TAX COURT OPINION

Case: Robert W. Peterson
Docket Number: 19899-15L
Judge: Gustafson
Opinion Type: bench
Filed: 12/22/2016
Pages: 18

SYM UNITED STATES TAX COURT WASHINGTON, DC 20217 ROBERT W. PETERSON, Petitioner, v. ) ) ) ) Docket No. 19899-15 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at Los Angeles, California, on December 6, 2016, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. December 22, 2016 SERVED Dec 23 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge David Gustafson December 6, 2016 3 Robert W. Peterson v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 19899-15L The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure, and it shall not be relied on as precedent in any other case. This "collection due process" ("CDP") case is an appeal by petitioner pursuant to 26 U.S.C. section 6330(d), asking this Court to review the determination by the Office of Appeals of the Internal Revenue Service ("IRS") to sustain a notice of Federal tax lien ("NFTL") to collect petitioner's unpaid income tax for the years 1981 and 1982. The petition also purports to put 1980 at issue, but the notice of determination (Ex. 1-J) does not address 1980, and Mr. Peterson points to no other notice that might confer jurisdiction for 1980. Before trial respondent moved to dismiss 1980 from the case, and we will grant that motion and hold that we lack jurisdiction for 1980. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 The case was tried in Los Angeles, California, on December 5, 2016. Petitioner Robert W. Peterson represented himself, and Halvor R. Melom represented the Commissioner. We hold that IRS Appeals did not abuse its discretion, and we sustain the filing of the notice of lien. FINDINGS OF FACT 8 Mr. Peterson's tax shelter 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Mr. Peterson was a pilot for Delta Airlines. In about 1980 he participated in a "Kersting" tax shelter and used its supposed effects to reduce his income tax liability for 1981 and 1982 (among other years). He testified that the shelter involved an investment of "one dollar in" and a tax benefit of "four dollars out", which, he admitted, seemed "not exactly right". When the IRS disallowed the tax benefits in notices of deficiency for 1981 and 1982, dated August 23, 1983, and February 8, 1990 (Exs. 25-C, 50-C), Mr. Peterson filed two timely deficiency suits in Tax Court--in No. 32052-83 on November 14, 1983, and in No. 8897-90 on May 7, 1990--of the records of which the Court now takes judicial notice, from which records the Court has marked selected documents as Exhibits 45-C through 57-C. In the latter case for 1982, Mr. Peterson pleaded that the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 notice of deficiency was untimely under the statute of limitation (see Ex. 50-C, para 4(2)), but the IRS alleged that he had executed a Form 872-A(C), "Special Consent to Extend the Time to Assess Tax". (Ex. 51-C.) That case was not dismissed on jurisdictional grounds. Agreement to be bound In each case, Mr. Peterson personally signed a "Stipulation of Settlement for Tax Shelter 1 2 3 4 5 6 7 8 9 10 Adjustments", one in October 1986 (Ex. 46-C) and the 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other in October 1990 (Ex. 52-C). By these stipulations, Mr. Peterson agreed to be bound by the outcome in a test case to be tried by another taxpayer. Years then passed. (See 34-J.) For taxpayers who, like Mr. Peterson, had so stipulated, the Kersting tax shelter litigation used a test case procedure that resulted in Dixon v. Commissioner, T.C. Memo. 1991-614, vacated and remanded sub nom. DuFresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994), on remand Dixon v. Commissioner, T.C. Memo. 1999-101, supplemented by T.C. Memo. 2000-116, rev'd and remanded 316 F.3d 1041 (9th Cir. 2003), on remand T.C. Memo. 2006-90 (Dixon VI), supplemented by T.C. Memo. 2006-190, aff'd sub nom. Hongsermeier v. Commissioner, 621 F.3d 890 (9th Cir. 866.488.DEPO www.CapitalReportingCompany.com . Capital Reporting Company 6 1 2010). On June 1, 2012, the Court of Appeals for the 2 Ninth Circuit filed its amended mandate in the 3 4 5 6 7 8 9 appeals of the last test cases, Adair v. Commissioner, docket Nos. 17642-83, 38965-84, 35608-86, 479-89, 8070-90, Owens v. Commissioner, docket No. 40159-84, and Young v. Commissioner, docket Nos. 4201-84, 22783-85, 30010-85. (We refer to this litigation collectively as "the Dixon cases".) 10 Entry of decision 11 12 13 In July 2012 the Chief Judge of the Tax Court issued orders in Mr. Peterson's cases (Exs. 47-C, 53-C, 24-J at 274), assigning them to Judge John 14 Colvin for the purpose öf entering decision 15 16 17 18 19 20 21 22 23 24 consistent with the outcome in the Dixon cases. The orders set up a procedure that gave Mr. Peterson an opportunity to object to the IRS's proposed computations. In both cases an attorney entered his appearance on behalf of Mr. Dixon in December 2012. (Exs. 48-C, 54-C.) In March 2013 the IRS filed in each case a "Motion for Entry of Decision" (Exs. 49-C, 55-C), which recites in paragraph 16 that "Petitioner Robert W. Peterson does not object to the granting of this motion." The Court granted the 25 motions and entered decisions accordingly (Exs. 2-J, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 3-J). Consistent with respondent's motion, the Tax 2 Court's decisions provided (favorably to Mr. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Peterson) "that no interest shall accrue during the period from May 14, 1992, through September 13, 2007", evidently in view of the extraordinarily long period during which the Dixon cases had been pending and for which the assessments had therefore been delayed, as required by section 6213(a) (second sentence). No appeal was filed from either of Mr. Peterson's deficiency cases, and no motion for a redetermination of interest was ever filed in those cases under section 7481(c). Assessment and demand The IRS assessed Mr. Peterson's income tax deficiencies for 1981 and 1982 on June 21, 2013, in the amounts stated in the Tax Court's decisions. (Compare Exs. 2-J and 3-J with Ex. 5-J at 106-107.) On the same date the IRS also assessed the underpayment interest on that tax liability. However, the IRS's interest computation "suspended" the interest liability (i.e., did not charge interest) for the 15-year period of May 14, 1992, through September 13, 2007 (Ex. 37-J at 377, 379), as the Tax Court's decision had ordered. The IRS's computation did charge interest for the periods 866.488.DEPO dww.CapitalReportingCompany.com Capital Reporting Company 8 before and after that suspension period. We find that the IRS issued a notice and demand to Mr. Peterson for payments of the 1981 and 1982 liabilities. (The Appeals Office verified this issuance, see Ex. 1-J at 12), and Mr. Peterson did not dispute it. Settlement and collection attempts On August 19, 2013, Mr. Peterson's attorney submitted to the IRS an Offer in Compromise ("OIC"). (Ex. 4-J.) (As is discussed below, consideration of this OIC was eventually brought into the subsequent CDP proceedings, and the IRS did not accept the OIC.) In 2015 Mr. Peterson resided in a house on Nansen Court in Park City, Summit County, Utah. (Exs. 4-J at 87; Ex. 44-J.) The records show that the house was owned by "Peterson Robert Wesley Trustee". Mr. Peterson contends, and we can assume for present purposes, that Mr. Peterson owned the property in trust for the benefit of his children. On February 17, 2015, when Mr. Peterson had not paid the 1981 and 1982 liabilities, the IRS filed a "Notice of Federal Tax Lien" (Form 668) against Mr. Peterson for those 1981 and 1982 liabilities totaling $56,690 in the records of Summit County, Utah (Ex. 14-J; Ex. 15-J at 244-245). The filed notice stated 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 his address as a Post Office Box address in Park 2 City. The filed notice did not refer to the Nansen 3 Court house. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 CDP hearing before IRS Appeals Also on February 17, 2015, the IRS issued to Mr. Peterson a "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320" (Letter 3172). (Ex. 15-J at 242-243.) Mr. Peterson timely submitted to the IRS a "Request for a Collection Due Process * * * Hearing" before IRS Appeals, dated February 26, 2015. (Ex. 16-J.) His request stated, "There is an existing Offer in Compromise active / last stages of Parkinson's disease." Shortly thereafter, the IRS issued a letter dated March 26, 2015 (Exs. 21-J, 22-J), that purported to reject the OIC because Mr. Peterson's reasonable collection potential ("RCP") substantially exceeded his liabilities. However, IRS Appeals determined that the rejection had been premature, asserted jurisdiction to consider the OIC, and treated the 21 March 26 letter as a recommendation. Eventually 22 23 24 25 Appeals did reject the OIC in the CDP context, but we need not discuss it further, because Mr. Peterson has not contended in this suit that the notice of determination was improper because it rejected the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OIC. As best we can determine, Mr. Peterson contended in the CDP hearing (see Ex. 1-J) and in this case (see petitioner's pretrial memoranda): (1) that the decisions in his deficiency cases were entered against him in violation of due process of law because (a) they were entered without his having adequate notice of the proceedings or opportunity to contest the liabilities, (b) they somehow contradicted prior decisions, and (c) they held him liable for interest that accrued during the long pendency of his cases, which was extended without fault on his part; (2) that the liabilities at issue were assessed in violation of the statute of limitations; (3) that the notice of lien was improper insofar as it was filed against the Nansen Court house, since he maintains that he owns the property only in trust for his children; and (4) that the liabilities should be excused (or collection of them deferred) because of his medical problems, which constitute a hardship. IRS Appeals rejected these contentions and upheld the notice of lien in its notice of determination issued July 17, 2015. (Ex. 1-J.) On August 5, 2015, Mr. Peterson timely filed his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company petition in the Tax Court, appealing to us from that determination by IRS Appeals. At that time he 11 resided in Utah. I. Collection Due Process principles OPINION When a taxpayer fails to pay any Federal income tax liability after demand, section 6321 imposes a lien in favor of the United States on all the property of the delinquent taxpayer, and section 6323 authorizes the IRS to file notice of that lien. The IRS must provide written notice of a tax lien filing to the taxpayer within five business days. After receiving such a notice, the taxpayer may request an administrative hearing before Appeals. Sec. 6320(a) (3) (B), (b)(1). Administrative review is carried out by way of a hearing before IRS Appeals pursuant to section 6330(b) and (c); and, if the taxpayer is dissatisfied with the outcome there, he can appeal that determination to the Tax Court under section 6330(d), as petitioner has done. For the agency-level CDP hearing before IRS Appeals, the pertinent procedures are set forth in section 6330(c). Those procedures require IRS Appeals to consider four sets of issues: First, the appeals officer must obtain 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). Mr. Peterson asserts no defect in Appeals' verification, and we see none, so we discuss it no further. (We treat the statute of limitations issue as a liability issue, not a verification issue.) Second, a taxpayer may contest the existence and amount of the underlying tax liability if he did not have a prior opportunity to dispute the tax liability. Sec. 6330(c)(2)(B). We treat his "due process" and statute of limitations arguments as challenging his underlying liability, and we discuss them below in parts II.B and II.C. Third, the taxpayer may "raise at the hearing any relevant issue relating to the unpaid tax or" the lien, including challenges to the appropriateness of the collection action and offers of collection alternatives. Sec. 6330(c)(2) (A). Mr. Peterson did propose an OIC as a "collection alternative", but he has not contended that rejection of the OIC was an abuse of discretion, so we do not further discuss collection alternatives. We treat his contentions as to the supposed filing of the lien against the Nansen 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Court house as an issue under (c)(2) (A) and discuss 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it below in part III. Fourth, at the CDP hearing Appeals is to consider "whether any proposed collection action [here, the filing of the NFTL] balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." Sec. 6330(c) (3) (C). The filing of a notice of lien is often the least intrusive means of collection. Mr. Peterson has contended that his medical issues make collection unfair, and we address this below in part IV as a "balancing" issue. When Appeals issues its notice of determination, the taxpayer may "appeal such determination to the Tax Court", pursuant to section 6330(d)(1). II. Challenge to underlying liability A. Review principles In considering IRS Appeals' consideration of collection issues, the Court reviews the administrative determination for an abuse of discretion, see Sego v. Commissioner, 114 T.C. 604, 610 (2000); but in addressing challenges to underlying liability, we consider the issues de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). As we noted above, a taxpayer is allowed to challenge 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 underlying liability in a CDP case only where he has not had a prior opportunity to make such a challenge. In making such a challenge, the petitioner normally bears the burden of proof, see Rule 142(a)(1); but Section 7491(c) imposes on the IRS "the burden of production in any court proceeding with respect to the liability of any individual for any penalty". Penalties are not at issue here. B. "Due Process" challenges Mr. Peterson's "due process" arguments ask us to review and correct errors made in the entry of the decisions in his prior cases. However, the proper remedy for any such errors would have been for him to move the Tax Court for a redetermination of interest under section 7481(c) or to appeal those decisions to the U.S. Court of Appeals. He did not do so. He cannot use a new Tax Court case to litigate matters that the Court previously decided in another case. In addition, those prior cases were prior opportunities to dispute the tax and interest liability, for purposes of section 6330(c)(2)(B), so he is barred from making those due process arguments in this CDP proceeding. Moreover, his arguments lack factual foundation and lack merit, though we believe he makes them 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 8 9 sincerely. Contrary to his belief, those decisions were not entered without his having adequate notice of the proceedings or opportunity to contest the liabilities. Rather, by his own signature he stipulated to be bound by the outcome in a test case (the Dixon cases); when the Dixon cases had been resolved, the·Court's July 2012 orders (Exs. 47-C, 53-C, 24-J at 274), set up a procedure that gave him an opportunity to object to the IRS's proposed 10 computation; through counsel Mr. Peterson consented 11 12 13 14 15 16 17 18 to the entry of the decisions; there were no prior decisions that contradicted the decisions entered; and the decisions excused him from 15 years' worth of the underpayment interest that he otherwise would have owed (and he has shown no computational error). We see no failure of due process here. C. Statute of limitation Section 6501(a) requires that tax be assessed 19 within 3 years after the return was filed, but the 20 21 22 23 24 25 issuance of a notice of deficiency within that period stops the running of the SOL clock, see sec. 6213(a); and the timely filing of a Tax Court petition further suspends the SOL until 60 days after the decision in the deficiency case becomes final, see sec. 6503(a)(1). 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 To the extent Mr. Peterson would contend that the notices of deficiency were issued untimely (i.e., after the running of the 3-year period), he had the opportunity to do so in the deficiency cases themselves, see sec. 7459(e), and that prior opportunity bars his attempting it here. Moreover, the contention would seem meritless: Mr. Peterson's 1981 return was due in April 1982, and the notice of deficiency for that year was issued in August 1983 (see Ex. 45-C), well within that 3-year period. The notice of deficiency for 1982 (for which the return was due in 1983) was not issued until February 1990, but that delay is apparently explained by Mr. Peterson's evident execution of a consent to extend the time to assess (see Ex. 51-C). Mr. Peterson did not show, either in the prior deficiency cases nor in this case, that the notices of deficiency underlying his deficiency cases were untimely. Since the assessment of the liabilities at issue necessarily took place after the conclusion of the deficiency cases, Mr. Peterson apparently did not have a prior opportunity to argue that the assessments were made in violation of the statute of limitations, and since such a challenge is not barred, we consider it here. However, we hold that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 the assessments were timely. Mr. Peterson's timely November 1983 filing of his petition for 1981, and his timely May 1990 filing of his petition for 1982, further suspended the SOL until 60 days after the 5 March 2013 decisions in his deficiency cases became 6 7 8 9 10 11 12 13 14 15 16 17 18 final, see sec. 6503(a)(1). The assessment of the liabilities made promptly thereafter in June 2013 was clearly timely. Mr. Peterson has not shown any violation of the statute of limitations in the assessment of his liabilities. III. Lien against property in trust Mr. Peterson contends that the IRS wrongly "liened" the Nansen Court house, he says, that belongs not to him but to his children (although he holds it in trust for them). However, he produced no evidence to show that the IRS made any lien filing or took any other action with respect to the Nansen 19 Court house. The factual predicate for this 20 21 22 contention is wholly lacking in the record before us. IV. Balancing medical hardship Mr. Peterson contends that he has medical 23 difficulties that the IRS failed to take into 24 25 account. We are not sure of the precise significance of this contention. We do not understand Mr. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 10 11 Peterson to simply be contending that sick people should be excused from their tax liabilities. In some cases a contention of medical difficulties might relate to a failure by the IRS to accept an OIC or other collection alternative, but Mr. Peterson has not made this contention or urged here that the IRS should enter into an OIC with him. Mr. Peterson's argument about his health may be another aspect of his general complaint about the long delay in the resolution of his 1981 and 1982 taxes. That is, he may be contending that if this 12 matter had been promptly resolved 20 years ago when 13 14 15 he was still in good health and was able to earn a good living, then paying off the liabilities would have been easier for him, whereas the long delay now 16 makes him face a liability that is greater (on 17 18 19 account of interest) when he has a diminished ability to pay. However, the remedy for any inequity in such a situation would be a collection alternative--which 20 would require the taxpayer to make an actual showing 21 22 23 24 25 of his inability to pay. But by failing to contend and show his entitlement to such an alternative, he forfeits that remedy. The "Balancing Analysis" set -out in the notice of determination (Ex. 1-J at 13-14) shows that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 Appeals took reasonable account of Mr. Peterson's 2 medical condition in deciding to sustain the notice of lien. We find no fault in that analysis. We therefore find no error or abuse of discretion in the determination by IRS Appeals to sustain the filing of the NFTL, and we will enter decision in favor of respondent. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:51 a.m., the above- entitled matter was concluded.) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 .. 866.488.DEPO www.CapitalReportingCompany.com