T.C. Mem o. 2 01 3- 25 6

UNITED STAT ES TAX COURT

JOHN FRANCI S BARR ETT AN D CAROL BARRETT, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 15 76 -1 2L. Fil edNov em be r 12 , 20 13 .
Je ffre y D. Mof fat t, fo r pe ti ti on ers . FredEdwardGreen , Jr., fo r res po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Ju dg e: Thi s ca se was c omm en cedinres po ns e to a no ti ce o f de te rm in at io n c on cern in g c ol le ct io n a ct io n( s) un de r se ct io n 6 32 0 and/o r 63 30 th at su st ai ne d alev y

to co ll ectpe ti ti on ers ’ unpa idFed eral in co m e ta x l iabi li ti es for 20 02 an d 2 00 9. Th e is su e fo r de ci si on is whet he r co ll at eral est op pe l ef fectsh ou ld- 2 -

[* 2] be gi ve n t o d eci si on s i n e arl ie r cas es de te rm in in g tha t d iff eren t t ax es for di ffer en t years wer e “ curren tl y no t co ll ect ib le ” an d, i f no t, wh ethe r th e de te rm in at io n was anab us e o f di sc ret io n. Al l s ect io n re fere nc es are t o the Int ern al Rev enue Co de ineffe ctat a ll rel ev an t t im es . All of t he m at eri al fact s ar e co nt ai ne d i n the adm in is tra ti ve reco rdof t he ex ch an ge s b etweenpe ti ti on ers ’ co un se l an d the App eal s Off ic e. Thatreco rdha s be enst ip ul at ed . The s ti pu la te d fa ct s ar e in co rp or at edinth is op in io n b y th is refe ren ce. Bri ef t es ti m on y by Joh n F ran ci s B arre tt(pe ti ti on er) andcert ai n e xh ib it s were o ffer edat t ria l an d wer e tr eat edas a n o fferof p ro of . Becau se th ey

were n ot br ou gh t t o the att en ti on of t he App eal s Off ic e dur in g the adm in is tra ti ve he ari ng an d p et it io ne rs ha ve no t s ug ge st edan y ex cep ti on to th e g en eral rul e th atsu ch m at eri al m ay

no t b e co ns id ered , res po nd en t’s o bjec ti on s t o the pro ferr edtes ti m on y an d e xtran eo us ex hi bi ts wil l b e su st ai ne d. Se e Gia m el li v. Co m m is si on er, 1 29 T.C. 10 7, 1 15 (20 07 ); M ag an a v . Comm is si on er, 1 18 T.C. 48 8, 4 93 (20 02 ). FINDINGS OF FACT Pet it io ne rs res id edinCal ifo rn iawhen th ey fil edth ei r pe ti ti on . Peti ti on er was a party to f

ou r pr ev io us cas es inth is Co urt i nv ol vi ng hi s l iabi li ti es forunpa id em pl oym en t t ax es an d re la te d p en al ti es . Tho se cas es were d oc ke t No s. 2 92 61 - 07 L, 22 94 6- 08 L, 30 32 0- 08 L, and30 32 1- 08 L (em pl oym en t t ax cas es ). Pet it io ne r- 3 -

[* 3] Caro l Ba rret t was no t a p arty to th e em pl oym en t t ax cas es . The p et it io n i n do ck etNo. 2 92 61 -0 7L erro ne ou sl y referredto a no ti ce o f de fic ie nc y an d i nc om e ta x a s wel l as pe rio ds forunpa idem pl oym en t t ax es th atwere n otth e subjec t o f th e no ti ce o f de te rm in at io n upo n wh ic h tha t ca se was b as ed . The err on eo us refe ren ces were s tri ck enby Cou rt o rd er. Non e o f th e em pl oym en t t ax cas es was c omm en ced inres po ns e to a no ti ce o f de te rm in at io n re gard in g p et it io ne rs ’ joi ntin co m e ta x li ab il it ie s. No de ci si on was o r co ul d h av e b eenren de redinth os e cas es with res pe ctto pe ti ti on ers ’ joi ntin co m e ta x l iabi li ti es . Afte r th e em

pl oym en t t ax cas es were s etfortri al , onth e joi ntm ot io n o f th e pa rti es th ey

