209

MICHAEL J. CONWAY, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

RAYMOND T. NAKANO, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket Nos. 23833–08L, 24600–08L. Filed December 19, 2011. 

R assessed trust fund recovery penalties against Ps (P–C 

and P–N). R did not issue Ps Forms 3552, Notice of Tax Due 

on Federal Tax Return, within 60 days of the assessments. R 

filed a notice of Federal tax lien (NFTL) on P–C’s property. R 

then issued a CDP lien notice to P–C and a CDP levy notice 

to P–N. R issued Ps Forms 3552 after issuing the CDP 

notices. Ps argue that R’s determinations to proceed with 

collection were an abuse of discretion because R had not complied with the requirement of sec. 6303(a), I.R.C., that notice 

and demand be given within 60 days of assessment. Held: The 

CDP levy notice issued to P–N satisfies the requirements of 

sec. 6303, I.R.C. Held, further, R’s determination to proceed 

with levy against P–N was not an abuse of discretion. Held, 

further, the filing of the NFTL against P–C was premature. 

Held, further, R’s determination to sustain the NFTL filing 

against P–C was an abuse of discretion. 

Tim A. Tarter, for petitioners. 

Chris J. Sheldon, for respondent. 

OPINION 

PARIS, Judge: Petitioner Michael J. Conway (Conway) and 

petitioner Raymond T. Nakano (Nakano) petitioned the 

Court to challenge the Internal Revenue Service Office of 

Appeals’ (IRS Appeals) determinations to sustain: (1) The 

filing of a notice of Federal tax lien (NFTL) against Conway 

210 137 UNITED STATES TAX COURT REPORTS (209) 

1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, 

as amended and in effect when the petition was filed; all Rule references are to the Tax Court 

Rules of Practice and Procedure. 

2Sec. 9502 establishes the Airport and Airway Trust Fund, which consists in part of excise 

taxes on taxable transportation collected by airlines under sec. 4261. Airlines remit the excise 

taxes to the U.S. Treasury for the benefit of the Airport and Airway Trust Fund. See secs. 

7501(a), 9502(b)(1)(B).

and (2) a proposed levy against Nakano. See secs. 6321, 

6330(c)(3), 6331(a). 1 Respondent filed the NFTL and proposed 

the levy to collect trust fund recovery penalties (TFRPs) 

assessed against petitioners for the taxable quarters ending 

September 30, 2000, September 30, 2001, and December 31, 

2001 (the tax periods at issue). See sec. 6672(a). The Court 

has jurisdiction to review IRS Appeals determinations. Sec. 

6330(d). On March 15, 2010, the parties filed a joint motion 

to consolidate for trial, briefing, and opinion, which the Court 

granted. These consolidated cases present one issue for decision: whether IRS Appeals abused its discretion in sustaining 

the NFTL filing and proposed levy. 

Background

The parties submitted these cases for decision fully stipulated. See Rule 122(a). The stipulation of facts filed March 

18, 2010, and the attached exhibits are incorporated herein 

by this reference. When the petitions were filed, Conway 

resided in Texas, and Nakano resided in Arizona. 

I. Transportation Excise Taxes for National Airlines, Inc.

Conway founded and operated National Airlines, Inc. 

(National), which was based in Las Vegas, Nevada. Conway 

was National’s chief executive officer (CEO), its president, and 

chairman of its board of directors during the tax periods at 

issue. Nakano was National’s chief financial officer during 

the tax periods at issue. National began flying passengers in 

1999, but by December 2000 it was under bankruptcy protection. National ceased operations at the end of 2001. When 

National stopped doing business, it had reported but unpaid 

transportation excise taxes 2 for the tax periods at issue of 

$1,832,501.01, $3,497,448.32, and $4,803,626.85, respectively. 

(209) CONWAY v. COMMISSIONER 211

3Petitioners each filed a refund suit in Federal District Court after respondent denied their 

refund claims submitted at the end of May 2006. Conway v. United States, No. 08–CV–201–

MHS–DDB (E.D. Tex., filed June 4, 2008); Nakano v. United States, No. 08–CV–1026–ROS (D. 

