T.C. Summary Opinion 2004-91

UNITED STATES TAX COURT

MICHAEL STEPHEN FRATE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7295-03S. Filed July 15, 2004.

Michael Stephen Frate, pro se.

Monica D. Armstrong, for respondent.

PAJAK, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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Respondent issued to petitioner a Notice of Determination

Concerning Collection Action(s) Under Sections 6320 And/Or 6330

(notice of determination). This Court must decide whether

respondent abused his discretion in determining that the filing

of the Notice of Federal Tax Lien was appropriate.

Some of the facts in this case have been stipulated and are

so found. Petitioner resided in Atlanta, Georgia, at the time he

filed his petition. 

Petitioner did not timely file his Form 1040, U.S.

Individual Income Tax Return, for 1991. In addition, petitioner

did not timely file Federal income tax returns for 1992 through

2001.

On December 6, 1993, respondent prepared a Substitute For

Return for taxable year 1991.

On February 8, 1997, respondent issued to petitioner’s

employer, PWJ Incorporated (PWJ), a Form 668-W(c), Notice of Levy

on Wages, Salary, and Other Income (wage levy), in the amount of

$12,461.15.

On April 8, 2002, respondent sent to petitioner a Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC

6320 (notice of lien).

On May 10, 2002, respondent received petitioner’s Request

for a Collection Due Process Hearing (Appeals Office hearing) in

response to the notice of lien. In his request for an Appeals
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Office hearing, petitioner claimed that his tax liability for

1991 had been satisfied by a prior wage levy.

On or about July 29, 2002, petitioner sent a 1991 tax return

form to respondent. On or about August 22, 2002, petitioner

submitted tax returns for the years 1992 through 2001.

On January 7, 2003, petitioner met with a settlement officer

for petitioner’s Appeals Office hearing. At his Appeals Office

hearing, petitioner presented to the settlement officer

photocopies of several 1997 payroll check stubs for petitioner,

which reflected tax levy deductions totaling $8,663.82 (wage levy

deductions). The settlement officer informed petitioner that no

payments from the wage levy deductions had been received by the

Internal Revenue Service (IRS).

Petitioner asserted that PWJ’s bookkeeping service, Business

Service Associates (BSA), was under criminal investigation for

fraud and embezzlement and that petitioner’s wage levy deductions

may have been embezzled by BSA. Petitioner requested that his

account be credited in the amount of the wage levy deductions. 

The settlement officer explained to petitioner that no statutory

or administrative authority allowed the IRS to credit an account

when the IRS has not received payment. Petitioner requested and

was allowed time to retain professional representation. 

On February 24, 2003, petitioner and his representative,

Louis Sheffield, Enrolled Agent (Mr. Sheffield), met with the
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settlement officer. Mr. Sheffield presented a letter on the

stationery of Wen-Don Corporation (formerly PWJ) signed by Paul

W. Jones, III (Mr. Jones), as the former president of PWJ. That

letter claimed that PWJ’s payroll taxes had been embezzled. 

During the meeting, Mr. Sheffield and petitioner both stated that

if petitioner’s account was not credited in the amount of the

wage levy deductions, petitioner would seek judicial review.

On April 17, 2003, respondent sent to petitioner the notice

of determination at issue here. Respondent determined that all

applicable law or administrative procedures had been met, that

there was a balance due for taxable year 1991, and that the

filing of the lien is sustained.

On May 16, 2003, petitioner filed his petition. He stated

that $18,923.81 was disputed and that $8,663.82 was paid via the

wage levy by his employer. He further stated that “it appears

that my employer never paid these funds to the government.” The

record does not reflect any payments by petitioner of his then

liability of $18,923.81.

Examination of petitioner’s 1991 tax return commenced in

1993 when respondent prepared the Substitute For Return. 

Simanonok v. Commissioner, T.C. Memo. 2002-66. Section 7491 is

not applicable in this case because examination of petitioner’s

1991 tax return commenced prior to July 22, 1998, the effective

date of section 7491. The burden of proof is on petitioner. 
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Rule 142(a).

