146 T.C. No. 2
UNITED STATES TAX COURT
LG KENDRICK, LLC, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10241-12L. Filed January 21, 2016.
P is a single-member LLC that operates a franchise business.
The Internal Revenue Service (IRS) determined that P had employees
and had unpaid Federal employment taxes, i.e., unpaid withholding
and Federal Insurance Contributions Act tax liabilities with respect to
its Forms 941, Employer’s Quarterly Federal Tax Return, for the last
three quarters of 2009 and all four quarters of 2010 and unpaid
Federal Unemployment Tax Act tax liabilities with respect to its
Forms 940, Employer’s Annual Federal Unemployment (FUTA) Tax
Return, for the 2009 and 2010 taxable years (collectively, periods at
issue).
After processing substitutes for returns and assessing the
employment taxes for the periods at issue, the IRS mailed to P a
notice of the filing of a notice of Federal tax lien (NFTL) and a levy
notice with respect to the periods at issue. P timely requested and
received a sec. 6320/6330 hearing with the IRS Appeals Office. The
Appeals Office subsequently issued two notices of determination
sustaining the NFTL filing and the proposed levy for the periods at
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issue except the NFTL filing for P’s December 31, 2010, Form 941
liability, which the notices did not address. P filed a petition
disputing the Appeals Office’s determinations. We remanded this
case on R’s motion, and the Appeals Office issued a supplemental
notice of determination. The supplemental notice sustained the NFTL
filing and the proposed levy for the periods at issue including the
NFTL filing for P’s December 31, 2010, Form 941 liability.
Held: The original notices of determination did not embody a
determination to sustain, and therefore were invalid with respect to,
the NFTL filing for P’s December 31, 2010, Form 941 liability.
Held, further, a supplemental notice of determination that
sustains a collection action for a taxable period cannot form the basis
for the Court’s jurisdiction when the original notice of determination
was invalid with respect to the collection action for that taxable
period.
Held, further, the Court does not have jurisdiction to review the
NFTL filing for P’s December 31, 2010, Form 941 liability.
Held, further, P is not entitled to challenge the underlying
liabilities for the periods at issue over which the Court has
jurisdiction.
Held, further, the Appeals Office’s determinations are
sustained for the periods at issue over which the Court has
jurisdiction.
Michael E. Lunnon (member), for petitioner.
Luke D. Ortner, for respondent.
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OPINION
MARVEL, Judge: Pursuant to section 6330(d)1 petitioner seeks review of
determinations by respondent (hereinafter IRS or respondent) to sustain collection
actions by levy and the filing of a notice of Federal tax lien (NFTL) relating to
petitioner’s unpaid Federal employment taxes, i.e., unpaid withholding and
Federal Insurance Contributions Act (FICA) tax liabilities with respect to its
Forms 941, Employer’s Quarterly Federal Tax Return, for the last three quarters of
2009 and all four quarters of 20102 and unpaid Federal Unemployment Tax Act
(FUTA) tax liabilities with respect to its Forms 940, Employer’s Annual Federal
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code as amended and in effect for the relevant times, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
2
See infra pp. 17-24 regarding the NFTL filing for petitioner’s December
31, 2010, Form 941 liability. We hold infra that the IRS did not make a written
determination with respect to this liability.
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Unemployment (FUTA) Tax Return, for the 2009 and 2010 taxable years3
(collectively, periods at issue).4
The issues for decision are whether: (1) we have jurisdiction to review the
NFTL filing for petitioner’s December 31, 2010, Form 941 liability; (2) petitioner
may challenge its underlying liabilities (and if so, the correct amounts of the
underlying liabilities); and (3) the Appeals Office abused its discretion in
sustaining the NFTL filing and the proposed levy action. We hold that we do not
have jurisdiction to review the NFTL filing for petitioner’s December 31, 2010,
Form 941 liability, that petitioner cannot challenge the underlying liabilities for
the periods over which we have jurisdiction, and that the Appeals Office did not
abuse its discretion. We sustain the IRS’ determinations for the periods over
which we have jurisdiction.
3
Petitioner’s Form 940 liability with respect to the 2009 taxable year is
prorated because petitioner was formed during 2009. See infra p. 5. Employment
tax liabilities for periods before petitioner’s formation are the subject of the
opinion in Lunnon v. Commissioner, T.C. Memo. 2015-156. See sec.
301.7701-2(c)(2)(iv), Proced. & Admin. Regs. The trust fund recovery penalties
that the IRS proposed to assess against Mr. Lunnon with respect to the Form 941
liabilities for the periods at issue are not before the Court.
4
For the remainder of this report we use the term “employment tax” to refer
to taxes under FICA, secs. 3101-3128, FUTA, secs. 3301-3311, and income tax
withholding, secs. 3401-3406 and 3509.
-5-
Background
The parties submitted this case fully stipulated under Rule 122. The
stipulated facts and facts drawn from stipulated exhibits are incorporated herein by
this reference.5 Petitioner’s principal place of business was in Gallup, New
Mexico, when the petition was filed.
Petitioner is a single-member LLC formed in 2009 that operates as a
franchise of the business The UPS Store. Its manager and sole member is Michael
E. Lunnon.6 From 1995 until petitioner’s formation in 2009, Mr. Lunnon operated
the franchise business as a sole proprietorship, originally under the name Mail
Boxes Etc. Mr. Lunnon reported wages and paid employment taxes with respect
to employees of the franchise to the State of New Mexico until 2002. He also filed
Forms 941 with the IRS for the December 31, 2001, quarter through the March 31,
2003, quarter. During the periods at issue petitioner paid an average of five
5
Petitioner objected to Exhibit 3-J, respondent’s request for admissions,
because it was not part of the administrative record. When this case was recalled
at the June 2, 2014, Albuquerque, New Mexico, trial session, we reserved ruling
on petitioner’s objection. We decide this case without regard to deemed
admissions under Rule 90(c), and we treat petitioner’s objection as moot.
