TAX COURT OPINION

Case: Ink Nuts, LLC
Docket Number: 16959-16L
Judge: Kerrigan
Opinion Type: bench
Filed: 11/13/2017
Pages: 8

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 INK NUTS, LLC, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) 16959-16 L. ORD E R 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 in the above case before Judge Kathleen Kerrigan at San Francisco, California on October 24, 2017, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 13, 2017 SERVED Nov 15 2017 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Kathleen Kerrigan October 24, 2017 Ink Nuts, LLC v. Commissioner of Internal Revenue Docket No. 16959-16L THE COURT: The Court has decided to render in this case the following as its oral findings of facts and opinion which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal 10 Revenue Code and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. Unless otherwise indicated, all 12 section references are to the Internal Revenue Code in 13 effect at all relevant times, and all Rule references are 14 15 to the Tax Court Rules of Practice and Procedure. By a Notice of Determination Concerning 16 Collection Actions under Section 6320 and/or 6330 (notice 17 of determination) dated June 24, 2016, respondent 18 determined to proceed with the proposed levy to collect 19 petitioner's unpaid tax liabilities for tax years 2010 20 through 2012. Late filing penalties were assessed for the 21 22 23 late filing of Forms 1065, U.S. Return of Partnership Income for tax years 2010 through 2012. Trial of this case was conducted on October 24 23rd, 2017, in San Francisco, California. Jon M. 25 Garliepp, Jr., an officer for petitioner, represented 1973)406-2250|operations@escribersalet|www.escnbers.net petitioner. Daniel J. Bryant represented respondent. The parties' Stipulation of Facts was admitted into evidence along with attached exhibits. We find the following: 4 FINDINGS OF FACTS Petitioner is a California Limited Liability Company. At the time petitioner filed its petition, its primary place of business was California. For tax years 2010 through 2012, petitioner was treated as a partnership for federal tax purposes. Melody A. Garliepp and Jon M. 1 2 3 4 5 6 7 8 9 10 Garliepp each had a 50 percent interest in petitioner. 11 12 13 14 Petitioners filed its federal tax return for tax year 2010 on April af, 2014. Petitioner filed its federal 2l tax returns for tax years 2011 and 2012 on August 25th, 2015. Melody and Jon Garliepp filed a joint federal 15 income tax return for tax year 2010 on April 16, 2014. 16 They filed joint federal income tax returns for tax years 17 18 2011 and 2012 on August 25th, 2014. On January 6, 2016, respondent sent petitioner a 19 Notice of Intent to Levy. In response, petitioner 20 submitted a Form 12153, Request for a Collection Due 21 Process Hearing. Petitioner did not request a collection 22 alternative, but checked "I cannot pay balance." 23 Petitioner submitted a letter with its hearing request. 24 The letter requested the automatic abatement of penalties. 25 The letter explained that Jon Garliepp filed for personal } cribers (973)406-2250|operations@escribers.net|www.esaibersmet bankruptcy in February 2010. Petitioner sent respondent Forms 843, Claim for a Refund and Request for Abatement, for each tax year at 5 issue. On April 5, 2016, the settlement officer mailed petitioner a letter scheduling a telephonic collection due process (CDP) hearing for April 27, 2016. The letter requested for all Forms 1065, Schedule K-1s, Partner's Share of Income, Deductions, Credit, et cetera. Melody 1 2 3 4 5 6 7 8 9 10 Garliepp participated in the telephonic CDP hearing and 11 12 indicated that she would have her husband send the K-1s. She requested the abatement of penalties pursuant to 13 Revenue Procedure 84-35, 1984-1 Cumulative Bulletin 509. 14 15 16 On May 11, 2016, the K-1s for tax years 2010 through 2012 were faxed to the settlement officer. She reviewed the K-1s and determined that petitioner did not 17 meet the requirements of abatement of penalties because 18 petitioner's partners filed their joint federal income tax 19 return late for tax years 2010 through 2012. 