T.C. Memo. 2006-127

UNITED STATES TAX COURT

JOHN P. AND SHARON LYNN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5948-05L. Filed June 19, 2006.

John P. and Sharon Lynn, pro se.

Timothy B. Heavner, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WELLS, Judge: Pursuant to section 6330(d), petitioners seek

judicial review of respondent’s determination to proceed with a

proposed levy concerning petitioners’ 1994 Federal income tax

liability. The issue to be decided is whether respondent’s

determination was an abuse of discretion. All section references

are to the Internal Revenue Code, as amended.
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1With respect to petitioners’ 1990 tax year, the installment

agreement dated Oct. 15, 1996, superseded a prior installment

agreement dated Feb. 12, 1993 (the prior installment agreement). 

The entire tax liability set forth on the prior installment

agreement relates to a sec. 6672 trust fund penalty of $5,689.71. 

We note that we do not have jurisdiction over collection of sec.

6672 trust fund penalties, sec. 6672(c)(2), but that our

jurisdiction in the instant case over petitioners’ 1994 Federal

income tax liability is not affected by that circumstance.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulated facts and the accompanying exhibits are

incorporated herein by this reference. 

Petitioners are husband and wife. At the time of the filing

of the petition, petitioners resided in Portsmouth, Virginia. 

Petitioner John P. Lynn is hereinafter individually referred to

as petitioner. 

Petitioners timely filed a joint 1994 Federal income tax

return, reporting a tax liability of $3,671.51 and withholding 

of $38.27. Petitioners did not submit a payment with their 1994

tax return.

On October 15, 1996, petitioners signed a Form 433-D,

Installment Agreement, with respect to petitioners’ 1990 and 1994

tax years (the installment agreement).1 Revenue Officer N.

Mitchell signed the installment agreement as the “originator”.

Pursuant to the installment agreement, petitioners agreed to pay

their 1990 and 1994 Federal income tax liability as follows:
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I/We agree that the federal taxes shown above, plus all

penalties and interest provided by law, will be paid as

follows: $100.00 will be paid on October 24, 1996 and 

$100.00 will be paid no later than the 24th of each 

month thereafter until the total liability is paid in 

full. 

Additionally, petitioners agreed to the following conditions:

While this agreement is in effect, [petitioners] must

file all federal tax returns and pay any taxes [that

petitioners] owe on time.

* * * * * * *

If [petitioners] don’t meet the conditions of this

agreement, [respondent] will cancel it, and may collect

the entire amount [that petitioners] owe by levy on

[petitioners’] income, bank accounts, or other assets,

or by seizing [petitioners’] property.

* * * * * * *

[Respondent] will apply all payments on this agreement

in the best interest of the United States.

Pursuant to the installment agreement, petitioners submitted

monthly $100 payments to respondent. From October of 1996

through December of 1997, respondent applied the payments to

petitioners’ 1990 and 1994 liabilities as follows:

Date recorded Amount of payment Tax year

 10/23/96 $100 1990

 11/25/96 100 1994

 12/18/96 100 1994

 1/17/97 100 1990

 2/20/97 57 1994

 3/30/97 100 1994

 4/24/97 100 1994

 5/29/97 100 1994

 
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2From January of 1998 until March of 2003, respondent

applied 63 separate $100 payments to petitioners’ 1990 liability

and zero payments to petitioners’ 1994 liability.

3As of the date of the trial, petitioners had still not

filed tax returns with respect to their 1999, 2000, 2001, 2002,

and 2003 tax years.

 6/26/97 100 1990

 7/25/97 100 1990

 8/25/97 100 1990

 9/25/97 100 1990

 10/23/97 100 1990

 11/20/97 100 1990

 12/22/97 100 1990

On or about December 4, 1996, petitioners submitted an offer-incompromise with respect to petitioners’ 1990 liability. 

Respondent rejected the offer-in-compromise on February 22, 1997. 

From January of 1998 until March of 2003, respondent applied

petitioners’ monthly $100 payments exclusively to petitioners’

1990 liability.2 Petitioners failed to file tax returns with

respect to their 1999, 2000, 2001, 2002, and 2003 tax years,3 and

respondent terminated the installment agreement in 2003.

On September 10, 2004, respondent issued to petitioners a

Final Notice of Intent to Levy and Notice of Your Right to a

Hearing with respect to petitioners’ 1994 tax year. The notice

asserted an unpaid tax in the amount of $1,603.56, accrued

interest in the amount of $2,217.08 and a “late payment penalty”

in the amount of $624.82. Petitioners timely requested an

administrative hearing before respondent’s Appeals Office

pursuant to section 6330 (section 6330 hearing).
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Respondent’s Appeals Office assigned the case to Settlement

Officer A.T. Munson, who had no prior involvement with

petitioners’ 1994 tax liability. On February 3, 2005, Settlement

Officer Munson conducted a face-to-face conference with

petitioner. During the conference, petitioner contended that

respondent did not properly apply payments made under the

installment agreement to petitioners’ 1994 liability and that

respondent improperly terminated the installment agreement. 

