T .C . Memo . 2006-219

sur .

T .C . Memo . 2006-219

UNITED STATES TAX COURT

HUGH D .',SUMMERS AND TERESA E . SUMMERS, Petitioners v .

COMMISSIONER,OF INTERNAL REVENUE, Responden t

Docket No . 13874-05L . Filed October 18, 2006 .

Hugh D . Summers and Teresa E . Summers, pro sese .

Kathleen K . Raup , for respondent .

MEMORANDUM OPINIO N

WELLS,

Judge :

The instant matter is before the Court o n

respondent' s and petitioners' motions for summary judgmentpursuant to Mule 121 .

The issue we must decide is whether

respondent's Appeals Office abused its discretion in determining

to proceed wth the collection of petitioners '

1989 ta x

SERVED OCT 1 8 2006

- 2 ess otherwise indicated, all section references

rnal Revenue Code in effect for the year in issue,

ferences are to the Tax Court Rules of Practic e

Background

e of filing the petition, petitioners resided i n

1''ania .

PetitionEr Hugh D . Summers's Criminal Case and Amended 198 9

Tax Return

During

1

pleaded guilt

92, petitioner Hugh D .

Summers

( Mr . Summ ers)

to conspiring to defraud the Internal Revenu e

Service (IRS)

by concealing and diverting income in violation o f

18 U .S .C . sec

ion 371 (2000) .

Mr . Summ ers acknowledged that h e

received unr e orted taxable income of $963,000 between 1982 an d

1990 . Mr .

ers was sentenced to 4 years' probation and agree d

to file an amended tax return for 1989 . See United States v .

Hugh D . Summers , No . 93-CR-35 (E .D . Pa .) .

Petitioners' Previous Tax Court Cas e

On May 2, 1993, petitioners filed an amended tax return for

1989, reporting an increase in their tax liability in the amount

of $69,289 . On November 8, 1993, respondent assessed petitioners

the $69,289 shown on petitioners' 1989 amended tax return .

On June1995, respondent sent petitioners a notice of

deficiency regarding negligence penalties for petitioners' 1989

taxable year . Petitioners timely filed a petition with this

- 3 Court challen ing the notice of deficiency . On September 26,

1997, pursuan to an agreement between the parties, we entered a

decision hold ng that petitioners were liable for a penalty in

the amount ofl$13,858 pursuant to section 6662(a) for 1989 an d

that petitioners owed an unpaid prior assessment of $69,289 for

1989 . See Summers v . Commissioner , docket No . 17005-95 . O n

November 24, 1997, respondent assessed petitioners the sectio n

6662(a) penalty in the amount of $13,858 for petitioners' 1989

taxable year . I

Liti ati n

Involving Petitioners and Co mm onwealth Land Title

Insurance Com a n

During J~ly 1997, respondent filed a Notice of Federal Ta x

Lien (NFTL) a0ainst petitioners in Berks and Montgomery Counties,

Pennsylvania,,relating to petitioners' unpaid tax liabilities for

1982 through 990 . Petitioners' surname, however, was misspelled

as "Hugh D . & Teresa E . Summer" on the NFTL filed in Montgomery

County, Pennsylvania .

On July p1, 1997, Mr . Summers sold two properties to

Leemilt's Petoleum, Inc . : (1) 270 W . Greenwich Street, Reading,

Berks County,'Pennsylvania (the Berks County Property) ; and (2)

Buckert Road end Keim Street, Lower Pottsgrove Township,

Montgomery County, Pennsylvania (the Montgomery County Property) .

Commonwealth and Title Insurance Company (Commonwealth) insured

the title on oth properties for the purchaser, Leemilt's

Petroleum, Inc ., and settlement on both properties was on

- 4 July 31, 1997 .

.At the settlement of the Berks and Montgomery

County propert ies, Commonwealth did not satisfy the tax liens and

gave Mr . SummE rs the proceeds from the sales in the amounts o f

$107,399 .25 a d $139,592 .47, respectively . Respondent refused to

discharge the tax liens on the Berks and Montgomery County

properties fo lowing the sale .

