to contest the underlying liability. However,

petitioner never presented any evidence that the underlying

liability was incorrect, nor did he suggest an offer-in-

compromise or submit any of the requested financial information.

B. Denial of Offer-in-Compromise

Among the issues that may be raised at Appeals are “offers

of collection alternatives”, such as offers-in-compromise. Sec.

6330(c)(2)(A)(iii). The Court reviews the Appeals officer’s

rejection of an offer-in-compromise to decide whether the
 - 16 -

rejection was arbitrary, capricious, or without sound basis in

fact or law and therefore an abuse of discretion. Murphy v.

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

Cir. 2006).

Section 7122(a) authorizes the Commissioner to compromise

any civil case arising under the internal revenue laws. In

general, the decision to accept or reject an offer, as well as

the terms and conditions agreed to, are left to the discretion of

the Commissioner. Sec. 301.7122-1(c)(1), Proced. & Admin. Regs.

Even if petitioner’s statement on his attachment to Form

12153 that he “would like to discuss what collection alternatives

are available to me, to include, but not limited to Offer in

Compromise, Installment Agreements, and any other payment

arrangements that may be available to me” could somehow be

construed as an informal offer or an offer to make an offer,

Officer Lin did not abuse his discretion in refusing to process

the offer. Because petitioner had not filed his 2006 and 2007

Federal income tax returns, he did not qualify for an offer-in-

compromise. See IRM pt. 5.8.7.2.2.1(1) (May 10, 2011) (“A

processable offer must be returned when the investigation reveals

the taxpayer has not remained in filing compliance.”); see also

Rodriguez v. Commissioner, T.C. Memo. 2003-153 (“The

Commissioner’s decision not to process an offer in compromise or
 - 17 -

a proposed collection alternative from taxpayers who have not

filed all required tax returns is not an abuse of discretion.”).

Respondent did not abuse his discretion. In making his

determination Officer Lin verified that all requirements of

applicable law and administrative procedure had been met.

Petitioner never offered a concrete collection alternative or

raised any nonfrivolous issues and did not provide the requested

Forms 433-A and 433-B or any other financial information or

testify at trial.

The Court has considered all of petitioner’s contentions,

arguments, requests, and statements. To the extent not discussed

herein, the Court concludes that they are meritless, moot, or

irrelevant.

To reflect the foregoing,

Decision will be entered

for respondent.