T.C. M em o . 2 0 1 9 -9

UNITED STATES TAX COURT

D ANIEL J AM E S HUM ISTON, Pet it i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 5 7 87 -1 6 L. Fi l edFeb ru ary 7 , 2 0 1 9
.
J u s t in J . An d reo zzi an dRan d al l P. An d reo zzi , fo r p et i t i o n er. R. J effreyKn i g h t , M ich ael E. D’ A n el l o , an dLau ren ce K. W i l l iam s, fo r res p o n d en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION BUCH, J u d g e: M r. Hu m i s t o n fi l ed t h i s co l l ect i o n cas e u n d er s ect i o n s 6 3 2 0 (c) an d 6 3 3 0 (d ) t o ch al l en g e t h e Co m m i s s i o n er’ s n o t ice o f d et erm i n at i o n s u s t ai n i n g a n o t i ce o f Fed eral t ax l i en an d a p ro p os ed l ev y t o co l lect tru s t fu n d- 2
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[* 2 ] reco v ery

p en al t i es . 1 Th e p en al t i es are t he res u l to f M r. Hu m i s to n’ s fai l u re, as p res i den to f Tan n i n g Bed , In c., t o p ay t an ni n g ex ci s e t ax es fo r t h e fi rs t , s eco n d , an d t h irdqu art ers o f 2 0 1 4 . M r. Hu m is t o n arg u es th at t h e s et t lem en to ffi cer ab u s ed h i s d i s cret i o n i n s us t ai ni n g th e l ev y b ecau s e h e fai l edt o v eri fy t h e Co m m i s s i o n er’ s co m p l ian ce wi t h s ect io n 6 7 5 1 (b ). Th e Co m m i s s i o n er arg ues th atth e t ru s tfu n d
reco v ery p en al t y i s n o ts ub

j ect t o s ect i o n 6 7 51 (b ), b u t i n an y ev en tFo rm

4 1 8 3 , Reco m m en d at i o n re: Tru s tFu n dReco v ery Pen al t y As s es s m en t , s at i s fi es th e s up erv i s o ry

ap p ro v al req u i rem en to f s ect i on 6 7 5 1(b ). Th e s et t l em en to ffi cer d i dn o tab u s e h i s d i scret i o n i n fi n d i n g th atth e Co m m i s s i o n er h ads at i s fi edthe req ui rem en t s o f ap p li cab l e l aw an dad m i n i s t rat i v e p ro cedure u n d er s ect i o n 6 3 3 0 (c)(1 ). Th e Co m m i s si o n er’ s Fo rm

4 1 8 3 es t ab l i s h es s up erv i s o ry

ap p ro v al u n d er s ect i o n 6 7 5 1 (b ). Becau s e we fi n d n o ab u s e o f d i s cret i o n , we d o n otn eedt o ad d res s wh et h er t h e t ru stfu n d reco v ery p en al t y req u i res s ect i o n 6 7 51 (b ) ap p ro v al
.

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev en u e Co de at al l rel ev an tt im es . Al l m o n et ary am o u n ts are ro u n d edt o t h e n eares td o l l ar.- 3
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[* 3 ] FINDINGS OF FACT M r. Hu m i s t o n i s the m ajo ri t y s hareh ol d er an dp res i den to f Tan n in g Bed , In c., a Del aware co rp o rat i o n . Du ri n g th e p eri od s en d i n g M arch 3 1, J u ne 3 0 , an d Sep tem b er 3 0 , 2 0 1 4, Tan n in g Bed , In c., fai l edt o rem i tt an n i n g ex ci s e t ax es ex ceed in g $ 22 0,0 0 0. In J u n e 2 0 15 a rev en u e ag en tm ad e t he i n i t i al d et erm i n at i o n t o as s ertth e s ect i on 6 6 7 2 tru s tfu n dreco v ery p en al ty ag ai n s tM r. Hu m i st o n as a p ers o n req u i redt o co l l ectex ci s e t ax . Th e rev en u e ag en tg en erat eda Fo rm 4 1 8 3 as s ert i n g t ru s tfu n dreco v ery

