Martinez v. Comm'r

T.C. Summary Opinion 2010-148

UNITED STATES TAX COURT

CARLOS J. MARTINEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11505-08S. Filed October 5, 2010.

Carlos J. Martinez, pro se.

A. Gary Begun, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code.
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The petition in this case arises from the issuance of a

notice of determination by the Los Angeles Appeals Office

allowing the Internal Revenue Service (IRS) to proceed with

collection by levy of petitioner’s unpaid assessed 2002 Federal

income tax liability.

The threshold issue for decision is whether petitioner was

entitled to contest his underlying liability for 2002 at the

collection hearing. If so, then the Court must decide the

correctness of adjustments set forth below that respondent had

previously determined in a notice of deficiency and assessed with

respect to petitioner’s 2002 Federal income tax return: (1)

Disallowance of dependency exemption deductions that petitioner

claimed for his two children; (2) disallowance of all of the

expenses that petitioner claimed on his Schedule C, Profit or

Loss From Business; (3) disallowance of the earned income tax

credit that petitioner claimed, which he computed using his two

children as qualifying dependents; and (4) an addition to tax

under section 6651(a)(1) for late filing. If petitioner was not

entitled to contest his underlying liability at the collection

hearing, then the Court must decide whether respondent abused his

discretion by sustaining the proposed levy collection action for

petitioner’s unpaid Federal income tax liability for 2002.
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Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.1 When the petition was

filed, petitioner resided in California.

Petitioner married Cristofora M. Martinez in 1993. They had

two children born during their marriage: One born in 1994 and

the other in 1998.

Since at least 1995 and continuing through the date of

trial, including the year at issue, 2002, petitioner has

maintained a license as a registered process server. In 2002

petitioner was also attending Cal State part time at night

studying toward a master’s degree. Ms. Martinez started working

in 2002 at a hospital during the overnight shift as a certified

nurse assistant. Throughout the year petitioner lived with Ms.

Martinez and their two children in a two-bedroom apartment. The

children attended school during the day.

In March 2003 Ms. Martinez had the police remove petitioner

from their family apartment because of domestic violence. The

police detained petitioner but did not arrest or charge him.

1
Petitioner initially objected in writing and at trial to
several documents respondent proffered, stating that he had not
previously received copies of the documents. Petitioner,
however, after reviewing copies of the documents at trial,
withdrew his objections, and the Court received them into
evidence.
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Afterwards, petitioner never returned. He lived in his

automobile for a while, then began staying with a cousin. As of

the date of trial, petitioner still considered himself “legally

* * * homeless”. In May 2005 petitioner and Ms. Martinez

divorced.

From no later than early 2003 and possibly years earlier,

petitioner rented a U.S. Postal Service (Postal Service or PS)

post office box (P.O. box) that he used as his official mailing

address. Petitioner continued to use and listed on the petition

that he filed with this Court in May 2008 the same P.O. box as

his address.

Petitioner had an accountant prepare his 2002 Federal income

tax return. Petitioner listed the aforementioned P.O. box as his

filing address on the return. The accountant and petitioner

dated their signatures August 9, 2003, and petitioner mailed the

return on August 13, 2003, to the IRS. Petitioner did not

request or receive an extension of time to file the return.

Petitioner filed his 2002 return as single. He claimed a

dependency exemption deduction for each of his two children. He

reported that the process server activity was his sole source of

income. Petitioner attached a Schedule C to the return on which

he listed the same P.O. box as the address for his process server

activity. On the Schedule C, petitioner reported a net profit of

$5,553, which consisted of $29,682 in gross receipts and $24,129
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in business expense deductions. Petitioner also claimed an

earned income credit (EIC) of $2,070 for 2002. He attached to

his return a Schedule EIC, Earned Income Credit, on which he

claimed his two children as qualifying dependents for purposes of

calculating the EIC. Petitioner’s return resulted in a $1,285

overpayment, for which petitioner requested a full refund.

