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United States Tax Court
T.C. Memo. 2022-96
WILLIAM GODDARD,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
LEE, GODDARD, & DUFFY, LLP,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket Nos. 22334-17L, 23743-18L.
Filed September 19, 2022.
—————
R assessed in 2014 pre-AJCA I.R.C. § 6707 penalties
against Ps—LGD, a law firm, and G, its former partner—
for failing to register tax shelters offered to clients in 1999
and 2000. Before the AJCA, I.R.C. § 6707 incentivized
persons to register certain tax shelters or face penalties.
After receiving Notice of Proposed Adjustment
(NOPA) letter packages and notice and demand letters
related to the penalties, G unsuccessfully availed himself
of the opportunity to dispute the underlying liabilities.
LGD did not pursue that opportunity. Later, G received a
Notice of Federal Tax Lien Filing whereas LGD received a
Notice of Intent to Levy. Both sought CDP hearings.
During their respective CDP hearings, Ps first
attempted to address their underlying liabilities, but the
SOs refused because Ps already had received an
opportunity through their NOPA letter packages and
Served 09/19/22
2
[*2]
notice and demand letters to challenge those liabilities, and
G had extensively participated in conferences with the IRS
Office of Appeals. The SOs sustained the lien filing and the
proposed levy. Ps now seek review pursuant to I.R.C.
§§ 6320(c) and 6330(d)(1). Ps assert that we can address
their underlying liabilities and that the SOs violated I.R.C.
§ 6330(c)(1) by failing to verify all the requirements of
applicable laws and administrative procedures had been
met. Ps raised the following issues in their timely Petitions
related to this verification claim: (1) supervisory approval
under I.R.C. § 6751(b)(1); (2) expiration of the period of
limitations; and (3) statutory repeal of pre-AJCA I.R.C.
§ 6707 penalties.
1. Held: Ps had received a prior opportunity to dispute the
underlying liabilities, denying this Court jurisdiction to
review their underlying liabilities for the pre-AJCA I.R.C.
§ 6707 penalty assessments.
2. Held, further, R established that the written
supervisory approval requirement under I.R.C. § 6751(b)
was satisfied.
3. Held, further, raising the issue as to whether the period
of limitations expired constitutes an impermissible
challenge to the underlying liabilities.
4. Held, further, raising the issue of whether the preAJCA I.R.C. § 6707 penalty was repealed constitutes an
impermissible challenge to the underlying liabilities.
—————
Steven R. Mather, for petitioners.
Heather K. McCluskey and Emerald Smith, for respondent.
3
[*3]
MEMORANDUM FINDINGS OF FACT AND OPINION
COPELAND, Judge: Petitioners, William Goddard and the law
firm Lee, Goddard, & Duffy, LLP (LGD), 1 are before the Court
contesting the Internal Revenue Service’s (IRS’s) determinations in
their respective collection due process (CDP) hearings. 2
When petitioners filed their respective petitions, Mr. Goddard
resided in California, and LGD’s principal place of business was
California. They ask the Court to preliminarily address four issues
involving section 6707 penalties imposed for tax years that predate the
American Jobs Creation Act (AJCA), Pub. L. No. 108-357, 118 Stat.
1418. Those penalties were imposed against them for tax years 1999
and 2000. Throughout this Opinion, we refer to the earlier version of
section 6707 as the “pre-AJCA section 6707” as that was the version in
effect during the years at issue. Compare Deficit Reduction Act of 1984,
Pub. L. No. 98-369, § 141(b), 98 Stat. 494, 680 (codified as amended at
26 U.S.C. § 6707) (pre-AJCA section penalty), with AJCA §§ 811(a),
816(a), 118 Stat. at 1575, 1583 (codified as amended at 26 U.S.C. §§ 6707
and 6707A).
As to petitioners and the tax years at issue, petitioners asked the
Court to decide:
(1) whether the settlement officers (SO) erred by refusing to consider
petitioners’ underlying liabilities;
(2) whether written supervisory approval under section 6751 was
obtained before the IRS assessed pre-AJCA section 6707 penalties
against petitioners;
(3) whether the assessments of the pre-AJCA section 6707 penalties
were barred by the three-year period of limitations for returns under
cases.
1 LGD’s name was changed to LG Associates, LLP, before the trial in these
2 We bifurcated the trial in these cases to decide the below-mentioned four
enumerated issues that would dispose of these cases had we held in favor of petitioners.
The remaining CDP verification issues, collection alternatives, laches defense, and
section 6330(c)(3)(C) issue will be addressed in a separate proceeding. Unless
otherwise indicated, all statutory references are to the Internal Revenue Code, Title
26 U.S.C., in effect at all relevant times, all regulation references are to the Code of
Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
4
[*4] section 6501 or the five-year period of limitations under 28 U.S.C.
§ 2462; and
(4) whether the AJCA retroactively repealed the pre-AJCA section 6707
penalties.
FINDINGS OF FACT
The parties stipulated some facts, which are so found. The
stipulation of facts and the attached exhibits are incorporated by this
reference. These consolidated cases involve the IRS Office of Appeals’
(Appeals) 3 sustaining determinations to proceed with collection actions
on pre-AJCA section 6707 penalty assessments in the amounts set forth
below: 4
Tax Year 1999
Tax Year 2000
Mr. Goddard
$4,053,679
$764,240
LGD
4,202,348
792,268
The IRS assessed pre-AJCA section 6707 penalties against LGD,
a partnership and law firm, and its partner Mr. Goddard for failure to
timely register tax shelters, as required under pre-AJCA section 6111.
The IRS determined that petitioners were involved in developing,
marketing, and directing the operation of Short Option Strategies (SOS)
and Custom Adjustable Rate Debt Strategy (CARDS) transactions.
I.
Early History
Mr. Goddard earned an undergraduate degree from the
University of California, Los Angeles, in 1981 and a law degree from
Hastings Law School in 1984. Afterwards, he worked at an accounting
3 In 2019 Congress changed the name of the IRS Office of Appeals to the IRS
Independent Office of Appeals by passing the Taxpayer First Act, Pub. L. No. 116-25,
§ 1001, 133 Stat. 981, 983 (2019). We use the name in effect at the time relevant to
these cases, i.e., the Office of Appeals or Appeals.
4 These amounts reflect those reported in the Notice of Federal Tax Lien Filing
and Your Right to a Hearing Under IRC 6320 for petitioner Mr. Goddard; and the Final
Notice-Notice of Intent to Levy and Notice of Your Rights to a Hearing for petitioner
LGD. However, respondent conceded at trial and on brief that petitioners’ tax year
1999 penalties with respect to the SOS transactions, as described in petitioners’
respective Notice of Proposed Adjustments dated May 19, 2014, should be reduced by
$2,200,709, as amounts paid by others.
5
[*5] firm, Arthur Anderson & Co. He went on to work at Baker
McKenzie, then Voss, Cook & Thel, LLP, until about 1997.
Mr. Goddard worked with Raymond Lee at Voss, Cook & Thel,
LLP when they decided to open their own firm focusing on tax, real
estate, and corporate law. They opened that firm in or about 1996 or
1997. In or around 1998 Tony Duffy and Bradley Patterson joined the
firm as the litigation arm, and they changed the name to LGD. In or
around 2001 or 2002, Mr. Duffy left LGD. In or around 2002 or 2003
LGD ceased the practice of law and began winding down. However, LGD
remained in existence because of a pending summons enforcement
action. In or around 2002 or 2003 and while LGD was winding down,
Mr. Lee and Mr. Goddard formed Lee & Goddard, LLP, which they
dissolved after Mr. Lee left to work at a competing law firm in April
2004.
Mr. Lee believed he was no longer a partner in LGD after April
2004; however, he never formally withdrew from the entity or
surrendered his membership interests. Upon ending his association
with Mr. Goddard by moving to the competing law firm, Mr. Lee received
no further reports from LGD such as a Schedule K–1, Partner’s Share of
Income, Deductions, Credits, etc., of Form 1065, U.S. Return of
Partnership Income.
Next in 2004, Mr. Goddard formed Goddard, LLP, but the name
changed to LGI, LLP in 2005. Mr. Patterson was a partner running the
litigation practice at LGI, LLP. He was also an equity partner at LGD
and represented LGD and Mr. Goddard in their defense of the summons
enforcement action.
In 2004 the IRS began investigating LGD and Mr. Goddard for
promoter penalties under pre-AJCA sections 6707 and 6708 after
investigating KPMG and receiving documents that indicated LGD and
Mr. Goddard had promoted and facilitated the potentially abusive tax
shelters, which KPMG had developed and marketed.
