T.C. Memo. 2008-150

UNITED STATES TAX COURT

PATRICIA M. MIDDLETON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4706-06L. Filed June 11, 2008.

Alvin S. Brown, for petitioner.

Melinda K. Fisher, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: This case arises from a petition filed in

response to a notice of determination concerning collection 
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1All section references are to the Internal Revenue Code in

effect at all relevant times. All Rule references are to the Tax

Court Rules of Practice and Procedure. 

2Unless otherwise indicated, our Findings of Fact and Opinion pertain to 2001, the year at issue. 

action(s) under section 63201 and/or 6330 (notice of 

determination).

The issues for decision are:

(1) Does petitioner have the underlying tax liability that

respondent determined for her taxable year 2001? We hold that

she does.

(2) Did respondent’s Appeals Office abuse its discretion in

determining to sustain the collection action as determined in the

notice of determination? We hold that it did not. 

FINDINGS OF FACT2

All of the facts in this case, which the parties submitted

under Rule 122, have been stipulated by the parties and are so

found except as stated below.

At all relevant times, including at the time she filed the

petition in this case, petitioner resided in Alice Springs,

Australia (Alice Springs). 

Petitioner was an employee of TRW Overseas, Inc. (TRW), a

United States Government contractor that provided certain services at the Joint Defense Space Research Facility/Joint Defense

Space Communication System (joint defense facility). The joint
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3Petitioner’s assigned housing in Alice Springs was subject

to a so-called Joint Defense Facility Pine Gap Housing Handbook

that was prepared in order to “clarify responsibilities of both

the Joint Defence Facility Pine Gap (JDFPG) and the housing

occupants.” 

defense facility is located at the Pine Gap Air Force base (Pine

Gap base) in Pine Gap, Australia.

The Pine Gap base is approximately 20 miles from Alice

Springs. As a condition of her employment by TRW, petitioner was

required to, and did, accept certain assigned housing (petitioner’s assigned housing) in Alice Springs, which had a population of approximately 28,000.3 However, neither petitioner nor

anyone else conducted any business of TRW or of the joint defense

facility at petitioner’s assigned housing. 

Petitioner’s assigned housing was located on a public street

and was adjacent to houses that were available to the general

public. Petitioner’s assigned housing was (1) not located within

the physical boundaries of the Pine Gap base, (2) not in a

separately gated community, and (3) not in an area or enclave

segregated for employees of TRW and unavailable to the general

public. 

Residents of Alice Springs included individuals who worked

at the Pine Gap base and individuals who were unaffiliated with

that base. Certain companies located in Alice Springs provided

trash collection, sewage, utilities, and law enforcement services

for the residents of Alice Springs. Petitioner did not pay any
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4Mr. Middleton is not a petitioner in the instant case. 

Hereinafter, we shall refer only to petitioner. 

rent or utility expenses with respect to petitioner’s assigned

housing. 

As a further condition of her employment by TRW, petitioner

was required to, and did, execute a closing agreement (petitioner’s closing agreement) with the Internal Revenue Service in

which TRW was identified as petitioner’s employer. Pursuant to

petitioner’s closing agreement, petitioner agreed to (1) waive

her right to elect a foreign earned income exclusion under

section 911(a) for her taxable year 2001 with respect to the

services that she performed for TRW at the joint defense facility

and (2) attach a copy of that agreement to her Federal income tax

(tax) return for that year. 

 Petitioner and her spouse, Robert J. Middleton (Mr. Middleton),4 filed Form 1040, U.S. Individual Income Tax Return (petitioner’s 2001 return), for their taxable year 2001. In that

return, petitioner reported on page 1 “Other income” of zero. In

doing so, petitioner claimed that the Department of the Air Force

furnished to her certain housing (petitioner’s claimed Air Force

housing) valued at $7,154 that was excludable under section 119. 

