Tufft v. Comm'r , 97 T.C.M. 1305 ( 2009 )

T.C. Memo. 2009-59
UNITED STATES TAX COURT
ROBERT DAVID TUFFT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24381-06L. Filed March 18, 2009.
Basil J. Boutris and Jon R. Vaught, for petitioner.
Emily Giometti, for respondent.
MEMORANDUM OPINION
MARVEL, Judge: Pursuant to section 6330(d),1 petitioner
seeks review of respondent’s determination to sustain a notice of
Federal tax lien with respect to petitioner’s unpaid Federal
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
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income tax liability for 2000 and trust fund recovery penalties
under section 6672 for periods ended September 30, 1999, December
31, 1999, and December 31, 2000 (relevant quarterly periods).
After concessions,2 the issue presented is whether
respondent abused his discretion in refusing to waive additions
to tax under section 6651(a)(2) for petitioner’s failure to pay
the amount shown due on his 2000 Federal income tax return on or
before the date prescribed for payment and under section 6654(a)
for his failure to pay estimated Federal income tax. As a
threshold matter, respondent argues that petitioner may not
challenge the underlying tax liability in this proceeding. We
agree, and we sustain respondent’s determination.
Background
Some of the facts have been stipulated. We incorporate the
stipulation of facts, supplemental stipulation of facts, and
stipulation of settled issues into our findings by this
reference. Petitioner resided in California when his petition
was filed.
2
The parties filed a stipulation of settled issues in which
they agreed to the application of three designated trust fund
payments. Accordingly, respondent’s determination to sustain a
notice of Federal tax lien with respect to the trust fund
recovery penalties is no longer at issue. In the stipulation of
settled issues the parties also agree that respondent correctly
waived the addition to tax for failure to file a Federal income
tax return under sec. 6651(a)(1).
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Petitioner is a physician specializing in internal medicine,
gerontology, and undersea and hyperbaric medicine. During 2000
and the relevant quarterly periods petitioner was the sole
shareholder and an employee of Internist Medical Group
(Internist).
I. Petitioner’s Federal Income Tax Liability for 2000
Before April 15, 2001, petitioner consulted Mary Miller (Ms.
Miller), a certified public accountant, regarding preparation of
his Form 1040, U.S. Individual Income Tax Return, for 2000 (2000
return). On April 15, 2001, petitioner filed a request for an
extension of time to file his 2000 return; he submitted a $3,000
payment with his extension request although Ms. Miller had
advised him to submit a $2,000 payment. Petitioner knew that he
had some Federal income tax liability for 2000 mostly because of
his unusually large capital gain income from a sale of stock, but
he believed that a capital loss carryover from a prior year would
offset his capital gain. On October 17, 2001, petitioner paid
$9,000 toward his 2000 Federal income tax liability.
On dates that do not appear in the record Ms. Miller
prepared petitioner’s 2000 return and sent it to him. On
January 25, 2002, petitioner untimely filed his 2000 return
reporting a tax liability of $123,263 and payment credits of
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$23,475.3 Petitioner did not pay the amount due when he filed
his 2000 return. Although petitioner could have paid his 2000
Federal income tax liability by selling some of his assets, he
did not do so because he preferred to avoid doing so in a
declining stock market.
On February 25, 2002, respondent assessed the tax shown on
petitioner’s return, interest, and additions to tax under section
6651(a)(1) for failure to timely file the 2000 return, section
6651(a)(2) for failure to pay the amount shown as due on the 2000
return, and section 6654 for failure to pay estimated taxes. On
June 7, 2002, petitioner paid $100,000 toward his 2000 Federal
income tax liability.
II. Petitioner’s Liability for Trust Fund Recovery Penalties
Internist failed to timely pay its employment taxes
(including amounts withheld from employees’ wages) for the
relevant quarterly periods. On March 25, 2005, respondent
assessed against petitioner civil penalties under section 6672,
which authorizes the imposition of penalties upon responsible
persons for failure to collect, account for, and pay over certain
taxes.
3
The credits consisted of an $11,475 withholding credit and
the two payments totaling $12,000. Ms. Miller did not claim
petitioner’s capital loss carryover on his 2000 return, and
petitioner did not file an amended return for 2000 to claim it.
