T.C. Sum m ary Opi ni on 20 16 -3 8

UNITED STAT ES TAX COURT
ROBERT CARTER, J R. AND LOL A CARTER, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 21 91 5- 15 S L. Fi le d Au gu st8, 2 01 6.

Ro be rt C art er, J r., an d Lo laCart er, p ro se. Ardne y J. Bo land , III, fo r res po nd en t.

SUMM ARY OPINION THORNTON, Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f
se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e p et it io n was fil ed
. 1

All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctat a ll 1 rel ev an t t im es . W e ro un d a ll m on et ary am ou nt s t o the ne ares t d ol lar.- 2 -

Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y ot he r cas e. Inth is co ll ect io n due pro ces s (C DP) cas e p et it io ne rs see k re vi ew pu rs ua nt to sec ti on s 6 32 0( c) an d 6 33 0( d) (1 ) of th e d et erm in at io n b y

th e In te rn al Rev enue Serv ic e (IR S o r res po nd en t) t o uph ol d ano ti ce o f Fed eral tax li en(NFTL) fil in g rel at in g t o p et it io ne rs ’ unpa idFed eral in co m e ta x l iabi li ty for 2 01 0. Th e is su es for de ci si on are wh ethe r pe ti ti on ers are p erm it te d t o d is pu te th ei r un de rlyin g l iabi li ty fo r 20 10 an d wh ethe r th e IRS ab us edit s d is cret io n i n s us ta in in g t he co ll ect io n act io n. Bac kg ro un d The pa rti es ha ve st ip ul at edso m e fac ts . W e in co rp or at e th e st ip ul at io n o f fact s an d t he acco m

pa nyin g e xh ib it s b y

th is refe ren ce. Pet it io ne rs res id edin Lou is ianawhen th ey

pe ti ti on edth e Co urt. Pet it io ne rs fil edth ei r Fed eral in co m e ta x re turnfor20 10 lat e an d re po rte d th ei r ta x l iabi li ty as zero , cla im in g c ha rit ab le co nt rib ut io n d educ ti on s, a d educ ti on fo r th e b us in es s u se of t he ir h om e, an d $ 47 3,3 09 incas ua lty or the ft l os s de du ct io ns . The IR S se le ct edpe ti ti on ers ’ return fo r ex am in at io n. OnJu ly 24, 20 13 , th e IRS m ai le d t o p et it io ne rs ’ la stkn own ad dr es s, wh ic h i s the same addres s li st edon th e p et it io n, a n ot ic e o f de fic ie nc y de te rm in in g t ha t p et it io ne rs were n ot- 3 -

en ti tl edto de du ct io ns for ch ari tabl e co nt rib ut io ns , th e b us in es s u se of t he ir h om e, oreig htsep arat e cas ua lty or t he ft l os se s. Th e n ot ic e o f de fic ie nc y de te rm in eda de fic ie nc y

of $ 18 ,67 1 a nda se ct io n 6 66 2( a) ac cu racy-rela te d p en al ty of $3 ,73 4. Pet it io ne rs rece iv edth e 2 01 0 n ot ic e o f de fic ie nc y bu t d idno t p et it io n t he Tax Co urt fo r red et erm in at io n. On J un e 2 , 20 14 , th e IRS ass es se d t he tax , accu racy-rela te d p en al ty, an d in te res t. Inaneffo rt t o c ol le ctth es e as se ss edam ou nt s, o n Dec em be r 9, 2 01 4, the IRS s en t p et it io ne rs a Lett er 3 17 2, No ti ce o f Fed eral Tax Li enFil in g a ndYou r Ri gh t t o aHeari ng Und er IR C 6 32 0. Pe ti ti on ers ti m el y subm it te d aFo rm