Although petitioner was required by petitioner’s closing agreement to attach a copy of that agreement to petitioner’s 2001

return, she did not do so.
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5The 2001 notice of deficiency also pertained to petitioner’s taxable year 2000. That year is not at issue here.

6The parties stipulated that respondent issued to petitioner

the notice of intent to levy to collect “an unpaid balance” of

$2,291.93 for her taxable year 2001, which was the total of the

tax and interest for that year that respondent assessed on Nov.

15, 2004. 

On April 23, 2004, respondent issued to petitioner a notice

of deficiency with respect to, inter alia, her taxable year 2001

(2001 notice of deficiency), in which respondent determined a

$2,016 deficiency in tax for that year (2001 deficiency).5 In

making that deficiency determination, respondent determined that

the $7,154 of petitioner’s claimed Air Force housing is not

excludable under section 119. 

On November 15, 2004, respondent assessed tax of $2,016 and

interest as provided by law of $275.93 for petitioner’s taxable

year 2001. (We shall refer to any unpaid assessed amounts with

respect to petitioner’s taxable year 2001, as well as interest as

provided by law after November 15, 2004, as petitioner’s unpaid

2001 liability.) 

On July 2, 2005, respondent issued to petitioner a final

notice of intent to levy and notice of your right to a hearing

(notice of intent to levy) with respect to petitioner’s unpaid

2001 liability.6

On July 20, 2005, respondent received from petitioner Form

12153, Request for a Collection Due Process Hearing (petitioner’s
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7In petitioner’s Form 12153, petitioner requested a hearing

with the Appeals Office with respect to her taxable years 2000

through 2005. However, the notice of intent to levy did not

pertain to her taxable years 2000 and 2002 through 2005, and

those years are not at issue here. In fact, as of July 20, 2005,

the date on which respondent received petitioner’s Form 12153,

respondent had not issued to petitioner a notice of Federal tax

lien filing and your right to a hearing or a notice of intent to

levy with respect to her taxable years 2000 and 2002 through

2005. 

8Petitioner attached Form 656, Offer in Compromise (petitioner’s Form 656), dated Feb. 22, 2005, to petitioner’s Form

12153. Petitioner’s Form 656 did not pertain to petitioner’s

taxable year 2001; it pertained only to petitioner’s taxable

years 2000 and 2002. 

Form 12153), with respect to the notice of intent to levy. In

that form, petitioner indicated her disagreement with the notice

of intent to levy and requested a hearing with respondent’s

Appeals Office (Appeals Office).7 In support of her disagreement

with the notice of intent to levy, petitioner gave the following

explanation:

1. Collection alternatives are available.

2. Levy creates financial hardship.

3. offer in compromise based on no liability has been 

 sent to service center.[8] [Reproduced literally.] 

By letter to petitioner dated October 4, 2005, the Appeals

Office acknowledged receipt of petitioner’s Form 12153 and

notified her that a settlement officer with the Appeals Office

(settlement officer) would be contacting her in the near future. 

The Appeals Office sent a copy of that letter to petitioner’s

representative, Alvin S. Brown (Mr. Brown). 
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The settlement officer sent Mr. Brown a letter dated October

17, 2005 (October 17, 2005 letter). That letter stated in

pertinent part: 

Appeals received your request on behalf of Patricia M.

Middleton for a Collection Due Process (CDP) Hearing. 

I have scheduled a telephone conference call for you on

November 2, 2005 at 9am. This call will be the taxpayer’s CDP hearing.

* * * * * * *

Your CDP hearing request regarding proposed levy action

on the following tax period was timely: Form 1040, for

tax period December 31, 2001. During your hearing, and

until any appeals become final for these tax and periods, the legal collection period is suspended and no

levy action may be taken. 

