T.C. Memo. 2015-146
UNITED STATES TAX COURT
STEVEN T. WALTNER AND SARAH V. WALTNER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12722-13L. Filed August 6, 2015.
Steven T. Waltner and Sarah V. Waltner, pro sese.
J. Robert Cuatto, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Petitioners, no strangers to this Court,1 filed a petition in
response to a notice of determination concerning collection action(s) under section
1
Waltner v. Commissioner, T.C. Memo. 2014-133; Waltner v.
Commissioner, T.C. Memo. 2014-35; Waltner v. Commissioner, T.C. Dkt. No.
8726-11L (filed Apr. 12, 2011).
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[*2] 6320 and/or 6330. The issues for decision are: (1) whether petitioners may
challenge the underlying liabilities; (2) whether an abuse of discretion occurred
during the collection due process (CDP) hearing; and (3) whether petitioners
and/or their attorney, Donald W. Wallis, are liable for sanctions.
FINDINGS OF FACT
At the time that the petition was filed Mr. Waltner lived in California and
Mrs. Waltner lived in Arizona.
Petitioners filed a joint Federal income tax return for the 2004 tax year
(original return), reporting adjusted gross income of $87,256, taxable income of
$48,631, tax of $2,751, and withholding of $6,870. Petitioners did not claim any
excess Social Security tax withholding on the original return. A refund of $4,119
was issued to petitioners on May 30, 2005.
In February 2008 petitioners submitted a joint Form 1040X, Amended U.S.
Individual Income Tax Return, for the 2004 tax year (amended return). The
amended return reported adjusted gross income of $370 and taxable income of
zero. The amended return also reported a total of $12,453 for Federal income tax
withholding, excess Social Security tax, and Medicare tax withholding.
Petitioners claimed a refund of $8,334.
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[*3] On May 29, 2008, respondent mailed petitioners a letter advising them that
there was no legal basis for the position taken on the amended return and that their
position was frivolous. The letter advised petitioners that section 67022 imposes a
$5,000 penalty for the filing of a frivolous tax return and that the penalty was
based on the amended return. The letter stated the penalty would not be imposed
if petitioners submitted a corrected 2004 return within 30 days. Petitioners did not
submit a corrected return for 2004 or otherwise attempt to withdraw the amended
return.
On September 29, 2008, a section 6702 penalty was assessed against each
petitioner for the amended return. On the same day a notice of penalty charge was
mailed to each petitioner.
Letters 1058, Final Notice of Intent to Levy and Notice of Your Right to a
Hearing, were mailed to Mrs. Waltner on March 11, 2009, and to Mr. Waltner on
March 30, 2009. The Letters 1058 each state that the Internal Revenue Service
(IRS) intended to levy to collect the 2004 section 6702 penalty unless the full
amount owed was paid, payment arrangements were made, or a CDP hearing was
requested within 30 days.
2
Unless otherwise indicated, all section references are to the Internal
Revenue Code, as amended and in effect at all relevant times, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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[*4] In response to the Letters 1058 petitioners mailed letters to the IRS dated
April 5 and 20, 2009, contesting the underlying section 6702 liabilities. Among
other things, petitioners allege that they had established that they have no tax
liability for 2004; that the IRS has the burden of proving each petitioner is a
“person” against whom the penalty can be assessed; and that the penalties were
not approved in writing by an appropriate employee. In the letters petitioners
requested and demanded “any and all due process to which * * * [they] are
entitled.” The letters also advised of petitioners’ intent to audio record all
proceedings and requested a face-to-face CDP hearing.
On August 11, 2009, the IRS mailed a Form 8519, Taxpayer’s Copy of
Notice of Levy, to Mr. Waltner advising him that a $5,228.26 notice of levy for
the section 6702 penalty for 2004 had been mailed to Washington Mutual. No
funds were secured as a result of this levy.
On June 7, 2010, the IRS mailed a Notice CP49, Overpaid Tax Applied to
Other Taxes You Owe, to petitioners informing them that the $1,767.81
overpayment of tax they had made for 2009 had been applied against their section
6702 liabilities.
