TAX COURT OPINION

Case: Duane E. Murray
Docket Number: 6586-11L
Judge: Holmes
Opinion Type: bench
Filed: 12/13/2012
Pages: 16

UNITED STATES TAX COURT WASHINGTON, DC 20217 DUANE E.. MURRAY, ) Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) Docket No. 6586-11 L. ) ) ) ) ) ) ) ) ) ORD ER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is 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 of the above case before Judge Mark V. Holmes at Dallas, Texas on November 14, 2012, containing his oral findings of fact and opinion rendered after the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision for Respondent will be entered. - (Signed) Mark V. Holmes Judge Dated: Washington, D.C. December 13, 2012 { SERVED DEC 1 8 2DE Capital Reporting Company Duane E. Murray 11-14-2012 1 Bench Opinion by Judge Mark V. Holmes November 14, 3 2 3 4 2012 Duane E. Murray v. Commissioner Docket No. 6586- 11L THE COURT: The Court has decided to render 5 oral Findings of Fact and Opinion in this casë, and 6 the following represents the Court's oral Findings of 7 Fact and Opinion. 8 This bench opinion is made pursuant to the 9 authority granted by Section 7459(b) of the Internal 10 Reven.ue Code of 1986, as amended, and Rule 15.2 of the 11 12 13 Tax Court's Rules of Practice and Procedure. Mr. Murray was a Texas resident when he filed his petition in our case. The record consists 14 of the stipulation that the parties agreed to as well 15 as his testimony. 16 Let me begin with a little bit of 17 background. This case is all about the IRS's 18 decision to place a lien on Mr. Murray's property to 19 assist it in collecting his unpaid taxes from 2005 20 and 2006 that amounted to approximately $290Ò. 21 For his 2005 tax year, Mr. Murray had filed 22 his return late, and it did show that he owed more 23 than he had had withheld. The IRS consequently 24 tacked on additions for his failure to timely file 25 and his failure to timely pay, together with interest (866) 448 - DEPO www.CapitalReportingCompany.com . 2012 Capital Reporting Company Duane E. Murray 11-14-2012 4 1 2 3 4 on the unpaid balance. Much the same thing happened for the 2006 tax year. Again, Mr. Murray filed his return late. It showed he owed more money than he had had 5 withheld, and the IRS again added to his tax bill an 6 addition for his failure to timely file and for 7 failure to timely pay his taxes, together, of course, 8 with interest. 9 There's really only one issue in the case, 10 and that's whether the IRS correctly concluded that 11 these debts had not been paid by the time the lien 12 was placed on Mr. Murray's property in September of 2010 . 13 14 There are a couple of very important facts. 15 Mr. Murray was in bankruptcy from January 2008 till 16 the end of February 2009. He had had money levied 17 18 from his paycheck in 2007 before the bankruptcy, and again he had had more money levied from his paycheck 19 in 2009 and 2010, after his bankruptcy. 20 21 So he did not articulate clearly these facts or his reasons for thinking that his tax bill 22 had been paid before the lien was placed on his 23 property, either at the CDP hearing or in his 24 petition in our Court. 25 At the CDP hearing -- and we did not have (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 5 1 his request for a CDP hearing in the record, but I 2 don't think it matters much -- he apparently took the 3 position that he did not agree with the filing of the 4 5 6 7 federal tax lien, because the levy placed on his account should "have paid most of the December 31, 2001, balance . " In context this makes no sense, because the 8 unpaid taxes are from the 2005 and 2006 tax year, 9 although his tax troubles go back a ways; they go 10 11 12 13 14 back even further than 2001. Mr . Murray seemed to have been confused at this during his CDP hearing. He had been advised by the hearing officer that the federal tax lien was issued in order to protect the government's interest 15 and would not be released until the balances were resolved. 16 17 He took the position that his wages had 18 been levied and that that should have fully paid his 19 account, although, again, he seemed to have been 20 confused about what years were at issue. 21 The letter accompanying the notice of 22 determination, the notice of determination itself, 23 and the records produced in the administrative record 24 make clear that this case is about his 2005 and 2006 25 tax years. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 I 6 1 In his petition for us he didn't really 2 give a reason for his disagreement. He said, "I 3 disagree for several reasons, which will be explained 4 5 in great detail during my court" and "the IRS has done nothing but continue to fabricate one lie after 6 another. I will state my facts in court. " 7 8 9 This would have been the subject, I suppose, of a motion to dismiss the case for failure to state any reasons, but both the IRS and the Court 10 agree that under the circumstances, Mr. Murray, who 11 is representing himself, should get a decision on the 12 merits, such as they are. 13 The case comes down to two issues, really: 14 Where did the money go after the government got it, 15 collecting these levies from his paychecks, and 16 should the money have gone to where the government 17 put it? 18 These, in short, are questions of crediting 19 his accounts for the payment of unpaid and overdue 20 taxes. 21 få me byn T 'm at -t_e end of the discussion with a 22 couple of general provisions: For the sake of Mr. 23 Murray, who's not here today, I want to try to 24 explain to him what's going on. I need to indulge in 25 a bit of tax jargon. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 1 It's important to understand the concepts 2 of liability and deficiency and assessment. A tax 3 liability is the tax imposed by the Code on a 4 particular taxpayer for a particular tax year. 5 Section 26(b) (1). For an individual who corréctly 6 7 8 9 reports his taxes, that liability is the amount of tax shown on his return. A deficiency is the difference between the amount of a taxpayer ' s liability and the amount shown 10 on his return; in other words, the difference. between 11 12 13 14 15 16 a taxpayer's liability under the Code and what he admits he owes on his return. Section 6211. An assessment is the recording of a liability in the Commissioner's books. Section 6203. With these definitions in place it might seem at first reading that challenges to the proper 17 crediting of proceeds from the levy that are sent to 18 19 the IRS are not challenges to the underlying liability, because they don't raise questions of the 20 amount of the tax imposed by the Code for a 21 particular year. They raise instead questions of 22 whether that liability remains unpaid. To that 23 extent, of course, I agree with Mr. Murray. 24 Questions about whether a particular amount 25 of money is properly credited to a particular (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 8 1 2 taxpayer's account for a particular tax year are not challenges to the underlying tax liability. That 3 means that what I'm reviewing here is whether Ms. 4 Martinez, the appeals officer, issued a determination 5 in which she abused her discretion. I'm not looking 6 at the facts all by themselves, brand new. 7 That means that I look to see if her 8 decision was grounded on an error of law or rested on 9 a clearly erroneous finding of fact or whether she 10 applied the correct law to fact findings that weren't 11 clearly erroneous but ruled in an irrational manner. 12 13 14 15 Industrial Investors v. Commissioner, T.C. Memo 2007- 93; see also Cooter and Gell v. Hartmarx Corp., 496 U.S. 384, 402-03 (1990). Now, of course, as I had said, Mr. Murray 16 did not raise any of these somewhat technical issues 17 18 and get the vocabulary exactly right in anything that he wrote or in his discussion in court, but again, 19 I'll allow it to pass, in part because of a decision 20 called Hoyle v. Commissioner, 131 T.C. 197. 21 22 In that case we reasoned that Section 6320 (a) (1) regulres the Commissioner to give any 23 person liable to pay tax written notice of the filing 24 of a tax lien upon the taxpayer's property. 25 The notice must inform the taxpayer of his (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 9 1 2 3 4 5 right to request a hearing in the Commissioner's appeals office . Section 6320 (a) (3) (B) and (b) (1) . Section 6330 (c), (d), and (e) govern the conduct of a hearing requested under Section 6320. See Section 6320 (c). So in other words, I will look 6 at the levy rules in this case, even though it's a 7 8 9 lien case, because the Code tells me to. Most importantly, the Code tells th.e appeals officer conducting a CDP hearing that he or 10 she must verify that the requirements of any 11 applicable law or administrative procedure have been 12 met. That's in Section 6330 (c) (1) and 6330 (c) (3). 13 14 We held in Hoyle that Tax Court will "review the appeals officer's verification under 15 Section 6330 (c) (1) without regard to whether ¡the 16 taxpayer raised it at the appeals hearing. " 17 Consequently, the issue of whether Mr. Murray had 18 payments from his levy properly credited to his 19 overdue tax accounts are issues that he did not have 20 21 22 23 to raise himself. As I said before, I will try to address his claims on their merits. So the first question that I have to ask 24 for Mr. Murray is, where did the money go? First 25 off, what money are we talking about? The t'estimony (866) 448 - DEPO www.CapitalReportingCompany.com i 2012 Capital Reporting Company Duane E. Murray 11-14-2012 1 was somewhat confusing, but there are four chunks of 10 2 money at issue here. 3 One was the approximately $7200 that Mr. 4 Murray had levied from his paychecks in 2007. The 