United States Tax Court

United States Tax Court

T.C. Memo. 2023-90

LAIDLAWS HARLEY DAVIDSON SALES, INC.,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 2600-20L.

Filed July 19, 2023.

—————

William J. Wise, for petitioner.

Allison N. Kruschke and Sarah E. Sexton Martinez, for respondent.

MEMORANDUM OPINION

GREAVES, Judge: In this collection due process case, petitioner

seeks review pursuant to sections 6320(c) 1 and 6330(d) of the

determinations by the Internal Revenue Service (IRS or respondent) to

uphold a notice of Federal tax lien filing and a notice of intent to levy.

Petitioner contends that the settlement officer abused his discretion by

failing to verify compliance with applicable law and administrative

procedure, specifically, compliance with section 6751(b) and the

Administrative Procedure Act (APA) notice-and-comment requirements

for I.R.S. Notice 2007-83, 2007-2 C.B. 960. Respondent moved for

summary judgment under Rule 121, contending that there are no

disputed issues of material fact and that his determination to sustain

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,

and Rule references are to the Tax Court Rules of Practice and Procedure.

Served 07/19/23

2

[*2] the collection actions was proper as a matter of law. For the reasons

set forth below, we will grant respondent’s motion.

Background

The following facts are based on the parties’ pleadings and motion

papers, including attached declarations and exhibits and, unless

otherwise stated, are not disputed. 2 Petitioner is a corporation with a

principal place of business in California.

Respondent selected petitioner’s 2006, 2007, and 2008 income tax

returns for examination and determined deficiencies, additions to tax,

and accuracy-related penalties under sections 6662(a) and 6662A.

Respondent mailed a notice of deficiency to petitioner on February 2,

2012. Petitioner timely filed a petition for redetermination of the

deficiencies with this Court. See Laidlaw’s Harley Davidson Sales, Inc.

v. Commissioner, No. 11181-12 (T.C. filed May 4, 2012). After various

motions, the Court entered a stipulated decision on October 27, 2016

(2016 decision), finding, among other things, a penalty under section

6662A for 2008 of $16,800. Respondent assessed the unpaid taxes and

penalties against petitioner.

In 2018 respondent sent petitioner a Notice of Intent to Levy and

Notice of Your Right to a Hearing and a Notice of Federal Tax Lien

Filing and Your Right to a Hearing under IRC 6320. Petitioner timely

submitted two Forms 12153, Request for a Collection Due Process or

Equivalent Hearing, to the IRS Office of Appeals (Appeals Office) 3 for

the levy and the lien.

After receiving the requests, the settlement officer set a date for

a collection due process hearing and requested that petitioner submit

Form 433–B, Collection Information Statement for Businesses.

2 In Robinette v. Commissioner, 123 T.C. 85, 95 (2004), rev’d, 439 F.3d 455 (8th

Cir. 2006), we held that “when reviewing for abuse of discretion under section 6330(d),

we are not limited by the Administrative Procedure Act . . . and our review is not

limited to the administrative record.” The U.S. Court of Appeals for the Ninth Circuit

has concluded that our review is limited to the administrative record for collection due

process cases. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in

part T.C. Memo. 2006-166, and aff’g in part, vacating in part decisions in related cases.

The Ninth Circuit is the appellate venue for this case absent stipulation by the parties,

and we therefore follow that precedent. See § 7482(b); Golsen v. Commissioner, 54 T.C.

742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).

3 This office is now referred to as the Independent Office of Appeals. See

Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981, 983 (2019).

3

[*3] Petitioner represented to the settlement officer that the only

ground on which it challenged the collection activities was respondent’s

lack of compliance with section 6751(b) related to the 2008 section

6662A penalty. 4 Petitioner requested that the collection due process

hearing be rescheduled to allow for the attendance of an additional

attorney, who would argue that respondent failed to comply with section

6751(b). The settlement officer rejected this request on the basis that

petitioner was precluded from advancing that argument. Petitioner

failed to attend the collection due process hearing.

The settlement officer verified that the assessment was properly

made, the notice and demand for payment was properly mailed, and

there was an outstanding balance. Respondent sent petitioner two

identical Notices of Determination Concerning Collection Actions under

IRC Sections 6320 or 6330. Respondent sustained both the levy and lien

actions and determined that the section 6751(b) argument was

precluded. Petitioner timely filed a petition with this Court for review

of the collection due process determinations. The sole issue petitioner

has requested this Court to decide is whether respondent abused his

discretion by failing to verify compliance with applicable law and

administrative procedure.