On January 31, 2013, the IRS mailed a letter to Mrs. Waltner advising that it
had received petitioners’ letter from April 5, 2009, requesting a CDP hearing and
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[*5] that she would be contacted within 60 days. On March 18, 2013, Settlement
Officer Lora Davis (SO Davis) mailed a letter to Mrs. Waltner advising that her
hearing was scheduled to take place by telephone at 9 a.m. on April 9, 2013. The
letter advised Mrs. Waltner that the CDP hearing could be rescheduled if the time
was inconvenient or if she preferred a face-to-face hearing. The letter clearly
stated that a completed and signed Form 433-A, Collection Information Statement
for Wage Earners and Self-Employed Individuals, had to accompany the written
request for a face-to-face meeting and that the Appeals Office would consider
permitting audio recordings only in face-to-face CDP hearings.
Mrs. Waltner sent a fax to SO Davis on April 4, 2013, stating that Mr.
Waltner would not be available for the hearing and included a Form 2848, Power
of Attorney and Declaration of Representative, purporting to give Mrs. Waltner
the power to represent Mr. Waltner at the CDP hearing. Mrs. Waltner asserted
that a Form 433-A was not required for a face-to-face hearing but that in the
interest of resolving the matter “expediently” petitioners would not “insist” on a
face-to-face hearing and would be “satisfied” with a telephone hearing. Mrs.
Waltner also suggested that SO Davis acquaint herself with Arizona law regarding
recording conversations. In the fax Mrs. Waltner contested the underlying section
6702 liabilities. Mrs. Waltner also stated: “We have already previously (and
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[*6] recently) provided you with substantial documentation to prove our
indigence”. Petitioners did not submit a Form 433-A and failed to present any
collection alternatives.
In preparation for the CDP hearing SO Davis reviewed Arizona law and
advised the Appeals team manager that Arizona law requires the consent of only
one party to record a conversation. Because Mrs. Waltner had previously recorded
telephone CDP hearings without permission, the Appeals team manager advised
SO Davis to offer Mrs. Waltner a correspondence CDP hearing.
On April 9, 2013, SO Davis called Mrs. Waltner at the scheduled time and
advised her, on the basis of Mrs. Waltner’s intention to record the call, that the
CDP hearing would be held via correspondence because recording the CDP
hearing was not permitted. Mrs. Waltner requested a return call from the Appeals
team manager. Appeals Team Manager Thomas Anderson (ATM Anderson)
called Mrs. Waltner later that day. During the call Mrs. Waltner attempted to
contest the underlying penalty liabilities. ATM Anderson denied Mrs. Waltner’s
request for a face-to-face CDP hearing for liability purposes and offered her a
CDP hearing via correspondence, which she declined.
Later on April 9, 2013, SO Davis received a fax from Mrs. Waltner
requesting that the case be reassigned to another settlement officer because SO
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[*7] Davis had had prior involvement in the case. SO Davis was involved in a
case with petitioners that involved a similar issue but a different tax year. ATM
Anderson denied Mrs. Waltner’s request to have the case reassigned.
On May 2, 2013, the IRS issued a notice of determination concerning
collection action(s) under section 6320 and/or 6330, sustaining the notice of intent
to levy. Petitioners filed the timely petition giving rise to this case. In the
petition, petitioners contest the liability for the section 6702 penalties. Petitioners
allege, among other things, that respondent denied them due process and equal
protection of the law and that respondent abused his discretion in upholding the
notice of intent to levy.
On November 14, 2013, the Court filed Mr. Wallis’ entry of appearance,
which was not withdrawn before the date of trial. Mr. Wallis had represented
petitioners in other cases before this Court. But, as in this case, Mr. Wallis had
failed to appear at trial. See, e.g., Waltner v. Commissioner, T.C. Memo. 2014-
133. Trial in this case was held on March 17, 2014, and Mrs. Waltner appeared on
behalf of petitioners. Mr. Wallis filed briefs on petitioners’ behalf. On February
19, 2015, the Court granted petitioners’ motion to withdraw Mr. Wallis’ entry of
appearance.
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[*8] The section 6702 penalties for 2004 were also at issue in Waltner v.
Commissioner, T.C. Dkt. No. 8726-11L (filed Apr. 12, 2011), which was pending
on cross-motions for summary judgment at the time of trial of the instant case. In
that case, among other things, petitioners challenged the outcomes of the CDP
hearings which upheld section 6702 penalties assessed against them for multiple
years, including 2004. On April 21, 2015, the Court issued an order granting a
portion of respondent’s redacted motion for summary judgment, filed on
November 21, 2012, as supplemented December 9, 2013. In the order the Court
considered petitioners’ liability for section 6702 penalties de novo and determined
that petitioners were liable for the penalties.
