Opinion
15300-21SL
07-18-2023
JOHN SHEA, JR. & BARBARA SHEA, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Adam B. Landy Special Trial Judge
Petitioners John Shea, Jr. and Barbara Shea timely petitioned this Court, pursuant to section 6330(d)(1) , seeking review of a determination by the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals) sustaining a levy to collect their unpaid income tax liability for tax year 2015. The Commissioner of Internal Revenue (Commissioner) moved for summary judgment, pursuant to Rule 121, arguing that there are no disputed issues of material fact, his settlement officer did not abuse her discretion during the administrative proceeding, and his proposed levy action is proper and correct as a matter of law.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
For the reasons stated below, we will grant the Commissioner's motion.
I. Background
The following facts are based on the parties' pleadings, motion papers, the declaration of Ian T. Rossi, and attached exhibits, which compose the complete administrative record. See Rule 121. The Sheas resided in Connecticut when they timely filed their Petition.
The Sheas jointly and timely filed their 2015 Form 1040, U.S. Individual Income Tax Return. The Sheas received an overpayment (or tax refund) for 2015. In 2017, the Commissioner selected the Sheas' 2015 Form 1040 return for examination. The Commissioner determined the Sheas failed to report all income received on their 2015 Form 1040 return. On December 4, 2017, the IRS mailed the Sheas a notice of deficiency to their last known address in East Haven, Connecticut, the same address the Sheas used at all relevant times in communicating with the IRS and their address of record with the Court as of the filing of the Petition. The notice of deficiency stated that the last day to file a petition with this Court for a redetermination of the 2015 deficiency was March 5, 2018.
The Sheas filed a petition with this Court on March 8, 2018, at Docket No. 4790-18S. On April 30, 2018, the Commissioner filed a Motion to Dismiss for Lack of Jurisdiction on the ground that the Sheas failed to file their petition within the time prescribed by section 6213(a). By Order served June 11, 2018, this Court dismissed the Sheas' case for lack of jurisdiction.
On April 15, 2019, the IRS mailed to the Sheas a Notice CP90, Intent to Seize Your Assets and Notice of Your Right to a Hearing (Levy Notice) attempting to collect the liability for 2015. The Levy Notice indicated that the Sheas owed the IRS a total of $9,896.81 in tax, an addition to tax, and additional interest for 2015. The Levy Notice also advised the Sheas that they could appeal the proposed levy by requesting a Collection Due Process (CDP) hearing using the enclosed Form 12153, Request for a Collection Due Process Hearing or Equivalent Hearing, by May 15, 2019. The Sheas completed and timely returned Form 12153 (CDP Hearing Request), indicating the proposed levy as their basis for requesting a CDP hearing or an equivalent hearing to the extent a CDP hearing was not available. On Form 12153 the Sheas did not check a box for a collection alternative. However, they argued that the unreported income received by Mr. Shea was not taxable pursuant to section 104(a)(1).
An equivalent hearing is an administrative hearing in the Appeals Office that may be requested by taxpayers who fail to timely request a CDP hearing. Treas. Reg. § 301.6330-1(i)(1). An equivalent hearing resembles a CDP hearing, but an equivalent hearing does not result in a determination subject to judicial review. See Craig v. Commissioner, 119 T.C. 252, 258-59 (2002); Treas. Reg. § 301.6330-1(i)(2), Q&A-I6.
On July 22, 2019, Settlement Officer Stockli (SO Stockli) sent the Sheas a letter notifying them of Appeals' receipt of their CDP Hearing Request. The letter indicated that the Sheas' CDP hearing would take place via telephone conference on September 12, 2019, at 12 p.m. Eastern Standard Time, and the Sheas could contact SO Stockli within 14 days of the letter date to reschedule if the proposed date or time was inconvenient. The letter further advised the Sheas that for SO Stockli to consider any collection alternative, they needed to provide a completed and signed 2017 Form 1040 return and a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals (Form 433-A), prior to the scheduled conference. The Sheas did not request a new conference date and time or provide SO Stockli with the delinquent tax return or Form 433-A.
On August 13, 2019, the Sheas contacted SO Stockli to dispute the underlying liability for 2015 in that the unreported income is not taxable pursuant to section 104. The Sheas argued that in other tax years, the IRS agreed that the disputed unreported income was not taxable, and this should be the case for 2015. Upon further case research, SO Stockli determined that the Sheas petitioned this Court for review for 2015 and confirmed that their petition was dismissed for lack of jurisdiction in 2018. SO Stockli concluded that the Sheas had a prior opportunity to dispute the liability for 2015. After a second telephone conference with the Sheas on September 19, 2019, SO Stockli further discovered that the Sheas filed a 2015 Form 1040X amended return disputing the taxability of the pension income.