Additionally, petitioner stated that petitioners intended to

contest in court the penalties and interest related to their 1994

liability. Settlement Officer Munson informed petitioner that

respondent applied the disputed payments to petitioners’ 1990

liability rather than petitioners’ 1994 liability and that

respondent terminated the installment agreement because

petitioner did not file tax returns or pay taxes owed with

respect to petitioners’ 1999, 2000, 2001, 2002, and 2003 tax

years.

On February 25, 2005, respondent’s Appeals Office issued a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330, sustaining the proposed levy. 

Petitioners timely petitioned the Court. The petition set forth

the following reasons for relief: “IRS not fullfilling [sic]

original agreement. Subsequently causing significant additional

penalty and interest to accumulate. Much anguish and
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frustration. We feel relief of penalty and interest will be

satisfactory solution.”

OPINION

Section 6330 provides that no levy may be made on any

property or right to property of a person unless the Secretary

first notifies the person in writing of the right to a hearing

before respondent’s Appeals Office. Section 6330(c)(1) provides

that the Appeals officer must verify at the hearing that

applicable laws and administrative procedures have been followed. 

At the hearing, the person may raise any relevant issue relating

to the unpaid tax or the proposed levy, including appropriate

spousal defenses, challenges to the appropriateness of collection

actions, and collection alternatives. Sec. 6330(c)(2)(A). The

person may challenge the existence or amount of the underlying

tax liability, however, only if the person did not receive any

statutory notice of deficiency for such tax liability or did not

otherwise have an opportunity to dispute such tax liability. 

Sec. 6330(c)(2)(B). In the instant case, petitioners do not

challenge the existence or the amount of the underlying

liability. Consequently, we review respondent’s determination

for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604,

610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

Petitioners contend that they and Revenue Officer Mitchell

orally agreed that petitioners’ payments under the installment
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agreement would be applied first to petitioners’ 1994 liability

until such liability was extinguished and then to petitioners’

1990 liability. Additionally, petitioners contend that, but for

respondent’s misapplication of the payments to petitioners’ 1990

liability, the payments would have extinguished petitioners’ 1994

liability, and petitioners would not have incurred the related

penalties and interest. Furthermore, petitioners contend that

their position is supported by the installment agreement’s

listing of the 1994 tax year before the 1990 tax year and by

respondent’s application of six payments during 1996 and 1997 to

petitioners’ 1994 liability. 

Respondent contends that, with the exception of several

payments applied to petitioners’ 1994 tax liability while

respondent considered the offer-in-compromise with respect to

petitioners’ 1990 tax year, petitioners’ payments were applied to

the earliest tax year covered by the installment agreement; i.e.,

1990, in accordance with respondent’s standard operating

procedures. Accordingly, respondent contends that respondent

properly applied petitioners’ payments in the best interest of

the United States pursuant to the terms of the installment

agreement and that the determination of respondent’s Appeals

Office was not an abuse of discretion.

The record does not support petitioners’ contentions. 

Payments not applied to petitioners’ 1994 liability were applied
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to petitioners’ 1990 tax liability. Petitioner has provided no

credible evidence that respondent agreed to apply petitioners’

payments first to petitioners’ 1994 tax liability until such

liability was extinguished. On the contrary, the written terms

of the installment agreement provided that “[respondent] will

apply all payments on this agreement in the best interest of the

United States.” Petitioners have neither contended nor provided

evidence that respondent’s application of petitioners’ payments

was not in the best interest of the United States. Consequently,

we conclude that respondent properly applied petitioners’

payments under the installment agreement.

Moreover, the terms of the installment agreement required

petitioners to timely file Federal income tax returns and pay

taxes due and provided that respondent would cancel the

installment agreement if petitioners failed to comply with the

terms of the agreement. As noted above, petitioners failed to

file Federal income tax returns and pay taxes with respect to

their 1999, 2000, 2001, 2002, and 2003 tax years. Consequently,

we conclude that respondent properly terminated the installment

agreement.

During the section 6330 hearing, Settlement Officer Munson

provided petitioner with the opportunity to raise any relevant

issue relating to the unpaid tax or the proposed levy, and, as

described above, Settlement Officer Munson appropriately
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addressed the issues raised by petitioner. Furthermore, the

record demonstrates that Settlement Officer Munson properly

verified that all applicable laws and administrative procedures

were followed and balanced the need for the efficient collection

of taxes with the concern that the collection action be no more

intrusive than necessary. 

On the basis of the foregoing, we hold that the

determination of respondent’s Appeals Office to proceed with the

collection of petitioners’ tax liabilities for 1994 was not an

abuse of discretion.

To reflect the foregoing,

 Decision will be entered for

 respondent.