TAX COURT OPINION

Case: Melvyn Duane Salter
Docket Number: 21045-15L
Judge: Gustafson
Opinion Type: bench
Filed: 11/03/2016
Pages: 13

22 UNITED STATES TAX COURT WASHINGTON, DC 20217 DRC MELVYN DUANE SALTER, Petitioner, v. ) ) ) ) Docket No. 21045-15 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to 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 petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at Columbia, South Carolina, on October 19, 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. November 3, 2016 SERVED Nov 03 2016 Capital Reporting Company 3 1 Bench Opinion by Judge David Gustafson 2 October .,1-fr, 2016 3 Melvyn Duane Salter v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Docket No. 21045-15L 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 to collect petitioner's unpaid 18 - income tax for the years 2009 and 2010. The case was 19 20 tried in Columbia, South Carolina, on October 17, 2016. Mr. Salter represented himself, and Corey R. 21 Clapper represented the Commissioner. We hold that 22 Mr. Salter did not effectually challenge his 23 24 25 liabilities and that IRS 'Appeals did not abuse its discretion in declining to grant him the status of "currently not collectible" ("CNC"), and we therefore 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 sustain the filing of the notice of lien. FINDINGS OF FACT 3 Mr. Salter's 2009 and 2010 Federal income tax 4 5 6 7 8 9 10 11 12 liabilities Mr. Salter filed his 2009 Federal income return (Ex. 1-J) not in April 2010 but more than a year and a half late in January 2012. (Stip. 2.) That return shows that he made his living in real estate sales and as an auctioneer. The return showed gross receipts of about $60,000 but reported a loss of $26,136. The IRS examined his 2009 year (Stip. 3-8) and properly mailed a notice of deficiency ("NOD") to 13 Mr. Salter's last known address (Exs. 8-J, 9-J). The 14 15 16 17 18 19 20 NOD reflected disallowed deductions on two Schedules C for car and truck expenses ($18,152), legal and professional services ($6,000 on one Schedule C and $4,800 on the other), "Other expenses" ($4,899 on one Schedule C and $13,898 on the other), and a net operating loss carryforward of $6,986. Mr. Salter did not file a petition with the Tax 21 Court to challenge the NOD. For purposes of this 22 23 24 25 case it can be assumed that, as he maintains, he did not receive the NOD. Mr. Salter filed his 2010 Federal income return (Ex. 10-J) not in April 2011 but more than eight 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 months late in January 2012. (Stip. 2.) He did not 2 pay the liability that he reported on his return. 3 Notice of lien 4 On February 23, 2015, the IRS filed with the 5 Register of Deeds in Mr. Salter's county a "Notice of 6 7 8 9 10 11 Federal Tax Lien" (Ex. 11-J) with a view toward collection of his unpaid 2009 and 2010 income tax liabilities (Stip. 14), which then totaled $15,668 (Ex. 11-J). The IRS sent to Mr. Salter a "Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320". (Stip. 15, Ex. 12-J). 12 Agency-level CDP hearing 13 14 15 16 17 18 19 20 21 22 In response, Mr. Salter timely mailed to the IRS a Form 12153, "Request for a Collection Due Process ... Hearing". (Stip. 16, Ex. 13-J.) Mr. Salter's request stated, "I disagree" (which we understand to be a challenge to his underlying liability) and indicated "I cannot pay balance" (which we construe to be a request that he be deemed "currently not collectible" ("CNC"), so that collection activity would be suspended). After IRS Appeals received his request, Appeals 23 Officer Elmer Frazier consulted IRS transcripts to 24 25 verify that the liabilities that were the subject of the lien notice had been duly assessed. (Stip. 28; 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Ex. 22-J.) Appeals sent Mr. Salter a letter dated May 12, 2015, explaining that, if he wanted a "collection alternative" (which includes CNC status), then he would need to (1) provide financial information about himself on Form 433-A, "Collection Information Statement", and (2) file then-overdue tax returns for the years 2012, 2013, and 2014. Communication between Mr. Salter and Appeals broke down almost immediately (see Stip. 22-23), because Mr. Salter had prior experience with Appeals that made him doubt the efficacy of the CDP process, because Mr. Salter believed that the IRS was targeting him, which made him unwilling to provide information about himself or to file any more returns, and because the IRS failed to comply with 16 