6
The IRS revenue officer’s case notes suggest that Mr. Lunnon at one point
represented that the Michael Lunnon Revocable Trust was at least a partial owner
of petitioner. However, the case notes also state that Mr. Lunnon is the only
member listed on petitioner’s articles of organization, and the record does not
contain any information about the Michael Lunnon Revocable Trust.
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individuals approximately twice per month. Mr. Lunnon has maintained a
workers’ compensation and employer’s liability insurance policy since at least
2003.7 A 2006 insurance policy application that Mr. Lunnon signed and submitted
for his business shows an estimated annual payroll of $75,000. The policy was
renewed every year until at least 2011. However, petitioner did not file Forms 941
or Forms 940 or pay any employment tax for the periods at issue.
After the IRS had summoned and reviewed bank records associated with
petitioner’s business and made a field call to the business, the IRS concluded that
petitioner had paid employees approximately $7,440 per month8 and therefore had
employment tax liabilities for the periods at issue. Although the IRS requested
that Mr. Lunnon file on behalf of petitioner employment tax returns for the
delinquent periods, Mr. Lunnon refused, and Revenue Officer T.W. Lyons
prepared a substitute for return under section 6020(b) for each period at issue.
The revenue officer sent petitioner a Letter 1085(DO), dated March 31,
2011, by certified mail to the business address. One of the individuals who the
7
Mr. Lunnon, not petitioner, is the named insured on the insurance policy
for the periods at issue even though Mr. Lunnon operated his business through
petitioner during that time.
8
This figure does not include the amount that petitioner paid to Mr. Lunnon
as a wage.
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IRS had determined was an employee, Cameron Curley, signed the certified mail
receipt on April 4, 2011. The letter informed petitioner about the substitutes for
returns and stated that petitioner had 30 days to prepare and mail employment tax
returns, mail additional information petitioner wanted the IRS to consider, or
request a conference with Revenue Officer Lyons. The letter further stated that
the IRS would process the substitutes for returns and assess the tax reflected on
the returns “plus any additional penalties and interest” if petitioner did not respond
within 30 days. The letter explained that petitioner’s representative could request
a meeting or a telephone conference with the revenue officer’s supervisor if
petitioner did not agree “with any or all of the IRS findings given you”. If
petitioner still did not agree with the findings after a conference with the
supervisor, it would have the opportunity to “appeal * * * [its] case to the Area
Director of General Appeals.”
Petitioner or its representative did not respond to the Letter 1085(DO)
within 30 days. The IRS processed the substitutes for returns and assessed the tax.
On August 2, 2011, the IRS mailed to petitioner a Letter 1058, Final Notice of
Intent to Levy and Notice of Your Right to a Hearing (levy notice), with respect to
the periods at issue. In the levy notice the IRS proposed for the first time
additions to tax under section 6651(a)(3) for late payment. The IRS also mailed to
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petitioner a Letter 3172(DO), Notice of Federal Tax Lien Filing and Your Right to
a Hearing Under IRC 6320, dated August 11, 2011, with respect to the liabilities at
issue, including the December 31, 2010, Form 941 liability. In response to these
notices petitioner timely filed a Form 12153, Request for a Collection Due Process
or Equivalent Hearing, signed by Mr. Lunnon in his capacity as
“member/manager”. The hearing request disputed the proposed levy and the
NFTL filing, requested withdrawal of the NFTL filing, and stated: “The LLC does
not understand any basis for the claims made in the FINAL NOTICE, and does not
believe the LLC owes them.”
Petitioner’s case was transferred to Settlement Officer Joann Mares in the
IRS Appeals Office. Settlement Officer Mares scheduled a telephone conference
call for February 28, 2012, but Mr. Lunnon told Settlement Officer Mares that
petitioner preferred to conduct the section 6320/6330 hearing through
correspondence, and neither he nor another representative participated in a
telephone conference. Settlement Officer Mares agreed to conduct the hearing
through correspondence and requested that petitioner provide financial
information and file its delinquent employment and income tax returns by
February 28, 2012. Petitioner did not give Settlement Officer Mares any of the
requested financial information and did not file the requested returns by the
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deadline. Settlement Officer Mares allowed petitioner an additional 14 days to
comply with her request. Instead of providing any information to Settlement
Officer Mares, Mr. Lunnon initiated a Freedom of Information Act request on
petitioner’s behalf for any documents the IRS had proving that petitioner had paid
employees and was subject to filing employment tax returns for the periods at
issue.
Because petitioner did not give Settlement Officer Mares any pertinent
information, she sustained the proposed levy and the NFTL filing on the basis of
the information in the administrative record. On March 27, 2012, the Appeals
Office issued two documents titled Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330.
One notice sustained the collection action for the liabilities at issue, except
that it did not address the proposed levy or the NFTL filing for petitioner’s
December 31, 2010, Form 941 liability (first notice of determination). The first
page of the first notice of determination had a list titled “Tax Period(s) Ended”,
which listed the taxable periods to which the notice pertained and included the
December 2010 taxable period.9 The third page of the first notice of determination
9
The taxable period for Form 940 liabilities is often identified as the last day
of the calendar year, see, e.g., J&S Auto Painting, Inc. v. Commissioner, T.C.
(continued...)
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contained two tables detailing to which taxable periods and collection activities
the notice pertained. The first table included the proposed levy of the Form 941
liabilities for the quarters ending June 30, 2009, through September 30, 2010,
inclusive, and of the Form 940 liabilities for the taxable periods “12/31/09” and
“12/31/10”. The second table included the NFTL filing with respect to the Form
941 liabilities for the quarters June 30, 2009, through September 30, 2010,
inclusive, and with respect to the Form 940 liabilities for the taxable periods
“12/31/09” and “12/31/10”.
