TAX COURT OPINION

Case: Linda M. Allivato
Docket Number: 25733-07S
Judge: Panuthos
Opinion Type: summary
Filed: 01/10/2011
Pages: 15

T . C . Summary Opinion 2011-3 UNITED STATES TAX COURT LINDA M. ALLIVATO, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 25733307S. File'd January 10, 2011. William B. Clayton, for petitioner. Audra M. Dineen, for respondent . PANUTHOS, Chief Special' Trial Judge: -This case was heard pursuant to the provisions of· section 7463 of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463 (b) , the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any othei case. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code, SERVED JAN 1 0 2011 and al Rule references are to the Tax Court Rules of Practice - 2 - arid Procedure . T1 is case is before the Court on petitioner' s request for judicial review of an Internal Revenue Service (IRS) determination to sustain a notice of intent to levy to collect an assessed trust fund recovery penalty. The IRS assessed a trust fund r covery penalty agains petitioner for 2002 pursuant to section 6672. The sole issue for decision is whether the IRS abused its discretion in determining that collection by levy may proceed. ackground Some of the facts have been stipulated and are so found. The stipulation of, facts and the attached exhibits are incorporated herein by this reference. At the time the petition was fi]ed, petitioner resided in California. Assessment of Trust Fund Recovery Penalty P titioner operated a n w-defunct business named Otavilla Enterprises. Otavilla failed to pay employment taxes to the IRS for the quarter ending December 31, 2002. The IRS determined that p titioner was a responsible person required to pay the employment taxes and proposed a trust fund recovery penalty against her. A notice of the penalty was mailed to petiti.oner's last known address. The notice was returned to the IRS , unclaimed. ! Petitiónårdáñd/Mr."Allitrato (Mr. Allivatò) remain married and were still living together as husband and wife at thestime ofara tNial. The IRS issued petitioner a Notice of- Intent 'to Levy and a Your Ri<jlit to alHeariñg Pet tioner :received ithis noticemand i-eaporided*by requestincj à colelection due'procéss (CDP) hearing.a On 'Augusti 26 2005', othe IRS issued a letter tö petitioner advising her of thesCDP hearing date and requesting that shes EA submit a completed Form 433-A, Collection Information Statement for -Wage>Earnërs tand Self-Employed Individualstand certain tax returns / The IRS settlemènt -of f icer s (SO) ¶ròvidëdëseveral^ a a extensions. Petitioner ultimately submitted a completed* Farm 433-A on Januái 24T 2006 änd a completed Form 656, Offer -ine Coinpromise (OIC) , ön February 15, 2006.- "Patitioner offered~ to cempromise her- liability with. à payment of $1; O O O .A Pet itioner resubmittedethe- DIC in July"2006,: reducing the of fer- to $300 . Petitioriër á.sserted that because of an injury sustained by. Mr'. - Allivato, här earriings would be reduced. One October 10,- 2007, the IRS issued a notice of determination sustaining; the: levy.e a The IRS also determined that petitioner's.reasonable scollection. pot'eritial was $4,185 and that the $300 offerswas insufficient. Pet itio er and the SO had discussions about delinquent returns, currently not collectible status, and partial payment of the liability aftier the submission of and until July 2006. the OIC in February 2006 P titioner timely filed aspetition contesting the snotice of determination. At some, point .after the petition was -filed the parties agreed that petitioner had not had a full opportunity for a CDPel earing because petitiþner was not permitted to raise the issue f her underlying liability at the CDP hearing., On December 5, 2008, a the Court ranted a joint motion,to remand the case to respondent ' s Of f ice f Appeals to, af ford petitioner; an administrat ive hearing pursuant - to sec tion- 6330 . The Remand Tl e SO requested an updated Form 433-A, Federal income tax returns, and other financial information. Petitioner provided a Form 433-A on March 8, 2009. The SO conducted a face-to-face meeting with petitioner on A ril 8; 2009. Petitioner informed the SO that she no longer re eived unemployment incomes and had no other income bute was able to pay her expenses through gif ts f rom Mr. Allivato. The SO requested substantiation for the claimed expensès,a bank account stategents, :and information.about petitioner and Mr. Allivatois finances. The, SO sought this informátion since petitioner and Mr. Allivato remain married and reside in a community prope:éty State. I atwo separate letters dated April 29, 2009, petitioner first epresented to the SO that before her marriage to Mr. Allivato in Illinois in 1978, the two orally agreed to keep their fiNaná separate. Petitiorer asserted that as a esult of that agreement, Mr. Allivato's finances and assets were not relevant to the OIC or collection potential. Petitioner alleged that Mr. Allivato refused to complete