12 15 3, Reque stfor

a Co ll ect io n Du e Pro ces s o r Equ iv al en t Hea rin g. Inth ei r reque st pe ti ti on ers di d n otsee k aco ll ect io n a lt ern at iv e. Rathe r, th ey arg ue d t ha t the
as se ss m en t fo r 20 10 was i nc orrect . 2 On Ap ril 9, 2 01 5, the Offic e o f App eal s (Ap pe al s) m ai le d p et it io ne rs a le tt er of feri ng a face -to -fac e h eari ng an d re qu es ti ng an y in fo rm at io n o r ev id en ce tha t pe ti ti on ers pl an ne d o n s ub mit ti ng forco ns id erat io n. Ap pe al s al so ass ig ne d pe ti ti on ers ’ cas e to a se tt le m en t o ffi cer (S O). On May 14 , 20 15 , th e SO m ai le d

Inth ei r reque stfora CDP h eari ng pe ti ti on ers als o ra is edarg um en ts with 2 res pe ctto th ei r 20 09 tax ab le y ear, s ta ti ng th atitsh ou ldhave be enin cl ud edinth e NFTL. It was no t i nc lu de d i n t he NFTL; th eref or e, itwas n otpro pe rly at is su e in th e CDP h eari ng . See s ec. 3 01 .63 20 -1 (e)( 1) , Pro ced . & Adm in . Reg s.- 4 -

pe ti ti on ers a le tt er s ch edul in g atel ep ho ne CDP h eari ng forJu ne 18 , 20 15 . The le tt er al so reque st eddo cu m en ta ti on to supp ort the ir d is pu te of t he un de rlyin g li ab il ity an d t o c om

pl y with t he requi rem en ts for co ll ect io n a lt ern at iv es . Pet it io ne rs were ag ai n o ffer eda face -to -fac e h eari ng or aco rres po nd en ce h eari ng . The SO was u nabl e to ve rif y th atpe ti ti on ers ha d re cei ve d t he no ti ce o f de fic ie nc y

an d d et erm in edth atth ey co ul d d is pu te th ei r un de rlyin g l iabi li ty. On Ju ne 18 , 20 15 , whenth e SO cal le d p et it io ne rs forth ei r sc he du le d C DP he ari ng , th ey were u na va il ab le ; s he lef t a m es sa ge in fo rm in g t he m th atsh e wou ldfol lo w up with alet te r an d p ro vi di ng he r te le ph on e num be r fo r a return c al l. The re i s n o in di cat io n tha t p et it io ne rs res po nd edto he r m es sa ge . The SO m ai le d p et it io ne rs a fo ll owup l et te r pr ov id in g a n a dd it io na l 1 4 d ay s t o e ithe r co nt acthe r or subm itan y supp orti ng do cum en ta ti onreg ard in g t he di sp ut edli ab il ity . Peti ti on ers ne ithe r res po nd edto th e SO n or

subm it te d a ny do cu m en tati on inres po ns e to he r le tt er. Afte r th e ad di ti on al 14 da y s, the SO wait edan ot he r fo ur week s fo r a res po ns e. Bu t h av in g re qu es te d o n m ul ti pl e o ccas io ns an d t hr ou ghm ul ti pl e m ed iu m s o f co m

m un ic at io n d oc um en ta ti on supp orti ng pe ti ti on ers ’ di sp ut e o f th ei r un de rlyin g l iabi li ty andha vi ng rece iv edno subs tant iv e res po ns e --m uc h l es s an y 3
The on ly doc um en t p et it io ne rs pro vi de d was a co py of a fa x a dd res se d t o a 3 cas e advo cat e atth e Taxpa y er Advo cat e Servi ce.- 5 -

of th e reque st edin fo rm at io n- -th e SO su st ai ne d the pro po se d c ol le ct io n a ct io n. On Ju ly 31, 2 01 5, Ap pe al s i ss ue d t o e ach pe ti ti on er a No ti ce o f Det erm in at io n Co nc ern in g C ol le ct io n Act io n Un de r Sec ti on 63 20 an d/ or63 30 co nc ern in g t he ir in co m e ta x l iabi li ty for t ax ab le y ear 2 01 0. Pe ti ti on ers ti m el y so ug htrev ie w inth is Co urt. Pet it io ne rs m ad e th ree a ss ig nm en ts of e rro r in th ei r pe ti ti on : (1 ) fri vo lo us return p en al ti es rel at in g t o t he ir t ax ab le y ear 2 01 1; (2) th e d is al lo wedcas ua lty or th eftlo ss de du ct io ns cla im edon th ei r 20 10 Fed eral in co m e ta x re tu rn ; an d (3 ) th e pr op rie ty of th e IRS au di ts of the ir 2 01 0 re tu rn . 4 Dis cu ss io n Inrev ie win g a n IR S adm in is tra ti ve de te rm in at io n i n aCDP cas e, if th e un de rlyin g t ax li ab il ity