On February 10, 1998, respondent received a check in th e

amount of $10 ,399 .25 from Commonwealth, discharged the tax lien

on the Berks

ounty Property, and applied the $107,399 .25 to

petitioners '

983, 1984, 1987, and 1990 tax liabilities . '

On April 30, 1998, Commonwealth filed a declaratory judgment

complaint in

he Court of Common Pleas for Montgomery County,

Pennsylvania,

against respondent and Mr . Summers seeking judgment

that responde is NFTL did not attach to the Berks and Montgomery

County proper ies, formerly owned by Mr . Summers, becaus e

petitioners' surname was misspelled . The case was removed to th e

U .S . Districtit Court for the Eastern District of Pennsylvania and

entitled Comm nwealth Land Title Ins . Co . v . United States an d

Hugh D .

Su mm ers ,

No . 98 -CV-2817 ( E .D . Pa .) .

'Respondent applied the $107,399 .25 as follows :

Tax year Amount applied

1983

$33,366 .78

$19,873 .48

1984

1987

$31,192 .19

1990

$22,966 .80

_ 5 On Nov e

er 19, 1999, Commonwealth dismissed with prejudice

its claim aga nst respondent and gave respondent a check in the

amount of $15 000 to discharge the tax lien on the Montgomer y

County proper y . Respondent applied the payment to petitioners'

1985 tax liab lities .

Mr . Summ rs's Bankruptcy Litigatio n

On Octob r 9, 1998, Mr . Summ ers filed a chapter 7 bankruptcy

petition in t e U . S . Bankruptcy Court for the Eastern Distric t

of Pennsylvan a (the bankruptcy court ),

In re Hugh D . Summ ers ,

No . 98-33068FII . During November 1999, respondent filed a

complaint wit

the bankruptcy court asserting that Mr . Summers' s

tax liabilit i

including those for 1989, and interest thereo n

were not disc argeable pursuant to 11 U . S .C . sectio n

523(a)(1)(C) .I, Respondent conceded that the penalties and

interest on the penalties were dischargeable .

On January 11, 2001, the bankruptcy court held that Mr .

Summers's tax' liabilities were nondischargeable because he

wilfully atte pted to evade payment of his taxes . See United

States v .

Summers,

I

266 Bankr . 292 (Bankr . E .D . Pa . 2001) .

Actions painst Mr . Summers To Reduce Federal Tax Claims To

Judgmen t

On April 3, 2002, respondent filed a complaint against Mr .

Summers in thl United States District Court for the Easter n

District of Pennsylvania (the District Court) seeking to reduce

to judgment t ;e tax assessments against Mr .

Summers , including

- 6 those for 198

United States v . Summers , No . 2002-CV-1812 (E .D .

Pa .) . During June 2002, Mr . Summers filed an answer and crosscomplaint cha lenging the tax assessments and the amounts of his

tax liabiliti

s, including those for 1989 .2 On August 9, 2002,

respondent fi

ed a motion for summary judgment . During September

2002,

Mr . Sum ers filed a reply to respondent's motion and

a

motion to dis`niss for lack of subject matter jurisdiction .

On October 7,

2002, respondent filed a motion to dismiss

Mr . Summers' s

counterclaims .

On Marc h 27, 2003, the District Court issued a memorandum

opinion and e tered an order granting respondent's motions for

summary judgm nt and to dismiss Mr . Summers's counterclaims and

gave responde

t 30 days to present a full and final accounting of

Mr . Summers's

tax liabilities, including 1989 . See United States

v . Su mm ers ,

4 F . Supp . 2d 589 (E .D . Pa . 2003) .

2

On April 22, 2003, Mr . Summers filed a memorandum and

declaration i

response to the District Court's March 27, 2003,

order . On Ma

30, 2003, Mr . Summers filed a memorandum i n

response in w ich he claimed that respondent had received, or

should have r ceived, $246,991 .72 from Commonwealth and $26,00 0

2Mr . Sumi ers's answer and cross-complaint contained, inter

alia, several frivolous tax protester type arguments including :

He is not a t ixpayer within the meaning of the Internal Revenu e

Code ; there i

no "1040 tax" listed in the index of the Internal

Revenue Code ; and that the United States and its agent s

fraudulently Misled him to believe that compliance with the

Internal Reve sue Code was mandatory .

- 7 from petition rs, which was not properly credited to petitioners'

account .