Mr. Salter's demand, based on privacy concerns, that 17 18 19 20 21 22 23 24 25 the IRS use only certified mail for all correspondence with him. Consequently, Mr. Salter did not provide to IRS Appeals any information supporting his liability challenge, any financial information about himself, or any of the delinquent Federal income tax returns. In the absence of the requested information, IRS Appeals issued a notice of determination (Ex. 18-J) on July 17, 2015, sustaining the filing of the notice 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 of Federal tax lien. (Stip. 24.) Tax Court proceedings On August 14, 2015, Mr. Salter timely filed his petition in the Tax Court, seeking our review of Appeals' notice of determination. At the time he filed his petition, Mr. Salter resided in South 7 Carolina. (Stip. 1.) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 When the parties appeared for trial, Mr. Salter said that he disputes his underlying liability for 2009, the year for which the IRS issued an NOD (but not for 2010, the year in which only his self- reported liability was assessed). The Commissioner did not dispute Mr. Salter's entitlement to challenge his underlying liability. However, Mr. Salter acknowledged that he had not presented to IRS Appeals any substantiation for his liability challenge, and he had no documentary evidence to offer to substantiate a challenge to any of the IRS's adjustments to his 2009 income. He testified that vehicle use was essential to his business but did not offer any detail about his miles driven or expenses incurred. He gave no testimony about legal expenses or "Other expenses", and he did not know what the NOL was derived from. At trial Mr. Salter also contended that IRS 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company Appeals erred by failing to give him CNC status, as he had requested, but he acknowledged that he had not given Appeals any financial information about himself nor filed his delinquent returns for the years 2012, 8 2013, and 2014. OPINION I. Burden of proof and standard and scope of review As petitioner, Mr. Salter bears the burden of proof. See Rule 142(a)(1). He makes no contention that the burden has shifted for any reason, and we see no basis in the record for such a contention. 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). II. Collection Due Process principles 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. However, 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 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.Capita1ReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 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). At the CDP hearing, the appeals officer must make a determination whether the proposed collection action may proceed. The appeals officer ("AO") is required to take into consideration several things: A. Verification First, the appeals officer must obtain verification that the requirements of any applicable law and administrative procedure have been met by IRS personnel (see sec. 6330(c)(3) (A)), and in this case the AO verified the assessments simply by consulting transcripts--something that, in the ordinary course, is proper and sufficient. See Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002). However, 18 Mr. Salter says that he did not receive the 2009 NOD 19 20 21 22 23 24 25 and he therefore infers that the IRS never sent the NOD. If that were true, then the 2009 assessment would be invalid. Arguably, this could be a "verification" issue; and the Internal Revenue Manual does require that, if a CDP taxpayer alleges non- receipt of an NOD, then Appeals should do more. In the absence of the taxpayer's admission of receipt, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 Appeals "must review (or attempt to review) the underlying pre-assessment documents that show that the notice was issued and was sent to the taxpayer's last known address. This means in addition to transcripts, you should review or attempt to review the following documents, if possible: A. a copy of the SNOD and B. the certified mailing list for the SNOD to verify whether the SNOD was properly mailed to the taxpayer's last known address." IRM pt. 8.22.2.2.4.7.1(4). However, Mr. Salter does not allege that he ever told the AO about his non-receipt of the NOD. 13 Rather, he stopped communicating with Appeals because 14 15 16 17 18 19 20 21 22 23 24 25 of his belief that he was being targeted and because of his privacy concerns. We cannot fault Appeals for not pursuing this issue. When