is pro pe rly in d is pu te , th e Co urt re vi ews th atis su e d e n ov o. Goz a v . Comm is si on er, 1 14 T.C. 17 6, 1 81 -1 82 (20 00 ). Oth er m at te rs th e Co urt rev ie ws fo r ab us e o f di sc ret io n b y th e IRS . Id. at18 2. Ab us e o f di sc ret io n e xi st s whe n ade te rm in at io n i s arbi tra ry , cap ric io us , or wi th ou t s ou ndba si s i n fa ctor l aw. See M ur ph y v. Co m m is si on er, 1 25 T.C. 30 1, 3 20 (20 05 ), aff’d, 4 69 F.3d27 (1s t Ci r. 20 06 ). On J anuary

26 , 20 16 , res po nd en t fi le d am ot io n t o d is m is s fo r la ckof 4 juri sd ic ti on th e p orti on s o f th is cas e th atrel at e to th e as se ss edfri vo lo us return pe na lt ie s fo r 20 11 . W e g ran te d thi s m ot io n o n M arch 17 , 20 16
.- 6 -

Tax pa y ers m ay

di sp ut e th ei r un de rlyin g t ax li ab il ity ina CDP ca se on ly if th ey di d n otrece iv e a n ot ic e o f de fic ie nc y or o th erwi se ha ve a pr io r op po rtu ni ty to co nt es t tha t l iabi li ty. Sec. 6 33 0( c)(2 )(B) . Alth ou gh th e SO co ul d n otde te rm in e whe th er p et it io ne rs ha d re cei ve d ano ti ce o f de fic ie nc y , we hav e fo un d o n t he ba si s o f th e rec or d t ha t p et it io ne rs di d i n fa ctrece iv e it
. Res po nd en t p ro vi de d t o t he Co urt a c op y of t he pro pe rly com

pl et edU.S. Po st al Serv ic e Fo rm

38 77 , sh owi ng th atth e n ot ic e o f de fic ie nc y was s en t b y cert ifi edm ai l t o p et it io ne rs ’ la stkn own --an d c urren t-- ad dr es s o n J ul y 24 , 20 13
. 5 A pro pe rly com

pl et edFo rm

38 77 refl ect in g t he ti m el y m ai li ng of ano ti ce o f de fic ie nc y

to a ta xp ay er atth e ta xp ay er’s l as t kno wn ad dr es s b y cert ifi edm ai l, ab se ntev id en ce t o t he co ntrary, establ is he s tha t the no ti ce was pro pe rly m ai le d t o th e ta xp ay er. Uni te d S ta te s v . Ahre ns , 53 0 F .2d78 1, 7 84 (8t h C ir. 1 97 6) (“ The fo rm [38 77 ] is co ns id eredhi gh ly pro ba ti ve ev id en ce tha t the no ti ce o f de fic ie nc y was sen t t o t he ad dr es se s s pe ci fie d.” ); C ol em anv. Co m m is si on er, 9 4 T.C. 8 2, 9 0- 91 (19 90 ). Furth erm or e, co m pl ia nc e with F orm