During the hearing, I must consider:

• Whether the IRS met all the requirements of any 

 applicable law or administrative procedure

• Any relevant issues you wish to discuss. These 

 can include:

1. Collection alternatives to levy such as 

 full payment of the liability, 

 installment agreement, offer in 

 compromise or temporary delay of 

 collection action. * * * 

2. Challenges to the appropriateness of 

 collection action. * * * 

3. Spousal defenses, when applicable. 

• We may also consider whether you owe the amount 

 due, but only if you have not otherwise had an 

 opportunity to dispute it with Appeals or did 

 not receive a statutory notice of deficiency.
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• We will balance the IRS’ need for efficient tax 

 collection and your legitimate concern that the 

 collection action be no more intrusive than 

 necessary. 

* * * * * * *

For me to consider alternative collection methods such

as an installment agreement or offer in compromise, you

must provide any items listed below. In addition, you

must have filed all federal tax returns due.

• A completed Collection Information Statement 

 (Form 433-A for individuals and/or Form 433-B 

 for businesses.)

• Proposal to pay.

• The hearing request indicates that an offer in 

 compromise may be filed. There is no record 

 that an offer is currently under investigation.

Please send me the items prior to the hearing date. I

cannot consider collection alternatives in your hearing

without the information requested above. 

* * * * * * *

If you do not participate in the conference or respond

to this letter, the determination and/or decision

letter that we issue will be based on your CDP request,

any information you previously provided to this office

about the applicable tax periods, and the Service’s

administrative file and records.

* * * * * * *

Please contact me with any questions or concerns you

have regarding this letter or the CDP procedures. * * *

Neither petitioner nor Mr. Brown contacted the settlement

officer on November 2, 2005, with respect to the settlement

officer’s October 17, 2005 letter, and no telephonic conference

was held. 
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The settlement officer sent Mr. Brown a letter dated November 2, 2005. In that letter, the settlement officer informed Mr.

Brown that, if petitioner wanted to present any additional

information and/or arguments with respect to the notice of intent 

to levy, he should contact the settlement officer by November 17,

2005.

On November 4, 2005, Mr. Brown telephoned the settlement

officer. During that telephonic discussion, Mr. Brown argued

that the 2001 deficiency was wrong because the $7,154 of petitioner’s claimed Air Force housing is excludable from petitioner’s income for her taxable year 2001. In advancing that

argument, Mr. Brown pointed out to the settlement officer that in

certain cases pending in the Court (pending Tax Court cases)

certain residents of Alice Springs were making the same arguments

that petitioner was making with respect to the taxation of

employer-furnished housing. 

By letter dated November 4, 2005, the settlement officer

informed Mr. Brown that petitioner was not entitled to challenge

the underlying tax liability for her taxable year 2001. In that

letter, the settlement officer requested Mr. Brown to present to

the Appeals Office by November 17, 2005, a proposal for resolving

petitioner’s unpaid 2001 liability. 

On November 14, 2005, Mr. Brown telephoned the settlement

officer and informed him (1) that he intended to provide respon-
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9The parties stipulated that, out of consideration for

petitioner’s argument regarding the pending Tax Court cases, the

settlement officer delayed for six weeks the completion of the

“Notice of Deficiency”. That stipulation is clearly contrary to

the facts that we have found are established by the record, and

we shall disregard it. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195 (1989). The record establishes, and we

have found, that, out of consideration for petitioner’s arguments

regarding the pending Tax Court cases, the settlement officer

delayed for six weeks the completion of the notice of determination with respect to petitioner’s taxable year 2001. 

dent with additional information by November 21, 2005, and 

(2) that the Court had scheduled the pending Tax Court cases for

trial on November 23, 2005. 

