TAX COURT OPINION

Case: David H. Baral
Docket Number: 18499-08S
Judge: Colvin
Opinion Type: bench
Filed: 05/12/2009
Pages: 10

Lair 5,,t I,.6d36P UNITED STATES TAX COURT WASHINGTON, DC 2021 7 DAVID H . BARAL, Petitioner , V . COMMISSIONER . OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice-and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to Petitioner and to respondent a copy of the pages of the transcript of the trial in .the above case before Judge David Gustafson at Washington,"D .C ., on April 21, 2009, containing his oral findings of fact .,and opinion rendered at the conclusion of the trial . In accordance with-the oral findings of fact and opinion, decision will be entered for respondent . . (Signed) David Gustafson Judge Dated : Washington, D .C . May 12, 2009 SERVED May 15 2009 3 1 Bench Opinion by Judge David Gustafson April 21, 2009 2 David H . Baral v . Commissioner Docket No . 18499-08 S 3 THE COURT : The Court has decided to render ora l 4 Findings of Fact and opinion in this case, and the following 5 represents the Court's oral Findings of Fact and Opinion . 6 The oral Findings of Fact and Opinion shall not be relied on 7 as precedent in any other case . This Bench Opinion is made pursuant to th e 9 authority granted by section 7459(b) of the Internal Revenue 10 Code of 1986, as amended, and Rule 152 of the Tax Cour t 11 Rules of Practice and Procedure . 12 By a "Notice of Determination Concerning 13 Collection Action(s) Under Section 6320 and/or 6330," dated 14 June 30, 2008, the Internal Revenue Service determined to 15 uphold a proposed levy on the assets of the petitioner , 16 David H . Baral . The IRS proposed that levy in order t o 17 collect additions to tax under section 6651 for Mr . Baral's 18 failure to file his return and to pay tax for the . year 2005 . 19 This case is an appeal by Mr . Baral, under section 6330(d) 20 of the Internal Revenue Code ; For the reasons explaine d 21 hereafter, we will uphold the IRS's determination . 22 Trial of this case was conducted on April 21, 23 2009, in Washington, D .C ., and petitioner David H . Baral 24 gave his testimony . The parties' "Stipulation of Facts", 25 with Exhibits 1-J through 20-J, was admitted into evidence . Heritage Reporting Corporation (202) 628-4888 4 1 The parties' additional "Stipulation of Settled Issues" was 2 also admitted into evidence . We find the following facts : 3 Findings 4 During the year 2005, Mr . Baral received ove r 5 $80,000 in income from eight sources, including the Social 6 Security Administration ; the U .S . Office of Personne l 7 Management ; three brokers ; two pension plans ; and a bank . 8 Mr . Baral received that money by checks, and as he received 9 the checks over the course of the year, he deposited them in 10 his checking account . 11 However, Mr . Baral claims he either never received 12 or else misplaced Forms 1099 from any of these source s 13 reporting his income . In view of the number of th e 14 institutions whose forms are involved, we find that he must 15 have overlooked them, mislaid them, or forgotten about them . 16 Mr . Baral mentioned his age as a possible factor in thi s 17 case ; but he lives alone, pays his own bills, and manages 18 his own affairs ; and he appears to be a fully competent 19 person . 20 Mr . Baral did not file his 2005 return when it was 21 due on April 18, 2006 . He did not file any request for an 22 extension of time to file that return . Sometime in 2007 , 23 Mr . Baral contacted the IRS and asked it to send him records 24 of the third-party reporting of his income . The IR S 25 provided that information promptly . Heritage Reporting Corporation (202) 628-4888 5 1 Mr . Baral then filed his 2005 return more than 2 11 months late, on March 28, 2007 . On that return he 3 reported : income totaling $71,337, a tax liability o f 4 $9,515, withheld tax of $475, and a balance due of $9,040 , 5 which he paid by check with the return . Respondent concedes 6 that Mr . Baral incorrectly reported his standard deductio n 7 amount on his return and that, after the correction of that 8 error, Mr . Baral actually overpaid his tax liability b y 9 $312 . 