Opinion
12797-21P
06-28-2022
HENDRIEKA FITZPATRICK, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
David Gustafson Judge
This is a "passport case", brought under I.R.C. section 7345(e)(1) by petitioner, Dr. Hendrieka Fitzpatrick, concerning her unpaid 2013 Federal income tax. The Commissioner has filed a motion for summary judgment (Doc. 15) as to Dr. Fitzpatrick's challenge to the IRS's certification under I.R.C. § 7345(a) that she is an individual owing seriously delinquent tax debt. We will grant the Commissioner's motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code ("the Code", Title 26 of the United States Code) as in effect at the relevant times; references to regulations are to Title 26 of the Code of Federal Regulations ("Treas. Reg.") as in effect at the relevant times; and references to Rules are to the Tax Court Rules of Practice and Procedure. Some dollar amounts are rounded. Citation in this opinion to a "Doc." refers to a document so numbered in the Tax Court docket record of this case, and a pinpoint citation therein refers to the pagination as generated in the portable document format ("PDF") file.
2013 income and return
Dr. Fitzpatrick operated a medical practice in 2013. The amount of her gross receipts is unclear. Her petition states, "I earned $145,000", and later states, "I earned and reported approximately $146,000 in income in 2013". In her recent response (Doc. 21) to the Commissioner's motion, she admitted receiving credit card payments from third parties--American Express payments of $77,143, NPC Merchant payments of $58,497, and CCD Merchant payments of $18,179--totaling $153,819. However, on her Schedule C, "Profit or Loss from Business" (Doc. 23 at 26; discussed below) she tallied gross receipts as only $135,624.
For 2013 she filed an untimely Form 1040, "U.S. Individual Income Tax Return" (Doc. 23 at 12). (It was dated "1/1/15", and it is stamped "Received" by the IRS "01 22 2015".) On line 12 of her return she reported net business income of $1,117.
Missing Schedule C
Line 12 of Form 1040 instructs, "Attach Schedule C ...", but no Schedule C appeared with her return. The IRS sent Dr. Fitzpatrick a letter dated February 11, 2015 (Doc. 23 at 25), advising that "Schedule C is incomplete or missing from your return". Evidently she thereafter faxed a copy of the Schedule C to the IRS on March 10, 2015 (Doc. 23 at 26). As we state above, the Schedule C reported gross receipts of $135,624; but it also reported expenses of nearly the same amount, leaving net profit of only $1,117 on line 31, which, as noted, she had carried over to line 12 of Form 1040. The "total tax" that Dr. Fitzpatrick reported on line 61 of Form 1040 consisted entirely of self-employment tax (on the reported business income of $1,117) totaling $158. (See Doc. 23 at 16.)
Third-party reporting
The IRS had received Forms 1099 from third parties reporting payments to Dr. Fitzpatrick in 2013, which totaled $195,736. We cannot reconcile this total with either the $135,624 that she reported on Schedule C or the approximately $154,000 that she now admits. If the total she did report on her return was included in the amounts that third parties reported to the IRS, then it would seem she under-reported her gross receipts by about $60,000. However, the IRS concluded, for reasons we cannot discern, that the return failed to report not just $60,000 but rather $194,868 (i.e., nearly all) of the amounts that third parties had reported (thus giving her credit, so to speak, only for the $1,117 of net business income she had reported). Consequently, the IRS reckoned that she owed about $58,000 more in tax than she had reported on her return.
We assume, for purposes of this motion, that Dr. Fitzpatrick has a colorable argument that this determination is excessive. On the foregoing facts, one might conclude that her gross receipts totaled $195,736 (the amounts that the third parties had reported), that the $135,624 she reported on Schedule C was included in that total and was not in addition to it, and that therefore she had failed to report only $60,000 (not $194,868), so that her additional tax liability was much less than the $58,000 that the IRS determined. In addition, for all we know, she might have a "reasonable dispute", see § 6201(d), that she did not in fact receive all of the $195,868 that the third parties reported to the IRS. On the other hand, she might not be able to substantiate all of the $134,507 of business expenses that she claimed on Schedule C. An adjudication of her 2013 liability (which we do not undertake, for reasons explained below) would presumably look into all these matters.
Notice CP 2000
On October 19, 2015, the IRS sent to Dr. Fitzpatrick a Notice CP 2000 (Doc. 23 at 32), setting out that third-party information and advising her that it proposed she owed about $58,000 in tax, $11,000 in accuracy-related penalty under section 6662, another $11,000 in late-filing addition to tax under section 6651(a)(1), and $4,000 in interest, totaling about $84,000. The CP 2000 requested payment of that amount, but Dr. Fitzpatrick alleges she did not receive the notice, and in any event she did not pay.
