TAX COURT OPINION

Case: Hugh D. & Teresa E. Summers
Docket Number: 13874-05L
Judge: Wells
Opinion Type: memo
Filed: 10/18/2006
Pages: 19

T .C . Memo . 2006-219 sur . UNITED STATES TAX COURT HUGH D .',SUMMERS AND TERESA E . SUMMERS, Petitioners v . COMMISSIONER,OF INTERNAL REVENUE, Responden t Docket No . 13874-05L . Filed October 18, 2006 . Hugh D . Summers and Teresa E . Summers, pro sese . Kathleen K . Raup , for respondent . MEMORANDUM OPINIO N WELLS, Judge : The instant matter is before the Court o n respondent' s and petitioners' motions for summary judgment- pursuant to Mule 121 . The issue we must decide is whether respondent's Appeals Office abused its discretion in determining to proceed wth the collection of petitioners ' 1989 ta x SERVED OCT 1 8 2006 - 2 - ess otherwise indicated, all section references rnal Revenue Code in effect for the year in issue, ferences are to the Tax Court Rules of Practic e Background e of filing the petition, petitioners resided i n 1''ania . PetitionEr Hugh D . Summers's Criminal Case and Amended 198 9 Tax Return During 1 92, petitioner Hugh D . Summers ( Mr . Summers) pleaded guilt to conspiring to defraud the Internal Revenu e Service (IRS) by concealing and diverting income in violation o f 18 U .S .C . sec ion 371 (2000) . Mr . Summers acknowledged that h e received unr e orted taxable income of $963,000 between 1982 an d 1990 . Mr . ers was sentenced to 4 years' probation and agree d to file an amended tax return for 1989 . See United States v . Hugh D . Summers , No . 93-CR-35 (E .D . Pa .) . Petitioners' Previous Tax Court Cas e On May 2, 1993, petitioners filed an amended tax return for 1989, reporting an increase in their tax liability in the amount of $69,289 . On November 8, 1993, respondent assessed petitioners the $69,289 shown on petitioners' 1989 amended tax return . On June1995, respondent sent petitioners a notice of deficiency regarding negligence penalties for petitioners' 1989 taxable year . Petitioners timely filed a petition with this - 3 - Court challen ing the notice of deficiency . On September 26, 1997, pursuan to an agreement between the parties, we entered a decision hold ng that petitioners were liable for a penalty in the amount ofl$13,858 pursuant to section 6662(a) for 1989 an d that petitioners owed an unpaid prior assessment of $69,289 for 1989 . See Summers v . Commissioner , docket No . 17005-95 . O n November 24, 1997, respondent assessed petitioners the sectio n 6662(a) penalty in the amount of $13,858 for petitioners' 1989 taxable year . I Liti ati n Involving Petitioners and Commonwealth Land Title Insurance Com a n During J~ly 1997, respondent filed a Notice of Federal Ta x Lien (NFTL) a0ainst petitioners in Berks and Montgomery Counties, Pennsylvania,,relating to petitioners' unpaid tax liabilities for 1982 through 990 . Petitioners' surname, however, was misspelled as "Hugh D . & Teresa E . Summer" on the NFTL filed in Montgomery County, Pennsylvania . On July p1, 1997, Mr . Summers sold two properties to Leemilt's Petoleum, Inc . : (1) 270 W . Greenwich Street, Reading, Berks County,'Pennsylvania (the Berks County Property) ; and (2) Buckert Road end Keim Street, Lower Pottsgrove Township, Montgomery County, Pennsylvania (the Montgomery County Property) . Commonwealth and Title Insurance Company (Commonwealth) insured the title on oth properties for the purchaser, Leemilt's Petroleum, Inc ., and settlement on both properties was on - 4 - July 31, 1997 . .At the settlement of the Berks and Montgomery County propert ies, Commonwealth did not satisfy the tax liens and gave Mr . SummE rs the proceeds from the sales in the amounts o f $107,399 .25 a d $139,592 .47, respectively . Respondent refused to discharge the tax liens on the Berks and Montgomery County properties fo lowing the sale . On February 10, 1998, respondent received a check in th e amount of $10 ,399 .25 from Commonwealth, discharged the tax lien on the Berks ounty Property, and applied the $107,399 .25 to petitioners ' 983, 1984, 1987, and 1990 tax liabilities . ' On April 30, 1998, Commonwealth filed a declaratory judgment complaint in he Court of Common Pleas for Montgomery County, Pennsylvania, against respondent and Mr . Summers seeking judgment that responde is NFTL did not attach to the Berks and Montgomery County proper ies, formerly owned by Mr . Summers, becaus e petitioners' surname was misspelled . The case was removed to th e U .S . District Court for the Eastern District of Pennsylvania and it entitled Comm nwealth Land Title Ins . Co . v . United States an d Hugh D . Su mm ers , No . 