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III. Respondent’s Collection Activities
On November 27, 2004, respondent issued a Final Notice,
Notice of Intent to Levy and Notice of Your Right to a Hearing
(notice of intent to levy) for 2000, which he mailed return
receipt requested to petitioner. On January 13, 2005, the
Internal Revenue Service (IRS) received a return receipt signed
by petitioner. On December 31, 2004, petitioner submitted to
respondent’s revenue officer working on his case a request to
waive the additions to tax on the basis of reasonable cause.
Petitioner argued that Ms. Miller failed to provide him an
estimate of the tax due, failed to inform him that he had to make
estimated tax payments, and failed to prepare his 2000 return
timely, although he gave her all materials for return preparation
by April 2001.4
On August 2, 2005, respondent mailed petitioner a Final
Notice, Notice of Intent to Levy and Notice of Your Right to a
Hearing with respect to his liability for the trust fund recovery
penalties for the relevant quarterly periods. On September 20,
2005, respondent filed a notice of Federal tax lien against
4
Petitioner tried to initiate a malpractice action against
Ms. Miller, but the period of limitations had run out.
Petitioner also filed a complaint with the California Board of
Accountancy, but no formal action was taken against Ms. Miller.
Petitioner filed a claim against Ms. Miller with CAMICO Mutual
Insurance Co., Ms. Miller’s errors and omissions insurance
carrier. The record does not reflect the outcome of the
insurance claim.
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petitioner in the county recorder’s office for Alameda County,
California, with respect to petitioner’s assessed and remaining
unpaid Federal income tax liability for 2000 and trust fund
recovery penalties for the relevant quarterly periods. On
September 21, 2005, respondent mailed petitioner a Notice of
Federal Tax Lien Filing and Your Right to a Hearing Under IRC
Section 6320 (notice of lien). The notice of lien stated that
petitioner owed $34,831 with respect to his 2000 Federal income
tax liability and $17,667 with respect to the trust fund recovery
penalties.
Petitioner timely submitted a Form 12153, Request for a
Collection Due Process Hearing, concerning the notice of lien.
In his Form 12153 petitioner again requested a waiver “of failure
to file penalty - CPA negligently filed return late” and asserted
that respondent’s revenue officer misapplied designated trust
fund payments. On June 22, 2006, petitioner’s new accountant
submitted to respondent another request for a waiver of additions
to tax because of petitioner’s reliance on Ms. Miller.
Petitioner’s case was assigned to Settlement Officer Linda L.
Cochran (Ms. Cochran). On July 5, 2006, Ms. Cochran sent
petitioner a letter scheduling a hearing for July 26, 2006. In
the letter Ms. Cochran stated that during the hearing she could
consider, inter alia, whether petitioner owed the amount due, but
only if he had not had an opportunity to dispute it with the
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Appeals Office or had not received a notice of deficiency. On
July 6, 2006, petitioner mailed a letter to Ms. Cochran
acknowledging receipt of her letter and requesting a waiver of
additions to tax and abatement of interest because Ms. Miller’s
“gross malpractice and negligence” were circumstances beyond his
control. Petitioner attached the June 22, 2006, letter from his
accountant.
On July 26, 2006, Ms. Cochran held a face-to-face hearing
with petitioner. During the hearing petitioner again requested
an abatement of interest and waiver of additions to tax assessed
with respect to his Federal income tax liability for 2000.
Petitioner claimed that Ms. Miller had known or should have known
the amount of his Federal income tax liability for 2000 but
failed to provide him with an approximation of tax due beyond the
advice to send $2,000 with the extension request.
On the basis of information petitioner provided, Ms. Cochran
waived the addition to tax for failure to file under section
6651(a)(1). Ms. Cochran denied a waiver of the addition to tax
for failure to make estimated tax payments because petitioner did
not meet the section 6654(e) waiver requirements. Ms. Cochran
also denied a waiver of the addition to tax for failure to pay
under section 6651(a)(2) because petitioner did not show that his
failure to pay his Federal income tax liability for 2000 was due
to reasonable cause and not due to willful neglect. In making
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the determination Ms. Cochran considered that before 2000
petitioner failed to timely pay his Federal income tax
liabilities5 and that in 2000 he received substantial income but
made comparatively minimal tax payments. Ms. Cochran also
concluded that petitioner did not satisfy the criteria for
interest abatement under section 6404(e).
Besides discussing petitioner’s liability for the additions
to tax and interest, Ms. Cochran and petitioner also discussed
the proper application of three designated trust fund payments.6
Petitioner did not submit a Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals, request
any collection alternatives, or raise any other issues before or
during the hearing.
