Opinion
6617-20L
07-30-2021
Donald Edward Nunn, Jr., Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER & DECISION
David Gustafson, Judge
This is a "collection due process" ("CDP") case brought under section 6330(d) with respect to a "Final Notice of Intent to Levy" to collect trust fund recovery penalties ("TFRPs") assessed against petitioner Donald Edward Nunn, Jr. Respondent, the Commissioner, has moved for summary judgment; Mr. Nunn failed to respond; and we will grant the motion.
References in this order to "sections" are to the Internal Revenue Code (26 U.S.C.), and references to "Rules" are to the Tax Court Rules of Practice and procedure.
Background
The Commissioner filed a motion for summary judgment that shows the following, which we assume correct since Mr. Nunn made no response:
The TFRP liability
Mr. Nunn was an officer of Camden Veterinary ("Camden"). The IRS determined that for seventeen calendar quarters--i.e., the quarters ending
December 31, 2012, and September 30, 2013, through June 30, 2017--Camden failed to pay about $350,000 of employment taxes that constituted so-called "trust fund taxes" (see sec. 7501(a)). The IRS determined that Mr. Nunn had been, for purposes of section 6671(b), a person responsible to pay over those taxes who, for purposes of section 6672(a), willfully failed to do so. By a Letter 1153, "Trust Fund Recovery Penalty Letter", the IRS notified Mr. Nunn that it proposed to assess against him the TFRP and that he had the right to appeal or protest that action before the IRS Office of Appeals. Mr. Nunn did not exercise that right. The IRS assessed the TFRP against Mr. Nunn.
CDP procedure
When Mr. Nunn did not pay the TFRP, the IRS sent him a Letter 1058, "Final Notice of Intent to Levy and Notice of Your Right to a Hearing", in order to collect the unpaid liabilities. This time Mr. Nunn exercised his appeal right by timely submitting a Form 12153, "Request for a Collection Due Process or Equivalent Hearing". Mr. Nunn's request stated two general grounds--i.e., (1) that he did not owe the TFRP and (2) that he could not pay it (which implicitly requested a collection alternative, such as an offer in compromise, an installment agreement, or a grant of "currently not collectible" status).
Regarding Mr. Nunn's contention that he did not owe the TFRP, IRS Appeals advised him that he was not entitled to challenge the liability in the CDP hearing because he had previously had an opportunity (which he did not exercise) to dispute his liability before IRS Appeals (i.e., in response to the Letter 1153). Regarding his alleged inability to pay (and his implicit request for a collection alternative), IRS Appeals advised him that he would need to substantiate his entitlement to such an alternative by providing information about his financial circumstances on Form 433-A, "Collection Information Statement ...". Mr. Nunn did not provide the requested information.
IRS Appeals held a conference with Mr. Nunn, during which his only contention was that he did not owe the TFRP. Mr. Nunn did not provide financial information nor propose a collection alternative.
On March 11, 2020, IRS Appeals sent Mr. Nunn a "Notice of Determination Concerning Collection Action(s) * * *". The notice sustained the proposed levy.
Tax Court proceedings
On July 10, 2020, Mr. Nunn timely filed his petition in the Tax Court disputing the notice of determination. The petition made the same two general contentions that Mr. Nunn had made in his Form 12153--i.e., (1) that he did not owe the TFRP (i.e., because he is "not an officer" of Camden, "did not have access to payroll records," and did not "have any part of the payroll process during the periods in question") and (2) that he could not pay it (i.e., that "a levy would constitute a financial hardship").
2 The Commissioner filed his motion for summary judgment, and in the motion he made a showing of the facts set out above. Our order of April 21, 2021, stated that it was
ORDERED that, no later than June 30, 2021, petitioner shall file with the Court and serve on the Commissioner a response to the Commissioner's filing. * * * [P]etitioner's response should explain his position as to any facts set out in the Commissioner's motion with which petitioner disagrees. Petitioner's response should state, by number, any assertion with which he disagrees, should explain the reason for his disagreement, and should cite whatever evidence supports his position. If he disagrees with the Commissioner's argument as to the law, then his response should also set out his position on the disputed legal issues. Q&As that the Court has prepared on the subject "What is a motion for summary judgment? How should I respond to one?" are available at the Court's website and are printed on the page attached to this order. If petitioner is unsure how to proceed, he should promptly initiate a telephone conference with the Court and the Commissioner by placing a call to the Chambers Administrator of the undersigned judge (at 202-521-0850). * * *
Mr. Nunn has filed no response to the Commissioner's motion.