p en al ti es an dh adth e p en al t i es ap p ro v edan dth e fo rm s i g n ed b y h i s i m m ed i at e s up erv i s o r. Th e fo l l o wi n g m o n t h th e Co m m i s s i o ner s en tM r. Hu m i s t o n Let t er 1 1 5 3 an dFo rm 2 75 1 , Pro p o s edAs s es sm en to f Tru s t Fu n d Reco v ery Pen al t y , an dev en tu al l y

as s es s edp en al t i es i n J an u ary 2 0 1 6 aft er n o t recei v i ng a res p on s e. Becau s e M r. Hu m i s to n fai l edt o p ay th e l i ab i l i t y , the Co m m i s s i o n er s en t M r. Hu m i s t o n a n o t i ce o f Fed eral t ax l i enan d a n o ti ce o f i n t en t t o l ev y t o co l l ectth e u np ai dp en al t i es ; M r. Hu m is to n t i m el y req u es t ed a h eari n g . In h i s h eari n g req ues t M r. Hu m i s t o n i n di cat edth ath e co ul dn o tp ay th e b al an ce o f h i s l iab i l i t y

an dreq ues t edd i s ch arg e o f t h e l i en . He at t ach edt o h i s req u es ta s tat em en ti n d i cat i n g th at Tan n i n g Bed , In c., was g o i n g th ro u g h ch ap t er 1 1 b an krup t cy

an dwas i n th e p ro ces s o f n eg o t i at i ng a l i qu i d at i o n p l an . Th e- 4
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[* 4 ] s t at em en tal s o i n fo rm ed t h e s et t l em en to ffi cer t hati f a l i qu id at io n p l an was
co n fi rm edTan n in g Bed , In c., m i g h t h av e fu n d s t o p ay th e t an n i n g ex ci se t ax l i ab i l i t y . M r. Hu m i s t o n ’ s ap p eal was as s i g n edt o a s et t l em en to ffi cer wh o req u es t ed t h atM r. Hu m i s t on co m

p l et e a Fo rm

4 3 3 -A, Co l l ect io n In fo rm at io n St at em en tfo r W ag e Earn ers an dSel f-Em p lo y edIn d i v i du al s . A h eari ng was h el d, an dM r. Hu m i s t o n i n fo rm edth e s et t l em en t o ffi cer t h atTan n i n g Bed , In c., was s el li n g as s et s t o p ay

cred i t o rs an dth atth e Co m m is s i o n er m i g h trecei v e fu n ds t o co v er t h e ex ci s e t ax l i ab i l it y . Th e s et t l em en to ffi cer req ues t edth atM r. Hu m i s t o n p ro v i d e cert ai n b an krupt cy l i qu id at i o n d o cu m en t s an da l i sto f t h e Tan n i n g Bed , In c. as s et s. Sev eral week s l at er M r. Hu m i s t o n p ro v i d edth e s et t l em en to ffi cer wi t h th e b an krup t cy

p et i ti o n an d a l i s t o f i t s l arg es tcred it ors . He d i dn o tp ro vi d e an y d o cu m en t s reg ard i n g th e b an krup t cy l i qu i d at i o n , a l i s to f as s et s , o r a Fo rm 4 3 3 -A. Th e s et t l em en to ffi cer fo l l o wedup wi t h M r. Hu m i s t o n an dreq u es t edth e s am e i n fo rm at io n . He requ es t edei t h er Fo rm 4 33 -A o r d o cu m en t s i n di cat i ng th at Tan ni n g Bed , In c., was cu rren t l y p ay i n g d o wn t h e ex ci s e t ax l i ab i l it y . A few week s l at er M r. Hu m i s t o n p ro vi d edm o re b an krup tcy d o cu m en ts . Th e d o cu m en ts i n cl u d edan o rd er co n fi rm i n g th e Tan n in g Bed , In c. p l an o f reo rg an i zat io n an da- 5
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[* 5 ] n o t i ce o f reo rg an i zat i o n. Th e o rd er i n d i cat edth atTan n i n g Bed , In c., was l i qu i dat i n g i t s as s et s wi t h an effect i v e d at e o f J an uary2 , 2 0 1 7 . M r. Hu m i st o n d i d
n o tp ro v i d e d o cu m en t s i n d icat i n g th atth e l i qu i d at i o n was cu rren t l y p ay i ng d o wn t h e ex ci s e t ax li ab i l i t y . No r d i dh e p ro v i d e t h e s et t l em en t o ffi cer wi t h a l i s to f
as s et s o r a Fo rm