OPINION
I. Petitioners’ CDP Hearing
This Court has jurisdiction to review a notice of determination issued
pursuant to section 6330 where the underlying tax liability consists of a section
6702 frivolous return penalty. Sec. 6665(a); Callahan v. Commissioner, 130 T.C.
44, 48-49 (2008).
Section 6331(a) authorizes the Secretary to levy upon property and property
rights of a taxpayer liable for taxes who fails to pay those taxes within 10 days
after notice and demand for payment is made. Section 6331(d) provides that the
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[*9] levy authorized in paragraph (a) may be made with respect to any unpaid tax
only if the Secretary has given written notice to the taxpayer no less than 30 days
before levy.
If a hearing is requested, the hearing is to be conducted by an officer or
employee of the IRS Appeals Office who has had no prior involvement with
respect to the unpaid taxes at issue before the hearing. Sec. 6330(b)(1), (3). At
the hearing the Appeals officer or employee shall obtain verification that the
requirements of any applicable law or administrative procedure have been met.
Sec. 6330(c)(1). The taxpayer may raise at the hearing any relevant issue relating
to the levy, including appropriate spousal defenses, challenges to the
appropriateness of collection actions, and offers of collection alternatives. Sec.
6330(c)(2)(A). At the hearing the taxpayer may also raise challenges to the
existence or amount of the underlying tax liability for any tax period if the
taxpayer did not receive any statutory notice of deficiency for such tax liability or
did not otherwise have an opportunity to dispute it. Sec. 6330(c)(2)(B); sec.
301.6330-1(e)(1), Proced. & Admin. Regs.
At the conclusion of the CDP hearing, the Appeals officer or employee must
determine whether and how to proceed with collection and must take into account
(1) verification that the requirements of any applicable law or administrative
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[*10] procedure have been met; (2) the relevant issues raised by the taxpayer,
including challenges to the underlying tax liability, where permitted; and (3)
whether any proposed collection action balances the need for the efficient
collection of taxes with the legitimate concern of the taxpayer that the collection
action be no more intrusive than necessary. Sec. 6330(c)(3).
A. SO Davis Was an Impartial Officer or Employee.
A CDP hearing is to be conducted by an Appeals officer or employee who
has had no prior involvement with the tax at issue before the first hearing under
section 6330 or section 6320 unless the taxpayer waives this requirement. Sec.
6330(b)(3); sec. 301.6330-1(d)(1), Proced. & Admin. Regs. The regulations
provide that “[p]rior involvement exists only when the taxpayer, the tax and the
tax period at issue in the CDP hearing also were at issue in the prior non-CDP
matter, and the Appeals officer or employee actually participated in the prior
matter.” Sec. 301.6330-1(d)(2), Q&A-D4, Proced. & Admin. Regs.; sec.
301.6330-1(d)(3), Example (1), Proced. & Admin. Regs.
On April 9, 2013, Mrs. Waltner sent a fax to SO Davis requesting that the
case be reassigned to a different Appeals officer because SO Davis had had prior
involvement with petitioners, “with a similar issue (for a different tax year).” SO
Davis had previously conducted a CDP hearing for petitioners but not for the same
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[*11] tax year. Accordingly, SO Davis’ past involvement with petitioners does
not rise to the level of “prior involvement” which precluded her from conducting
the CDP hearing in this case. See sec. 301.6330-1(d)(2), Q&A-D4, Proced. &
Admin. Regs.; see also sec. 301.6330-1(d)(3), Example (1), Proced. & Admin.
Regs.
B. Petitioners’ Liabilities for the Section 6702 Penalties Are Not at Issue.
Petitioners, using tax-protester rhetoric, have tirelessly advanced the
argument that they are not liable for the section 6702 frivolous return penalties
assessed for the 2004 tax year. Section 6702(a) imposes a $5,000 penalty on a
taxpayer who files what purports to be a tax return where the purported return does
not contain information that makes it possible to judge the substantial correctness
of its self-assessment or contains information that on its face indicates that the
self-assessment is substantially incorrect and where the taxpayer’s position is one
that the Secretary has identified as frivolous or reflects a desire to delay or impede
the administration of Federal tax laws. Respondent has the burden of proving that
petitioners are liable for the section 6702 penalties. See sec. 6703(a).