The IRS froze the refund. In April 2004 the IRS mailed to

petitioner at his P.O. box address a letter requesting

documentation to support his dependency exemption deductions,

Schedule C expenses, and EIC for 2002. Petitioner did not

respond.

Respondent issued a notice of deficiency dated June 17,

2004, to petitioner determining a deficiency in petitioner’s 2002

Federal income tax of $8,160 and an addition to tax of $1,375 for

late filing under section 6651(a)(1). The deficiency arose from

respondent’s disallowance of the two claimed dependency

exemptions deductions, all of the claimed Schedule C business

expense deductions, and the entire earned income tax credit and

determination of a computational increase in petitioner’s self-

employment tax.

Respondent sent the notice of deficiency by certified mail

to petitioner’s last known address, his P.O. box. The Postal

Service left a notice in petitioner’s P.O. box informing him that

he had received certified mail. Petitioner did not claim the
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notice of deficiency, and the Postal Service returned the notice

of deficiency to respondent with a stamp on the envelope marking

it as “unclaimed”.

Because petitioner did not file a petition with the Court in

response to the notice of deficiency, the IRS on November 22,

2004, assessed the deficiency, addition to tax, and interest for

2002. On February 9, 2005, the IRS filed a Federal tax lien for

unpaid income taxes for 2001-2003 in the county where petitioner

resided. In a further attempt to collect petitioner’s unpaid

2002 and 2003 Federal income tax liabilities, respondent sent a

Final Notice of Intent to Levy and Notice of Your Right to a

Hearing (final notice) dated December 22, 2006, to petitioner at

his P.O. box. Petitioner’s total unpaid liabilities at this time

were $11,969.29 and $520.02 for 2002 and 2003, respectively.2

Petitioner responded to this final notice by filing a Form

12153, Request for a Collection Due Process or Equivalent

Hearing, dating his request as January 9, 2007. Petitioner’s

envelope listed his P.O. box as his return address.

In response to the Form 12153, a settlement officer reviewed

the IRS’ files, confirmed that the IRS had followed the proper

administrative procedures before issuing the final levy notice,

2
After filing this petition, petitioner paid his 2003
Federal income tax liability in full. Respondent moved to
dismiss the case with regard to tax year 2003 on the ground of
mootness, which the Court granted. Therefore, 2002 is the only
year remaining at issue.
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and sent a letter to petitioner at his P.O. box scheduling a

telephone collection hearing for July 19, 2007. The letter also

informed petitioner that a discussion of collection alternatives

was not possible unless petitioner completed the enclosed Form

433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals. The settlement officer made the

conference call at the appointed time, but the telephone number

that petitioner had provided on the Form 12153 had been

disconnected.

Four days later, petitioner called the settlement officer.

He stated that he had exhausted his ability to pay, questioned

how he could have a liability for 2002 in excess of $12,000 when

his gross income for the year was only $5,553, and requested a

face-to-face hearing. The settlement officer transferred the

case to another settlement officer who was in a location

convenient to petitioner. The new settlement officer reviewed

petitioner’s file, determined again that the IRS had followed the

proper administrative procedures, noted that petitioner had

previously filed an offer-in-compromise for 2002, and scheduled

an in-person hearing for October 2, 2007. Petitioner appeared at

the appointed time.

At the hearing petitioner attempted to contest his unpaid

underlying income tax liability for 2002 by contending that he

was entitled to: (1) The two disallowed dependency exemption
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deductions; (2) the disallowed Schedule C business expense

deductions; and (3) the disallowed earned income tax credit.

Petitioner did not provide documentation to support his

entitlement to the disallowed deductions or the disallowed EIC.

Petitioner did not bring a completed Form 433-A and stated that

he did not have a bank account, he was living with his cousin,

and instead of maintaining his process server activity he now

helped people fill out documents for courts. The settlement

officer suggested another offer-in-compromise as a collection

alternative. Petitioner was receptive, and the settlement

officer gave petitioner until the end of the month to complete

Form 433-A and Form 656, Offer in Compromise.