4 3 3 -A. Th e s et t l em en to ffi cer i s s u eda n o t i ce o f d et erm i n at i o n s u s t ai n i ng th e n o t i ce o f Fed eral t ax l i en an dthe p ro p o s edl ev y o n No v em

b er 1 7, 2 0 16 . Inh i s rep o rth e s t at edth atth e Tan ni ng Bed , In c. p lan o f l i qu id at io n was n oti n effect u n t il th e fo l l o w i n g y ear an dth atn o p aym en t s were b ei n g m ad e t o w ardth e o u t s t an d i n g ex ci s e t ax l i ab i l it y . Th e rep o rtal s o i n d i cat edth at M r. Hu m i s t o n fai l ed t o p ro v i d e a Fo rm 4 3 3 -A, an al t ern at i v e t o p ro v i di n g p ro o f o f l iab i l i t y p aym en t s , an dth atM r. Hu m i s t o n d i dn o tch al l en g e t h e u n d erl y i n g l i ab i li t y . M r. Hu m i s t o n t i m el y

fi leda p et i t i o n wh il e res i d i n g i n New Yo rk . Inh i s p et i t i o n h e s t at es th ath e was n o ti n s t ru ct edt o retu rn Fo rm 4 3 3 -A t o th e s et t l em en t
o ffi cer. Th e Co m m is s i o n er fi l eda m o t i o n fo r s u m m ary ju d g m en ti n M arch 2 0 1 8 , an d M r. Hu m i s t on fi l ed an o b ject i o n. W e d en i edth e Co m m i ss i o ner’ s m ot i o n b ecau s e i twas u n cl ear wh et h er t h e s et tl em en to ffi cer h adp ro p erl y v eri fi edth e req u i rem en t s o f s ect i o n 6 7 5 1 (b ).- 6
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[* 6 ] Attri al th e Co u rth eardt es t i m o n y fro m th e rev en u e ag en twh o m ad e t h e i n i t i al d et erm i n at i o n t o as s ertth e t ru s t fu ndreco v ery p en al t i es , an dwe ad m i t t ed i n t o ev i d en ce Fo rm

4 1 8 3
. OPINION Th e fact s i n th i s cas e are s i m i l ar t o th o s e i n Bl ackb u rn v . Co m m i s s i o n er, 1 5 0 T.C. _

_ (Ap r. 5 , 2 01 8 ). In Bl ackb u rn an d i n th is cas e t he Co m m i s s i o n er as s ert ed a t ru s tfu ndreco v ery p en al t y . Th e p en al t y

was as s ert edb y

a rev en u e ag en t an d ap p ro vedb y

h i s i m m ed i at e s up erv i so r u s i n g Fo rm 4 1 8 3
. Each t ax p ay er recei v eda p ri o r o p po rtu ni t y to d i s p u t e h i s tru s tfu n dreco veryp en al ty an d p et i t i o n edo u r Co u rtaft er recei v i n g a n o t i ce o f d et erm i n at i o n . Th e qu es t i on b efo re t h e Co u rti s t h e s am e as i n Bl ackb u rn : wh et h er t h e s et t l em en to ffi cer ab u s edh i s d i s cret i o n i n fai li n g t o v eri fy thatth e Co m

m i s s i o n er s at i s fi edth e req u i rem en t s o f
s up erv i s o ry

ap p ro v al u n d er s ect i o n 6 7 5 1 (b ). Here, as i n Bl ackb u rn , th e Co m m i s s i o n er arg u es th ats ect i o n 6 7 5 1(b ) d o es n o tap p ly t o tru s t fu n dreco v ery p en al t i es ; b u tb ecau s e s up erv i so ry ap p ro v al h as b een es t ab l i s h ed , we n eedn o t ad d res s wh et h er s ect i o n 6 7 5 1 (b ) ap p l i es t o th e tru s t fu n dreco v ery p en al t i es . 2