Discussion

I.

Summary Judgment

The purpose of summary judgment is to expedite litigation and

avoid costly, unnecessary, and time-consuming trials. See FPL Grp.,

Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant

summary judgment where there is no genuine dispute of material fact

and a decision may be rendered as a matter of law. See Rule 121(a)(2);

Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). Furthermore,

we construe the facts and draw all inferences in the light most favorable

to the nonmoving party to decide whether summary judgment is

appropriate. See Bond v. Commissioner, 100 T.C. 32, 36 (1993). The

nonmoving party may not rest upon the mere allegations or denials of

his pleading but must set forth specific facts showing that there is a

genuine dispute for trial. See Rule 121(d); Bond, 100 T.C. at 36.

4 Section 6751(b)(1) provides: “No penalty under this title shall be assessed

unless the initial determination of such assessment is personally approved (in writing)

by the immediate supervisor of the individual making such determination or such

higher-level official as the Secretary may designate.”

4

[*4] II.

Standard of Review

Section 6320(b) permits a taxpayer to challenge an IRS lien filing

before the Appeals Office, and section 6320(c) (incorporating section

6330(d)) provides for Tax Court review of an Appeals Office

determination. Section 6330(b) permits a taxpayer to challenge a

proposed levy before the Appeals Office, and section 6330(d) provides for

Tax Court review of an Appeals Office determination. The Code does

not prescribe the standard of review that this Court should apply in

reviewing an IRS administrative determination in a collection due

process case; rather, we are guided by our precedents.

Where (as here) the taxpayer’s underlying liability is not in

dispute, we review the IRS decision for abuse of discretion. See Murphy

v. Commissioner, 125 T.C. 301, 308 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006); Goza v. Commissioner, 114 T.C. 176, 181–82 (2000). A settlement

officer abuses his discretion when the determination is “arbitrary,

capricious, or without sound basis in fact or law.” See Murphy, 125 T.C.

at 320. Thus, if the settlement officer followed all statutory and

administrative guidelines and provided a reasoned, balanced decision,

the Court will not reweigh the equities. See Thompson v. Commissioner,

140 T.C. 173, 179 (2013).

In deciding whether the settlement officer abused his discretion

in sustaining the collection actions, we consider whether he (1) properly

verified that the requirements of applicable law or administrative

procedure have been met, (2) considered any relevant issues petitioner

raised, and (3) considered “whether any proposed collection action

balances the need for the efficient collection of taxes with the legitimate

concern of [petitioner] that any collection action be no more intrusive

than necessary.” See § 6320(c) (incorporating § 6330(c)).

Petitioner challenges whether the settlement officer properly

verified compliance with all applicable laws and administrative

procedure. Specifically, petitioner challenges the settlement officer’s

alleged failure to ensure compliance with the supervisory approval

requirement of section 6751(b) and the APA notice-and-comment

requirements for Notice 2007-83. 5

5 Notice 2007-83 identifies certain trust arrangements that claim to be welfare

benefit funds and that use cash value life insurance policies, and substantially similar

arrangements, as listed transactions.

5

[*5] III.

Verification

Section 6330(c)(1) requires a settlement officer to “obtain

verification from the Secretary that the requirements of any applicable

law or administrative procedure have been met.” Verification of

compliance with applicable law is reviewable by this Court without

regard to whether the taxpayer raised it at the Appeals hearing. See

Hoyle v. Commissioner, 131 T.C. 197, 202–03 (2008), supplemented by

136 T.C. 463 (2011). The settlement officer’s verification has been

accepted as adequate if there is supporting documentation in the

administrative record. See Blackburn v. Commissioner, 150 T.C. 218,

222 (2018).

A.

Compliance with Section 6751(b) Approval

First, we will address petitioner’s argument that the settlement

officer was required to verify compliance with section 6751(b).

Generally, as part of the verification, the settlement officer must verify

compliance with section 6751(b). See ATL & Sons Holdings, Inc. v.

Commissioner, 152 T.C. 138, 144 (2019).

Respondent asserts that the settlement officer was precluded

from considering arguments relating to section 6751(b) verification for

the underlying penalty because of the 2016 decision. Section 6330(c)(4)

in effect codifies res judicata for collection due process hearings. See

McIntosh v. Commissioner, T.C. Memo. 2003-279, slip op. at 20 n.8;

Wooten v. Commissioner, T.C. Memo. 2003-113, slip op. at 9. A taxpayer

is precluded from raising an issue at the hearing if (1) “the issue was

raised and considered . . . in any other previous administrative or

judicial proceeding” and (2) “the person seeking to raise the issue

participated meaningfully in such hearing or proceeding.”

See

§ 6330(c)(4)(A).

In the prior case petitioner challenged the assessment of the

penalty under section 6662A. That penalty was specifically noted in the

2016 decision. Further, petitioner materially participated in the

proceedings as it instituted the proceeding, filed numerous motions, and

engaged in settlement negotiations resulting in the stipulated decision.

Thus, the issue of the section 6662A penalty satisfies the requirements

of section 6330(c)(4), and petitioner is precluded from arguing the

penalty was improperly determined.

This is not the first time the Court has analyzed the interaction

between verification of all applicable law and administrative procedure

6

[*6] under section 6330(c)(1) and res judicata under section 6330(c)(4).

See Warner Enters., Inc. v. Commissioner, T.C. Memo. 2022-85, at *6;

Elkins v. Commissioner, T.C. Memo. 2020-110, at *21–22; Rockafellor v.

Commissioner, T.C. Memo. 2019-160, at *11; McAvey v. Commissioner,

T.C. Memo. 2018-142, at *23. Each time, the Court rejected the

argument, finding that the original decision could not be set aside, and

thus, remand would serve no purpose. See, e.g., Warner Enters., Inc.,

T.C. Memo. 2022-85, at *6.

In Warner Enterprises, Inc., a taxpayer petitioned this Court for

review of a collection due process hearing, after a final stipulated

decision by this Court at the partnership level. Id. at *2. At the

collection due process hearing the taxpayer sought to challenge the

underlying penalties based on compliance with section 6751(b), an

argument the settlement officer rejected as precluded. Id. at *2–3. We

held that the settlement officer did not abuse his discretion by failing to

verify section 6751(b) compliance because the partnership final decision

could not be set aside. Id. at *7–8. To comply with section 6330(c)(1)

after a prior final judgment, we stated that “the settlement officer

merely needs to determine that the penalty was properly assessed but

need not revisit the Court’s underlying determination.” Id. at *6; see

also Elkins, T.C. Memo. 2020-110, at *21–22 (holding that there was no

bona fide reason to demand verification of compliance with section

6751(b) in a taxpayer’s collection due process hearing because neither

the settlement officer nor the Court could set aside the prior partnership

decision regarding penalties).

We have similarly found that a taxpayer cannot challenge

compliance with section 6751(b) in a collection due process hearing after

a closing agreement. See Rockafellor, T.C. Memo. 2019-160, at *11. In

Rockafellor, the taxpayer had previously entered into a closing

agreement with the Commissioner regarding tax preparer penalties

under section 6694(b). Id. at *2–3. Subsequently, the taxpayer received

a notice of Federal tax lien filing, which was the subject of the collection

due process hearing. Id. at *4. The taxpayer sought review of the

determination to uphold the lien filing with this Court, arguing that the

settlement officer failed to verify compliance with section 6751(b). Id.

at *8. We held that even if such verification was required, any error was

harmless because neither the Court nor the settlement officer could set

aside the closing agreement with respect to the penalties. Id. at *11; see

also McAvey, T.C. Memo. 2018-142, at *23 (holding that a settlement

officer did not abuse his discretion by failing to verify compliance with

7

[*7] section 6751(b) because neither the Court nor the settlement officer

could set aside the closing agreement determining applicable penalties).

We find the rationale that the settlement officer is bound by our

prior determination of the penalty compelling. Like partnership-level

determinations and closing agreements, stipulated decisions are binding

on the parties, absent extraordinary circumstances. See Rule 91(e);

Stamm Int’l Corp. v. Commissioner, 90 T.C. 315, 321–22 (1988); Spector

v. Commissioner, 42 T.C. 110, 113 (1964). The 2016 decision is final

within the meaning of section 7481(a)(1). We are precluded from

vacating or otherwise altering that decision, absent an exception. See

Cinema ‘84 v. Commissioner, 122 T.C. 264, 270 (2004). Petitioner has

failed to show any authority or circumstances that would permit us to

set aside the prior decision determining the penalty. Therefore,

verification of compliance with section 6751(b) would serve no bona fide

purpose because the settlement officer would be bound by the prior

decision of this Court to impose the penalty. Accordingly, we find that

the settlement officer did not abuse his discretion in determining that

he was precluded from considering arguments relating to section

6751(b) verification.

B.