Notice of deficiency and assessment
On February 1, 2016, the IRS mailed to Dr. Fitzpatrick a statutory notice of deficiency ("NOD") by certified mail to the Morristown, New Jersey, address that had appeared on her 2013 return filed in 2015. (The Commissioner verifies this mailing by the postal form bearing Dr. Fitzpatrick's name and address. (Doc. 23 at 51.)) Dr. Fitzpatrick implies, and we assume, that she did not receive the NOD, but there is no basis in our record for disputing that it was mailed to the address shown on her return. The NOD reflected the same adjustments proposed in the CP 2000 and advised Dr. Fitzpatrick of her right to challenge the NOD by filing a petition in the Tax Court. She did not do so. As a result, the IRS proceeded to assess against her the tax, penalties, and interest on August 1, 2016 (Doc. 23 at 30), but she did not pay.
Levy notice
On June 18, 2018, the IRS sent to Dr. Fitzpatrick a Notice CP92 (Doc. 23 at 56), advising her that it would levy a State tax refund of $99 that otherwise was due to her and would apply it to her unpaid 2013 liability, and that thereafter she would still owe about $94,000 for 2013.
The Notice CP92 advised Dr. Fitzpatrick of her right to request a "Collection Due Process" hearing with IRS Appeals if she wanted to appeal the proposed levy. The notice advised that, if she did not do so, she would "lose the ability to contest Appeals' decision in the U.S. Tax Court." Dr. Fitzpatrick did not request a CDP hearing with IRS Appeals (and therefore did not receive a determination from Appeals that would have been an occasion to file a petition in the Tax Court). The IRS therefore effectuated a levy of the State tax refund on August 27, 2018. (Doc. 23 at 30; see also Doc. 19.) In the almost 4 years since then, Dr. Fitzpatrick has not paid her 2013 liability.
Notice of Certification to the State Department
On April 5, 2021, the IRS issued to Dr. Fitzpatrick a Notice CP508C, "Notice of certification of your seriously delinquent federal tax debt to the State Department" (Doc. 5 at 6), which stated:
. . . Congress enacted Section 7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with seriously delinquent tax debt.
We have transmitted the certification to the State Department that your tax debt is seriously delinquent.
We show that you still owe $109,643.80. This amount includes penalty and interest computed to 30 days from the date of this notice.
. . . You can also bring a civil action in a district court of the United States or the United States Tax Court to have a court determine if the certification was erroneous or if the IRS has failed to reverse the certification as required by IRC Section 7345(c).
Tax Court proceedings
On April 14, 2021, Dr. Fitzpatrick filed her petition in the Tax Court. The petition insists, "It is impossible that I owe $100,000 for 2013". On line 1 of the form petition, she checked the box for challenging a "Notice of Deficiency"; but she attached no such notice, and the 90-day period under section 6213(a) for challenging the NOD previously issued to her in February 2016 was long expired. The IRS showed that no subsequent NOD had been issued, and we dismissed the case in part insofar as it purported to challenge an NOD. (See Doc. 18.) What she did attach to her Tax Court petition was the "Notice of certification of your seriously delinquent federal tax debt to the State Department" (Doc. 1 at 5).
The Commissioner filed a motion for summary judgment and a supplement thereto (Docs. 15, 19) on the issue of the IRS's certification of the tax debt to the State Department. Dr. Fitzpatrick filed a response (Doc. 21), in which she states: "I do NOT agree with the assessment of $58,000 tax owed." She explains, "I filed for a hearing with the Tax Court out of desperation when my passport was denied and I missed the opportunity to attend to important personal business before it was too late." Her response raises several questions about the IRS's process in handling her 2013 liability that are extraneous to this proceeding, some of which the Commissioner addresses in his reply (Doc. 23). In sum, she challenges the merits of the IRS's determinations that led to the assessment against her of tax, penalties, and interest for 2013; but she does not dispute the following: that the IRS did mail the NOD to the address shown on her 2013 return, that she did not challenge it in a deficiency case, that the IRS did assess the tax determined in the NOD, and that she has not paid it.
Discussion
Summary judgment procedure
Under Rule 121, we may resolve a case by "summary judgment" where a trial is unnecessary because there are no "genuine disputes of material fact" that would require a trial. Here there is no dispute about the material facts: The IRS followed the necessary deficiency procedures and assessed the liabilities for 2013 against Dr. Fitzpatrick, and she has not paid them. The only real dispute--whether she owes that tax--is not "material" in this passport case, because (as we explain in more detail below) in such a case the merits of the liability may not be challenged. Lest that seem unfair, we observe that Congress provided two other means for a taxpayer such as Dr. Fitzpatrick to challenge a tax liability in Tax Court without first paying it, but she used neither of these means: First, she failed to file a petition to initiate a deficiency case after the IRS mailed the NOD by certified mail to her last known address. Second, assuming she did not receive that NOD, she thereafter failed to request a CDP hearing with IRS Appeals when she received the notice of levy. This passport case arose only after she did not pursue those remedies.