On June 4 ,

2003 ,

respondent filed a declaration asserting

that all cred is had been properly applied and that petitioners'

tax liabiliti s for 1985, 1986 ,

1988 ,

interest as o April 27, 2003 ,

amounted to $647 , 749 .86 .3 O n

and 1989 ,

including accrued

December 17, X003, the District Court entered judgment in favo r

of respondent ;, and against Mr . Summers, ordering Mr . Summers t o

pay responden

$647,749 .86 for unpaid Federal income taxes for

years 1985, 1

86, 1988, and 1989 plus interest accruing thereon

at the rate p ovided by section 6621 from April 27, 2003, unti l

paid .

Actions

Judgmen t

Against Mrs . Summ ers To Reduce Federal Tax Claims To

On December 11, 2002, respondent filed a complaint against

petitioner Te esa E . Summers (Mrs . Summers) in the U .S . Distric t

Court for the Eastern District of Pennsylvania (District Court)

seeking to re uce to judgment the income tax assessments made

against her flr 1985, 1986, 1988, and 1989,

Teresa E .

Summers,

United States v .

No . 2002-CV-9008 (E .D . Pa .) . On February 10,

2003, Mrs . Su mers filed an answer and cross-complain t

3Respond nt's declaration showed Mr . Summers's unpaid tax

liabilities a d total accrued interest for 1989 to be $95,284 .76

and $108,586 .,1, respectively .

- 8 challenging t e assessments and tax liabilities, including thos e

for 1989 . 4

On June

judgment and

2003, respondent filed a motion for summar y

o dismiss counterclaims . On July 10, 2003, Mrs .

Summers filed a response to respondent's motion in which she

asserted that respondent had not properly credited petitioners '

account for the payment from Commonwealth .

On September 11, 2003, the District Court granted

respondent's motion for summary judgment on the issue of Mrs .

Summers' s tax liabilities,

counterclaims

and gave respondent 30 days to present a full and

final account ng of Mrs .

those for 198

dismissed Mrs . Summers' s

Summ ers ' s tax liabilities, includin g

. On October 2, 2003, respondent filed a

memorandum in,response to the District Court's September 10,

2003, order slating Mrs . Summers's tax liabilities for 1985,

1986, 1988, aid 1989, including accrued interest as of September

30, 2003, and $13,858 negligence penalty amounted to $749,760 .85 .

On Octob r 31, 2003, Mrs . Summers filed a response ,

4Mrs . Sur

alia, several

She is not a

Code ; the inc

evasion for w

Revenue Code ;

Internal Reve

requires her

and that the

ers's answer and cross -complaint contained, inte r

frivolous tax protester type arguments including :

axpayer within the meaning of the Internal Revenu e

me Mr . Summ ers received and pleaded guilty to ta x

s not income within the meaning of the Interna l

there is no "1040 tax" listed in the index of the

ue Code ; there is no legislative regulation that

o file a tax return for "1040" or "income taxes"

nited States and its agents fraudulently misled he r

to believe thaGt compliance with the Internal Revenue Code was

mandatory .

- 9 contending that respondent did not properly credit the payments

from Commonwealth to her account .

On Decem er 17, 2003, the District Court entered judgment in

favor of resp ndent and against Mrs . Summers, ordering Mrs .

Summers to pa

$735,902 .85 for unpaid Federal income taxes fo r

1985, 1986, 1 19 88, and 1989, plus interest accruing thereon at the

rate provided by section 6621 from September 30, 2003, until paid

and a $13,858' negligence penalty assessed on November 24, 1997 .

Petition rs' A eal to the Third Circuit Court of

Appeals

Petition rs appealed the respective judgments against the m

to the United States Court of Appeals for the Third Circui t

(Court of App als for the Third Circuit ) .

Petitioners' appeals

were consolidated at United States v . Teresa E . Su mm ers ,

1375, and United States v . Summ ers , No . 04-1379 .

No . 04-

On January 4 ,

2005, the Third Circuit Court of Appeals affirmed the District

Court judgments against petitioners .