After the hearing petitioner sent an undated letter to Ms.
Cochran requesting that she waive the addition to tax for failure
5
The record establishes that for 1998 petitioner incurred a
small addition to tax for failure to pay estimated tax and
interest. For 1999 petitioner incurred additions to tax for
failure to file under sec. 6651(a)(1), for failure to pay under
sec. 6651(a)(2), and for failure to make estimated tax payments
under sec. 6654(a).
6
With respect to the trust fund recovery penalties,
petitioner alleged that respondent had misapplied three
designated trust fund payments dated Dec. 1, 2005, June 12, 2006,
and June 29, 2006, in the respective amounts of $6,870, $10,000,
and $797. Petitioner had intended that the IRS apply the three
payments to satisfy his liability with respect to civil penalties
under sec. 6672 for the relevant quarterly periods. Upon review
of petitioner’s business checks and other documents, Ms. Cochran
determined that respondent had improperly applied $805, $1,330,
and $797, respectively, of the three payments.
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to make estimated tax payments. In the letter petitioner stated
that he remitted only $3,000 with his request for an extension to
file the 2000 return on the basis of Ms. Miller’s advice.
On October 25, 2006, respondent sent petitioner a Notice of
Determination Concerning Collection Action(s) Under Section 6320
sustaining the notice of Federal tax lien. In the notice of
determination respondent stated that petitioner did not provide
financial information or request collection alternatives and that
he failed to meet the criteria for the abatement of interest and
for waiver of the additions to tax. Petitioner timely petitioned
this Court challenging respondent’s determination.
Discussion
I. Collection Hearing Procedure
Section 6321 imposes a lien in favor of the United States on
all property and property rights of a taxpayer liable for taxes
after a demand for the payment of the taxes has been made and the
taxpayer fails to pay those taxes. The lien arises when the
assessment is made. Sec. 6322. Section 6323 generally requires
the Secretary to file a notice of Federal tax lien with the
appropriate State office for the lien to be valid against certain
third parties. Section 6320(a) requires the Secretary to notify
the taxpayer in writing of the filing of a notice of Federal tax
lien and of the taxpayer’s right to an administrative hearing on
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the matter. Section 6320(b) affords the taxpayer the right to a
fair hearing before an impartial hearing officer. Section
6320(c) requires that the administrative hearing be conducted
pursuant to section 6330(c), (d) (other than paragraph (2)(B)
thereof), and (e).
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 is precluded,
however, from contesting the existence or amount of the
underlying tax liability unless the taxpayer failed to receive a
notice of deficiency for the tax liability in question or did not
otherwise have an opportunity to dispute the tax liability. See
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 validity of the filed Federal tax
lien. In making the determination 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
raised by the taxpayer, and (3) whether the proposed collection
action appropriately balances the need for efficient collection
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of taxes with a taxpayer’s concerns regarding the intrusiveness
of the proposed collection action. Sec. 6330(c)(3).
If the taxpayer disagrees with the Appeals Office’s
determination, the taxpayer may seek judicial review by appealing
to this Court. Sec. 6330(d). Where the validity of the
underlying tax liability is properly at issue, the Court reviews
the determination regarding the underlying tax liability de novo.
Sego v. Commissioner, supra at 610; Goza v. Commissioner, 114
T.C. 176, 181-182 (2000). Where the validity of the underlying
tax liability is not properly at issue, the Court reviews the
determination of the Appeals Office for abuse of discretion.
Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra
at 182.
II. Petitioner’s Challenge to the Notice of Determination
A. Petitioner’s Challenge to the Underlying Tax Liability
Petitioner challenges respondent’s refusal to waive the
additions to tax under section 6651(a)(2) for failure to pay tax
shown on a return and under section 6654(a) for failure to pay
estimated Federal income tax. Because we have interpreted the
“underlying tax liability” to include any amounts a taxpayer owes
pursuant to the tax laws, Katz v. Commissioner, 115 T.C. 329, 339
(2000), petitioner’s argument represents a challenge to the
underlying tax liability.
