TAX COURT OPINION

Case: Suzanne T. Bray
Docket Number: 21034-05L
Judge: Marvel
Opinion Type: memo
Filed: 04/24/2008
Pages: 19

RECORDE D T .C . Memo . 2008 113 UNITED STATES TAX OUR T SUZANNE T . BRAY, Peti ioner V . COMMISSIONER OF INTERNAL REV NUE, Responden t Docket No . 21034-05L . Filed April 24, 2008 . MARVEL, Judge : Pursuant to section~6330(d),1 petitioner to proceed with th e ' Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure . SERVED APR 2 4 2008 L i collection of petitioner's 2000, 2001, and 2002 Federal income - 2 - tax liabilities . Background The parties submitted this case fully stipulated under Rul e 122 . We incorporate the stipulated facts and the accompanying exhibits into our findings by this reference . Petitioner resided in California when her petition was filed . Petitioner failed to file a timely Federal income tax return for 2000 . Respondent prepared a substitute return for 2000 under section 6020(b) and, on June 9, 2003, mailed petitioner a notice of deficiency for 2000 . In the notice, respondent determine d that petitioner was liable for an income tax deficiency of $19,131 and for additions to tax under sections 6651(a)(1) and (2) and 6654 . Petitioner timely received the notice of deficiency but did not petition this Court with respect to her 2000 tax liability . On November 10, 2003, respondent assessed an income tax deficiency of $19,131, additions to tax under sections 6651(a)(1) and (2) and 6654, and interest and sent petitioner a notice of balance due . 2 2 The Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for 2000 that was stipulated by the parties as Exhibit 2-J appears to conflict with the stipulation of fact regarding the assessment of petitioner's 2000 liability . Stipulation of facts par . 13 reflects that respondent's Examination Division made an assessment with respect to the substitute for return it executed for 2000 pursuant to sec . 6020(b), on or around Dec . 30, 2002 . The Form 4340, however , (continued . . . ) - 3 - Petitioner also failed to file a ely Federal income tax return for 2001 . Respondent prepare d ubstitute return fo r 2001 under section 6020(b) and, on or ab ut June 14, 2004, maile d petitioner a notice of deficiency for 20 1 . In the notice, respondent determined that petitioner wa liable for an incom e tax deficiency of $37,001 and for additi ns to tax under sections 6651(a)(1) and (2) and 6654 . Petitioner timely received the notice of deficiency but did not petitio this Court with respec t to her 2001 tax liability . On or around July 12, 2004, respond nt received petitioner's Form 1040, U .S . Individual Income Tax Re urn, for 2000 . Petitioner reported taxable income of $1 2,143 and a tax liability of $24,284 . Respondent accept d petitioner's 200 0 return, assessed additional tax of $5,15 and adjusted the assessments of the additions to tax unde section 6651(a)(1) an d (2) to reflect the information reporte d the return . On September 15, 2004, respondent r ceived petitioner's For m 1040 for 2001 . On the 2001 return, peti Toner reported taxable income of $94,012 and a tax liability o f $23,023 . On December 20, 2004, respondent assessed a tax def i iency of $23,023 , 2( . . .continued) does not show that any tax or addition t respect to petitioner's 2000 taxable yea after respondent had issued petitioner a 2000 . We conclude, on the totality of t first relevant assessments of tax, addit for 2000 did not occur until Nov . 10, 20 tax was assessed with until Nov . 10, 2003 , notice of deficiency for e evidence, that the ons to tax, and interes t 3 . - 4 - additions to tax under section 6651(a)(1) and (2) of $5,178 .60 and $3,797 .64, respectively, and an addition to tax under section 6654 of $302, together with interest of $3,744 .20, and sent petitioner a notice of balance due . On September 15, 2004, respondent also received petitioner's Form 1040 for 2002 . On or about October 11, 2004, respondent assessed a tax liability of $10,491 and a section 6654 addition to tax of $351 as shown on petitioner's 2002 return . Respondent also assessed additions to tax for 2002 under section 6651(a)(1) and (2) of $2,360 .47 and $944 .19, respectively, together with interest of $892, and sent petitioner a notice of balance due . On or about March 17, 2005, respondent filed a notice of Federal tax lien with respect to petitioner's unpaid 2000, 2001, and 2002 tax liabilities . On March 24, 2005, respondent issued petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 for petitioner's unpaid 2000, 2001, and 2002 Federal