TAX COURT OPINION

Case: Leslie K. Kozaczek
Docket Number: 30233-12L
Judge: Marvel
Opinion Type: bench
Filed: 03/31/2014
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 RS LESLIE K. KOZACZEK, Petitioner(s), v. ) ) ) ) Docket No. 30233-12 L COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ORD ER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge L. Paige Marvel at Phoenix, Arizona, on March 6, 2014, containing the Court's oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. March 31, 2014 SERVED Apr 01 2014 Capital Reporting Company 3 1 Bench Opinion by Judge L. Paige Marvel 2 March 6, 2014 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Leslie K. Kozaczek v. Commissioner Docket No. 30233-12L THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION 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 Revenue Code of 1986 as amended and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references made in this bench opinion are to the Internal Revenue Code of 1986 as amended in effect for the relevant period, and Rule references are to the Tax 19 Court Rules of Practice and Procedure. 20 21 22 23 24 25 Petitioner Leslie K. Kozaczek (Mr. Kozaczek) appeared pro se. Michael W. Lloyd appeared on behalf of respondent. +rhoned Mr. Kozaczek this Court pursuant LPA to section 6330(d)(1) to review an adverse determination by respondent's Appeals Office (Appeals 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 Office) upholding respondent's proposed levy to 2 3 4 5 collect an unpaid Federal income tax liability for 2009. The two issues we must decide are: (1) whether Mr. Kozaczek may challenge the merits of the underlying tax liability; and (2) whether the Appeals 6 Office abused its discretion in upholding the 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 proposed levy. Mr. Kozaczek contends that the Internal Revenue Service (IRS) erroneously failed to refund to him an overpayment reported on his timely filed 2009 Federal income tax return. Although the IRS subsequently determined that Mr. Kozaczek had an income tax deficiency for 2009 attributable to some unreported income and issued him a notice of deficiency with respect to the deficiency, as we understand Mr. Kozaczek's argument, the 2009 overpayment originally reported on this return, which he maintains should have been refunded.to him, would eliminate any tax liability that the IRS is now seeking to collect. Respondent argues that the overpayment reported on Mr. Kozaczek's 2009 return was offset against a student loan debt administered by the U.S. Department of Education, and this Court is prohibited by section 6402(g) from reviewing the 24 merits of an offset authorized by section 6402(d). 25 Respondent also contends that Mr. Kozaczek may not 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 challenge the underlying tax liability because he received a notice of deficiency with respect to that liability and did not petition this Court to contest the liability when he had the opportunity to do so, and that the Appeals Office did not abused its discretion in determining that the IRS could pursue collection of the liability by levy. FINDINGS OF FACT Some of the facts have ben stipulated. The stipulations of fact and facts drawn from stipulated documents are incorporated herein by this reference. 12 When he petitioned this Court, Mr. Kozaczek resided 13 14 15 16 17 18 19 20 21 22 23 24 25 in Vermont. Mr. Kozaczek timely filed a Federal income tax return for 2009. He reported on his return that he had overpaid his income tax liability for 2009 by $4,607, and he requested a refund. The parties agree that the overpayment was not refunded to Mr. Kozaczek. The record shows that the overpayment was offset pursuant to the Treasury Offset Program against an alleged student loan liability of Mr. Kozaczek that was allegedly administered by the U.S. Department of Education. The existence of the liability and the obligation of the IRS to offset the 2009 overpayment was determined from certain coding 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 appearing in the IRS' computerized records at or about the time that the IRS processed Mr. Kozaczek's 2009 return and the claimed overpayment. The IRS subsequently determined that Mr. Kozaczek's 2009 return was incorrect in that it failed to report certain W-2 wage income. The IRS 7 mailed by certified mail addressed to Mr. Kozaczek a 8 9 10 11 12 notice of deficiency dated July 18, 2011, reflecting its determination. Mr. Kozaczek did not claim the certified mail package containing the notice of deficiency but he does not contest that he received the notice of deficiency and he did not petition this 13 Court with respect to the notice of deficiency. The 14 15 16 17 18 19 20 21 22 23 24 25 IRS subsequently assessed the deficiency. The IRS subsequently mailed to Mr. Kozaczek a Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing dated July 21, 2012, with respect to the assessed but unpaid Federal income tax liability for 2009. Mr. Kozaczek timely requested a hearing pursuant to section 6330 by submitting to the IRS a Form 12153, Request for a Collection Due Process or Equivalent Hearing. As grounds for his challenge to the proposed levy, Mr. Kozaczek alleged that his 2090 refund was unlawfully intercepted. Mr. Kozaczek's