On December 15, 2005, the date on which the settlement

officer had begun drafting a notice of determination with respect

to petitioner’s taxable year 2001, Mr. Brown telephoned the

settlement officer. Mr. Brown informed the settlement officer

that the Court had not yet decided the pending Tax Court cases

and that he wanted to raise certain treaty issues in support of

petitioner’s position with respect to the underlying tax liability for her taxable year 2001. Out of consideration for petitioner’s arguments regarding the pending Tax Court cases, the

settlement officer delayed for six weeks the completion of the

notice of determination with respect to that year.9

As of January 31, 2006, the date on which the settlement

officer completed drafting the notice of determination with

respect to petitioner’s taxable year 2001, the Court had not yet
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10It was not until Aug. 8, 2006, that the Court issued

Hargrove v. Commissioner, T.C. Memo. 2006-159, in the pending Tax

Court cases, which the Court had consolidated for purposes of

briefing and opinion. 

decided the pending Tax Court cases.10 Nor had petitioner provided the settlement officer with a proposal of a collection

alternative for petitioner’s unpaid 2001 liability. As of January 31, 2006, the only argument that Mr. Brown had presented to

the settlement officer with respect to the notice of intent to

levy was that respondent was wrong in determining in the 2001

notice of deficiency that the $7,154 of petitioner’s claimed Air

Force housing is not excludable from petitioner’s income for her

taxable year 2001. 

On February 6, 2006, the Appeals Office issued to petitioner

a notice of determination with respect to her taxable year 2001. 

That notice stated in pertinent part: 

Prior to issuing the Intent To Levy, all statutory

administrative and procedural requirements were met by

the Internal Revenue Service. No viable alternatives

to such action were established during Appeals consideration; accordingly, such action is not considered to

be overly intrusive at this time. The determination of

the Appeals Office is to sustain the issuance of the

Intent to Levy. 

The notice of determination included an attachment that stated in

pertinent part:

SUMMARY AND BACKGROUND

The taxpayer submitted a timely request for a Collection Due Process Hearing in response to the issuance of

an Intent to Levy. The enforcement actions were taken
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by the Automated Collection System of the IRS. The

collection action was taken after notice and demand was

issued and the accounts remained unpaid. A levy source

was identified.

* * * * * * *

By letter dated October 17, 2005 a telephone Collection

Due Process hearing was scheduled for November 2, 2005. 

The taxpayer was asked to forward a collection information statement and proposal to pay prior to the hearing. No response was received. 

By letter dated November 2, 2005 the Settlement Officer

requested that any additional information to be considered be forwarded by November 17, 2005.

A hearing was held via telephone on November 4, 2005

with the taxpayer’s power of attorney, Alvin S. Brown.

By letter dated November 4, 2005 the taxpayer was advised to provide a proposal to pay the liability by

November 17, 2005. The taxpayer was advised that a

determination letter would be issued after this date. 

The taxpayer made no proposal and did not submit a

collection information statement. 

The determination of the Appeals Office is to sustain

the Intent to Levy.

Applicable Law and Administrative Procedures

With the best information available, the requirements

of various applicable law or administrative procedures

have been met. 

Internal Revenue Code (IRC) section 6331(d) requires

that the Internal Revenue Service (IRS) notify a taxpayer at least 30 days before a Notice of Levy can be

issued. Our case history shows that this notice was

mailed to the taxpayer.

IRC section 6330(a) provides that no levy may be made

unless the IRS notifies a taxpayer of the opportunity

for a hearing with the IRS Office of Appeals. A FINAL

NOTICE - NOTICE OF INTENTION TO LEVY AND YOUR RIGHT TO

A HEARING was sent by certified mail.
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Under I.R.C. 6330 an individual may challenge the correctness of the liability through a collection due

process hearing unless the individual received a statutory notice of deficiency or other administrative appeal rights. IRS records show that a statutory notice

of deficiency was issued and appealed by the taxpayer. 

The decision of the Appeals Office was to sustain the

proposed assessment. There is no record that the taxpayer timely petitioned the tax court.

The taxpayer was given the opportunity to raise any

relevant issue relating to the unpaid tax or the proposed levy at the hearing in accordance with IRC

6330(c).