20 21 22 The settlement officer followed all required legal procedures. A notice of determination sustaining the levy was issued on June 24, 2016. Petitioner filed a 23 petition which states the requirements of Revenue 24 Procedure 84-35 were met except for the requirement that 25 members' personal income tax returns be timely filed. The Cribers $73)406-2250|operations@escribers.net|www.escribers.net petitioner further explained that petitioner was having financial difficulties. The only issue raised in the 6 petition was the underlying liability. OPINION Section 6331(a) authorizes the Secretary to levy upon the property and property rights of a taxpayer who fails to pay a tax within ten days after notice and demand. Before the Secretary may levy upon the taxpayer's property, the Secretary must notify him or her of the 1 2 3 4 5 6 7 8 9 10 Secretary's intention to make the levy. Section 11 12 13 6331(d) (1). The Secretary must also notify the taxpayer of his or her right to a CDP hearing. Section 6330(a)(1). If the taxpayer requests a CDP hearing, the 14 hearing is conducted by Appeals Office. Section 15 16 17 6330(b)(1). At the hearing, the taxpayer may raise any relevant issue relating to the unpaid tax or proposed levy. Section 6330(c)(2) (A). Once the settlement officer 18 makes a determination, the taxpayer may appeal the 19 determination to the Tax Court. Section 6330(d)(1). The 20 Court has jurisdiction to review the Commissioner's 21 administrative determinations. Id. 22 23 24 25 The Court is going to take a brief recess. (Whereupon, a recess was held from 1:16 p.m. until 1:18 p.m.) THE COURT: Under certain circumstances, a (973)406-2250|operations@escribers.net|www.escribers.net 7 1 2 3 4 5 6 7 8 9 taxpayer may raise challenges in a CDP proceeding to the Commissioner's determination of his or her underlying liabilities. See section 6330(c) (2) (B). In a CDP proceeding, a taxpayer may challenge the amount of the tax assessed by the Commissioner if he or she did not receive a statutory notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. Id.; see also Montgomery v. Commissioner, 122 T.C. 1, 7 (2004). Petitioner's argument that it should not have to 10 pay the late-filing penalty is a challenge to the 11 underlying liability that respondent sought to collect. 12 See Callahan v. Commissioner, 130 T.C. 44, 49 (2008). 13 Petitioner did not have a prior opportunity to dispute the 14 assessed tax liability. Therefore, we review the 15 determination de novo. Sego v. Commissioner, 114 T.C. 16 17 18 19 604, 610 (2000). The underlying tax liability in this case arises from a penalty pursuant to section 6698 for failure to file a partnership return. Section 6698 provides an 20 exception "due to reasonable cause". Section 6698(a)(2). 21 22 Section 7491(c) places the burden of production on respondent to present sufficient evidence that a 23 penalty is appropriate, and the respondent has no burden 24 of production with respect to mitigating circumstances 25 such as reasonable cause. See Higbee v. Commissioner, 116 cribers (973)406-2250loperations@escribersinet|www.escribers.net 8 T.C. 428, 446 (2001). Once respondent has met the burden of production, the taxpayer has the burden of proving that it is not liable for the penalty. See Rule 142(a)(1). We decline to decide whether the section 6698 reasonable cause exception differs from that in section 6651. See Valteau, Harris, Koenig, and Mayer v. Commissioner, T.C. Memo 2014-144 at *17. Any minor difference between the standards would not change our conclusion here. For purposes of this opinion, we'll assume that section 6698 reasonable cause standard is the same as that under section 6651. Regulations for section 6651 provides: "If the taxpayer exercised ordinary business care and prudence but was nevertheless unable to file the return within the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 prescribed time, then the delay is due to a reasonable 16 cause." Section 301.6651-1(c)(1) Procedure & 17 Administration Regs. Petitioner contends that it was 18 impacted by the economic downturn and was having financial 19 difficulty. Petitioner further contends that it was 20 unable to pay an accountant. Petitioner's financial 21 difficulties should not affect its ability to file its 22 return timely. See Staff IT, Inc. v. United States, 482 23 F.3d 792, 801 (5th Cir. 2007). 24 Respondent has met the burden of production. 25 Petitioner has not shown there was reasonable cause for cribers 973) 406-2250|operationseescribers net|www.escnbers.net 9 1 2 3 4 5 6 7 8 9 10 11 the late filing of its partnership returns. Petitioner contends that the penalty should be abated pursuant to Revenue Procedure 84-35, which provides for an abatement of the penalty for a domestic partnership with ten or fewer partners. Revenue Procedure 84-35 only applies if all the partners have timely filed their share of income, deduction, credits for their partnership on their timely filed income tax return. Melody and Jon Garliepp filed their joint federal income tax return late for all three years at issue. We sustain the notice of determination. A 12 decision will be entered for respondent. This concludes the Court's oral Findings of Facts and Opinion in this case. (Whereupon, at 1:21 p.m., the above-entitled matter was concluded.) 13 14 15 16 17 18 19 20 21 22 23 24 25 (973)406-2250|operations@escribers,net|www.escribers.net