Petition d s'

Section 6330 Action Relating to Taxable Yea r

1989

Petitioners failed to pay their income tax liability for

1989 . On Aprill'1 15, 2002, respondent sent petitioners' attorney ,

who was authorized to receive such notices, a Final Notice of

Intent to Levy'and Notice of Your Right to a Hearing . On May 10 ,

2002, petitioners, through their attorney, submitted a For m

12153, Requestllfor a Collection Due Process Hearing . Attached to

- 10 the Form 1215

was a 37-page letter consisting of nothing but

frivolous ta x protester boilerplate .

Because

etitioners' cases were still pending in District

Court, respon ent did not immediately schedule a section 6330

hearing . On

arch 14, 2005, approximately 2 months after the

Third Circuit Court of Appeals affirmed the District Court's

judgments in

avor of respondent, respondent's Appeals Office

sent petition

rs a letter advising them that the Appeals Offic e

would schedul

an appointment . In a letter dated March 23, 2005,

Mr . Summers a vised respondent's Appeals Office that his appeal

process would not be complete until there was a fina l

determination by the District Court and requested that

respondent's

ppeals office hold the matter in abeyance until

such a deter m nation had been made .

On April, 8, 2005, respondent's Settlement Officer Edith M .

Dermody (Ms . dermody), wrote petitioners and advised them that

the arguments Braised in their section 6330 hearing request were

frivolous, that respondent would not schedule a face-to-face

conference if Detitioners wished to discuss only frivolous

arguments, and that a telephone conference was scheduled for

April 28, 20051 . On April 21, 2005, Mr . Summers sent Ms . Dermody

a letter requesting a copy of their Form 12153,5 requesting

a

'In his Apr . 21, 2005, letter, Mr . Summers stated that he

did not recall making a request for a sec . 6330 hearing and tha t

(continued . . .)

- 11 face-to-fac e hearing and acknowledging that alternativ e

collection m thods needed to be explored at this meeting, an d

stating that "he was not available for the telephone conference o n

April 28 .

On April 28, 2005, Ms . Dermody sent petitioners a letter to

which she att ched a copy of the Form 12153, and in which she

advised petitioners that if they wanted a face-to-face hearing

they must con act her within 15 days and describe the legitimate

issues they wished to raise . Ms . Dermody also advised

petitioners t at they must complete a Form 433-A, Collection

Information S atement for Wage Earners and Self Employed

Individuals, nd return it along with their 2003 and 2004 tax

returns by Ma

13, 2005 .

On May 13, 2005, Mr . Summers sent Ms . Dermody a letter in

which he rais d the following issues : (1) That Ms . Dermody was a

settlement of icer, not an independent Appeals officer, and that

it was improp r for her to hold the hearing ; (2) that respondent

violated the `CDP statutes" by not holding a section 6330 hearing

for more than 3 years from the date of the request ; and (3) that

petitioners did not have any tax liability for 1989 because the

IRS improperl,, credited the payments from Commonwealth, and that ,

5( .• .cont nued )

his former att rney, Jerry Arthur Jewett, who had since been

disbarred, may': have made the request without sending petitioners

a copy .

- 12 even if respo dent did not receive the funds from Co mm onwealth ,

the 1989 ta x liability has been "constructively paid ." Mr .

Summers furth r stated that he would not provide the Form 433-A

and petitione s' 2003 and 2004 tax returns until the above issue s

were address e

On Jun e

petitioner s

2005, respondent's Appeals office sen t

Notice of Determination Concerning Collectio n

Action (s) Und r Section 6320 and/or 6330 sustaining the proposed

levy because

etitioners did not provide the Form 433-A, did no t

provide 2003

d 2004 tax returns, and did not raise legitimat e

collection al

ernatives . Petitioners timely petitioned this

Court seeking review of respondent's determination to proceed

with the coll

ction of petitioners' 1989 tax liabilities . On

February 28,

006, respondent filed a motion for summar y

judgment, and on March 1, 2006, petitioners filed a motion for

summary judgm nt . Petitioners filed an objection to respondent' s

motion for su

ary judgment on April 3, 2006, and responden t

filed a respo

se to petitioners' motion for summary judgment o n

March 24, 200

Discussion

dgment

is intended to expedite

litigation an d

and expensive trials and may be granted wher e

uine issue of material fact and a decision may be

- 13 rendered as a matter of law . Rule 121(a) and (b) ;

Fla . Peac h

Corp . v . Co mmissioner, 90 T .C . 678, 681 (1988) . The moving party

bears the burden of proving that there is no genuine issue of

material fact and factual inferences are viewed in a light most

favorable to he nonmoving party .