The other notice of determination sustained the proposed levy of
petitioner’s December 31, 2010, Form 941 liability (second notice of
determination). The first page of the second notice of determination listed the
relevant taxable period as December 2010. A table on the third page clarified that
the notice pertained only to the proposed levy of petitioner’s December 31, 2010,
Form 941 liability.
9
(...continued)
Memo. 2013-232, at *5 (concerning a Form 940 liability “for the taxable year
ended December 31, 2010”); Everett Assocs., Inc. v. Commissioner, T.C. Memo.
2012-143, slip op. at 2 (concerning a Form 940 liability “for the year ended
December 31, 2001”), and therefore the reference to December 2010 to indicate
petitioner’s 2010 Form 940 liability is not inapposite. The third page of the first
notice of determination referred to petitioner’s Form 940 liabilities for the taxable
periods “12/31/09” and “12/31/10”.
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Neither the first notice of determination nor the second notice of
determination (together, original notices of determination) addressed the NFTL
filing for petitioner’s December 31, 2010, Form 941 liability or the proposed
section 6651(a)(3) additions to tax. The original notices of determination
concluded that petitioner did not properly challenge the underlying liabilities and
incorrectly stated that the employment taxes were assessed on the basis of
voluntarily filed returns.
Petitioner timely filed a petition in this Court disputing the original notices
of determination. In preparation for trial the IRS subpoenaed additional bank
records and documents related to the workers’ compensation insurance policy.
Respondent subsequently filed a motion to remand petitioner’s case to the Appeals
Office because, during the section 6320/6330 hearing, the settlement officer did
not fully explain to petitioner the basis for the employment tax assessments, did
not make a determination about whether petitioner was entitled to challenge the
underlying liabilities, and did not include the NFTL filing for petitioner’s
December 31, 2010, Form 941 liability on either notice of determination. We
granted respondent’s motion.
On remand the case was returned to Settlement Officer Mares. Settlement
Officer Mares mailed to petitioner the documents that the IRS had relied upon to
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assess the underlying liabilities and documents supporting the assessments that the
IRS had obtained during the pendency of the Tax Court case, including copies of
checks drawn on petitioner’s bank account that Mr. Lunnon wrote to the same
individuals twice per month, employment tax transcripts from the State of New
Mexico, workers’ compensation insurance policy documents, IRS transcripts, and
internal IRS documents summarizing petitioner’s bank records. Settlement Officer
Mares also mailed to petitioner a letter dated August 22, 2013, which stated: “I
wasn’t sure if you understood [upon the receipt of the Letter 1085(DO)] that you
could have prepared and signed tax returns that you believe are correct and return
them to the IRS within 30 days. If you have the correct returns you may submit
these to me on or before August 31, 2013 so that the Internal Revenue Service can
process them.”10 The letter also asked petitioner to explain its relationship with
Cameron Curley and requested that petitioner submit financial information to
Settlement Officer Mares and file the delinquent Forms 941 and 940 for the
periods at issue by August 31, 2013, so that she could consider collection
alternatives. The letter also warned petitioner that, if it did not respond to the
10
The letter erroneously referenced taxable periods not at issue, and
although the recipient of the letter was LG Kendrick, LLC, the salutation read:
“Dear Mr. Lunnon”. Settlement Officer Mares later clarified in a subsequent letter
that the August 22, 2013, letter in fact related to petitioner’s employment tax
liabilities for the periods at issue.
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letter, Settlement Officer Mares would make a supplemental determination on the
basis of information already in the record.
Instead of supplying the requested information, Mr. Lunnon sent a letter to
Settlement Officer Mares challenging the documents that respondent had provided
because at least some of them were not available when the IRS made its original
determinations and because some of the documents referred to Mr. Lunnon rather
than to petitioner. In response Settlement Officer Mares allowed petitioner until
September 13, 2013, to prepare the requested returns using the documents that
respondent had provided to it or any other additional information petitioner had.
Mr. Lunnon did not cause petitioner to file the delinquent returns or send
Settlement Officer Mares pertinent information. Instead, Mr. Lunnon continued to
challenge the relevancy of the documents respondent had provided but did not say
the documents reflected incorrect information or deny that petitioner had
employees for the periods at issue.
Because petitioner did not file the delinquent returns or provide information
after multiple opportunities to do so, the Appeals Office issued to petitioner a
Supplemental Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 (supplemental notice of determination) on the basis of
the information in the administrative record. The Appeals Office determined that
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petitioner had had a prior opportunity to contest the underlying liabilities and that,
even if the Appeals Office were able to consider it, petitioner had failed to submit
evidence adequately contesting the underlying liabilities after a reasonable
opportunity to do so. The supplemental notice of determination also stated that it
“includes the period ending 12/31/2010 for both the levy and the lien as the
taxpayer requested.” As petitioner did not request a collection alternative or
provide any relevant information with respect to its NFTL filing withdrawal
request, Settlement Officer Mares determined to sustain the collection actions.
The supplemental notice of determination did not provide petitioner with
additional appeal rights beyond those associated with the original notices of
determination.
Discussion
I. Section 6320/6330 Hearing
Section 6321 imposes a lien on all property and property rights of a
taxpayer liable for taxes where a demand for the payment of the taxes has been
made and the taxpayer fails to pay. The IRS is authorized to file an NFTL with
respect to a taxpayer who has an outstanding tax liability and fails to pay after
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notice and demand. Sec. 6323. Section 6320(a) requires the Secretary11 to send
written notice to the taxpayer of the filing of an NFTL and of the taxpayer’s right
to an administrative hearing on the matter. The conduct and scope of section 6320
hearings are governed by section 6330(c), (d) (other than paragraph (2)(B)), (e),
and (g). Sec. 6320(c).
The Secretary is authorized to collect tax by levy upon a taxpayer’s property
if any taxpayer liable to pay any tax neglects or refuses to pay such tax within 10
days after notice and demand for payment. Sec. 6331(a). Section 6330(a) requires
the Secretary to send written notice to the taxpayer of the taxpayer’s right to
request a section 6330 hearing before a levy is made. If the taxpayer makes a
timely request for a hearing, the IRS Appeals Office conducts the hearing. Sec.