income tax liabilities . Petitioner timely submitted a Form 12153, Request for a Collection Due Process Hearing . In a letter attached to her request petitioner stated that Boeing Aircraft Co . (Boeing), the former employer of petitioner's deceased husband, Garnett L . Bray (Mr . Bray), submitted to the Internal Revenue Service (IRS) Forms W-2, Wage and Tax Statement, for 2000 and 2002 reporting income to Mr . Bray of $33,700 and $38,949 .75, respectively . According to petitioner, those amounts - 5 - were erroneous because petitioner did not receive the payments reported by Boeing, and more importantly, Mr . Bray died on May 24, 1999, and thus was not a Boeing emplo ee during those years . On September 28, 2005, the hearing fficer to whom petitioner's case was assigned conducted a telephone section 6320 hearing (hearing) with petitioner's repr sentative .3 During the hearing, the hearing officer informed pe itioner's representative that all procedural requirements had bee met in filing the Federal tax lien .4 Petitioner's represe tative did not raise any spousal defenses or offer any collection alternatives to respondent except the possibility of sub itting an offer-in- compromise (OIC) . The hearing officer provided information to petitioner's representative with regard to submitting an OIC, bu t petitioner did not pursue this option . ' 3 The notice of determination states that petitioner's authorized representative agreed to a telephone hearing in lie u of a face-to-face hearing . 4 The parties stipulated that the 1earing officer confirmed and verified that petitioner received t e requisite notice and demand for payment, see sec . 6303, and that the hearing officer complied with the verification requirem nt of sec . 6330(c)(1) . 5 The supporting statement attach e determination states the following with respect to petitioner' s announced intention to submit an OIC : The power of attorney stated that e plans to file an offer in compromise as the taxpayer's collection alternative . The Settlement Offi er was under the impression that the offer was in he process of being completed for consideration . App als advised the powe r (continued . . .) - 6 - Although respondent maintains that petitioner's 2000 underlying tax liability was not properly at issue during petitioner's hearing, the hearing officer nevertheless determined that Boeing erroneously reported to the IRS the $33,700 in wages for Mr . Bray for that year .6 Because petitioner had included that amount in income on her 2000 return, the hearing officer advised petitioner's representative to file a Form 1040X, Amended U .S . Individual Income Tax Return, to change the adjusted gross income listed on petitioner's previously filed 2000 return .' Following the hearing, petitioner filed an amended 2000 return, and as a result, respondent abated $10,452 of petitioner's 2000 tax liability and made corresponding adjustments to the amounts assessed under section 6651(a)(1) and (2) . . .continued) 5( . of attorney that a 60 day delay prior to the commencement of enforced collections is not unreasonable while he pursues the offer outside the CDP arena . The hearing is the end of the process and Appeals will not hold this appeal open any longer . The appropriateness of the hearing officer's action regarding the proposed OIC is not one of the stipulated issues . 6 Petitioner does not argue that respondent's position regarding petitioner's ability to challenge the underlying tax liability for 2000 is impeached by the hearing officer's decision to adjust Mr . Bray's income for 2000 . See Behling v . Commissioner , 118 T .C . 572 (2002) . The hearing officer acknowledged that Boeing also mistakenly reported the $38,949 in wages for Mr . Bray in 2002 but that this error by Boeing did not affect respondent's assessment of petitioner's 2002 tax liability because petitioner did not include this amount in income on her 2002 return . - 7 - On October 11, 2005, the Appeals Of ice issued a Notice of Determination Concerning Collection Acti n(s) Under Section 6320 and/or 6330 sustaining the filing of the notice of Federal tax lien for 2000, 2001, and 2002 . On November 8, 2005, petitioner tim ly petitioned this Court challenging respondent's determination .8 Petitioner argues that the additions to tax and interest attrib table to 2000, 2001, and 2002 should be abated .' According to pe itioner, she is not liable for the additions to tax and interest amounts for 2000, 2001, and 2002 because she had reasonable cause for her filing and payment delays .10 Petitioner conte n s that Boeing assume d responsibility for preparing her 2000 r turn and submitting it to her for filing . Accordingly, petitione claims that Boeing i s responsible for the delay in filing and payment with respect to 2000 . Petitioner further argues that B eing's delay in preparing her 2000 return prevented her from time y meeting her filing and payment obligations for 2001 and 2002 . Petitioner concludes tha t 8 Petitioner filed an amended pet i a second amended petition on Apr . 