T.C. M em o . 2 0 1 8 -1 6 2

UNITED STATES TAX COURT
T-STAR ENGINEERING AND TECHNICAL SERVICES, INC., Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 5 4 9-1 7L. Fi l edSep t em b er 2 4 , 2 0 1 8
.
RayS. Kem erer (an o ffi cer), fo r p et i t i o n er. Eri n K. Neu g eb au r, fo r res p o nd en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION
RUW E , J ud g e: Th is co l l ect io n du e p ro ces s (CDP) cas e was b ro u g h t p u rs u an t t o s ect io n s 6 3 2 0 an d6 3 3 0. 1 Pet i t io n er ch al l en g es res p o n den t ’ s

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect atal l rel ev an tt i m es .- 2
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[* 2 ] d et erm i n at i o n t o s u s t ai n th e fi l i n g o f a n o t i ce o f Fed eral t ax l ien (NFTL) fo r th e co l l ect i o n o f p en al t i es as s es s edu n d er s ect i o n 6 7 0 2
. FINDINGS OF FACT Pet i t i o ner t i m el y

fi l edFo rm s 9 4 1 , Em

p lo y er’ s Qu art erl y

Fed eral Tax Retu rn , fo r t he t ax ab l e p eri od s en d i n g M arch 3 1 an d J u n e 3 0 , 2 0 1 2. Pet i t i o n er h ad
m ad e t o tal Fed eral t ax d ep o s i t s o f $ 1 7 ,7 3 2 .0 9 an d$ 1 6 , 8 0 5 .0 6 fo r t h es e p eri o d s . OnJ an u ary

2 1 , 2 0 1 4 , p et i t i o n er s en ta l et t er t o res p o nd en t i n wh i ch i t arg u ed , am o ng o th er t h i ng s , th atp et it i o n er i s n o t s ub jectt o “ em

pl o ym en tt ax es ”
an d Fed eral i n co m e t ax “ wi th h o l d i n g ” req u i rem en t s b ecau s e p et i t i o n er i s a p ri v at e
s ect o r n o n -fed eral l y -co n n ect edco m p an y . Th e l et ter fu rt h er arg u ed th atp et i t i o n er i s n o tan “ em

p lo y er” o r “ t ax p ay er” o r a wi th h o l di n g ag en tas d efi n ed b y the In t ern al Rev enu e Co d e. Pet i ti on er en cl os edwi th th e l et ter Fo rm s 9 41 -X, Ad ju s t ed Em p l o y er’ s Qu art erl y

Fed eral Tax Retu rno r Cl ai m fo r Refu n d , fo r t h e t ax ab l e p eri o d s en d i n g M arch 3 1 an dJ u n e 3 0 , 2 0 1 2
. Th es e ret u rn s were “ zero retu rn s ” i n wh i ch p et i t i on er cl ai m edi th adn o em p l o ym en tt ax l i ab i li t ies fo r th e p eri o d s at i s su e an dreq u es t ed refu nd s o f t h e Fed eral t ax d ep o s i t s p rev io u s ly m ad e. Onth e Fo rm s 9 4 1 -X, p et i t i o n er s t at ed : Th e am ou n ten t eredi n to l i n e 2 o f t h e fo rm 9 4 1 fo r t h e qu art er was i n co rrect l y

en t eredas “ W ag es , t i p s an do ther co m p en sat i o n ” (as d efi n edi n Ti t le 2 6 o f t h e USC). No fed eral l y -co n n ect edp aym en t s- 3
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were m ad e. T-St ar En gi n eeri n g & Tech ni cal Serv ices i s a p ri v at es ect o r co m

p an y , i nco rp o rat edi n th e u n i o n s t at e o f Pen n s y l v an i a, t h at i s n o t co n nect ed wi th fed eral l y -p ri vi l eg edact i v i ti es . T-St ar En g i n eeri n g & Tech n i cal Serv i ces d o es n o th av e “ Em p l o y ees ” as d efi n edi n Ti t le 2 6 o f t h e U.S.C. Per Ti t l e 2 6 an drel at edt ax l aw, fed eral t ax i n g au th ori ty

i s l i m i t edt o the Di s tri cto f Co l u m b ia, p o rt io n s o f u n i o n s t at es ced edt o t h e fed eral g ov ern m en t , an dUn i ted St at es p os s es s io n s i n cl u di n g th e Co m m on weal th o f Pu ert o Ri co , Am eri can Sam o a, Gu am , an dth e US Vi rg i n Is lan d s . In No v em

