Opinion
21479-22L
08-18-2023
ANCHOR ORTHOTICS & PROSTHETICS, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph Robert Goeke, Judge.
Pending before the Court in this collection due process (CDP) proceeding is respondent's Motion for Summary Judgment, filed March 23, 2023, as supplemented. On April 24, 2023, petitioner filed a Response. On May 22, 2023, the Court held a hearing on respondent's Motion. For the reasons stated below, we deny respondent's Motion.
Background
The following facts are derived from the parties' pleadings, Motion papers, Declarations, and Exhibits attached thereto. See Rule 121(c). When the Petition was timely filed, petitioner's mailing address was in California.
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.
On February 18, 2020, respondent sent a Notice of Deficiency for 2017 to petitioner by certified mail at an address on Watt Avenue in Sacramento, California (Watt Ave. address), determining a deficiency of $31,594 and asserting a section 6662(a) accuracy-related penalty of $6,319. Respondent determined that petitioner failed to report $574,477 in income that was shown on Form 1099-MISC, Miscellaneous Income, issued to petitioner. Petitioner did not file a Petition with this Court for redetermination of the deficiency.
On April 19, 2021, respondent assessed the tax and penalty determined in the Notice of Deficiency, which petitioner has not paid. On August 16, 2021, respondent sent a Notice of Intent to Levy (levy notice) to petitioner at an address on Tribute Road in Sacramento. Petitioner timely requested a CDP hearing and contested the underlying tax liability. The case was assigned to Settlement Officer (SO) Louis Hayden from the IRS Independent Office of Appeals (Appeals).
On July 14, 2022, a CDP hearing was conducted by telephone between the SO and petitioner's power of attorney Brian Coggins. During the hearing Mr. Coggins asserted that the income giving rise to the tax liability belonged to a related entity Anchor O&P by the Bay, Inc. (Anchor by the Bay), and was reported by it, on its 2017 return. He also stated that he was unsure whether petitioner received the Notice of Deficiency. Petitioner did not propose any collection alternatives, and none were discussed at the CDP hearing. The SO agreed to consider the underlying tax liability and gave petitioner until July 29, 2022, to provide documentation that Anchor by the Bay reported the income. Petitioner did not do so, and the SO determined to sustain the levy. On September 6, 2022, respondent sent a Notice of Determination sustaining the levy. On October 5, 2022, petitioner timely filed a Petition with this Court.
At the hearing on the Motion respondent expressed willingness to consider evidence to support petitioner's argument that it did not owe the underlying tax. By Order dated May 23, 2023, the Court set a deadline for petitioner to submit evidence to respondent. On August 7, 2023, respondent filed a Status Report with the Court stating that petitioner provided evidence to respondent and the SO reviewed it and determined that it was insufficient to change his determination to sustain the levy or to determine that the tax owed is on Anchor by the Bay's income and it reported the income.
Standard for Summary Judgment
The purpose of summary judgment is to expedite litigation and avoid unnecessary and time-consuming trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). 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(a)(2); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The burden of proof rests on the moving party. Bond v. Commissioner, 100 T.C. 32, 36 (1993). In deciding whether to grant summary judgment, we draw factual inferences in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. Where the moving party has properly supported a motion for summary judgment, the nonmoving party must set forth specific facts showing that a genuine dispute of material fact exists for trial and may not rely on mere allegations. Rule 121(d); Sundstrand Corp., 98 T.C. at 520.
Standard of Review
Where the taxpayer's underlying tax liability is properly at issue, the Court reviews the tax liability de novo. Goza v. Commissioner, 114 T.C. 176, 182 (2000). Where it is not properly at issue, we review Appeals' determination to sustain a collection action for abuse of discretion. Id. Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006).
Underlying Tax Liability
As the Court explained during the hearing, we would have jurisdiction to determine the underlying tax liability in this CDP proceeding only if petitioner did not actually receive the Notice of Deficiency. See § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609-11 (2000). We do not have jurisdiction to consider the underlying tax where the taxpayer was issued a notice of deficiency but failed to file a petition for redetermination. Goza, 114 T.C. at 182-83.
