Nasir v. Comm'r

T.C. Memo. 2011-283

UNITED STATES TAX COURT

OMAR J. NASIR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16721-08L. Filed December 5, 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.

Omar J. Nasir, pro se.

Najah J. Shariff, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

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

for review of a notice of determination concerning collection
 - 2 -

action(s) under section 6320 and/or 6330 (notice of

determination).1 Petitioner seeks review of respondent’s

determination sustaining a tax lien filing.

The collection action stems from late returns petitioner

filed for the 2000 and 2002 tax years. The issue for decision is

whether petitioner had reasonable cause for his failure to comply

with sections 6651(a)(1) and (2) and 6654(a).

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 worked as an engineer in 2000 and 2002, reporting

adjusted gross income of $120,992 and $83,069, respectively.

Petitioner failed to timely file his Federal income tax returns

for tax years 2000 and 2002 and failed to timely pay his tax

liabilities for those years.

For 2000 respondent initially assessed an income tax

deficiency of $29,436 on April 10, 2006, on the basis of a

substitute for return he prepared pursuant to section 6020(b).

The substitute for return also showed, and petitioner was

assessed, a section 6651(a)(1) failure to timely file addition to

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and applicable to
the periods at issue.
 - 3 -

tax of $1,265.40, a section 6651(a)(2) failure to timely pay

addition to tax of $3,301.50, and a section 6654 failure to pay

estimated income tax addition to tax of $609.06. Petitioner

subsequently, on or about April 23, 2006, filed a Form 1040A,

U.S. Individual Income Tax Return, for his 2000 tax year, showing

a tax liability of $21,958. Thereafter, respondent abated $7,478

of his assessment and reduced the tax deficiency to $21,958.

Respondent also abated $1,895.50 of the late payment addition to

tax, reducing the late payment addition to tax amount to $1,406,

and removed the section 6654 addition to tax for failure to pay

estimated income tax.

For 2002 respondent initially assessed an income tax

deficiency of $37,734 on the basis of a substitute for return he

prepared pursuant to section 6020(b). The substitute for return

also showed, and petitioner was assessed, a section 6651(a)(1)

failure to timely file addition to tax of $4,261.50, a section

6651(a)(2) failure to timely pay addition to tax of $6,980.79,

and a section 6654 addition to tax for failure to pay estimated

income tax of $628. Petitioner subsequently, on or about October

14, 2007, filed a Form 1040A for his 2002 tax year, showing a tax

liability of $20,205. Thereafter, respondent abated $17,529 of

his assessment and reduced the tax deficiency amount to $20,205.

Respondent also abated $4,382.25 of the addition to tax for late

payment, reducing the amount to $2,598.54.
 - 4 -

On September 4, 2007, respondent mailed petitioner a Letter

3172, Notice of Federal Tax Lien (NFTL) Filing and Your Right to

A Hearing under IRC 6320, advising petitioner that respondent

would on the next day file an NFTL for 2000 and 2002. On

September 5, 2007, respondent filed an NFTL to collect the unpaid

tax liabilities. In response, respondent timely received

petitioner’s Form 12153, Request for a Collection Due Process or

Equivalent Hearing, dated October 2, 2007. Petitioner checked

the boxes on the Form 12153 for withdrawal and discharge of the

tax lien. Petitioner also checked boxes for the collection

alternatives of an installment agreement and an offer-in-

compromise.

From February to June of 2008, respondent processed

petitioner’s request, and on May 21, 2008, respondent ultimately

conducted a collection due process hearing by phone with

petitioner, although petitioner had requested a face-to-face

conference. Petitioner requested penalty relief as it relates to

the additions to tax for failure to timely file and the failure

to timely pay on the grounds that he suffered undue financial

hardship. Petitioner also requested collection alternatives,

including an offer-in-compromise, but failed to provide the

requested documentation.2 Respondent sent a notice of

2
The required documentation included a completed Form 433-A,
Collection Information Statement for Individuals, proof of
(continued...)
 - 5 -

determination to petitioner on June 2, 2008, informing him of the

decision to deny penalty relief and sustain the lien filing.