Petitioners requested and received a CDP hearing for the notice of Federal
tax lien filed in connection with the section 6702 penalties for 2004 (NFTL CDP
hearing). The NFTL CDP hearing was held on January 24, 2011. The outcome of
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[*12] the NFTL CDP hearing was at issue in Waltner v. Commissioner, T.C. Dkt.
No. 8726-11L, which was pending on cross-motions for summary judgment at the
time of trial in the instant case. On April 21, 2015, this Court issued an order in
that case determining on the basis of de novo review that petitioners were liable
for the section 6702 penalties for 2004.
The regulations provide that “the taxpayer may not raise an issue that was
raised and considered at a previous CDP hearing under section 6320 or in any
other previous administrative or judicial proceeding if the taxpayer participated
meaningfully in such hearing or proceeding.” Sec. 301.6330-1(e)(1), Proced. &
Admin. Regs. Because petitioners meaningfully participated in the case at docket
No. 8726-11L, the underlying liabilities are not properly at issue in this case. See
sec. 6330(c)(2)(B).
In cases like this where the validity of the underlying tax liability is not
properly at issue, the Court will review the Commissioner’s administrative
determination for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610
(2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000). Whether an abuse of
discretion has occurred depends upon whether the exercise of discretion is without
sound basis in fact or law. See Freije v. Commissioner, 125 T.C. 14, 23 (2005).
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[*13] C. The Premature Levy Does Not Constitute an Abuse of Discretion in This
Case.
Petitioners requested a CDP hearing in letters dated April 5 and 20, 2009.
Section 6630(e)(1) provides that levy actions which are the subject of a requested
hearing shall be suspended for the period during which such hearing, and appeals,
are pending. Despite the statutory suspension of levies while a CDP hearing and
its related appeals were pending, Mr. Waltner received a Form 8519 in August
2009. The Form 8519 advised Mr. Waltner that the IRS had attempted to levy on
his bank account at Washington Mutual to recover the 2004 section 6702 penalty.
No funds were secured from this attempted levy.
The notice of determination that petitioners received states that Appeals
“verified that the proper codes to suspend levy and the collection statute were
input to the tax periods at issue as of the date the IRS received the request for the
CDP hearing.” We do not believe that this statement is correct, but no funds were
secured as a result of the levy. Because no funds were secured, we find this issue
moot and will not address it. See Bach v. Commissioner, T.C. Memo. 2008-202.
D. The Application of Petitioners’ Overpayment Does Not Constitute an
Abuse of Discretion.
On June 7, 2010, respondent offset petitioners’ 2009 overpayment against
their 2004 section 6702 penalties. Petitioners claim that the application of their
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[*14] overpayment also constitutes a premature levy in violation of section
6330(e)(1). The application of an overpayment is an offset, which is distinct from
a levy. Boyd v. Commissioner, 124 T.C. 296, 300 (2005), aff’d, 451 F.3d 8 (1st
Cir. 2006). Section 6402(a) authorizes the Secretary to credit a taxpayer’s
overpayment against his outstanding tax liabilities. Sec. 6665(a). The regulations
specifically provide that an offset is a nonlevy collection action that the IRS may
take during the period described in section 6330(e)(1) when levies are prohibited.
Sec. 301.6330-1(g)(2), Q&A-G3, Proced. & Admin. Regs. Accordingly, the
application of petitioners’ 2009 overpayment to their 2004 section 6702 liability
was not in violation of section 6330(e)(1).
E. The Denial of Petitioner’ Request for Face-to-Face Hearing Was Not an
Abuse of Discretion.
On April 4, 2013, Mrs. Waltner sent a fax stating that she disagreed with SO
Davis’ letter, which stated that a Form 433-A was required for a face-to-face CDP
hearing, but that petitioners would be satisfied with a telephone CDP hearing.
Following Mrs. Waltner’s telephone discussion with SO Davis on April 9, 2013,
ATM Anderson spoke with Mrs. Waltner. During their telephone conversation
ATM Anderson denied Mrs. Waltner’s request for a face-to-face CDP hearing for
liability purposes, and she declined his offer of a correspondence CDP hearing.
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[*15] A “face-to-face CDP conference concerning a taxpayer’s underlying
liability will not be granted if the request for a hearing or other taxpayer
communication indicates that the taxpayer wishes only to raise irrelevant or
frivolous issues concerning that liability.” Sec. 301.6330-1(d)(2), Q&A-D8,
Proced. & Admin. Regs. On the basis of the correspondence between petitioners
and Appeals, we do not find that denial of petitioners’ request for a face-to-face
CDP hearing constitutes an abuse of discretion.
