Opinion
16962-19L
08-12-2022
KENNETH W. ROE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Elizabeth A. Copeland Judge
This collection due process (CDP) action was commenced pursuant to section 6330(d)(1). Pending before the Court is Respondent's Motion for Summary Judgment, filed on December 1, 2020, along with the Declaration of Theresa M. Amper in Support of Motion for Summary Judgment, also filed on December 1, 2020. Petitioner's Response to Motion for Summary Judgment was filed on February 19, 2021.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.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.
The issue before the Court is whether the Internal Revenue Service's (IRS) Office of Appeals (Appeals), through the actions of Appeals' Settlement Officer (SO) Theresa Amper (SO Amper), abused its discretion in sustaining a Notice CP90, Intent to seize your assets and notice of your right to a hearing (Levy Notice), dated April 30, 2018. Respondent has moved for summary judgment under Rule 121, contending that there is no genuine issue as to any material fact, Appeals did not abuse its discretion in sustaining the Levy Notice, and respondent is entitled to summary adjudication.
On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981, 983 (2019). We will use the name in effect at the times relevant to this case, i.e., the Office of Appeals or Appeals.
Background
The following background is derived from the pleadings, the parties' motion papers, and the supporting exhibits attached thereto. We note that the background 1 is stated solely for purposes of ruling on the pending motion for summary judgment and is not a finding of facts. Petitioner, Kenneth Roe, was a resident of Ohio when his petition was filed.
I. Tax Liabilities
In tax year 2014, Mr. Roe requested a distribution from his Health Savings Account (HSA) and his Individual Retirement Account (IRA). On his 2014 Form 1040, U.S. Individual Income Tax Return, he did not report the full amount of his HSA distribution and only partly reported the amount of his IRA distribution. He did not pay the full balance due shown on his 2014 tax return.
The custodians of Mr. Roe's HSA and IRA reported the distributions they made to him to the IRS. The discrepancy between the amounts reported by the custodians and the amounts reported by Mr. Roe on his tax return led the IRS' automated underreporting unit to issue a Notice CP2000, Changes to your 2014 Form 1040 (underreporter inquiry), dated November 28, 2016. The underreporter inquiry proposed to adjust Mr. Roe's 2014 tax return to include a $43,000 IRA retirement distribution, a $2,994 HSA distribution, a $9,335 payment reported to the IRS on Form 1099-K, Payment Card and Third Party Network Transactions, interest, and a section 6662(b)(2) substantial understatement penalty. After a response from Mr. Roe, the IRS corrected the $9,335 payment adjustment, and sent Mr. Roe another Notice CP2000, dated February 21, 2017. The February 21, 2017, notice was identical to the November 28, 2016, notice, except that the proposed change for the $9,335 payment was removed, and the interest and section 6662(b)(2) substantial understatement penalty were recalculated to reflect the removal.
On May 30, 2017, the IRS sent Mr. Roe, via certified mail to his last known address, a Notice CP3219A, Notice of Deficiency, for the increase in tax related to the adjustments noted above. The notice of deficiency determined an income tax deficiency for 2014 of $11,260 and a section 6662(b)(2) substantial understatement penalty of $2,252. These amounts were in addition to the balance already due on Mr. Roe's 2014 tax return. Mr. Roe did not contest the notice of deficiency by filing a petition with this Court. See I.R.C. § 6213(a).
For tax year 2015, Mr. Roe sought and received an extension of time to file his tax return, extending his deadline from April 15, 2016, to October 15, 2016. Because October 15, 2016, fell on a Saturday, the deadline was automatically further extended to Monday, October 17, 2016. See I.R.C. § 7503. The IRS received his 2015 income tax return on October 17, 2016, and accepted it as filed. Mr. Roe did not pay the full balance due on that return. No notice of deficiency was ever issued for tax year 2015. 2
While no notice of deficiency was issued, in 2017, the IRS sent Mr. Roe a Notice CP11, Changes to your 2015 Form 1040, commonly known as a "Math Error Notice" for a miscalculation on his 2015 tax return in the amount of $5.