6330(b).
At a section 6320 or 6330 hearing a taxpayer may raise any relevant issue,
including appropriate spousal defenses, challenges to the appropriateness of the
collection action, and collection alternatives, such as an offer-in-compromise or an
installment agreement. Sec. 6330(c)(2)(A). Additionally, the taxpayer may
contest the validity of the underlying tax liability, but only if the taxpayer did not
11
The term “Secretary” means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
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otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B);
Sego v. Commissioner, 114 T.C. 604, 609 (2000).
Following a hearing, the Appeals Office must issue a notice of
determination regarding the appropriateness of the collection action. The Appeals
Office is required to take into consideration: (1) verification presented by the
Secretary that the requirements of applicable law and administrative procedure
have been met, (2) relevant issues that the taxpayer raised, and (3) whether the
proposed collection action appropriately balances the need for efficient collection
of taxes with the taxpayer’s concerns regarding the intrusiveness of the proposed
collection action. Sec. 6330(c)(3); Wadleigh v. Commissioner, 134 T.C. 280, 287-
288 (2010).
Pursuant to sections 6320(c) and 6330(d)(1), we have jurisdiction to review
the Appeals Office’s determination. See Murphy v. Commissioner, 125 T.C. 301,
308 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006). Where the validity of the
underlying tax liability is properly at issue, we review the determination regarding
the underlying tax liability de novo. Sego v. Commissioner, 114 T.C. at 610;
Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). We review all other
determinations for abuse of discretion. Sego v. Commissioner, 114 T.C. at 610;
Goza v. Commissioner, 114 T.C. at 182. In reviewing for abuse of discretion, we
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must uphold the Appeals Office’s determination unless it is arbitrary, capricious,
or without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125
T.C. at 320; Taylor v. Commissioner, T.C. Memo. 2009-27, 97 T.C.M. (CCH)
1109, 1116 (2009).
II. Jurisdiction To Review the NFTL Filing for Petitioner’s December 31,
2010, Form 941 Liability
Questions of jurisdiction may be raised by either party or the Court at any
stage of a proceeding. Moorhous v. Commissioner, 116 T.C. 263, 272 (2001)
(citing Smith v. Commissioner, 96 T.C. 10, 13-14 (1991)). The Tax Court is a
court of limited jurisdiction and may exercise jurisdiction only when Congress has
expressly authorized it to do so. See sec. 7442; Breman v. Commissioner, 66 T.C.
61, 66 (1976); see also Rule 13(b). The Court has jurisdiction to determine its
jurisdiction over a particular case. Kluger v. Commissioner, 83 T.C. 309, 314
(1984). Moreover, the Court’s jurisdiction cannot be enlarged by the parties’
agreement, or waiver, or failure to object. Romann v. Commissioner, 111 T.C.
273, 281 (1998).
Although the IRS had sent petitioner a Letter 3172(DO), and petitioner had
requested a section 6320 hearing, with respect to the NFTL filing for the
December 31, 2010, Form 941 liability, the original notices of determination did
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not include the NFTL filing for that liability as a collection action for which the
IRS had made a determination. However, the supplemental notice of
determination stated that it “includes the period ending 12/31/2010 for both the
levy and the lien as the taxpayer requested.” Respondent contends that the Court
has jurisdiction to review the NFTL filing for the December 31, 2010, Form 941
liability because its omission from the original notices of determination was an
inadvertent clerical error, petitioner “substantively received a hearing with respect
to” the collection action, and the supplemental notice of determination “simply
clarifies that the hearing and determination [with respect to the liability] were
embedded in the original notices of determination and hearing.”12 We therefore
consider whether the original notices of determination confer jurisdiction over the
NFTL filing for petitioner’s December 31, 2010, Form 941 liability, and if not,
whether the supplemental notice of determination cures the jurisdictional defect.
In Lunsford v. Commissioner, 117 T.C. 159, 164 (2001), we held that the
only statutory requirements for jurisdiction under section 6330(d)(1)(A) were “a
written notice that embodies a determination to proceed with the collection of the
12
On June 10, 2015, the Court ordered respondent to file a memorandum
brief explaining his position with respect to this jurisdictional issue. The Court
permitted but did not require petitioner to file an answering brief by August 14,
2015, and petitioner did not do so.
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taxes in issue, and a timely filed petition.” Although the Appeals Office’s
determination need not follow a particular format, see Craig v. Commissioner, 119
T.C. 252 (2002), the determination must be in writing, see Lunsford v.
Commissioner, 117 T.C. at 164; sec. 301.6330-1(e), Q&A-E8, Proced. & Admin.
Regs. If the Appeals Office does not issue a written determination with respect to
a particular taxable period or liability under sections 6320/6330, the absence of
such a determination is grounds for dismissal of a petition regarding that period or
liability. See Offiler v. Commissioner, 114 T.C. 492, 498 (2000). It therefore
follows that a notice of determination must specify to which taxable period,
liability, and collection action it relates13 or, at the very least, provide sufficient
13
Similarly, we and several U.S. Courts of Appeals have stated that a valid
notice of deficiency must at a minimum (1) advise the taxpayer that the IRS has
made a determination and (2) specify the amount of the deficiency and the tax year
involved. See Geiselman v. United States, 961 F.2d 1 (1st Cir. 1992); Portillo v.
Commissioner, 932 F.2d 1128, 1132 (5th Cir. 1991), aff’g in part, rev’g in part,
and remanding T.C. Memo. 1990-68; Abrams v. Commissioner, 814 F.2d 1356,
1357 (9th Cir. 1987), aff’g 84 T.C. 1308 (1985); Alford v. Commissioner, 800
F.2d 987, 988 (10th Cir. 1986), aff’g 84 T.C. 1308 (1985); Benzvi v.