The
documentation that the IRS received linked investors to petitioners, as
a person and an entity, involved in preparing those tax shelters. The
IRS concluded that petitioners had worked with KPMG to promote SOS
tax shelters first offered for sale in 1999 and CARDS tax shelters first
offered for sale in 2000. In or around 2005 or 2006 the IRS issued
summonses to LGD and Mr. Goddard, respectively, to determine their
6
[*6] level of involvement in the potentially abusive SOS and CARDS tax
shelters. 5
While not the initial defense attorney, Mr. Patterson took the lead
role in the summons enforcement matters involving LGD, its clients,
and Mr. Goddard. Mr. Patterson advised Mr. Goddard to resign from
LGD as a litigation strategy because Mr. Goddard had moved to
Portugal with his family; and by resigning, he would no longer be
required to appear in California for repeated depositions. On October 4,
2007, Mr. Goddard executed a letter resigning from LGD.
Consequently, Mr. Lee and Mr. Patterson were the only partners
remaining in LGD as of October 2007, and the firm was no longer
practicing law.
Despite the resignation letter, Mr. Goddard was still involved
with the firm. He maintained possession of LGD’s files and signed
LGD’s tax returns, including the last return, which was filed for tax year
2008 reflecting no income or expenses. Mr. Goddard also assisted Mr.
Patterson and defense counsel with pending litigation involving LGD’s
clients and the summons enforcement matters because he had custody
of the documents from the tax shelter era. Mr. Goddard assisted by
responding to litigation discovery requests and ghost-writing most of the
filings.
From 2014 through 2016 LGD, Mr. Goddard, and Mr. Patterson
shared a suite and office address on Von Karman Avenue in Irvine,
California (Von Karman office). However, neither Mr. Patterson nor
Mr. Goddard regularly worked from that office. Mr. Patterson lived in
San Diego and primarily worked from home, only going to the Von
Karman office when necessary. Because Mr. Patterson’s law practice
required him to be out of the country for several months a year, his staff
at the Von Karman office accepted mail, then scanned and emailed it to
the appropriate addressee.
5 In April 2006 the Department of Justice filed a petition to enforce IRS
summonses against LGD and Mr. Goddard in the U.S. District Court for the Central
District of California. By order in November 2007, the district court granted the
government’s petition to enforce each summons. United States v. Lee, Goddard, &
Duffy, LLP, No. SACA06-408DOC (RNBX), 2006 WL 2404137, at *5 (C.D. Cal. June
29, 2006). LGD and Goddard appealed the order in January 2008, but the order was
affirmed by the U.S. Court of Appeals for the Ninth Circuit in June 2011. See United
States v. Lee, Goddard & Duffy LLP, 427 F. App’x 594 (9th Cir. 2011). In February
2012 the district court case was dismissed by the parties’ stipulation. Id.
7
[*7] II.
IRS Administrative Investigation to Assert Penalties
After completion of the summons enforcement action, IRS
Revenue Agent Jeff Boice (RA Boice) developed a pre-AJCA section 6707
penalty case against Mr. Goddard and LGD.
In separate letters dated May 19, 2014, RA Boice notified
Mr. Goddard and LGD that the IRS was pursuing pre-AJCA section
6707 penalties against them. The letters each included Form 5701,
Notice of Proposed Adjustment; Form 886–A, Explanation of Items; and
a penalty computation (collectively, NOPA letter package). RA Boice
and his immediate supervisor, Bisamber Misir, signed the NOPA letter
packages.
The NOPA letter package for each petitioner was addressed to the
Von Karman office address and notified petitioners of their respective
postassessment appeal rights:
If you do not agree to the IRC § 6707 penalties, you can
request a post-assessment conference with the IRS Appeals
Office. To do so, forward a written protest in duplicate
before the designated response date, and mail it to the
revenue agent indicated above. In your written protest you
may provide an explanation of reasonable cause, if any.
Also see Publication 5, Your Appeal Rights and How to
Prepare a Protest if You Don’t Agree.
The Forms 886–A sent to petitioners make several assertions
concerning petitioners’ involvement in copromoting the SOS and
CARDS transactions. These forms indicated that LGD, KPMG, and
Deustche Bank copromoted two transactions: (1) SOS, organized and
sold in 1999 through 2002; and (2) CARDS, organized and sold in 2000
and 2001. The Forms 886–A also stated that David Greenberg, a
partner in the Los Angeles office of KPMG, developed, marketed, and
directed the SOS and CARDS transactions whereas Deustche Bank held
and executed trades in binary currency options that were integral to
those transactions. Furthermore, the Forms 886–A indicated that Mr.
Goddard, as partner of LGD, assisted in implementing the alleged
shelters. The IRS’s position was that to shield the identity of the client
investing in the KPMG shelters, Mr. Greenberg urged prospective
clients to retain Mr. Goddard as their attorney, who would then retain
Mr. Greenberg and KPMG to assist in rendering legal services to the
client.
8
[*8] The IRS determined that KPMG, as the principal organizer under
Temporary Treasury Regulation § 301.6111-1T, failed to register the tax
shelters; and because Mr. Goddard and LGD assisted in the
implementation of the SOS and CARDS transactions, they were also
required to register those alleged tax shelters under pre-AJCA section
6111, but they did not. Pre-AJCA section 6707 penalties were thus
proposed against Mr. Goddard and LGD.
When the IRS issued Mr. Goddard’s NOPA letter package on May
19, 2014, it was directly addressed to Mr. Goddard with a copy to Mr.
Patterson, both of which were sent to the Von Karman office address.
For LGD, the NOPA letter package was addressed to LGD and Mr.
Goddard at the Von Karman office address because it was the
partnership’s last known address pursuant to its 2008 Form 1065.
LGD’s NOPA letter package was addressed as follows:
Lee, Goddard & Duffy, LLP
William A. Goddard, General Partner
18101 Von Karman Ave., Ste. 330
Irvine, CA 92612
Both NOPA letter packages included a June 18, 2014, deadline to
request a postassessment conference with Appeals.
While LGD failed to respond to the NOPA, Mr. Goddard did
respond. Mr. Patterson was Mr. Goddard’s representative under a
power of attorney and represented him before the IRS in the
postassessment conference. Because the Form 886–A referred to more
than 50 exhibits, Mr. Patterson requested copies of those exhibits. He
received them in July 2014.
Mr. Patterson requested several extensions from the original
June 18, 2014, deadline to submit a protest requesting a postassessment
conference on behalf of Mr. Goddard. RA Boice extended the deadline
three times: (1) August 14, 2014; (2) September 15, 2014; and
(3) September 26, 2014. 6 Throughout the communications with RA
6 Throughout 2014 Mr. Patterson and RA Boice exchanged numerous pieces of
correspondence and voice messages. Mr. Patterson kept requesting certain documents
to no avail—legal service agreements, copies of checks, and client documents on which
the IRS relied to assess the pre-AJCA section 6707 penalties. After several requests
for those additional records, Mr. Patterson sent RA Boice in mid-September two letters
asking again for those records to verify computations set forth in the tables attached
9
[*9] Boice, Mr. Patterson also requested additional information and
documents, including legal service agreements, copies of checks, and
client documents, which he believed the IRS’s Examination Division
(Exam) relied upon in arriving at the computations forming the basis of
the pre-AJCA section 6707 penalties ultimately assessed against Mr.
Goddard. RA Boice provided some of the requested documents, but not
the legal service agreements, copies of checks, or client documents.
On September 24, 2014, RA Boice wrote Mr. Patterson notifying
him that the IRS had already provided him with all the information
available and that Mr. Goddard’s requests were better suited for a
protest. RA Boice then denied the request for a fourth deadline
extension with respect to the protest.
By letter dated September 29, 2014, Mr. Patterson requested a
meeting with RA Boice’s supervisor or, in the alternative, asked the IRS
to consider that letter to be a protest. Although the letter was late, the
Commissioner accepted it as a protest.
On September 29, 2014, RA Boice’s supervisor, Mr. Misir, drafted
a memorandum recommendation to assess penalties under pre-AJCA
section 6707 as to Mr. Goddard, which three IRS personnel signed by
November 2014: Barbara Harris, “Large Business and International
(LB&I) Financial Services, Director of Field Operation (DFO) in New
York;” Jack Ferguson, “Territory Manager;” and Lavena Williams,
“LB&I DFO, Southeast.”