II. Collection Due Process Proceeding
As part of its efforts to collect Mr. Roe's unpaid 2014 and 2015 tax liabilities, on April 30, 2018, the IRS sent him the Levy Notice. The Levy Notice stated that Mr. Roe's total tax liability for the two years was $27,084.20. That amount included: (1) his self-assessed liabilities from his 2014 and 2015 tax returns; (2) the 2014 income tax deficiency; (3) section 6651(a)(2) additions to tax for failure to pay for both tax years; (4) a section 6662(b)(2) substantial understatement penalty for tax year 2014; (5) interest for both tax years; and (6) reductions for payments and withholding.
Mr. Roe responded to the Levy Notice by timely submitting Form 12153, Request for a Collection Due Process or Equivalent Hearing. On Form 12153, he indicated that he was challenging a notice of federal tax lien and a proposed levy or actual levy, and that he could not pay the balance due. Additionally, Mr. Roe checked the box for "[o]ther" and wrote "[t]here is no way the amount (especially for 2014) can be accurate! I was unemployed, I took some money from my IRA acct. [sic] to start a business, which lost money! I had no income!"
Understanding Mr. Roe's concern over the large balance due per the Levy Notice versus his return filings, the following table illustrates the IRS' calculations of the amount due at the time of the Levy Notice. The table is based off amounts reported on IRS transcripts and other notices provided in the motion for summary judgment and the declaration filed with the motion for summary judgment:
Description
2014
2015
Totals
Tax Per Return
$4,627.00
$8,443.00
$13,070.00
Tax Increase Per Notice of Deficiency (2014) and Math Error Notice (2015)
11,260.00
5.00
11,265.00
Failure to Pay Additions to Tax
1,145.90
1,142.20
2,288.10
Substantial Understatement Penalty
2,252.00
-
2,252.00
Interest (approximated)
2,412.26
588.84
3,001.10
Less: Payments
(2,877.00)
(1,915.00)
(4,792.00)
Grand Totals
$18,820.16
$8,264.04
$27,084.20
Mr. Roe's CDP hearing request was initially processed by the IRS' Automated Collection System (ACS). ACS then transferred Mr. Roe's request to Appeals where it was assigned to SO Amper. On September 25, 2018, SO Amper sent Mr. Roe a letter: (1) setting a CDP hearing for October 30, 2018; (2) asking Mr. Roe to submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, on or before October 22, 2018; and (3) informing Mr. Roe that his request for a CDP hearing with respect to a notice of federal tax lien was 3 premature because no lien had been filed. Mr. Roe submitted a Form 433-A prior to the CDP hearing, but did not provide his income and expense information and did not sign the form.
At the CDP hearing, Mr. Roe was informed that his 2014 tax liability stemmed from unreported income; and that because he received a notice of deficiency and did not challenge it in court, he could not do so at the CDP hearing. SO Amper then informed Mr. Roe that the Form 433-A he submitted was incomplete. She told him she could not consider him for a collection alternative for the 2014 and 2015 tax years without a complete form. During the hearing, Mr. Roe indicated verbally that he could not pay the liability for those years as he was living only off of his social security income and recently underwent knee replacement surgery. SO Amper gave Mr. Roe two additional weeks to cure the deficiencies in his Form 433-A.