Commissioner, 787 F.2d 1541, 1542 (11th Cir. 1986); Commissioner v. Stewart,
186 F.2d 239, 242 (6th Cir. 1951) (finding a deficiency notice valid where it fairly
advised the taxpayer of the amount and year of the deficiency and the taxpayer
was “fully advised * * * of the reasons forming the basis for the Commissioner’s
action”); Kellogg v. Commissioner, 88 T.C. 167, 172 (1987); see also Olsen v.
Helvering, 88 F.2d 650, 651 (2d Cir. 1937) (“[T]he notice is only to advise the
person who is to pay the deficiency that the Commissioner means to assess him;
anything that does this unequivocally is good enough.”).
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information so that the taxpayer cannot reasonably be deceived as to these items.14
See Commissioner v. Forest Glen Creamery Co., 98 F.2d 968, 971 (7th Cir. 1938),
rev’g and remanding 33 B.T.A. 564 (1935); Erickson v. Commissioner, T.C.
Memo. 1991-97, 61 T.C.M. (CCH) 2073, 2076-2077 (1991).
Normally a notice of determination includes these key pieces of information
and our jurisdiction to review a collection action for a particular taxable period
and liability is soundly established. When a notice of determination does not
clearly set forth this information, we must determine whether the notice is valid.
An invalid notice cannot form the basis for our jurisdiction, and the Commissioner
may proceed with the collection action only if he subsequently issues a valid
notice with attendant appeal rights. See sec. 6330(c)(3); Smith v. Commissioner,
124 T.C. 36, 44 (2005) (describing invalid notices of determination as “void and
of no effect”).
In certain circumstances we have held that a flaw in a jurisdictional notice is
not fatal if the notice, along with any attachments, is sufficient to apprise the
taxpayer of the Commissioner’s determination and the taxpayer was not prejudiced
14
The Appeals Office’s determination must also take into consideration the
items listed in sec. 6330(c)(3).
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or misled by the flaw.15 See John C. Hom & Assocs., Inc. v. Commissioner, 140
T.C. 210, 213 (2013) (“Mistakes in a notice will not invalidate it if there is no
prejudice to the taxpayer.” (citing Elings v. Commissioner, 324 F.3d 1110 (9th
Cir. 2003))). For example, we have held that typographical errors in a
jurisdictional notice as to the taxable period do not invalidate the notice where the
notice gives the taxpayer sufficient information to determine the period to which
the notice relates. See, e.g., Saint Paul Bottling Co. v. Commissioner, 34 T.C.
1137, 1138-1139 (1960) (finding a notice of deficiency valid when it erroneously
referred to the wrong years and the taxpayers were not misled by the error);
McCollin v. Commissioner, T.C. Memo. 2010-93, slip op. at 2 n.2 (finding a
notice of determination valid when an attachment to the notice referred to an
incorrect year but the notice itself and other relevant documents contained the
correct year); Petaluma FX Partners, LLC v. Commissioner, T.C. Memo. 2007-
254, slip op. at 6-8 (finding a notice of final partnership administrative adjustment
referring to a taxable year ended August 31, 2000, valid when: the taxpayer’s
taxable year ended December 31, 2000; the Commissioner made adjustments to
15
Because a notice of determination under secs. 6320/6330 is the
jurisdictional equivalent to a notice of deficiency, caselaw regarding the validity
of a notice of deficiency pursuant to sec. 6212 also informs our holding. See
Offiler v. Commissioner, 114 T.C. 492, 498 (2000).
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the correct year; and the partnership did not exist until the end of August 2000);
Call v. Commissioner, T.C. Memo. 2005-289, slip op. at 17 n.3 (stating that a
typographical error in the notice of determination erroneously referring to 1999 as
1990 did not affect the notice), aff’d, 230 F. App’x 758 (9th Cir. 2007); Anderten
v. Commissioner, T.C. Memo. 1993-2, 65 T.C.M. (CCH) 1697, 1698 (1993)
(finding a notice of deficiency that incorrectly referred to 1987 when the
Commissioner determined a deficiency for 1986 was valid when, taking the entire
document into consideration, the taxpayer could not have been misled); Erickson
v. Commissioner, 61 T.C.M. (CCH) at 2076-2077 (finding that a taxpayer was not
misled even though in some places the notice of deficiency referred to 1984
instead of the correct year 1982); Fernandez v. Commissioner, T.C. Memo. 1979-
476, 39 T.C.M. (CCH) 569, 571-572 (1979) (holding that a typographical error in
a notice of deficiency did not invalidate the notice when “the facts clearly show
that petitioners reasonably could not have been deceived as to the year covered by
the notice of deficiency”); Smith v. Commissioner, T.C. Memo. 1979-16, 38
T.C.M. (CCH) 51, 52-53 (1979) (finding a notice of deficiency valid when the
taxpayers were not confused or misled by the typographical errors in the notice of
deficiency referring to 1974-75 instead of 1972-73).
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However, the instant case is distinguishable from cases where the
jurisdictional notice contained a typographical or other minor error but still
revealed on its face that the Commissioner had made a determination with respect
to a particular period. The tables within the original notices of determination
listed all periods and collection activities for which the Appeals Office had made
determinations. They did not include the NFTL filing for petitioner’s December
31, 2010, Form 941 liability. Nothing in the remainder of the notices hints that the
Appeals Office made a determination with respect to the NFTL filing for that
liability. The references to the taxable period December 2010 on the first pages of
the original notices of determination do not provide clarification because the
notices address other collection activities with respect to that period.16 See supra
pp. 9-10 and note 9.
In short, the original notices of determination were devoid of any
information from which a reasonable person could conclude that the Appeals
Office had made a determination with respect to the NFTL filing for the December
16
Although sec. 6320 and sec. 6330 hearings are often held jointly when the
Commissioner has proposed to levy and has filed an NFTL with respect to the
same taxable period, a proposed levy and an NFTL filing are distinct collection
activities for which the Commissioner must make separate determinations, even if
those determinations are embodied in the same notice of determination. See secs.