5 6 one bit of evidence that was attached to Exhibit J-17 showed that he had a balance due on April 2003 of 7 approximately $10,000. Only about $2145 of this 8 seems to have been applied to his 1996 tax year, 9 which was the earliest before the Court until the 10 record was supplemented by the 1995 account 11 12 transcript. But the balance owed in 2007 when that levy 13 began, as I said, was more than $10,000. His account 14 15 for 1996 was only about $2100. It was clear that the levy was for years in addition to 1996. I find it 16 highly probable that although some of this money went 17 18 19 to the 1996 tax year, the bulk of it went to the 1995 tax year . The second chunk of money came from his 20 bankruptcy distribution, a check for the amount of 21 $1459.41 on September 2 of 2008. This clearly went 22 to pay his 2005 tax bill. The account transcript is 23 quite clear on that point and was part of the 24 evidence as Exhibit J-10. 25 The third chunk of money was an unusual (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 11 1 situation, where $2278.13 plus a $15 administrative 2 3 4 5 6 7 fee was taken from his paychecks in 2009. The evidence before the Court showed that these were not taken in the form of a levy but rather in the form of an offset, a deduction taken right by his employer. I find, however, that those did not involve tax debts at all but, according to the exhibit that 8 Mr. Murray himself had, was an offset for some form 9 of overpayment by his employer at the time. This did 10 not go to reduce his tax bill; it went to pay off 11 12 13 this other debt that he apparently owed to his employer. See Exhibit J-12 at page 3. The fourth chunk of money involved in this 14 case were the monies taken by the government from his 15 paychecks between August 27, 2009, right after he 16 came out of bankruptcy, through November 18, 2010. 17 This was a levy on his wages. 18 Mr . Murray had helpfully summarized the 19 payments under this levy. I saw, when I examined the 20 documents more closely, that he had missed in his 21 summary one payment on February 25, 2010, so there 22 were in fact 32 payments of, roughly speaking and 23 with one exception, 200 to $300 every pay period. The 24 one exception was a much smaller amount of around 25 $30. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 1 In looking at the transcripts that were 2 part of the evidence, however, it became clear that 12 3 4 5 6 7 8 9 these had been taken by the IRS and applied to the tax bill. There were five of these 32 payments that completely paid off his 1996 tax bill. Those were the payments between August 27 and October 22 of 2009. The next group of payments were four payments that paid off his 1997 tax bill. 'These were from 10 November 5 to December 17, 2009. 11 12 13 14 15 Then there were seven payments that, somewhat out of sequence, paid off his 1999 tax bill. These were the garnished wages from December 31, 2009, through March 25, 2010. And then the remaining 16 payments, all as 16 reflected on the IRS records, went towards paying his 17 18 1998 tax debt. And those began on April 8, 2010, and continued, as I said, through mid-November of that 19 same ye ar . 20 21 22 23 In other words, I have to conclude that all the payments from the levies did go to pay off his tax debts, but from years other than 2005 and 2006. That leads to the last question in this 24 case, is was the IRS's decision to apply those 25 payments to those earlier years correct? Now, as a (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 13 1 general matter, the IRS has authority to apply 2 3 4 involuntary payments any way it wants as long as the taxes are still legally owed. In the case of voluntary payments, Revenue 5 Procedure 2002-26 states, in Section 3.02, "At the 6 7 time a taxpayer voluntarily tenders a partial payment that is accepted by the Service and the taxpayer does 8 not provide specific written directions as to the 9 application of the payment, the Service will apply 10 11 12 the payment to periods in the order of priority that the Service determines will serve its best interest." Usually that means the IRS applies money to 13 the earliest tax year, for fear that the statute of 14 15 limitations on collection will run out. However, that Revenue Procedure does apply only to voluntary 16 payments made by a taxpayer. 17 18 The rules are no different for somebody like Mr. Murray, who is in a position of making 19 involuntary payments, and we have held in Tax Court, 20 in a case called Larotonda v. Commissioner, 89 T.C. 21 287, 291 (1987) that payments of federal taxes by 22 means of a levy, which is what Mr. Murray had back in 23 2009, 2010, are a form of involuntary payment. 