were re m an de d t o the App eal s Off ic e fo r furth er co ns id erat io n. Fro m Feb ru ary 16 to Nov em

be r 18 , 20 10 , th e p art ie s t o the em pl oym en t t ax cas es ne go ti at eda se tt le m en t. OnDecem be r 29 , 20 10 , th os e cas es were re so lv edby ag reem en t o f th e p art ie s, an d s ti pu la te d d eci si on s wer e en te redpro vi di ng for ab at em en t o f certa inpe na lt ie s. Th es e d eci si on s s ta te d tha t “ [t]he ba lanc e o f th e unpa idun de rlyin g l iabi li ti es forFo rm 94 1 e m pl oym en t t ax li ab il it ie s * * * [fo r th e qu art erl y pe rio ds inis su e] will be pl acedina Cu rren tl y NotCo ll ect ib le st atus du e to th e p et it io ne r’s fin an ci al hard sh ip .” The a gr eedba lanc es of t he unpa id em pl oym en t t ax li ab il it ie s t ot al ed$8 4,1 10 .- 4 -

[* 4] On Ap ril 21 , 20 11 , th e In te rn al Rev enue Serv ic e (IR S) s en t p et it io ne rs a Fi na l No ti ce o f In te ntto Levy andNot ic e o f You r Ri gh t t o aHeari ng (Apr il 21 , 20 11 , no ti ce) wi th res pe ctto unpa idin co m e ta x l iabi li ti es for20 02 an d 2 00 9. As of th e d at e o f th e n ot ic e, th e as se ss edacco un t b al an ce fo r th os e two y ears was $9 ,84 5.1 8. On M ay 3, 2 01 1, p et it io ne rs fil edFo rm 12 15 3, Re qu es t fo r a Co ll ect io n Due Pro ces s o r Equ iv al en t Hea rin g, i n re sp on se to th e Apr il 21 , 20 11 , no ti ce. Pet it io ne rs di d n otdi sp ut e th ei r un de rlyin g t ax li ab il it ie s fo r 20 02 an d 2 00 9. On Se pt em

be r 29 , 20 11 , an Ap pe al s ac co un t re so lu ti on sp eci al is t (AARS ) se ntto pe ti ti on ers a le tt er s ch edul in g atel ep ho ne co nf eren ce ca ll inres po ns e to th ei r reque stfora he ari ng . The l et te r advi se d p et it io ne rs of t he ir r ig htto a fu ll he ari ng bu t s tate d: “ Inord er t o m eetth e requi rem en ts fora face -to -fac e co nf eren ce, y oum

us t b e in ful l co m

pl ianc e o f al l re qu ire d t ax returns , est im at ed ta x p aym en ts /fe de ral tax de po si ts an d s ub m itfin an ci al in fo rm at io n.” The l et te r pr op os ed“ a st ream li ne in st al lm en t ag reem en t (I A) inth e am ou ntof $ 34 0.0 0, due on th e 2 8th o f eac h m on th be gi nn in g o n No ve m be r 28 , 20 11 ” an d s tate d: “ If y ou are u nabl e to pay

th is am ou ntpl eas e co m

pl et e an d re tu rnth e en cl os edFo rm 43 3- A [Co ll ect io n In fo rm at io n S ta te m en t fo r W ag e Earn ers an d S el f-Em pl oyed In di vi du al s]”. Pet it io ne rs ’ co un se l re sp on de d t o the Sep te m be r 29 , 20 11 , let te r- 5 -

[* 5] with c op ie s o f m at eri al s fr om th e em pl oym en t t ax cas es an d re qu es te d tha t the joi ntin co m e ta x l iabi li ti es of p et it io ne rs be de em edun co ll ect ib le an d tha t pe na lt ie s b e ab at edba se d upo n the de ci si on s i n the em pl oym en t t ax cas es . Dur in g atel ep ho ni c h eari ng on Nov em be r 8, 2 01 1, p et it io ne rs ’ co un se l as se rte d tha t the de ci si on s i n the em pl oym en t t ax cas es in cl ud edpe ti ti on ers ’ pe rs on al in co m e ta x l iabi li ti es ; tha t re s ju di cat a es tabl is he d tha t the in co m e ta x li ab il it ie s wer e cu rren tl y

