T .C . Memo . 2009- 9

T .C . Memo . 2009- 9

UNITED STATES TAX CUR T

ROBERT DAVID TUFFT, Peti :ioner _v .

COMMISSIONER OF INTERNAL REV E UE, Responden t

Docket No . 24381-06L .

R fled March 18, 2009 .

Basil J . Boutris and Jon R . Vaught ,

for petitioner .

Emily Giometti , for respondent .

MEMORANDUM OPINI O

MARVEL,

Judae : Pursuant to section 6330 (d),1 petitione r

seeks review of respondent's determinati

n to sustain a notice of

Federal tax lien with respect to petitio er's unpaid Federa l

'Unless otherwise indicated, all sec ion references are to

the Internal Revenue Code, and all Rule eferences are to the Tax

Court Rules of Practice and Procedure . 211 monetary amounts are

rounded to the nearest dollar .

SERVED MAR 18 2009

2 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 .

Backgroun d

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 .

2The 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 incom e

tax return under, sec . 6651(a)(1) .

i0

- 3 Petitioner is a physician speciali ing in internal medicine,

gerontology, and undersea and hyperbari 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 200 0

Before April 15, 2001, petitioner cbrisulted Mary Miller (Ms .

Miller), a certified public accountant, egarding preparation of

his Form 1040, U .S . Individual Income Ta Return, for 2000 (2000

return) . On April 15, 2001, petitioner iled a request for an

extension of time to file his 2000 retur

; he submitted a $3,000

payment with his extension request altho gh Ms . Miller ha d

advised him to submit a $2,000 payment .

Petitioner knew that h e

had some Federal income tax liability fo~ 2000 mostly because o f

his unusually large capital gain income from a sale of stock, bu t

he believed that a capital loss carryove~ from a prior year woul d

offset his capital gain . On October 17,

$9,000 toward his 2000 Federal income t o

On dates that do not appear in the

2001 ,

petitioner paid

liability .

ecord Ms .

Mille r

prepared petitioner's 2000 return and se t it to him .

January 25, 2002, petitioner untimely fi ed his 2000 return

reporting a tax liability of $123,263 an

payment credits of

4 $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 o n

petitioner's return, interest, and additions to tax under sectio n

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 taxe s

(including amounts withheld from employees' wages) for th e

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 .

'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 .

5 III .

Respondent's Collection Activiti e

On November 27, 2004, respondent i sued a Final Notice,

Notice of .Intent to Levy and Notice of our Right to a Hearing

(notice of intent to levy) for 2000, which he mailed return

receipt requested to petitioner . On Ja uary 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 infor him that he had to make

estimated tax payments, and failed to prepare his 2000 return

timely, although he gave her all materia s for return preparatio n

by April 2001 . 9

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 Feder l tax lien agains t

4Petitioner .tried to initiate a mal ractice action against

Ms . Miller, but the period of limitation had run out .

Petitioner also filed a complaint with t e California Board of

Accountancy, but no formal action was taken against Ms . Miller .

Petitioner filed a claim against Ms . Mil er with CAMICO Mutual .

Insurance Co . ., Ms . Miller's errors and o issions insurance

carrier . The record does not reflect th outcome of the

insurance claim .

r

- 6 1

petitioner in the county recorder's office for Alameda County ,

California, with respect to petitioner's assessed and remaining

11

unpaid Federal income tax liability for 2000 and trust fun d

recovery penalties for the relevant quarterly periods .

September 21, 2005, respondent mailed petitioner a Notice of

Federal Tax Lien Filing and Your Right to a Hearing UnderE,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,'peti-tioner'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 sen t

.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

7 Appeals Office or had not received a notice of deficiency . On

July 6, 2006, petitioner mailed a lette 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 2, 2006, letter from hi s

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 li bility 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 waive 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

- 8 the determination Ms . Cochran considered that before 20001'

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 disc1ussed

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,,Iy .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 failur e

5The 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 )

6With 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 .

- 9

to make estimated tax payments . In the letter petitioner stated

that he remitted only $3,000 with his r quest for an extension to

file the 2000 return on the basis of Ms .

Miller's advice .

On October 25, 2006, respondent se t petitioner a Notice of

Determination Concerning Collection Act' on(s) Under Section 6320

sustaining the notice of Federal tax li n . In the notice o f

determination respondent stated that pe

itioner did not provide

financial information or request collect ion alternatives and that

he failed to meet the criteria for the

batement of interest and

for waiver of-the additions to tax . Pet itioner timely petitioned

this Court challenging respondent's det e rmination .

Discussion

I .

Collection Hearing Procedur e

Section 6321 imposes a lien in favo r of the United States on

all property and property rights of a to xpayer liable for taxes

after a demand for the payment of the to xes has been made and the

taxpayer fails to pay those taxes . The lien arises when th e

assessment is made . Sec . 6322 . Section 6323 generally requires

the Secretary to file a notice of Federa 1 tax lien with th e

appropriate State office for the lien to be valid against certain

third parties . Section 6320(a) require s

the Secretary to notify

.the taxpayer in writing of the filing of

a notice of Federal ta x

lien and of the taxpayer's right to an a dministrative hearing o n

- 10 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 a .ppropriate .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

(20 .00) .