On October 17, 2007, the settlement officer received from

petitioner the two requested forms, which were incomplete. The

settlement officer forwarded the forms to the IRS centralized

processing unit for offers-in-compromise. Under doubt as to

collectibility, petitioner offered $500 to settle in full his

unpaid liabilities for 1999 through 2002. Petitioner indicated

that he was living with a relative, that he had monthly income

and expenses of $1,000 and $1,310, respectively, and that his

only assets were $48 in cash on hand and a 2003 car with a fair

market value of $1,500 and a current loan balance of $4,324.13.

On February 15, 2008, petitioner orally withdrew his offer-

in-compromise because he was unable or unwilling to provide
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certain supporting documentation that the IRS had requested. The

settlement officer wrote to petitioner requesting that he propose

another collection alternative within the next 3 weeks.

Petitioner did not respond with any other collection alternative.

Consequently, in a notice of determination dated April 16, 2008,

the Appeals team manager sustained the proposed levy collection

action.

Discussion

I. Standard of Review

If a taxpayer neglects or refuses to pay a Federal income

tax liability within 10 days after notice and demand for payment,

the Commissioner may collect the tax by levy upon the person’s

property. Sec. 6331(a). The Commissioner generally must provide

the taxpayer written notice of the right to a hearing before the

levy is made. Sec. 6330(a). Upon a timely request, the taxpayer

is entitled to an administrative hearing before an impartial

officer or employee of the Appeals Office. Sec. 6330(b).

Following the hearing, the Appeals officer must determine whether

the collection action is to proceed, taking into account the

verification the Appeals officer has made, the issues raised by

the taxpayer at the hearing, and whether the collection action

balances the need for the efficient collection of taxes with the

legitimate concern of the taxpayer that any collection action be

no more intrusive than necessary. Sec. 6330(c)(3).
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At the hearing a taxpayer may raise any relevant issue,

including appropriate spousal defenses, challenges to the

appropriateness of the collection action, and possible collection

alternatives. Sec. 6330(c)(2)(A). A taxpayer may contest the

validity of the underlying income tax liability, but only if the

taxpayer did not receive a notice of deficiency or otherwise have

an opportunity to dispute the underlying income tax liability.

See sec. 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609

(2000). The phrase “underlying tax liability” includes the

deficiency, additions to tax, and statutory interest. Katz v.

Commissioner, 115 T.C. 329, 339 (2000). We will now apply the

law to the facts and circumstances of this case.

II. Whether Petitioner May Challenge the Underlying Liability

Section 6212(a) and (b)(1) provides that a valid notice of

deficiency has been issued if it is mailed to the taxpayer’s last

known address. Where the Commissioner produces a properly

executed Postal Service Form 3877 showing that the IRS sent a

notice of deficiency by certified mail to the taxpayer at the

individual’s last known address, the presumption of official

regularity arises. The presumption creates a strong indication

that the IRS mailed the notice and that the Postal Service

delivered or offered the notice for delivery at the address to

which it was sent. In the absence of clear evidence to the
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contrary, receipt of the notice will be presumed. See Sego v.

Commissioner, supra at 611.

Where the taxpayer does not dispute the existence of the

notice of deficiency, the Commissioner’s production of a properly

completed PS Form 3877 is sufficient evidence by itself, absent

evidence to the contrary, that the Commissioner properly mailed

the notice of deficiency to the taxpayer. United States v.

Zolla, 724 F.2d 808, 810 (9th Cir. 1984);3 Coleman v.

Commissioner, 94 T.C. 82, 91 (1990). Thus, the Commissioner’s

strict compliance with PS Form 3877 mailing procedures raises a

presumption of official regularity in favor of the Commissioner.

United States v. Zolla, supra; Coleman v. Commissioner, supra.

A taxpayer’s self-serving claim that he did not receive a

notice of deficiency standing alone is generally insufficient to

rebut the presumption of official regularity. See Sego v.

Commissioner, supra at 611. In addition, a taxpayer cannot

defeat actual receipt by deliberately refusing delivery. Sego v.

