Patrick's Payroll Services, Inc. v. Commissioner , 2020 T.C. Memo. 47 ( 2020 )

T.C. Memo. 2020-47
UNITED STATES TAX COURT
PATRICK’S PAYROLL SERVICES, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20245-18L. Filed April 14, 2020.
Joseph Falcone, for petitioner.
Michael C. Dancz and John Q. Walsh, Jr., for respondent.
MEMORANDUM OPINION
URDA, Judge: In this collection due process (CDP) case Patrick’s Payroll
Services, Inc. (Patrick’s Payroll), seeks review pursuant to section 6330(d)(1)1 of
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure. We round all monetary amounts to the
(continued...)
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[*2] the determination of the Internal Revenue Service (IRS) Office of Appeals2 to
uphold a notice of intent to levy to collect its outstanding 2010 and 2011
employment tax liabilities as well as associated penalties and additions to tax.
Specifically, Patrick’s Payroll seeks to challenge its underlying liabilities and
raises no other issues.
Respondent has moved for summary judgment under Rule 121, contending
that no disputed issues of material fact remain, that Patrick’s Payroll is barred
from challenging its underlying liabilities, and that the settlement officer acted
within his discretion in upholding the levy action. We agree and accordingly will
grant the motion.
Background
The following facts are based on the parties’ pleadings and motion papers,
including the attached declarations and exhibits. See Rule 121(b). Patrick’s
1
(...continued)
nearest dollar.
2
On July 1, 2019, the IRS Office of Appeals was renamed the IRS
Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25,
sec. 1001, 133 Stat. at 983 (2019). As the events in this case predated that change,
we will use the name in effect at the times relevant to this case, i.e., the Office of
Appeals.
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[*3] Payroll had its principal place of business in Monroe, Michigan, when it
timely filed its petition.
A. 2010 and 2011 Tax Liabilities
Patrick’s Payroll was an employee leasing company that provided payroll
services in 2010 and 2011 to one client, a private security company for whom the
owner of Patrick’s Payroll worked as a security guard. Patrick’s Payroll treated
the security company’s workers as its own employees, paying their wages and
issuing Forms W-2, Wage and Tax Statement, to them during 2010 and 2011. It
failed, however, to pay over the required Federal employment taxes to the IRS and
did not file the required Federal employment tax returns (Form 940, Employer’s
Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer’s
Quarterly Federal Tax Return) for 2010 and 2011.
By 2015 the IRS had launched an examination into the 2010 and 2011
employment tax liabilities relating to the security company’s leased workers.
During the examination Patrick’s Payroll pleaded ignorance of the requirement to
file the employment tax returns, failed to introduce any documentation, and
refused interview requests from the IRS.
The revenue agent conducting the examination thereafter discussed with her
immediate supervisor her intention to assert additions to tax under
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[*4] section 6651(a)(1) and (2) (for failure to timely file and pay, respectively) and
penalties under section 6656 (for failure to deposit taxes) with respect to the 2010
and 2011 employment tax liabilities. On June 28, 2016, the supervisor approved
in writing the revenue agent’s proposed assertion of additions to tax and penalties.
On April 24, 2017, the revenue agent sent Patrick’s Payroll a Letter 950-D
(30-day letter) proposing employment tax liabilities, along with the foregoing
additions to tax and penalties, totaling $985,627 for 2010 and 2011. The 30-day
letter informed Patrick’s Payroll that it could contest the proposed changes by
requesting a conference with the Office of Appeals within 30 days of the date of
the letter. Patrick’s Payroll did not do so. The revenue agent accordingly closed
the case in August 2017, and the IRS assessed the amounts set forth in the 30-day
letter.
B. CDP Proceeding
To collect the unpaid 2010 and 2011 liabilities of Patrick’s Payroll, the IRS
issued a notice of intent to levy, which apprised Patrick’s Payroll of its right to
request a CDP hearing pursuant to section 6330(a). Patrick’s Payroll filed a timely
Form 12153, Request for a Collection Due Process or Equivalent Hearing, on
which it requested that its account be placed in currently not collectible (CNC)
status for 2010 and 2011 as a collection alternative. It also disputed the
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[*5] calculation of the underlying liabilities, asserting that it had begun operations
in September 2010 and thus was not responsible for employment taxes before that
time. Patrick’s Payroll did not identify any other issues on the form.3
The case thereafter was assigned to a settlement officer in the Office of
Appeals. On May 30, 2018, the settlement officer sent Patrick’s Payroll a letter
scheduling a telephone CDP hearing. Among other things the settlement officer
requested that Patrick’s Payroll submit a Form 433-B and a specific proposal for
its collection alternative within 14 days, emphasizing that he could not consider
any collection alternatives without such information. Patrick’s Payroll again did
not provide the requested information.