Mr. Roe submitted the completed Form 433-A within the extended deadline. Based on the information provided, SO Amper determined that Mr. Roe did not qualify for currently not collectible status; but, she offered Mr. Roe a partial payment installment agreement (PPIA) at $82 per month. On February 7, 2019, she sent Mr. Roe a letter informing him of the PPIA offer and enclosed the appropriate forms that Mr. Roe would need to sign to accept the offer. Mr. Roe replied with a letter dated February 17, 2019, which stated, in pertinent part:
On February seventh 2019 you sent me an offer to resolve my case by agreeing to pay $82.00 a month, but you did not enclose any balance of my account or how the balance got from $7,000 to $28,000 in two years. The balance and the amount I owe the IRS is the whole reason I thought "Due Process" was supposed to resolve, it has not. I do not waive my right to judicial appeal in this case and would not sign Form 12257 [Summary Notice of Determination, Waiver of Right to Judicial Review of a Collection Due Process Determination, Waiver of Suspension of Levy Action, and Waiver of Periods of Limitation in Section 6330(e)(1)] or agree to pay on a balance that is obviously wrong. I will petition for a judicial review and try and make sense of all of this. Thank you for your efforts to resolve this, but I cannot agree to something I know is not right.
On August 16, 2019, SO Amper sent Mr. Roe a notice of determination sustaining the Levy Notice. Mr. Roe timely petitioned this Court on September 13, 2019, and the motion for summary judgment currently before us followed in due course. In his summary judgment motion, respondent conceded the section 6662(b)(2) substantial understatement penalty and related interest because the appropriate managerial approval for the penalty had not been obtained under the provisions of section 6751(b). 4
Discussion
III. Summary Judgment
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). Generally, we may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); see also Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party, Mr. Roe in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. at 520 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, a nonmoving party may not rest upon the mere allegations or denials in its pleadings but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
After reviewing respondent's motion for summary judgment, petitioner's response, and all of the documents submitted in support of these filings. We find that this case is ripe for summary adjudication and that, for the reasons detailed below, respondent is entitled to judgment as a matter of law with respect to the levy action at issue.
IV. Jurisdiction and Standard of Review
A. Jurisdiction
On his Form 12153, Mr. Roe challenged both a notice of federal tax lien filing (NFTL) and the Levy Notice. Section 6320(a) requires the IRS to furnish the taxpayer with an NFTL no later than five business days after filing a notice of lien and provides that a taxpayer may request a CDP hearing with respect to the NFTL. Section 6330(a) requires the IRS to notify a taxpayer 30 days before any levy is undertaken and provides that a taxpayer may request a CDP hearing with respect to the proposed levy. In both cases, the hearing is to be conducted consistent with the procedures set forth in sections 6330(b) and (c).
Generally, if respondent issues both an NFTL and a notice of intent to levy, then a taxpayer may request a combined lien/levy CDP hearing pursuant to both sections 6320(b) and 6330(b). If respondent has issued only one of the two notices (i.e., either an NFTL or a notice of intent to levy), then the taxpayer may only request a CDP hearing for the particular notice issued to the taxpayer, either under section 6320(b) for liens or section 6330(b) for levies. Consequently, our jurisdiction to review Appeals' determination depends on what statute applies. Section 6320(c), by way of cross-reference to section 6330(d), gives us jurisdiction to review a notice of determination concerning an NFTL; section 6330(d) gives us jurisdiction to review a 5 notice of determination concerning a notice of intent to levy; and in the case where both a lien and levy are at issue, sections 6320(c) and 6330(d) conjoin to give us jurisdiction to review both collection methods. We discuss each notice separately beginning with the NFTL.
SO Amper noted that no NFTL had been issued to Mr. Roe and that his request for a CDP hearing concerning an NFTL was premature. Our review of the record confirms that fact; respondent has not issued an NFTL to Mr. Roe for either tax year 2014 or 2015. If respondent issues an NFTL for tax year 2014 or 2015 in the future, Mr. Roe will have an opportunity to request a CDP hearing with respect to that NFTL, and to petition this Court for review of Appeals' determination with respect to the same (although, as explained in more detail in the sections that follow, he will be precluded from contesting the underlying liability).
Because there was no NFTL filing, the operative notice that allowed Mr. Roe to request a CDP hearing and petition this Court was the Levy Notice, and the operative statute is section 6330. Accordingly, we will review SO Amper's determination as related to the Levy Notice only.