* * * * * * *

Relevant Issues Presented by the Taxpayer

The request for a hearing indicates that the taxpayer

wants consideration of collection alternatives such as

installment agreement and offer in compromise.

A collection due process hearing was held by telephone

on November 4, 2005 and through correspondence with the

taxpayer’s power of attorney.

The main concern raised at the hearing involves the

correctness of the liability. The taxpayer believes

that she is entitled to exclude from gross income the

value of lodging furnished by her employer. The power

of attorney noted that there were related taxpayers

currently in court contesting this same issue. As a

statutory notice of deficiency was received, the taxpayer may not challenge the liability through this

hearing. The taxpayer did not petition the court, the

assessment was made and collection actions were not

suspended. To challenge the liability the taxpayer may

full pay the account; file a timely claim for refund;

and timely petition the appropriate court. The related

court cases have not been closed.

As the taxpayer did not submit requested financial

information, collection alternatives may not be considered at this time.

The taxpayer raised no other issues and provided no

other alternatives to the proposed collection action. 
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11Respondent makes that concession “Because respondent

cannot show that petitioner actually received the notice of

deficiency regarding her 2001 tax year”. See sec. 6330(c)(2)(B).

OPINION 

The parties submitted this case fully stipulated under Rule

122. That the parties submitted this case under that Rule does

not affect who has the burden of proof or the effect of a failure

of proof. Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91

(1990), affd. 943 F.2d 22 (8th Cir. 1991).

The parties disagree over whether the burden of proof in

this case shifts to respondent under section 7491(a). We need

not, and we shall not, address that disagreement. That is because resolution of the issues presented here does not depend on

who has the burden of proof.

Respondent concedes that petitioner is entitled to dispute

the underlying tax liability for her taxable year 2001.11 Where

the validity of the underlying tax liability is properly placed

at issue, the Court will review the determination of the Commissioner of Internal Revenue on a de novo basis. Sego v. Commissioner, 114 T.C. 604, 610 (2000).

It is petitioner’s position that she does not have the

underlying tax liability that respondent determined for her

taxable year 2001. In support of that position, petitioner

argues that she is entitled to exclude from gross income 

(1) under section 119(a) the $7,154 of petitioner’s claimed Air
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12The only allowances that petitioner maintains she is

entitled to exclude under sec. 912 are petitioner’s claimed costof-living allowances. See sec. 912(2). Petitioner does not

maintain that she is entitled to exclude under sec. 912 any

allowances described in sec. 912(1) or (3). 

With respect to petitioner’s argument that she is entitled

to exclude from gross income under sec. 912 petitioner’s claimed

cost-of-living allowances, respondent points out that petitioner

did not allege in the petition that she was entitled to exclude

any amount from gross income under that section. According to

respondent, petitioner has therefore conceded that issue under

Rule 331(b)(4). Petitioner did not expressly allege in the

petition that she is entitled to exclude from gross income under

sec. 912 the cost-of-living allowances that she claims she

received. However, pleadings are to be construed as to do

substantial justice. Rule 31(d). Moreover, we find no prejudice

to respondent. In fact, as discussed below, we reject petitioner’s argument under sec. 912. 

13We note that Mr. Brown, petitioner’s counsel of record in

the instant case, was a counsel of record for the taxpayers in

Hargrove v. Commissioner, T.C. Memo. 2006-159. 

14The Court in Hargrove also considered whether to sustain

respondent’s determinations under sec. 6662(a). In the 2001

notice of deficiency issued to petitioner, respondent did not

make a determination under sec. 6662(a).

