Opinion
14206-22L
03-27-2023
DAVID A. GARRETT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Courtney D. Jones, Judge.
In this collection due process (CDP) case, petitioner, David A. Garrett, asks us to review a Notice of Determination Concerning Collection Actions under IRS Section 6320 or 6330 of the Internal Revenue Code (notice of determination) issued by the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals) on May 26, 2022. The notice of determination sustains a proposed levy action to collect section 6672 Trust Fund Recovery Penalties (TFRP(s)) assessed against Mr. Garrett as a responsible person for the tax periods ending March 31, 2018, June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019, and June 30, 2019 (tax periods).
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulatory 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.
This case is before the Court on respondent's Motion for Summary Judgment, filed February 3, 2023. In relevant part, respondent represents in his motion that "[p]etitioner did not have a prior opportunity to dispute the underlying liabilities." (docket entry no. 9, pg. 11).
On February 6, 2023, the Court ordered Mr. Garrett to file and serve a response or objection to respondent's Motion for Summary Judgment, and despite being given an opportunity, Mr. Garrett did not file any such response or objection. The issue for decision is whether Appeals properly sustained the proposed levy action in its notice of determination.
Background
The following background is drawn from the parties' pleadings, motion papers, and associated declarations and exhibits. This background is stated solely for the purpose of resolving the present Motion and is not stated as findings of fact in this case. See Rule 1(b). Mr. Garrett resided in California when he timely filed his Petition.
On April 12, 2021, the IRS assessed TFRPs against Mr. Garrett for six tax periods between 2018 and 2019, totaling approximately $196,127. On or around July 15, 2021, Mr. Garrett requested an installment agreement for his outstanding liabilities. On August 20, 2021, the IRS received an incomplete Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, from Mr. Garrett. Due to the incomplete nature of the form the IRS was unable to verify Mr. Garrett's ability to pay the outstanding tax liabilities, and accordingly recommended rejection of the proposed installment agreement.
On September 1, 2021, the IRS issued Mr. Garrett Letter 1058, Notice of Intent to Levy and Your Rights to a Hearing. Therein the IRS notified Mr. Garrett of the IRS's proposed levy action to collect the unpaid section 6672 TFRPs from him as a responsible person for the tax periods at issue. In response, Mr. Garrett timely submitted Form 12153, Request for Collection Due Process or Equivalent Hearing, dated September 29, 2021, and received by the IRS on October 1, 2021. The Form 12153 indicated that Mr. Garrett sought an installment agreement as a collection alternative.
Mr. Garrett's CDP hearing was assigned to settlement officer Jeanette Farmer (SO Farmer). On December 28, 2021, SO Farmer verified that she had no prior involvement with this taxpayer for the types of taxes and tax years at issue. In the days thereafter, SO Farmer verified that: (1) the levy notice was issued and the CDP hearing was timely requested; (2) the time provided by law to collect the liabilities had not expired; (3) the assessment was properly made per section 6201; (4) the notice and demand for payment was mailed to Mr. Garrett within 60 days of the assessment, as required by section 6303; and (5) that there was a balance due when the levy notice was issued.
On January 26, 2022, SO Farmer issued Letter 4837 to Mr. Garrett, scheduling a telephonic CDP hearing on February 16, 2022. The Letter 4837 also advised Mr. Garrett of his rights, and requested that by February 9, 2022, he submit any payment proposal to provide for payment of the liabilities in the short term without liquidating the equity in his home. Mr. Garrett did not submit any additional documentation as of the date of his CDP hearing.
Respondent's Motion for Summary Judgment provides that SO Farmer issued Letter 4837 on January 25, 2022. However, the Case Activity Record provides that the Letter 4837 was generated on January 26, 2022. This discrepancy has no material impact on our analysis, and for purposes of the present Motion, we will defer to the date of January 26, 2022.
On February 16, 2022, SO Farmer held a telephonic CDP hearing with Mr. Garrett's representative, Ulises Pizano-Diaz, and discussed the levy notice for the tax periods at issue. During the CDP Hearing, Mr. Pizano-Diaz informed SO Farmer that the corporation, from which the liability underlying the TFRP assessments arose, intended to pay the outstanding balances, and requested a payoff amount for the corporation. SO Farmer advised Mr. Pizano-Diaz that she was unable to provide him with that information because he was not an authorized representative on behalf of the corporation, and he would need to file Form 2848 on behalf of the corporation to obtain such information. Mr. Pizano-Diaz also informed SO Farmer that Mr. Garrett was no longer interested in an installment agreement because the corporation would pay the liabilities in full.