Ariz., filed June 2, 2008). The District Courts each found the respective petitioner to be responsible for National’s failure to pay the excise taxes, see sec. 6672, and entered summary judgment 

sustaining the respective petitioner’s liability for the TFRPs and the assessments in connection 

therewith, Conway v. United States, 105 AFTR 2d 2010–1310, 2010–1 USTC par. 50,297 (E.D. 

Tex. 2010), affd. 647 F.3d 228 (5th Cir. 2011); Nakano v. United States, No. 08–CV–1026–ROS 

(D. Ariz., Nov. 2, 2011). In Conway’s case, the Court of Appeals for the Fifth Circuit affirmed 

the District Court’s judgment on July 19, 2011. Conway v. United States, 647 F.3d 228 (5th Cir. 

2011). 

While the refund suits were pending, respondent filed a collection action against petitioners 

in the U.S. District Court for the District of Nevada. United States v. Nakano, No. 2:08–CV–

01340 (D. Nev., filed Oct. 6, 2008). Petitioners filed motions in their refund suits to enjoin the 

Nevada proceedings based on sec. 6331(i)(1)–(4), which provides in relevant part that ‘‘No proceeding in court for the collection of any unpaid [divisible] tax * * * shall be begun by the Secretary during the pendency of [any proceeding brought by such person in a proper Federal trial 

court for the recovery of any portion of such divisible tax]’’. The District Courts granted petitioners’ motions. 

Upon motions to reconsider, however, the District Courts lifted the injunctions on the basis 

of the distinction between divisible taxes, which are limited to taxes imposed under subtit. C, 

and airline excise taxes, which are imposed by subtit. D. Nakano v. United States, supra (order 

granting motion for reconsideration entered Nov. 12, 2009); Conway v. United States, supra

(order granting motion for reconsideration entered Nov. 30, 2009). Therefore, sec. 6331(i) does 

not bar respondent’s collection action in these cases. Cf. Beard v. United States, 99 Fed. Cl. 147 

(2011) (applying sec. 6331(i) to bar the Government’s collection action in District Court for the 

same employment taxes that were subject to plaintiff’s refund suit in the U.S. Court of Federal 

Claims). 

II. Trust Fund Recovery Penalties

Respondent determined that petitioners were responsible 

for National’s failure to pay the excise taxes. On March 14, 

2003, respondent notified petitioners that he proposed to 

assess TFRPs against them. On May 9, 2003, petitioners filed 

protests of the proposed TFRP assessments with IRS Appeals. 

Almost 3 years later, on March 23, 2006, IRS Appeals notified 

petitioners that it had rejected their protests. Five days later, 

on March 28, 2006, TFRPs were assessed against petitioners. 

The notice of tax due, although dated March 28, 2006, was 

not issued until June 6, 2006. 3

III. The Proposed Levy on Nakano’s Property

On May 22, 2006, respondent sent Nakano a Form 1058, 

Final Notice—Notice of Intent to Levy and Notice of Your 

Right to a Hearing (levy notice). The levy notice reflected 

respondent’s intent to levy on Nakano’s property and rights 

to property to collect the TFRPs assessed against him. The 

levy notice listed the type and amount of tax owed for each 

of the tax periods at issue. The levy notice also stated: ‘‘To 

prevent collection action, please send your full payment 

212 137 UNITED STATES TAX COURT REPORTS (209) 

4 Nakano’s Forms 3552 were dated Mar. 28, 2006, which was contemporaneous with the assessment. The record does not reflect why they were not issued until June 6, 2006. 

5Like Nakano’s Forms 3552, Conway’s Forms 3552 were dated Mar. 28, 2006. Also, as is the 

case with Nakano, the record does not reflect why Conway’s Forms 3552 were not issued until 

June 6, 2006. See supra note 4. Although Forms 3552 were mailed to Conway on June 6, 2006, 

they were returned as undeliverable. The forms were subsequently remailed to Conway’s counsel. The parties have agreed that the date of mailing of the Forms 3552 to Conway was June 

6, 2006.

today.’’ The levy notice informed Nakano of his right to a 

collection due process hearing (CDP hearing) with IRS Appeals 

before respondent carried out the levy. Fifteen days later, on 

June 6, 2006, respondent issued Nakano a Form 3552, Notice 

of Tax Due on Federal Tax Return, for each of the tax 

periods at issue (collectively, Nakano’s Forms 3552). 4

IV. The Federal Tax Lien Against Conway

On May 18, 2006, respondent sent Conway a Letter 3164B. 

