Opinion
3422-22L
06-06-2023
THOMAS SPIELBAUER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth Crewson Paris Judge
This case is before the Court on a petition for review of a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 sustaining a notice of intent to levy for petitioner's 2011 tax year (notice of determination). On January 24, 2023, respondent filed a Second Motion for Partial Summary Judgment under Rule 121 (Motion), seeking adjudication in his favor on the issue of whether the appeals settlement officer abused her discretion in upholding the levy action and not granting petitioner collection alternatives, including whether the tax liability at issue was assessed within the statute of limitations. Petitioner filed an Opposition to Motion for Partial Summary Judgment on April 21, 2023, and respondent filed a Response to Opposition to Motion for Partial Summary Judgment on May 30, 2023.
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.
Background
The following background is derived from the parties' pleadings, motion papers, First and Second Stipulations of Facts, and accompanying exhibits. It is stated solely for purposes of deciding respondent's Motion and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Petitioner timely filed a joint federal income tax return with his spouse for tax year 2011. On that return, petitioner self-reported income tax owed in the amount of $3,759. Respondent made a math error adjustment of $4,314 to the amount of tax on petitioner's 2011 joint income tax return. Respondent also assessed additions to tax for failure to pay and interest with respect to the self-reported tax.
On April 7, 2014, petitioner filed for Chapter 11 bankruptcy with the U.S. Bankruptcy Court for the Northern District of California (Bankruptcy Court).
On October 31, 2014, respondent issued a Notice of Deficiency to petitioner and Mrs. Spielbauer for tax year 2011 asserting an income tax deficiency in the amount of $26,722 based on adjustments to claimed deductions and self-employment tax for petitioner's law business, reported on Schedule C, Profit or Loss From Business, and a penalty under section 6662(a) of $5,344.40. While petitioner's bankruptcy case was still pending, petitioner and Mrs. Spielbauer filed a petition with the Court, docket no. 2804-15. The Court dismissed the petition as to petitioner for lack of jurisdiction on the ground that it was filed in violation of the automatic stay provisions of 11 U.S.C. § 362(a)(8). In its order dismissing the case as to petitioner, the Court reminded petitioner that section 6213(f)(1) provided that the running of time for filing a Tax Court petition is suspended during the time that the automatic stay prohibits the filing of a petition, and for 60 days thereafter. On October 27, 2016, the Court entered a decision in docket no. 2804-15, granting Mrs. Spielbauer relief from joint and several liability pursuant section 6015(f).
On August 24, 2018, the Internal Revenue Service (IRS) filed a proof of claim in petitioner's bankruptcy case, listing petitioner's 2011 federal income tax liability as an unsecured priority claim. On October 25, 2018, the Bankruptcy Court converted the bankruptcy case from a Chapter 11 to a Chapter 7 bankruptcy, and on January 25, 2019, petitioner was granted a discharge under 11 U.S.C. § 727.
Following the discharge of his bankruptcy case, petitioner did not file a new petition with the Court with respect to the Notice of Deficiency for tax year 2011. On September 2, 2019, respondent assessed the additional tax, penalty, and interest set forth in the Notice of Deficiency. Petitioner has made no payments toward the 2011 assessments.
Respondent subsequently conceded that petitioner is not liable for the penalty.
On June 28, 2021, respondent issued petitioner Notice LT11, Notice of Intent to Levy and Your Collection Due Process Rights to a Hearing. Petitioner timely submitted Form 12153, Request of a Collection Due Process Hearing or Equivalent Hearing (hearing request), which respondent received on July 21, 2021. In the hearing request, petitioner indicated that he sought an installment agreement or an offer-in-compromise as collection alternatives and that he was unable to pay the balance. Petitioner further stated that he believed the tax liability was discharged in bankruptcy.
Petitioner's hearing request was received by the Fresno IRS Automated Collection System, which sent petitioner a request for unfiled tax returns for 2015, 2016, 2018, 2019, and 2020, and for a completed Form 433-F, Collection Information Statement. Petitioner did not file the delinquent returns or provide the requested financial information by the deadline stated in the letter. His hearing request was transferred to the IRS Independent Office of Appeals in Holtsville, New York, and assigned to Appeals Settlement Officer Sowers (SO Sowers).
SO Sowers reviewed petitioner's administrative file, confirmed that she had no prior involvement with petitioner, confirmed that the tax liability was properly assessed, and that all other requirements of applicable law and administrative procedure had been met. She additionally requested assistance from the IRS Insolvency Unit to determine whether petitioner's tax liability was discharged in bankruptcy.
By letter dated October 21, 2021, SO Sowers scheduled a telephonic hearing for December 2, 2021. During the telephonic hearing, SO Sowers explained to petitioner that his 2011 tax liability was assessed after the bankruptcy petition was filed and thus was not discharged. Petitioner informed SO Sowers that he had submitted an offer-in-compromise, and SO Sowers explained that he would need to file all outstanding tax returns in order for his offer-in-compromise to be considered.
That same day, the IRS received Form 656, Offer in Compromise, from petitioner for 2011, 2015, 2016, 2017, 2018, 2019, and 2020. An IRS Examiner returned the offer because petitioner had not filed all required tax returns. SO Sowers contacted petitioner on December 8, 2021, notifying him that the offer-in-compromise was returned due to his unfiled tax returns and allowing petitioner 30 days to file the returns and resubmit the offer. She also advised petitioner that if he did not come into compliance with his filing obligations by January 7, 2022, she would issue a determination letter. On January 19, 2022, having not received any indication that petitioner had filed the missing returns, SO Sowers sustained the proposed levy action. On February 1, 2022, the IRS Independent Office of Appeals issued the notice of determination, upholding the proposed levy for petitioners unpaid 2011 tax liability.