no t co ll ect ib le ; an d tha t re s ju di cat a n eg at edth e requi rem en t t o s ub m itup da te d o r ad di ti on al in fo rm at io n re ga rd in g the st atus of pe ti ti on ers ’ li ab il it ie s as curren tl y no t co ll ect ib le . The AARS ad vi se d p et it io ne rs ’ co un se l tha t, p ur su an t t o the Int ern al Rev enue Man ua l, upd at edfin an ci al in fo rm at io n was requi redto de te rm in e whe th er p et it io ne rs qu al ifi edforcurren tl y no t co ll ect ib le st atus . Peti ti on ers de cl in edth e st ream li ne in st al lm en t ag reem en t th atth e AARS p ro po se d, an d the y de cl in edto pro vi de an y

up da te d fi na nc ia l in fo rm at io n. Th ey

di d n otpro po se anin st al lm en t ag reem en t o r of fer- in
co m pr om is e atan y

ti m e dur in g the adm in is tra ti ve pro ces s. Th ey di d n otst at e wit h sp eci fic ity

an y fact s o r gr ou nd s ad equa te to rai se anis su e o f ab at em en t o f in co m e ta x p en al ti es . Pet it io ne rs ’ cas e was tra ns ferr edto anApp eal s s et tl em en t o ffi cer f or di sp os it io n. Th e se tt le m en t o ffi cer r es earc he d the em pl oym en t t ax cas es an d- 6 -

[* 6] de te rm in edth atpe ti ti on ers ’ in co m e ta x l iabi li ti es were n otin cl ud edinth e de ci si on s. Th e se tt le m en t o ffi cer v eri fie d tha t the requi rem en ts of a ll ap pl ic ab le laws an d a dm in is tra ti ve pro cedur es ha d b eenm et . On Dece m be r 23 , 20 11 , th e App eal s Off

ic e is su edth e n ot ic e o f de te rm in at io n s us ta in in g the pro po se d l ev y .

OPINION Sect io n 6 33 0 p ro vi de s fo r no ti ce an d an o pp ortu ni ty for a h eari ng be fo re a le vy pro po se d b y

th e IRS to co ll ectunpa idtax es m ay pro ceed . Und er s ect io n 63 30 (c)( 2) (A), a ta xp ay er m ay rai se an y rel ev an t i ss ue at ahe ari ng , in cl ud in g

“ ch al le ng es to th e ap pr op ria te ne ss of c ol le ct io n a ct io ns ”, an d m ay m ak e “ of fers of co ll ect io n a lt ern at iv es , whi chm ay in cl ud e th e p os ti ng of abo nd , th e subs ti tu ti on of othe r as se ts , an i ns ta ll m en t ag reem en t, o r anoff er-i n- co m pr om is e.” A tax pa y er is expe ct edto pro vi de all rel ev an t i nf orm at io n re qu es te d b y

th e App eal s Off

ic e fo r it s co ns id erat io n o f th e fac ts an d i ss ue s i nv ol ve d i n the he ari ng . See s ec. 30 1.6 33 0- 1( e)(1 ), Pro ced . & Adm in . Reg s. Su chin fo rm at io n i s es pe ci al ly ne ces sa ry when th e p ro po se d c ol le ct io n a lt ern at iv e is to ha ve co ll ect io n s us pe nd ed on th e g ro un d tha t the li ab il it ie s ar e “ cu rren tl y no t co ll ect ib le ”. See Pi tt s v . Co m m is si on er, T.C. Mem o. 2 01 0- 10 1, s li p o p. at18 . Whe re the re i s n o d is pu te as to th e und erl y in g l iabi li ti es , we rev ie w th e act io ns of t he App eal s Off ic e, in cl ud in g th atOffic e’s in te rp ret at io n o f la w, for abu se of d is cret io n. Se e Weber v .- 7 -