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The parties agree that petitioner did not receive a notice
of deficiency for 2000. However, respondent relies on the
stipulated Form 4340, Certificate of Assessments, Payments, and
Other Specified Matters, for 2000 to assert that on November 27,
2004, and January 13, 2005, he issued to petitioner two notices
of intent to levy with respect to petitioner’s 2000 Federal
income tax liability.7 The Form 4340 reflects, in pertinent
part, the following actions by respondent:
Date Explanation of transaction
11-27-2004 Intent to levy collection
Due process notice
Levy notice issued
01-13-2005 Intent to levy collection
Due process notice
Return receipt signed1
1
Respondent incorrectly refers to the Jan. 13, 2005, entry
in the Form 4340 as a record of a second levy notice rather than
a record of receiving a return receipt.
Respondent did not introduce in evidence the November 27,
2004, notice of intent to levy and the January 13, 2005, signed
return receipt. Nevertheless, Form 4340 is “‘generally regarded
as being sufficient proof, in the absence of evidence to the
contrary, of the adequacy and propriety of notices and
7
The Form 4340 also contains two entries “Statutory Notice
of Intent to Levy” dated May 6, 2002, and Oct. 18, 2004, but the
literal transcript of petitioner’s tax account for 2000 does not
reflect such notices. Respondent does not address the effect of
these entries. If such notices were sent, they bear no
significance for our purposes.
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assessments that have been made.’” Orum v. Commissioner, 123
T.C. 1, 9 (2004) (quoting Gentry v. United States, 962 F.2d 555,
557 (6th Cir. 1992)), affd. 412 F.3d 819 (7th Cir. 2005).
Petitioner does not dispute that respondent issued him the
November 27, 2004, notice of intent to levy, and he does not
allege that he did not receive it. Petitioner also does not
point out any irregularity in the Form 4340 that would raise a
question about its validity. Accordingly, we find that on
November 27, 2004, respondent issued petitioner a notice of
intent to levy with respect to his 2000 Federal income tax
liability.
Our finding is supported by the literal transcript of
petitioner’s tax account for 2000 (literal transcript) offered in
evidence by respondent. The literal transcript confirms that on
November 27, 2004, respondent issued petitioner a notice of
intent to levy, and on January 13, 2005, respondent received a
signed return receipt. Both entries in the literal transcript
contain transaction code 971 (TC 971). The Internal Revenue
Manual (IRM), which describes the IRS’s recordkeeping procedures
when a levy notice is issued to a taxpayer, states that a TC 971
indicates issuance of notice of intent to levy, and a second
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TC 971 indicates the results of mailing, if known.8 1
Administration, IRM (CCH), pt. 5.11.1.2.2.1(3), at 16,737 (June
29, 2001).
Respondent argues that the November 27, 2004, notice of
intent to levy provided petitioner an opportunity to challenge
his underlying tax liability9 because petitioner could have
requested a hearing under section 6330 but did not.10 The
regulations define an opportunity to dispute an underlying tax
liability to include an opportunity for a conference with the
Appeals Office that was offered either before or after the tax
liability was assessed. Sec. 301.6320-1(e)(3), Q&A-E2, Proced. &
Admin. Regs.11 The regulations also provide:
8
If the notice is delivered by the U.S. Postal Service, the
return receipt should be delivered to the IRS. 1 Administration,
IRM (CCH), pt. 5.11.1.2.2.8(3), at 16,745 (July 26, 2002).
9
The parties stipulated that petitioner had had a prior
opportunity to dispute his trust fund recovery penalty for the
relevant quarterly periods.
10
The record does not show that petitioner requested a
hearing with respondent’s Appeals Office when he received the
Nov. 27, 2004, notice of intent to levy.
11
In Lewis v. Commissioner, 128 T.C. 48 (2007), we upheld
the validity of sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin.
Regs. (it mirrors sec. 301.6320-1(e)(3), Q&A-E2, Proced. & Admin.
Regs.). However, in Lewis, the taxpayer actually participated in
a prior conference with the Appeals Office. In Lewis, we
commented as follows in a footnote:
We reserve judgment today on whether an offer for a
conference with Appeals is sufficient (and if so, what
(continued...)
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Where the taxpayer previously received a CDP Notice
under section 6330 with respect to the same tax and
tax period and did not request a CDP hearing with
respect to that earlier CDP Notice, the taxpayer
already had an opportunity to dispute the existence
or amount of the underlying tax liability. [Sec.
301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs.]