Section 7435 in general
Section 7345(a) provides that, if the IRS certifies that a taxpayer has "a seriously delinquent tax debt," that certification shall be transmitted "to the Secretary of State for action with respect to denial, revocation, or limitation of [the taxpayer's] passport." The IRS is responsible for notifying the taxpayer contemporaneously with the making of such certification. § 7345(d). A "seriously delinquent tax debt" is a Federal tax liability that has been assessed, exceeds $50,000 (adjusted for inflation), is unpaid and legally enforceable, and with respect to which a lien notice has been filed or a levy made. § 7345(b)(1), (f). The adjusted threshold amount for 2021, the year of Dr. Fitzpatrick's certification, was $54,000. See Rev. Proc. 2020-45, § 3.59, 2020-46 I.R.B. 1016, 1027. If a certification "is found to be erroneous or if the debt with respect to such certification . . . ceases to be a seriously delinquent tax debt by reason of subsection (b)(2)," the IRS must reverse its certification and notify the Secretary of State and the taxpayer. § 7345(c)(1), (d). "In the case of a certification found to be erroneous, such notification shall be made as soon as practicable after such finding." § 7345(c)(2)(D). Section 7345(e)(1) permits a taxpayer who has been certified as having a seriously delinquent tax debt to petition this Court to determine "whether the certification was erroneous or whether the [IRS] has failed to reverse the certification." If we find that a certification was erroneous, we "may order the Secretary [of the Treasury or her delegate] to notify the Secretary of State that such certification was erroneous." § 7345(e)(2). The statute specifies no other form of relief that we may grant.
Analysis
The Commissioner has met the criteria to certify that Dr. Fitzpatrick has a "seriously delinquent tax debt." He supplied copies of petitioner's IRS account transcript for 2013. That transcript shows that, as of April 2021, Dr. Fitzpatrick had assessed, unpaid, and legally enforceable Federal income tax liabilities totaling more than $100,000. That amount exceeds the $54,000 threshold required for certification. The record establishes (see Doc. 19) that "a levy [has been] made pursuant to section 6331" for 2013. See § 7345(b)(1)(C).
A "seriously delinquent tax debt" is defined to exclude "a debt with respect to which collection is suspended" because "a [CDP] hearing under section 6330 is requested or pending", § 7345(b)(2)(B)(i); but the record establishes that Dr. Fitzpatrick did not request a CDP hearing with respect to the levy notice for 2013.
To the extent petitioner is seeking to challenge the amount of her underlying tax liability for 2013, that challenge would be impermissible. Section 7345(e)(1) circumscribes quite narrowly our jurisdiction in passport cases. The only determination we are authorized to make is whether the Commissioner's certification of a taxpayer as a person having a seriously delinquent tax debt (or his failure to reverse a certification) "was erroneous." § 7345(e)(1). And the only relief we are authorized to grant is to order the Commissioner "to notify the Secretary of State that such certification was erroneous." § 7345(e)(2); see Garcia v. Commissioner, 157 T.C. 1, 9-10 (2021); Shitrit v. Commissioner, T.C. Memo. 2021-63, 121 T.C.M. (CCH) 1481, 1483. Section 7345 does not permit taxpayers to challenge, in a passport case such as this, the assessed tax liabilities that have triggered their certification. See Ruesch v. Commissioner, 154 T.C. 289, 296-97 (2020), aff'd in part, vacated and remanded in part on other grounds, 25 F.4th 67 (2d Cir. 2022).
On the basis of the undisputed facts, the Commissioner has shown that Dr. Fitzpatrick's 2013 liability meets the requirements for certification to the Secretary of State as "a seriously delinquent tax debt," see § 7345(b), and that his certification as such was not erroneous, see § 7345(e)(1).
Other remedies
In so holding, we do not rule out the possibility that Dr. Fitzpatrick might have other avenues, not subject to our review, for seeking relief as to her 2013 liability. As the Commissioner explained in his reply,
21. To the extent that petitioner now wishes to contest her assessment for taxable year 2013, . . . [she] may request an audit
reconsideration, which "is a substantive review of the taxpayer's liability that may result in the abatement of an assessed tax liability." Tucker v. Commissioner, 135 T.C. 114, 148 (2010), aff'd, 676 F.3d 1129 (D.C. Cir. 2012). Information about audit reconsideration may be found in IRS Publication 3598, which is available at https://www.irs.gov/pub/irs-pdf/p3598.pdf. Petitioner should review Publication 3598 carefully and include all documentation to support her request for audit reconsideration with her request.
22. Alternatively, petitioner may file a claim for refund. If her administrative claim for refund is denied, petitioner may pay the full assessed liability and then file a refund suit in Federal District Court or the U.S. Court of Federal Claims. See Flora v. United States, 362 U.S. 145 (1960).(Emphasis added.)
It is
ORDERED that the Commissioner's Motion for Summary Judgment, filed January 27, 2022, as supplemented April 6, 2022, is granted. It is further
ORDERED and DECIDED that respondent's certification that petitioner has a seriously delinquent tax debt, reflected in the Notice of Certification of Your Seriously Delinquent Federal Tax Debt to the State Department, dated April 5, 2021, upon which this case is based, is sustained.