21, 2 9 The parties agree that petition e liabilities for 2000, 2001, and 2002, e tax and accrued interest, are $13,832, respectively . s underlying ta x cluding any additions t o $23,023, and $10,491 , 10 While petitioner argues in her should abate interest for 2000, 2001, stipulated that the only issues for de liability for the additions to tax and and sec . 6654 . etition that responden t nd 2002, the partie s ision concern petitioner' s r sec . 6651(a)(1) and (2) - 8 - the Appeals Office's determination to uphold the validity of the notice of Federal tax lien should not be sustained . I . Collection Hearing Procedur e Discussion Section 6321 imposes a lien on all property and property rights of a taxpayer liable for taxes where a demand for the payment of the taxes has been made and the taxpayer fails to pay those taxes . Section 6320(a) requires the Secretary to send written notice to the taxpayer of the filing of a notice of lien and of the taxpayer's right to an administrative hearing on the matter . Section 6320(b) affords the taxpayer the right to a fair hearing before an impartial hearing officer . Section 6320(c) requires that the administrative hearing be conducted pursuant to section 6330(c), (d) (other than paragraph (2)(B) thereof), and (e) . At the hearing, a taxpayer may raise any relevant issue, including appropriate spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives . Sec . 6330(c)(2)(A) . A taxpayer is precluded, however, from contesting the existence or amount of the underlying tax liability unless the taxpayer failed to receive a notice of deficiency for the tax liability in question or did not otherwise have an opportunity to dispute the tax liability . Sec . 6330(c)(2)(B) ; see also Sego v . Commissioner , 114 T .C . 604, 609 (2000) . - 9 - Following a hearing, the Appeals O f ice is required to issu e a notice of determination regarding the alidity of the file d Federal tax lien . In making a determina ion, the Appeals Office is required to take into consideration : (1) The verificatio n presented by the Secretary that the requ rements of applicable law and administrative procedures have b en met, (2) the relevant issues raised by the taxpayer, and (3) w ether the propose d collection action appropriately balances the need for efficien t collection of taxes with a taxpayer's c ncerns regarding the intrusiveness of the proposed collecti o 6330(c)(3) . If the taxpayer disagree s determination, the taxpayer may see k icial review by appealing to this Court . Sec . 6330(d) . Where th underlying tax liabilit y is properly at issue, the Court review s any determinatio n regarding the underlying tax liability Sego v . Commissioner , supra at 610 . Where th e nderlying tax liability is not properly at issue, the Court wil review th e administrative determination of the App als Office for abuse of discretion . Lunsford v . Commissioner , 17 T .C . 183, 185 (2001) ; Sego v . Commissioner , supra at 610 ; Goza v . Commissioner, 114 T .C . 176, 182 (2000) . The Appeals Office abuses its discretion if its determination is exercised "arbitrarily, capriciously, or without sound basis in fact ." Mailman v . Commissioner, 91 T .C . 1079, 1084 ( 1988) . II . Validity of Notice of Federal Tax Lie n - 10 - Petitioner argues that we should reverse the Appeals Office's determination upholding the validity of the notice of Federal tax lien and abate the additions to tax relating to her unpaid tax liabilities for 2000, 2001, and 2002 . Petitioner contends that the additions to tax should be abated because she (1) had reasonable cause under section 6651(a)(1) for failing to timely file her 2000, 2001, and 2002 returns, (2) had reasonable cause under section 6651(a)(2) for failing to pay her 2000, 2001, and 2002 tax liabilities by their respective due dates, and (3) is not liable for the addition to tax under section 6654 for failure to make estimated tax payments for 2000, 2001, or 2002 . According to petitioner, she lived with Mr . Bray in various locations outside the United States while he