Also on September 29, 2014, because LGD did not timely respond
to the NOPA letter package by filing a protest, RA Boice’s supervisor,
Mr. Misir, drafted a memorandum recommending assessment of LGD’s
pre-AJCA 6707 penalties. By November 2014 the three IRS personnel
who had signed Mr. Goddard’s penalty recommendation letter signed
LGD’s closing package. 7
On November 25, 2014, RA Boice sent Mr. Goddard a rebuttal to
his protest stating that the transactions were tax shelters under preto the NOPA letter package. In one of those letters, dated September 22, 2014, he
requested another extension and indicated that he believed the then-current deadline
to submit a protest to be September 29, 2014, rather than the actual deadline of
September 26, 2014.
7 The record reflects that LGD received its NOPA package. It was addressed
to the same office where Mr. Goddard received his NOPA package and where Mr.
Patterson worked, the Von Karman office.
10
[*10] AJCA section 6111 and Temporary Treasury Regulation
§ 301.6111-1T and that Mr. Goddard organized and managed the SOS
and CARDS transactions sold to multiple individuals between 1999 and
2002. The rebuttal concluded that because Mr. Goddard failed to
register those shelters under pre-AJCA section 6111, he was liable for
penalties under pre-AJCA section 6707. The penalties were assessed as
to both Mr. Goddard and LGD on December 29, 2014.
Also on December 29, 2014, Mr. Patterson replied to the rebuttal
reiterating that he wanted to meet with RA Boice’s supervisor and that
he assumed the IRS refused to honor that right by sending the rebuttal.
On December 31, 2014, RA Boice sent Mr. Goddard a notice and
demand letter for the pre-AJCA section 6707 penalties for tax years
1999 and 2000. A copy was forwarded to Mr. Patterson. The notice and
demand letters included the following statement:
If you believe you have reasonable cause why this penalty
should not be imposed, or if you otherwise believe you are
not liable for this penalty, you may request consideration
by our Appeals Office. To request consideration by
Appeals, send us an explanation within 30 days of the date
of this notice specifying why you believe you have
reasonable cause, or why you otherwise believe you are not
liable for the penalty. Any documents supporting your
position should be sent with the explanation. Send the
explanation and supporting documents to the address on
the voucher.
The letters also included a calculation of the pre-AJCA section 6707
penalties for tax years 1999 and 2000. The notice and demand letters
were delivered to Mr. Goddard and Mr. Patterson at the Von Karman
office address.
Also on December 31, 2014, RA Boice sent LGD a notice and
demand letter for the pre-AJCA section 6707 penalties for tax years
1999 and 2000. The letter provided LGD with an opportunity to request
consideration by Appeals within 30 days of the notice date, which
included the same statement quoted in Mr. Goddard’s notice and
demand. The letter also included a computation of the penalties for each
respective tax year. The letter was delivered to the Von Karman office
address on January 2, 2015. LGD submitted no request for Appeals
consideration.
11
[*11] On February 26, 2015, Mr. Goddard was notified that the Laguna
Niguel Appeals Office had received his case.
Mr. Goddard’s
postassessment case was assigned to Appeals Officer David Bollenberg
(AO Bollenberg). Also on February 26, 2015, LGD’s case was forwarded
to Appeals despite LGD’s neither requesting a postassessment Appeal
nor filing a protest. AO Bollenberg did not consider LGD’s case in his
capacity as an Appeals officer. He only reviewed the file to see whether
there was anything he needed for Mr. Goddard’s appeal.
Mr. Patterson sent AO Bollenberg a letter, dated March 11, 2015,
requesting Mr. Goddard’s case be returned to the IRS Exam. This
request was denied because AO Bollenberg found no mistakes by Exam
or any indication that Exam did not include everything they had.
Mr. Patterson’s letter did not mention LGD.
AO Bollenberg spoke to Mr. Patterson several times regarding
Mr. Goddard’s case. He held a telephone and a face-to-face conference
with Mr. Patterson on June 3 and July 29, 2015, respectively.
At the face-to-face conference Mr. Patterson raised several issues
from the IRS’s examination focusing on two denied requests: (1) the
additional information, which he believed to be necessary for computing
the penalties; and (2) a meeting with RA Boice or his supervisor. AO
Bollenberg communicated that Exam did not have additional
information. He explained that no basis existed for sending the case
back to Exam, but he agreed that the government may not have had
adequate support for its computations.
AO Bollenberg also
acknowledged problems with the Exam file because he could not obtain
the evidence Mr. Goddard was seeking. He determined that Exam had
already given Mr. Patterson what it had and advised Mr. Patterson to
let Appeals reach a solution with him, as Exam did not have settlement
authority. Mr. Patterson agreed and indicated that he would provide
AO Bollenberg with a list of the information currently in his possession
to show that the evidence did not support the penalty computation.
Mr. Patterson also requested a reduction for amounts already
paid by KPMG and Deutsche Bank. AO Bollenberg agreed that a
reduction was likely appropriate. At the end of the conference AO
Bollenberg stated that older cases, like Mr. Goddard’s, are likely to settle
as the memories of the individuals involved fade, which made such cases
difficult for the IRS to pursue. He also mentioned that he had settled a
previous case that was 15 years old for 50% of the amount asserted by
the IRS. In sum, AO Bollenberg was inclined to settle the case on the
12
[*12] information before him and agreed that Mr. Goddard made very
reasonable requests for information and documentation necessary to
evaluate the merits of the penalty under the law, which was missing
from Exam’s file.
By letter dated October 27, 2015, about three months after the
last Appeals conference, Mr. Patterson asked AO Bollenberg for
additional information and included a schedule of documents he
contended were necessary to analyze and defend the penalties. Mr.
Patterson’s requests were substantially identical to those in his letters
sent to RA Boice during the examination.
On November 16, 2015, AO Bollenberg submitted an Appeals
Transmittal and Case Memo for LGD because no protest had been filed
and the penalties had already been assessed. He had merely used LGD’s
file for background information for Mr. Goddard’s protest. His Appeals
Team Manager approved the memo. No closing letter was sent to LGD.
In response to Mr. Patterson’s requests for documents pertaining
to the penalties proposed against Mr. Goddard, AO Bollenberg sent Mr.
Patterson a letter on January 14, 2016, notifying him that all relevant
information and documentation in Exam’s possession had already been
provided to him and that Mr. Goddard had until February 5, 2016, to
submit a settlement offer. At that point it was clear to AO Bollenberg
that further investigation would not generate additional information.
Mr. Patterson never made a settlement offer to AO Bollenberg.
By letter dated February 15, 2016, Mr. Patterson told AO
Bollenberg that, because he had been working overseas, he just received
the January 14, 2016, letter and requested an extension to February 26,
2016, to reply. On February 25, 2016, Mr. Patterson wrote a letter to
AO Bollenberg requesting additional information he believed was
needed for Mr. Goddard to make a settlement offer. Mr. Patterson also
informed AO Bollenberg that he would be making a Freedom of
Information Act (FOIA) request if the documents requested were not
produced. AO Bollenberg did not respond to Mr. Patterson’s untimely
February 2016 letters.
In March 2016 AO Bollenberg detailed his findings, drafted a
closing letter, and prepared an Appeals Transmittal and a Case
Memorandum because he could do nothing more with the case after Mr.
Goddard failed to make a settlement offer. In his memorandum dated
March 25, 2016, AO Bollenberg made clear his conclusion that the
13
[*13] pre-AJCA section 6707 penalties were adequately supported and
that Mr. Goddard did not have a meaningful basis for disputing the
assessment. AO Bollenberg sustained the pre-AJCA section 6707
penalties in full for tax years 1999 and 2000. AO Bollenberg then closed
the case after working on it for more than a year—from March 5, 2015,
to March 25, 2016.
The signed closing letter was never mailed to Mr. Goddard or Mr.
Patterson. However, Mr. Patterson received the closing letter from AO
Bollenberg by email.
Thereafter, Mr. Goddard made a FOIA request to the IRS, but he
did not receive the legal service agreements, copies of checks, or client
documents he sought to challenge the IRS’s penalty computations;
however, the unsigned and undated closing letter was produced.
III.
Collection Proceedings
A.
Initiation of Mr. Goddard’s CDP Hearing
To collect the pre-AJCA section 6707 penalties assessed but not
paid, the Commissioner mailed Mr. Goddard Letter 3172, Notice of
Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320,
dated February 14, 2017. Mr. Goddard timely submitted Form 12153,
Request for a Collection Due Process or Equivalent Hearing (CDP
hearing request), on February 21, 2017, which respondent received on
February 22, 2017. In the submission Mr. Goddard checked the boxes
on the form for lien “discharge” and “withdrawal,” and gave as reasons
for such actions that the lien was improperly filed and that he was not
responsible for the penalties. He also named Mr. Patterson as his
authorized representative.