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of a person when demand for

payment of that person’s liability for taxes has been made and

the person fails to pay those taxes. The lien arises when the

assessment is made. Sec. 6322. Section 6323(a) requires the

Secretary to file notice of Federal tax lien if such lien is to

be valid against any purchaser, holder of a security interest,

mechanic’s lienor, or judgment lien creditor. Lindsay v.

Commissioner, T.C. Memo. 2001-285, affd. 56 Fed. Appx. 800 (9th

Cir. 2003).

Section 6320 provides that the Secretary shall furnish the

person described in section 6321 with written notice of the

filing of a notice of lien under section 6323. The notice

required by section 6320 must be provided not more than 5

business days after the day the notice of lien is filed. Sec.

6320(a)(2). Section 6320(a)(3) further provides that the person

may request administrative review of the matter (in the form of

an Appeals Office hearing) within the 30-day period beginning on

the day after the 5-day period described above. Section 6320(c)

provides that the Appeals Office hearing generally shall be

conducted consistent with the procedures set forth in section

6330(c), (d), and (e).

Section 6330(c) provides for review with respect to
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collection issues such as spousal defenses, the appropriateness

of the Commissioner’s intended collection action, and possible

alternative means of collection. Section 6330(c)(2)(B) provides

that the existence or amount of the underlying tax liability may

be contested at an Appeals Office hearing if the taxpayer did not

receive a notice of deficiency for the taxes in question or did

not otherwise have an earlier opportunity to dispute such tax

liability. Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza

v. Commissioner, 114 T.C. 176, 180-181 (2000). Section 6330(d)

provides for judicial review of the administrative determination

in the Tax Court or a United States District Court.

We find that petitioner did not raise any reviewable

collection issue at his Appeals Office hearing. Petitioner did

not contest the existence or amount of the underlying tax

liability. Petitioner failed to raise a spousal defense, make a

valid challenge to the appropriateness of respondent’s intended

collection action, or offer alternative means of collection. 

These issues are now deemed conceded. Rule 331(b)(4).

Petitioner alleges that his wage levy deductions may have

been embezzled. This is based on mere assertions by petitioner,

in a written representation by his representative, Mr. Sheffield,

and in a letter from Mr. Jones, the former president of PWJ. No

evidence was introduced that BSA actually embezzled the wage levy

deductions. On this record, petitioner failed to prove that the
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wage levy deductions were embezzled or, if they were, who

embezzled them. 

We note that Mr. Jones stated in his letter that BSA

embezzled PWJ’s payroll taxes. On the other hand, Mr. Jones

claimed that separate payments were made by PWJ to BSA for

petitioner’s taxes. In addition, the purported payments were

made by Wen-Don Corporation, not by PWJ. The settlement officer

had suggested to petitioner that he contact his employer and

obtain copies of the checks (front and back) evidencing the wage

levy deductions so that they may be traced. Petitioner did not

seem too interested in doing so at that time. Only a limited

number (3) of separate checks for wage levy payments were put in

evidence at trial. These checks from Wen-Don Corporation, signed

by Mr. Jones, the former president of PWJ, do not match the socalled PWJ records of wage levy deductions.

At trial, petitioner suggested that respondent should seek

recovery from BSA or PWJ for the wage levy deductions not paid

over to the IRS and that petitioner should be credited for such

deductions.

Clearly, respondent can take action to enforce the lien

under section 7403 where there is a refusal to pay any tax. We

have found the following provision significant. Section 6332

refers to the surrender of property subject to levy. It provides

that any amount (other than costs) recovered under this paragraph
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shall be credited against the tax liability for the collection of

which such levy was made. Sec. 6332(d)(1). Respondent’s

position is that if no payment is made to the IRS, petitioner

remains liable for his tax debt. We agree.

On the issue before us, we conclude that respondent did not

abuse his discretion with respect to the notice of determination.

Contentions we have not addressed are irrelevant, moot, or

without merit.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.