worked for Boeing . During Mr . Bray's employment with Boeing, Boeing handled the couple's tax preparations and filings through a corporate filing program extended to its overseas employees . Petitioner contends that at the time of her husband's death, she had no experience with domestic taxing authorities . Petitioner asserts that, in view of the difficult circumstances surrounding her husband's death, she asked Boeing to prepare and file her 1999 and 2000 Federal income tax returns . Petitioner claims that Boeing assumed responsibility for filing her 1999 and 2000 returns and, accordingly, is responsible for the late filing of her 2000 - 11 - return . Petitioner further states that she failed to file timely 2001 and 2002 returns because she belie ed that she could no t file those returns until her 2000 retu r was filed . A . 2000 and 2001 Petitioner's only arguments with respect to 2000 and 2001 concern her liability for the additions to tax . Petitioner's arguments constitute challenges to her underlying tax liability for those years . See Katz v . Commissioner, 115 T .C . 329, 339 (2000) (underlying tax liability includes tax deficiency, additions to tax, and interest) ; see also Montgomery v . Commissioner , 122 T .C . 1, 7-8 (2004) . Because petitioner concedes that she received notices of deficiency for 2000 and 2001, she is precluded by section 6330( )(2)(B) from contesting her underlying tax liability for those rears . Accordingly, we review the Appeals office's determination to uphold the filing of the notice of Federal tax lien with respect to 2000 and 2001 for abuse of discretion . The hearing officer verified that ll requirements of applicable law or administrative procedires were met . The hearing officer verified that the proper assessments were mad e and that notice and demand for payment as sent to petitioner's last known address . In response to petitioner's request the hearing officer conducted a hearing wit petitioner's representative . At the hearing petitio er's representative did - 12 - not raise any spousal defenses or provide any arguments regarding the appropriateness of the collection action . Petitioner's representative also failed to offer any collection alternatives at the hearing . Although the prospect of an OIC was discussed with the hearing officer at the hearing, petitioner did not submit such an offer either during the hearing process or during a reasonable period after the hearing ." The hearing officer concluded that the filing of the notice of Federal tax lien balanced the need for efficient collection of taxes with petitioner's concerns that the collection action be no more intrusive than necessary . Accordingly, we conclude that the hearing officer did not abuse her discretion in sustaining the filing of the notice of Federal tax lien for 2000 and 2001 . B . 200 2 Petitioner did not receive a notice of deficiency for 2002 . Petitioner's underlying 2002 tax liability was thus properly at issue at her hearing, and we review respondent's determination with respect to the 2002 additions to tax de novo .1 2 11 Petitioner has waived any argument that she might have had regarding the manner in which the hearing officer dealt with petitioner's announced intention to submit an OIC by not including the issue in the stipulated issues to be decided by this Court . 12 Respondent concedes that petitioner's 2002 tax liability is subject to de novo review . - 13 - Under section 7491(c), respondent i required to carry the burden of producing evidence to support he imposition of an addition to tax . To meet this burden, r spondent must come forward with sufficient evidence indicat ng that it is appropriate to impose the addition to to . See Higbee v . Commissioner , 116 T .C . 438, 446 (2001) . After respondent meets his burden of production, petitioner mus come forward with sufficient evidence to persuade the Cour that respondent's determination is incorrect . Id . at 446-447 . Notwithstanding section 7491(c), petitioner bears the b rden of producing evidence to demonstrate reasonable caus . Id . 1 . Section 6651(a)(1) Section 6651(a)(1) imposes an add i ion to tax for failure t o file a timely Federal income tax return unless the taxpayer can demonstrate that such failure is due t o reasonable cause and no t due to willful neglect .13 Reasonable c a se for the failure t o file a timely return exists if the taxp yer exercised ordinary business care and prudence but was unab e to file the return within the time prescribed by law . Sec . 301 .6651 -1(c)(1) , Proced . & Admin . Regs . 