b er 2 0 1 4 Co rres p o n d en ce Ex am i n at i o n Tech n i ci an Geo rg e J o h n so n i n res p o n d en t ’ s o ffi ce i n Og d en , Ut ah , rev i ewed p et i t io n er’ s s ubm i t t ed Fo rm s 9 4 1 -X an d p rep aredi t s acco u n t fo r t he as s es s m en to f t he s ect io n 6 70 2 p en al t i es fo r t h e fri v ol o u s ad j u s t edretu rn s . OnNo vem b er 1 3 , 2 01 4 , M r. J o h n so n ’ s s up erv is o r, Sup erv i s o ry Fi n an ci al Tech n ici an Kri s t a Decari a, ap p ro v ed th e p en al t i es b y

s i g n i n g Fo rm s 8 2 7 8 , As s es s m en t an dAb at em en to f M i s cel l an eo u s Ci v il Pen al t ies
. Th e s ect i o n 6 7 0 2 p en al t ies fo r t h e Fo rm s 9 4 1 -X fo r t h e t ax ab l e p eri o d s en d i n g M arch 3 1 an dJ u n e 3 0 , 2 0 1 2 , were as s es s ed o n Decem b er 8 , 2 0 1 4
. 2 [* 3 ]

2 Th e s ec. 6 7 0 2 p en al t i es were as s es s edo n tw o s ep arat e d at es (Decem b er 8 , 2 0 1 4 , an dM arch 1 4 , 2 0 1 6 ) fo r t h ree s ep arat e ret u rn s (2 0 1 2 fi rs t qu art er Fo rm 9 41
- X, 2 0 1 2 s eco n d qu art er Fo rm 9 4 1 -X, an d2 0 1 2 th i rdqu art er Fo rm 9 4 1) fo r a t o t al o f $ 3 0,0 0 0 . Res p o n d en tco n ced es fo u r o f t he p en al ty as s es s m en ts . Res p o nd en ti s d efen d in g th e s ec. 6 70 2 p en al t i es as s es s ed o n Decem b er 8 , 2 0 1 4 , reg ard i n g p et i t i o n er’ s 2 0 12 fi rs tqu art er Fo rm 9 4 1 -X an d 2 01 2 s eco n d qu art er Fo rm 9 4 1 -X, b o th o f wh ich were s ub m i t tedo n J an u ary 2 4 , 2 01 4 . Res p o nd en t arg u es th at $ 1 0 ,0 0 0 o f t h e s ec. 6 7 0 2 p en al ti es ag ai ns tp et i t i o n er s h o ul db e s u s t ai ned
.- 4
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[* 4 ] OnM ay

3 , 2 0 1 6 , res p o n d en ti s s u ed p et it io n er a Let t er 3 1 7 2, No t i ce o f Fed eral Tax Li en Fi l i n g an dYo u r Ri g h tt o a Heari n g Un d er IRC 6 3 20 . OnJ u n e 3 , 2 0 1 6 , p et i t i o n er s ub m i t t eda req u es t fo r a CDP h eari n g. Set t l em en tOffi cer (SO) St ep h en J . M cCarri ckwas as s i g n edt o p et i t io n er’ s
cas e. SO M cCarri cko b t ai nedco p i es o f p et i t io n er’ s ad ju s t edreturn s o n wh i ch th e
s ect i on 6 7 0 2 (a) p en al t ies h adb een as ses s ed
. He al so o b t ai n edth e Fo rm s 8 2 7 8 wh i ch s h o wedth atth e p en al t i es h adth e p ro p er m an ag eri al ap p ro v al
. SO M cCarri ckd et erm in edthatth e s ect i o n 6 7 0 2 p en al t ies were p ro p erl y
as s es s ed , thatrep o n d en th adfo l l o wedth e p ro per p ro cedu res , th atfi n al n o t i ce an d d em an dfo r p aym en th ad been m ad e, an da b al an ce was du e wh en th e NFTL was fi led
. M r. M cCarri ck

s en tp et i t i o n er co p i es o f th e Fo rm s 8 2 7 8 an di n fo rm edi t t h at th e co l l ect i o n act i o n wo u l d b e s u s t ai n ed . On Decem b er 1 9 , 2 0 1 6, res p o n d en t i s su edp et i t i o n er a n o t i ce o f d et erm i n at i o n s u st ai ni n g the NFTL. OPINION Th e co n du ct o f t h e CDP h eari n g i s g o v ern edb y s ect i o n s 6 32 0 (c) an d6 3 3 0
. Sect i o n 6 3 3 0(c)(1 ) req u i res th e SO t o v eri fy th at the req ui rem en t s o f ap p l icab l e l aw an dad m i n i s trat i v e p ro cedu re h av e b een m et . At th e h eari n g th e t ax p ay er m ay rai s e an y rel ev an ti ss u e rel at i n g t o t h e u np ai dt ax o r t h e fi l i n g o f t h e NFTL. Sec. 6 3 3 0 (c)(2 )(A). Sect i o n 6 3 30 (c)(2 )(B) p ro vi d es th ata ch al l en g e t o th e ex i s t en ce o r- 5
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[* 5 ] am ou nto f the u nd erl y i n g t ax l i ab il i ty m ay b e rai s edo n l y