On May 23, 2017, Settlement Officer JC Sellers (SO Sellers) was
assigned to Mr. Goddard’s CDP case. On June 13, 2017, SO Sellers sent
Mr. Goddard and Mr. Patterson a letter indicating a conference was
scheduled for July 19, 2017. On June 27, 2017, SO Sellers received a
fax from Mr. Patterson requesting an in-person conference in late July
or August and stating Mr. Goddard’s intention to challenge the
underlying liabilities because he was unable to dispute the liabilities
before Appeals.
In another faxed letter dated June 27, 2017, which was received
by SO Sellers on July 5, 2017, Mr. Patterson asked for an opportunity to
challenge the underlying liabilities at an in-person conference with a
14
[*14] court reporter present to transcribe the proceeding. The letter
explained that the FOIA request generated thousands of pages of
additional relevant documentation and requested that a settlement
officer evaluate the credibility of Mr. Goddard’s oral testimony. In
response on July 5, 2017, SO Sellers mailed a letter to Mr. Patterson
and Mr. Goddard concluding that Mr. Goddard could not challenge the
underlying liabilities because he already had a prior opportunity before
Appeals to do so, making an in-person hearing unnecessary.
On July 17, 2017, SO Sellers received a fax from Mr. Patterson
again requesting an in-person, face-to-face, transcribed hearing for Mr.
Goddard’s challenge to the underlying liabilities. Mr. Patterson
maintained that Mr. Goddard never received a signed and dated closing
letter from Appeals.
On the morning of July 19, 2017, when the original CDP hearing
was scheduled, Mr. Goddard sent a fax to SO Sellers regarding issues to
be considered at the hearing. At the scheduled time, Mr. Goddard called
into the hearing, but Mr. Patterson did not. SO Sellers did not continue
with the CDP hearing. Instead, he sent a letter to Mr. Goddard and
Mr. Patterson reiterating that Mr. Goddard did not qualify for an inperson conference because he had had a prior opportunity to challenge
the underlying liabilities, which precluded him from challenging them
again. SO Sellers made clear that any documentation and evidence for
consideration in Mr. Goddard’s CDP case needed to be submitted by
August 4, 2017, and that the hearing was tentatively rescheduled for
August 23, 2017. On the evening of July 19, 2017, Mr. Patterson faxed
a letter to SO Sellers explaining that he had previously requested a later
hearing date in July or August because he was flying to New York
during the scheduled conference, which explained his absence at the
scheduled CDP hearing.
B.
Initiation of LGD’s CDP Hearing
On July 21, 2017, the Commissioner mailed LGD Letter 1058,
Final Notice – Notice of Intent to Levy and Notice of Your Rights to
Hearing (levy notice), with respect to the pre-AJCA section 6707
penalties for tax years 1999 and 2000. Mr. Patterson, as a partner,
timely submitted a CDP hearing request on behalf of LGD, which the
IRS received on August 3, 2017. LGD did not check any boxes on the
CDP hearing request indicating a reason for disagreeing with the
proposed levy. Rather, LGD stated:
15
[*15] IRS failed to follow procedure in issuing notice of intent to
levy. Also taxpayer (LGD) is not liable for the penalty for
the following reasons:
IRS improperly aggregated
investments, IRS miscalculated penalty, statute of
limitations or laches precludes the assessment of the
penalty, and/or any failure by LGD to register the
transaction was due to reasonable cause.
LGD’s case was assigned to Settlement Officer Teresita Paz (SO
Paz) on August 10, 2017. SO Paz confirmed she had no prior
involvement with LGD for the types of taxes and years associated with
the CDP case. On October 5, 2017, SO Paz confirmed the following:
[T]ax was assessed under IRC 6201; notice and demand
issued within 60 days to the last known address under IRC
6303; there was a balance due when CDP notice [sic] issued
under IRC 6322 and 6331(a); no pending BK, IA or OIC
[bankruptcy,
installment
agreement
or
offer-incompromise]; L1058 was sent cert mail to the TP’s last
known address; levy source was identified; CP 504 was
issued on 2-19-2015, more than 30 days prior to CDP
notice. It does not appear that the account is in business
as there has been no current returns filed.
C.
Mr. Goddard’s CDP Hearing
On September 6, 2017, Mr. Patterson and Mr. Goddard attended
Mr. Goddard’s CDP hearing with SO Sellers. 8 Mr. Patterson spent most
of the hearing arguing that Mr. Goddard could contest the underlying
liabilities because he did not receive a closing letter from Appeals. SO
Sellers repeated that Mr. Goddard could not challenge the underlying
liabilities, and he could only discuss the lien filing and whether proper
procedures and law were followed. He also explained that (1) no
information was provided which met the criteria for lien withdrawal
under section 6323(j) or discharge under section 6325; (2) collection met
all the procedures for filing the lien; and (3) he would recommend
sustaining the collection action.
8 A court reporter also appeared but was required to leave the conference
despite Mr. Patterson’s argument that a court reporter is not an ‘audio recording’ and
should be allowed. SO Sellers cited Internal Revenue Manual (IRM) 8.6.1.5 (Oct. 1,
2016) and section 7521.
16
[*16] Mr. Goddard and Mr. Patterson received a Notice of
Determination dated September 22, 2017, for tax years 1999 and 2000,
reiterating what was communicated by SO Sellers during the CDP
hearing. Specifically, the notice explains that despite not receiving a
closing letter from Appeals, Mr. Goddard included in the documents he
submitted to SO Sellers a copy of the closing letter, which stated that no
basis for abatement of underlying penalties existed.
D.
LGD’s CDP Hearing
In relation to LGD’s CDP request, SO Paz sent a letter to Mr.
Patterson for LGD and scheduled the CDP hearing on October 31, 2017.
Mr. Patterson then provided a copy of the examination file to SO Paz
before the hearing, which she reviewed to determine whether LGD was
given the opportunity to appeal the penalties before they were assessed.
By fax on October 27, 2017, Mr. Patterson requested an in-person
conference explaining LGD’s dispute as to the liability, and he submitted
Form 656–L, Offer in Compromise (Doubt as to Liability).
SO Paz called Mr. Patterson to confirm receipt of documents and
the scheduled October 31, 2017, conference. She also informed him that
she had requested advice from her Appeals team manager as to next
steps. SO Paz asked Mr. Patterson to send an offer-in-compromise to
the proper IRS office, which Mr. Patterson did. He then sent a letter
dated December 1, 2017, to SO Paz stating that the IRS did not comply
with section 6751 because it notified the taxpayer of the pre-AJCA
section 6707 penalties before receiving approval from the Territory
Manager, Director; Field Operations, Director; and Field Operations,
Financial Services Manhattan.
On March 8, 2018, LGD’s CDP hearing request was suspended to
consider the doubt as to liability offer-in-compromise. On April 11, 2018,
the offer-in-compromise was rejected because the liability had been
considered by Appeals, and the case was sent back to SO Paz.
On June 29, 2018, SO Paz agreed to have an audio recorded inperson CDP hearing on July 25, 2018, which occurred with Mr.
Patterson as LGD’s representative. Prior to that hearing, SO Paz had
referred the case to AO Yu as to the underlying liabilities issue and so
informed Mr. Patterson at the hearing; they also discussed the rejected
offer-in-compromise.
On July 27, 2018, SO Paz received an email from Appeals Team
Manager Marilyn Le, who was concerned that LGD would receive an
17
[*17] improper second appeal of the case. Despite this concern, on
August 15, 2018, SO Paz referred the underlying liabilities
determination to Appeals. Appeals closed the referral in October 2018
under instruction from an area team manager because the underlying
liabilities had been previously considered and sustained on appeal in
Mr. Goddard’s case.
Because SO Paz was notified that the Appeals case was closed, on
October 15, 2018, she attempted to contact Mr. Patterson by phone and
left a message requesting a return phone call. On October 17, 2018, SO
Paz was in contact with Manager Le and AO Bollenberg to determine
whether she could consider the underlying liabilities.
Then on October 22, 2018, SO Paz was forwarded a letter sent to
AO Bollenberg’s area team manager from Mr. Patterson, dated
September 26, 2018, which stated:
[U]pon further consideration, and in an effort to expedite
the process, we have made [the] following decisions:
1. Regarding the LLP: We are no longer interested in
having you reconsider your decision with respect to the
LLP. However, this should not be construed as a
withdrawal of the CDP request. We are merely requesting
that you proceed with the issuance of the CDP
determination letter so that we may petition the Tax Court
for review.
Considering this correspondence and because Mr. Patterson had not
returned SO Paz’s call, she moved forward with closing the case.