B. Standard of Review
Our standard of review in CDP cases depends on whether the validity of the underlying tax liability is properly at issue. A taxpayer who did not receive a notice of deficiency or did not have a prior opportunity to contest the tax liability may contest such liability, including a self-assessed liability, at the CDP hearing. I.R.C. § 6330(c)(2)(B); Montgomery v. Commissioner, 122 T.C. 1, 9 (2004). In that instance, we review Appeals' determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-82 (2000). Otherwise, we review Appeals' determination for abuse of discretion. Id.
With respect to tax year 2014, respondent's motion for summary judgment and its supporting declaration contains a copy of Mr. Roe's notice of deficiency and United States Postal Service Form 3877, Firm Mailing Book for Accountable Mail, showing that the notice of deficiency was mailed to Mr. Roe's last known mailing address, in compliance with the requirements of section 6212. Mr. Roe did not otherwise indicate that he did not receive the properly mailed notice of deficiency. Accordingly, we are left to conclude that Mr. Roe had a prior opportunity to dispute his 2014 liability, and we will review SO Amper's determination as to tax year 2014 for abuse of discretion. See id.
With respect to tax year 2015, Mr. Roe's tax liability stems from the self-assessed liability he reported on his return. No notice of deficiency was ever issued.Therefore, Mr. Roe could have challenged his 2015 liability at the CDP hearing and in this Court. See I.R.C. § 6330(c)(2)(B); Montgomery v. Commissioner, 122 T.C. at 9. 6 The record contains multiple indications that Mr. Roe challenged his 2015 liability. On his Form 12153, he wrote "[t]here is no way the amount (especially for 2014) can be accurate." In a February 17, 2019, letter to SO Amper he stated that his balance is "obviously wrong." And in his petition, he wrote that he is challenging SO Amper's determination "on grounds of inaccurate amount owed." However, merely stating a challenge to the underlying tax liability is not enough to preserve it for our consideration; the taxpayer has to "present the Appeals Office with any evidence regarding [the correct amount of] that liability after being given reasonable opportunity to do so." Gentile v. Commissioner, T.C. Memo. 2013-175, at *6, aff'd, 592 Fed.Appx. 824 (11th Cir. 2014); Delgado v. Commissioner, T.C. Memo. 2011-240, 2011 Tax Ct. Memo LEXIS 236, at *5-6; Treas. Reg. § 301.6330-1(f)(2), Q&A-F3. SO Amper's September 25, 2018, letter informed Mr. Roe of his opportunity to dispute his 2015 liability. Aside from making generalized written statements, Mr. Roe did not present any evidence to show that his self-reported 2015 liability was erroneous. Therefore, we conclude that he did not properly raise the merits of his 2015 self-assessed liability and we cannot consider it here. See id.; see also Giamelli v. Commissioner, 129 T.C. 107, 114 (2007). Thus, we are left with reviewing SO Amper's determination as to tax year 2015 for abuse of discretion. See Goza v. Commissioner, 114 T.C. at 181-82.
SO Amper did note that the IRS had issued a $5 math error notice in May of 2017 because Mr. Roe had calculated his tax incorrectly on his hand-written Form 1040 for 2015. Mr. Roe did not separately address this minor adjustment.
V. Abuse of Discretion
In reviewing for abuse of discretion, we must uphold SO Amper's determination unless it is arbitrary, capricious, or without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006); Taylor v. Commissioner, T.C. Memo. 2009-27, 97 T.C.M. (CCH) 1109, 1116 (2009). We consider whether SO Amper: (1) properly verified that the requirements of any applicable law or administrative procedure have been met; (2) considered any relevant issues raised by Mr. Roe; and (3) determined whether "any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of [Mr. Roe] that any collection action be no more intrusive than necessary." I.R.C. § 6330(c)(3); Ludlam v. Commissioner, T.C. Memo. 2019-21, at *9-*10, aff'd per curiam, 810 Fed.Appx. 845 (11th Cir. 2020).