2 See Bl ackbu rn v . Co m

m i s s i o n er, 1 5 0 T.C. _

_ , _

_ (s l i p o p . at3 ) (Ap r. 5 , 2 0 1 8 ).- 7
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[* 7 ] I. St an dard o f Rev i ew Wh en a t ax pay er fai l s t o ch al l en g e h is u nd erl y i n g l iab i l i t y , we rev i ew t h e s et t l em en to ffi cer’ s d et erm i n at i o n fo r ab u s e o f d i s cret i on . 3 A s et tl em en to ffi cer’ s d et erm i n at i o n i s an ab u s e o f d i s cret io n i f i ti s arb i t rary , cap ri ci o u s , o r wi t h o u t
s o u n d b as i s i n fact o r l aw. 4 II. An al y s i s In d et erm in i n g wh et h er t h e s et t l em en to ffi cer ab u s edh i s d i s cret i o n we m u s t
co n si d er wh eth er h e: (1 ) p ro p erl y v eri fi edth atth e req u i rem en t s o f ap p l i cab l e l aw
an d ad m i n i s t rat iv e p ro cedu re h adb een m et , (2 ) co n s id eredan y rel ev an t i s s u es p et i t i o n er rai s ed , an d (3 ) co n s i d ered wh ether t h e p ro p o sedco l l ect i o n act i o n i s n o
m o re i n t ru s i v e t h ann eces sary . 5 M r. Hu m i s t o n arg u es th atth e s et t l em en to ffi cer fai l ed t o v eri fy du ri n g h i s h eari n g th e req u i rem en t s o f s ect i o n 6 7 5 1(b ) s up erv is ory ap p ro v al
. Bu ti n Bl ackb u rn v . Co m

m i s s i on er, 1 5 0 T.C. at_

_ (s l i p o p . at 1 0 ), we h el dth atth e

3 Seg o v . Co m

m i s s i on er, 1 1 4 T.C. 6 0 4 , 6 1 0 (2 0 0 0); Go za v . Co m m i ss i o n er, 1 1 4 T.C. 1 7 6 , 1 8 1 -1 82 (2 0 0 0); s ee Bl ackbu rn v . Co m m i s s io n er, 1 5 0 T.C. at_

_ (s l i p o p. at9 ) (“ W e rev i ew t h e v eri fi cat i on req u i rem en tfo r ab u s e o f d i scret i o n .”).

4 See M u rp h y

v . Co m m i s s i o n er, 1 2 5 T.C. 3 0 1 , 3 2 0 (2 00 5 ), aff’ d , 4 6 9 F.3 d 2 7 (1 stCi r. 2 0 0 6 ).

5 See s ec. 6 3 3 0 (c)(3 ).- 8
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[* 8 ] ex i s t en ce o f Fo rm

4 1 8 3 i n th e reco rdwas s u ffi ci en tt o es t ab l i s h th e s et t l em en t
o ffi cer’ s v eri fi cat i o n o f s ect i o n 6 7 51 (b ) co m p l i an ce an dth at“ [w] e h av e co n si s t en t l y

up h el da s et t l em en to ffi cer’ s v eri fi cat i o n o f as s es s m en t s wh en th e ad m i n is t rat i v e reco rdrefl ect s co m p l i an ce wi t h ad m i n is t rat i v e p ro cedu res .” Here t h e Co m m i s s i o n er i n tro du cedt es t i m o n y o f th e rev en u e ag en twh o as s ert edth e p en al t i es an d t h e Fo rm

