TAX COURT OPINION

Case: Patrick R. & Karen W. Devereux
Docket Number: 28464-10L
Judge: Paris
Opinion Type: bench
Filed: 05/31/2013
Pages: 18

UNITED STATES TAX COURT WASHINGTON, DC 20217 PATRICK R. AND KAREN W. DEVEREUX, ) ) Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) Docket No. 28464-10L. ) ) ) ) ) ) ORDER 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Elizabeth Crewson Paris at St. Louis, Missouri, on March 29, 2013, containing her 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, an appropriate decision will be entered. (Signed) Elizabeth Crewson Paris Judge Dated: Washington, D.C. May 31, 2013 $C4WED JUN - 4 2013 Capital Reporting Company 3 1 Bench Opinion by Judge Elizabeth Crewson Paris 2 March 29, 2013 3 Patrick R. and Karen W. Devereux v. Commissioner 4 5 6 7 8 Docket No. 28464-10L I. 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 9 Opinion. The Oral Findings of Fact and Opinion shall 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not be relied upon as precedent in any other case. II. 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. Hereinafter in this bench opinion, all section numbers refer to the Internal Revenue Code of 1986, as amended, and all Rule numbers refer to the Tax Court Rules of Practice and Procedure. III. Petitioners, Patrick R. and Karen W. Devereux, appeared and were heard. Steven Labounty appeared on behalf of Respondent. IV. This is a collection review case involving 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 the issuance of a Notice of Intent to Levy to collect petitioners' unpaid tax liabilities for tax year 2006. The issue for decision is whether respondent may proceed with collection action as determined in the Notice of Determination Concerning Collection 6 Actions Under Section 6320 and/or 6330, dated 7 8 9 10 11 November 22, 2010, for tax year 2006. V. Some of the facts have 'been stipulated, and they are so found. The stipulation of facts and attached exhibits are incorporated by this reference. 12 Petitioners resided in Missouri when this petition 13 14 15 16 17 18 19 20 21 22 23 24 was filed. Petitioners allege that on or about July 7, 2006, an employee of the Internal Revenue Service (IRS) quoted to Mr. Devereux a pay-off figure of $131,175.52 for petitioners' outstanding Federal income tax liabilities for tax years 2002, 2003, 2004 and 2005. This amount was to include all penalties and interest through November 6, 2006. On September 1, 2006, petitioners made a payment of $90,000. On October 17, 2006, petitioners made another payment of $20,000. On November 3, 2006, Mr. Devereux visited the IRS Center in 25 Chesterfield, Missouri to pay the remaining balance. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company When Mr. Devereux attempted to pay the remaining balance, which he believed to be $21,175.52, he was told that the balance reflected on his account was in excess of $35,000. Mr. Devereux did not pay the balance on that day and instead made an additional payment of $20,000 on November 14, 2006. On July 28, 2008, petitioners filed their joint Federal income tax return for tax year 2006. The return reflected tax due of $29,911. Even though the original due date was April 15, 2007, petitioners did not include any penalty payment on their return. The records reflect that at that time, petitioners had $23 of withholding for tax year 2006 and included a payment of $8,000 with their tax return. On the same day, respondent assessed a penalty under section 3 6654 in the amount of $1,08 for not making estimated tax payments for tax year 2006, a penalty under section 6651(a)(1) in the amount of $6,715 for failing to file timely a tax return for 2006, a penalty under section 6651(a)(2) in the amount of $2,347 for failing to pay income tax due in a timely manner, and accrued interest in the amount of $3,242. Respondent issued a notice of balance due on July 28, 2008, for the remaining·balance of petitioners'/ 2006 Federal 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 income tax liability. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 On April 20, 2009, petitioners made an additional voluntary payment of $18,700. The letter enclosed with this payment referred to both tax years 2005 and 2006 and asked that the payment be applied to "whichever year results in minimizing the amount of interest and penalty I am accruing". On October 23, 2009, petitioners filed a complaint in the United States District Court for the Eastern District of Missouri. In their complaint petitioners asked for an abatement of penalties and interest related to tax years 2002 through 2005, alleging that they had satisfied the pay-off amount quoted by an IRS employee for those years. 