The telephone CDP hearing was held on July 25, 2018. During the hearing
a representative of Patrick’s Payroll admitted that the company had failed to timely
file the Forms 941 for 2010 and 2011 and conceded that it owed “some tax”. The
representative nonetheless challenged the “apportionment” of the underlying
employment tax liabilities, noting, among other things, that Patrick’s Payroll was
3
After receiving the Form 12153, the IRS issued a Letter 5139, which
informed Patrick’s Payroll that it was required to file all Federal tax returns and to
submit a Form 433-B, Collection Information Statement for Businesses, in order to
be eligible for the proposed collection alternative. Patrick’s Payroll did not take
any action in response to this letter.
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[*6] defunct as of October 2011 and had no assets.4 Although the representative
was unable to offer details about the purported apportionment, the settlement
officer agreed to provide account transcripts and audit workpapers for his review.
The settlement officer also requested that Patrick’s Payroll provide information
about any collection alternative within two weeks (by August 8).
On August 2 Patrick’s Payroll sent the settlement officer a copy of its draft
Form 1120, U.S. Corporation Income Tax Return, for 2011 and a document
showing that its bank account was opened on September 7, 2010, and closed on
October 11, 2011. Patrick’s Payroll did not provide any more detailed financial
information or information about collection alternatives. Having heard nothing
more from Patrick’s Payroll by September 7, 2018, the settlement officer closed
the case.
The Office of Appeals thereafter issued a notice of determination sustaining
the proposed levy action against Patrick’s Payroll and rejecting its request for a
collection alternative. The notice stated that Patrick’s Payroll had failed to offer
any response to the IRS transcripts and audit workpapers regarding its underlying
liabilities and that no collection alternative could be considered because Patrick’s
4
The record indicates that Patrick’s Payroll was dissolved as of July 15,
2013.
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[*7] Payroll had failed to provide the financial information necessary to conduct a
proper analysis.
C. Tax Court Proceedings
Patrick’s Payroll filed a timely petition with this Court seeking review of the
notice of determination. Respondent subsequently filed a motion for summary
judgment to which Patrick’s Payroll responded.
Discussion
I. Jurisdiction
The corporate petitioner in this case, Patrick’s Payroll, was dissolved in
2013, and we must consider its capacity to engage in litigation in our Court. See
Rule 60(c); see also NT, Inc. v. Commissioner, 126 T.C. 191, 193-194 (2006);
David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 269-271 (2000), aff’d,
22 F. App’x 837 (9th Cir. 2001). “If a petitioner lacks capacity, this Court has
held that it must dismiss the case for lack of jurisdiction.” Brannon’s of Shawnee,
Inc. v. Commissioner, 71 T.C. 108, 111 (1978); see also Central Motorplex, Inc. v.
Commissioner, T.C. Memo. 2013-286.
A corporation’s capacity to engage in litigation in this Court is determined
by the law under which the corporation was organized, which in this case is the
law of Michigan. See Rule 60(c). Generally, Michigan law provides that a
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[*8] dissolved corporation “shall continue to function in the same manner as if
dissolution had not occurred”, and it “may sue and be sued in its corporate name
* * * in the same manner as if dissolution had not occurred.” Mich. Comp. Laws
Ann. sec. 450.1834 (West 2020). However, Michigan law also provides that a
dissolved corporation “shall continue its corporate existence but shall not carry on
business except for the purpose of winding up its affairs” by, inter alia, “[p]aying
its debts and other liabilities.” See id. sec. 450.1833(c). Reading the statutes
together, Michigan courts have held that a dissolved Michigan corporation has a
reasonable period to wind up its affairs, including pursuing litigation. See, e.g.,
Flint Cold Storage v. Dep’t of Treasury, 776 N.W.2d 387, 394-396 (Mich. Ct.
App. 2009).
We conclude that Patrick’s Payroll’s litigation in this Court began within a
reasonable period after its dissolution. Patrick’s Payroll was dissolved on July 15,
2013. The record shows that the IRS had launched its examination into the
underlying employment tax liabilities by 2015, closed its examination and
assessed the tax liabilities in 2017, and then began collection actions in 2018.