6320, 6321, 6330, 6331.
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31, 2010, Form 941 liability. The fundamental purpose of a notice of
determination, i.e., to notify the taxpayer of the Appeals Office’s determination to
sustain a collection action for a particular taxable period, was not fulfilled. We
also do not look behind the notice, as respondent urges us to do, to determine
whether petitioner “substantively received a hearing with respect to” the
December 31, 2010, Form 941 liability. It is the Appeals Office’s written
determination, not the fact that a section 6320/6330 hearing occurred, that is the
basis for our jurisdiction. Cf. Lunsford v. Commissioner, 117 T.C. at 164-165
(holding that a notice valid on its face and a timely filed petition confer
jurisdiction on this Court whether or not the taxpayer had a fair section 6320/6330
hearing). We therefore hold that the original notices of determination do not
confer jurisdiction on this Court with respect to the NFTL filing for petitioner’s
December 31, 2010, Form 941 liability.
After petitioner filed its petition, we remanded this case to the Appeals
Office, and the Appeals Office issued a supplemental notice of determination. The
notice stated that “[t]his Supplemental Notice of Determination includes the period
ending 12/31/2010 for both the levy and the lien as the taxpayer requested.” We
must therefore determine whether a supplemental notice may form the basis for
our jurisdiction under sections 6320/6330 when the original notices of
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determination did not include a determination to sustain a collection activity for a
particular period or liability.
We considered whether a supplemental notice of determination can form the
basis for our jurisdiction under sections 6320/6330 in Ginsberg v. Commissioner,
130 T.C. 88 (2008). In Ginsberg, the Commissioner issued a notice of
determination sustaining a proposed levy of the taxpayer’s trust fund recovery
penalties. Id. at 89-90. The Court lacks jurisdiction over these penalties in
deficiency cases, see secs. 6211, 6213(a), and the Commissioner issued the notice
of determination before the enactment of the Pension Protection Act of 2006
(PPA), Pub. L. No. 109-280, sec. 855(a), 120 Stat. at 1019, which expanded the
Court’s section 6320/6330 jurisdiction to include review of the Commissioner’s
collection activity regardless of the type of underlying tax, see Callahan v.
Commissioner, 130 T.C. 44, 48 (2008). The taxpayer therefore disputed the notice
of determination by filing a complaint with the U.S. District Court for the District
of New Jersey, which subsequently remanded the case to the IRS Appeals Office.
Ginsberg v. Commissioner, 130 T.C. at 90. After Congress had enacted the PPA,
the Appeals Office issued a supplemental notice of determination sustaining the
collection action, and the taxpayer filed a petition in this Court disputing the
supplemental notice. Id.
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In holding that we lacked jurisdiction over the supplemental notice, we
noted that a taxpayer is entitled to only one section 6320 and 6330 hearing with
respect to a tax period, which in turn yields only one lien or levy determination for
each period. See id. at 92. Although the initial determination may be
supplemented following a remand, “[t]he supplemental determination notice is
merely a supplement to the original determination notice and relates back to the
original determination notice. It is not a new determination and does not provide
the taxpayer any additional appeal rights.” Id. at 92-93 (fn. ref. omitted). Because
we lacked jurisdiction over the original notice of determination, we similarly
lacked jurisdiction over the determination as supplemented. See id. at 93.
Respondent contends that Ginsberg is distinguishable from this case
because, “rather than attempting to confer additional jurisdiction on the Court that
could not have been present in the original notice, the supplemental notice in this
case simply clarifies that the original hearing and determination in this case
substantively included the period ending December 31, 2010 for the lien notice”.
We disagree with respondent that Ginsberg is distinguishable. As in Ginsberg, the
original notices of determination did not confer jurisdiction on the Court. It does
not matter that a predicate determination “could * * * have been present in the
original notice[s]” or that, as respondent contends, such a determination was
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“embedded in the original notices”. We have already found supra that the original
notices of determination did not embody a determination to sustain the NFTL
filing for petitioner’s December 31, 2010, Form 941 liability. The supplemental
notice merely relates back to the original notices and is not a new determination.
See id. at 92-93. It did not provide petitioner with any additional appeal rights and
therefore cannot form the basis for our jurisdiction under sections 6320 and 6330.
See id. at 93 & n.3 (“If we do not have jurisdiction to review the original
determination notice, * * * the issuance of a supplemental determination notice
does not give us jurisdiction.”).
The original notices of determination were insufficient to confer jurisdiction
to review the NFTL filing for petitioner’s December 31, 2010, Form 941 liability.
A supplemental notice of determination cannot cure this jurisdictional defect.
Therefore, we do not have jurisdiction to review the NFTL filing for petitioner’s
December 31, 2010, Form 941 liability.
III. The Underlying Liabilities
We next review whether petitioner may challenge the underlying liabilities
with respect to the taxable periods over which we have jurisdiction. Petitioner has
continuously maintained that it does not owe the underlying employment taxes
because (1) the IRS has the burden of proving that petitioner paid employees for
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the periods at issue and (2) the IRS did not meet this burden because it may not
rely on documentary evidence obtained after the issuance of the original notices of
determination to sustain the assessed taxes. Respondent contends that petitioner
may not challenge the underlying liabilities because the Letter 1085(DO)
constituted a prior opportunity to dispute the liabilities and because petitioner did
not properly raise the issue with the Appeals Office. Because we find that
petitioner did not properly raise the underlying liabilities with the Appeals Office
after a reasonable opportunity to do so, we do not address whether the Letter
1085(DO) provided petitioner with a prior opportunity to challenge the liabilities.
See Caudle v. Commissioner, T.C. Memo. 2014-196, at *6-*7 n.2, aff’d, 603 F.
App’x 220 (4th Cir. 2015).