Later that day, SO Farmer received a telephone call from Mr. Garrett, who did not participate in the aforementioned telephonic CDP hearing. SO Farmer informed Mr. Garrett of her conversation with Mr. Pizano-Diaz, including that the corporation was purportedly going to pay the outstanding liabilities. When asked, Mr. Garrett stated that he did not dispute the amount of the liabilities but believed that the corporation should be responsible for paying them. SO Farmer advised Mr. Garrett that she could grant a 120-day short-term extension to pay his liabilities, which would also allow time for the corporation to pay the amounts due.
Thereafter, in a second call with Mr. Pizano-Diaz, SO Farmer recounted her conversation with Mr. Garrett, including the proposed 120-day extension of time to pay his TFRP liabilities. SO Farmer also advised Mr. Pizano-Diaz that she was mailing Form 12257, Summary Notice of Determination and Waiver of Judicial Review, for his signature, and if he did not return the signed waiver, she would issue a notice of determination while still granting the 120-day extension. On April 14, 2022, after numerous attempts to secure Form 12257, SO Farmer left a voicemail for Mr. Pizano-Diaz, advising him that if he was going to provide Form 12257, he should do so by the following day, April 15, 2022. SO Farmer continued, stating that if he did not provide the form by the deadline, she would issue a notice of determination sustaining the collection action, although she would still allow the 120-day extension, with a "payoff date" of June 17, 2022.
The period for the 120-day extension of time began running from the date of the CDP hearing, February 16, 2022.
The notice of determination states "[t]he proposed levy will be sustained after June 17, 2022. The notice of determination, however, was issued on May 26, 2022.
On May 26, 2022, the IRS Independent Office of Appeals issued Mr. Garrett a notice of determination sustaining the proposed levy action for the tax periods at issue. On June 25, 2022, Mr. Garrett timely filed a Petition with this Court, seeking review of his notice of determination. In his Answer, filed August 16, 2022, respondent asserts that, as of August 8, 2022, the penalty account balance for the six tax periods at issue totaled approximately $46,155, as shown on the Information Data Retrieval System (IDRS) SUMRY transcript.
Discussion
I. General Principles
A. Summary Judgment Standard
Summary judgment serves to "expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary judgment when there is no genuine dispute of material fact, and a decision may be rendered as a matter of law. See Rule 121(b); 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 construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Id. The nonmoving party may not rest upon mere allegations or denials in their pleadings and 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).
Around the time Mr. Garrett instituted these proceedings, it appears as if the corporation-from which the liabilities underlying the TFRP assessments purportedly arose-paid some, but not all, of the outstanding liabilities. This occurrence, however, does not give rise to a genuine dispute of material fact as it is well established law in the Ninth Circuit Court of Appeals, to which this case is presumptively appealable, that section 6672 "operates as a penalty by creating an obligation, separate and distinct from the underlying tax obligation." Morgan v. Commissioner, T.C. Memo 2011-290, 2011 WL 6762929, at *2 (quoting Duncan v. Commissioner, 68 F.3d 315, 318 (9th Cir. 1995), aff'g in part, rev'g in part and remanding T.C. Memo 1993-370 (additional citations omitted)); see also Hellman v. Commissioner, T.C. Memo. 2013-190, at *31 (providing that liability under section 6672 is "separate and distinct from the underlying trust fund liability of an employer"); Beltsas v. Commissioner, T.C. Memo. 2018-128, at *10-11. Therefore, any interim payments by the employer are of no consequence and they do not foreclose the possibility of summary disposition of the instant case.
See section 7482(b); see also Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971); Lardas v. Commissioner, 99 T.C. 490, 494-95 (1992),
B. Standard of Review
This court has jurisdiction to review the administrative determination made by Appeals. § 6330(d)(1). Where the underlying liability was not properly at issue, we will review Appeals' determination for an abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000). An abuse of discretion occurs if the Appeals officer or employee conducting the hearing exercises their discretion "arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner, 112 T.C. 19, 23 (1999); see also Giamelli v. Commissioner, 129 T.C. 107, 111 (2007). Where the underlying tax liability was properly at issue in the CDP hearing, we will review the determination de novo. Lunsford v. Commissioner, 117 T.C. 183, 185 (2001) (citing Goza v. Commissioner, 114 T.C. at 181-82).
II. Analysis
A. Statutory Framework
Section 6331(a) authorizes the Commissioner to levy upon property and rights to property of a taxpayer who is liable for taxes and who fails to pay those taxes within 10 days after notice and demand for payment is made. Section 6330(a) provides that the levy authorized in section 6331(a) may be made only if the Secretary has notified such person in writing of the right to an administrative hearing before the levy is enforced. Upon timely request, the person is entitled to an administrative hearing before the Appeals Office. § 6330(b)(1).