Discussion
Summary judgment serves "to expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant summary judgment when there is no genuine dispute of material fact, and a decision may be rendered as a matter of law. Rule 121(a)(2); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment, the Court construes factual materials and inferences drawn from them in a light most favorable to the nonmoving party. Sundstrand Corp. v. Commissioner, 98 T.C. at 520. The nonmoving party may not rest upon mere allegations or denials in its pleadings and must set forth specific facts showing there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
The Court has jurisdiction to review determinations concerning collection actions when the taxpayer timely petitions for review. § 6330(d)(1). Where the validity of a taxpayer's underlying liability is properly at issue, the Court reviews the determination with respect to that issue de novo. Goza v. Commissioner, 114 T.C. 176, 181-82 (2000). The Court reviews all other determinations for abuse of discretion. Id. at 182. Because petitioner does not dispute the underlying tax liability, the Court reviews the determination only for abuse of discretion.
To establish an abuse of discretion, the taxpayer must show that the determination is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006). In deciding whether the settlement officer abused her discretion, the Court considers whether she verified that the requirements of any applicable law or administrative procedure had been met, considered any relevant issues raised by the taxpayer, and balanced the need for efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary. § 6330(c)(1)-(3).
In opposing summary judgment, petitioner argues that SO Sowers abused her discretion because, according to petitioner, the assessment of the tax liability was not timely under section 6501(a).
Section 6501(a) provides, as a general rule, that a tax must be assessed within three years after the return was filed. See also Romano-Murphy v. Commissioner, 152 T.C. 278, 290 (2019). Taxes reported on a tax return are assessed summarily. § 6201(a)(1); Romano-Murphy, 152 T.C. at 291. When the Commissioner seeks to assess an amount of income tax greater than the amount reported on a return, section 6213(a) bars assessment of a deficiency until the Commissioner has issued a notice of deficiency to the taxpayer. Id. at 292. The bar on assessing a deficiency remains in place until 90 days after the notice of deficiency is mailed, unless the taxpayer files a petition for redetermination of the deficiency in the Tax Court, in which event the bar on assessment remains in place until the decision of the Tax Court becomes final. Id. at 292-93; see also § 6213(a).
If a taxpayer is involved in bankruptcy proceedings, the debtor-taxpayer is prohibited from filing a petition with this Court while the bankruptcy case is pending. 11 U.S.C. § 362(a)(8). Under section 6213(f)(1), the 90-day period to file a petition with this Court is suspended for the time during which the debtor-taxpayer is prohibited by reason of the bankruptcy proceeding from filing a petition and for 60 days thereafter. Clevenger v. Commissioner, T.C. Memo. 1998-37. The automatic stay is lifted upon the earliest of (1) the date the bankruptcy case is closed, (2) the date the bankruptcy case is dismissed, or (3) the date a bankruptcy discharge is granted or denied. 11 U.S.C. § 362(c)(2). See also Spielbauer v. Commissioner, No. 2804-15, Order (Jun. 23, 2015).
Section 6503(h)(1) suspends the running of the three-year period for assessing tax while the Commissioner is barred from assessing the deficiency and for 60 days thereafter. See also Romano-Murphy, 152 T.C. at 293. Thus, where a taxpayer has filed bankruptcy, both the three-year period of limitations on assessment under section 6501(a) and the 90-day period barring assessment by the Commissioner are suspended during the exclusionary period of the bankruptcy proceeding.
In the present case, the three-year statute of limitations on assessment began to run on April 15, 2012, the filing date of petitioner's 2011 tax return. Petitioner filed his petition for bankruptcy on April 7, 2014. During the pendency of petitioner's bankruptcy, respondent issued the notice of deficiency. Because petitioner was barred from filing a petition with this Court pursuant to 11 U.S.C. § 362(a)(8), the period for filing a petition was tolled until the automatic stay was lifted on January 25, 2019, plus an additional 60 days thereafter. See § 6213(f). Accordingly, the petition was required to be filed no later than June 24, 2019.
Under section 6503(h)(1), the statute of limitations on assessment was suspended from the date of the bankruptcy filing until June 24, 2019. At the time petitioner filed his bankruptcy petition, 721 days had passed since the filing of his tax return. Accordingly, respondent had more than a year remaining to assess the deficiency. The assessment on September 2, 2019, was therefore timely.
The Court may remand a CDP case to the Office of Appeals when the Court determines that a further hearing would be "helpful," "necessary," or "productive." See Kelby v. Commissioner, 130 T.C. 79, 86 n.4 (2008); McNeill v. Commissioner, T.C. Memo. 2017-206, at *42. Having resolved the threshold question of the timeliness of the assessment, the Court concludes that the most productive course here would be to remand to the Office of Appeals for further proceedings. Upon remand, petitioner must be prepared to cooperate fully and to provide respondent with any and all requested documentation promptly.
After due consideration it is
ORDERED that respondent's Second Motion for Summary Judgment is granted in part, in that the assessment of the 2011 tax liability was timely. It is further
ORDERED that respondent's Second Motion for Summary Judgment is denied in part, in that this case is remanded to respondent's Independent Office of Appeals for petitioner to provide respondent the necessary documentation. It is further
ORDERED that respondent shall offer petitioner an administrative hearing at respondent's Appeals Office located closest to petitioner's residence (or at such place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time, but not later than August 31, 2023. It is further
ORDERED that, on or before October 31, 2023, the parties shall file a Supplemental Notice of Determination or a report with the Court as to the then-present status of this case.