a Form 433-A. Petitioner nevertheless provided by enclosure with those letters several check stubs for disability compensation payments Mr. Allivato had received and his bank statement showing his pension income and Social Security benefit payments Respondent requested specific information about petitioner's claimed transmutation agreement with Mr. Allivato and an explanation of how Mr. Allivato was able to make payments entitling them to claim a mortgage interest deduction on their 2007 jointaincome tax return which was greater than their gross earnings for that year.2 Petitioner inquired as to the whereabouts of certain tax refunds she had not received. Petitioner filed:joint Federal income tax returns with Mr. Allivato for several years after the trust fund recovery~penalty at issue arose, and in several years refunds were due to petitioner and Mr. Allivato. The SO informed petitioner that the refunds from the -joint returns had been applied to Mr. Allivato's separate trust fund recovery penalty liability for 1999 and therefore were not available to be applied 2On their 2007 joint return, a year in which petitioner was not employed, petitioner and Mr. Allivato claimed $45,180 in gross income while simultaneously claiming a mortgage interest deduction of $45,986: to pet tioner's separate tru t fund-recovery penalty liability - 6 - for 2002. I November *2009 the IRS requested that petitióner complete an OIC and a Form 433-A with both her and Mr. Allivato's e r e informåtion and provide some bank statements by December 7, 2009. PetitiŠner attempted to make anaoral offer to compromiset her tax liabil ty but failed to submit a written OIC or the requested finanoial infortnation. Petitioner requested that,the,SO. includ a statement in a followup sletter to petitioner ithat the IRS would not cor sider the OIC without|her spouse's financial information The SO sent such a letter on December; 3 , 20 0 9 . , On December 15 a 2009, he. IRS issued a suppl mental notice of determination sustaining the levy. Discussion W have juri'sdiction under section 6330 (d) (1) to -review respondent' s determination that the notice of intent to levy was proper and that respondent me y proceed to collect by levy.3 In srev ewing the Commissione ' s decision to sustain collections actionå, where the validity È>f- the underlying tax liability is a 'll proper]iy at issue, .the Court reviews the Commissioner's determination of the underlyi.ng tax liability de novo. Sego v.a 3The Pension Protection Act of 2006, Pub L. 109-280, sec. 1 0 Stat. 1019, amended sec. 6330 (d) and granted this Court 855, juris dic tion over all -sec . 6330 determinat ions made , af ter Oct . 16, 20 6. Perkins v. Commis ioner, 129 T.C. "58,3 63 "n.7 (2007) Oommissioner; 114 T:C. 604, 610 +(2000) ; 3Goza v. Comiiiissioner, 114 T.C& 176, 1812182 (2000):. -The Court reviewscany-other administrative determination regarding proposed collection actions*for abuse .of discretion. Sego v. Commissioner/asupra at 610; Goza VF Commissioner, supra sat 82. An abuse of discretion occurs when^the exercise of discretion is without soundebasis in fact or law. Mufphy v Commissioner, 125 T.C. 301, 308 (2005), affd 469 Fa.3d 27 (1staCir. 2006) Under sectión-6330, the Court a reviews3the position taken. by the Commissioner in the last supplemental notice of dëtei-mination. Kelbyd. :Commissioner, 130 TiC2 79 (2008)t The taxpayer has the bui-den ofeproving that the Commissioner' s determination to sustain a proposed collection acticon is än, abuse ofr discretione a Rule 142 (a) . At* the collection hearinå, a taxpayer-may raise any- relevant issues relatincf to thesunpaid taxeor proposed alevy,..including spousal defensesy challenges toothe appropriateness of the collection actions, and offers* of dollection alternatives. Sec. 6330 (c) (2)-(Ä) . * In additioni, shes maya challencje the existence oors amount ofethe underlying: tax liability,6but onlyrif she did not, receive a noticë of 'deficiency oreotherwise have an opportunisty to clisput'e 'such liability. Séc .36330 (c) (2) (B) . Trust Fund Recovery Penalty Sedtion- 6672 imposes a penalty for the willful failure to collect account for, andspay over indome andaemployment taxes of - 8 - employees Trust fund recovery penalties are assessed and collec ed in the same manner as tax, against a person including "an off icer or employee of, a corporation, or,a member. or-employee of a p rtnership who as such officer, employee, or member, i's under à duty to perform" the duties referred to innsection 66'7/2 Sec. 6671(b) . Such persons are referred to as "responsible persons" and the term may bei broadly applied. Mason v. Commissioner., 132 T.C. 301, 21. (2009) . A trust fund recovery÷ penalty may be assessed agai st any responsible person and «is separa e from the employer's responsibility for the unpaid income and e lo ment taxes. Sec. 6672(a)"; Mason v. Commissioner, supra at 321. Section 6672 (b) (1) provides that no - penalty maya be impose unless the Secretary notif ies the ,taxpayer in person or in writinc by mail to the taxpa er' s last known address that the taxpayer shall be subject to assessment for such penalty. Actual receipt of the notice is not required in order toi provesthat the Commis ioner; provided the re uired preliminary notice .. While petiti ner did not receive the notice, there is sno dispute as ,to its va idity or that it was sent- to.