Commissioner, supra at 610-611; Stein v. Commissioner, T.C. Memo.

2004-124; Carey v. Commissioner, T.C. Memo. 2002-209.

Petitioner does not dispute the existence of the notice of

deficiency, and he admits the IRS addressed the notice to his

last known address. He asserts, however, that he did not

3
If this case were appealable, which it is not because
petitioner elected sec. 7463 small tax case procedures, the
appeal would lie in the Court of Appeals for the Ninth Circuit.
 - 12 -

deliberately refuse to accept delivery of the notice of

deficiency. Instead, petitioner contends that the Postal Service

returned the notice of deficiency to the IRS before he had time

to claim the delivery because during this period, he checked his

P.O. box no more often than once a week, and at times 2 or 3

weeks would pass before he returned to check the P.O. box.

At trial the Court received into evidence a copy of the

notice of deficiency that respondent sent by certified mail on

June 17, 2004, to petitioner at his last known address, the P.O.

box he had listed on his 2002 Federal income tax return that he

had filed in August 2003. The Court also received into evidence

a properly executed PS Form 3877, dated June 17, 2004, which

recorded that a notice of deficiency was sent by certified mail

to petitioner at his last known address.

Petitioner’s claim that he did not receive the notice of

deficiency because he infrequently checked his mailbox is

insufficient to rebut the presumption of official regularity that

the notice of deficiency was delivered to or offered for delivery

at his last known address consistent with the PS Form 3877

certified mail list dated June 17, 2004.

Respondent followed official procedure by providing the June

17, 2004, certified mail list, demonstrating that the notice of

deficiency was sent, by certified mail, to petitioner’s last

known address. The Postal Service left notice for petitioner,
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but the notice of deficiency remained unclaimed. The Postal

Service returned the notice to respondent marked “unclaimed”.

Petitioner is therefore deemed to have been in receipt of

the notice of deficiency. Accordingly, he is not entitled to

challenge his underlying income tax liability. See Sego v.

Commissioner, 114 T.C. at 611; Goza v. Commissioner, 114 T.C.

176, 182 (2000).

III. Review of the Notice of Determination for Abuse of
Discretion

When the validity of the underlying tax liability is not

properly at issue, as is the case here, the Court reviews the

notice of determination for abuse of discretion. Sego v.

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

We have jurisdiction to review Appeals Office determinations

upholding levy actions. Sec. 6330(d)(1). Generally, the Court

will consider only arguments, issues, and other matters that were

raised at the section 6330 hearing or otherwise brought to the

attention of the Appeals Office. Magana v. Commissioner, 118

T.C. 488, 493 (2002). The Appeals Office abuses its discretion

if the taxpayer shows that the Appeals Office’s actions were

arbitrary, capricious, or without sound basis in fact. Mailman

v. Commissioner, 91 T.C. 1079, 1084 (1988).

Petitioner initially proposed an offer-in-compromise during

his hearing, but he later orally withdrew the offer. The only

other argument petitioner advanced was a challenge to his
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underlying liability. He has not presented any other evidence

demonstrating that the determination to sustain the levy was

arbitrary, capricious, or without foundation in fact, or

otherwise an abuse of discretion.

This Court has consistently held that there is no abuse of

discretion in sustaining a levy when the taxpayer fails to

propose any collection alternatives. See Kendricks v.

Commissioner, 124 T.C. 69, 79 (2005); Cavazos v. Commissioner,

T.C. Memo. 2008-257. Here: (1) The Appeals Office verified that

all requirements of applicable law and administrative procedure

were met and that the proposed levy balanced the need for

efficient collection of taxes with concerns that the collection

be no more intrusive than necessary; and (2) petitioner failed to

provide all of the information that the settlement officers

requested and did not provide a serious collection alternative.

Accordingly, the Court finds that respondent did not abuse his

discretion in sustaining the proposed collection action.

To reflect the foregoing,

Decision will be entered

for respondent.