14 Petitioners' complaint was dismissed for lack of 15 16 17 18 19 20 21 subject matter jurisdiction. On December 17, 2009, respondent mailed to petitioners a Notice of Intent to Levy for tax year 2006. On January 12, 2010, respondent received petitioners' Request for a Collection Due Process (CDP) or·Equivalent Hearing. On August 16, 2010, Settlement Officer 22 Valerie Chavez (SO Chavez) sent petitioners 23 24 25 scheduling a telephone CDP hearing for October 6, 2010. The letter also informed petitioners that they would have to complete a Form 433-A, Collection 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 Information Statement, in order to be considered for collection alternatives. On September 9, 2010, petitioners sent a letter to SO Chavez explaining that they had filed suit in District Court for tax years 2002 through 2005 but that their case was dismissed in May of 2010. Additionally, petitioners stated that they were then advised to file Forms 843, Claim for Refund and Request for Abatement, for tax years 2002 through 2005, and had done so. 10 Petitioners further stated that if this claim was 11 denied they would appeal that decision to the Tax 12 Court. 13 14 15 16 17 18 19 20 On October 6, 2010, SO Chavez held a telephone CDP conference with petitioner Patrick Devereux. Mr. Devereux did not dispute the validity of the assessment or that administrative procedures had been met. The only issue he raised was the existence of a balance for tax year 2006. Mr. Devereux stated that they paid $130,000 for liabilities relating to tax years 2002 through 2005. 21 Mr. Devereux claimed that all subsequent voluntary 22 23 24 25 payments and involuntary balance transfers from a year with an overpayment to a year with a balance should have been applied to tax year 2006. Mr. Devereux claimed that those payments and transferped AP 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 were incorrectly applied to tax years which had been already been satisfied by petitioners $130,000 payment. Mr. Devereux claimed that had this been the case, that no balance would exist for tax year 2006. SO Chavez explained to Mr. Devereux that the IRS Center had not made a decision regarding petitioners' Form 843 claims for tax years 2002 through 2005. SO Chavez further explained that Appeals in required to address the account balance based on the current information that they have. SO Chavez noted that at that time there was a balance due and the levy notice was properly issued. SO Chavez offered petitioners the option of entering into an installment agreement until the Form 843 issues were resolved but petitioners declined. On November 22, 2010, respondent issued to petitioners a notice of determination sustaining the collection action for tax year 2006. On December 21, 2010, petitioners filed a petition in this Court for review of that determination. VI. We now turn to the substantive law. Under section 6331, if a person liable to pay any tax neglects or refuses to pay the same 25 within 10 days after notice and demand, it shall be 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 lawful for the Secretary to collect such tax by levy upon all property and rights to property belonging to such person. A taxpayer may appeal the proposed levy IRS to the kTS under section 6330 by requesting an ER administrative hearing. If an adverse determination is reached, the taxpayer is afforded the opportunity for judicial review of the determination in the Tax 8 Court. Sec. 6330(d). Here, petitioners seek review 9 of respondent's determination that the proposed levy 10 11 12 13 14 15 be sustained. Where the validity of the underlying tax liability is properly at issue, the Court will review the matter de novo. Davis v. Commissioner, 115 T.C. 35, 39 (2000). Where the underlying tax liability is not at issue, the Court will review the 16 Commissioner's administrative determination for abuse 17 18 19 20 21 22 23 24 25 of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181- 182 (2000). An abuse of discretion is any action that is arbitrary, capricious, or without sound basis in law or fact. Woodral v. Commissioner, 112 T.C. 19, 23 (1999). The underlying liability may be properly at issue in a collection due process hearing only when the taxpayer has not received a notice of deficiency 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3. 4 5 6 or has not otherwise had an opportunity to challenge the liability. Sec. 6330 (c)(2)B). Petitioners have not had an opportunity to challenge their underlying liability for tax year 2006. However, petitioners' liability for the year at issue was self-assessed and they agree that the amounts reported were correct. 