The letter stated that ‘‘We are attempting to collect unpaid 

taxes from you’’, but it did not state the amounts, types, or 

periods of the unpaid taxes. 

On May 26, 2006, respondent filed an NFTL with the Clark 

County Recorder’s Office in Nevada. The NFTL stated: 

As provided by section 6321, 6322, and 6323 of the Internal Revenue Code, 

we are giving a notice that taxes (including interest and penalties) have 

been assessed against the following-named taxpayer. We have made a 

demand for payment of this liability, but it remains unpaid. Therefore, 

there is a lien in favor of the United States on all property and rights to 

property belonging to this taxpayer for the amount of these taxes, and 

additional penalties, interest, and costs that may accrue. 

Conway was the named taxpayer on the NFTL. On June 1, 

2006, respondent issued Conway a Letter 3172, Notice of 

Federal Tax Lien Filing and Your Right to a Hearing Under 

IRC 6320. Five days later, on June 6, 2006, respondent issued 

Conway a Form 3552 for each tax period at issue (collectively, Conway’s Forms 3552). 5

V. The Collection Due Process Hearing

Nakano and Conway timely requested CDP hearings on 

June 16 and July 3, 2006, respectively, to contest the proposed levy and NFTL filing. At the request of petitioners’ 

counsel, they received a joint CDP hearing. In their CDP

hearing requests, petitioners claimed the following: (1) The 

TFRP assessments were invalid and (2) respondent failed to 

(209) CONWAY v. COMMISSIONER 213

6Petitioners also claimed in their CDP hearing requests that they were not responsible for 

National’s failure to pay the excise taxes and thus were not liable for the TFRPs. During the 

actual CDP hearing, however, petitioners conceded that they were not entitled to challenge the 

underlying liabilities. Thus, petitioners’ underlying liabilities are not at issue here but were the 

subject matter of U.S. District Court complaints. See supra note 3. 

7The record does not reflect whether the Appeals team manager who overruled SO Hernandez 

was former SO Villaverde or another person. 

issue notice and demand for payment within 60 days of the 

assessments, thus precluding him from collecting the TFRP

assessments via lien and levy. 6

Petitioners’ CDP hearing was originally assigned to Settlement Officer David Villaverde (SO Villaverde), who held a 

face-to-face hearing with petitioners’ counsel. On the results 

of the CDP hearing, SO Villaverde determined that ‘‘some 

errors were found to have been made by the Service * * * 

[but] there were no fatal errors made.’’ Specifically, SO 

Villaverde agreed that respondent did not issue notice and 

demand to petitioners within 60 days of the TFRP assessments. However, he believed that this failure did not prevent 

respondent from collecting the TFRP assessments via lien and 

levy. Rather, SO Villaverde determined that ‘‘the Service 

does have the collection tools available 10 days after the 

untimely notice was sent on June 6, 2006, which would be 

on or after June 16, 2006.’’ On the basis of this determination, SO Villaverde thought withdrawing the NFTL filing and 

rescinding the levy notice were appropriate courses of action 

given that the NFTL was filed and the levy notice was issued 

before June 16, 2006. 

Before SO Villaverde made final determinations in petitioners’ CDP hearing, he was promoted to Appeals team manager. Petitioners’ case was reassigned to Settlement Officer 

Veronica Hernandez (SO Hernandez). After reviewing the 

record and meeting with petitioners’ counsel, SO Hernandez 

concluded that, while the untimely issuance of notice and 

demand did not invalidate the TFRP assessments, respondent 

should withdraw the NFTL filing and rescind the levy notice. 

The Appeals team manager, however, disagreed with SO 

Hernandez’s conclusions and ultimately overruled her. 7

Thus, IRS Appeals ultimately determined that: (1) The TFRP

assessments were valid and (2) failure to issue timely notice 

and demand did not invalidate the NFTL filing or the proposed levy. Petitioners timely petitioned the Court for review 

of the determinations. See sec. 6330(d). 