On November 7, 2018, SO Paz sent LGD a Notice of
Determination sustaining the proposed levy action. The letter explained
that in the CDP request, LGD challenged the underlying liabilities, so
the case was referred by SO Paz to Appeals, but the referral was rejected
because the underlying liabilities had been previously considered and
sustained on an appeal for a related case. AO Paz sustained the
proposed levy action because (1) LGD could not challenge the underlying
liabilities; (2) LGD did not request a collection alternative; (3) LGD’s
offer-in-compromise under doubt as to liability was denied; (4) Mr.
Patterson’s September 26, 2018, letter requested issuance of a
determination letter so LGD could petition this Court; and (5) Mr.
Patterson failed to return SO Paz’s October 15, 2018, phone call to
discuss the case.
18
[*18] In sustaining the proposed levy against LGD, SO Paz confirmed
that she had no prior involvement with LGD’s tax determination at issue
and she had consulted IRS records that showed that (1) the notice and
demand was properly issued before the levy notice; (2) a proper
assessment was made for tax years 1999 and 2000; (3) a notice and
demand was sent to LGD’s last known address; (4) a balance was due
when the levy notice was issued; and (5) LGD had not paid its liability
in full upon notice and demand and subsequent notices. LGD timely
petitioned this Court challenging the notice of determination.
OPINION
We first decide whether petitioners had a prior opportunity to
challenge the underlying liabilities which were subject to the lien filing
and proposed levy collection actions. We then decide whether the SOs
properly verified that the necessary written supervisory approvals
under section 6751 were obtained before assessment of the pre-AJCA
section 6707 penalties against petitioners. Finally, we decide whether
the limitations period and statutory repeal issues petitioners raised are
verification issues. 9
We hold for respondent on all issues.
I.
Applicable Legal Principles
A.
Jurisdiction and Standard of Review
This Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. Naftel v.
Commissioner, 85 T.C. 527, 529 (1985). This Court is also without
authority to enlarge upon the statutory grant. Smith v. Commissioner,
133 T.C. 424, 426–27 (2009). But we do have jurisdiction to determine
whether we have jurisdiction. Id. Therefore, we have authority to
determine whether this Court has jurisdiction to redetermine
petitioners’ liability for pre-AJCA section 6707 penalties.
This Court can have jurisdiction under sections 6320(c) and
6330(d)(1) to review the Commissioner’s administrative determinations
in lien and levy actions. Gardner v. Commissioner, 145 T.C. 161, 173
(2015), aff’d, 704 F. App’x 720 (9th Cir. 2017). Where the underlying tax
9 The parties agree that, as to LGD and Mr. Goddard, the statutory repeal issue
was not raised during their respective CDP hearings such that if it was not a
verification issue, we would be barred from considering it. See § 6330(c)(1) and (2).
19
[*19] liability is properly at issue, the Court will review the matter de
novo. Goza v. Commissioner, 114 T.C. 176, 181–82 (2000). Where the
underlying liability is not properly at issue, the Court will review the
administrative determination for abuse of discretion. Id. at 182. Abuse
of discretion occurs when a determination is arbitrary, capricious, or
without sound basis in fact or law. Fargo v. Commissioner, 447 F.3d
706, 709 (9th Cir. 2006), aff’g T.C. Memo. 2004-13; Murphy v.
Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
2006). Where a determination by Appeals is predicated upon an error
of law, that determination constitutes an abuse of discretion. Yokoyama
v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1091 (9th Cir. 2010);
Swanson v. Commissioner, 121 T.C. 111, 119 (2003).
B.
CDP Principles
Section 6321 provides that if any person liable to pay any tax
neglects or refuses to pay the same after demand, the unpaid amount—
any interest, addition to tax, or assessable penalty 10—shall be a lien in
favor of the United States. The Commissioner shall notify a taxpayer in
writing when a notice of lien is filed under section 6323 and inform the
taxpayer of the right to request any administrative hearing with
Appeals. §§ 6320(a) and (b), 6330(b).
If a taxpayer fails to pay any federal tax liability after notice and
demand under section 6303, section 6331(a) authorizes the IRS to collect
the tax by levy on the taxpayer’s property. However, the IRS must first
issue a levy notice and notify the taxpayer of the right to an
administrative hearing before Appeals at least 30 days before any levy
is made. § 6330(a) and (b)(1).
After receiving a levy notice, the taxpayer may request an
administrative hearing before Appeals. § 6330(a)(3)(B), (b)(1). A
taxpayer receiving notice of filing a tax lien has hearing rights similar
to the hearing rights accorded to a taxpayer receiving a levy notice. See
§ 6320(c). The provisions of section 6330(c), (d), and (e) also govern the
conduct of a CDP hearing requested under section 6320, and CDP
hearings held under sections 6320 and 6330 may be heard together.
10 The pre-AJCA section 6707 penalties are assessable penalties falling under
chapter 68, subchapter B, of the Internal Revenue Code, titled “Assessable Penalties.”
Collected in the same manner as taxes, taxpayers must pay assessable penalties “upon
notice and demand by the Secretary.” § 6671(a).
20
[*20] Jordan v. Commissioner, 134 T.C. 1, 5 (2010) (citing § 6320(c));
Rosenthal v. Commissioner, T.C. Memo. 2014-252, at *10.
When taxpayers make an abuse of discretion claim under section
6330(c), we consider and decide whether the IRS settlement officer:
(1) properly verified that the requirements of applicable law and
administrative procedure have been met, (2) considered any relevant
issues the taxpayers raised, and (3) considered “whether any proposed
collection action balances the need for the efficient collection of taxes
with the legitimate concern of the person that any collection action be
no more intrusive than necessary.” § 6330(c)(3); see Golditch v.
Commissioner, T.C. Memo. 2022-26, at *6; Ludlam v. Commissioner,
T.C. Memo. 2019-21, at *9–10, aff’d per curiam, 810 F. App’x 845 (11th
Cir. 2020).
II.
CDP Issues Raised by Mr. Goddard and LGD
We begin with Appeals’ duty to consider the relevant liability
issue raised by Mr. Goddard and LGD related to their CDP request.
Resolution of this issue affects our analysis of the remaining issues
petitioners have raised.
Mr. Goddard and LGD claim that the SOs—SO Sellers and SO
Paz—should have considered their underlying liabilities for the
pre-AJCA section 6707 penalties. Sections 6320(c) and 6330(c)(2)(B)
allow taxpayers under certain circumstances to challenge their
underlying liability in a CDP hearing. Middleton v. Commissioner, T.C.
Memo. 2022-28, at *6–7; Rosenthal, T.C. Memo. 2014-252, at *10. A
taxpayer may raise a CDP challenge to the underlying tax liability only
if he “did not receive any statutory notice of deficiency for such tax
liability or did not otherwise have an opportunity to dispute such tax
liability.” § 6330(c)(2)(B).
In determining whether the taxpayer had a prior opportunity to
dispute his liability, the regulations distinguish between liabilities that
are subject to deficiency procedures and those that are not. Where the
assessments against the taxpayer are assessable penalties like preAJCA section 6707 penalties, the Commissioner issues no notice of
deficiency because the deficiency procedures do not apply. See § 6212(a).
Because this proceeding does not involve a statutory notice of deficiency,
we focus on the second clause of section 6330(c)(2)(B): whether Mr.
Goddard and LGD “otherwise ha[d] an opportunity to dispute such tax
liability.” Respondent argues that the NOPA letter packages and the
21
[*21] notice and demand letters provided Mr. Goddard and LGD with a
prior opportunity to contest their underlying liabilities for pre-AJCA
section 6707 penalties, and those notices precluded them from raising
the underlying liabilities before this Court and at their CDP hearings.
Because we agree that a conference with Appeals either before or after
a penalty assessment provides a taxpayer a meaningful opportunity to
dispute the underlying tax liability, we look more carefully at what
transpired here. See Lewis v. Commissioner, 128 T.C. 48, 61 (2007);
Bletsas v. Commissioner, T.C. Memo. 2018-128, at *8, aff’d, 784 F. App’x
835 (2d Cir. 2019); IRM 4.32.2.11.7.2 (June 8, 2012). We will address
these issues separately for Mr. Goddard and LGD.
A.
Mr. Goddard
Mr. Goddard contested his underlying liability for the pre-AJCA
section 6707 penalties and had two conferences with Appeals. He argues
that because he never received a closing letter from AO Bollenberg, he
never had a meaningful opportunity to dispute assessment of the
penalties.
He argues that his case is analogous to Perkins v. Commissioner,
129 T.C. 58 (2007). In Perkins the taxpayer had received a levy notice
while his appeal was pending and before any Appeals conference
occurred. Id. at 60–61. The taxpayer requested a CDP hearing based
on the levy notice, and the settlement officer refused to allow the
taxpayer an opportunity to dispute the underlying liability because of
the prior Appeals conference request. Id. At the time the collection due
process hearing was requested, no action had been taken by Appeals on
the taxpayer’s dispute, and because the settlement officer during the
CDP hearing refused to allow the taxpayer an opportunity to dispute the
underlying liability, we held that the settlement officer erred. Id. at 67.