After the Office of Appeals issued a notice of determination on September 19,
2018, upholding the proposed levy action, Patrick’s Payroll timely appealed to this
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[*9] Court under section 6330(d)(1). Its actions since have been consistent with
an effort to wind up its affairs.
In short, under Michigan law Patrick’s Payroll continues in existence for
purposes of this proceeding and has the legal capacity to maintain this suit.
II. Governing Standards
A. Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid costly,
time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment
when there is no genuine dispute as to any material fact and a decision may be
rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary
judgment, we construe factual materials and inferences drawn from them in the
light most favorable to the nonmoving party. Id. However, the nonmoving party
may not rest upon the mere allegations or denials of its pleadings but instead must
set forth specific facts showing that there is a genuine dispute for trial.
Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
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[*10] B. Standard of Review
We have jurisdiction to review the Office of Appeals’ determination
pursuant to section 6330(d)(1). 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. 604, 610
(2000); 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. 182. In reviewing for abuse of
discretion we must uphold the Office of Appeals’ determination unless it is
arbitrary, capricious, or without sound basis in fact or law. See, e.g., Murphy v.
Commissioner, 125 T.C. 320; Taylor v. Commissioner, T.C. Memo. 2009-27, 97
T.C.M. 1109, 1116 (2009).
III. Underlying Liability
Patrick’s Payroll has challenged its 2010 and 2011 underlying liabilities
both in its CDP hearing and in this Court. A taxpayer may raise a challenge to his
underlying liability in a CDP hearing only if he “did not receive any statutory
notice of deficiency for such tax liability or did not otherwise have an opportunity
to dispute such tax liability.” Sec. 6330(c)(2)(B). The phrase “underlying tax
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[*11] liability” includes the tax deficiency, any penalties and additions to tax, and
statutory interest. Katz v. Commissioner, 115 T.C. 329, 339 (2000).
In determining whether the taxpayer had an opportunity to dispute his
liability, the regulations distinguish between liabilities that are subject to
deficiency procedures and those that are not. Employment tax liabilities are not
subject to deficiency procedures. See Romano-Murphy v. Commissioner, 152
T.C. 278, 292 (2019), supplementing T.C. Memo. 2012-330; see also Durda v.
Commissioner, T.C. Memo. 2017-89, at *6-*7. With respect to such liabilities, the
regulations provide that “[a]n opportunity to dispute the underlying liability
includes a prior opportunity for a conference with Appeals that was offered either
before or after the assessment of the liability.” Sec. 301.6330-1(e)(3), Q&A-E2,
Proced. & Admin. Regs.
Patrick’s Payroll does not dispute that it received a 30-day letter affording it
the opportunity to contest its 2010 and 2011 underlying liabilities before the
Office of Appeals. Nor does it deny that it did not timely request the conference.
Rather, Patrick’s Payroll challenges the validity of section 301.6330-1(e)(3),
Q&A-E2, Proced. & Admin. Regs., and argues that a prior opportunity for a
conference with the Office of Appeals does not constitute an “opportunity to
dispute such tax liability” within the meaning of section 6330(c)(2)(B) and should
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[*12] not preclude its liability challenge. We have consistently rejected this
argument5 as have all the Courts of Appeals that have considered the issue. See
Lewis v. Commissioner, 128 T.C. 48, 60-61 (2007) (concluding that a conference
with the Office of Appeals provides a taxpayer a meaningful opportunity to
dispute an underlying tax liability); Bletsas v. Commissioner, T.C. Memo. 2018-
128, at *8-*9, aff’d, 784 F. App’x 835 (2d Cir. 2019); Thompson v.
Commissioner, T.C. Memo. 2012-87, 103 T.C.M. 1470, 1472 (2012); see
also Our Country Home Enters., Inc. v. Commissioner, 855 F.3d 773, 783-791
(7th Cir. 2017); Keller Tank Servs. II, Inc. v. Commissioner, 854 F.3d 1178, 1195-
1200 (10th Cir. 2017); Iames v. Commissioner, 850 F.3d 160, 164-165 (4th Cir.
2017); Hassell Family Chiropractic, DC, PC v. Commissioner, 368 F. App’x 695,
696 (8th Cir. 2010), aff’g T.C. Memo. 2009-127.