4 1 8 3 t h at h e u s ed t o o b t ai n s up erv is o ry ap p ro v al
. Becau s e Fo rm 4 1 8 3 i s i n t h e reco rd , we fi ndth e s et t lem en to ffi cer’ s v eri fi cat i o n was n o tan ab u se o f d i s cret i o n . 6 M r. Hu m i s t o n al s o arg u es thath e p ro v i d edth e s et t lem en to ffi cer wi t h th e co rrect b an krup t cy

p ap erwo rk an datn o p o i ntd i dthe s et t lem en to ffi cer req u i re Fo rm 4 3 3 -A. Th e reco rds h o ws o t h erwi s e. Th e s et t l em en to ffi cer req u es t edth at M r. Hu m i s t o n p ro v id e ev i d en ce t h atth e Tan n i ng Bed , In c. l i qu i d at i o n was ap p ly i n g p aym en t s ag ai n s tth e ex ci s e t ax l i ab i l it y an dp ro v i de a l i s to f t h e Tan ni n g Bed , In c. as s et s . Inth e al t ern at iv e t h e s et tl em en to ffi cer req u es t eda Fo rm 4 3 3 -A s h owi n g M r. Hu m i s t o n ’ s p ers o n al fi n an ci al i nfo rm at i o n . Wh i l e M r. Hu m i s t o n d i dp ro vi d e p ap erwo rkrel at i n g t o t h e b an krup t cy an dl iqui d at io n , th e

6 See, e.g ., Bl ackb u rn v . Co m m i s s i o n er, 1 5 0 T.C. at

_

__ (s l i p o p . at1 0 ); Kan e v . Co m

m i s s io n er, T.C. M em o . 2 0 1 8 -1 2 2 , at* 1 0 -* 11 ; Ro s en dal e v . Co m m i s s i o n er, T.C. M em o . 2 0 1 8 -9 9 , at* 1 4 ; Gal l ag h er v . Co m m i s s i o n er, T.C. M em o. 2 0 1 8 -7 7 , at* 1 3
.- 9
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[* 9 ] d o cu m en t s were n o tth e d o cu m en t s req u es t edb y t he s et t l em en t o ffi cer an d t h ey d i dn o ts h o w th at Tan n i n g Bed , In c., was m ak i n g p aym en t s t o ward s the
ex ci s e t ax l i ab i l it y . Ad d i ti o n al l y M r. Hu m i s t o n d i dn o tp ro vi d e t h e s et t l em en t
o ffi cer wi t h Fo rm

4 3 3 -A. A s et t l em en t o ffi cer d o es n otab u s e h i s d i s cret i o n i n s u s t ai n i n g t h e p ro p o s edco l l ect i o n act i on wh en th e t ax p ay er fai l s t o s ub m i t req u es t edfi n an ci al i n fo rm at i o n . 7 Becau s e M r. Hu m i s t o n d i dn o tp ro v i d e th e req u es t edi n fo rm at i o n , an d b ecau s e t h e s et t l em en to ffi cer m etthe req u i rem en t s o f
s ect i on 6 3 3 0 (c)(3 ), t here was n o tan ab us e o f d i s cret i o n i n s us t ai n i n g th e n o t i ce o f Fed eral t ax l i en an dth e p ro p o sedl ev y . 8 To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredfo r res p o nd en t .

7 LaFo rg e v . Co m

m i s s i on er, T.C. M em o . 2 0 1 3 -1 8 3 , at* 9 -* 1 0 ; Cav azo s v . Co m m i s s i o n er, T.C. M em o . 2 0 0 8 -2 5 7 , 9 6 T.C.M . (CCH) 3 4 1 , 3 43 (2 0 0 8 ). 8 See LaFo rg e v . Co m

m i s s i o n er, T.C. M em o . 2 0 1 3 -1 8 3 ; Cav azo s v . Co m m i s s i o n er, T.C. M em o . 2 0 0 8 -2 5 7
.