Petitioner filed a petition on July 7, 2008, and an amended

petition on July 31, 2008. This case was set for trial on June

22, 2009, but was continued on the joint motion of the parties.

However, because the requested face-to-face conference had not

been afforded to petitioner, respondent’s San Francisco Appeals

Office agreed to reconsider the case. In a letter dated May 7,

2009, in response to petitioner’s new request for an offer-in-

compromise, respondent again requested that petitioner provide a

variety of items for consideration to the settlement officer in

San Francisco before the face-to-face conference.3 Among the

items requested if petitioner still wished to pursue collection

alternatives was a Form 433-A, Collection Information Statement

for Individuals, and a Form 656, Offer in Compromise, both of

2
(...continued)
estimated tax payments for 2008, and delinquent tax returns for
2006 and 2007. Consequently, without these items, petitioner was
not eligible for any collection alternatives.
3
Respondent requested nine documents, plus the completed
Form 656, Offer in Compromise, and Form 433-A. The other
documents were: (1) Bank statements from January 2008 to date;
(2) paycheck stubs for the previous 6 months; (3) payoff letters
from mortgage lenders; (4) a copy of petitioner’s current lease
agreement; (5) copies of previous 6 months of rent payments; (6)
copies of previous 6 months of mortgage payments; (7) 2008
Federal tax return; (8) an amended 2002 Federal tax return; and
(9) documentation to substantiate any medical expenses incurred
during the tax years 2000 and 2002 for treatment of petitioner’s
former wife’s breast cancer.
 - 6 -

which were sent to petitioner with detailed instructions. As a

followup to the May 7 letter, Settlement Officer Deborah Conley

(Officer Conley) sent a letter to petitioner on May 19, 2009,

scheduling a face-to-face conference for June 16, 2009. This

letter once again requested that petitioner file delinquent tax

returns and provide respondent with a Form 433-A and other

documents pertaining to his finances and expenses.

Over the next 3 months petitioner provided the necessary

documents to discuss the offer-in-compromise. During this period

respondent granted additional time and rescheduled the face-to-

face conference with petitioner twice, in order that petitioner

could gather and provide all of the necessary documents.4 A

face-to-face conference between Officer Conley and petitioner

finally occurred on August 20, 2009.

At the conference petitioner submitted a completed Form 656.

Under the terms of the offer-in-compromise petitioner offered

$6,544 as a short-term periodic payment offer, which required him

to pay 24 monthly installments of $272.66.5

4
A face-to-face conference was originally scheduled for June
16, 2009. On June 4, 2009, petitioner requested that the
conference be rescheduled to a later date. Respondent granted
the request and rescheduled the face-to-face conference for Aug.
5, 2009. On July 27, petitioner once again requested that the
conference be rescheduled to a later date. Respondent granted
the request and rescheduled the face-to-face conference for Aug.
20, 2009.
5
Petitioner originally wrote $10,000 as his offer-in-
(continued...)
 - 7 -

A condition of the offer, stated on the Form 656 that

petitioner completed and signed, explained that he had to

continue to make the installment payments while the offer was

being investigated. Officer Conley further explained to

petitioner that a failure to make the payments would result in

the offer’s being deemed withdrawn. Petitioner paid the

application fee and made the first installment payment at the

face-to-face conference.

On August 20, 2009, after concluding the face-to-face

conference with petitioner, Officer Conley assembled the offer-

in-compromise package and sent it to the offer-in-compromise unit

in Memphis, Tennessee (Memphis Unit). Petitioner received a

letter dated September 17, 2009, from the Memphis Unit informing

him that his offer-in-compromise had been received and was being

investigated.