24 So we know that levies are an involuntary 25 payment. We also know from an even older case called (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 14 1 2 Amos v. Commissioner, 47 T.C. 65, 69 (1966), that "as a general rule a debtor voluntarily paying his debt 3 may direct the application of his money to such items 4 or demands as he chooses, but such is not the case 5 where, as here, the payment is made involuntarily, as 6 7 in an execution or judicial sale. We believe that is between the debtor and creditor, and in the interest 8 of orderly administration, the better rule for 9 federal tax purposes is to permit the Commissioner's 10 agent to apply involuntary payments in the manner he 11 chooses." 12 So the general rule is that when somebody's 13 wages are garnished by the federal government.for 14 back taxes, the IRS gets to decide how to apply that 15 money, and that's what happened here. 16 But as I said, there is an exception if the 17 debt is no longer collectable because the statute of 18 limitations has run, and towards the end of his 19 testimony, this is what Mr. Murray thought had 20 happened . 21 He knew that there was in general a ten- 22 year statute of limitations for the collection of 23 overdue and unpaid federal tax debt, and he thought 24 that since this levy had taken place in 2009, 2010, 25 and the lien had been put on his property only in (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 15 1 September of 2010, that collecting taxes back to '96, 2 '97, '98 was way too long. The Government, in other 3 words, had blown the statute of limitations. 4 5 6 .But here's where there are exceptions to the exception to the general rule. I want to go and try to explain to Mr. Murray why the ten-year rule 7 doesn't apply in his case. 8 The oldest tax year that he had still 9 unpaid was the 1996 tax year, and here the statute of 10 limitations, which otherwise would have run out if he 11 had filed his tax return on time in about 2007, had 12 been extended for a very large portion because the 13 Government had sent him a notice of deficiency back in 1999. 14 15 He had not contested that notice of 16 deficiency, and the result is that additional taxes 17 were assessed, to use the vocabulary term that the 18 19 20 21 22 IRS uses, in January of 1999. That means that the ten-year clock wouldn't run out until January of 2009. See Boyd v. Commissioner, 117 T.C. 127, 130 (2001) . But before that, before January of 2009, 23 the statute of limitations gets extended again for 24 Mr. Murray because he was in bankruptcy from January 25 of 2008 to February of 2009, and so the statute of (866) 448 -. DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Duane E. Murray 11-14-2012 16 1 2 limitations gets extended again for the number of days that he's in bankruptcy. See Severo v. 3 Commissioner, 129 T.C. 160, 169-73 (2007). 4 By the time that Mr. Murray emerged from 5 bankruptcy, then the statute of limitations even for 6 7 this old tax year, 1996, had not yet run, because you have to add to the ten years the time at the 8 beginning when the Government sent him a notice of 9 deficiency and the time at the end when he was in 10 bankruptcy. 11 Now, it's true that the notice of 12 deficiency was for the amount of $1241, but by that 13 point, although only the $1241 and associated 14 penalties, additions, and interest can be collected 15 through 2009, that was what was in fact being 16 collected, if one looks at the account transcripts. 17 For the later years the math is a little 18 bit easier. For the 1997 tax year, Mr. Murray didn't 19 even file a return until 1999, which means that the 20 statute would not begin to run -- or would not run 21 out until 2009, but again his bankruptcy extended it 22 for over a year and a couple of months. 23 And then there is the 1998 tax year. He 24 didn't file this return until 2007, which means that 25 the statute of limitations has still not run on that (866) 448 - DEPO www.CapitalReportingCompany.com . 2012 Capital Reporting Company Duane E. Murray 11-14-2012 17 1 tax year, and his 1999 tax year he did file timely in 2 early 2000, but, again, that statute of limitations 3 4 5 had not yet run when you add to the period of 10 years the extra time that he was in bankruptcy. So I find here that there was no práblem 6 with the Commissioner's crediting of his payments, 7 either in amount or for the particular tax years with 8 which the Commissioner decided to apply the payments . 9 I have to find for the Commissioner,! then, 10 and decide that Respondent may proceed with the 11 collection of Mr. Murray's federal income tax 12 liabilities for the tax years 2005 and 2006, as 13 described in the notice of determination concern1ng 14 collection actions under Section 6620 and/or 6330, 15 dated February 18, 2011. This concludes the Court's oral findings of fact and opinion in this case and the Dallas 2012 session. Thank you very much. (Whereupon, at 1:29 p.m., the bench opinion was concluded.) 16 17 18 19 20 21 22 23 2 4 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2012