T.C. Memo. 2015-213

UNITED STATES TAX COURT

GREGORY MARTENS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 29242-13L. Filed November 3, 2015.

Gregory Martens, pro se.

Steven I. Josephy, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

KERRIGAN, Judge: This case was commenced in response to a Notice of

Determination Concerning Collection Action(s) under Section 6320 and/or 6330

(notice of determination) upholding proposed collection actions regarding

petitioner’s unpaid tax penalties for tax years 2002 and 2003 and income tax
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[*2] liabilities for tax years 2006-08. Unless otherwise indicated, all section

references are to the Internal Revenue Code in effect at all relevant times. We

round all monetary amounts to the nearest dollar.

The issues for consideration are: (1) whether petitioner is liable for

penalties under section 6702 for tax years 2002 and 2003; (2) whether

respondent’s determination to proceed with the proposed collection actions was

proper; and (3) whether sanctions should be imposed against petitioner pursuant to

section 6673(a)(1).

FINDINGS OF FACT

Petitioner resided in Colorado when he filed his petition.

On February 13, 2006, respondent assessed against petitioner a section 6702

frivolous return penalty of $500 for tax year 2002 and a section 6702 frivolous

return penalty of $500 for taxable year 2003.1

Sec. 6702 has been amended by the Tax Relief and Health Care Act of 1

2006, Pub. L. No. 109-432, div. A, sec. 407(a), 120 Stat. at 2960. The amendment

is effective for submissions made and issues raised after the date on which the

Secretary first prescribes a list of frivolous positions under sec. 6702(c). That list

was announced on March 15, 2007. Notice 2007-30, 2007-1 C.B. 883; IRS News

Release IR-2007-61 (Mar. 15, 2007). Petitioner’s tax return associated with the

sec. 6702 penalty was filed before March 16, 2007. The 2006 amendment is not

applicable in this case, and that amendment increased the penalty from $500 to

$5,000. 
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[*3] On June 16, 2006, respondent mailed petitioner a Letter 1058, Final Notice

of Intent to Levy and Notice of Your Right to a Hearing, regarding petitioner’s

section 6702 penalty for tax year 2002.2

Petitioner did not file Forms 1040, U.S. Individual Income Tax Return, for

tax years 2006-08, and respondent issued petitioner notices of deficiency with

respect to his income tax liabilities for those years. Petitioner did not petition this

Court in response to the notices of deficiency. Petitioner did not dispute receiving

the notices of deficiency.

On July 10, 2013, respondent mailed petitioner a Letter 1058 regarding

petitioner’s section 6702 penalty for tax year 2003 and his income tax liabilities

for tax years 2006-08.

On July 25, 2013, respondent mailed petitioner a Letter 3172, Notice of

Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320, informing

petitioner that respondent had filed a notice of Federal tax lien (NFTL) regarding

petitioner’s section 6702 penalties for tax years 2002 and 2003 and petitioner’s

income tax liabilities for tax years 2006-08.

The notice of determination on which this case is based does not include

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the proposed levy for the sec. 6702 penalty for tax year 2002. 
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[*4] Petitioner filed timely a Form 12153, Request for a Collection Due Process

or Equivalent Hearing (CDP hearing request). The CDP hearing request, which

was for both the NFTL filing and the proposed levy, raises concerns about the

reliability and trustworthiness of respondent’s computer systems.

On September 12, 2013, a settlement officer mailed petitioner a letter

scheduling a telephone conference for October 15, 2013. The letter also informed

petitioner that the settlement officer would discuss any nonfrivolous issues that

petitioner wished to raise and that petitioner had to provide the following

documents to the settlement officer if he wished to pursue a collection alternative:

(1) a completed Form 433-A, Collection Information Statement for Wage Earners

and Self-Employed Individuals, along with verification of all items shown on the

Form 433-A; (2) signed Forms 1040 for tax years 2009-12; and (3) proof of

estimated tax payments for tax year 2013.

On November 5, 2013, the settlement officer and petitioner held a telephone

conference. During the telephone conference petitioner raised the reliability,

trustworthiness, and validity of the TXMOD computer transcripts that the

settlement officer used to verify the assessment of petitioner’s penalties and

income tax liabilities. The settlement officer informed petitioner that this

argument was frivolous.
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[*5] On November 18, 2013, respondent issued petitioner the notice of

determination, which states that petitioner disagrees “with * * * [his] liability

because computer transcripts are unreliable”.

OPINION

I. Jurisdiction

Section 6331(a) authorizes the Secretary to levy upon the property and

property rights of a taxpayer who fails to pay a tax within 10 days after notice and

demand. Before the Secretary may levy upon the taxpayer’s property, the

Secretary must notify the taxpayer of the Secretary’s intention to levy. Sec.

6331(d)(1). The Secretary must also notify the taxpayer of his or her right to a

CDP hearing. Sec. 6330(a)(1).