The Memphis Unit reached a preliminary decision to reject

the offer, conveying this to petitioner in a letter dated January

5
(...continued)
compromise but did so under the erroneous belief that refunds,
such as his stimulus refund, which the IRS had already taken,
would be considered as part of his offer. Petitioner modified
the Form 656 to change the offer-in-compromise amount to reflect
these amounts.
 - 8 -

15, 2010.6 The case was subsequently sent back to respondent’s

San Francisco office for a final determination.

Petitioner made timely payments under the terms of the

installment plan for the months of September, October, November,

and December of 2009. However, beginning in January 2010,

petitioner began to fall behind. In a letter dated March 4,

2010, Officer Conley sent petitioner a notice that payments for

January and February had not been received and that he owed

$545.32. The letter informed petitioner: “If I do not receive

the payment or proof that you made the payments, per IRC

7122(c)(1)(B)(ii) your offer will be considered withdrawn.”

Officer Conley requested that the payment be submitted by March

19, 2010. The letter also stated that if petitioner wished to

propose other alternatives he should also submit them to Officer

Conley by March 19. In response, petitioner submitted two

payments of $272.66 by the March 19, 2010, deadline.

Petitioner failed to timely submit his March, April, and May

installment payments under the terms of the offer-in-compromise.

In a letter dated June 15, 2010, Officer Conley informed

petitioner that she had not received his payments for March,

6
In the Memphis Unit’s preliminary decision to reject
petitioner’s offer-in-compromise, a clerical mistake was made as
to the amount petitioner offered. The introduction of the letter
stated that the offer was “in the amount of $1,200.” However, a
further reading of the letter reveals that the decision was based
on an offer of the correct amount of $6,544.
 - 9 -

April, and May and that he had to submit a payment of $817.98 by

June 29, 2010, or the offer-in-compromise would be withdrawn. In

correspondence dated June 25, 2010, petitioner submitted a single

payment of $272.66 and indicated that the April and May payments

would be made by September 2010.

In a letter dated July 26, 2010, respondent sent petitioner

a supplemental notice of determination sustaining the NFTL. The

letter also stated that the offer-in-compromise was withdrawn

because of failure to comply with the payment terms.

OPINION

I. Standard of Review

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 in a lien or levy

case, 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,
 - 10 -

including spousal defenses, challenges to the appropriateness of

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

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

(2000); Goza v. Commissioner, 114 T.C. 176, 180 (2000).

Taxpayers are expected to provide 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.

If a taxpayer’s underlying liability is properly at issue,7

the Court reviews any determination regarding the underlying

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

Commissioner, supra at 181-182. We review any other

administrative determination regarding the proposed collection

action for abuse of discretion. Sego v. Commissioner, supra at

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

If raised at or before the Appeals hearing by the taxpayer,

a taxpayer’s underlying liability is properly at issue if the

taxpayer “did not receive any statutory notice of deficiency for

such tax liability or did not otherwise have an opportunity to

7
The parties stipulated that the underlying tax liabilities
for 2000 and 2002 are not in dispute. However, the Court is not
bound to stipulations as to matters of law, especially when the
stipulations are erroneous. King v. United States, 641 F.2d 253,
258 (5th Cir. 1981); Greene v. Commissioner, 85 T.C. 1024, 1026
n.3 (1985).
 - 11 -

dispute such tax liability.” Sec. 6330(c)(2)(B). Under section

6330(d)(1) a taxpayer’s underlying tax liability is “any amounts

owed by a taxpayer pursuant to the tax laws”, including assessed

additions to tax. Katz v. Commissioner, 115 T.C. 329, 339

(2000). Petitioner challenged respondent’s assessed additions to

tax. Petitioner did not receive a statutory notice of

deficiency.8 Respondent has not shown, indicated, or alleged

that petitioner had an opportunity to dispute the tax

liabilities. Consequently, these underlying liabilities are

properly at issue. See sec. 6330(c)(2)(B).