[* 7] Co m m is si on er, 1 38 T.C. 34 8, 3 55 (20 12 ); S wan so n v . Comm is si on er, 1 21 T.C. 11 1, 1 19 (20 03 ). Pet it io ne rs ha ve no t d is pu te d the ir u nd erl y in g l iabi li ti es or t ha t the App eal s Offi ce p erfo rm edth e n eces sary ve rif ic at io n u nd er s ect io n 6 33 0( c)(1 ). Thro ug ho ut th e adm in is tra ti ve pro ces s an d dur in g thi s ca se , pet it io ne rs ha ve rel ie d s ol el y on th ei r vi ew of

res jud ic at a, ev enth ou gh ne ithe r th e p art ie s n orth e li ab il it ie s i n the em pl oym en t t ax cas es were the same as th os e in th is cas e an d re le va ntfact s wo ul d ha ve ch an ge d wi th th e p as sa ge of t im e. Curren tl y no t co ll ect ib le is by defi ni ti on a st atus subjec t t o re ev al ua ti on . Peti ti on ers refu se d t o p ro vi de th e in fo rm at io n requi redforreev al ua ti onof t he ir abi li ty to p ay , by in st al lm en ts or o th erwi se , th e li ab il it ie s fo r in co m e ta x fo r 20 02 an d 2 00 9 tha t wer e a fra ct io n (l es s than 1 2%) of pe ti ti on er’s unp ai d e m

pl oym en t t ax li ab il it ie s. Me an whi le , a y ear p as se d b etween th e se tt le m en t o f th e em

pl oym en t t ax cas es an d the is su an ce o f th e n ot ic e o f de te rm in at io n i n thi s ca se . Mo reo ve r, pe ti ti on ers do no t re co gn iz e th e d is ti nc ti on be twee n re s ju di cat a an d c ol la te ral est op pe l. As t hi s C ou rt r ecen tl y ex pl ai ne d i n Ko pr ows ki v. Co m m is si on er, 1 38 T.C. 54 , 59 -6 2 (2 01 2) (ci ti ng , am on g o th er ca se s, Al le n v . McC urry , 44 9 U.S. 9 0, 9 4 (1 98 0) ), res jud ic at a ap pl ie s t o afin al jud gm en t o n the m eri ts of an a ct io n andpre cl ud es rel it ig at io n o f is su es th atwere o r co ul d h av e- 8 -

[* 8] be enrai se d i n tha t ac ti on . Peti ti on ers ’ joi ntin co m e ta x l iabi li ti es for20 02 an d 2 00 9 wer e n otan d c ou ldno t h av e b eenrai se d i n c as es in vo lv in g p et it io ne r’s em pl oym en t t ax li ab il it ie s fo r vario us qu art erl y pe rio ds . Res jud ic at a d oe s n ot ap pl y to th e ci rcu m st an ces he re. Und er the do ctrin e o f co ll at eral est op pe l, o nc e a co urt h as de ci de d an i ss ue of factor l aw ne ces sa ry

to it s ju dg m en t, tha t d eci si on m ay pre cl ud e rel it ig at io n o f th e sa m e is su e in a su iton a di ffer en t caus e o f act io n. Co ll at eral est op pe l pr ecl ud es rel it ig at io n n oton ly in co nn ect io n wi thth e cau se of a ct io n p rev io us ly li ti ga te d b utev eninco nn ect io n wi th di ffer en t cl ai m s o r cau se s o f act io n. Id . at 61 . Fo r co ll at eral est op pe l t o app ly to an is su e, am on g o th er thi ng s the is su e to be de ci de d i n the sec on d c as e m us t b e id en ti cal to th e is su e d eci de d i n the fir st cas e; th e p art ie s m

us t h av e actua ll y

li ti ga te d the is su e an d the res ol ut io n o f th e is su e m us t h av e b eeness en ti al to th e p rio r de ci si on ; an d the co nt ro ll in g fa ct s an d le ga l p rin ci pl es m

us t re m ai n u nc ha ng ed . Hi-Q Pers ., Inc . v. Co m mis si on er, 1 32 T.C. 27 9, 2 89 (20 09 ); M on ah anv. Co m m is si on er, 1 09 T.C. 23 5, 2 40 (19 97 ). Unl ik e res jud ic at a, whi chbi nd s the parti es as t o any m at te r th atm ig htha ve be en of fere d, co ll at eral est op pe l ap pl ie s o nl y to is su es th atwere ac tu al ly lit ig at edinth e fir stcas e. Kop ro wsk i v . Commis si on er, 1 38 T.C. at 6 1. “ The rul e o f co ll at eral- 9 -