10 However, because Mr . Baral's return and payment 11 were made in March 2007 rather than April 2006, the IRS 12 assessed a late filing penalty of $1,963 .86 and a late- 13 payment penalty of $523 .69, plus interest . The IRS applied 14 Mr . Baral's $312 overpayment to this assessed balance . On 15 December 8, 2007, the IRS sent Mr . Baral a "Final Notice of 16 Intent to Levy and Notice of Your Right to a Hearing" . That 17 December 2007 notice showed a balance due of $3,175 .51 . In 18 response to that notice, Mr . Baral submitted a timely 19 "Request for a Collection Due Process or Equivalent Hearing" 20 on Form 12153, on which he stated, "I did not have th e 21 income data (Form 1099) until the time the payment was made ; 22 * * * I hope the United States was not harmed, or minimally 23 harmed, by the delay in the payment . " 24 At the collection due process hearing (or "CD P 25 hearing"), Mr . Baral did not propose collection alternatives Heritage Reporting Corporatio n (202) 628-4888 1 to the proposed levy . Rather, Mr . Baral asked for th e 2 penalties and interest to be forgiven. He characterized his 3 request as one for "clemency" . In its consideration of that 4 request, the IRS looked into the subject of Mr . Baral's tax 5 compliance for the years before and after the year 2005 .. it 6 determined that Mr . Baral's return for 2004 had been file d 7 more than two years late in May 2007, and that his return for 2006 had been filed almost four months late i n 9 August 2007 . However, it appears that Mr . Baral has timely 10 filed his returns and paid his taxes for 2007 and 2008 . 11 On June 30, 2 008, the IRS issued its Notice o f 12 Determination, denying Mr . Baral's request to abate the 13 penalty and interest, and upholding the determination to 14 proceed with a levy to collect the unpaid balance . On 15 July 28, 2008, Mr . Baral timely filed his petition 16 commencing this case . 17 Opinion 18 If a taxpayer fails to pay any Federal income tax 19 liability after notice and demand, section 6331(a ) 20 authorizes the IRS to collect the tax by levy on the 21 taxpayer's property . However, Congress has added t o 22 chapter 64 of the Code certain provisions as "Due Proces s 23 for Collections", and those provisions must be complied with 24 before the IRS can proceed with a levy : -Section 6330(a) and 25 (b)(1) requires that, before proceeding, the IRS must issue Heritage Reporting Corporation (202) 628-4888 7 1 a final notice of intent to levy and notify the taxpayer of 2 the right to an administrative hearing before the Office of 3 Appeals . The IRS did so in this case . 4 At that so-called collection due process (CDP) 5 hearing, the appeals officer must make a determinatio n 6 whether the proposed levy action may proceed . The appeals 7 officer is required to take into consideration severa l things that are not in dispute here : First, the Appeal s 9 Officer must verify that the requirements of any applicable 10 law and administrative procedure have been met by the IR S 11 personnel (see sec . 6330(c)(3)(A)) ; but Mr . Baral alleges no 12 defect of that sort . Second, the Appeals Officer mus t 13 consider any collection alternatives proposed by th e 14 taxpayer (see sec . 6330(c)(3)(B), citing sec . 6330(c)(2)) ; 15 but Mr . Baral proposed none . Third, the Appeals officer 16 must determine "whether any proposed collection actio n 17 balances the need for the efficient collection of taxes with 18 the legitimate concern of the person that any collectio n 19 action be no more intrusive than necessary" (see sec . 20 6330(c)(3)) ; but Mr . Baral has stipulated that, if he i s 21 determined to be liable for the penalties at issue, the IRS 22 did not abuse its discretion in determining to proceed with 23 a levy, so the only issue here is one of Mr . Baral' s 24 liability . 25 The liability issue that Mr . Baral asserts here is Heritage Reporting Corporatio n (202) 628-4888 8 1 a fourth type of issue that an Appeals officer may consider 2 at a CDP hearing : Pursuant to section 6330 ( c)(2)(B) a 3 taxpayer may challenge the underlying tax liability, if he 4 "did not * * * have an opportunity to dispute such ta x 5 liability ." Mr . Baral had no such prior opportunity, so he 6 was able to make that challenge in his CDP hearing, and then 7 to press it in this lawsuit . Where the underlying tax 8 liability is properly at issue in a section 6330 hearing , 9 the Court will review the matter not for abuse of discretion 10 but de novo . Davis v . Commissioner , 115 T .C . 35, 39 (2000) . 11 If the Office of Appeals then issues a notice of 12 determination to proceed with the proposed levy, th e 13 taxpayer may appeal the determination to this Court within 14 30 days, as Mr . Baral has done, and we now "hav e 15 jurisdiction with respect to such matter ." Sec . 6330(d)(1) . 