13 The amount of the addition to t amount required to be shown as tax on that the delinquency continues, up to Sec . 6651(a)(1) . x is 5 percent of th e he return for each month maximum of 25 percent . - 14 - Respondent determined that petitioner is liable for an addition to tax under section 6651(a)(1) for 2002 . The parties stipulated that petitioner filed her 2002 return on September 15, 2004, over a year after its due date . We thus conclude that respondent has produced sufficient evidence to demonstrate that the section 6651(a)(1) addition to tax is appropriate . See Higbee v . Commissioner , supra at 447 . Petitioner argues that she had reasonable cause for failing to file a timely 2002 return because she believed that she could not file the return until she filed her 2000 return . According to petitioner, Boeing, which petitioner contends assume d responsibility for filing her 2000 return, did not complete the preparation of her 2000 return until June 14, 2004 . Consequently, the IRS did not receive petitioner's 2000 return until July 21, 2004, several years after its due date . Petitioner filed her 2002 return approximately 2 months after filing her 2000 return . A taxpayer's mistaken belief that no return is required under the law does not necessarily constitute reasonable cause for failure to file a return . See Beck Chem . Equip . Corp . v . Commissioner , 27 T .C . 840, 860 (1957) ; P . Dougherty Co . v . Commissioner , 5 T .C . 791, 800 (1945), affd . 159 F .2d 269 (4th Cir . 1946) . A taxpayer who deliberately fails to file a return must use reasonable care to ascertain that no return was - 15 - necessary .14 See Beck Chem . Equip . Corr- v . Commissioner, supra at 858-860 . There is no evidence that petitioner used reasonable care in deciding not to file her 2002 return on time . Petitioner offered no evidence that she sought out or received professional advice indicating that she was precluded from filing her 200 2 return on time . Petitioner provide d explanation for her erroneous conclusion that she could no file her 2002 retur n until her 2000 return was filed . Furt ermore, petitioner' s mistaken belief regarding her inabilit o file her 2002 retur n was based on her incorrect assumption hat Boeing, and not she , was responsible for the delinquent fil g of her 2000 return .15 we conclude, therefore, that petitione did not have reasonable cause for failing to file a timely 200 return . 14 The Supreme Court recognized in United States v . Boyle , 469-U .S . 241, 250-251 & n .9 (1985), that reasonable reliance on the advice of a tax adviser that no return is required to be filed may constitute reasonable cause or a failure to file the return . See also Zabolotny v . Commissioner, 97 T .C . 385, 400-401 (1991) (reasonable reliance on a tax adviser that no return is required to be filed may constitute reasonable cause), affd . in part and revd . in part on other ground 7 F .3d 774 (8th Cir . 1993) . 15 Even if petitioner's underlying tax liability for 2000 were properly at issue, petitioner's reliance on Boeing to file her 2000 return is not reasonable caus under the wellestablished principle that the failure to file a timely return is not excused by the taxpayer's reliance on an agent to file a required return . See United States v . Boyle, supra at 252 . - 16 - 2 . Section 6651(a)(2 ) Section 6651(a)(2) imposes an addition to tax for failure to pay the amount of tax shown on the taxpayer's Federal income tax return on or before the payment due date, unless such failure is due to reasonable cause and not due to willful neglect .16 A failure to pay will be considered due to reasonable cause if the taxpayer makes a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer undue hardship if he paid on the due date . Sec . 301 .6651-1(c)(1), Proced . & Admin . Regs . Respondent determined that petitioner is liable for an addition to tax under section 6651(a)(2) for 2002 . The parties stipulated that petitioner filed her 2002 return on September 15, 2004, over a year after its due date . Petitioner's 2002 return showed a tax liability of $10,491 . Petitioner has not paid any of the amount owed . We thus conclude that respondent has produced sufficient evidence to demonstrate that petitioner is liable for the section 6651(a)(2) addition to tax . See Wheeler v . Commissioner , 127 T .C . 200, 210 (2006) . 16 The sec . 