214 137 UNITED STATES TAX COURT REPORTS (209) 

Discussion

I. Applicable Law

A. Trust Fund Recovery Penalty

Section 6672(a) provides that any person required to withhold and pay over any tax who willfully fails to do so is liable 

for a TFRP. The Commissioner is authorized to impose a TFRP

on any ‘‘officer or employee of a corporation, or a member or 

employee of a partnership who as such officer, employee, or 

member is under a duty to perform’’ the duties referred to in 

section 6672. Sec. 6671(b). The Commissioner must give the 

person on whom he intends to impose the TFRP notice of his 

intent before assessing the TFRP. Sec. 6672(b)(1). If the person timely protests the proposed assessment, the period for 

assessing the TFRP does not expire before ‘‘the date 30 days 

after the Secretary makes a final administrative determination with respect to such protest.’’ Sec. 6672(b)(3)(B). If the 

person fails to protest or, after a timely protest, the Secretary makes a final determination, the Commissioner may 

assess the TFRP. A TFRP is assessed and collected in the same 

manner as tax. Sec. 6671(a). 

B. Notice and Demand for Payment

Once the Commissioner assesses a TFRP against a person, 

he must give that person notice and demand for payment. 

Sec. 6303(a). The Commissioner must leave the notice at the 

person’s dwelling or usual place of business or mail it to the 

person’s last known address. Id. The statute requires that 

the Commissioner give the notice within 60 days of assessment. Id. The regulations under that section, however, provide that ‘‘the failure to give notice within 60 days does not 

invalidate the notice.’’ See sec. 301.6303–1(a), Proced. & 

Admin. Regs. 

C. NFTL Filing

If a person liable for a tax, including a TFRP, fails to pay 

it after demand, the unpaid amount, including any interest 

and additions to tax, becomes a lien in favor of the United 

States upon that person’s property and rights to property. 

Sec. 6321. The Commissioner may then file an NFTL to protect the validity and priority of the lien against certain third 

(209) CONWAY v. COMMISSIONER 215

parties. Sec. 6323. Once the Commissioner files an NFTL, he 

must notify the person of the filing and of the person’s right 

to a CDP hearing to appeal the filing. Secs. 6320(a) and (b), 

6330(a). 

D. Notice of Intent To Levy

If a person liable to pay a tax, including a TFRP, does not 

pay it within 10 days after notice and demand, it becomes 

lawful for the Commissioner to levy on that person’s property 

and rights to property to collect the unpaid amount, 

including interest and additions to tax. Sec. 6331(a). At least 

30 days before carrying out the levy, however, the Commissioner must give notice to that person of the proposed levy 

and of the person’s right to a CDP hearing to appeal the proposed levy. Secs. 6330(a), 6331(d). 

E. The CDP Hearing

If a person requests a CDP hearing to appeal an NFTL filing 

or a proposed levy, he receives one before IRS Appeals. Sec. 

6330(b). During the CDP hearing, IRS Appeals must verify 

that all legal and procedural requirements have been met 

with respect to the NFTL filing and the proposed levy. Sec. 

6330(c)(1). Specifically, IRS Appeals must verify, among other 

things, that the Commissioner properly issued the person 

notice and demand for payment. Sec. 6303(a); Ron Lykins, 

Inc. v. Commissioner, 133 T.C. 87, 96–97 (2009). Sustaining 

an NFTL filing or proposed levy without proper verification 

renders IRS Appeals’ determination an abuse of discretion. 

Freije v. Commissioner, 125 T.C. 14, 36 (2005). 

After conducting the CDP hearing, IRS Appeals determines 

whether to sustain the NFTL filing or proposed levy. Sec. 

6330(c). The person may appeal an IRS Appeals determination to the Court. Sec. 6330(d). If the person appeals and his 

underlying liability for the tax (or TFRP) was not at issue 

during the CDP hearing, the Court reviews the IRS Appeals 

determination for abuse of discretion. Lunsford v. Commissioner, 117 T.C. 183, 185 (2001) (citing Nicklaus v. 

Commissioner, 117 T.C. 117, 120 (2001)). IRS Appeals abuses 

its discretion if it makes a determination that is ‘‘arbitrary, 

capricious, or without sound basis in fact or law.’’ Giamelli 

v. Commissioner, 129 T.C. 107, 111 (2007) (citing Woodral v. 

216 137 UNITED STATES TAX COURT REPORTS (209) 

8See supra note 6. 