Accordingly, the regulation precludes a taxpayer from challenging
a tax liability even if he did not pursue the opportunity for a
conference with the Appeals Office. Petitioner does not
challenge the validity of this regulation. The November 27,
2004, notice of intent to levy offered petitioner the opportunity
to request a hearing with the Appeals Office and an opportunity
to contest his underlying tax liability. See id. Petitioner did
not do so. Accordingly, during the July 26, 2006, hearing
petitioner was precluded by section 6330(c)(2)(B) from
challenging the additions to tax.
An Appeals officer may, within his or her sole discretion,
consider issues that are precluded from consideration under
section 6330(c)(2)(B). Sec. 301.6320-1(e)(3), Q&A-E11, Proced. &
Admin. Regs. Ms. Cochran exercised her discretion and considered
11
(...continued)
information would be required to be included in such an
offer) to preclude subsequent collection review
consideration if the taxpayer declines the offer
without participating in such a conference. * * *
Lewis v. Commissioner, supra at 61 n.9; see also Estate of
Sblendorio v. Commissioner, T.C. Memo. 2007-94.
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petitioner’s request for abatement of interest and waiver of
additions to tax.12 We have previously held that if the Appeals
Office considers a challenge to the underlying tax liability when
precluded from doing so by section 6330(c)(2)(B), the Court may
not review the determination on that issue because such liability
was not properly part of the hearing and is not treated as part
of the notice of determination even if the notice of
determination discusses the hearing officer’s decision. See
Behling v. Commissioner, 118 T.C. 572, 578 (2002); Miller v.
Commissioner, T.C. Memo. 2007-35; see also sec. 301.6320-1(e)(3),
Q&A-E11, Proced. & Admin. Regs. Accordingly, petitioner is
barred from challenging the existence or amount of his 2000
Federal income tax liability in this proceeding.
B. Review of the Notice of Determination
Because the validity of the underlying tax liability is not
properly at issue, we review respondent’s determination for abuse
12
Petitioner does not argue that respondent’s position
regarding petitioner’s ability to challenge the underlying tax
liability for 2000 is impeached by Ms. Cochran’s consideration of
the abatement request during the hearing. The parties’
stipulation of settled issues stating that Ms. Cochran “correctly
determined that petitioner was entitled to abatement of the
penalty for failure to file” under sec. 6651(a)(1) with respect
to his 2000 Federal income tax liability bears no relevance to
our conclusion that the additions to tax were not properly at
issue at the July 26, 2006, hearing with the Appeals Office.
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of discretion.13 See Sego v. Commissioner, 114 T.C. 610; Goza
v. Commissioner, 114 T.C. 182. The Appeals Office abuses its
discretion if its “discretion has been exercised arbitrarily,
capriciously, or without sound basis in fact.” Mailman v.
Commissioner, 91 T.C. 1079, 1084 (1988).
During the hearing petitioner did not offer collection
alternatives, and in this proceeding he has not pursued any
argument or presented any evidence that would allow us to
conclude that the determination to sustain the lien was
arbitrary, capricious, without foundation in fact or law, or
otherwise an abuse of discretion. See, e.g., Giamelli v.
Commissioner, 129 T.C. 107, 112, 115 (2007). Ms. Cochran
verified that all requirements of applicable law or
administrative procedure were met. Ms. Cochran concluded that
the filing of the notice of Federal tax lien balanced the need
for efficient collection of taxes with petitioner’s concerns that
the collection action be no more intrusive than necessary.
Accordingly, we conclude that respondent did not abuse his
discretion in sustaining the notice of Federal tax lien.
13
Petitioner relies on Lykes v. Commissioner, T.C. Memo.
2004-159, to suggest that because the underlying liability is at
issue, the Court must review respondent’s determination de novo.
Petitioner’s reliance on Lykes is misplaced because unlike
petitioner, the taxpayer in Lykes had no prior opportunity to
dispute the additions to tax, and therefore the validity of the
additions to tax was properly at issue before the Court.
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C. Abatement of Interest
Although in his petition petitioner assigned error to
respondent’s determination not to abate interest, petitioner
failed to address the issue of interest abatement in his trial
memorandum, at trial, and in briefs. Accordingly, we deem the
issue of interest abatement conceded by petitioner. See Rule
151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C. 661, 683
(1989).
We have considered the remaining arguments made by the
parties and to the extent not discussed above, conclude those
arguments are irrelevant, moot, or without merit. We sustain
respondent’s determination that the filing of a notice of Federal
tax lien was appropriate.
To reflect the foregoing and the parties’ stipulations of
settled issues,
An appropriate decision will
be entered.