98 -CV-2817 ( E .D . Pa .) . 'Respondent applied the $107,399 .25 as follows : Tax year Amount applied 1983 $33,366 .78 $19,873 .48 1984 1987 $31,192 .19 1990 $22,966 .80 _ 5 - On Nov e er 19, 1999, Commonwealth dismissed with prejudice its claim aga nst respondent and gave respondent a check in the amount of $15 000 to discharge the tax lien on the Montgomer y County proper y . Respondent applied the payment to petitioners' 1985 tax liab lities . Mr . Summ rs's Bankruptcy Litigatio n On Octob r 9, 1998, Mr . Summers filed a chapter 7 bankruptcy petition in t e U . S . Bankruptcy Court for the Eastern Distric t of Pennsylvan a (the bankruptcy court ), In re Hugh D . Summers , No . 98-33068FII . During November 1999, respondent filed a complaint wit the bankruptcy court asserting that Mr . Summers' s tax liabilit i including those for 1989, and interest thereo n were not disc argeable pursuant to 11 U . S .C . sectio n 523(a)(1)(C) .I, Respondent conceded that the penalties and interest on the penalties were dischargeable . On January 11, 2001, the bankruptcy court held that Mr . Summers's tax' liabilities were nondischargeable because he wilfully atte pted to evade payment of his taxes . See United States v . Summers, 266 Bankr . 292 (Bankr . E .D . Pa . 2001) . I Actions painst Mr . Summers To Reduce Federal Tax Claims To Judgmen t On April 3, 2002, respondent filed a complaint against Mr . Summers in thl United States District Court for the Easter n District of Pennsylvania (the District Court) seeking to reduce to judgment t ;e tax assessments against Mr . Summers , including - 6 - those for 198 United States v . Summers , No . 2002-CV-1812 (E .D . Pa .) . During June 2002, Mr . Summers filed an answer and cross- complaint cha lenging the tax assessments and the amounts of his tax liabiliti s, including those for 1989 .2 On August 9, 2002, respondent fi ed a motion for summary judgment . During September 2002, Mr . Sum ers filed a reply to respondent's motion and a motion to dis'niss for lack of subject matter jurisdiction . On October 7, 2002, respondent filed a motion to dismiss Mr . Summers' s counterclaims . On Marc h 27, 2003, the District Court issued a memorandum opinion and e tered an order granting respondent's motions for summary judgm nt and to dismiss Mr . Summers's counterclaims and gave responde t 30 days to present a full and final accounting of Mr . Summers's tax liabilities, including 1989 . See United States v . Su mm ers , 2 4 F . Supp . 2d 589 (E .D . Pa . 2003) . On April 22, 2003, Mr . Summers filed a memorandum and declaration i response to the District Court's March 27, 2003, order . On Ma 30, 2003, Mr . Summers filed a memorandum i n response in w ich he claimed that respondent had received, or should have r ceived, $246,991 .72 from Commonwealth and $26,00 0 2Mr . Sumi alia, several He is not a t Code ; there i Revenue Code ; fraudulently Internal Reve ers's answer and cross-complaint contained, inter frivolous tax protester type arguments including : ixpayer within the meaning of the Internal Revenu e no "1040 tax" listed in the index of the Internal and that the United States and its agent s Misled him to believe that compliance with the sue Code was mandatory . - 7 - from petition rs, which was not properly credited to petitioners' account . On June 4 , 2003 , respondent filed a declaration asserting that all cred is had been properly applied and that petitioners' tax liabiliti s for 1985, 1986 , 1988 , and 1989 , including accrued interest as o April 27, 2003 , amounted to $647 , 749 .86 .3 O n December 17, X003, the District Court entered judgment in favo r of respondent ;, and against Mr . Summers, ordering Mr . Summers t o pay responden $647,749 .86 for unpaid Federal income taxes for years 1985, 1 86, 1988, and 1989 plus interest accruing thereon at the rate p ovided by section 6621 from April 27, 2003, unti l paid . Actions Against Mrs . Summ ers To Reduce Federal Tax Claims To Judgmen t On December 11, 2002, respondent filed a complaint against petitioner Te esa E . Summers (Mrs . Summers) in the U .S . Distric t Court for the Eastern District of Pennsylvania (District Court) seeking to re uce to judgment the income tax assessments made against her flr 1985, 1986, 1988, and 1989, United States v . Teresa E . Summers, No . 