T.C. Memo. 2012-37
UNITED STATES TAX COURT
JERRY JOHN KOBS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11476-08L. Filed February 6, 2012.
Jerry John Kobs, pro se.
Lisa Kathryn Hunter, for respondent.
MEMORANDUM OPINION
PARIS, Judge: On April 10, 2008, respondent mailed to petitioner a Notice
of Determination Concerning Collection Action(s) Under Section 6320 and/or
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63301(notice of determination) in which respondent determined to proceed with
collection by levy of deficiencies in petitioner’s income tax, additions to tax, and
interest for the tax years 2000 and 2001. In response, petitioner timely petitioned
this Court for review of the notice of determination. After filing his petition,
petitioner paid in full his 2000 income tax liability, and by order dated April 15,
2009, this case was dismissed as to the tax year 2000. What remains at issue is
whether respondent abused his discretion in determining to proceed with the levy to
collect the tax deficiency, additions to tax and interest petitioner owes for the tax
year 2001.
Background
Petitioner formerly owned and operated a trucking company known as Jerry
J. Kobs, Inc. Petitioner lived in the State of Iowa when he filed the petition. He did
not timely file an income tax return for the tax year 2001.
The Notice of Deficiency
Pursuant to section 6020(b), respondent prepared a substitute for return (SFR)
in the light of petitioner’s failure to file a 2001 Federal income tax return.
Respondent included in the gross income of petitioner on the SFR as nonemployee
1
Section references are to the Internal Revenue Code of 1986, as amended,
and all Rule references are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
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compensation settlement payments of $122,000 on the basis of a Form 1099-S,
Proceeds From Real Estate Transactions, Swanville Logistics issued for the tax year
2001. The SFR also included in the gross income of petitioner rent of $35,840,
interest of $637, and a State income tax refund from the prior year of $128.
On June 18, 2004, respondent mailed a statutory notice of deficiency to
petitioner, determining a deficiency of $52,527 in his income tax for 2001 and
additions to tax of $11,818.58 and $2,078.65 under sections 6651(a)(1) and 6654,
respectively. The adjustments to his income in the notice of deficiency were the
same as in the SFR. Petitioner received the notice of deficiency but did not timely
file a petition with this Court to challenge it.
Instead, on July 16, 2004, petitioner signed and sent to the IRS a completed
Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year 2001.
On his amended return, petitioner reported $122,000 of nonemployee compensation
on a Schedule C, Profit or Loss From Business, which indicated that the principal
business was known as “CORPORATION SETTLEME,” and deducted $122,000
as “Settlement on Corporation” under the category of “Other Expense”. Petitioner
also reported the interest income of $637 and rental income of $35,840.
Respondent sent to petitioner an undated letter acknowledging the
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receipt of petitioner’s amended return sent on July 17, 2004, and requesting
petitioner to substantiate his amended return. The record does not indicate that
petitioner complied with that request.
Collection Due Process Hearing and the Notice of Determination
On April 9, 2007, respondent issued a Final Notice--Notice of Intent to Levy
and Notice of Your Right to a Hearing to petitioner with respect to his 2001 income
tax liability. Petitioner timely filed Form 12153, Request for a Collection Due
Process Hearing, contending that the settlement payments were made to Jerry J.
Kobs, Inc., as opposed to petitioner.
On February 25, 2008, Settlement Officer Lydia Noyola from Respondent’s
Office of Appeals conducted a telephone conference during which petitioner
attempted to raise the issue of the underlying liability, stating again that the
settlement payments were made to Jerry J. Kobs, Inc. SO Noyola informed
petitioner that he could not raise the issue of the underlying liability because he had
received a notice of deficiency. Petitioner did not make an offer-in-compromise of
his 2001 tax liability and indicated that he would send the requested financial
information.
SO Noyola stated that on the basis of his financial information provided
during the telephone conference, petitioner was not eligible for an offer-in-
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compromise. At the time of the administrative hearing, petitioner had $94,000 of
present equity and had $50,000 of potential future equity in his trucking company.
SO Noyola further instructed petitioner to complete Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed Individuals, for the
purpose of determining whether he would qualify for an installment agreement.