On June 29, 2020, this case was transferred to SO Rubilotta, who reviewed the case developed by SO Stockli. After reviewing the case file, SO Rubilotta concurred with many actions and determinations made by SO Stockli, including determining that the Sheas were precluded from challenging the underlying liability for 2015. SO Rubilotta contacted the Sheas by telephone and reiterated their inability to challenge the 2015 liability. During this call, the Sheas stated their desire not to enter into a collection alternative during the administrative proceeding. On September 23, 2020, the IRS Examination Division notified SO Rubilotta that the IRS was unable to process the Sheas' amended tax return because the Sheas failed to sign the amended return and failed to cure the defect upon request. Seeking to provide a resolution to the case, SO Rubilotta determined that she could offer the Sheas an installment agreement, as a collection alternative, with a monthly payment of $111. SO Rubilotta spoke with the Sheas on September 30, 2020, to discuss the issues surrounding the non-processing of their amended return, to which the Sheas replied that it was not their intent to file an amended return because the unreported income is not taxable.
After SO Rubilotta retired in 2021, this case was transferred to SO Mullin. SO Mullin properly verified that the requirements of applicable law and administrative procedure were met. SO Mullin also concluded that the Sheas were unable to challenge the 2015 liability because they received a notice of deficiency and petitioned this Court in response to that notice. On March 10, 2021, SO Mullin conducted another telephone conference with the Sheas. SO Mullin again discussed why the Sheas were precluded from challenging the underlying liability, and the Sheas repeated their desire not to set up a payment plan or provide financial information to determine if they qualified for currently not collectible status.
On April 5, 2021, the IRS issued a Notice of Determination Concerning Collection Actions under IRC Sections 6320 or 6330 of the Internal Revenue Code (Notice) sustaining the proposed levy action regarding the Sheas' unpaid tax liability for tax year 2015. In the Notice, SO Mullin sustained the issuance of the Levy Notice on the basis that the Sheas were precluded from challenging the underlying liability, and the Sheas failed to propose a collection alternative. On May 4, 2021, the Sheas timely filed a Petition with this Court disputing the Notice. In their Petition, the Sheas dispute the IRS's contention that Mr. Shea's receipt of a disability pension for tax year 2015, pursuant to section 104(a)(1), is taxable.
On December 22, 2022, the Commissioner filed a Motion for Summary Judgment. The Commissioner contends that he is entitled to summary judgment as the Sheas could not challenge the underlying tax liability because they received a notice of deficiency, and SO Mullin did not abuse her discretion in sustaining the proposed collection action because the Sheas failed to place a collection alternative before her for review. On February 2, 2023, the Sheas filed a response to the Commissioner's Motion for Summary Judgment, maintaining their position that the genesis of the underlying liability is from a disability pension received by Mr. Shea due to an on-the-job injury he sustained, and the unreported income is not subject to income tax. The Sheas' response raised no further dispute as to any material facts.
II. Discussion
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. Rule 121(a)(2); 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 a light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. The nonmoving party may not rest upon mere allegations or denials in its pleadings and must set forth specific facts showing there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
B. Hearings Under Section 6330 [Levy]
Section 6331(a) authorizes the IRS to levy upon property and taxpayers' rights to property if the taxpayers are liable for any tax and neglects or refuses to pay those taxes within 10 days after notice and demand for payment is made. Section 6331(d) provides that a levy authorized in section 6331(a) may be made with respect to unpaid tax only if the IRS has given written notice to the taxpayers at least 30 days before the levy. Section 6330 requires that the written notice include the amount of the unpaid tax and information about the taxpayers' right to a CDP hearing. § 6330(a)(3)(A), (B). If a CDP hearing is requested, the hearing is to be conducted by Appeals. § 6330(b)(1).
C. Standard of Review
Section 6330(d)(1) grants this Court jurisdiction to review the administrative determination by the Appeals Office in connection with a CDP hearing. Section 6330(c)(2) prescribes the matters that taxpayers may raise at a CDP hearing, including spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. The existence or amount of the underlying tax liability may be contested at a CDP hearing only if the taxpayers did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. See § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180-81 (2000).
Where the validity of the taxpayers' underlying tax liability is properly at issue, we review Appeals' determination on a de novo basis. Sego, 114 T.C. at 609- 10. Where the validity of the underlying tax liability is not properly at issue, the Court will review the Settlement Officer's determination for abuse of discretion. Id. at 610. Abuse of discretion exists when a determination is "arbitrary, capricious, or without sound basis in fact or law." Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd 469 F.3d 27 (1st Cir. 2006).
1. Challenge to the Underlying Liability
During the CDP hearing and on the Petition, the Sheas disputed the income tax liability for tax year 2015, which is the subject of this proposed levy action. As stated above, taxpayers may challenge the existence or amount of their underlying liability in a CDP proceeding only if they "did not receive a statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." § 6330(c)(2)(B); Sego, 114 T.C. at 609; see generally Deutsch v. Commissioner, 478 F.3d 450, 452 (2d Cir. 2007) (a notice is sufficient "previous opportunity" to contest liability). To determine if the Sheas may challenge the underlying tax liability, actual receipt of the statutory notice of deficiency must be determined. See Sego, 114 T.C. at 610-11. A notice of deficiency is presumed to have been received by the taxpayers if it was properly mailed to them at their last known address. See § 6212(b)(1); Hoyle v. Commissioner, 131 T.C. 197, 200, 203-04 (2008), supplemented by 136 T.C. 463 (2011).