38 77 m ai li ng pro cedur e rai se s a pr es um pt io n o f of

fic ia l re gu larit y

infav orof the Co m

m is si on er. See Co le m anv. Co m m is si on er, 9 4 T.C. at91 . If th e p res um pt io n i s ra is edan d t he tax pa y er d oe s The pa rti es st ip ul at edth at“ res po nd en t i ss ue d aNot ic e o f Defi ci en cy to 5 pe ti ti on ers forth e ta xabl e y ear 2 01 0” an d t ha t “ th e PS Fo rm 38 77 * * * was co m pl et edwhen * * * [t he st ip ul at edno ti ce] was m ai le d t o p et it io ne rs .”- 7 -

no t re bu t the pre su m

pt io n, the Co urt m ay

fin d t ha t the tax pa y er re cei ve d t he no ti ce of de fic ie nc y , thus pre cl ud in g c ha ll en ge s t o t he un de rlyin g l iabi li ty und er s ect io n 63 30 (c)( 2) (B). See , e.g., Seg o v . Comm is si on er, 1 14 T.C. 60 4, 6 11 (20 00 ); C lark v. Co m m is si on er, T.C. Mem o. 2 00 8- 15 5. Bec au se res po nd en t i nt ro du cedin to ev id en ce the pro pe rly com pl et edFo rm 38 77 , he i s en ti tl edto rel y up on pre su m

pt io ns of o ffi ci al reg ul ari ty andde li ve ry . See S eg o v . Comm is si on er, 1 14 T.C. at 6 11 . Peti ti on ers ha ve no t s eri ou sl y di sp ut edrece iv in g t he no ti ce o f de fic ie nc y . Andth ere i s n o e vi de nc e th atth e 6
no ti ce was returne d t o re sp on de nt . Thu s, the pre su m pt io ns of o ffi ci al reg ul ari ty an d d el iv ery ha ve no t b eenreb ut te d. Se e Bai le y v. Co m m is si on er, T.C. Mem o. 20 05 -2 41 . “ Whe re the pre su m pt io n i s ra is ed , andno t re bu tt edwith c on trary ev id en ce, we m ay

fin d t ha t the tax pa y er rec ei ve d t he no ti ce o f de fic ie nc y an d t ha t ch al le ng es to th e und erl y in g t ax li ab il ity are p recl ud ed ”. Venh ui zenv.
Mr. Ca rte r te st ifi edat t ria l tha t “ [h e co ul dn ’t] lo okat alet te r an d kno w 6 whe th er o r no t * * * [he ] rece iv edit ”; th at“ al l * * * [of res po nd en t’s co rres po nd en ce] lo ok [s ] th e sam e”; an d t ha t “ [h e] ha[d ] no in te nt io ns of s ay in g th at* * * [h e] didn’t re cei ve an y of t hi s s tu ff. * * * [He di dn ’t] kn ow i f itwas i n th ere o r no t.” M rs . Cart er t es ti fie d t ha t “ m ai l ca m e th ro ug h, b ut* * * [s he ] jus t * * * [c ou ldn’t] say w ith 1 00 pe rcen t ac cu racy tha t tha t i s s om ethi ng th at* * * [s he ] saw” an d t ha t “ [s he co ul dn ’t] say tha t * * * [sh e d idn’t s ee i t] eithe r.” Pet it io ne rs furth er t es ti fie d abo utth ei r po orreco rdke ep in g, m is pl aceddo cu m en ts , an d fa m il y

ev en ts whi chm ig htha ve di st ract edth em . Butth ey di d n otpro vi de any ev id en ce t o s up po rt t he ir v ag ue ass ert io n o f no nr ecei pt .- 8 -

Co m m is si on er, T.C. Mem o. 2 01 2- 27 0, at*1 0- *1 1 (n ot in g t ha t a t ax pa y er’s v ag ue st at em en t re ga rd in g p os si bl e n on rece ip t o f th e n ot ic e o f de fic ie nc y was in su ffi ci en t t o n eg at e th e p res um pt io n t ha t the no ti ce was pro pe rly iss ue d)
. W e acc or di ng ly findth atpe ti ti on ers rece iv edth e Ju ly 24, 2 01 3, n ot ic e o f de fic ie nc y