6651(a)(2) addition to tax is 0 .5 percent of the amount of tax shown on the return, with an additional 0 .5 percent per month during which the failure to pay continues, up to a maximum of 25 percent . - 17 - Petitioner asserts the same reasonable cause argument for the section 6651(a)(2) addition to tax that she asserts for the section 6651(a)(1) addition to tax--her mistaken belief that she could not file her 2002 return until she filed her 2000 return .17 Petitioner, however, did not offer any vidence that she wa s unable to pay the tax owed or that she would have suffered undue hardship if she had paid the tax on the due date . Accordingly, we hold that petitioner did not have re sonable cause for failing to pay her 2002 tax liability when due . 3 . Section 665 4 Section 6654(a) imposes an addition to tax for the underpayment of any installment of esti ated tax ." The addition to tax under section 6654 is calculated by applying the section 6621 underpayment rate to the amount of the estimated tax underpayment for the period of the underpayment . Sec . 6654(a) and (b) . Except as provided in section 6654(e)(3)(B), no reasonable cause exception exists for the section 6654(a ) 17 Petitioner offers no explanation as to why she did not remit payment after she filed her 2002 return . 18 Sec . 6654(c)(1) requires the payment of four installments of a taxpayer's estimated tax liability for each taxable year . Each required installment of estimated tax is equal to 25 percent of the required annual payment . Sec . 6654(d)(1)(A) . The required annual payment is generally equal to the lesser of : (1) 90 percent of the tax shown on the individual's return for that year (or, if no return is filed, 90 percent of his or her tax for such year), or (2) if the individual f led a return for the immediately preceding taxable year, 10 percent of the tax shown on that return . Sec . 6654(d)(1)(B) . - 18 - addition to tax . However, no addition to tax is imposed under section 6654(a) with respect to any underpayment to the extent the Secretary determines that by reason of casualty, disaster, or other unusual circumstances the imposition of such addition to tax would be against equity or good conscience . Sec . 6654(e)(3)(A) . Additionally, no addition to tax is imposed under section 6654(a) with respect to-any underpayment if the Secretary determines that the taxpayer retired (after reaching age 62) or became disabled in either the taxable year for which estimated tax payments were required or in the taxable year preceding such year and such underpayment was due to reasonable cause and not to willful neglect . Sec . 6654(e) (3) (B) . Respondent's burden of production under section 7491(c) requires him to produce evidence that petitioner had a required annual payment for 2002 under section 6654(d) . See Wheeler v . Commissioner , supra at 211 . The parties stipulated that petitioner filed both a 2002 return and a return for the preceding tax year, 2001 . On the basis of this information we are able to determine that petitioner had a required annual payment for 2002 that was payable in installments under section 6654 . Cf . id . at 211-212 (Court unable to conclude that taxpayer had a required annual payment because no evidence that taxpayer filed a return for the preceding taxable year) . Petitioner did not make any estimated tax payments for 2002 . We conclude that - 19 - respondent has produced sufficient evi ence to demonstrate that petitioner is liable for the section 6 54 addition to tax . Petitioner argues that she is not liable for the addition to tax under section 6654 . Petitioner ag in asserts that she relied on Boeing to file her 2000 return and hat she mistakenl y believed that she had to file her 2000 return before she could file her 2002 return . Petitioner, how ver, does not directly address why she failed to make the est mated tax payment s required for 2002 . Moreover, we are n t persuaded that the section 6654 addition to tax should be waived under sectio n 6654(e) . Petitioner does not claim th t she retired or became disabled in 2002 . Moreover, the recor does not establish that petitioner's failure to make estimated tax payments in 2002 was due to casualty, disaster, or other un sual circumstances, and we are not persuaded that the imposition f the section 665 4 addition to tax would be against equit and good conscience . We conclude that petitioner is liable for the section 6654 additio n to tax for 2002 . We have considered all the other rguments made by th e parties, and to the extent not discuss d above, conclude those arguments are irrelevant, moot, or wit . out merit . To reflect the foregoing, Decision will be entere d respondent .