Opinion
12518-20L
01-20-2022
Jeffrey Alan Rische, Petitioner(s) v. Commissioner of Internal Revenue, Respondent
ORDER AND DECISION
Joseph Robert Goeke Judge
The parties have filed cross-motions for summary judgment in this collection due process (CDP) proceeding which relates to petitioner's liability for a $5,000 civil tax penalty for frivolous tax submissions under section 6702 for 2018. Petitioner filed his motion on November 12, 2021, and respondent filed on December 2, 2021.
Background
The following background is based on the parties' pleading and motion papers including the declarations and exhibits attached thereto and are not in dispute. Petitioner resided in Washington when he timely filed his petition.
On April 19, 2019, petitioner filed a return that reported wages of zero and requested a refund of the total amount of income, Social Security, and Medicare tax that were withheld as reported on Form W-2, Wage and Tax Statement, issued to him. He attached Form 4852, Substitute for Form W-2, Wage, to his return that reported zero wages and zero taxable income.
On June 7, 2019, the Internal Revenue Service (IRS) issued Letter 3176C, informing petitioner that it had determined that the return was frivolous and that he would be subject to a $5,000 penalty under section 6702 if the return and refund request were not withdrawn. Petitioner responded to the letter but did not withdraw the return or refund request. On September 16, 2019, respondent assessed the section 6702 penalty.
On November 20, 2019, respondent issued a notice of intent to levy and on December 3, 2019, a notice of Federal tax lien (NFTL) filing. With each notice, respondent informed petitioner of his right to a CDP hearing which petitioner timely requested. At petitioner's request, the CDP hearing was held via correspondence. By letter dated January 24, 2020, Settlement Officer (SO) Healy of the IRS Office of Appeals requested that petitioner provide all arguments and evidence in support of his position by March 3, 2020.
By fax on February 17, 2020, and March 1, 2020, petitioner requested that SO Healy identify the alleged frivolous position on the 2018 return. In the latter fax, petitioner asked SO Healy to identify the frivolous position specifically from Notice 2010-33 that it is alleged that petitioner had taken on the 2018 return.
By letter dated March 3, 2020, SO Healy responded that the 2018 return was a "zero return", i.e., one reporting zero taxable income and zero tax liability even where the taxpayer received taxable income, and stated that the return contained as a frivolous position pursuant to section III(1)(e), Notice 2010-33. SO Healy quoted directly from the Notice and wrote that petitioner submitted a zero return, entered the amount of income, Social Security, and Medicare taxes withheld, and requested a refund of the full amount.
By fax dated March 12, 2020, petitioner responded that the face of the 2018 return contained only numeric entries which he contends is not a position. He also asserted that his Form W-2, Wage and Tax Statement, was incorrect without further explanation. Thereafter, petitioner informed SO Healy that he was denied refinancing of his mortgage because of the lien and requested issuance of the notice of determination.
On September 15, 2020, respondent issued a notice of determination sustaining the proposed levy and NFTL filing. In the attachment to the notice, SO Healy stated that he confirmed that all administrative and legal procedures were met and addressed all legitimate issues raised. He cited part of the Internal Revenue Manual (IRM) that identifies reporting zero wages as a frivolous position for purposes of the section 6702 penalty. Petitioner did not request any collection alternatives during the CDP hearing.
Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, contains a signature dated August 7, 2019, for the IRS employee who initially determined the section 6702 penalty and a supervisory approval signature dated August 13, 2019, which a declaration filed with respondent's motion papers confirms is the name of the manager of the penalty originator.
During the CDP hearing, petitioner requested that SO Healy provide documents relating to the penalty assessment on multiple occasions and SO Healy informed petitioner that he had requested the documents, including Form 8278, more than once and had not received them due to the COVID pandemic's effect on IRS operations. Sometime before October 8, 2020, petitioner received a copy of Form 8278. On that date petitioner faxed a copy to SO Healy.
Summary Judgment Standard
The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We will 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(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Factual inferences are drawn in the light most favorable to the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). However, where the moving party properly supports a summary judgment motion, the nonmoving party must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Siebert v. Commissioner, T.C. Memo. 2021-34, at *16. Both parties assert that there are no material facts in genuine dispute, and we find none. Accordingly, this case may be adjudicated summarily.
Standard of Review
Where the validity of the underlying tax liability is properly at issue in a CDP proceeding, we review the liability de novo. Davis v. Commissioner, 115 T.C. 35, 39 (2000). Otherwise, we review the determination for abuse of discretion, i.e., whether it is arbitrary, capricious, or without sound basis in fact or law. Goza v. Commissioner, 114 T.C. 176, 182 (2000).
A taxpayer can dispute his underlying liability for a section 6702 penalty in a CDP hearing. However, de novo review is not automatic. See Pohl v. Commissioner, T.C. Memo. 2013-291, at *9. We will consider petitioner's underlying liability for the penalty only if he made a meaningful challenge to the penalty during the CDP hearing. Giamelli v. Commissioner, 129 T.C. 107, 114-116 (2007); see sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; see also Pohl v. Commissioner, T.C. Memo. 2013-291, at *8; Buckardt v. Commissioner, T.C. Memo. 2012-170, at *12, aff'd, 584 Fed.Appx. 612 (9th Cir. 2014). A meaningful challenge requires that petitioner presented evidence or a rational argument about why the penalty does not apply. See sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; see also Sun River Fin. Tr. v. Commissioner, T.C. Memo. 2020-30; Zook v. Commissioner, T.C. Memo. 2013-128, at *6-*7; Buckardt v. Commissioner, T.C. Memo. 2012-170, at *12.