Patrick’s Payroll offers us no persuasive reason to reconsider our well-
established precedent on this point, and we accordingly conclude that it is
5
Patrick’s Payroll acknowledges that this Court’s precedent on this point
resolves this case. It nonetheless makes this argument to preserve its legal theory
for further review.
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[*13] precluded from challenging its underlying liabilities for its 2010 and 2011
tax years.6
IV. Abuse of Discretion
We next consider whether the settlement officer: (1) properly verified that
the requirements of applicable law or administrative procedure have been met;
(2) considered any relevant issues Patrick’s Payroll raised; and (3) considered
whether “any proposed collection action balances the need for the efficient
collection of taxes with the legitimate concern of * * * [Patrick’s Payroll] that any
collection action be no more intrusive than necessary.” See sec. 6330(c)(3). Our
review of the record establishes that the settlement officer satisfied all of these
requirements.
A. Verification
As an initial matter, this Court has authority to review satisfaction of the
verification requirement regardless of whether the taxpayer raised that issue at the
CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008),
6
Although Patrick’s Payroll cannot challenge its underlying liabilities for
2010 and 2011 in a CDP proceeding, our ruling does not preclude Patrick’s
Payroll from (1) seeking audit reconsideration with the IRS (although such
reconsideration is not subject to judicial review) or (2) paying the liabilities and
claiming a refund and, if the refund is disallowed, litigating that claim in the Court
of Federal Claims or the appropriate Federal District Court.
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[*14] supplemented by 136 T.C. 463 (2011). Patrick’s Payroll does not allege in
its petition that the settlement officer failed to satisfy this requirement, and we
conclude, from our review of the record, that the settlement officer conducted a
thorough review of the account transcripts and verified that all applicable
requirements were met.7
B. Issues Raised
Patrick’s Payroll raised only one issue in the Office of Appeals aside from
its underlying liability challenge; it requested as a collection alternative that its
account be placed in CNC status. It did not raise this issue in its petition,
however, and thus has conceded the point. See Rule 331(b)(4) (“Any issue not
raised in the assignments of error shall be deemed to be conceded.”); see also
CreditGuard of Am., Inc. v. Commissioner, 149 T.C. 370, 379 (2017).
Even had Patrick’s Payroll properly raised the issue, its repeated failure to
submit the financial information requested during the CDP proceeding would
7
“Where the supervisory approval requirement of section 6751(b)(1)
applies, the Appeals officer should obtain verification that such approval was
obtained”. ATL & Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 144
(2019). However, the approval requirement of sec. 6751(b)(1) does not apply to
additions to tax under sec. 6651(a)(1) and (2). See sec. 6751(b)(2)(A). To the
extent that the approval requirement applies to the sec. 6656(a) penalties assessed
against Patrick’s Payroll, the IRS satisfied it because the record reflects that the
revenue agent’s immediate supervisor approved in writing her assertion of
sec. 6656(a) penalties before she issued the 30-day letter.
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[*15] justify our sustaining the settlement officer’s rejection of its proposed
collection alternative. See, e.g., Gilmore v. Commissioner, T.C. Memo. 2019-97,
at *15; Eichler v. Commissioner, T.C. Memo. 2018-161, at *11; see also sec.
301.6330-1(e)(1), (f)(2), Q&A-F3, Proced. & Admin. Regs.
The settlement officer’s rejection of the collection alternative in this case
accordingly did not represent an abuse of discretion.
C. Balancing
Patrick’s Payroll did not allege in its petition or argue at any later point that
the settlement officer failed to consider “whether any proposed collection action
balances the need for the efficient collection of taxes with the legitimate concern
of the person that any collection action be no more intrusive than necessary.”
Sec. 6330(c)(3)(C). It thus has conceded this issue too. See Rules 121(d),
331(b)(4); see also Ansley v. Commissioner, T.C. Memo. 2019-46, at *19. In any
event we see nothing to disturb the settlement officer’s express conclusion in the
notice of determination that the proposed levy action balanced the need for
efficient tax collection with any legitimate concerns of Patrick’s Payroll about
intrusiveness.
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[*16] V. Conclusion
Finding no abuse of discretion in any respect, we will grant summary
judgment to respondent and affirm the IRS’ determination to sustain the notice of
intent to levy issued to Patrick’s Payroll relating to its 2010 and 2011 tax years.
To reflect the foregoing,
An appropriate order and decision
will be entered.