2002-CV-9008 (E .D . Pa .) . On February 10, 2003, Mrs . Su mers filed an answer and cross-complain t 3Respond nt's declaration showed Mr . Summers's unpaid tax liabilities a d total accrued interest for 1989 to be $95,284 .76 and $108,586 .,1, respectively . - 8 - challenging t e assessments and tax liabilities, including thos e for 1989 . 4 On June 2003, respondent filed a motion for summar y judgment and o dismiss counterclaims . On July 10, 2003, Mrs . Summers filed a response to respondent's motion in which she asserted that respondent had not properly credited petitioners ' account for the payment from Commonwealth . On September 11, 2003, the District Court granted respondent's motion for summary judgment on the issue of Mrs . Summers' s tax liabilities, dismissed Mrs . Summers' s counterclaims and gave respondent 30 days to present a full and final account ng of Mrs . Summers ' s tax liabilities, includin g those for 198 . On October 2, 2003, respondent filed a memorandum in,response to the District Court's September 10, 2003, order slating Mrs . Summers's tax liabilities for 1985, 1986, 1988, aid 1989, including accrued interest as of September 30, 2003, and $13,858 negligence penalty amounted to $749,760 .85 . On Octob r 31, 2003, Mrs . Summers filed a response , 4Mrs . Sur alia, several She is not a Code ; the inc evasion for w Revenue Code ; Internal Reve requires her and that the to believe thaGt compliance with the Internal Revenue Code was mandatory . ers's answer and cross -complaint contained, inte r frivolous tax protester type arguments including : axpayer within the meaning of the Internal Revenu e me Mr . Summers received and pleaded guilty to ta x s not income within the meaning of the Interna l there is no "1040 tax" listed in the index of the ue Code ; there is no legislative regulation that o file a tax return for "1040" or "income taxes" nited States and its agents fraudulently misled he r - 9 - contending that respondent did not properly credit the payments from Commonwealth to her account . On Decem er 17, 2003, the District Court entered judgment in favor of resp ndent and against Mrs . Summers, ordering Mrs . Summers to pa $735,902 .85 for unpaid Federal income taxes fo r 1985, 1986, 1 19 88, and 1989, plus interest accruing thereon at the rate provided by section 6621 from September 30, 2003, until paid and a $13,858' negligence penalty assessed on November 24, 1997 . Petition rs' A eal to the Third Circuit Court of Appeals Petition rs appealed the respective judgments against the m to the United States Court of Appeals for the Third Circui t (Court of App als for the Third Circuit ) . Petitioners' appeals were consolidated at United States v . Teresa E . Su mmers , No . 04- 1375, and United States v . Summers , No . 04-1379 . On January 4 , 2005, the Third Circuit Court of Appeals affirmed the District Court judgments against petitioners . Petition d s' Section 6330 Action Relating to Taxable Yea r 1989 Petitioners failed to pay their income tax liability for 1989 . On Aprill'1 15, 2002, respondent sent petitioners' attorney , who was authorized to receive such notices, a Final Notice of Intent to Levy'and Notice of Your Right to a Hearing . On May 10 , 2002, petitioners, through their attorney, submitted a For m 12153, Requestllfor a Collection Due Process Hearing . Attached to - 10 - the Form 1215 was a 37-page letter consisting of nothing but frivolous ta x protester boilerplate . Because etitioners' cases were still pending in District Court, respon ent did not immediately schedule a section 6330 hearing . On arch 14, 