[* 9] es to pp el pro vi de s tha t ‘[w] he n an i ss ue of f actor l aw is actua ll y

li ti ga te d and de te rm in edby a val idan d fi na l ju dg m en t, an d the de te rm in at io n i s es se nt ia l t o the jud gm en t, the de te rm in at io n i s co nc lu si ve ina subs eque ntact io n b etweenth e pa rti es , whet he r on th e sa m e o r a d iff eren t cl ai m .’ ” Id . at 6 1- 62 (em ph as is ad de d inKop ro wsk i) ( qu ot in g 1 Res ta te m en t, J ud gm en ts 2d , sec . 27 (19 82 )). Co ll at eral est op pe l d oe s n otap pl y to th e ci rcu m st an ces he re. A well
es tabl is he d p rin ci pl e is th atth e Co m m is si on er m ay

ch al le ng e in a su ccee di ng y ear wha t was acce pt edina pr ev io us y ear. Se e Aut o C lub o f Mi ch . v. Co m m is si on er, 35 3 U.S. 1 80 , 18 3- 18 4 (1 95 7) ; Dem irji anv. Co m m is si on er, 4 57 F.2d1, 6 -7 (3d Ci r. 19 72 ), aff’g 5 4 T.C. 1 69 1 (1 97 0) . Peti ti on er’s em pl oym en t t ax cas es were n ot actua ll y li ti ga te d; th ey

were s et tl ed . In Un it edSta te s v . Int ’l Bld g. Co ., 34 5 U.S. 50 2 (1 95 3) , th e Supr em e Co urt h el d tha t the Gov ern m en t was no t co ll at eral ly es to pp edfro m

rear gu in g apo si ti on itha d c on ced edina pr ev io us y ear, ev enif the co nc es si on was the ba si s o f a co urt d eci si on . The Supr em e Co urt co nc lu de d tha t th e Gov ern m en t’s p os it io n h adno t b eenful ly lit ig at edinth e ear li er p ro ceed in g an d tha t the pri orde ci si on of t hi s C ou rt b as edon th e Gov ern m en t’s co nc es si on was “ on ly a pro form a acc ep tanc e b y th e Tax Co urt o f anag reem en t b etweenth e pa rti es to set tl e th ei r co nt ro ve rs y forreas on s u nd is cl os ed .” Id . at 5 05 . The Supr em e Co urt’s ra ti on al e an d h ol di ng ap pl y equa ll y to th is cas e. See al so Sawy er- 10 -

[* 10 ] Trus t o f May 19 92 v. Co m m is si on er, 1 33 T.C. 60 , 79 -8 1 (2 00 9) ; M as sa gl ia v. Co m m is si on er, 3 3 T.C. 3 79 , 38 6 (1 95 9) , aff’d, 2 86 F.2d25 8 (1 0t h C ir. 1 96 1) ; Ro dk ey v. Co m m is si on er, T.C. Mem o. 2 00 9- 23 8. Pet it io ne rs ’ rel ianc e o n the do ctrin es of r es jud ic at a an d c ol la te ral est op pe l, du rin g the adm in is tra ti ve pro ceed in gs an d i n thi s ca se , has no supp ort i n the fact s orth e la w, andth e App eal s Off ic e rep res en ta ti ve s wer e co rrec t i n re jecti ng it . Pet it io ne rs refu se d t o p ro vi de up da te d fi na nc ia l i nf orm at io n tha t was ap pr op ria te ly reque st ed , reject edth e in st al lm en t ag reem en t o ffer edby the App eal s Off ic e, an d of fere d n o o th er co ll ect io n a lt ern at iv e. Und er the se cir cu m st an ces , th ere was no ab us e o f di sc ret io n i n the de te rm in at io n t o s us ta inth e p ro po se d c ol le ct io n a ct io n. See Ken dr ic ks v. Co m

mis si on er, 1 24 T.C. 69 , 79 (20 05 ); Wrig htv. Co m m is si on er, T.C. Mem o. 2 01 2- 24 ; Sc hm erm anv. Co m m is si on er, T.C. Mem o. 2 01 0- 13 5; Pit ts v. Co m m is si on er, T.C. Mem o. 2 01 0- 10 1. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.