II. Review De Novo

Petitioner requested relief as it relates to the assessed

additions to tax pursuant to sections 6651(a)(1) and (2) and

6654(a) on the grounds of reasonable cause. The aforementioned

sections permit relief from assessed additions to tax when it is

shown that the taxpayer’s failure to comply was due to reasonable

cause and not willful neglect.9 See sec. 6651(a)(1) and (2).

8
Inasmuch as petitioner filed delinquent tax returns for
2000 and 2002 reporting tax due of $21,958 and $20,205,
respectively, respondent was authorized under sec. 6201(a) to
assess said amounts without issuing a notice of deficiency. In
addition, respondent was free to assess the additions to tax
under secs. 6651(a)(1) and (2) and 6654 without first issuing a
notice of deficiency. See sec. 6665(b).
9
No general reasonable cause exception exists with regard to
an addition to tax assessed under sec. 6654(a). Relief is
available, however, pursuant to the narrow exception of sec.
6654(e)(3)(B).
 - 12 -

The Court’s standard of review on what elements must be present

to constitute “reasonable cause” is de novo. United States v.

Boyle, 469 U.S. 241, 249 n.8 (1985) (“[W]hat elements must be

present to constitute ‘reasonable cause’ is a question of law.”).

Whether those elements are present in a given case is a question

of fact. Id. The burden of proving reasonable cause and lack of

willful neglect rests on the taxpayer. Id. at 244.

A. Section 6651(a)(1): Failure To File a Timely Return

Section 6651(a)(1) imposes an addition to tax for failure to

file a timely Federal income tax return unless the taxpayer can

demonstrate that such failure is due to reasonable cause and not

due to willful neglect.10 The Code does not define reasonable

cause nor willful neglect. However, the regulations explain that

reasonable cause for the failure to file a timely return exists

if the taxpayer exercised ordinary business care and prudence but

was unable to file his return within the time prescribed by law.

Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. The term “willful

neglect” has been read as meaning “conscious, intentional failure

or reckless indifference.” United States v. Boyle, supra at 245.

Respondent determined that petitioner is liable for an

addition to tax under section 6651(a)(1) for tax years 2000 and

10
The amount of the addition to tax is 5 percent of the
amount required to be shown as tax on the return for each month
or portion thereof that the delinquency continues, up to a
maximum of 25 percent. Sec. 6651(a)(1).
 - 13 -

2002. The parties stipulated that petitioner filed late returns

for both of the years at issue, filing his return for 2000 in

2006 and his return for 2002 in 2007. Petitioner was assessed a

tax liability of $21,958 for 2000 and $20,205 for 2002.

Petitioner sets forth two arguments as to why he had

reasonable cause and was thus excused from filing a timely return

for the tax years 2000 and 2002: (1) Petitioner claims to have

suffered undue financial hardship, and (2) petitioner experienced

the prolonged sickness and illness of an immediate family member.

Without venturing into whether petitioner actually did suffer

undue financial hardship, we reject the argument that reasonable

cause due to financial hardship is a basis to abate additions to

tax. Under the standard of “ordinary business care and prudence”

set forth in the regulations, petitioner was not excused from

timely filing even if he would have been unable to pay. One’s

ability to pay a tax liability has no bearing on the ability to

file one’s tax return. Sec. 301.6651-1(c)(1), Proced. & Admin.

Regs. Ordinary business care and prudence required petitioner to

file his return timely and address the inability to pay the

liability as a separate issue.

Petitioner also alleges reasonable cause because of prolonged

sickness and illness of an immediate family member. In the Ninth

Circuit, where this case would be appealable absent a stipulation

to the contrary, a taxpayer’s or a member of his immediate
 - 14 -

family’s serious illness can constitute reasonable cause. Van

Camp & Bennion v. United States, 251 F.3d 862, 867 (9th Cir.

2001); see United States v. Boyle, supra at 243 n.1; sec.