T .C . 252, 260II(2002) ;

(1985) ;

Craig v . Commissioner , 11 9

Dahlstrom v . Commissioner , 85 T .C . 812, 82 1

Jacklin v . Commissioner , 79 T .C . 340, 344 (1982) . The

party opposin summ ary judgment must set forth specific fact s

that show tha a genuine question of material fact exists and ma y

not rely merely on allegations or denials in the pleadings .

Grant Creek U ter Works,

Ltd . v . Commissioner, 91 T .C . 322, 325

(1988) ; Casan va Co . v . Co mm issioner, 87 T .C . 214, 217 (1986) .

Section 330 provides that no levy may be made on an y

property or ri~ght to property of a person unless the Secretar y

first notified, the person in writing of the right to a hearing

before the Ap eals Office . The Appeals officer must verify at

the hearing that the applicable laws and administrativ e

procedures ha e been followed . Sec . 6330(c)(1) . At the hearing,

the person may raise any relevant issues relating to the unpaid

tax or the pro osed levy, including appropriate spousal defenses,

challenges to he appropriateness of collection actions, and

collection alt rnatives . Sec . 6330(c)(2)(A) . The person may

challenge the xistence or amount of the underlying tax, however,

only if he or he did not receive any statutory notice of

- 14 deficiency fo

the tax liability or did not otherwise have an

opportunity t

dispute the tax liability . Sec . 6330(c)(2)(B) .

Where th

validity of the underlying tax liability i s

properly in i sue, the Court will review the matter de novo .

Where the val dity of the underlying tax is not properly in

issue, howeve

the Court will review the Commissioner' s

administrative determination for abuse of discretion .

Sego v .

Commissioner , 114 T .C . 604, 610 (2000) ; Goza v . Commissioner , 114

T .C . 176, 181--182 (2000) . A person may challenge a self- assesse d

liability reported on his return where he or she has not had th e

opportunity t

dispute the liability .

Montgomery v .

Commissioner , 'j, 122 T .C . 1, 9 (2004) . An opportunity to dispute

such a liability includes a suit by respondent to reduce a tax

assessment to hl, judgment . See MacElvain v . Commissioner , T .C .

Memo . 2000-32

The rec o d in the instant case clearly indicates that

petitioners h d ample opportunity to dispute the liability

reported on t eir amended tax return for 1989 and the $13,85 8

section 6662 penalty for that year . Petitioners litigated the

issue of whethl r respondent failed to apply the payment from

Commonwealth t taxable year 1989 in District Court and on appeal

to the Third Cllrcuit Court of Appeals . The Third Circuit Court

of Appeals affrmed the District Court's judgments agains t

petitioners reducing the assessments , including the assessment

- 15 for 1989, to judgment . Furthermore, the doctrines of collateral

estoppel and es judicata bar petitioners from relitigating this

same issue, w ich was litigated in District Court and the Third

Circuit Court of Appeals . See Commissioner v . Sunnen , 333 U .S .

591 (1948) ; F C Corp .

and Subs v . Comm issioner, T .C . Memo . 2001-

298 . Accordi gly, we hold that petitioners' underlying ta x

liability for 1989 is not properly before us . We therefore

review respon ent's determination to proceed with the proposed

levy for an a use of discretion .

Petition rs contend that respondent's Appeals officer,

abused her di cretion by failing to schedule a face-to-face

conference wi h petitioners . We disagree . An in person hearing

is not automatically guaranteed by section 6330 . Hearings at the

appeals level have historically been informal .

Davis v .

Commissioner , 115 T .C . 35, 41 (2000) . Hearings may be held in

person, but they may also be conducted by telephone or by

correspondence . Katz v . Comm issioner, 115 T .C . 329, 337-33 8

(2000) ; Dorra

. Commissioner, T .C . Memo . 2004-16 . This Cour t

has held that

is not an abuse of discretion if an Appeal s

officer determ nes that a face-to-face hearing would not be

productive bas d on a taxpayer's frivolous or groundles s

arguments . Lu sford v . Commissioner , 117 T .C . 183, 189 (2001) ;

Kemper v . Commssioner, T .C . Memo . 2003-195 . We have also held

that it is not an abuse of discretion to proceed with collection

- 16 where the taxpayer is not in compliance with the tax laws .