In reviewing a determination under section 6330(c)(2), including challenges
to the underlying liability, we consider only issues that the taxpayer properly
raised during the section 6320/6330 hearing. Secs. 301.6320-1(f)(2), Q&A-F3,
301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; see Giamelli v.
Commissioner, 129 T.C. 107, 115 (2007). The taxpayer does not properly raise an
issue, including the underlying liability, during the hearing if it “fails to present to
Appeals any evidence with respect to that issue after being given a reasonable
opportunity to present such evidence.” Secs. 301.6320-1(f)(2), Q&A-F3,
- 29 -
301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; see Pough v. Commissioner,
135 T.C. 344, 349 (2010).
On remand petitioner had ample opportunity to file its delinquent tax returns
and present any other information that it wanted Settlement Officer Mares to
consider with respect to the employment tax liabilities. In the letter dated August
22, 2013, Settlement Officer Mares stated that, because petitioner may not have
been aware of the opportunity to submit its own returns upon receipt of the Letter
1085(DO), the IRS would process the delinquent returns for the periods at issue if
petitioner submitted them by August 31, 2013. Even though petitioner responded
to this request with generally unhelpful and irrelevant information, Settlement
Officer Mares allowed petitioner an extension of time to file the returns until
September 13, 2013. She told petitioner that it could use the documents that
respondent had provided or any additional information to prepare the returns.
Instead of filing returns or producing any relevant information, petitioner
continued to assert that it was not liable for the underlying liabilities because
respondent could not prove, using only information available during the original
hearing, the existence of any employees.
Petitioner, rejecting the documentary evidence that respondent obtained
during the trial as untimely and therefore irrelevant, quotes Gatlin v.
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Commissioner, 754 F.2d 921, 923 (11th Cir. 1985), aff’g T.C. Memo. 1982-489,
for the proposition that “a taxpayer should not bear the burden of proving a
negative (no unreported income) if the Commissioner can present no substantive
evidence to support his deficiency claim.” However, Gatlin is a deficiency case
and does not address the requirements for properly raising an issue before the
Appeals Office. See id.
On remand the Appeals Office provided petitioner with documentary
evidence of petitioner’s employees, including copies of checks, summaries of
petitioner’s own bank records, documents showing employment tax payments to
the State of New Mexico, and bills and renewal notifications from the workers’
compensation insurance policy, and petitioner still did not produce its own
evidence tending to refute the Appeals Office’s determinations. Petitioner
contends that the documentary evidence is insufficient because it includes
references to taxable periods not at issue. Although the record contains references
to taxable periods other than the ones at issue here, it also contains documentary
evidence related to the periods at issue.
Petitioner also invokes the Chenery doctrine, although not by name, to
discount respondent’s evidence by contending that the determinations cannot be
upheld on grounds other than those upon which the Appeals Office actually relied.
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See SEC v. Chenery Corp., 332 U.S. 194 (1947); SEC v. Chenery Corp. (Chenery
I), 318 U.S. 80 (1943); Antioco v. Commissioner, T.C. Memo. 2013-35, at *24-
*25. Petitioner interprets this doctrine to mean that respondent may not consider
documentary evidence during a remand section 6320/6330 hearing that was
unavailable at the original hearing.
Petitioner is correct in stating that we uphold the Appeals Office’s
determination only on grounds upon which the Appeals Office actually relied in
the notice of determination. See Chenery I, 318 U.S. at 93-95; Antioco v.
Commissioner, at *24-*25; Jones v. Commissioner, T.C. Memo. 2012-274, at *22-
*23. However, sections 6320(b)(2) and 6330(b)(2) provide that a taxpayer is
entitled to only one hearing with respect to either an NFTL filing or a proposed
levy, respectively, for the taxable period related to the unpaid liability.17 Freije v.
Commissioner, 131 T.C. 1, 5 (2008), aff’d, 325 F. App’x 448 (7th Cir. 2009);
Kelby v. Commissioner, 130 T.C. 79, 86 (2008). A hearing on remand is a
supplement to the taxpayer’s original section 6320/6330 hearing and provides the
parties with the opportunity to complete the initial section 6320/6330 hearing
while preserving the taxpayer’s right to receive judicial review of the ultimate
17
To the extent it is practicable, a sec. 6330 hearing will be held in
conjunction with a sec. 6320 hearing. Sec. 301.6330-1(d)(2), Q&A-D3, Proced. &
Admin. Regs.
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administrative determination. Wadleigh v. Commissioner, 134 T.C. at 299; Kelby
v. Commissioner, 130 T.C. at 86. The Appeals Office on remand is not
constrained by the original administrative record, as often the purpose of remand
is to augment a deficient record. See Hoyle v. Commissioner, 136 T.C. 463, 468-
469 (2011), supplementing 131 T.C. 197 (2008); see also Meyer v. Commissioner,
T.C. Memo. 2013-268, at *27-*30 (remanding a case to the Appeals Office to
supplement the administrative record to show that a notice of deficiency was
properly mailed). The Appeals Office makes a single determination with respect
to an NFTL filing or a proposed levy for a taxable period. Kelby v.
Commissioner, 130 T.C. at 86. When this Court remands a case and the Appeals
Office issues a supplemental notice of determination, we review the determination
as supplemented.18 Id.
On remand Settlement Officer Mares had access to and relied upon
documentation unavailable during the original hearing. Respondent provided
these documents, subpoenaed in preparation for trial, to petitioner upon receipt
18
Because we review the determination as supplemented, the remand cured
misstatements of fact in the original notices of determination, such as the incorrect
assertion that petitioner voluntarily filed employment tax returns. See Kelby v.
Commissioner, 130 T.C. 79, 86 (2008); Langley v. Commissioner, T.C. Memo.
2015-11 (sustaining a supplemental notice of determination after the taxpayer’s
sec. 6330 hearing was remanded because the notice of determination relied upon
misstatements in the administrative record).