section 6330 hearing request was assigned 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 to Settlement Officer Tina Galarza (SO) in respondent's Office of Appeals. The SO and Mr. Kozaczek exchanged several letters regarding the unpaid liability. Among other things, the SO explained the hearing process and requested that Mr. Kozaczek file his delinquent Federal income tax returns for 2010 and 2011 so that she could consider collection alternatives. The administrative record reveals that Mr. Kozaczek did not submit the returns as the SO had requested and that no collection alternatives were considered. Although Mr. Kozaczek raised an issue regarding the appropriateness of the offset, the SO explained and confirmed in the notice of determination that the IRS cannot correct an "Treasury Offsets" once they have been completed. The Appeals Office issued a notice of determination dated November 26, 2012, that rejected 19 all of Mr. Kozaczek's arguments and sustained the 20 21 22 23 24 25 proposed levy. The notice of determination states that all requirements of applicable law or administrative procedures have been met and confirms that the SO consulted various computer records in order to conclude that required notices had been sent, that the unpaid tax liability had been properly 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 assessed, and that a balance remained unpaid. The SO had no prior involvement with Mr. Kozaczek's 2009 liability either in Appeals or Compliance. The notice of determination acknowledged Mr. Kozaczek's argument regarding the alleged unlawful.interception of his 2009 refund but concluded that "the IRS neither issued nor did the IRS [un]lawfully withhold your 2009 refund." Mr. Kozaczek timely petitioned this Court to contest the determination sustaining the proposed levy. Section 6330 DISCUSSION Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to pay the tax within 10 days after notice and demand, the Commissioner may collect the tax by levying upon the person's property or rights to property. Section 6330(a)(1), however, provides that the Commissioner may not levy unless he has first informed the taxpayer in writing of his right to a hearing. If the taxpayer timely requested a hearing, the hearing shall be held before an impartial officer or employee of the Internal Revenue Service Office of Appeals. 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 Sec. 6330(b)(1) and (3). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 At the section 6330 hearing, the taxpayer may raise any relevant issue, including appropriate spousal defenses, challenges to the appropriateness of collection action, and collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may also dispute the existence or amount of the underlying tax liability, but only if he did not receive a notice of deficiency or did not have a prior opportunity to dispute the liability. Sec. 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000). A taxpayer who presents a relevant, nonfrivolous reason for objecting to a proposed levy ordinarily will be offered a face-to-face hearing at the Appeals Office closest to the taxpayer's residence. Sec. 301.6330- 1(d)(2), Q&A-D7, Proced. & Admin. Regs. The SO offered Mr. Kozaczek the opportunity to request a face-to-face hearing, but he did not do so. Following the section 6330 hearing, the Appeals Office must determine whether the proposed levy may proceed. The Appeals Office is required to take into consideration: (1) verification presented by the Secretary that the requirements of applicable law and administrative procedure have been met; (2) relevant is.sues raised by the taxpayer; and (3) 25 whether the proposed collection action appropriately 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 balances the need for efficient collection of taxes 2 with a taxpayer's concerns regarding the 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 intrusiveness of the proposed collection action. Sec. 6330(c)(3). Standard of Review This Court has jurisdiction to review the Appeals Office' s determination. Sec. 6330 (d) (1) (A) . However, the standard of review that we apply depends upon whether the underlying liability was properly at issue in the section 6330 hearing. If the underlying liability is properly at issue, we review the determination regarding the underlying liability de novo; if the underlying liability is not properly at issue, we review the determination for abuse of discretion. Sego v. Commissioner, 114 T.C. at 610. We will not conclude that a determination is an abuse of discretion unless it is arbitrary, capr1clous, or 18 without sound basis in fact or law. Woodral v. 19 20 21 22 23 24 25 Commissioner, 112 T. C. 19, 23 hallo e...iD E.