i f t h e t ax pay er d i d
n o trecei v e a n o t i ce o f d efi ci en cy o r o th erwi s e h av e an o p p o rtu n i ty t o d i s p u t e t h e l i ab i l i ty . Pu rs uan tt o s ect i o n 6 3 3 0(c)(3 ), th e d et erm i n at i o n o f an SO m u s tt ak e i n t o
co n si d erat io n : (1 ) t h e v eri fi cat i o n th atth e req u i rem en t s o f ap p li cab l e l aw an d ad m i n is trat i v e p ro cedu re h av e b een m et , (2 ) i s s u es rai s ed b y th e t ax p ay er, an d (3 ) wh et h er an y

p ro p o s edco l l ect i o n act i o n b al an ces th e n eedfo r t h e effi ci en t
co l l ect i o n o f t ax es wi th th e l eg i t i m at e co n cern o f t h e p ers o n th atan y co l l ect i o n act i on b e n o m o re i n tru s i v e t h an n eces s ary . SO M cCarri ckco m p l i edwi th al l o f th es e req u i rem en t s . Pet i t i o ner ch al len g es o n l y th e u n d erl y i n g l i ab i l it i es fo r th e s ect i o n 6 7 0 2 p en al t i es . Th es e are as s es s ab l e p en al t i es th atare n o t s ub jectt o d efi ci en cy p ro cedures . Sec. 6 70 3 (b ); s ee Cal l ah an v . Co m m i s si on er, 1 3 0 T.C. 4 4 , 5 0 (2 0 0 8 ). Pet i t io n er d i dn o trecei v e (an d co u l dn o th av e recei v ed ) a n ot i ce o f d efi ci en cy fo r th e u n derl y i n g l iab i l i t i es , an dres p on d en td oes n o t co n t es tp et i t i o n er’ s ri g htt o ch al l en g e t h e u n d erl y i ng l i ab i l i t i es . Acco rd i n g ly , we rev i ew SO M cCarri ck ’ s d et erm i n at i o n d e n o v o . See Cal l ah an v . Co m m i s s i o n er, 1 30 T.C. at5 0
. Pu rs uan tt o s ect i o n 6 7 0 2(a), a p ers o n s h al l p ay a p en al ty o f $ 5 ,0 0 0 fo r a fri v ol o u s t ax retu rn . Inan y p ro ceed i n g i nv o l v i n g t h e i s s u e o f wh et h er a p ers o n i s- 6
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[* 6 ] l i ab l e fo r t he s ect i o n 6 7 0 2 p en al ty , “ th e b u rd en o f p ro o f wi th res p ectt o s u ch i s su e s h al l b e o n th e Secret ary .” Sec. 6 70 3 (a). Th e s ect i on 6 7 0 2 p en al ty can b e as s es s edwh enthree co nd i t i o n s are m et . Fi rs t , th e t ax p ay er m

u sth av e fi l eda d o cu m en tth atp u rp o rt s t o b e a ret u rn o f t ax i m p o s edb y t i t l e 2 6 . Sec. 6 7 02 (a)(1 ). Th e p en al ty can al so ap pl y