A. Verification
Before issuance of a notice of determination, an SO is required to verify that all requirements of applicable law and administrative procedure have been met. I.R.C. § 6330(c)(1), (3)(A). We have the authority to review satisfaction of this requirement regardless of whether the taxpayer raised a verification issue at the CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-03 (2008), supplemented by 136 T.C. 463 (2011). Here, SO Amper reviewed Mr. Roe's file and IRS records and confirmed that his 2014 and 2015 liabilities were properly assessed. She confirmed that she had no prior involvement in Mr. Roe's case and that a balance was due at the time of issuance of the Levy Notice. Mr. Roe does not challenge SO Amper's satisfaction of the verification requirement. Our review of the record confirms that SO Amper satisfied the verification requirement. 7
B. Issues Raised
An SO is required to consider any relevant issue raised by a taxpayer during a hearing. I.R.C. § 6330(c)(2)(A), (3)(B). At the CDP hearing, Mr. Roe raised the issue of his inability to pay his 2014 and 2015 liabilities. SO Amper asked Mr. Roe to submit a completed Form 433-A so that she could consider him for a collection alternative. Mr. Roe submitted a completed Form 433-A; and, based on the information provided on that form, SO Amper determined that Mr. Roe was not eligible for currently not collectible status, but offered him a PPIA for $82 a month. Mr. Roe rejected her offer and did not propose a different collection alternative. Accordingly, we conclude that SO Amper met this requirement by considering and addressing the collection alternatives raised by Mr. Roe.
C. Balancing
Mr. Roe effectively alleged in his petition that SO Amper failed to consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of [Mr. Roe] that any collection action be no more intrusive than necessary." I.R.C. § 6330(c)(3)(C). However, he provided no collection alternative that would allow the IRS to collect any amount of tax. Importantly, his own financial calculations on the Form 433-A supported an ability to pay the $82 per month determined by SO Amper. Our review of the record reveals nothing to disturb SO Amper's conclusion that the proposed one-time levy action balanced the need for efficient tax collection with any legitimate concerns of Mr. Roe about intrusiveness, as he provided her no alternative.
VI. Conclusion
In conclusion, our review of the record shows no abuse of discretion. We will therefore grant respondent's motion for summary judgment.
We note that Mr. Roe's situation is very sympathetic, and our decision in this case does not mark the end of collection alternatives available to him. He can seek an installment agreement or file with the IRS an offer-in-compromise based on doubt as to collectability or effective tax administration. See Treas. Reg. § 301.7122-1(b), (c)(2), (3). Additionally, if he believes that his liability is erroneous, he can do the following administratively with the IRS: (1) seek audit reconsideration; (2) file an offer-in-compromise based on doubt as to liability, or (3) pay the tax, file Form 843, Claim for Refund and Request for Abatement. As to these alternatives, he will not have judicial review in this Court; however, as to the last alternative, if that claim for refund is denied or six months has passed without any determination from the IRS, Mr. Roe can file a refund suit in the appropriate U.S. District Court or the U.S. Court of Federal Claims. See I.R.C. §§ 6404(a), 6532(a), 7422; Cohen v. United States, 297 F.2d 760, 772 (9th Cir. 1962) (noting that a taxpayer's failure to file a petition within 90 days of a notice of deficiency's mailing did not foreclose a potential refund suit). 8
To reflect the foregoing, it is
ORDERED that respondent's motion for summary judgment, filed on December 1, 2020, is granted. It is further
ORDERED AND DECIDED that respondent may proceed by levy with the collection of Mr. Roe's federal income tax liabilities for tax years 2014 and 2015, as set forth in the notice of determination dated August 16, 2019, except as to the conceded reduction for the section 6662(b)(2) penalty. 9