Force housing and (2) under section 912 certain cost-of-living

allowances that petitioner claims she received (petitioner’s

claimed cost-of-living allowances).12 In advancing those arguments, petitioner concedes that the facts in this case are similar to the facts in Hargrove v. Commissioner, T.C. Memo. 2006-

159,13 a case involving the taxation under sections 119 and 912,

respectively, of employer-furnished housing and claimed living

allowances.14 We find that the facts in this case are not materially distinguishable from the facts in Hargrove. 
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15Hargrove involved several consolidated cases. All of the

taxpayers there involved argued that they were entitled to

exclude from gross income under sec. 119 the value of employerfurnished housing. Hargrove v. Commissioner, supra. Certain of

those taxpayers also argued that they were entitled to exclude

from gross income under sec. 912 certain claimed living allowances. Id. As was true with respect to those taxpayers in

Hargrove who advanced that argument under sec. 912, the record

here does not establish that petitioner received the cost-ofliving allowances that she claims she received. 

16Petitioner’s arguments on brief here are the same as the

taxpayers’ arguments on brief in Hargrove, of which the Court

takes judicial notice. 

 Although the facts here are materially the same as the facts

in Hargrove, it is petitioner’s position that the Court erred in

holding in Hargrove that the taxpayers there involved were not

entitled to exclude (1) under section 119 the value of employerfurnished housing and (2) under section 912 certain claimed

living allowances.15 In support of that position, petitioner

advances the same arguments under sections 119 and 912 that the

taxpayers advanced in Hargrove,

16 including the arguments under

those sections based on the treaty under which the joint defense

facility was established, see Agreement Relating to the Establishment of a Joint Defence Space Research Facility, U.S.-Austl.,
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17The Treaty, which authorized the joint defense facility,

became effective on Dec. 9, 1966. Agreement Relating to the

Establishment of a Joint Defence Space Research Facility, U.S.-

Austl., Dec. 9, 1966, 17 U.S.T. 2235. Since 1966, the Treaty has

been amended and extended. Agreement Amending and Extending the

Agreement of Dec. 9, 1966, U.S.-Austl., Oct. 19, 1977, 29 U.S.T.

2759; Agreement Amending and Extending the Agreement of Dec. 9,

1966, As Amended and Extended, U.S.-Austl., Nov. 16, 1988,

T.I.A.S. 12266; Agreement Extending the Agreement of Dec. 9,

1966, As Amended and Extended, Relating to the Establishment of a

Joint Defence Facility at Pine Gap, U.S.-Austl., June 4, 1998,

Temp. State Dept. No. 00-102. 

18As was true with respect to the taxpayers in Hargrove who

argued that they were entitled to exclude from gross income under

sec. 912 certain claimed living allowances, assuming arguendo

that the record here had established that petitioner received

petitioner’s claimed cost-of-living allowances, see supra note

15, such allowances would not be excludable under sec. 912. See

Hargrove v. Commissioner, supra. 

Dec. 9, 1966, 17 U.S.T. 2235 (Treaty).17 In effect, petitioner is

asking the Court to overrule Hargrove. 

The Court in Hargrove carefully considered and rejected all

of the arguments under sections 119 and 912 that the taxpayers

advanced, including the arguments under those sections based on

the Treaty. We have carefully reviewed and considered Hargrove. 

We decline petitioner’s request to overrule it. 

On the record before us, we hold that petitioner is not

entitled to exclude from gross income under section 119(a) the

$7,154 of petitioner’s claimed Air Force housing. See id. On

that record, we further hold that petitioner is not entitled to

exclude from gross income under section 912 petitioner’s claimed

cost-of-living allowances.18 See id. On the record before us, we
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hold that petitioner has the underlying tax liability that respondent determined for her taxable year 2001. 

We turn now to whether the Appeals Office abused its discretion in determining to sustain the collection action as determined in the notice of determination. Although the Appeals

Office erred in determining in that notice that petitioner was

not entitled to challenge the underlying tax liability for her

taxable year 2001, that error was harmless. We have found that

petitioner has the underlying tax liability that respondent

determined for her taxable year 2001. On the record before us,

we hold that the Appeals Office did not abuse its discretion in

determining to sustain the collection action as determined in the

notice of determination. 

We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

To reflect the foregoing,

Decision will be entered for

respondent.