%Idma or A®win+ d d Ad y. (1999 . the only argument that Mr. Kozaczek made Li a6 during the section 6330 hearing and at trial focused on what he claims was an improper failure by the IRS to refund the overpayment that he claimed on his 2009 return. When we dig into the argument, it becomes clear that Mr. Kozaczek is really arguing that he 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 does not owe the unpaid 2009 liability. That is because Mr. Kozaczek contends that the refund he claims he should have received, if properly applied to his benefit and not offset against a debt he claims he does not owe, would eliminate the unpaid 2009 liability. In short, Mr. Kozaczek is challenging the underlying liability because he 8 maintains it was not correctly calculated in that it 9 reflected an improper offset. Although we can 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 certainly sympathize with Mr. Kozaczek's concerns about the possibility that his 2009 refund was improperly offset against a student loan liability that he may not owe, we are convinced that his attempt to challenge the offset in this proceedings is misplaced for several reasons. First, the unpaid liability is the result of a defaulted notice of deficiency that Mr. Kozaczek testified he probably received and did not contest by filing a petition in this Court. Section 6330(c)(2)(B) forecloses Mr. Kozaczek's attempt in this proceeding to challenge the underlying liability when he could have done so in response to the notice of deficiency. See, e.g., Adighibe v. Commissioner, T.C. Memo. 2013-296 (holding that a taxpayer who receives a notice of deficiency and does not seek 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 review in this Court forfeits his opportunity to contest the underlying tax liability in a section 6330 hearing). Second, section 6402(g) prohibits this 5 Court from deciding an issue relating to the merits 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of an offset made pursuant to section 6402(c), (d), (e), and (f). Although it appears that the SO did not inquire regarding the details of the offset, the administrative record does confirm that the SO verified that the overpayment claimed on Mr. Kozaczek's 2009 return was offset against a student loan liability recorded in the Department of Treasury's computerized records with respect to Mr. Kozaczek's taxpayer identification number. That action appears to be enough to foreclose this Court from inquiring further with respect to Mr. Kozaczek's claim that he was not liable for the student loan liability ostensibly owed by him. Sec. 6402(g); see also Jordan v. Commissioner, T.C. Memo. 2006-95 (holding that this Court lacked jurisdiction to consider the taxpayer's claim that his refund was improperly intercepted and paid over to the Department of Education); Wooten v. Commissioner, T.C. Memo. 2003-113 (holding that this Court lacked jurisdiction to consider the taxpayer's claim that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company her refund was improperly intercepted and paid over to the Department of Human Services and the Department of Agriculture and stating that section 6402 makes clear that any claim to recover such 13 1 1 intercept payments must be made directly against the recipient agencies). Finally, even if we were not precluded from considering Mr. Kozaczek's contentions regarding the application of the intercept, our conclusion regarding the intercept would not affect the amount of Mr. Kozaczek's income tax deficiency for 2009. See sec. 6211(a) (defining a deficiency generally as the amount by which the correct tax exceeds the tax shown on the taxpayer's return, increased by prior assessments and reduced by rebates as defined in sec. 6211(b) (2)); cf. Terry v. Commissioner, 91 T.C. 85, 87-88 (1988) (holding that an intercepted refund does not constitute a rebate for purposes of determining a deficiency) . At trial, Mr. Kozaczek relied on this 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Court' s opinion in Montgomery v. Commissioner, 122 22 23 24 25 T.C. 1 (2004) to support his position. His reliance is misplaced. -t is mieplaced Montgomery we held that, in a section 6330 hearing, a taxpayer 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 may challenge the existence or amount of his self- assessed tax liability reported on his original return if he has not received a notice of deficiency or otherwise had an opportunity to dispute the tax liability in question. Here, the IRS mailed a notice of deficiency to Mr. Kozaczek, he does not dispute receiving it, and he did not seek review in this 8 Court. Accordingly, Mr. Kozaczek cannot rely on our 9 opinion in Montgomery as authority to challenge the 10 11 12 13 underlying tax liability. We conclude that Mr. Kozaczek was prohibited from challenging the underlying tax liability in the section 6330 hearing and that we 14 must review the determination to proceed with 15 collection by levy for abuse of discretion. 16 Right of Determination for Abuse of Discretion 17 18 19 20 21 Mr. Kozaczek has not argued that the Appeals Office abused its discretion in determining to proceed with collection, nor has he demonstrated that there was any abuse of discretion. The administrative record establishes that the SO took 22 all of the steps required by section 6330(c), that 23 24 25 the SO exchanged information and views with Mr. Kozaczek regarding his arguments, and that the SO properly concluded that the IRS could proceed with 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 collection. On the record before us, we can find no abuse of discretion by the Appeals Office in sustaining the determination to proceed with collection. To reflect the foregoing, decision will be entered for Respondent. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 10:37 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