The Federal Government obtains a tax lien against the property and rights to

property, whether real or personal, of a taxpayer with an outstanding tax liability

whenever a demand for payment has been made and the taxpayer neglects or

refuses to pay. Sec. 6321; Iannone v. Commissioner, 122 T.C. 287, 293 (2004). 

Section 6320(a)(1) requires the Secretary to provide written notice to a taxpayer

when the Secretary has filed an NFTL against the taxpayer’s property and property

rights. See also sec. 6323. The Secretary must also notify the taxpayer of his or

her right to a CDP hearing. Sec. 6320(a)(3).
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[*6] If the taxpayer requests a CDP hearing, the hearing is conducted by the

Appeals Office. Secs. 6320(b)(1), 6330(b)(1). At the hearing the taxpayer may

raise any relevant issue relating to the unpaid tax or the proposed collection action. 

Secs. 6320(c), 6330(c)(2)(A). Once the settlement officer makes a determination,

the taxpayer may appeal the determination to this Court. Secs. 6320(c),

6330(d)(1). 

Section 6330(d)(1) provides this Court with jurisdiction to review an appeal

from the Commissioner’s determination to proceed with collection activity

regardless of the type of underlying tax involved. A “tax” may include the

liability for a section 6702 frivolous return penalty. Sec. 6671(a); Lindberg v.

Commissioner, T.C. Memo. 2010-67, slip op. at 15. We have held that our

jurisdiction under section 6330 includes the review of the Commissioner’s

determination regarding the collection action with respect to section 6702

frivolous return penalty by NFTL or levy. See Callahan v. Commissioner, 130

T.C. 44, 48-49 (2008); Lindberg v. Commissioner, T.C. Memo. 2010-67.

II. Standard of Review

Where the validity of the underlying tax liability is properly in issue, we

review that matter de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000);

Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). A taxpayer may challenge
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[*7] the underlying tax liability during a CDP hearing if he or she did not receive a

statutory notice of deficiency for such liability or did not otherwise have the

opportunity to dispute such liability. Sec. 6330(c)(2)(B); see also Montgomery v.

Commissioner, 122 T.C. 1, 9-10 (2004). The Court reviews administrative

determinations by the Appeals Office regarding nonliability issues for abuse of

discretion. Hoyle v. Commissioner, 131 T.C. 197, 200 (2008); Goza v.

Commissioner, 114 T.C. at 182. In determining abuse of discretion, we consider

whether the determination was arbitrary, capricious, or without sound basis in fact

or law. See, e.g., Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469

F.3d 27 (1st Cir. 2006); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Because the taxpayer does not receive a statutory notice of deficiency before

a penalty under section 6702 is assessed, the taxpayer may challenge his or her

liability for the penalty in an administrative hearing under section 6320 or 6330. 

Callahan v. Commissioner, 130 T.C. at 49-50.

Petitioner was sent a June 16, 2006, Letter 1058 with respect to the section

6702 penalty for 2002 which provided the opportunity to challenge the liability. 

Petitioner did not request a CDP hearing. Because petitioner had a prior

opportunity to challenge the penalty for 2002, he is precluded from challenging it

here. See sec. 301.6320-1(e)(3), Q&A-E7, Proced. & Admin. Regs.; see also Lang
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[*8] v. Commissioner, T.C. Memo. 2014-183; Nelson v. Commissioner, T.C.

Memo. 2009-108.

We reject respondent’s argument that petitioner failed to dispute his

underlying liability for the 2003 frivolous return penalty with the settlement

officer during the administrative CDP proceedings. Petitioner disputed the penalty

as respondent acknowledged in the notice of determination. Under a section

entitled “Challenges to the Existence of Amount of Liability” the notice of

determination states: “You disagree with your liability because computer

transcripts are unreliable.” We consider petitioner’s liability for the section 6702

penalty for tax year 2003 de novo.

Petitioner did receive notices of deficiency for his underlying tax liabilities

for tax years 2006-08. As a result, petitioner is not entitled to challenge those

liabilities and we review respondent’s determinations related to those liabilities for

abuse of discretion.

III. Section 6702 Penalties

Section 6702 as applicable to this case provides:

SEC. 6702(a). Civil Penalty.--If--

(1) any individual files what purports to be a return of

the tax imposed by subtitle A but which--
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[*9] (A) does not contain information on which the

substantial correctness of the self-assessment may be

judged, or

(B) contains information on its face indicates that

the self-assessment is substantially incorrect; and 

(2) the conduct referred to in paragraph (1) is due to--

(A) a position which is frivolous, or

(B) a desire (which appears on the purported

 return) to delay or impede the administration of Federal

 income tax laws, 

then such individual shall pay a penalty of $500.

See Callahan v. Commissioner, 130 T.C. at 51 n.7.