Collier v .

Commissioner ,

issioner , T .C . Memo . 2004-171 ;

Rodriguez v .

T .C . Memo . 2003-153 .

The recor d in the instant case demonstrates that a face-toface confere n e would not have been productive . On May 10, 2002,

petitioners ,

represent th e

hrough their attorney who was authorized t o

submitted a request for a section 6330 hearing

accompanied b

a 37-page letter replete with tax proteste r

boilerplate .

On April 28, 2005, Ms . Dermody sent petitioners a

letter where i

she provided a copy of their request for a section

6330 hearing

nd advising petitioners that, if they wanted a

face-to-face

earing they must contact her within 15 days and

describe the

egitimate issues they wished to raise . Ms . Dermody

also advise d

etitioners that they must complete a Form 433-A,

and return i t along with their 2003 and 2004 tax returns b y

May 13, 2005 .

On May 1 3

which he rais e

2005, Mr . Summers sent Ms . Dermody a letter in

the following issues : (1) That Ms . Dermody was a

settlement of f cer, not an independent Appeals officer, and that

it was improp e

for her to hold the hearing ; (2) that respondent

violated the

DP statutes" by not holding a section 6330 hearin g

for more than

years from the date of the request ; and (3) that

petitioners di

not have any tax liability for 1989 because the

- 17 IRS improperl

credited the payments from Commonwealth ,

and that,

even if respo dent did not receive the funds from Co mmonwealth,

the 1989 tax

iability has been "constructively paid ." Mr .

Summers furth r stated that he would not provide Form 433-A and

petitioners'

003 and 2004 tax returns until respondent ' s Appeals

officer deal t with the above issues .

Petition

rs' first contention is frivolous . Ms . Dermody wa s

an impartial ~mployee of respondent's Appeals Office and had n o

prior involvm nt with petitioners . Petitioners' second

contention is equally without merit . Section 6330 does not

prescribe a time for scheduling a hearing . Once respondent has

referred a case to the Department of Justice for defense o r

prosecution, only the Attorney General or his delegate has th e

authority t

ompromise the case .

See sec . 7122(a) ;

Unite d

States v . LaSal le Natl . Bank , 437 U .S . 298, 312 (1978) .

Moreover, Mr . Summers advised respondent that he wished to defer

the section 630 hearing until the judgment of the District Court

became final . Accordingly, respondent acted within his

discretion by 7aiting to schedule a section 6330 hearing until

after petition rs' appeal to the Third Circuit Court of Appeals

was resolved . We have already discussed petitioners' thir d

contention ; thy are precluded from challenging the issue of the

proper crediting of the Co mm onwealth payments . Finally,

- 18 petitioners h ve a duty to comply with the tax laws and may not

withhold the

nformation reasonably requested by respondent or

fail to fil e

ax returns .

On the b sis of the foregoing, we conclude that it would no t

have been pro uctive for respondent to schedule a face-to-face

hearing . Acc rdingly, we hold that it was not an abuse of

discretion fo respondent to determine to proceed with the

proposed levy to collect petitioners' 1989 tax liability, and no

genuine issue of material fact exists requiring trial . We shall

therefore gra t respondent's motion for summary judgment and deny

petitioners' m tion for summary judgment . We have considered all

of petitioners arguments, and, to the extent that we have not

addressed them in this opinion, we conclude they are without

merit or unnec ssary to reach .

Section 6 73(a)(1) authorizes the Tax Court to require a

taxpayer to pa to the United States a penalty not in excess of

$25,000 whenev r it appears that proceedings have been instituted

or maintained y the taxpayer primarily for delay or that the

taxpayer's position in such proceeding is frivolous or

groundless . Although we do not impose a penalty on petitioners

in this case, w take this opportunity to admonish petitioners

that the Court . ill consider imposing such a penalty should they

- 19 return to the Court in the future in an attempt to delay

collection o r advance frivolous or groundless arguments .

To refle ~t the foregoing,

An appropriate order and

decision will be entered for

respondent .