301.6651-1(c)(1), Proced. & Admin. Regs. The Court of Appeals

for the Seventh Circuit has determined that “the type of illness

or debilitation that might create reasonable cause is one that

because of severity or timing makes it virtually impossible for

the taxpayer to comply--things like emergency hospitalization or

other incapacity occurring around tax time.” Carlson v. United

States, 126 F.3d 915, 923 (7th Cir. 1997).

Petitioner provided some medical billing records of his

former wife, who he was married to during the tax years at issue.

The records indicate that she underwent a mastectomy in the end

of April 2002 and then possibly had reconstructive surgery

related to the mastectomy in July 2002.11 When determining

whether a taxpayer had reasonable cause due to serious illness of

an immediate family member we consider whether “tax duties were

attended to promptly when the illness passed”. Internal Revenue

Manual pt. 20.1.1.3.2.2.1(3)(G) (Nov. 25, 2011). We sympathize

with petitioner and his former wife regarding her previous health

problems. However, the two procedures occurred approximately 1

11
Petitioner’s former wife’s treatments for cancer did not
begin until 1 year after his 2000 Federal income tax return was
due, and therefore did not constitute reasonable cause for his
failure to timely file the return for the 2000 tax year.
 - 15 -

year and 8 months, respectively, before the filing deadline that

petitioner missed.

Even if we give petitioner the benefit of the doubt that his

former wife’s ailments precluded the timely filing of his 2002

tax returns by April 15, 2003, petitioner did not file his 2002

tax return until October 2007, more than 5 years after his former

wife’s last procedure. Petitioner was required to promptly file

his return for 2002 once his former wife’s illness had passed;

petitioner offered no evidence to show that his former wife was

still ailing until October 2007. We also note that petitioner

did not attempt to comply with his duty to timely file his 2002

Federal income tax return by requesting an extension of time to

file.

During this time petitioner still managed to conduct the rest

of his financial affairs with ordinary business care and

prudence, such as paying his mortgage on time. He was also able

to perform the essential functions of his day-to-day activities,

including going to work and making an income in excess of

$100,000 during the 2002 tax year. See Wright v. Commissioner,

T.C. Memo. 1998-224, affd. without published opinion 173 F.3d 848

(2d Cir. 1999). We conclude that petitioner has failed to

establish reasonable cause to abate the addition to tax pursuant

to section 6651(a)(1) for 2000 or 2002.
 - 16 -

B. Section 6651(a)(2): Failure To Pay Amount of Tax

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount of tax shown on the taxpayer’s Federal income tax

return on or before the payment due date, unless such failure is

due to reasonable cause and not due to willful neglect.12 A

failure to pay will be considered due to reasonable cause if the

taxpayer makes a satisfactory showing that he exercised ordinary

business care and prudence in providing for payment of his tax

liability and was nevertheless either unable to pay the tax or

would suffer undue hardship if he paid on the due date. Sec.

301.6651-1(c)(1), Proced. & Admin. Regs. Petitioner asserts the

same reasonable cause arguments for section 6651(a)(2) as he did

for section 6651(a)(1)--undue financial hardship and the

prolonged illness of an immediate family member.

In determining whether the taxpayer was unable to pay the

tax in spite of the exercise of ordinary business care and

prudence in providing for payment of his tax liability,

consideration will be given to all the facts and circumstances of

the taxpayer’s financial situation. Van Camp & Bennion v. United

States, supra at 867. For the same reasons we found that

12
The sec. 6651(a)(2) addition to tax is 0.5 percent of the
amount of tax shown on the return, with an additional 0.5 percent
per month during which the failure to pay continues, up to a
maximum of 25 percent. The 5-percent failure to file penalty is
reduced to 4.5 percent for any month that the failure to pay
penalty is also assessed. Sec. 6651(c).
 - 17 -

petitioner failed to show reasonable cause for failing to file

his Federal returns on time, petitioner has failed to show that

he exercised ordinary business care and prudence in failing to

pay his tax liabilities for 2000 and 2002 on time.