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and incorporated them into the administrative record on remand. We remanded
this case in part for the Appeals Office to clarify whether petitioner had had a prior
opportunity to challenge the underlying liabilities and to explain to petitioner the
basis of the underlying assessments. Settlement Officer Mares appropriately relied
on the additional documents to carry out the Court’s remand order and did not
violate the Chenery doctrine in doing so. Petitioner may not distort the law to
justify its continued refusal to cooperate with respondent or its abdication of the
fundamental responsibilities of maintaining records and filing tax returns. See
Hoyle v. Commissioner, 136 T.C. at 468; Jordan v. Commissioner, T.C. Memo.
2011-243, slip op. at 8 (“When we remand a case to the Appeals Office to clarify
the record * * *, the Appeals Office is not limited to what the Appeals Office
considered during the first administrative hearing.” (citing Hoyle v.
Commissioner, 136 T.C. at 468)), supplementing 134 T.C. 1 (2010); see also sec.
6001; secs. 31.6011(a)-1(a)(1), 31.6011(a)-3, Employment Tax Regs. (requiring
employers to file returns under FICA and FUTA). Petitioner therefore did not
properly challenge the underlying liabilities during the section 6320/6330 hearing,
and we do not address them here.19 See Pough v. Commissioner, 135 T.C. at 349
19
Moreover, petitioner did not allege any facts or produce any credible
evidence regarding the underlying liabilities in the stipulation of facts or otherwise
(continued...)
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(holding that the taxpayer did not properly challenge the underlying liabilities
when he did not file amended income tax returns before the Appeals Office issued
the notice of determination despite saying he would do so); Busche v.
Commissioner, T.C. Memo. 2011-285, slip op. at 32-33 (discussing the taxpayer’s
and the Commissioner’s burdens and responsibilities during a section 6320/6330
hearing); see also sec. 6020(b); Andary-Stern v. Commissioner, T.C. Memo. 2002-
212, slip op. at 11 (explaining that, in the absence of a taxpayer-filed return, the
Commissioner need only “do the best he can with the information available to
him”).
We also do not consider the validity of the section 6651(a)(3) additions to
tax, which are part of the underlying liabilities. See Katz v. Commissioner, 115
T.C. 329, 338-339 (2000). Section 6651(a)(3) imposes an addition to tax in the
case of a failure to pay a tax required to be shown on a return, which was not so
shown, within 21 days after the date of the IRS’ notice and demand letter.
Because the IRS first proposed to assess these additions to tax in the levy notice,
petitioner did not have a prior opportunity to dispute the additions to tax and was
entitled to challenge them during the section 6320/6330 hearing. See Ramdas v.
19
(...continued)
that would permit us to conclude that it properly raised the issue before the Court.
See Rule 331(b)(5); Goza v. Commissioner, 114 T.C. 176, 183 (2000).
- 35 -
Commissioner, T.C. Memo. 2013-104, at *39-*41 (holding that the taxpayer was
entitled to challenge a section 6651(a)(3) addition to tax during a section 6330
hearing because the addition to tax did not accrue until after the issuance of the
notice of deficiency, assessment, and notice and demand). However, petitioner did
not seek administrative review of the additions to tax on his section 6320/6330
hearing request or during the hearing itself, and petitioner did not assign error to
the additions to tax in the petition. Neither the original notices of determination
nor the supplemental notice of determination addressed the additions to tax.
Pursuant to section 6330(c)(3)(B) the Appeals Office’s determination shall
take into consideration issues “raised” by the taxpayer under paragraph (2).
“Thus, if an issue is never raised at the hearing, it cannot be a part of the Appeals
* * * [Office’s] determination.” Giamelli v. Commissioner, 129 T.C. at 113. We
generally cannot review under section 6330(c)(2) respondent’s determinations on
the basis of an issue that petitioner did not raise and that the Appeals Office never
considered, and we therefore do not disturb the determinations on the basis of the
nonruling on the section 6651(a)(3) additions to tax. See Magana v.
Commissioner, 118 T.C. 488, 493-494 (2002); Ramdas v. Commissioner, at *41;
see also Rule 331(b)(4); Funk v. Commissioner, 123 T.C. 213, 218 (2004)
(holding that, when a taxpayer fails to assign error in the petition with respect to
- 36 -
an addition to tax, the taxpayer is deemed to have conceded that item and the
Commissioner has no obligation to produce evidence to support the determination
(citing Swain v. Commissioner, 118 T.C. 358 (2002))). But cf. Hoyle v.
Commissioner, 131 T.C. at 201-203 (holding that the Court may review the
Appeal Office’s verification under section 6330(c)(1) without regard to whether
the taxpayer raised it at the section 6320/6330 hearing).
IV. Conclusion
Because petitioner may not challenge the underlying liabilities, we review
the Appeals Office’s determinations for abuse of discretion. See Sego v.
Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 182. The
record supports a finding that the Appeals Office properly verified that the
requirements of applicable law and administrative procedure had been met. See
sec. 6330(c)(3); Wadleigh v. Commissioner, 134 T.C. at 287-288. Petitioner did
not request a collection alternative or file the necessary financial information and
past due returns that would have allowed the Appeals Office to consider accepting
one. See sec. 6330(c)(2)(A)(iii). Although petitioner checked the box for “Lien
Withdrawal” on its section 6320/6330 request, it did not present the Appeals
Office with any evidence regarding its entitlement to a withdrawal of the NFTL
filing and therefore did not properly raise the issue before the Appeals Office or
- 37 -
this Court. See Giamelli v. Commissioner, 129 T.C. at 115; Magana v.
Commissioner, 118 T.C. at 493-494; sec. 301.6320-1(f)(2), Q&A-F3, Proced. &
Admin. Regs. The Appeals Office properly balanced the need for efficient
collection of taxes with petitioner’s concerns regarding the intrusiveness of the
proposed collection actions.
We have considered the parties’ remaining arguments, and to the extent not
discussed above, conclude those arguments are irrelevant, moot, or without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered.