Opinion
5400-19L
10-04-2021
Stephen Kent Rose, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER
Christian N. Weiler Judge
This matter is before the Court regarding the Commissioner of Internal Revenue's (respondent) motion for summary judgment filed on April 6, 2021, pursuant to the provisions of Rule 121. A remote hearing concerning respondent's motion for summary judgment was held by the Court on Monday, June 7, 2021, during the Court's Los Angeles, California trial session. Upon due consideration of the parties' arguments, and for the reasons below, the Court will deny respondent's motion for summary judgment and remand this case to Appeals for further hearing.
Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986 (Code), as amended and in effect for the taxable year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
Background
This background section is primarily drawn from the administrative record of the Collection Due Process (hereinafter "CDP") hearing. None of these facts are in dispute.
In Robinette v. Commissioner, 123 T.C. 85, 95 (2004), rev'd, 439 F.3d 455 (8th Cir. 2006), we held that "when reviewing for abuse of discretion under sec. 6330(d), we are not limited by the Administrative Procedure Act * * * and our review is not limited to the administrative record." The Court of Appeals for the Ninth Circuit has concluded that the record rule applies to CDP cases before this Court. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff'g in part T.C. Memo. 2006-166, and aff'g in part, rev'g in part decisions in related cases. Under sec. 7482(b)(1)(B), appeal in this case would lie in the Court of Appeals for the Ninth Circuit, absent a stipulation to the contrary, and in this case we therefore follow that court's opinion and limit our review to the evidence found in the administrative record. See Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971).
Petitioner untimely filed his 2010 Form 1040, U.S. Individual Income Tax Return on February 13, 2012, which respondent subsequently audited. On December 20, 2016, petitioner received the results of the audit in which the Internal Revenue Service (IRS) determined there was a tax deficiency for tax year 2010. A late filing penalty pursuant to section 6651(a)(1) and an accuracy-related penalty pursuant to section 6662 were also assessed. Petitioner appealed the results of the audit to the IRS Office of Appeals (Appeals), and during the Appeals process, petitioner signed Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (Waiver). In the Waiver, petitioner agreed to a tax deficiency of $6, 985.00 and additions to tax, including a section 6651(a)(1) penalty of $956.83, and a section 6662 penalty of $1, 397.00 for tax year 2010. The signed Form 870 included the following "Consent to Assessment and Collection" clause:
Petitioner was audited for tax years 2010, 2011, 2012, and 2013. The sole year at issue in the instant case is 2010.
On July 1, 2019, Congress renamed the IRS Office of Appeals the IRS Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001(a), 133 Stat. at 983 (2019). The events in this case largely predate that change, so we use the name in effect at the times relevant to this case, i.e., the Office of Appeals.
I consent to the immediate assessment and collection of any deficiencies (increase in tax and penalties) and accept any overassessment (decrease in tax and penalties) shown above, plus any interest provided by law. I understand that by signing this waiver, I will not be able to contest these years in the United States Tax Court, unless additional deficiencies are determined for these years.
Petitioner signed the Waiver on June 13, 2017. Roughly 10 months later, on April 9, 2018, petitioner received a Notice CP503 from the IRS for $11, 650.28 for tax year 2010. Then on June 29, 2018, petitioner received a Notice of Intent to Levy to collect the unpaid balance for tax year 2010. In response, petitioner timely requested a CDP hearing by filing with the IRS Form 12153, Request for a Collection Due Process of Equivalent Hearing. Petitioner's CDP hearing request was forwarded to Appeals by the IRS.
Appeals Settlement Officer Mary Cathy Benson was assigned to petitioner's CDP hearing, and on September 28, 2018, Ms. Benson sent a substantive contact letter scheduling petitioner's CDP hearing. Prior to the hearing, petitioner called Ms. Benson, and the parties mutually agreed to hold the CDP hearing by telephone on October 25, 2018.
During the October 25, 2018, CDP hearing, petitioner did not request any collection alternatives. He only sought to challenge the amount comprised of additional interest and the failure to pay penalty pursuant to section 6651(a)(3) exceeding the $9, 338.83 amount listed on the Waiver. Ms. Benson informed petitioner that he could not contest the underlying tax liability by virtue of his initial audit appeal. Ms. Benson, at the CDP hearing, explained interest abatement criteria under the Internal Revenue Code, and offered petitioner the opportunity to subsequently explain, in written detail, his claim that interest should be abated in this case due to the unreasonable delay by the IRS. After the CDP hearing, petitioner faxed to Ms. Benson a two-page written response dated November 4, 2018, along with copies of his 2015 and 2016 tax returns. In his written response, petitioner asserts he did not receive any notice from the IRS assessing a deficiency in the amount of $9, 338.83 and that written demand for payment was not made by the IRS pursuant to section 6303 until April 2018. Petitioner's written response further sought the abatement of interest pursuant to sections 6404(e), 6404(g), and 6601(c) due to excessive delay by the IRS. However, no further explanation or substantiation of petitioner's abatement of interest claim was provided to Ms. Benson.
A subsequent telephone conference was held between petitioner and Ms. Benson on January 29, 2019. At this subsequent conference, petitioner (in addition to concerns previously discussed on October 25, 2018) stated that collecting any amount in excess of the $9, 338.83 would cause himself and his mentally ill son undue hardship.
Despite her initial discussions with petitioner, Ms. Benson ultimately concluded that petitioner could not raise issues relating to the tax liability, penalties, or interest. More specifically, Ms. Benson notated on petitioner's Case Activity Record, that he may not raise the aforementioned issues, "because the issue was previously heard in Appeals and TP participated meaningfully in the Appeals proceeding." In addition, Ms. Benson's notes indicate that she reviewed and relied upon Internal Revenue Manual (IRM) pt. 8.22.8.11(1) in making her decision.
Petitioner received a Notice of Determination dated February 11, 2019, denying his request for relief and sustaining the IRS's intent to levy. Petitioner subsequently appealed Appeals' determination to this Court and filed his petition on March 19, 2019. Petitioner resided in California at the time he filed his petition.
The Notice of Determination contains a date stamp of February 11, 2018. The parties agree, however, that the 2018 date stamp is incorrect, and the Notice of Determination was issued on February 11, 2019.
Discussion
In respondent's motion for summary judgment, he contends "[t]he sole issue is whether it was an abuse of discretion for SO Benson to reject petitioner's request for abate of the underlying tax liability in excess of the $9, 338.83 agreed to in Appeals."
I. Summary Judgment Standard
A party may move for summary judgment regarding all or any part of the legal issues in controversy. See Rule 121(a); Wachter v. Commissioner, 142 T.C. 140, 145 (2014). We may grant summary judgment if the pleadings, stipulations and exhibits, and any other acceptable materials show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law. See Rule 121(a) and (b); see also CGG Americas, Inc. v. Commissioner, 147 T.C. 78, 82 (2016); Elec. Arts, Inc. & Subs. v. Commissioner, 118 T.C. 226, 238 (2002).
II. Collection Due Process Principles
A. Standard of Review
Section 6330(d)(1) grants the Court jurisdiction to review CDP hearing determinations. Where the underlying tax liability is properly at issue in the CDP hearing, and "where the determination with regard to the tax liability is part of the appeal" brought under section 6330(d), the Court will review the determination de novo. Goza v. Commissioner, 114 T.C. 176, 181 (2000). Where the underlying tax liability is not properly at issue, the Court will review the determination for an "abuse of discretion." Sego v. Commissioner, 114 T.C. 604, 610 (2000). To find that Appeals committed an "abuse of discretion" requires a showing that the Appeals officer's actions were "arbitrary, capricious, or without foundation in fact or law." Giamelli v. Commissioner, 129 T.C. 107, 111 (2007).
As discussed above, petitioner does not seek to challenge the underlying agreed to tax liability, set forth on the Waiver; rather, petitioner seeks to challenge the amount comprised of additional interest and the failure to pay penalty pursuant to section 6651(a)(3) exceeding the $9, 338.83 amount listed on the Waiver. Consequently, since it was not disputed by petitioner while in Appeals, the underlying tax liability is not properly at issue before us.
In any event petitioner is precluded from challenging the underlying tax liabilities, since for purposes of sec. 6330(c)(2)(B), a taxpayer who has waived the right to challenge the proposed assessment by signing a Waiver (Form 870) and thereby consenting to the assessment and collection of tax liabilities is deemed to have had the opportunity to dispute the underlying tax deficiency and is precluded by such waiver from challenging the underlying tax liability in the CDP hearing and before this Court. Aguirre v. Commissioner, 117 T.C. 324, 327 (2001); Lance v. Commissioner, T.C. Memo. 2009-129. The "underlying tax liability" includes the tax deficiency, additions to tax, and statutory interest. Katz v. Commissioner, 115 T.C. 329, 339 (2000). We have held that sec. 6330 "provides no consolation to petitioners who themselves made the choice not to receive * * * [a notice of deficiency]." Aguirre v. Commissioner, 117 T.C. at 327.; Nichols v. Commissioner, T.C. Memo. 2007-5. A Form 870 is a waiver of certain rights of the taxpayer, specifically, the right to receive a statutory notice of deficiency and the right to challenge the assessment therein in the Court. Nichols v. Commissioner, T.C. Memo. 2007-5 at *4.
III. Analysis
Because the validity of petitioner's underlying tax liability is not properly at issue, we will review respondent's administrative determination for abuse of discretion. See Goza v. Commissioner, 114 T.C. at 181-182. In reviewing for abuse of discretion, we will reject the determination of Appeals only if the taxpayer proves that the determination was arbitrary, capricious, or without sound basis in fact or law. See Rule 142(a); Murphy v. Commissioner, 125 T.C. 301, 308 (2005). We do not substitute our judgment for that of Appeals but consider whether Appeals, in the course of making its determination, (1) verified the requirements of applicable law and administrative procedure have been met; (2) considered all relevant issues raised by the taxpayer, including offers of collection alternatives such as an offer-in-compromise; and (3) determined whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that collection be no more intrusive than necessary. Sec. 6330(c)(3).
A. Whether Appeals Met the Requirements of Applicable Law and Administrative Procedure
Before issuance of a notice of determination, the Appeals officer must verify that all requirements of applicable law and administrative procedure have been met. Sec. 6330(c)(1), (3)(A). This Court may review the Appeals officer's verification under section 6330(c)(1) without regard to whether the taxpayer raised it at the CDP hearing. Sec. 6330(c)(1), (3)(A); see also Hoyle v. Commissioner, 131 T.C. 197, 202-203 (2008).
Here, Ms. Benson determined that respondent followed the requirements of applicable law and administrative procedure in filing the Notice of Intent to Levy. The Notice of Determination states that the liabilities were duly assessed, and the requisite notices were timely mailed to petitioner. There is no evidence before the Court that the requirements of applicable law and administrative procedure were not satisfied.
B. Relevant Issues Raised by Petitioner
Appeals is required to consider any relevant issue raised by a taxpayer during a hearing, including challenges to the appropriateness of collection action and collections alternatives offered by the taxpayer. Sec. 6330(c)(2)(A), (3)(B).
Petitioner argues that Ms. Benson abused her discretion in her decision that petitioner could not dispute the additional penalties and interest at his CDP hearing, since he had a prior opportunity to do so while previously in Appeals. Petitioner supports his contention by pointing out that he could not have discussed the additional penalty for failure to pay pursuant to section 6651(a)(3) with Appeals, as it was an addition to tax that was not assessed or agreed upon (and resulted in an interest increase) until he received the notice of determination nearly 10 months after signing the Waiver.
Petitioner stated on his Form 12153, that the "Collection amount is incorrect. It is not the amount agreed with the appeals officer. Penalties are unlawful. I do not believe I should be responsible for any penalties. Interest is excessive." See Exhibit 3, p. 2. In essence, petitioner objected to the collection of any amount above $9, 338.83 to which he agreed to pay when he signed the Waiver.
In addition to contesting the additional interest and penalty, and seeking the abatement of each, petitioner also contends that he did not receive notice of the assessment in violation of sec. 6303, that the additional interest assessed is in violation of secs. 6601(c), 6631, and interest should be abated under sec. 6404(c), (e), and (g). Our decision on respondent's motion for summary judgment does not consider the result or final amount of Appeals' determination, rather we are only immediately concerned with whether Ms. Benson abused her discretion in concluding that petitioner was precluded from raising the issues during his CDP hearing.
On the other hand, respondent argues petitioner is precluded from challenging the underlying tax liability in his CDP hearing because he had a prior opportunity to do so, and respondent is entitled to summary judgment because there is no genuine issue of material fact in dispute. Respondent contends petitioner agreed to the immediate assessment by executing the Waiver, and consequently petitioner -- by signing the Waiver -- not only agreed to the underlying tax liability, but also the additions to tax, namely penalties and interest on the deficiency. Finally, respondent contends how further interest on the accumulated liability was attributable to petitioner's own decision not to pay the agreed to liability.
A review of the record shows Ms. Benson determined that petitioner was precluded from challenging his underlying tax liability, including the additions to tax and interest. Ms. Benson notated in petitioner's case activity record that she reviewed his administrative file and concluded that petitioner had participated meaningfully and had raised these issues while previously in Appeals. Ms. Benson further notated that she reviewed I.R.M. pt. 8.22.8.11(1) prior to making her decision. In relevant part, the I.R.M. states that a taxpayer may raise interest abatement in a CDP hearing unless the issue was previously heard by Appeals, the taxpayer participated meaningfully in the Appeals proceeding, and a final determination letter was issued, or the issue was decided by the Tax Court.
Respondent in its motion cites to Nichols v. Commissioner, T.C. Memo 2007-5 as analogous to the present case. However, in Nichols v. Commissioner, Appeals did consider the merits of the taxpayer's interest abatement claim during the CDP hearing, notwithstanding the fact that the taxpayer had previously signed a Form 870. Contrary to respondent's argument, the merits of the taxpayer's interest abatement claim were considered by Appeals. However, the claim was ultimately denied since the taxpayer failed to establish grounds for abatement under section 6404(e)(1). Id. at *6.
This case is more akin to the decision of this Court in Wright v. Commissioner, T.C. Memo 2002-312; where although the taxpayer was precluded from challenging the underlying tax liability since the tax liability was previously litigated before this Court. The taxpayer was still afforded the subsequent opportunity to seek an interest abatement claim under section 6330. Id. at.*4
Consequently, we find Ms. Benson erred when she summarily denied petitioner's interest abatement claim and section 6651(a)(3) penalty waiver claim, prior to considering the merits of petitioner's underlying claims. Accordingly, we will deny respondent's motion for summary judgment and on the Court's own action, remand this matter for further hearing before Appeals.
The Court acknowledges that this penalty was not agreed to in the Waiver, and presumably petitioner could present a reasonable cause argument to seek abatement of this penalty while before Appeals on remand.
Since we find that Ms. Benson abused her discretion as to this requirement, we need not address whether she balanced the need for efficient collection of taxes with concerns that collection be no more intrusive than necessary.
Upon due consideration, it is
ORDERED that respondent's motion for summary judgment, dated April 6, 2021, is denied. It is further
ORDERED that petitioner's case is remanded to Appeals for further proceeding consistent with this Order. It is further
ORDERED that respondent shall offer petitioner an administrative hearing at respondent's Appeals Office located closest to petitioner's residence (or by teleconference if preferable) at a reasonable and mutually agreed upon date and time, but no later than December 3, 2021. It is further
ORDERED that the parties are to file a joint status report, or separate reports if preferred, on or before January 28, 2022, outlining the then-present status of this case.