In deciding whether SO Farmer abused her discretion in sustaining the collection action, we consider whether she: (1) properly verified that the requirements of applicable law or administrative procedure were met, (2) considered any relevant issues raised by Mr. Garrett, and (3) considered whether any proposed collection action balances the need for the efficient collection of taxes with Mr. Garrett's legitimate concern that any collection action be no more intrusive than necessary. See § 6330(c)(1), (3). Our review of respondent's Motion for Summary Judgment and the record before the Court render us unable to confirm that these requirements have been satisfied.
B. Verification Requirement
This Court has authority to review satisfaction of the verification requirement regardless of whether the taxpayer raised that issue at the CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008), supplemented by 136 T.C. 463 (2011). Before the IRS may assess a TFRP under section 6672, it must mail a preliminary notice, namely a Letter 1153, to the responsible person's last known address, advising them of the proposed TFRP assessment. § 6672(b)(1); See Bland v. Commissioner, T.C. Memo. 2012-84, slip op. at 13; see also I.R.M. 8.25.1.4(4) (Dec. 7, 2012). "The Commissioner may issue notice and demand for and assess the penalty 60 days after notification under section 6672(b)(1), during which period the taxpayer may appeal the proposed assessment and request an Appeals conference." Bland, T.C. Memo. 2012-84, slip op. at 14 (citing section 6672(b)(2)).
Section 6330 does not require that the Appeals officer rely upon any particular document in order to verify that all applicable laws and administrative procedures were followed. Middleton v. Commissioner, T.C. Memo. 2022-28 (citing Craig v. Commissioner, 119 T.C. 252, 262 (2002)). In this case, relying upon a transaction code contained in Mr. Garrett's TXMOD data, SO Farmer verified that the assessment was properly made. See I.R.M. 8.22.5.4.2.1.3(3) (Aug. 31, 2020) (stating that "[a]ppeals may rely on TXMOD transcripts showing the IRC 6672 penalty assessments were made to verify that these assessments were properly made. TFRP assessments are identified in TXMOD as TC 240 with a civil penalty code of 620 and an MFT 55.").
TXMODA data is a detailed and current electronic record of a taxpayer's account, including all notice statuses, history items, control bases, and pending transactions. IRM 8.20.22.2 (Oct. 15, 2014).
The Court notes that Exhibit 1, the copy of Mr. Garrett's TXMODA transcripts for the tax periods at issue, which are attached to respondent's Motion for Summary Judgment, do not appear to be sworn or certified copies. See Rule 121(d).
However, in light of the foregoing assertion that the penalty assessment was properly verified, the Court is perplexed by respondent counsel's statement that "[p]etitioner did not have a prior opportunity to dispute the underlying liabilities." (docket entry no. 9, pg. 11). A TFRP assessment is valid if the IRS issues Letter 1153 to the taxpayer's last known address, assesses the penalty more than 60 days after the mailing of that letter, and the penalty was assessed within the time permitted by law. I.R.M. 8.22.5.4.2.1.3(1); see also Beltsas, T.C. Memo. 2018-128, at *7-9. Generally, receipt of Letter 1153 constitutes the taxpayer's opportunity to dispute their underlying liability. Thompson v. Commissioner, T.C. Memo 2012-87, 2012 WL 998311, at *3 (citing Sparkman v. Commissioner, T.C. Memo 2009-308; McClure v. Commissioner, T.C. Memo 2008-136). Thus, respondent's simultaneous assertions that the penalty assessment was properly verified, which contemplates that Mr. Garrett received a letter 1153 and had a chance to contest his underlying liability, and that Mr. Garrett has not had a chance to challenge his underlying liability, which contemplates that Mr. Garrett did not receive a letter 1153 and that the penalty was not properly assessed, seem irreconcilable. In light of these contradictory statements, and given the limited administrative record, the Court is unable to conclude that the verification requirement was properly satisfied, absent some alternative explanation.
III. Conclusion
Based on the administrative record before the Court, we are unable to conclude that the verification requirement has been properly satisfied, and accordingly we will deny respondent's Motion for Summary Judgment. In reaching our decision, we have considered all arguments made and, to the extent not mentioned, we conclude that they are moot, irrelevant, or without merit.
Upon due consideration and for cause, it is
ORDERED that Respondent's Motion for Summary Judgment, filed February 3, 2023, is denied without prejudice.