T.C. Memo. 2011-290
UNITED STATES TAX COURT
RICHARD LOREN MORGAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8441-10L. Filed December 19, 2011.
Richard Loren Morgan, pro se.
Alicia E. Elliott for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: This case arises from a petition for
judicial review filed in response to a Notice of Determination
Concerning Collection Action(s) Under Section 6320 and/or 6330
(notice of determination) issued to petitioner.1 The issues for
1
Unless otherwise indicated, all section references are to
(continued...)
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decision are: (1) Whether petitioner may challenge the existence
or amount of the underlying tax liability; and (2) whether
respondent abused his discretion in determining to proceed with
the collection of the section 6672 trust fund recovery penalties
(TFRPs) assessed against petitioner as a responsible person for
failing to collect and pay over employment taxes of OrderPro
Logistics, Inc. (OrderPro), for quarterly periods ending (QE)
September 30 and December 31, 2003, and March 31, 2004.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, together with the attached exhibits, is
incorporated herein by this reference. Petitioner was previously
known as Richard L. Windorski. He legally changed his last name
to Morgan in 2006. At the time petitioner filed his petition, he
lived in Arizona.
Petitioner was the founder and CEO of OrderPro. On May 1,
2004, petitioner resigned as CEO of OrderPro. When he resigned,
he also sent a letter to the board of directors instructing
OrderPro to deposit a $105,000 check from him and informing them
that additional funds of $95,000 would be paid by May 10, 2004.
Petitioner’s letter did not state why such funds were paid or due
1
(...continued)
the Internal Revenue Code, as amended.
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to be paid to OrderPro, nor did the letter direct that such funds
be used for a specific purpose.
OrderPro failed to pay its employment tax liabilities for
several quarters while petitioner was CEO. On December 5, 2006,
the Internal Revenue Service (IRS) sent to petitioner Letter
1153, Trust Funds Recovery Penalty Letter, proposing an
assessment of TFRPs against petitioner under section 6672 as a
person required to collect, account for, and pay over employment
taxes related to OrderPro, for the QEs September 30 and December
31, 2003, and March 31, 2004.2 The IRS’ proposed assessment
provided for TFRPs due from petitioner of $891 for QE September
30, 2003, $51,302 for QE December 31, 2003, and $57,111 for QE
March 31, 2004. Between 2004 and 2008 petitioner sent the IRS
numerous letters providing information regarding funds belonging
to OrderPro that he believed were available for payment to
satisfy OrderPro’s employment tax obligations. The IRS did not
act on any of petitioner’s letters.
On February 1, 2007, petitioner filed a protest letter,
contesting the assessments of TFRPs proposed in the Letter 1153
that he received from respondent. The Appeals officer determined
that petitioner was liable for the TFRPs and on March 4, 2008,
2
Letter 1153 proposed additional TFRPs against petitioner
for QE Mar. 31, 2003, and QE June 30, 2004. These additional
TFRPs are no longer at issue in this case.
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sent petitioner a determination letter. On March 11, 2008, the
TFRPs were assessed against petitioner.
On May 27, 2008, respondent sent petitioner a Letter 1058,
Final Notice - Notice of Intent to Levy and Notice of Your Right
to a Hearing (notice of intent to levy), with respect to the
TFRPs. On June 16, 2008, respondent received petitioner’s Form
12153, Request for a Collection Due Process or Equivalent
Hearing. Settlement Officer James Wood (Wood) was assigned to
petitioner’s appeal.
Wood held a telephone conference with petitioner on November
25, 2008. During this conference Wood requested that petitioner
file his 2006 and 2007 Federal income tax returns and provide a
completed Form 433-A, Collection Information Statement for Wage
Earners and Self-Employed Individuals. On January 6, 2009, Wood
received petitioner’s 2006 and 2007 income tax returns, and on
January 26, 2009, Wood received petitioner’s completed Form 433-
A.
Petitioner’s Form 433-A reported monthly income of $1,800
and monthly expenses of $7,450. Because of the large
discrepancy, Wood requested additional information regarding any
additional sources of income, including the income of
petitioner’s spouse, and an explanation as to how petitioner was
able to pay his expenses. On March 10, 2010, petitioner sent
Wood a letter stating that he used credit cards and other loans
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to pay his expenses. Petitioner did not provide any other
evidence or documentation to substantiate his claims.
Wood determined that the information petitioner provided was
insufficient to support any collection alternative and sustained
the levy. On March 18, 2010, respondent issued a notice of
determination to petitioner. Petitioner timely filed his
petition.
OPINION
The underlying liabilities in this case were assessed under
section 6672(a), which imposes TFRPs for failure to collect,
account for, and pay over income and employment taxes of
employees. The penalties are assessed and collected in the same
manner as taxes against a person who is “an officer or employee
of a corporation * * * who as such officer, employee, or member
is under a duty to perform” the duties referred to in section
6672. Sec. 6671(b). Petitioner was the CEO of OrderPro until
May 1, 2004, when he resigned. He was, therefore, a person
responsible to collect, account for, and pay over employment
taxes for all tax periods at issue in this case.