Petitioner argues that the Court has jurisdiction to consider any issue considered at the CDP hearing. However, the fact that Appeals considered the underlying tax liability is not sufficient to give us jurisdiction if petitioner did not have the right to raise it at Appeals. See Starcher v. Commissioner, T.C. Memo. 2021-144 (holding that petitioner could not challenge underlying tax in Court even though the SO offered to consider it). While our jurisdiction is limited to issues raised at the CDP hearing, Appeals' consideration of an issue does not confer us with jurisdiction over it. Where Appeals considers a precluded issue such as the underlying tax liability, Appeals' consideration does not revive a precluded issue for purposes of our review. See Behling v. Commissioner, 118 T.C. 572, 579 (2002); Treas. Reg. § 301.6330-1(e)(3), Q&A-E11 (stating that any determination made by Appeals with respect to a precluded issue shall not be treated as part of the notice of determination and is not reviewable by the Tax Court).
While petitioner stated that there is some confusion about its receipt of the Notice of Deficiency, it has not offered any evidence to establish that it did not receive it. Accordingly, we review Appeal's determination for abuse of discretion. We need not decide the issue of actual receipt for purposes of ruling on respondent's Motion as we will deny respondent's Motion under abuse of discretion standard.
Abuse of Discretion
In deciding whether the SO abused his discretion in sustaining the proposed levy, we consider whether the SO (1) properly verified that the assessment was proper and that all other requirements of applicable law or administrative procedure have been met, (2) considered any relevant issues petitioner raised, and (3) determined whether "any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of [petitioner] that any collection action be no more intrusive than necessary." See § 6330(c)(3).
As part of the verification that the IRS had met all requirements of law and administrative procedure, the SO must verify that the IRS mailed the Notice of Deficiency to petitioner at its last known address. See § 6212(b)(1); Hoyle v. Commissioner, 131 T.C. 197, 200, 203-04 (2008), supplemented by 136 T.C. 463 (2011). The administrative record does not establish to our satisfaction that the SO verified petitioner's last known address when the Notice of Deficiency was mailed. Nor does the record before us establish that it was mailed to petitioner's last known address. See Marlow v. Commissioner, T.C. Memo. 2010-113.
It is presumed that a taxpayer receives a Notice of Deficiency that has been properly mailed to its last known address. Petitioner has not argued that the Watt Ave. address was not its last known address when the Notice of Deficiency was mailed. Nor has it alleged that it did not receive the Notice of Deficiency. However, mailing of a Notice of Deficiency to the taxpayer's last known address is part of the required verification process, and we must consider whether the verification properly occurred.
The record does not clearly indicate how the SO verified that the Watt Ave. address was petitioner's last known address when the Notice of Deficiency was issued. The SO did not indicate what documents he relied on to verify petitioner's last known address. The Notice of Deficiency and levy notice were sent to different addresses, and the record does not clearly indicate to us when petitioner's last known address changed. We find that there is a genuine dispute of material fact as to whether the SO properly verified that the Watt Ave. address was petitioner's last known address when the Notice of Deficiency was mailed. See Butti v. Commissioner, T.C. Memo. 2008-82 (finding abuse of discretion where there was no proof that a notice of deficiency was sent to the taxpayer's last known address).
The SO verified that the Notice of Deficiency was sent to the Watt Ave. address with a copy of the Notice and the Certified Mailing List showing that address. However, these documents do not verify that the Watt Ave. address was petitioner's last known address when the Notice of Deficiency was mailed. The record does not contain the U S. Postal Service (USPS) tracking information, evidence to establish when the address changed from Watt Ave. to Tribute Rd. in the IRS's records or evidence that the IRS verified petitioner's last known address through the USPS's "Address Information Request" or "Postal Tracer" before the Notice of Deficiency was issued. See I.R.M. 8.4.14.1.6.2.1.
For purposes of ruling on respondent's Motion for Summary Judgment, we find that there is a genuine dispute as to whether the SO satisfied the verification requirements of section 6330. Failure to do so would be abuse of discretion. Accordingly, respondent is not entitled to summary judgment.
Upon due consideration, it is
ORDERED that respondent's Motion for Summary Judgment, as supplemented is denied without prejudice. It is further
ORDERED that the parties are directed to file on or before October 16, 2023, any evidence to substantiate their positions with respect to the SO's verification of all applicable legal and administrative requirements including the mailing of the Notice of Deficiency to petitioner's last known address or, for petitioner, its nonreceipt.