Verification that Notice 2007-83 Complied with the APA

Next, we will address petitioner’s argument that the settlement

officer was required under section 6330(c)(1) to verify that the IRS

complied with the APA rulemaking procedures in publishing Notice

2007-83. If the argument is proper under section 6330(c)(1), we may

consider it despite petitioner’s failure to raise it during the collection due

process hearing. See Hoyle, 131 T.C. at 202–03. Section 6662A imposes

a penalty on an understatement of tax attributable to a reportable

transaction. The penalty is increased if disclosure is required under

section 6664(d)(3)(A), requiring disclosure in accordance with the

regulations under section 6011. See § 6662A(c). The applicable

Treasury regulations define such transactions as “listed transactions,”

which are the same or substantially similar to one of the types of

transactions that the IRS has determined to be tax avoidance

transactions and identified by notice, regulation, or other form of

published guidance. See Treas. Reg. § 1.6011-4(b)(2). Notice 2007-83

identifies certain trust arrangements that claim to be welfare benefit

funds and that use cash value life insurance policies as tax avoidance

transactions.

8

[*8] Petitioner may be correct in his assertion that Notice 2007-83 was

improperly published by the IRS because it failed to comply with noticeand-comment procedures required under the APA. See Mann Constr.,

Inc. v. United States, 27 F.4th 1138, 1148 (6th Cir. 2022); see also Green

Valley Invs., LLC v. Commissioner, No. 17379-19, 159 T.C., slip op. at 23

(Nov. 9, 2022) (holding that I.R.S. Notice 2017-10, 2017-41 I.R.B. 544,

which defined certain syndicated conservation easement transactions as

listed transactions, is a legislative rule that was improperly issued by

the IRS without APA notice-and-comment procedures). However, we do

not find that verification of such APA compliance is a requirement under

section 6330(c)(1) in a collection due process hearing.

Again, section 6330(c)(1) dictates that the “appeals officer shall at

the hearing obtain verification from the Secretary that the requirements

of any applicable law or administrative procedure have been met.” We

have consistently held this verification is a simple verification and not a

substantive review:

Caselaw applying section 6330(c)(1) has not imposed a

substantive review of the procedural steps that have been

verified by the settlement officer or of the settlement

officer’s thought process. Rather the settlement officer’s

review of the administrative steps taken before assessment

of the underlying liabilities has been accepted as adequate

to the requirements of section 6330 if there is supporting

documentation in the administrative record.

Blackburn, 150 T.C. at 222.

This Court has previously considered a settlement officer’s

obligation under section 6330(c)(1) to verify the validity of the law

underlying a penalty determination. See Goddard v. Commissioner,

T.C. Memo. 2022-96, at *30. In Goddard the IRS assessed penalties

under then section 6707 against two taxpayers. Id. at *7–8. After the

repeal and replacement of then section 6707, the IRS issued a notice of

Federal tax lien filing, and the taxpayers asserted their right to a

collection due process hearing. Id. at *13. After the settlement officer

sustained the tax lien filing, the taxpayers filed a petition with this

Court. Id. at *15–18. The taxpayers argued that the settlement officer

abused his discretion under section 6330(c)(1) by failing to verify that

section 6707 was not retroactively repealed, and thus, no longer a basis

for the penalty. Id. at *30. In applying the simplistic approach taken in

Blackburn, we rejected this argument. Id. at *30–31. We reasoned that

9

[*9] such a level of inquiry has never been required for verification

under 6330(c)(1). Id. at *31 (“[H]aving a settlement officer comb through

legislative history to verify whether a law, that was clearly applicable

during the years at issue, was retroactively repealed is well beyond the

ordinary scope of verification.”).

The Blackburn approach leads to the same result in this case.

Verifying compliance with the APA is a substantive review. Like

verifying the retroactive repeal of a statute, verifying APA compliance

would require the settlement officer to comb through the record created

at the time of publication and ascertain the applicable requirements of

the APA. To require this analysis of every publication relied upon by

the IRS would impose a substantive review, which is not a proper

inquiry under section 6330(c)(1). Rather, the APA challenge to the

validity of Notice 2007-83 is a challenge to the underlying liability.

Petitioner cannot challenge the underlying liability in this case, and

therefore the settlement officer did not abuse his discretion in not

verifying compliance with the APA.

Assuming arguendo that the APA argument was proper under

section 6330(c)(1), petitioner was precluded from asserting it. As

discussed above, petitioner meets the requirements of section 6330(c)(4)

with respect to the section 6662A penalty because it litigated the penalty

in this Court and materially participated in that proceeding. Like the

challenge to the section 6751(b) verification, we find the argument in

Warner Enterprises, Inc., T.C. Memo. 2022-85, at *6, equally compelling

in the APA analysis because the final stipulated decision cannot be set

aside by either the IRS or this Court. See also Cinema ‘84, 122 T.C.

at 270. Thus, the settlement officer’s determination of compliance with

the APA would serve no bona fide purpose.