Respondent argues that petitioner did not make a meaningful challenge to his liability for the penalty during the CDP hearing and the appropriate standard of review is abuse of discretion. Petitioner counters that the dispute over whether the return contained a frivolous position is a meaningful challenge. Petitioner's sole contention during the CDP hearing was his argument that numeric entries do not constitute a position. He did not provide any evidence or argument as to why the amounts reported on the W-2 as wages were not wages or why the Form W-2 was incorrect. Nor has he done so before this Court. Instead, he continues his only numeric entries argument and also challenges whether SO Healy properly identified a frivolous position that is listed in Notice 2010-30.
Petitioner's contention that a zero return is not a frivolous return does not challenge his underlying liability for the penalty with respect to whether he in fact had zero wages as he reported on his return. However, to the extent that petitioner has raised a question of law, as explained further below, the standard of review makes no difference as we must reject erroneous views of the law under either de novo or abuse of discretion. Kendricks v. Commissioner, 124 T.C. 69, 75 (2005).
Discussion
Penalty Liability
Petitioner argues that for the section 6702 penalty to be imposed, the position must be identified in Notice 2010-33 pursuant to section 6702(c), which requires the Secretary to provide a list of positions that she has identified as being frivolous. He argues that Notice 2010-33 requires that the frivolous position "appears on the face of the return * * * including any attachments to the return", that numeric entries are not a position, and thus no position appears on the face of the return. He further argues that SO Healy improperly relied on the IRM which he argues does not satisfy the listing requirement of section 6702(c).
Petitioner's 2018 return is a zero return as described in Notice 2010-30. He filed Form 4852 as a substitute for the W-2 and reported zero wages. Assuming that section 6702(c) requires a frivolous position to be listed in Notice 2010-30 for a penalty to be imposed, this requirement is satisfied with respect to a zero return. Significantly, SO Healy's determination was correct as Notice 2010-30 identified and described a zero return as a frivolous position. We further note that during the CDP hearing process SO Healy cited both the IRM and Notice 2010-30 to petitioner although SO Healy cited only the IRM in the attachment to the notice of determination. Furthermore, SO Healy clearly communicated to petitioner that the penalty was based on his reporting zero wages and claiming a refund for the entire amount of withheld taxes. Petitioner is liable for the penalty in the light of his failure to provide any evidence or argument as to why the W-2 was incorrect.
Collection Actions
Before making a determination to sustain proposed collection actions, the SO must: (1) verify that the requirements of any applicable law or administrative procedure have been met, (2) consider any issues appropriately raised by the taxpayer, and (3) balance the need for efficient collection against the taxpayer's legitimate concerns that any collection action be no more intrusive than necessary. Sec. 6330(c)(3); see Lunsford v. Commissioner, 117 T.C. 183, 184 (2001).
SO Healy satisfied each of these three steps. The record establishes that the assessment was properly made, notice and demand was mailed to petitioner's last known address, and petitioner failed to pay the liability after receiving notice and demand. SO Healy considered the issues that petitioner raised, considered all available information, and determined that the collection actions balanced the need for efficient collection with concerns that the collection actions are not more intrusive than necessary. During the CDP hearing process, petitioner informed SO Healy that he was denied refinancing of a mortgage. However, petitioner did not raise any collection alternatives for SO Healy to consider. Accordingly, we find no abuse of discretion.
Section 6751(b)(1) Supervisory Approval
Petitioner contends that respondent has not satisfied section 6751(b). It is unclear from the administrative record when SO Healy obtained Form 8278 but the administrative record contains a notation that indicates that SO Healy verified that respondent obtained the required section 6751(b)(1) supervisory approval for the penalty before the notice of determination was issued. Furthermore, the declaration of Jonna M. Love, the Frivolous Return Program Coordinator, confirms that the Form contains signatures for both the IRS employee who initially determined the penalty and her direct supervisor before any communication of the initial determination to petitioner. Petitioner received Letter 3176C, before the approval date, but Letter 3176C, which invites a taxpayer to avoid the penalty by correcting the frivolous return, is not an initial determination of the penalty for purposes of section 6751(b). Kestin v. Commissioner, 153 T.C. 14, 29 (2019). Accordingly, respondent has established that he satisfied the section 6751(b)(1) supervisory approval requirement.
Petitioner argues that the supervisor did not make a sufficient review of his return before signing the Form. He argues that approval was given "without actual scrutiny of the return or any meaningful consideration of the aptness of the penalty." We have rejected arguments that section 6751(b)(1) requires a meaningful review by the supervisor. See Thompson v. Commissioner, 155 T.C. 87, 93-95 (2020); Blackburn v. Commissioner, 150 T.C. 218, 223 (2018); Raifman v. Commissioner, T.C. Memo. 2018-101, at *61.
Conclusion
Petitioner has not introduced any credible evidence or persuasive arguments that would convince us that the proposed collection actions are improper. We sustain the proposed levy and the NFTL filing. In reaching our holding, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.
Accordingly, it is
ORDERED that petitioner's Motion for Summary Judgment, filed November 12, 2021, is denied. It is further
ORDERED that respondent's Motion for Summary Judgment, filed December 2, 2021, is granted. It is further
ORDERED and DECIDED that the collection actions as determined in the Notice of Determination Concerning Collection Actions Under I.R.C. Sections 6320 or 6330 of the Internal Revenue Code, dated September 15, 2020, are sustained.