t o am en d ed retu rn s . Co l to n v . Gi b b s , 9 0 2 F.2 d1 4 6 2 , 1 4 6 4 (9 th Ci r. 1 9 9 0 ); Cri t es v . Co m m i s s i o n er, T.C. M em o . 2 0 1 2 -2 6 7 , at* 7 . Seco n d , th e p u rp o rt edretu rnm u s t h av e ei th er n o tco n t ai n edi n fo rm at io n o n wh ich th e s ub s t an t i al co rrect n es s o f t he
s el f-as s es s m en tm ay b e ju d gedo r co n t ai n edi n fo rm at i o n thato n i t s face i n d i cat ed th atth e s el f-as s es s m en t was s ub s t an t i al l y i n co rrect . Sec. 6 7 0 2 (a)(1 )(A) an d(B). Th i rd , th e t ax p ay er’ s co ndu ctm u s t h av e b een b as edo n a p o s i t i o n wh i ch was fri v ol o u s o r refl ect eda d es i re t o d el ay o r i m p ed e t h e ad m i n is trat i o n o f Fed eral t ax l aws . Sec. 6 7 0 2 (a)(2 )(A) an d (B). Pet i t i o ner s ub m i t t edwh at“p u rp ort edt o b e a ret u rn ” fo r i t s em p l o ym en tt ax l i ab i l i t i es fo r t h e t ax ab l e p eri o ds en d i ng o n M arch 3 1 an d J un e 3 0 , 2 0 1 2. Th e p u rp ort edretu rn s were s ub m i t t edo n th e o ffi ci al Fo rm s 9 4 1 -X an di n cl u d edth e
s i gn atu re o f p et it i o n er’ s au th o ri zedco rp o rat e rep res en t at iv e. Th es e ret u rn s were fi led in an effo rtt o o bt ai n a refu n do f Fed eral t ax d ep o s i t s an d req ues t ed- 7
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[* 7 ] ab at em en to f p rev i o u s l y as s es s edt ax fo r t h e t ax ab l e p eri od s . Th e Fo rm s 9 4 1
- X i n cl u d edas s ert i o ns th atwere cl earl y erro n eo u s an d fri vo l ou s . W i th res p ect t o th e t hi rdreq u i rem en t , p et i t i o n er’ s co n ductwas “b as edo n a p o s i t i on wh i ch th e Secret ary h as i d en t i fi edas fri v o lo u s ”. Sec. 6 7 0 2 (a)(2 )(A). As
an ex pl an at i o n fo r t h e co rrect i o n s , p et i ti o n er s t at es d i rect l y o n the t h i rdp ag e o f t h e Fo rm s 9 4 1 -X th at “ fed eral t ax i n g au th o ri ty i s l i m i t edt o th e Di s tri cto f Co l u m b i a, p o rt i on s o f u n i o n s t at es ced edt o th e fed eral g ov ern m en t , an dUn i tedSt at es p o s s es s i o n s i n cl u d i ng th e Co m m on weal th o f Pu ert o Ri co , Am eri can Sam o a, Gu am , an dth e US Vi rg in Is l an d s .” Th e Co m m i s s i o n er h as d et erm i nedth i s ty p e o f arg u m en tt o b e fri v o l o us , an d t h at d et erm i n at i o n h as b een up h el db y co u rt s . Un i ted St at es v . Co l l i n s , 9 2 0 F.2 d6 19 , 6 2 9 (1 0 th Ci r. 1 9 9 0 ) (ci t i ng Bru s h ab er v . Un i on Pac. R.R., 2 4 0 U.S. 1 , 1 2-1 9 (1 9 1 6 )); Wn u ck v . Co m m i s si o n er, 1 3 6 T.C. 4 9 8 , 5 0 6 (2 0 1 1); Ul l o a v . Co m m i s si o ner, T.C. M em o . 2 0 1 0-6 8 , 2 0 1 0 W L 1 3 3 0 3 8 7 , at* 7 ; s ee al s o No t ice 2 0 1 0 -3 3, 2 0 1 0 -1 7 I.R.B. 6 0 9 , 6 1 0 ; Rev . Ru l
. 2 0 0 6 -1 8 , 2 0 0 6 -1 C.B. 7 4 3 . Pet i t i o n er’ s co ndu cti n fi l i n g th es e ret u rn s wi th
res p o n d en t cl earl y

refl ect s a d es i re t o d el ay o r i m p ed e th e ad m i ni s trat i o n o f Fed eral t ax l aws . Oth er arg um en t s p et it i o n er m ay h av e al l u d edt o at tri al o r i n i t s p o s tt ri al
m em o ran du m

are wi th o u tm eri t . W e wi l l n otp ai n st ak i n g l y ad dres s p et i t i o n er’ s- 8
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[* 8 ] t ax -p ro tes t er t y

p e arg u m en t s “ wi th s o m

ber reas o ni n g an d co p i o u s ci t at i o n o f p reced en t ; t o d o s o m i g ht s ug g es tth atth es e arg u m en t s h av e s o m e co l o rab le
m eri t .” Crai n v . Co m

m is s i o n er, 7 3 7 F.2 d 1 4 1 7 , 1 4 1 7 (5 th Ci r. 1 9 8 4). W e s u s t ai n
res p o n d en t’ s d et erm i n at i o n wi th res p ectt o th e s ect io n 6 70 2 p en al t i es as s es s edo n Decem b er 8 , 2 0 1 4, reg ard i ng th e Fo rm s 9 4 1-X fo r t h e fi rs tqu art er o f 2 0 1 2 an dth e
s eco n dqu art er o f 2 0 1 2 . Res po n d en tco n ced es th e rem ai n i ng as ses s m en t s . In reach i n g o u r d eci s i o n , we h av e co n s id eredal l arg u m en t s m ad e b y th e p art i es , an dt o th e ex ten tn o tm en t i o n edo r ad dres s ed , th ey are i rrel ev an to r wi th o u tm eri t . To refl ectthe fo reg o i n g , Anap p ro p ri at e d eci s i o n wi l l b e en t ered
.