The Secretary bears the burden of proving that a taxpayer is liable for the

section 6702 penalty. Sec. 6703(a). The deficiency procedures codified in

subchapter B of chapter 63, i.e., sections 6211-6216, do not apply to the

assessment or collection of the section 6702 penalty. Sec. 6703(b).

Respondent did not introduce into evidence a copy of petitioner’s 2003 tax

return. Respondent also did not introduce into evidence any documents that prove

by a preponderance of evidence that petitioner filed a document purporting to be a

tax return. As a result, respondent has failed to prove that petitioner is liable for

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On April 9, 2015, the Court ordered respondent to supplement the February 3

(continued...)
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[*10] the section 6702 penalty for tax year 2003. See Grunsted v. Commissioner,

136 T.C. 455, 459 (2011) (noting that generally we look to the face of the

documents to determine whether a taxpayer is liable for a frivolous penalty as a

matter of law); Callahan v. Commissioner 130 T.C. at 51-53 (noting further that

the penalty has been imposed upon taxpayers who have taken one or more of a

variety of positions, but concluding (even after examining the document in

question) that until the record is developed, we cannot says as a matter of law that

the taxpayers therein took a frivolous position or that they desired to delay or

impede the administration of Federal tax laws).4

IV. Respondent’s Administrative Determinations

Following a CDP hearing the settlement officer must determine whether to

sustain the proposed collection actions. In making that determination, sections

(...continued) 3

19, 2015, motion for summary judgment with the frivolous tax returns which led

respondent to enter assessments for each of the sec. 6702 penalties in dispute. 

Respondent’s response indicates that returns and tax return transcripts were not

retained for tax years 2002 and 2003.

On April 14, 2015, respondent filed a supplement to his motion for

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summary judgment and indicated that to verify the validity of the assessment he

attached Internal Revenue Service TXMOD transcripts of petitioner’s account for

tax years 2002 and 2003. For each of these years there is a TC 240 code, which

relates to the assessment of a miscellaneous civil penalty. There is also a

secondary penalty code, 666, which denotes a frivolous tax submission.
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[*11] 6320(c) and 6330(c)(3) require the settlement officer to consider: (1)

whether the requirements of any applicable law or administrative procedure have

been met; (2) any issues appropriately raised by the taxpayer; and (3) whether the

collection action balances the need for the efficient collection of taxes and the

legitimate concern of the taxpayer that any collection action be no more intrusive

than necessary. Lunsford v. Commissioner, 117 T.C. 183, 184 (2001); Diamond

v. Commissioner, T.C. Memo. 2012-90, slip op. at 6-7; see also sec. 6320(c).

We note that the settlement officer properly based her determination on the

required factors. The settlement officer (1) verified that all legal and procedural

requirements had been met, (2) considered the issues petitioner raised, and

(3) determined that the proposed collection action appropriately balanced the need

for the efficient collection of taxes with the legitimate concern of petitioner that

the collection action be no more intrusive than necessary.

Petitioner contends that it was an abuse of discretion for the settlement

officer to use TXMOD transcripts to verify the assessment under section

6330(c)(1). Section 6330(c)(1) does not require the Appeals officer to rely on any

particular document in satisfying the verification requirement. Craig v.

Commissioner, 119 T.C. 252, 262 (2002); Roberts v. Commissioner, 118 T.C. 365,

371-372 n.10 (2002), aff’d per curiam, 329 F.3d 1224 (11th Cir. 2003). We have
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[*12] held that, absent a showing by the taxpayer of an irregularity in the

Commissioner’s assessment procedure, it is not an abuse of discretion for an

Appeals officer to rely on a TXMOD computer transcript of account to comply

with section 6330(c)(1). Schroeder v. Commissioner, T.C. Memo. 2002-190, slip

op. at 12; Mann v. Commissioner, T.C. Memo. 2002-48. Petitioner has not

demonstrated that there was any irregularity in respondent’s assessment procedure. 

The settlement officer did not abuse her discretion in relying on the TXMOD

transcripts to verify the assessments.

V. Section 6673 Sanctions

During trial respondent moved that the Court impose sanctions against

petitioner pursuant to section 6673(a)(1). Section 6673(a)(1) authorizes the Court

to require a taxpayer to pay a penalty to the United States in an amount not to

exceed $25,000 whenever it appears to the Court that the taxpayer instituted or

maintained the proceeding primarily for delay or that the taxpayer’s position in the

proceeding is frivolous or groundless.

We will deny respondent’s motion. Although petitioner did advance

frivolous arguments during trial, he did stop when warned. Since we find for

petitioner with respect to the section 6702 penalty for tax year 2003, part of his

case has merit. However, we warn petitioner, as we did at trial, that if he does not
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[*13] abandon his misguided positions, it is very likely that in future cases before

this Court a penalty will be imposed.

Any contentions we have not addressed are irrelevant, moot, or meritless.

To reflect the foregoing,

An appropriate order and

decision will be entered.