2005, approximately 2 months after the Third Circuit Court of Appeals affirmed the District Court's judgments in avor of respondent, respondent's Appeals Office sent petition rs a letter advising them that the Appeals Offic e would schedul an appointment . In a letter dated March 23, 2005, Mr . Summers a vised respondent's Appeals Office that his appeal process would not be complete until there was a fina l determination by the District Court and requested that respondent's ppeals office hold the matter in abeyance until such a deter m nation had been made . On April, 8, 2005, respondent's Settlement Officer Edith M . Dermody (Ms . dermody), wrote petitioners and advised them that the arguments Braised in their section 6330 hearing request were frivolous, that respondent would not schedule a face-to-face conference if Detitioners wished to discuss only frivolous arguments, and that a telephone conference was scheduled for April 28, 20051 . On April 21, 2005, Mr . Summers sent Ms . Dermody a letter requesting a copy of their Form 12153,5 requesting a 'In his Apr . 21, 2005, letter, Mr . Summers stated that he did not recall making a request for a sec . 6330 hearing and tha t . .) (continued . - 11 - face-to-fac e hearing and acknowledging that alternativ e collection m thods needed to be explored at this meeting, an d stating that "he was not available for the telephone conference o n April 28 . On April 28, 2005, Ms . Dermody sent petitioners a letter to which she att ched a copy of the Form 12153, and in which she advised petitioners that if they wanted a face-to-face hearing they must con act her within 15 days and describe the legitimate issues they wished to raise . Ms . Dermody also advised petitioners t at they must complete a Form 433-A, Collection Information S atement for Wage Earners and Self Employed Individuals, nd return it along with their 2003 and 2004 tax returns by Ma 13, 2005 . On May 13, 2005, Mr . Summers sent Ms . Dermody a letter in which he rais d the following issues : (1) That Ms . Dermody was a settlement of icer, not an independent Appeals officer, and that it was improp r for her to hold the hearing ; (2) that respondent violated the 'CDP statutes" by not holding a section 6330 hearing for more than 3 years from the date of the request ; and (3) that petitioners did not have any tax liability for 1989 because the IRS improperl,, credited the payments from Commonwealth, and that , 5( .(cid:127) .cont nued ) his former att rney, Jerry Arthur Jewett, who had since been disbarred, may': have made the request without sending petitioners a copy . - 12 - even if respo dent did not receive the funds from Co mmonwealth , the 1989 ta x liability has been "constructively paid ." Mr . Summers furth r stated that he would not provide the Form 433-A and petitione s' 2003 and 2004 tax returns until the above issue s were address e On Jun e 2005, respondent's Appeals office sen t petitioner s Notice of Determination Concerning Collectio n Action (s) Und r Section 6320 and/or 6330 sustaining the proposed levy because etitioners did not provide the Form 433-A, did no t provide 2003 d 2004 tax returns, and did not raise legitimat e collection al ernatives . Petitioners timely petitioned this Court seeking review of respondent's determination to proceed with the coll ction of petitioners' 1989 tax liabilities . On February 28, 006, respondent filed a motion for summar y judgment, and on March 1, 2006, petitioners filed a motion for summary judgm nt . Petitioners filed an objection to respondent' s motion for su ary judgment on April 3, 2006, and responden t filed a respo se to petitioners' motion for summary judgment o n March 24, 200 Discussion dgment is intended to expedite litigation an d and expensive trials and may be granted wher e uine issue of material fact and a decision may be - 13 - rendered as a matter of law . Rule 121(a) and (b) ; Fla . Peac h Corp . v . Co mmissioner, 90 T .C . 678, 681 (1988) . The moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences are viewed in a light most favorable to he nonmoving party . Craig v . Commissioner , 11 9 T .C . 252, 260II(2002) ; Dahlstrom v . Commissioner , 85 T .C . 