Discussion
I. General legal principles
A. Summary judgment
Under Rule 121, the Court may grant summary judgment where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. The moving party (here, the Commissioner) bears the burden of showing that no genuine dispute of material fact exists, and the Court will view any factual material and inferences in the light most favorable to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). However, once the movant has carried that burden
an adverse party may not rest upon the mere allegations or denials of such party's pleading, but such party's response, by affidavits or declarations or as otherwise provided in this Rule, must set forth specific
facts showing that there is a genuine dispute for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party. [Rule 121(d).]
Since Mr. Nunn has failed to respond to the Commissioner's motion, we will enter decision against him on that ground. In the alternative, if we turn to the merits, then we also hold against him on that ground, as we now briefly explain.
B. Trust fund recovery penalty
An employer (here, Camden) is required to withhold from an employee's wages and then pay over to the IRS both income tax, see sec. 3402, and the employee's share of Social Security and Medicare tax (i.e., Federal Insurance Contributions Act tax), see sec. 3102. Under section 7501(a), "the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States"; consequently, these withheld taxes are referred to as "trust fund taxes". One of the means Congress has enacted to ensure that these trust fund taxes are paid over to the Government is section 6672, under which "the officers or employees of the employer responsible for effectuating the collection and payment of trust-fund taxes who willfully fail to do so are made personally liable to a 'penalty' equal to the amount of the delinquent taxes." Slodov v. United States, 436 U.S. 238, 244-245 (1978). The liability at issue here is this penalty imposed by section 6672, which the IRS assessed against Mr. Nunn to recover Camden's unpaid trust fund taxes.
Before the IRS may assess a section 6672 penalty, it must mail a preliminary notice (here, the Letter 1153) advising of the proposed assessment of a section 6672 penalty. Sec. 6672(b)(1). If the taxpayer appeals and the Appeals Officer determines that the taxpayer is liable for the penalty as a responsible person, the matter is returned to the Commissioner for assessment and collection. The Commissioner initiates this collection process by issuing a notice and demand for payment pursuant to section 6303.
C. Collection due process
If a taxpayer fails to pay any Federal tax liability after notice and demand, section 6331(a) authorizes the IRS to collect the tax by levy on the taxpayer's property. However, Congress has added to chapter 64 of the Code certain provisions (in subchapter C, part I, and in subchapter D, part I) entitled "Due Process for Liens" and--as relevant here--"Due Process for Collections". The IRS must comply with those provisions before it can proceed with a levy. That is, the IRS must first issue a final notice of intent to levy and must notify the taxpayer of the right to an administrative hearing. Sec. 6330(a) and (b)(1). After receiving such a notice, the taxpayer may request that administrative hearing, sec. 6330(a)(3)(B) and (b)(1), which is called a "CDP hearing" and takes place before IRS Appeals, sec. 6330(b)(1). If the taxpayer is dissatisfied with the outcome there, he can appeal that determination to the Tax Court, sec. 6330(d)(1), as Mr. Nunn has done.
At the agency-level CDP hearing, the Appeals Officer must determine whether the proposed collection action may proceed. In the case of a notice of intent to levy, the procedures for the agency-level CDP hearing before IRS Appeals are set forth in section 6330©. The Appeals Officer is required to take into consideration several things: First, the Appeals Officer must verify that the requirements of any applicable law or administrative procedure have been met by IRS personnel. Sec. 6330(c)(3)(A). The attachment to the notice of determination summarized the Appeals Officer's verification of compliance with these requirements. In his petition, Mr. Nunn makes no distinct contention about the verification requirement.
Second, the taxpayer may "raise at the hearing any relevant issue relating to the unpaid tax or the * * * [collection action], including" challenges to the appropriateness of the collection action and offers of collection alternatives. Sec. 6330(c)(2)(A). Mr. Nunn raised this issue when he contended that he could not pay the liability and that doing so would cause hardship. We will discuss this contention below.
Third, the Appeals Officer must determine "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(c). Mr. Nunn has not made any contention about this balancing.
Finally, the taxpayer may contest the existence and amount of the underlying tax liability, but only if he did not receive a notice of deficiency or otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B). Mr. Nunn attempted to challenge his underlying tax liability at the CDP hearing and continues that attempt in this case. We will address this contention below in part II.
D. Tax Court review
When IRS Appeals issues its determination, the taxpayer may petition the Tax Court for review, pursuant to section 6330(d)(1), as Mr. Nunn has done. Where the underlying tax liability is properly at issue, the taxpayer is entitled to de novo review. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). As to issues other than the underlying liability, we review the determination for abuse of discretion. Id. at 182.