To impose the TFRPs, section 6672(b)(1) required respondent
to notify petitioner that he was subject to the penalties. The
Letter 1153 petitioner received from respondent provided such
notice and informed petitioner of his right to protest the
proposed TFRPs administratively with the Commissioner. See Mason
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v. Commissioner, 132 T.C. 301, 318 (2009); see also Orian v.
Commissioner, T.C. Memo. 2010-234; McClure v. Commissioner, T.C.
Memo. 2008-136. Petitioner filed a protest to the proposed
TFRPs, arguing that respondent had failed to collect the unpaid
employment taxes from OrderPro despite petitioner’s efforts to
inform respondent of funds available for payment, including the
$200,000 he paid to OrderPro.
The liability of a responsible person under section 6672 is
independent of the employer corporation’s duty to pay trust fund
taxes.3 See Cash v. United States, 961 F.2d 562, 565 (5th Cir.
1992). This is well-established law in the Ninth Circuit, the
circuit in which an appeal in this case would be heard, where
section 6672 “operates as a penalty by creating an obligation,
separate and distinct from the underlying tax obligation”.
Duncan v. Commissioner, 68 F.3d 315, 318 (9th Cir. 1995), affg.
in part, revg. in part and remanding T.C. Memo. 1993-370; see
also J.J. Re-Bar Corp. v. United States (In re J.J. Re-Bar
Corp.), 644 F.3d 952, 957 (9th Cir. 2011); Balzer v. United
States, 22 Fed. Appx. 942 (9th Cir. 2002) (there is no
requirement that the IRS pursue collection of employment taxes
from the corporation before assessing the penalty against the
responsible person). The Government’s diligence, or lack
3
A right of contribution against other responsible persons
exists but must be claimed separate and apart from proceedings to
collect the penalty brought by the United States. Sec. 6672(d).
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thereof, in its collection efforts against the corporation is
irrelevant. See Howard v. United States, 711 F.2d 729, 736 (5th
Cir. 1983) (rejecting the taxpayer’s contention that the IRS’
failure promptly to collect the taxes from the corporation for
which he had been a corporate officer absolved him of liability
under section 6672); see also Calderone v. United States, 799
F.2d 254, 257 (6th Cir. 1986); Cooper v. United States, 539 F.
Supp. 117, 121 (E.D. Va. 1982) (explaining that section 6672
“does not include any requirement that the government exercise
‘due diligence’ in its collection efforts against the employer
corporation”), affd. 705 F.2d 442 (4th Cir. 1983).
The Appeals officer determined that petitioner was liable
for the TFRPs, sent petitioner a determination letter to that
effect, and assessed the TFRPs pursuant to section 6672. Shortly
thereafter respondent sent petitioner a notice of intent to levy
to collect the TFRPs.
Petitioner requested and received a collection due process
hearing pursuant to section 6330 (CDP hearing). At the CDP
hearing a taxpayer may challenge the existence and amount of the
underlying tax liability only if he or she received no notice of
deficiency or did not otherwise have an opportunity to dispute
such tax liability. Sec. 6330(c)(2)(B).
Petitioner did not receive a notice of deficiency. However,
he was given an opportunity to dispute his underlying tax
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liability when he received the Letter 1153, a section 6672(b)(1)
notice, which he contested. An opportunity to dispute an
underlying tax liability includes an opportunity for an Appeals
conference either before or after the assessment of the
liability. Lewis v. Commissioner, 128 T.C. 48 (2007) (holding
valid section 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs);
sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. We have
held that the receipt of a Letter 1153 constitutes an opportunity
to dispute the taxpayer’s liability. McClure v. Commissioner,
T.C. Memo. 2008-136.4 Thus, we conclude that petitioner is not
entitled to dispute in this Court his status as a responsible
person and the consequent liabilities for the underlying TFRPs.
Where the underlying tax liability is not at issue, we
review the notice of determination for abuse of discretion.
Nicklaus v. Commissioner, 117 T.C. 117, 120 (2001). This Court
will find an abuse of discretion has occurred in collection due
process cases where the exercise of discretion was arbitrary,
capricious, or without foundation in fact or law. See e.g.,
Giamelli v. Commissioner, 129 T.C. 107, 111-112 (2007). We are
satisfied that respondent’s actions in sustaining the levy were
appropriate and not an abuse of discretion.
4
Cf. Mason v. Commissioner, 132 T.C. 301, 318 (2009) (“a
section 6672(b)(1) notice that was not received, but not
deliberately refused, by a taxpayer does not constitute an
opportunity to dispute that taxpayer’s liability”).
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A taxpayer may raise in a CDP hearing any relevant issue,
including challenges to “the appropriateness of collection
actions”, and may make “offers of collection alternatives, which
may include the posting of a bond, the substitution of other
assets, an installment agreement or an offer-in-compromise.”
Sec. 6330(c)(2)(A). We have already addressed the
appropriateness of the collection action. With respect to
collection alternatives, petitioner provided limited financial
data to Wood, but when asked for more details, he did not provide
the requested documentation. Further, he did not propose an
installment agreement or an offer-in-compromise. On the evidence
before us, the determination to proceed with collection was not
arbitrary, capricious, or without foundation in fact or law.
The Court, in reaching its holdings, has considered all
arguments made, and, to the extent not mentioned, concludes that
they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.