812, 82 1 (1985) ; Jacklin v . Commissioner , 79 T .C . 340, 344 (1982) . The party opposin summ ary judgment must set forth specific fact s that show tha a genuine question of material fact exists and ma y not rely merely on allegations or denials in the pleadings . Grant Creek U ter Works, Ltd . v . Commissioner, 91 T .C . 322, 325 (1988) ; Casan va Co . v . Co mm issioner, 87 T .C . 214, 217 (1986) . Section 330 provides that no levy may be made on an y property or ri~ght to property of a person unless the Secretar y first notified, the person in writing of the right to a hearing before the Ap eals Office . The Appeals officer must verify at the hearing that the applicable laws and administrativ e procedures ha e been followed . Sec . 6330(c)(1) . At the hearing, the person may raise any relevant issues relating to the unpaid tax or the pro osed levy, including appropriate spousal defenses, challenges to he appropriateness of collection actions, and collection alt rnatives . Sec . 6330(c)(2)(A) . The person may challenge the xistence or amount of the underlying tax, however, only if he or he did not receive any statutory notice of - 14 - deficiency fo the tax liability or did not otherwise have an opportunity t dispute the tax liability . Sec . 6330(c)(2)(B) . Where th validity of the underlying tax liability i s properly in i sue, the Court will review the matter de novo . Where the val dity of the underlying tax is not properly in issue, howeve the Court will review the Commissioner' s administrative determination for abuse of discretion . Sego v . Commissioner , 114 T .C . 604, 610 (2000) ; Goza v . Commissioner , 114 T .C . 176, 181--182 (2000) . A person may challenge a self- assesse d liability reported on his return where he or she has not had th e opportunity t dispute the liability . Montgomery v . Commissioner , 'j, 122 T .C . 1, 9 (2004) . An opportunity to dispute such a liability includes a suit by respondent to reduce a tax assessment to hl, judgment . See MacElvain v . Commissioner , T .C . Memo . 2000-32 The rec o d in the instant case clearly indicates that petitioners h d ample opportunity to dispute the liability reported on t eir amended tax return for 1989 and the $13,85 8 section 6662 penalty for that year . Petitioners litigated the issue of whethl r respondent failed to apply the payment from Commonwealth t taxable year 1989 in District Court and on appeal to the Third Cllrcuit Court of Appeals . The Third Circuit Court of Appeals affrmed the District Court's judgments agains t petitioners reducing the assessments , including the assessment - 15 - for 1989, to judgment . Furthermore, the doctrines of collateral estoppel and es judicata bar petitioners from relitigating this same issue, w ich was litigated in District Court and the Third Circuit Court of Appeals . See Commissioner v . Sunnen , 333 U .S . 591 (1948) ; F C Corp . and Subs v . Comm issioner, T .C . Memo . 2001- 298 . Accordi gly, we hold that petitioners' underlying ta x liability for 1989 is not properly before us . We therefore review respon ent's determination to proceed with the proposed levy for an a use of discretion . Petition rs contend that respondent's Appeals officer, abused her di cretion by failing to schedule a face-to-face conference wi h petitioners . We disagree . An in person hearing is not automatically guaranteed by section 6330 . Hearings at the appeals level have historically been informal . Davis v . Commissioner , 115 T .C . 35, 41 (2000) . Hearings may be held in person, but they may also be conducted by telephone or by correspondence . Katz v . Commissioner, 115 T .C . 329, 337-33 8 (2000) ; Dorra . Commissioner, T .C . Memo . 2004-16 . This Cour t has held that is not an abuse of discretion if an Appeal s officer determ nes that a face-to-face hearing would not be productive bas d on a taxpayer's frivolous or groundles s arguments . Lu sford v . Commissioner , 117 T .C . 183, 189 (2001) ; Kemper v . Commssioner, T .C . Memo . 2003-195 . We have also held that it is not an abuse of discretion to proceed with collection - 16 - where the taxpayer is not in compliance with the tax laws . Collier v . issioner , T .C . Memo . 