That is, we decide whether the determination was 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).
II. Analysis
A. Prior opportunity to challenge liability
Mr. Nunn's principal contention is that he is not liable for the TFRPs because he was not a person responsible to pay over Camden's trust fund taxes. The Commissioner has moved the Court to hold that section 6330(c)(2)(B) precludes Mr. Nunn from making such a contention because of his prior receipt of the Letter 1153. A taxpayer cannot challenge his underlying liability in a CDP hearing if he had a prior "opportunity to dispute such tax liability" under section 6330(c)(2)(B), which provides:
The person may also raise at the [CDP] hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability. [Emphasis added.]
For purposes of section 6330(c)(2)(B), a prior conference with IRS Appeals, offered before or after assessment, is an "opportunity" to dispute the underlying liability. See 26 C.F.R. sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. (stating that a prior opportunity to dispute a liability "includes a prior opportunity for a conference with Appeals"); see also Iames v. Commissioner, 850 F.3d 160, 165-167 (4th Cir. 2017); Lander v. Commissioner, 154 T.C. 104, 120-123 (2020).
In Lewis v. Commissioner, 128 T.C. 48 (2007), we held that 26 C.F.R. section 301.6320-1(e)(3), Q&A-E2, Proced. & Admin. Regs., was a reasonable interpretation of section 6330(c)(2)(B). If a taxpayer has a non-judicial opportunity to challenge the underlying liability--i.e., an agency-level review hearing such as an IRS Appeals conference--the taxpayer does "otherwise have an opportunity to dispute such tax liability" within the meaning of the statute. Lewis v. Commissioner, 128 T.C. at 61 ("Congress * * * intended to preclude taxpayers who were previously afforded a conference with the Appeals Office from raising the underlying liabilities again in a collection review hearing and before this Court").
(If this outcome seems harsh, it must be evaluated in this light: As we have previously noted, "the section 6672 penalty is divisible, so that a taxpayer may litigate the penalty after having paid an amount corresponding to the tax withheld from a single employee". See Weber v. Commissioner, 138 T.C. 348, 363 n.12 (2012) (citing Davis v. United States, 961 F.2d 867, 870 n.2 (9th Cir. 1992), and Bland v. Commissioner, T.C. Memo. 2012-84, slip op. at 22 n.13). Thus, the taxpayer whose liability is upheld in the Letter 1153 proceeding before IRS Appeals can make a small "token" payment towards the section 6672 penalty, file a refund claim with the IRS, and, if the refund claim is denied, file a refund suit in a Federal District Court or the Court of Federal Claims.)
We hold that IRS Appeals did not abuse its discretion in precluding Mr. Nunn's liability challenge from the CDP hearing.
B. Collection alternative
One of the main purposes of the CDP regime is to assure that taxpayers have the opportunity to propose alternatives to collection. Mr. Nunn did imply in his CDP request that he might desire such an alternative, but none was granted. However, a settlement officer does not abuse his discretion if he "reject[s] collection alternatives and sustain[s] the proposed collection action on the basis of the taxpayer's failure to submit requested financial information." Cavazos v. Commissioner, T.C. Memo. 2008-257; see also Shanley v. Commissioner, T.C. Memo. 2009-17 ("It is ordinarily not an abuse of discretion for an appeals officer to reject collection alternatives and sustain the proposed collection action on the basis of the taxpayer's failure to submit requested financial information"). Since Mr. Nunn failed to submit the requested Form 433-A and supporting financial information, or even to raise collection alternatives at his CDP hearing, IRS Appeals did not abuse its discretion by not agreeing to a collection alternative.
On the record before us, we find no abuse of discretion, and we therefore sustain the notice of determination.
To give effect to the foregoing, it is
ORDERED that respondent's motion for summary judgment is granted, on the grounds that (1) Mr. Nunn failed to respond to the motion, see Rule 121(d), sent. 4, and, in the alternative (2) IRS Appeals did not abuse its discretion in sustaining the final notice of intent to levy, declining to entertain Mr. Nunn's challenge to the TFRP liability, and not granting a collection alternative. It is further
ORDERED AND DECIDED that respondent may proceed with the collection from petitioner Donald Edward Nunn, Jr., of Trust Fund Recovery Penalties arising from Camden Veterinary for seventeen calendar quarters--i.e., the quarters ending December 31, 2012, and September 30, 2013, through June 30, 2017--as described in the "Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330 of the Internal Revenue Code", dated March 11, 2020.