Mr. Goddard’s facts are vastly different, and Perkins simply does not
apply in this instance.
Unlike the Appeals officer in Perkins, AO Bollenberg worked on
the file for over a year and allowed Mr. Goddard to contest the
underlying liabilities. AO Bollenberg (1) reviewed the administrative
file; (2) exchanged numerous pieces of correspondence with Mr. Goddard
and his representative; and (3) conducted two conferences with
Mr. Goddard and his representative discussing the merits of the case—
once by telephone in June 2015 and once in a face-to-face meeting in
July 2015. Mr. Goddard likewise received an unsigned copy of the
closing letter in response to his FOIA request, which he received before
22
[*22] his request for the CDP hearing. Mr. Goddard cannot feign
surprise that AO Bollenberg closed his appeal when the record shows:
Mr. Goddard and Mr. Patterson missed the deadline that AO Bollenberg
set to provide a settlement offer; Mr. Patterson received the closing
letter from AO Bollenberg by email at the close of appeal; and Mr.
Goddard produced the closing letter during his CDP hearing with SO
Sellers.
We find Mr. Goddard’s arguments unpersuasive and hold that he
not only received an opportunity to dispute his underlying liability for
the pre-AJCA section 6707 penalties but also availed himself of that
opportunity.
B.
LGD
LGD argues that its failure to request review of its underlying
liabilities after receiving the NOPA letter package and the notice and
demand letter was due to respondent’s addressing the letter to the
wrong person, although it nevertheless arrived at LGD’s last known
address. In Bletsas we evaluated a similar issue involving a taxpayer in
a trust fund recovery penalty (TRFP) case who took no action in response
to a Letter 1153 she received granting her appeal rights. Bletsas, T.C.
Memo. 2018-128, at *6–15. We held that “[b]ecause [the taxpayer] had,
but neglected to avail herself of, a prior opportunity to challenge her
TFRP liability before the IRS Appeals Office, she was precluded from
disputing that liability at the CDP hearing.” Id. at *9 (first citing
§ 6330(c)(2)(B); then citing Thompson v. Commissioner, T.C. Memo.
2012-87, 103 T.C.M. (CCH) 1470, 1472; and then citing Treas. Reg.
§ 301.6330-1(e)(3), Q&A-E2).
Here, LGD supports its argument by showing that the NOPA
letter package, although addressed to LGD, also listed Mr. Goddard on
the mailing label, which LGD argues proves that it never received the
NOPA package. LGD also insists it only became aware of the pre-AJCA
section 6707 penalties against it upon receipt of the levy notice in July
2017. These arguments lack credibility. First and foremost, LGD was
on notice of the investigation related to the failure to register the SOS
and CARDS tax shelters and maintain lists of investors as required by
pre-AJCA sections 6111 and 6707 since at least 2006 when the summons
enforcement action began. See Lee, Goddard, & Duffy, LLP, 2006 WL
2404137. Moreover, LGD appealed the adverse summons enforcement
decision against it to the Ninth Circuit: Lee Goddard & Duffy LLP, 427
F. App’x 594. The assessment at issue in these cases was made a few
23
[*23] years later in 2014. LGD was on notice that the government was
pursuing penalties against it. Second, Mr. Goddard, despite resigning
as a partner, had LGD’s files pertaining to the tax shelters at issue. He
was also integrally involved in the summons litigation (even ghost
writing many of the pleadings), and he admitted at trial that “it’s
possible that I received [the NOPA letter package] . . . and then just
thought it was a duplicate of what I’d already received that was
addressed to me.”
Third, each NOPA letter package with appeal rights was sent to
LGD and Mr. Goddard at the correct address, the Von Karman office, as
delivered on May 21, 2014. Fourth, United Parcel Service records show
that the notice and demand explaining LGD’s appeal rights was
delivered to the Von Karman office on January 2, 2015; although its
mailing label addressed it to LGD in care of LGI, the letter itself clearly
relates only to LGD (not LGI). While no requirement under pre-AJCA
section 6707 exists mandating that a notice follow specific mailing
procedures, documentary evidence of mailing may suffice as proof that
a notice was properly mailed to a taxpayer. Mason v. Commissioner, 132
T.C. 301, 318 (2009) (citing Coleman v. Commissioner, 94 T.C. 82, 90–
91 (1990)).
Respondent established that the NOPA letter package and the
notice and demand letter were mailed to and received by LGD at the
Von Karman office address. 11 The delivered letters themselves are
clearly addressed to LGD and clearly relate to the LGD penalties and its
right to appeal. Respondent, therefore, has shown that LGD had notice
of its appeal rights.
LGD, like Mr. Goddard, had a prior opportunity to dispute its
liabilities for the pre-AJCA section 6707 penalties when it received the
NOPA letter package and notice and demand letter. Consequently, LGD
was precluded from disputing the liabilities at the CDP hearing and is
likewise precluded from doing so before this Court. See § 6330(c)(2)(B);
Thompson, 103 T.C.M. (CCH) at 1472; Treas. Reg. § 301.6330-1(e)(3).
11 At trial the IRS representative testified that the Exam team, rather than the
IRS campus, issues notice and demand letters involving pre-AJCA section 6707
penalties because of the cost and time to reprogram computers to properly
communicate the penalty to the taxpayer. We find his explanation sufficient to explain
the United Parcel Service delivery receipt rather than a U.S. Postal Service record.
24
[*24] We have no jurisdiction to review petitioners’ underlying
liabilities.
III.
Section 6330(c)(1) Verification Issues
Petitioners must also plead section 6330(c)(1) issues for this Court
to review them. Under section 6330(c)(1), “[t]he appeals officer shall at
the [CDP] hearing obtain verification from the Secretary that the
requirements of any applicable law or administrative procedure have
been met.” We “review the Appeals officer’s verification under section
6330(c)(1) without regard to whether the taxpayers raised it at the
Appeals hearing” if the taxpayers adequately raised the issue in their
petition filed in this Court. Hoyle v. Commissioner, 131 T.C. 197, 202–
03 (2008), supplemented by 136 T.C. 463 (2011); see Rule 331(b)(4). But
the taxpayers must put on a prima facie case and meet their burden of
proof showing the Appeals officer failed to obtain the necessary
verification from the Secretary under section 6330(c)(1). Dinino v.
Commissioner, T.C. Memo. 2009-284, 98 T.C.M (CCH) 559, 564; see also
Rule 331(b)(4).
A.
Whether Respondent Established That Proper Supervisory
Approval for Penalties Had Been Obtained
Compliance with section 6751 is an issue of “verification” under
section 6330(c)(1), which may be raised in a CDP case before this Court.
Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 154 T.C. 68, 75
n.8 (2020), rev’d and remanded on other grounds, 29 F.4th 1066 (9th Cir.
2022). Section 6751(b)(1) requires the initial determination of certain
penalties to be “personally approved (in writing) by the immediate
supervisor of the individual making such determination or such higher
level official as the Secretary may designate.”
Section 6751 has a timing requirement for the supervisory
approval. According to the Ninth Circuit, Ҥ 6751(b)(1) requires written
supervisory approval before the assessment of the penalty or, if earlier,
before the relevant supervisor loses discretion whether to approve the
penalty assessment.”
Laidlaw’s Harley Davidson Sales, Inc. v.
Commissioner, 29 F.4th at 1074 (emphasis added). With this holding,
the Ninth Circuit reversed our decision in Laidlaw’s Harley Davidson,
154 T.C. at 82–84, where we held that the supervisory approval for an
assessable section 6707A penalty must be obtained before the first
formal communication with the taxpayer.
25
[*25] We follow the relevant precedent of the Court of Appeals to which
an appeal would generally lie. See Golsen v. Commissioner, 54 T.C. 742,
757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). In these cases the
appeal generally lies in the Ninth Circuit. We, therefore, apply the
Ninth Circuit’s view as stated in Laidlaw’s Harley Davidson and do not
consider whether we agree with that view as opposed to our view stated
in our Opinion in that case.
With respect to Mr. Goddard, respondent bears the initial burden
of production under section 7491(c) and must provide sufficient evidence
establishing that respondent’s representatives complied with section
6751(b)(1). See Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001);
Graev v. Commissioner, 149 T.C. 485, 492–93 (2017), supplementing and
overruling in part 147 T.C. 460 (2016). If respondent establishes
compliance, the burden shifts to Mr. Goddard to provide contrary
evidence. See Frost v. Commissioner, 154 T.C. 23, 34–35 (2020).