Accordingly, the settlement officer did not abuse his discretion in

failing to verify that Notice 2007-83 was issued in accordance with the

APA.

IV.

Exception to Res Judicata for Section 6330(c)(1)

Having found the verification arguments precluded, petitioner

then asks this Court to create an exception for a secondary review of

compliance with statutory and administrative requirements in

collection due process hearings after the Court has ruled on penalties.

Petitioner relies on the narrow exception to res judicata explored in Ron

Lykins, Inc. v. Commissioner, 133 T.C. 87 (2009). The unique statutory

10

[*10] scheme for net operating losses in Ron Lykins, Inc. is not

applicable to section 6330(c)(1) verification.

In Ron Lykins, Inc., a taxpayer alleged that the settlement officer

abused his discretion in a collection due process hearing by refusing to

hear the merits of a net operating loss carryback from tax year 2001,

which would affect the outstanding liabilities for the years subject to the

collection proceeding. Id. at 93. The settlement officer found that such

argument was precluded. Id. at 93–94. We held that the taxpayer was

not precluded from raising the net operating loss issue. Id. at 107. We

explained that there is an applicable exception to res judicata when the

statutory scheme indicates that a plaintiff should be permitted to split

his claims. Id. at 106–11.

We identified the unique treatment of net operating losses under

section 6511(d)(2)(B), which permits a taxpayer to pay a summary

assessment and pursue overpayment remedies even if it “is otherwise

prevented by the operation of any law or rule of law.” Id. at 106. This

treatment also extends to section 6511(d)(2)(A), which sets a special

period of limitations for claims attributable to net operating losses. See

id. at 106–08. This statutory scheme indicates that net operating loss

carryback claims survive a deficiency case and may be asserted later by

the taxpayer. See id. at 107. Because such a claim could be advanced

in a refund suit despite a prior deficiency case, the taxpayer is entitled

to assert net operating losses in a collection due process hearing. See id.

We also identified the unique treatment of net operating losses

from the tax enforcement perspective: Section 6411 provides for a

tentative refund for a net operating loss carryback after a cursory

review. See id. at 108. Coupled with this cursory review, sections

6212(c)(1) and 6213(b)(3) together allow the IRS to determine an

additional deficiency that results from an improper tentative carryback.

See id. at 108–09. This additional deficiency is assessable without

deficiency procedures as if it arose due to mathematical errors. See id.

at 109. We found the alternative procedure for net operating losses

constituted a statutory scheme that permits a party to split his claims,

and thus, was excluded from the application of res judicata. See id.

Petitioner argues that the verification requirement under section

6330(c)(1) creates a similar statutory scheme that allows a taxpayer to

split his procedural claims from the underlying tax liability. We do not

find this argument persuasive. Unlike the express language in section

6511(d)(2)(B) that provides a claim will not be “prevented by the

11

[*11] operation of any law or rule of law,” there is no such express

language in section 6330(c)(1).

To bolster his argument, petitioner points to the fact that this

Court will consider verification under section 6330(c)(1) even if the

taxpayer did not raise the issue at the collection due process hearing.

See Hoyle, 131 T.C. at 202–03. This argument fails to show a statutory

scheme similar to net operating losses. In Ron Lykins, Inc. we focused

on the unique procedural treatment that allowed the taxpayer and the

IRS to dispute net operating losses through an alternative procedure to

traditional deficiency procedures.

In contrast, section 6330(c)(1)

verification is integrated into the collection due process hearing without

the availability of an alternative administrative procedure. The

jurisdiction of this Court to hear such challenges when not raised at the

hearing does not create a unique statutory scheme. Petitioner fails to

identify an alternative process for the verification under section

6330(c)(1).

For these reasons, this Court will not create an exception to res

judicata for determinations under section 6330(c)(1) after a final court

decision. To do so “would place the administrative agency in review of

the Court.” See Warner Enters., Inc., T.C. Memo. 2022-85, at *6.

We conclude that the settlement officer did not abuse his

discretion by failing to consider verification under section 6751(b) or

compliance with the APA with respect to petitioner’s penalty under

section 6662A. Accordingly, we will grant respondent’s Motion for

Summary Judgment under Rule 121.

To reflect the foregoing,

An appropriate order and decision will be entered.