The record reflects that SO Davis and ATM Anderson considered whether
the proposed collection action balances the need for efficient collection of taxes
with the legitimate concern of the taxpayer that any collection action be no more
intrusive than necessary. See sec. 6330(c)(3). Consequently, Appeals satisfied the
requirements of section 6330(c)(3)(C). We hold that the determination to proceed
with collection was not an abuse of discretion. The proposed collection action is
sustained.
II. Sanctions
A. Whether Petitioners’ Actions Warrant Sanctions
We may require a taxpayer to pay a penalty not in excess of $25,000 if it
appears that: (1) the taxpayer instituted or maintained proceedings in this Court
primarily for delay; (2) the taxpayer asserts frivolous or groundless positions in
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[*16] this Court; or (3) the taxpayer unreasonably failed to pursue available
administrative remedies. Sec. 6673(a)(1). A taxpayer’s position is frivolous or
groundless if it is “‘contrary to established law and unsupported by a reasoned,
colorable argument for change in the law.’” Williams v. Commissioner, 114 T.C.
136, 144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.
1986)).
Petitioners have filed four cases with this Court3 in recent years in
connection with their numerous “zero returns”. Petitioners’ arguments in the other
cases are substantially the same as those they advanced to dispute the underlying
section 6702 liabilities in this case.
The only issue in Waltner v. Commissioner, T.C. Memo. 2014-35, was
whether Mr. Waltner should be subject to a section 6673 sanction because he paid
the section 6702 penalty. After a detailed discussion, which we will not reiterate
here, we determined the answer was “yes” and imposed a section 6673 penalty of
$2,500. Petitioners did not heed our warning in that case and refused to withdraw
their frivolous positions in Waltner v. Commissioner, T.C. Memo. 2014-133. As a
3
The other three cases are Waltner v. Commissioner, T.C. Memo. 2014-35;
Waltner v. Commissioner, T.C. Memo. 2014-133; and Waltner v. Commissioner,
T.C. Dkt. No. 8726-11L.
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[*17] result, we imposed yet another section 6673 penalty of $5,000 on each
petitioner, for a total of $10,000, in that case.
In this case respondent seeks the maximum section 6673 penalty of
$25,000. Despite our repeated warnings that we will not tolerate petitioners’
frivolous positions and our imposition of substantial monetary penalties, we have
been unable to dissuade petitioners. Petitioners continued to advance positions in
this case which they had already been warned were frivolous. We find a section
6673(a)(1) sanction is warranted and impose a $15,000 penalty in total on
petitioners.
B. Petitioners’ Attorney Mr. Wallis
If a person admitted to practice before this Court unreasonably and
vexatiously multiplies the proceedings in any case, section 6673(a)(2) allows us to
impose the excess costs, expenses and attorney’s fees reasonably incurred because
of that conduct. We may impose these costs sua sponte. See Best v.
Commissioner, T.C. Memo. 2014-72, at *22-*23 (citing Edwards v.
Commissioner, T.C. Memo. 2002-169, aff’d, 119 Fed. Appx. 293 (D.C. Cir. 2005),
and Leach v. Commissioner, T.C. Memo. 1993-215).
Mr. Wallis entered an appearance in this case on November 14, 2013.
Though Mr. Wallis failed to appear at trial, he signed all motions and briefs that
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[*18] petitioners filed from the date he entered his appearance until he was
withdrawn as counsel on February 19, 2015. At the time he represented
petitioners in the instant case, Mr. Wallis was a member of the bar of this Court,
before his resignation in lieu of discipline. The pleadings that Mr. Wallis filed
were verbose and repetitive and contained arguments that a competent tax
practitioner should, or would with minimal research, know have been found to be
frivolous. We will order Mr. Wallis to show cause why we should not impose
excessive costs on him pursuant to section 6673(a)(2). Respondent will be
ordered to express his position on this and provide computations of the excess
costs, expenses, and attorney’s fees reasonably incurred because of Mr. Wallis’
conduct.
We have considered the parties’ remaining arguments, and to the extent not
discussed above, conclude those arguments are irrelevant, moot, or without merit.
Petitioners, and Mr. Wallis in particular, should take note of the preceding
sentence.
To reflect the foregoing,
An appropriate order will be issued,
and decision will be entered for respondent.