-petitionerl s last known address. See Hickey v. Commissioner, T.C. Memo. 2009-2. If a notice is not received and the taxpayer .has not otherwise had an opportunity. to dispute ·the; ] iability, the taxpayer may. dispute the existence or amount of t he underlying liability See sec. - 9 - 6330(c) (2) (B). Petitioner has conceded that she owes the trust fund recovery penalty but asserts that she is unable to pay the full amount. Offer-in-Compromise The Secretary may compromise any civil or criminal case arising under the internal revenue laws. Sec. 7122(a); Murphy v. Commissioner, supra at 308. Section 7122(d) provides that the Secretary "shall prescribe guidelines for'officers and employees of the Internal Revenue Service to determine whether an offer-in- compromise is adequate and should be accepted to resolve a dispute." Taxpayers who wish to propose an OIC must submit a Form 656. See Godwin v. Commissioner, T.C. Memo. 2003-.289, affd. 132 Fed. Appx. 785 (llth Cir. 2005). The regulations issued pursuant to section 7122(d) set-forth three grounds for an OIC: (1) Doubt as to collectibility, (2) doubt as to liability, and (3) promotion of effective tax administration. Sec. 301.7122- 1(b), Proced. & Admin. Regs. Petitioner asserts that her financial situation would indicate doubt as to collectibility. Doubt as to collectibility exists in any case in which the taxpayer's assets and income are less than the full amount of the liability. Sec. 301.7122-1(b) (2)-, Proced. &,Admin. Regs'. A determination of doubt as to collectibility includes a determination of the taxpayer's ability to pay the liability, taking into account the taxpayer's basic living expenses. Sec. - 10 - 301.7122-1(c) (2), Proced.. & Ádmin. -Regs. An OIC based onsdoubts as to collectibility generally is acceptable only if the offer reflects the taxpayer's reasd>nable collection potential; i.e., the amount the Commissioner Nould collect through administrative and ju icial collection proceedings. Murphy v. Commissioner, supra at 309 (citing Rev. Pr c. 2003-71, sec. 4.02(2), 2003-2 * C.B. 5]7, 517) . Thus an OIC would include disclosure of the taxpayer' s assets and income in order for the IRS --to determine the taxpayer' s reasonable collection potential.. . Id. P titioner argues that Åhe is not required to submit Mr. Alliva o' s financial informa ion upon submission of an OIC. Petitioner asserts that even though California is a community propert y State, she and Mr. Allivato had a valid transmutation agreem nt creating separate interests in property,for each s ! spouse In general, property interests are determined by State law. UnitedlStates v. Natl. Bank 6f Commerce, 472 U.S. 713, 722 (1985) Aquilino v. United S ates, 363 U.S. 509, 513 (1960) . Under dalifornia community p operty law, each spouse has a one- half ownership interest in t e community estate, including income earned by both spouses durin their marriage. " Cal. Fam. Code sec. 2 50 (West 2004) . Therþfore, without an agreement to the' contrary, petitioner is enti|tled to one-half of the salary and" assets accumulated by her and Mr. - Allivato during their -' 11 - marriage, which the INS could levy uponstoesatisfy her separate liability: In California married individuals- can-changerthe character of property ownedsby either or by both spouses by a writtens transfùutation agreement. -Cal Fam. Code sec. 850 (West 2004) . Califórnia âourts have given effect to "some oral agreements made be f ore January- 1, 1985 . 4 Financial Information ofsNonliable Spouse c We need not decidé whether there was a vaiid transmutation agreement . = Assuming there was:, respondent is nevertheless entitled to require .petitioner to provide financial information of her nonliable spouse. See Rannio v. Commissioner, .T.C. -Memo. 2010-178; sec. 301.7122-le(c) (2) (ii) , Proced. & Admin. Regs. Where a taxpayer offers to compromise a liability for which the taxpayer' s, spouse has noeliability,s -the Commissioner generally wil-it not consider the nonliable spouse's assets and income' in determining the amount of an acceptable OIC. Sec 301.7122-1(c) (2) (ii) (A) , Proced. & Admin. Regs . HoweŸer, a a 4Resþõrident aints out thatiNii 'sûch cases Caliiorn a coùräs have looked to objective evidence which shows the intent of the parties, such as surrounding ciráumstances, and their fealings with property.. Cal. Rptir. 483r, 490 "(Cal.'Ct. Aýp.' 1972'). The párties provided" in a joint exhibit a deed search showing that. petitioner jointly owned property in Ariñorik wÏth Mr. Allivat alleged oral agreement and before their relocation to California. See Jafeman v. Jafeman, 105 the parties' aEtions, in 1989 after the -- 12 - nonlia le spouse' s assets andi income may be considered to invest gate whether: i (1) Pr perty has been transferred from the taxpayer to the nonliable sp use under circumstances that would allow he Commissioner to co lect the liability, from the proper y, se.g., property con eyed in fraud of creditors; (2) property has been transferred from the taxpayer to the nonliable spouse for the purpose of re oving the property from consideration by the Commiss oner in evaluating the taxpayer' s OIC; or (3) collection of th taxpayer' s liability from the assets and income of the nonliable spouse is permitted under applic ble State law, erg., State community property law (this subsec ion would not apply if petitioner entered into a valid transmutation agreement) . Sëc. - 301.7122-1(c) (2) (ii) , Proced. & Admin . Regs . Tlie Commissioner may also request information regarding the assets and income of a nonliNble spouse for the purpose, of verify ng the amount of and besponsibility for expenses claimed by the taxpayer. Sec . 301.74L22-1(c) (2) (ii) (A) , Proced. X Admin. Regs. Petitioner provided a Form 433-A in March 2009 which claime , among other things, that her unemployment- income exceed d her costs and those costs included health insurance for both her and Mr. Allivato. hen petitioner's unemploymeht compens tion ended, the IRS equested Mr. Allivato's financiál information in order to ver fy the amount of and responsibilit - 13 - for expenses petitioner claimed. Petitioner did not provide substantiation of how her expenses were being paid. She asserted that her living expenses were funded by gifts from Mr., Allivato. Although-multiple requests for financial information and substantiation, Form 433-A, and an OIC were made, petitioner provided limited financial information, piecemeal over the course of the year after the remand. Petitioner failed to submit an OIC after the.remanda When a hearing officer is unable or refuses to consider collection alternatives because of a taxpayer's failure to provide financial information, courts have held that there was no abuse of discretion. Schwersensky v. Commissioner T.C. Memo. 2006-178; see also Lance v. Commissioner, T.C. Memo.-2009-129.- Taxpayers who wish to propose an,0IC must submit aeForm 656. See Godwin v. Commissioner, T.C. Memo. 2003-289. We are satisfied that it was not unreasonable for the SO- to require financial information-for the nonliable husband under the facts and circumstances of this case. Therefore, we hold that the SO's actions in sustaining the levy were appropriate and not an abuse of discretion. Interest Abatement In her trial memorandum petitioner asserts that she is entitled to interest abatement as a result of delays caused by respondent. As previously indicated, the Court granted a joint - 14 - motion to remand this case tà> rrespondent's office of Appeals in Decemb r 2008. "During 2009 there was a face-to-face meeting ®as well as many communications etween petitioner and "the SO. In November 2009 the SO provided a December 7, 2009, -deadline to petitioner for the submissioi of an OIC. When -no written OIC. was submit ed, the* supplemental otice of determination was issued on December 15, 2009.5 The supplemental determination did. not consider the issue of interest" abatement. The rec rd reflects that any requeste for interest abatement was submitted after, the SO closed the case and while he December 15, 2009, supplemental determination was being proces ed. We have held that while we may review an Appeals officer's determination regatding interest abatement if a taxpayer requests an abatemeAt of interest in a section 6330 hearing, we will not consideÈ same if it was not raised in the section 6330 heai-ing or considered in the notice of determination. Giamelli v. ommissioner, 'L29 T.C. 107 (2007/) ; Katz y Commissioner; 115 T.C. -329, 340-341 (2000) ;aMacDonald v Commissioner , T . C . Memo . 20 0 -63 . "Apparently petitioner ent to respondent a letter requestling an abatement of 18, 20d99, the isdue of CDP heÊring . On Dec. respondent sent a etter to petitioner advising that interest abatemè|mt had 'not been raised during the ilhterest oi1 Dec. 14, 2009. - 15 - We are satisfied that respondent reasonably set a deadline for submission of an OIC. Petitioner failed to timely submit a written OIC and failed to raise the issue of interest abatement at the CDP hearing. Thus, the notice of determination properly did not consider that issue. Accordingly, we hold that this court does not have jurisdiction to consider petitioner' s request for abatement of interest. See Giamelli v. Commissioner, supra. Conclusion We conclude that there was no abuse of discretion in sustaining the levy because petitioner did not submit an OIC or the required documents. Additionally, we have no jurisdiction over the claim for interest abatement. To reflect the foregoing, Decision will be entered for respondent.