The administrative record shows that the IRS sent to the Sheas by certified mail separate notices of deficiency for 2015, and the notices of deficiency were sent to their last known address. See § 6212(a), (b)(1). The Sheas do not dispute that the notices of deficiency were issued to their last known address in compliance with section 6212. In response to receipt of the notice of deficiency, the Sheas filed a petition with this Court seeking review of such notice. This case was dismissed for lack of jurisdiction because the Sheas' petition was not filed timely. Therefore, the Sheas may not challenge the underlying liability for 2015 in this proceeding. See Rayle v. Commissioner, T.C. Memo. 2019-119, at *10; Spinner v. Commissioner, T.C. Memo. 2017-87, at *7. We review Appeals' determination for abuse of discretion.
In addition to the notice of deficiency, the administrative record contains a copy of United States Postal Service Form 3877, Firm Mailing Book for Accountable Mail (PS Form 3877), which reflects that the notice of deficiency was mailed to the Sheas on December 4, 2017, and to the same address the Sheas listed as their address of record on their Petition. A properly completed PS Form 3877 is direct evidence of both the fact and date of mailing and, in the absence of contrary evidence, is sufficient to establish proper mailing of the notice of deficiency. See Clough v. Commissioner, 119 T.C. 183, 187-191 (2002); see also Coleman v. Commissioner, 94 T.C. 82, 91 (1990). The PS Form 3877 appears to be properly completed and bears satisfactory indicia of authenticity. Finding no evidence to the contrary, it was proper for SO Mullin to rely on the PS Form 3877 to determine that the notice of deficiency for 2015 was properly mailed to the Sheas on December 4, 2017.
2. Abuse of Discretion
Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy, 125 T.C. at 320. We do not substitute our own judgment for that of the Appeals Officer, i.e., we do not conduct an independent determination of what would be an acceptable collection alternative. See, e.g., Johnson v. Commissioner, 136 T.C. 475, 488 (2011), aff'd, 502 Fed.Appx. 1 (D.C. Cir. 2013).
In reviewing Appeals' determination for abuse of discretion, we consider whether SO Mullin: (A) properly verified that the requirements of applicable law or administrative procedure have been met, (B) considered any relevant issues the Sheas raised, and (C) considered whether any proposed collection action balances the Government's need for the efficient collection of taxes with the Sheas' legitimate concern that any collection action be no more intrusive than necessary. See § 6330(c)(3); Sego, 114 T.C. at 609.
The Sheas did not allege in their Petition that any assessment was improper, and this issue is deemed conceded. See Rule 331(b)(4); Pierson v. Commissioner, 115 T.C. 576, 580 (2000) (deeming conceded issues not raised in the taxpayer's petition). SO Mullin properly verified that the requirements of applicable law or administrative procedure were met. No particular form of verification is required; Forms 4340, Certificate of Assessments, Payments, And Other Specified Matters may be used to satisfy the verification of procedures requirement of section 6330(c)(1). Roberts v. Commissioner, 118 T.C. 365, 371 n.10 (2002), aff'd, 329 F.3d 1224 (11th Cir. 2003) (citing Davis v. Commissioner, 115 T.C. 35 (2000)); Nestor v. Commissioner, 118 T.C. 162, 166 (2002); Lunsford v. Commissioner, 117 T.C. 183, 187-188 (2001). The Forms 4340 and other exhibits attached to the motion and accompanying declaration, together with SO Mullin's statements in the Attachment to the Notice, show that the required assessment and collection procedures were followed.
The record does not indicate that SO Mullin verified whether the assessment of the section 6662 penalty complied with section 6751(b)(1)'s immediate supervisor approval requirement. However, the Commissioner has established that the section 6662(a) penalty was "automatically calculated through electronic means" and thus was not subject to section 6751(b)(1). See § 6751(b)(2); Walquist v. Commissioner, 152 T.C. 61, 72-74 (2019).
The Sheas proposed no collection alternative. SO Mullin was not obligated to pursue or offer a collection alternative where the Sheas made no proposal. See McLaine v. Commissioner, 138 T.C. 228, 243 (2012); see also Nimmo v. Commissioner, T.C. Memo. 2020-72, *8. The proposed levy balances the Government's need for the efficient collection of taxes with the Sheas' concerns that the collection action be no more intrusive than necessary. SO Mullin did not abuse her discretion in sustaining the proposed collection action.
III. Conclusion
There are no disputes of material fact, and judgment may be rendered as a matter of law. Finding no abuse of discretion, we will grant summary judgment for the Commissioner and sustain the proposed collection action.
Upon due consideration of the Commissioner's motion, the Sheas' response to the motion, and for cause, it is
ORDERED that the Commissioner's Motion for Summary Judgment, filed December 22, 2022, is granted. It is further
ORDERED AND DECIDED that the Appeals Office's determination set forth in the Notice of Determination Concerning Collection Actions under IRC Sections 6320 or 6330 of the Internal Revenue Code, dated April 5, 2021, upon which this case is based, is sustained.