fortax ab le y ear 2 01 0. Se e Dia m on d v . Comm is si on er, T.C. Mem o. 20 12 -9 0, s li p o p. at9 (“ The reco rdco nt ai ns no cred ib le ev id en ce t o re bu t the pr es um pt io n t ha t the no ti ce was pro pe rly m ai le d t o p et it io ne r. At th e h eari ng pe ti
ti on er d idno t u ne qu iv oc al ly deny th athe rece iv edth e n ot ic e o f de fic ie nc y , andhi s te st im on y th athe do es no t h av e a co py of th e n ot ic e o r rem em be r si gn in g fo r itis
no t en ou gh to reb utth e p res um pt io n a ffo rd edres po nd en t. Thu s, we fi ndth atpe ti
ti on er re cei ve d t he no ti ce o f de fic ie nc y [.]”). Becau se th ey ha d, b utdi d n ottak e adva nt ag e o f, a p rio r op po rtu ni ty to co nt es t the ir 2 01 0 t ax li ab il ity , th ey were n ot en ti tl edto ch al le ng e th atli ab il ity at t he CDP h eari ng , andli ke wis e th ey are n ot en ti tl edto ch al le ng e itinth is pro ceed in g. Se e se c. 63 30 (c)( 2) (B); Bai le y v. Co m m is si on er, T.C. Mem o. 2 01 6- 94 , at * 7. Inan y ev en t, p et it io ne rs fai le d t o p art ic ip at e inth ei r CDP h eari ng inan y m ean in gf ul way : Th ey

di d n otsubm itan y

of t he reque st eddo cu m en ta ti on ; the y di d n otan swe r th e SO’s te le ph on e cal l o r return h er m es sa ge ; an d t he y di d n ot- 9 -

res po ndto an y

of t he SO’s let te rs . Pet it io ne rs ha ve th eref or e fai le d t o p res en t an y 7 cl ai m th atwe canrev ie w. See Gia m el li v. Co m m is si on er, 1 29 T.C. 10 7, 1 15 -1 16 (2 00 7) ; M ag an a v . Commis si on er, 1 18 T.C. 48 8, 4 93 -4 94 (20 02 ). Forth atreas on as well , th ey

are p recl ud edfro m

ch al le ng in g t he ir u nd erl y in g l iabi li ty in thi s pr oc eed in g. See, e.g ., Pou gh v. Co m m is si on er, 1 35 T.C. 34 4, 3 49 (20 10 ); 8 Lun no n v . Comm is si on er, T.C. Mem o. 2 01 5- 15 6, at*1 5 (n ot in g t ha t a t ax pa y er do es no t p ro pe rly rais e anis su e if he fai ls to pre se ntan y

ev id en ce t o Ap pe al s wi th
res pe ctto th atis su e aft er b ei ng gi ve n areas on ab le op po rtu ni ty to d o s o) , aff’d, _

_ F. App ’x __ , 20 16 W L 33 97 57 8 (1 0t h C ir. J un e 1 4, 2 01 6) . W e acc or di ng ly

Mrs . Cart er t es ti fie d t ha t the tel ep ho ne nu m be r cal le d b y

th e SO was he rs ; 7 th ataro un d t he ti m e o f th atcal l, p et it io ne rs ’ y ou ng es t s on was g et ti ng m arri ed ; th at“ th ere w[e re] a lo t o f th in gs go in g o n” ; an d t ha t “ if i nd eeda vo ic em ai l was le ft, * * * [sh e] didno t g o b ackan d re tri ev e it .” The SO co ul d n otve rif

y pe ti ti on ers ’ rece ip t o f th e n ot ic e o f de fic ie nc y an d 8 in vi te d p et it io ne rs to ch al le ng e th ei r un de rlyin g l iabi li ty for 2 01 0 andsubm it do cu m en ts to supp ort the ir c la im of $ 47 3,3 09 incas ua lty

or t he ft l os s d educ ti on s. Altho ug h t he SO ap pe aredwil li ng to co ns id er the ir u nd erl y in g t ax li ab il ity , th at de ci si on do es no t re qu ire a de no vo rev ie w. Whe re an App eal s o ffi cer e xe rci se s he r di sc ret io n t o a dd res s an is su e th atth e ta xp ay er i s n oten ti tl edto rai se du rin g th e CDP p ro ces s, an y