Petitioner became upset and requested that this case be transferred to the
local office for the purpose of a face-to-face hearing. SO Noyola and her manager
orally denied petitioner’s request because he had already received a telephone
hearing. SO Noyola sent the financial forms to petitioner, but petitioner never
returned any completed forms. On April 10, 2008, the Appeals Office mailed to
petitioner the notice of determination, apprising petitioner that respondent had
determined to proceed with the levy to collect the outstanding tax liability for tax
year 2001.
Discussion
Under section 6331(a), if a person liable for a tax fails to pay it after demand,
the Secretary may collect the unpaid amount, including any interest and additions to
tax, by way of a levy “upon all property and rights to property * * * belonging to
such person or on which there is a lien provided in this chapter for the payment of
such tax.” Section 6330(a) provides that no levy may be made on
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any property or right to property unless a taxpayer has been given notice of, and the
opportunity for, an administrative review of the matter. If dissatisfied with the
outcome of such review, that taxpayer may seek judicial review in the Tax Court
during which review the suspension of the levy continues.
The sole material issue petitioner raised at trial concerns the underlying
liability he owed for the tax year 2001. Petitioner contends that the income was
received by Jerry J. Kobs, Inc., as opposed to petitioner as an individual and that
respondent is barred from collecting the entire settlement payment since he received
only some of the settlement payments in the tax year 2001 as the payments were
received monthly beginning in 1996. Petitioner’s latter claim that the time to assess
his tax has expired constitutes a challenge to the underlying tax liability. See
Hoffman v. Commissioner, 119 T.C. 140, 145 (2002); Rodriguez v. Commissioner,
T.C. Memo. 2003-153; MacElvain v. Commissioner, T.C. Memo. 2000-320.
Where a taxpayer has received a statutory notice of deficiency or otherwise has an
opportunity to dispute the underlying tax liability, that taxpayer cannot raise at the
hearing challenges to the existence or amount of the underlying tax liability. Sec.
6330(c)(2)(B). Therefore, petitioner cannot now raise such claims because he
already received a statutory notice of deficiency for that tax year.
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Where a taxpayer cannot challenge the underlying liability, as is the case
here, the Court reviews respondent’s determination for abuse of discretion. See
Lunsford v. Commissioner, 117 T.C. 183, 185 (2001) (citing Nicklaus v.
Commissioner, 117 T.C. 117, 120 (2001)). The Court has described the abuse of
discretion standard as meaning “‘arbitrary, capricious, or without sound basis in fact
or law.’” Giamelli v. Commissioner, 129 T.C. 107, 111 (2007) (quoting Woodral v.
Commissioner, 112 T.C. 19, 23 (1999)). On the basis of that standard, the Court
finds that SO Noyola did not abuse her discretion in sustaining the levy to collect
the underlying 2001 tax liability. Petitioner merely disputes the underlying 2001 tax
liability under section 6330(c)(2)(B). Furthermore, petitioner did not make an
official offer upon which respondent can consider as a compromise in lieu of the
2001 tax liability, nor did he provide a Form 433-A upon which respondent can
assess whether other collection alternatives could be available in his case.
Therefore, respondent properly used the available methods under the Internal
Revenue Code to protect the United States’ claim against subsequent creditors.2
2
On December 7, 2009, the following abatements were made: tax of
$43,423; additions to tax under sec. 6651(a)(1) of $7,704 and sec. 6654 of $1,715;
and interest of $3,957. The abatements reduced petitioner’s assessed balance from
$85,861 to $19,292.
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Conclusion
On the record, the Court holds that petitioner cannot raise his underlying tax
liability for the tax year 2001 because he had previously received a notice of
deficiency and did not timely file a petition with the Tax Court to challenge that
notice. Petitioner’s filing of an amended return did not preserve his right to raise the
underlying liability issue. The Court further holds that the Appeals Office did not
abuse its discretion in sustaining the notice of determination to proceed with the levy
to collect the tax liability for the tax year 2001.
In reaching the conclusions herein, the Court has considered all arguments
made and, to the extent they are not mentioned above, finds them moot, irrelevant,
or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.