2004-171 ; Rodriguez v . Commissioner , T .C . Memo . 2003-153 . The recor d in the instant case demonstrates that a face-to- face confere n e would not have been productive . On May 10, 2002, petitioners , hrough their attorney who was authorized t o represent th e submitted a request for a section 6330 hearing accompanied b a 37-page letter replete with tax proteste r boilerplate . On April 28, 2005, Ms . Dermody sent petitioners a letter where i she provided a copy of their request for a section 6330 hearing nd advising petitioners that, if they wanted a face-to-face earing they must contact her within 15 days and describe the egitimate issues they wished to raise . Ms . Dermody also advise d etitioners that they must complete a Form 433-A, and return i t along with their 2003 and 2004 tax returns b y May 13, 2005 . On May 1 3 2005, Mr . Summers sent Ms . Dermody a letter in which he rais e the following issues : (1) That Ms . Dermody was a settlement of f cer, not an independent Appeals officer, and that it was improp e for her to hold the hearing ; (2) that respondent violated the DP statutes" by not holding a section 6330 hearin g for more than years from the date of the request ; and (3) that petitioners di not have any tax liability for 1989 because the - 17 - IRS improperl credited the payments from Commonwealth , and that, even if respo dent did not receive the funds from Co mmonwealth, the 1989 tax iability has been "constructively paid ." Mr . Summers furth r stated that he would not provide Form 433-A and petitioners' 003 and 2004 tax returns until respondent ' s Appeals officer deal t with the above issues . Petition rs' first contention is frivolous . Ms . Dermody wa s an impartial ~mployee of respondent's Appeals Office and had n o prior involvm nt with petitioners . Petitioners' second contention is equally without merit . Section 6330 does not prescribe a time for scheduling a hearing . Once respondent has referred a case to the Department of Justice for defense o r prosecution, only the Attorney General or his delegate has th e authority t ompromise the case . See sec . 7122(a) ; Unite d States v . LaSal le Natl . Bank , 437 U .S . 298, 312 (1978) . Moreover, Mr . Summers advised respondent that he wished to defer the section 630 hearing until the judgment of the District Court became final . Accordingly, respondent acted within his discretion by 7aiting to schedule a section 6330 hearing until after petition rs' appeal to the Third Circuit Court of Appeals was resolved . We have already discussed petitioners' thir d contention ; thy are precluded from challenging the issue of the proper crediting of the Co mmonwealth payments . Finally, - 18 - petitioners h ve a duty to comply with the tax laws and may not withhold the nformation reasonably requested by respondent or fail to fil e ax returns . On the b sis of the foregoing, we conclude that it would no t have been pro uctive for respondent to schedule a face-to-face hearing . Acc rdingly, we hold that it was not an abuse of discretion fo respondent to determine to proceed with the proposed levy to collect petitioners' 1989 tax liability, and no genuine issue of material fact exists requiring trial . We shall therefore gra t respondent's motion for summary judgment and deny petitioners' m tion for summary judgment . We have considered all of petitioners arguments, and, to the extent that we have not addressed them in this opinion, we conclude they are without merit or unnec ssary to reach . Section 6 73(a)(1) authorizes the Tax Court to require a taxpayer to pa to the United States a penalty not in excess of $25,000 whenev r it appears that proceedings have been instituted or maintained y the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless . Although we do not impose a penalty on petitioners in this case, w take this opportunity to admonish petitioners that the Court . ill consider imposing such a penalty should they - 19 - return to the Court in the future in an attempt to delay collection o r advance frivolous or groundless arguments . To refle ~t the foregoing, An appropriate order and decision will be entered for respondent .