de ci si on m ad e wit h re sp ectto th atis su e is no t p artof t he no ti ce o f de te rm in at io n a ndhe nc e is no t re vi ewab le by thi s C ou rt. Se e Din g v . Co m m is si on er, T.C. Mem o. 2 01 5- 20 , at * 10 ; s ec. 3 01 .63 20 -1 (e)( 3) , Q&A-E11 , Pro ced . & Adm in . Reg s. Inan y ev en t, p et it io ne rs subm it te d n o e vi de nc e to th e SO co nc ern in g t he se lo ss es ; tha t i ss ue was n otpro pe rly pres en te d t o h er an d i s n ot pr op erl y be fo re u s.- 10 -

rev ie w th e SO’s act io ns forab us e o f di sc ret io n o nl y . See Go za v . Comm is si on er, 11 4 T.C. at18 2. Inde ci di ng whethe r th e SO ab us edhe r di sc ret io n i n s us ta in in g t he co ll ecti onact io ns we co ns id er wh ethe r sh e: (1) pro pe rly veri fie d t ha t the requi rem en ts of an y ap pl ic ab le law o r adm in is tra ti ve pro cedur e h av e b eenm et ; (2 ) co ns id ered
an y rel ev an t i ss ue s p et it io ne rs rai se d; an d (3 ) de te rm in edwhethe r “ an y pro po se d
co ll ect io n a ct io n b al an ces th e n eedforth e eff ic ie ntco ll ect io n o f ta xe s wi thth e le gi ti m at e co nc ernof * * * [pe ti ti on ers ] th atan y co ll ect io n a ct io n b e n o m or e in tru si ve th anne ces sa ry .” See s ec. 6 33 0( c)(3 ). The reco rdsh ows th atth e SO an al yzedth e tr an sc rip t o f pe ti ti on ers ’ acco un t an d v eri fie d t ha t the requi rem en ts of app li cab le law an d a dm in is tra ti ve pro cedur e were fo ll owe d. Th e SO st at edinhe r cas e act iv ity rep ort tha t s he ha d re vi ewed pe ti ti on ers ’ acco un t tran sc rip t an d c on firm edth atth e “ as se ss m en t was pro pe rly
m ad e” an d t ha t “ th e IRS m etall ap pl ic ab le requi rem en ts of l aw & ad m in is tra ti ve pr oc edur es ”. W e fi ndth at , insu st ai ni ng th e p ro po se d c ol le ct io n a ct io n, the SO pro pe rly ba lanc ed“ th e n eedforth e eff ic ie ntco ll ect io n o f ta xe s wi th th e le gi ti m at e co nc ern of * * * [p et it io ne rs ] th atan y co ll ect io n a ct io n b e n o m or e in tru si ve th anne ces sa ry .” See i d. Pe ti ti on ers di d n otreque sta co ll ect io n a lt ern at iv e, an d the y di d n ot- 11 -

subm itth e fi na nc ia l i nf

orm at io n re qu ire d fo r co ns id erat io n o f a co ll ect io n al te rn at iv e. Onc e ta xp ay ers ha ve be engi ve n areas on ab le op po rtu ni ty for a h eari ng bu t fai l t o a va il th em se lv es of i t, the Co m m is si on er m ay

pro ceedto m ak e a d et erm in ati onon th e b as is of t he cas e fi le . See, e.g ., Orop eza v . Comm is si on er, T.C. Mem o. 20 08 -9 4, af

f’d, 40 2 F . App ’x 22 1 (9 th Cir . 20 10 ); Taylo r v. C omm is si on er, T.C. Mem o. 2 00 4- 25 , aff’d, 1 30 F. App ’x 93 4 (9 th Cir . 20 05 ). On the reco rdbe fo re u s, we co nc lu de th atpe ti ti on ers were g iv ena reas on ab le op po rtu ni ty for a h eari ng bu t fai le d t o a va il th em se lv es of i t. Fi nd in g n o abu se of d is cret io n i n a ny resp ect , we wil l s us ta in th e IRS ’ de te rm in at io n t o uph ol d t he co ll ect io n a ct io n. To refl ectth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.