Commissioner, 112 T.C. 19, 23 (1999)). Petitioners conceded 

during the CDP hearing that they could not contest their 

underlying liability for the TFRPs. 8 Thus, the Court reviews 

IRS Appeals’ determinations for abuse of discretion. 

II. The Proposed Levy Against Nakano’s Property

Nakano contends that IRS Appeals failed to verify that the 

requirements of applicable law had been met. Specifically, he 

argues that respondent did not: (1) Properly assess the TFRPs 

against him or (2) give him notice and demand within 60 

days of any assessment. Nakano ultimately claims that this 

failure rendered IRS Appeals’ determination to proceed with 

the proposed levy an abuse of discretion. 

A. Notice and Demand

Respondent contends that he gave Nakano valid notice and 

demand when he issued Nakano the levy notice on May 22, 

2006. The levy notice went beyond the typical notice of intent 

to levy by including a demand for immediate payment of the 

specific amounts of TFRP owed, listed by period at issue, 

within 60 days of the assessments. In this limited circumstance, the Court agrees that this levy notice constitutes 

notice and demand. 

‘‘ ‘The form on which a notice of assessment and demand 

for payment is made is irrelevant as long as it provides the 

taxpayer with all of the information required under * * * 

[section 6303].’ ’’ Hughes v. United States, 953 F.2d 531, 536 

(9th Cir. 1992) (quoting Elias v. Connett, 908 F.2d 521, 525 

(9th Cir. 1990)); see also Deputy v. Commissioner, T.C. 

Memo. 2003–210. Section 6303 requires only that the notice 

(1) state the amount of unpaid tax, (2) demand payment, and 

(3) be issued within 60 days of assessment. The levy notice 

here did provide Nakano with all of the information required 

under the statute because it listed the type and amount of 

unpaid tax for each tax period, explicitly demanded payment, 

and was sent within 60 days of the assessments. The Court 

therefore holds that respondent gave Nakano the notice and 

demand required by section 6303.

(209) CONWAY v. COMMISSIONER 217

9To be sure, Conway also argues that respondent improperly assessed the TFRPs against him. 

Because respondent did not give Conway notice and demand before the NFTL filing, thus invalidating the filing and rendering IRS Appeals’ determination an abuse of discretion, the Court 

need not address this argument. See supra note 5. 

B. Assessment

Nakano also argues that the TFRP assessments are invalid 

because: (1) The assessments were untimely; (2) Nakano’s 

Forms 4340, Certificate of Assessments, Payments, and 

Other Specified Matters, incorrectly characterized the assessments as jeopardy assessments rather than quick assessments; and (3) respondent did not timely issue notice and 

demand. The Court disagrees. While Nakano’s notice of 

determination states that ‘‘It was believed to have been 

established that the assessment[s], although made late in 

error, * * * [were] still * * * valid [assessments]’’, the 

record contradicts this statement. Both the Forms 4340 and 

Nakano’s Forms 3552 show that respondent assessed the 

TFRPs on March 28, 2006. Aside from the statement in the 

notice of determination, no evidence suggests that 

respondent did not timely assess the TFRPs. Also, Nakano has 

shown no prejudice, and, therefore, mislabeling the quick 

assessments as jeopardy assessments does not invalidate 

them. See McCall v. Commissioner, T.C. Memo. 2009–75. In 

addition, the Court has already rejected Nakano’s argument 

that he did not receive timely notice and demand for payment. Thus, the Court holds that the TFRP assessments 

against Nakano are valid. 

C. Conclusion

Respondent properly assessed the TFRPs against Nakano 

and issued him valid notice and demand for payment. Thus, 

IRS Appeals correctly verified that all legal and administrative requirements had been met. Therefore, IRS Appeals did 

not abuse its discretion when it sustained the proposed levy. 

III. The NFTL Filed on Conway’s Property

Like Nakano, Conway contends that IRS Appeals failed to 

verify that the requirements of applicable law had been met. 

Specifically, he argues that respondent did not give him 

notice and demand within 60 days of the assessment. 9

Respondent, however, contends that he issued Conway valid 

218 137 UNITED STATES TAX COURT REPORTS (209) 

notice and demand when he sent Conway the Letter 3164B, 

the lien notice, and Conway’s Forms 3552. Alternatively, 

respondent argues that he did not need to issue notice and 

demand to Conway because Conway’s role as National’s CEO

put him on notice of the unpaid amounts and respondent’s 

demand for payment. The Court disagrees with both of 

respondent’s arguments. 