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

- 11

of taxes with a taxpayer's concerns .re g rding the intrusiveness

of the proposed collection action . Sec .

6330(c)(3) .

If the taxpayer disagrees with th e Appeals Office' s

determination, the taxpayer may see k

icial review by appealing

to this Court . Sec . 6330(d) . Where th

validity of th e

underlying tax liability is properly at

issue, the Court review s

the determination regarding the underl y

tax liability de novo .

Sego v . Commissioner ,

supra at 610 ;

Go z

Commissioner , 11 4

T .C . 176, 181-182 (2000) . Where the val idity of the underlyin g

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 ;

Go z v . Co mm issioner ,

supr a

at 182 .

II . Petitioner 's Challenge to the Notice of Determinatio n

A . Petitioner's Challenge to the Underlying Tax Liabilit

Petitioner challenges respondent's refusal to waive th e

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 pa y

estimated Federal income tax . Because w

have interpreted the

"underlying tax liability" to include a n

amounts a taxpayer owe s

pursuant to the tax laws,

Katz v . Commis ioner , 115 T .C . 329, 33 9

(2000), petitioner's argument represents

.underlying tax liability .

a challenge to the

- 12 The parties agree that petitioner did not receive a notic e

of deficiency for 2000 . However, respondent relies on the

stipulated Form 4340, Certificate of Assessments, Payments, an d

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 Federa l

income tax liability .' . 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 notic e

Levy notice issued

01-13-2005 Intent to levy collection

Due process notice

Return receipt signed '

'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 th e

contrary, of the adequacy and propriety of notices and

*

'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 .

- 13 assessments that have been made ."' Oru v . Co mm issioner, 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) . he 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 t levy, and a second

V

14

TC 971 indicates the results of . mailing, if known .' 1

Administration, IRM (CCH), pt . 5 .1 :1 .1 .2 .2 .1(3), at 16,737 (June

29, 2001)

. Respondent argues that the .November 27, 2004,-notice o f

intent to levy provided petitioner an opportunity to challenge

his underlying tax liability9 because petitioner could have

irequested a hearing under section 6330 but did not .10 Th e

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 ." The-regulations also provide :

81f 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)' .

'The parties stipulated that petitioner had had a prior

opportunity to dispute his trust fund recovery penalty for the

relevant quarterly periods .

'°The record does not show that petitioner requestedRa

hearing with respondent's Appeals Office when he received-the

Nov . 27, 2004, notice of intent to levy .

"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, wha t

(continued . . .)

- 15 Where the taxpayer previously rece

under section 6330 with respect to

tax period and did not request a C

respect to that earlier CDP Notice

already had an opportunity to disp

or amount of the underlying tax .li

301 .6320-1(e)(3), Q&A-E7, Proced .

ved a CDP Notice

the same tax and

P hearing wit h

the taxpayer

to the existence

bility . [Sec .

Admin . Regs . ]

taxpayer from challengin g

Accordingly, the regulation precludes a

a ,tax liability even if he did not pur s e the opportunity for a

conference with the Appeals Office . Pet itioner does no t

challenge the validity of this regulatio n . The November 27 ,

2004, notice of intent to levy offered petitioner the opportunit y

to request a hearing with the Appeals Of fice and an opportunit y

to contest his underlying tax liability .

See id .

Petitioner di d

not do so . Accordingly, during the Jul y 26, 2006, hearin g

petitioner was precluded by section 6330 (c) (2) (B) fro m

challenging the additions to tax .

An Appeals officer may, within his

or her sole discretion,

consider issues that are precluded from consideration unde r

section 6330(c)(2)(B) . Sec . 301 .6320-1(

)(3), Q&A-E11, Proced . &

Admin . Regs . Ms . Cochran exercised he r

iscretion and considere d

11( . . .continued)

information would be required to be

offer) to preclude subsequent colle

consideration if the taxpayer decli

without participating in such a co n

included in such an

tion revie w

es the offer

erence . * *

Lewis v . Commissioner , supra at 61 n .9 ; ;ee also Estate of

Sblendorio v . Commissioner , T .C . Memo . 2 07-94 .

16 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 whe n

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 200 0

Federal income tax liability in this proceeding .

B .

Review of the Notice of Determinatio n

Because the validity of the underlying tax liability is not

properly at issue, we review respondent's determination for abus e

12Petitioner 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 .

I

- 17 -

of discretion .13 See Sego v . Commissioner , 114 T .C . at 610 ;

Goz a

v . Commissioner , 114 T .C . at 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 of 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

arbitrary ,

capricious ,

without

sustain the lien was

foundation in fact or law, or

otherwise an abuse of discretion . See, e . g .,

Giamelli v .

Co mm issioner ,

Ms .

129 T .C . 107,,112, 115 (2007) .

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 .

"Petitioner relies on Lykes v . Co issioner, 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 b fore the Court .

18

C. .

Abatement of Interes t

Although in his petition petitioner assigned error to

respondent's determination not to abate interest, petitione r

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) .

ay

1

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 susitain

respondent's determination that the filing of .,a notice of Federa l

tax lien was appropriate .

To reflect the foregoing and the parties' stipulations of

settled issues,

yNt

An appropriate decision wil l

be entered .