But section 7491(c) does not apply to LGD because it is a
partnership rather than an individual taxpayer. See Dynamo Holdings
Ltd. P’ship v. Commissioner, 150 T.C. 224, 236–37 (2018). Because
respondent does not bear the burden of production regarding LGD, LGD
has “the burden of proving that no penalty should apply” and may assert
the supervisory approval issue as a defense to the penalties. Endeavor
Partners Fund, LLC v. Commissioner, T.C. Memo. 2018-96, at *64, aff’d,
943 F.3d 464 (D.C. Cir. 2019); see Dynamo Holdings Ltd. P’ship, 150
T.C. at 236–37.
The parties agree that the section 6751(b) penalty approval
requirement applies to pre-AJCA section 6707 penalties. They also
agree that the first formal communication of the pre-AJCA section 6707
penalties was on May 19, 2014, when the NOPA letter packages were
issued to Mr. Goddard and to LGD. The NOPA letter packages stated
that the pre-AJCA section 6707 penalties were to be assessed against
Mr. Goddard and LGD. The parties also agree that RA Boice’s
immediate supervisor, Mr. Misir, approved the pre-AJCA section 6707
penalties before the NOPA letter packages were mailed to Mr. Goddard
and to LGD and before assessment.
Respondent argues that because the NOPA letter packages were
signed by RA Boice’s immediate supervisor, the section 6751(b)
supervisory approval requirement is satisfied. Mr. Goddard and LGD
contend that respondent was required to obtain a threefold supervisory
26
[*26] approval pursuant to the directions in the IRM: 12 “In LB&I, after
Area Counsel reviews the investigation case, it is forwarded to the
following officials for their review and approval: 1. Territory Manager
2. Director, Field Operations (DFO) 3. Director, Field Operations,
Financial Services, Manhattan (LB&I:F:DFO:M).” IRM 4.32.2.11.1(4)
(June 8, 2012.) They focus on the second clause in section 6751(b)(1):
“or such higher level official as the Secretary may designate.”
Petitioners, therefore, contend that respondent failed to satisfy his
burden because respondent obtained the threefold supervisory approval
roughly six months after the NOPA packages were issued to petitioners.
Contrary to petitioners’ arguments, respondent’s representative
obtained the necessary supervisory approval before assessing penalties.
Section 6751(b) requires one of two types of supervisory approval: “the
immediate supervisor of the individual making such determination or
such higher level official as the Secretary may designate.” (Emphasis
added.) According to section 6751(b), respondent must only show he
obtained supervisory approval from one of the two options—RA Boice’s
immediate supervisor, Mr. Misir who signed the NOPA letter packages
issued to LGD and to Mr. Goddard, or a higher-level official designated
by the Secretary.
Again, the immediate supervisor may approve assessable
penalties if he or she has authority to do so and if the approval occurs
before the penalties were assessed. Laidlaw’s Harley Davidson Sales,
Inc. v. Commissioner, 29 F.4th at 1074 (citing § 6751(b)(1)); see PBBMRose Hill, Ltd. v. Commissioner, 900 F.3d 193, 213 (5th Cir. 2018) (“The
plain language of § 6751(b) mandates only that the approval of the
penalty assessment be ‘in writing’ and by a manager (either the
immediate supervisor or a higher level official).”); Palmolive Bldg. Invs.,
LLC v. Commissioner, 152 T.C. 75, 85 (2019) (citing PBBM-Rose Hill,
Ltd. v. Commissioner, 900 F.3d at 213). Because Mr. Misir’s signature
12 Section 6330(c)(1) specifically requires that the settlement officer at the CDP
hearing shall obtain verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met. Moreover, section
6330(c)(3) provides that the determination by the settlement officer shall take into
consideration the verification presented under section 6330(c)(1). Because Mr.
Goddard and LGD have questioned whether applicable IRM procedures were followed
in making the penalty assessments at issue here, we have examined the IRM
procedures. However, because we conclude that the settlement officer met the
verification requirement of section 6330(c)(1), we need not and do not decide whether
the procedures described in the IRM are administrative procedures that come within
the verification requirement of section 6330(c)(1).
27
[*27] on the NOPA letter packages satisfied the supervisory approval
requirement before he lost his authority to approve the penalties and
before the penalties were assessed, respondent satisfied his burdens.
Furthermore, under Ninth Circuit precedent, all managers signed the
penalty approval forms by November 2014, while they still had
authority. That date is before the December 29, 2014, assessment date;
consequently, respondent complied with the requirements of section
6751.
B.
Whether Assessment of the Penalties Is Barred by the Period
of Limitations
During a CDP hearing, SOs must verify that a valid assessment
was made. Ron Lykins, Inc. v. Commissioner, 133 T.C. 87, 97 (2009).
The settlement officer may review the IRS’s administrative file in
connection with the liability and may rely on transcripts to identify the
date and the amount of tax assessed. See, e.g., May v. Commissioner,
T.C. Memo. 2014-194, at *11–12, supplemented by T.C. Memo. 2016-43,
aff’d sub nom. Best v. Commissioner, 702 F. App’x 615 (9th Cir. 2017).
Respondent contends that “[d]etermining which period of
limitations might apply to a penalty assessment is not the kind of
requirement contemplated by the statute.” We construe respondent’s
position as an assertion that limitations period defenses are not
verification issues under section 6330. We agree because a bar of the
period of limitations is an affirmative defense, and the party raising that
defense must specifically plead it and prove it. Rules 39, 142(a).
“Raising the issue of whether the limitations period has expired
constitutes a challenge to the underlying tax liability.” Hoffman v.
Commissioner, 119 T.C. 140, 145 (2002) (first citing Boyd v.
Commissioner, 117 T.C. 127 (2001); and then citing MacElvain v.
Commissioner, T.C. Memo. 2000-320); see Kindred v. Commissioner, 454
F.3d 688, 699 (7th Cir. 2006) (“It is well settled law that a challenge to
the IRS[’s] ability to assess a tax under the statute of limitations codified
at IRC § 6501 constitutes a ‘challenge to the underlying tax liability.’”).
Because petitioners cannot contest their underlying liabilities before
this Court as explained supra pp. 20–24, the expiration of the
limitations period is not properly before this Court.
Even assuming arguendo that petitioners’ underlying liability
challenge is properly before us, their challenge still fails. Petitioners
argue that the pre-AJCA section 6707 penalties are barred by the three-
28
[*28] year period of limitations for returns under section 6501(a) or by
the five-year catch all period of limitations under 28 U.S.C. § 2462.
We cannot read a period of limitations into the Code where there
is none. A strong presumption exists against finding a period of
limitations against the federal government when none is clearly
applicable. E.L. Dupont De Nemours & Co. v. Davis, 264 U.S. 456, 462
(1924); United States v. Mass. Water Res. Auth., 256 F.3d 36, 40 n.3 (1st
Cir. 2001); Capozzi v. United States, 980 F.2d 872, 875 (2d Cir. 1992);
United States v. Tri-No Enters., Inc., 819 F.2d 154, 158 (7th Cir. 1987).
A period of limitations generally “runs against the United States only
when they assent and upon the conditions prescribed.” Lucas v. Pilliod
Lumber Co., 281 U.S. 245, 249 (1930); see Mullikin v. United States, 952
F.2d 920, 926 (6th Cir. 1991). In analyzing the period of limitations
applicable for tax assessments, the Supreme Court has emphasized the
longstanding principle that “[s]tatutes of limitation sought to be applied
to bar rights of the Government, must receive a strict construction in
favor of the Government.” Badaracco v. Commissioner, 464 U.S. 386,
391 (1984) (quoting E.L. Dupont De Nemours & Co., 264 U.S. at 462).
As to the three-year period of limitations for returns under section
6501(a), the parties agree that neither Mr. Goddard nor LGD filed a
Form 8264, Application for Registration of a Tax Shelter. Under section
6501(c)(3), the IRS can make an assessment beyond the three-year
period of limitations when nothing is filed. On its face, the section
6501(a) limitations claim fails.
Moreover, section 6501(a) provides that a tax must generally be
assessed “within 3 years after the return was filed” or (if the tax is
payable by stamp) within three years after the tax was paid. (Emphasis
added.) Registration of a tax shelter bears no relationship to filing a tax
return. The registration does not purport to be a return or even provide
information sufficient to calculate a tax liability, and the penalties
imposed by pre-AJCA section 6707 bear no relationship to filing a
return.