Mr. Salter finally did press the issue in this litigation, the Commissioner was able to locate the documents (which the AO had no occasion to locate) that convince us that the NOD was indeed mailed as the IRS alleged. B. Collection alternatives Second, the AO must consider any collection alternatives proposed by the taxpayer (see sec. 6330(c)(3)(B), citing sec. 6330(c)(2)). Mr. Salter contends that Appeals erred in this regard by not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 granting him CNC status. However, because of his unwillingness to disclose information to the 3 Government, he failed to provide financial 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 information about himself. It is not an abuse of discretion for Appeals to decline to grant a collection alternative when a taxpayer fails to provide financial information to support the alternative. See Huntress v. Commissioner, T.C. Memo. 2009-161. Mr. Salter also failed to file the three years' delinquent returns; and it is not an abuse of discretion for Appeals to decline to grant a collection alternative and sustain a lien when a taxpayer fails to bring himself into compliance with his filing obligations. See I.R.M. pt. 5.16.1.2.(4- 5); cf. Rodriguez v. Commissioner, T.C. Memo. 2003-153. Mr. Salter says that his noncooperation with the IRS was justified by his privacy concerns and his 19 belief that he was being "targeted", and we assume 20 21 22 23 that his attitude is sincere. However, a tax return filed more than a year and a half late that reports gross receipts of $60,000 but a loss of $26,136 fairly raises questions--questions of the sort that 24 Mr. Salter was unable or unwilling to answer. 25 Someone who files such a tax return should not assume 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 he is unfairly targeted when the IRS examines his return; and someone with $15,668 of unpaid taxes should not assume he is unfairly targeted when the IRS does its statutorily mandated job of seeking to collect those taxes. The CDP process is not 6 mandatory but voluntary; and when Mr. Salter elected 7 8 9 10 11 12 13 14 15 16 17 to pursue that process, it became incumbent on him to provide information. When he failed to do so, Appeals did not abuse its discretion by denying him CNC status and sustaining the notice of lien. C. Intrusiveness Third, the Ao must determine "whether any proposed collection action 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" (see sec. 6330(c)(3)), an issue that Mr. Salter has not 18 distinctly raised and that we do not see implicated 19 20 21 22 23 24 25 in this case. D. Challenge to underlying liability In addition, pursuant to section 6330(c) (2) (B) a taxpayer may challenge the underlying tax liability in a CDP hearing, but only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 such tax liability." Mr. Salter alleges he did not receive the IRS's 2009 NOD, and the Commissioner does not dispute that Mr. Salter was entitled to challenge his 2009 liability at the CDP hearing. However, Mr. Salter did not make such a challenge, because he decided instead not to state his case before Appeals. And in reviewing Appeals' determination, we cannot review issues that Mr. 9 Salter never raised before Appeals. Giamelli v. 10 11 12 13 14 Commissioner, 129 T.C. 107, 115 (2007) ("we do not have authority to consider section 6330(c)(2) issues that were not raised before the Appeals Office"). Even if we did have authority to consider the underlying liability challenge for 2009 that Mr. 15 Salter failed to make before Appeals, we could not 16 17 18 19 20 21 22 sustain his challenge, because he failed altogether to substantiate it at trial. His 2009 return reported, and the IRS disallowed, vehicle expenses of $18,152; and such expenses are subject to especially strict substantiation rules under section 274(d), see sec. 280F(d) (4); Shea v. Commissioner, 112 T.C. 183, 187 (1999); but Mr. Salter gave no substantiation 23 whatsoever. He could not explain (much less 24 25 substantiate) his net operating loss carryforward of $6,986; and he made no mention whatsoever of his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 claimed legal and professional service expenses totaling $10, 800 or his "Other expenses" totaling $18,797. We must sustain IRS Appeals' determination upholding the notice of lien. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 10:02 a.m., the above- entitled matter was concluded.) 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.Capita1ReportingCompany.com