16 Additions to Tax . If a taxpayer does not file his 17 return and pay his tax timely, section 6651(a)(1) provides 18 an addition to tax for the failure to file, and sectio n 19 6651(a)(2) provides an addition to tax for the failure to 20 pay . Generally speaking, the statute defines thes e 21 additions as a percentage of the tax liability multiplied by 22 the number of months that the delinquency persists . These 23 penalties are mandatory (that is, the statute says the y 24 "shall be added") unless the taxpayer can show that th e 25 failure to file or pay "is due to reasonable cause and not Heritage Reporting Corporatio n (202) 628-4888 0 9 1 due to willful neglect ." Mr . Baral has made no challenge to 2 the correctness of the IRS's computation of the additions to 3 tax, but rather asks that the penalty be forgiven . We infer 4 that, in so saying, Mr . Baral invokes that "reasonabl e 5 cause" exception in both subsections of section 6651 . The 6 excuse that Mr . Baral proffers as his "reasonable cause" is 7 that he did not receive the Forms 1099 from his payors . But 8 this excuse does not suffice . 9 Mr . Baral could have requested an extension of 10 time to file the return, and then the section 6651(a)(1) 11 addition would not even have accrued, since the additio n 12 begins to run on the due date "determined with regard to any 13 extension for filing" . 14 Moreover, even if Mr . Baral did not receive th e 15 Forms 1099, he did receive the money . By consulting his own 16 bank records, he could have made at least an approximation 17 of his income amounts, and then filed his return and pai d 18 his tax based on that approximation . He could then hav e 19 later filed an amended return if necessary, after receiving 20 the Forms 1099 . Instead, he waited to file his return and 21 pay his tax until 11 months later, when he received th e 22 information . By so doing, he did not fulfill the duty that 23 the Internal Revenue Code imposes on taxpayers . 24 A taxpayer will not be excused from filing his tax 25 return for "reasonable cause" under section 6651(a)(1) Heritage Reporting Corporatio n (202) 628-4888 1 0 1 simply because the taxpayer was not sent a Form W-2, 2 Form 1099, Schedule K-l, or the like . See Dunne v . 3 Commissioner , T .C . Memo . 2008-63 ; Kopty v . Commissioner , 4 T .C . Memo . 2007-343, affd . on other grounds withou t 5 published opinion 2009 WL 585657 (D .C . Cir . 2009) ; Swonder 6 v . Commissioner , T .C . Memo . 1994-430 . The taxpayer should 7 do everything reasonable within his power -- such as making 8 additional efforts to obtain the statements as April 1 5 9 approaches, filing an extension to have more time to get the 10 information and properly report it, or even estimating the 11 income on a return -- before he can successfully argue that 12 his failure to file was for "reasonable cause ." Mr . Baral 13 did none of these things ; he simply failed to file hi s 14 return . 15 Similarly, Mr . Baral lacks reasonable cause for 16 his failure to pay the tax when due . The pertinen t 17 regulations require the taxpayer to show "that he exercised 18 ordinary business care and prudence in providing for payment 19 of his tax liability and was nevertheless either unable to 20 pay the tax or would suffer an undue hardship . . . if he paid 21 on the due date ." Treas . Reg . § 301 .6651-1(c)(1) . Mr . 22 Baral has not shown or argued that his financial situation 23 precluded him from paying his tax ; rather, he simply did not 24 pay the tax because he had not received the Forms 1099 . 25 This does not constitute "reasonable cause" for nonpayment . Heritage Reporting Corporatio n (202) 628-4888 11 1 Mr . Baral emphasized that while he made a mistak e 2 in not filing his return and paying his tax, he voluntarily 3 fixed that mistake and did file his return and pay the tax 4 due . Since his lapse involving the years 2004 through 2006, 5 he has been in compliance . It is commendable that Mr . Baral 6 fixed his error -- but the Code imposes these additions for 7 people who fail to comply in the first instance, a s 8 Mr . Baral failed . The additions to tax in section 6651 are 9 mandatory (the statute says they "shall be added") absent 10 reasonable cause . The Code has far worse penalties , 11 including negligence penalty, that were not assessed against 12 Mr . Baral ; and his voluntarily fixing his own 2005 error is 13 surely a reason that the IRS did not assert negligenc e 14 penalty against him . 15 Decision will therefore be entered in favor o f 16 respondent, upholding the determination to proceed with the 17 levy . 18 This concludes the Court's oral Findings of Fact 19 and opinion in this case . 20 (Whereupon, at 2 :56 p .m ., the bench opinion in the 21 above-entitled matter was concluded . ) 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888