See Beard v. Commissioner, 82 T.C. 766, 777 (1984)
(establishing a four-part test for what constitutes a return), aff’d per
curiam, 793 F.2d 139 (6th Cir. 1986). Rather, penalties for failure to
register tax shelters are imposed on persons who were required to do so
but failed. Accordingly, return-based limitations in section 6501 impose
no limitation on assessment of these types of penalties.
We have also previously held that the five-year period of
limitations does not apply to assessable penalties such as those provided
29
[*29] under pre-AJCA section 6707. As explained in an analogous
setting in Crim v. Commissioner, T.C. Memo. 2021-117, at *16, *18,
Congress provided a postassessment limitations period for section 6700
assessable penalties:
Section 6700 penalties for promoting abusive tax shelters
bear no relationship to the filing of a tax return (by the
promoter or anyone else). Rather, they are imposed by
reason of the promoter’s having engaged in one or more
“activities” specified in section 6700(a)(1). . . .
....
Moreover, 28 U.S.C. sec. 2462 by its terms applies
“[e]xcept as otherwise provided by Act of Congress.” In the
case of actions to collect tax penalties, Congress has
“otherwise provided”—namely in section 6502(a), which
provides that an assessed tax “may be collected by levy or
by a proceeding in court” within 10 years after the
assessment. See Lamb v. United States, 977 F.2d 1296,
1297 (8th Cir. 1992) (citing section 6502(a) as a limitations
period “otherwise provided” by Congress); Mullikin, 952
F.2d at 929 (same).
The U.S. Court of Appeals for the Second Circuit and the U.S.
District Court for the Northern District of California agree with our
determination in Crim. Capozzi, 980 F.2d at 874; Armstrong v. United
States, No. 18-CV-06532-LHK, 2019 WL 2548139, at *5 (N.D. Cal. June
20, 2019). In Capozzi the Second Circuit held that 28 U.S.C. § 2462
“applies only to ‘action[s], suits[s] or proceeding[s].’ These terms
implicate some adversarial adjudication, be it administrative or
judicial.” Capozzi, 980 F.2d at 874. In contrast, an assessment of a
penalty is an ex parte act that is “merely the determination of the
amount of the penalty and the official recording of the liability.” Id. (first
citing § 6203; and then citing Treas. Reg. § 301.6203-1). “An assessment
is not an enforcement of a penalty but merely the determination and
recordation of an amount owed.” Id. “Enforcement” of that amount
occurs when the IRS proceeds to collection. See §§ 6203, 6320, 6330,
6502(a). Accordingly, “[i]t is the collection of amounts owed, not the
assessment of them, that may be properly termed ‘enforcement’.”
Capozzi, 980 F.2d at 875. The district court in Armstrong agreed with
the Second Circuit and held that 28 U.S.C. § 2462 could not apply to preAJCA section 6707 penalties because such penalties are not an “action,
30
[*30] suit, or proceeding” as required by 28 U.S.C. § 2462. Armstrong,
2019 WL 2548139, at *5. Because assessment of the pre-AJCA section
6707 penalties is not an “action, suit, or proceeding,” we also determine
that 28 U.S.C. § 2462 cannot apply to the pre-AJCA section 6707
penalties.
Overall, petitioners’ period of limitations arguments fail.
C.
Whether the AJCA Retroactively Repealed the Pre-AJCA
Section 6707 Penalty
Petitioners request that we address whether the passage of the
AJCA repealed the pre-AJCA section 6707 penalty. Respondent
counters that the AJCA amended but did not repeal section 6707, such
that the Court must apply the law as in effect during the tax years at
issue (i.e., 1999 and 2000). Furthermore, respondent argues that Mr.
Goddard and LGD did not raise this issue in their CDP hearings and are
precluded from doing so here.
We start with an inquiry as to whether a challenge involving the
repeal of a statute is tantamount to a challenge to the underlying
liability or a verification issue. In other words, we must determine
whether such an inquiry is beyond the scope of the verification
requirements under sections 6320(c) and 6330(c)(1). Again, as set forth
specifically in section 6330(c)(1), “[t]he appeals officer shall at the [CDP]
hearing obtain verification from the Secretary that the requirements of
any applicable law or administrative procedure have been met.” We
have consistently applied a simple approach to this verification
requirement:
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 v. Commissioner, 150 T.C. 218, 222 (2018); see also Craig v.
Commissioner, 119 T.C. 252, 261–62 (2002). We have also held that
reliance on standard administrative records is acceptable to verify
assessments. See Blackburn, 150 T.C. at 224 (first citing Nestor v.
31
[*31] Commissioner, 118 T.C. 162, 166 (2002); and then citing Davis v.
Commissioner, 115 T.C. 35, 41 (2000)).
Much like a challenge to the period of limitations discussed supra
pp. 27–30, having 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. Such a requirement is a substantive inquiry that would
add a level of detail to the verification process that has never previously
been required. The statutory repeal claim is instead a challenge of the
underlying liabilities, which we cannot review for the reasons discussed
supra pp. 20–24.
Assuming arguendo that petitioners’ underlying liability
challenge is properly before us, their claim still fails. The plain text of
the AJCA directly contradicts petitioner’s argument that the AJCA
retroactively repeals the pre-AJCA section 6707 penalty. When the
statute is clear, as here, we look no further than the statute to determine
the meaning. See Sullivan v. Stroop, 496 U.S. 478, 482 (1990); United
States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989). Because we
look to legislative history only if the statute is unclear, we have no need
to look any further than the statute at play in these cases. Blum v.
Stenson, 465 U.S. 886, 896 (1984); United States v. Lewis, 67 F.3d 225,
228–29 (9th Cir. 1995).
The AJCA specifically states: “Section 6707 . . . is amended”;
whereas in another unrelated section of the AJCA, it states: “Part V of
subchapter M of chapter 1 . . . is hereby repealed.” AJCA §§ 816(a),
835(a), 118 Stat. at 1583, 1593. The amendments to pre-AJCA section
6707 applied to transactions listed in pre-AJCA section 6111 and offered
after the AJCA’s effective date: “The amendments made by [the AJCA]
shall apply to returns the due date for which is after the date of the
enactment of this Act,” which was October 22, 2004. AJCA § 816, 118
Stat. at 1583–84.
Consequently, the plain text of the statute
demonstrates Congress’ intent to amend pre-AJCA section 6707 for
returns due after October 22, 2004—the AJCA’s effective date.
Because Congress knows how to repeal a statute in such a way as
“to erase it from the books,” it could have done so here. See Helvering v.
Newport Co., 291 U.S. 485, 489–90 (1934). Pre-AJCA section 6707
imposed penalties on certain persons for failure to register a tax shelter
first sold after 1984 whereas post-AJCA section 6707 imposes penalties
on certain persons who fail to make a return reporting certain
32
[*32] transactions after October 22, 2004. Compare Deficit Reduction
Act § 141(b) (the pre-AJCA section 6707 penalty), with AJCA §§ 815(c),
816(c), 118 Stat. at 1583–84 (the post-AJCA section 6707). Nothing in
the AJCA or the House committee report indicates that Congress
intended to alter or eliminate the effective date of the pre-AJCA section
6707 penalties. 13 Rather, they show that the AJCA did in fact amend
the pre-AJCA section 6707 penalties and that the effective date text in
the AJCA prescribed the AJCA’s limited reach. Accordingly, petitioners’
appeal to the legislative history to support a retroactive repeal of preAJCA section 6707 penalty is unconvincing. See, e.g., Patten v. United
States, 116 F.3d 1029, 1036 n.5 (4th Cir. 1997) (noting that legislative
history provides little guidance when determining the meaning of a
statute with clear text). Based on the plain text of the AJCA, Congress
intended to amend section 6707 by tying the penalty to returns due after
October 22, 2004, rather than to repeal the prior version for periods
before the effective date.
IV.
Conclusion
We conducted this bifurcated trial to decide four issues related to
the filing of a tax lien and a proposed levy sustained against petitioners
in CDP hearings requests related to the assessment of pre-AJCA section
6707 penalties. We hold for respondent on all four issues.
We will hold additional proceedings to consider Mr. Goddard’s
and LGD’s remaining issues raised in their Petitions, namely additional
verification issues, the laches defense, the rejection of LGD’s offer-incompromise, and whether the SOs balanced the need for collection
actions with the legitimate concern that those actions be no more
intrusive than necessary.
To implement the foregoing, and concessions of respondent,
An appropriate order will be issued.
13 The word “repeal” is not synonymous with “make retroactive.”
Repeal,
Retroactive, Black’s Law Dictionary (11th ed. 2019) (defining a retroactive law as “[a]
legislative act that looks backward or contemplates the past, affecting acts or facts that
existed before the act came into effect,” and a “repeal” as “[a]brogation of an existing
law by express legislative act; RESCIND”).
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.