Petitioner cannot rely on undue financial hardship alone to

excuse his inability to pay taxes. The regulations require a

showing of reasonable cause even if undue hardship would be

suffered. As the District Court noted in Wolfe v. United States,

612 F. Supp. 605, 608 (D. Mont. 1985), affd. 798 F.2d 1241 (9th

Cir. 1986), opinion amended, 806 F.2d 1410 (9th Cir. 1986):

“Almost every non-willful failure to pay taxes is a result of

financial difficulties.” We conclude that petitioner is liable

for the section 6651(a)(2) addition to tax for 2000 and 2002.

C. Section 6654(a): Failure To Pay Estimated Tax

Section 6654(a) imposes an addition to tax for the

underpayment of any installment of estimated tax.13 The

underpayment addition rate is determined pursuant to section 6621

and is applied to the amount of the estimated tax underpayment

for the period of underpayment. Sec. 6654(a) and (b). Except

for the narrow circumstances provided for in section

13
Sec. 6654(c)(1) requires the payment of four installments
of a taxpayer’s estimated tax liability for each taxable year.
Each required installment of estimated tax is equal to 25 percent
of the required annual payment.
 - 18 -

6654(e)(3)(A) and (B), no reasonable cause exception exists to

the section 6654(a) addition to tax.

The narrow exceptions to section 6654(a) provide that an

addition to tax will not be imposed if the Secretary determines

that (1) By reason of casualty, disaster, or unusual

circumstances the additions assessed would be inequitable or

unfair or; (2) the taxpayer retired (after reaching age 62) or

became disabled in either the taxable year for which estimated

tax payments were required or in the taxable year preceding such

year and such underpayment was due to reasonable cause and not

willful neglect.

Petitioner asserts the same reasonable cause arguments for

section 6654(a) as he did for section 6651(a)(1) and (2).

Petitioner did not introduce any evidence that he was retired,

nor did he put forth any evidence that he was disabled.

Therefore he does not fall into the narrow exception for

reasonable cause pursuant to section 6654(e)(3)(B). The record

does not establish that petitioner’s failure to make estimated

tax payments for 2002 was due to casualty, disaster, or other

unusual circumstances, and we are not persuaded that the

imposition of the section 6654 addition to tax would be against

equity and good conscience. We conclude that petitioner is

liable for the section 6654 addition to tax for 2002.
 - 19 -

D. Offer-in-Compromise

Petitioner submitted an offer-in-compromise based on doubt

as to collectability during the face-to-face conference on August

20, 2009. The offer-in-compromise was a 24-month short-term

periodic payment offer made pursuant to section 7122(c)(1)(B).

The payment offer required petitioner to make monthly payments of

$272.66. Pursuant to section 7122(c)(1)(B)(i) petitioner

submitted payment of the first installment with the offer-in-

compromise.

Section 7122(c)(1)(B)(ii) required petitioner to make

regular payments during the period respondent was evaluating the

offer-in-compromise. Petitioner failed to make continuous

payments beginning in January 2010. In late March of 2010

petitioner made his January and February payments after being

notified by Officer Conley that a failure to pay would result in

the offer-in-compromise’s being deemed withdrawn by petitioner.

Petitioner subsequently failed to make timely payments for

March, April, and May 2010. Once again Officer Conley sent a

letter to petitioner notifying him of the consequences of a

failure to pay and to adhere to the terms of his offer-in-

compromise. Petitioner responded by sending in only one payment

for the month of March. We conclude that pursuant to section

7122(c)(1)(B)(ii), petitioner’s continued payment noncompliance
 - 20 -

was permissibly treated by respondent as a withdrawal by

petitioner of his offer-in-compromise.

III. Conclusion

As detailed above petitioner is liable for the sections

6651(a)(1) and (2) and 6654(a) additions to tax. Further,

respondent did not abuse his discretion in rejecting petitioner’s

offer-in-compromise. Therefore, the notice of determination

respondent issued to petitioner dated June 2, 2008, is sustained

in its entirety.

To reflect the foregoing,

Decision will be entered

for respondent.