First, the Letter 3164B did not constitute valid notice and 

demand. The Letter 3164B merely reflected that unpaid 

taxes were owed but did not state the amounts, types, or 

periods of the unpaid taxes. Respondent contends that the 

Letter 3164B did not have to state the amounts owed 

because, by the time respondent issued the Letter 3164B, 

Conway’s multiple communications with IRS Appeals (before 

the assessments) regarding the amounts of the unpaid TFRPs 

had provided him with constructive notice. Even if Conway 

had previously seen the proposed assessments, section 

6303(a) required respondent, after making an assessment of 

tax, to either leave notice and demand of payment at 

Conway’s ‘‘dwelling or usual place of business’’ or mail it to 

his last known address. Cf. Resyn Corp. v. United States (In 

re Resyn Corp.), 945 F.2d 1279 (3d Cir. 1991) (IRS’ filing of 

a proof of claim in bankruptcy did not satisfy section 6303(a) 

because it did not employ either of these notification 

methods). Therefore, since the Letter 3164B gave notice of 

nothing other than that unpaid taxes were owed, it did not 

constitute a valid postassessment notice and demand. 

Next, the lien notice did not constitute valid notice and 

demand under section 6303 and section 6321. Respondent’s 

argument assumes that the lien notice issued to Conway on 

June 1, 2006, can serve as both notice and demand under 

section 6303 and notice under section 6320. This assumption 

is flawed. A tax lien imposed under section 6321 arises at the 

time of assessment, see sec. 6322, and is enforceable when a 

‘‘person liable to pay any tax neglects or refuses to pay the 

same after demand’’, sec. 6321 (emphasis added). Moreover, 

section 6320(a)(1) requires the Commissioner to notify ‘‘the 

person described in section 6321’’ of the NFTL filing. 

(Emphasis added.) This person is the person liable to pay 

who has refused to pay after demand. Thus, the Commissioner must issue notice under section 6320(a)(1) only after 

demand has been made and the person neglects or refuses to 

(209) CONWAY v. COMMISSIONER 219

pay. Therefore, no notice can serve as both assessment notice 

and demand under section 6303 and also postlien notice 

under section 6320(a)(1). 

Unlike the statutory requirements above that the 

postassessment notice and demand precedes the postlien 

notice, respondent did the reverse. On June 1, 2006, 

respondent issued the lien notice to Conway. On June 6, 

2006, respondent issued to Conway the Forms 3552, notice of 

tax due. Thus, the NFTL filed on May 26, 2006, predated the 

notice and demand for payment reflected on Forms 3552 

issued to Conway on June 6, 2006. Similarly, the Forms

3552 issued to Conway on June 6, 2006, even though constituting valid notice and demand under the applicable regulation, cannot support the instant NFTL filing because the filing 

predated the issuance of the Forms 3552. 

Alternatively, respondent argues that he did not need to 

issue notice and demand to Conway because Conway’s role as 

National’s CEO put him on notice of the unpaid amounts and 

respondent’s demand for payment. Respondent relies on 

Jersey Shore State Bank v. United States, 479 U.S. 442 

(1987), to support his argument. Respondent’s reliance on 

Jersey Shore is misplaced. The penalty imposed on the bank 

in Jersey Shore was nonassessable and not subject to 

administrative collection procedures. Id. at 447. Thus, the 

Supreme Court’s reasoning in Jersey Shore does not support 

the proposition that any notice Conway may have had eliminated the need for respondent to issue notice and demand 

before the lien on Conway’s property arose. 

Because respondent failed to give notice and demand 

before filing the NFTL, the NFTL filing was premature and 

respondent should have withdrawn the NFTL pursuant to section 6323(j)(1)(A). The Appeals team manager’s verification 

that the requirements of applicable law had been met was 

therefore incorrect, and respondent’s determination to sustain the NFTL filing was an abuse of discretion.

220 137 UNITED STATES TAX COURT REPORTS (209) 

To reflect the foregoing, 

fAppropriate decisions will be entered.