7 Petitioners' only contention is that their 8 9 10 11 12 13 14 outstanding balance for tax year 2006 should be reduced or eliminated because the respondent improperly applied certain payments and credits to other tax years which had already been paid in full. This issue does not pertain to the underlying liability for tax year 2006, but merely whether the liability has been fully or substantially paid. 15 Accordingly, respondent's determination will be 16 17 18 19 20 21 22 23 24 25 reviewed for abuse of discretion. Section 6330 requires the Commissioner to give the taxpayer notice of a proposed levy and notice of the right of a fair hearing before an impartial officer of the IRS Office of Appeals. Sec. 6330 (a) and (b). The taxpayer may raise appropriate spousal defenses, challenge the appropriateness of collection actions, and offer collection alternatives. Sec. 6330 (c)(2)$). Additionally, as discussed supra, the taxpayer may challenge the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 existence or amount.of the underlying tax liability only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to challenge the underlying liability. Sec. 6330(c)(2)S). At the hearing, generally, the Appeals officer must consider the above-stated issues raised by the taxpayer, verify that the requirements of applicable law and administrative procedure have been 10 met, and consider whether "any proposed collection 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 action balances the need for efficient collection of taxes with the legitimate concern of the * * * [taxpayer] that any collection action be no more intrusive than necessary." Sec. 6330 (c)(3). Underlying liability and other section 6330 (c)(2) issues must be raised at the Appeals hearing to be properly raised before this Court. Giamelli v. Commissioner, 129 T.C. 107, 115 (2007). Petitioners contend that their Federal income tax liability for tax years 2002 through 2005 was paid in full in November of 2006. Petitioners further contend that the following subsequent payments and transfers should have properly been credited to tax year 2006 instead of tax year 2005: a credit transfer from tax year 2002 in the amount of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 $1,821 on September 1, 2006; two overpayment transfers from tax year 2007 in the amounts of $1,923 and $1,188 on April 15, 2008; a voluntary payment of $18,700 made on April 20, 2009; and a credit transfer from tax year 2009 in the amount of $6,845 made on May 15, 2010. The total of these amounts is $30,477. 7 Petitioners assert that because these payments and 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 transfers were misapplied, there exists a balance for tax year 2006 that would otherwise have been eliminated. The Court notes, however, that three of the involuntary transfers descried were applied to other tax years before petitioners filed their 2006 return. The Court has previously considered whether it has jurisdiction to conclude that a taxpayer's liability for a determination year in a CDP case should be reduced or eliminated by recognized overpayments from nondetermination years or remittances misapplied to nondetermination years. See, e.g., Weber v. Commissioner, 138 T.C. 348 (2012); Brady v. Commissioner, 136 T.C. 422 (2011); Freije v. Commissioner, 125 T.C. 14 (2005). In Freije, the Court held that its jurisdiction under section 6330 (d) (1) (A) encompasses consideration of facts and issues in nondetermination 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 years where the facts and issues are relevant in evaluating a claim that an unpaid tax has been paid. Freije v. Commissioner, 125 T.C. at 27. The Court noted that such an inquiry surely includes a claim that the unpaid tax has in fact been satisfied by a remittance that the Commissioner improperly applied else. Id. at 26. In Weber, the Court clarified Freije in holding that an overpayment that has been determined by the IRS or a court but has not been refunded or properly applied may be an "available credit" that, under Freije, could be taken into account in a CDP hearing to determine whether the tax at issue remains "unpaid" and whether the ITS can proceed with collection. Weber v. Commissioner, 138 T.C. at 368. However, until the credit has fully materialized, a taxpayer merely asserts a claim for credit which is beyond the scope of a CDP case. Id. It bears repeating that petitioners do not dispute the self-assessed underlying liability for tax year 2006. Nor do they dispute the self-assessed liabilities for tax years 2002 through 2005. 23 Petitioners' only contention is that they were given 24 25 a pay-off amount for those years, including penalties, interest, and additions to tax, and that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 they satisfied that amount such that subsequent payments and transfers should have eliminated their 2006 liability. However, the Court notes that even if all of the claimed voluntary payments and involuntary transfers has been made contemporaneously 6 with the delinquently filed 2006 tax return on July 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 28, 2008, (which they were not), the sum total would not equal the balance due and owing for tax year 2006 as reflected in the notice of tax due issued to the petitioners on July 28, 2008. Therefore, tax year 2006 since its delinquent filing, could never have been pai in full with the contested payment allocation. Petitioners' claim does not represent a claim for overpayment, but merely a claim that a properly assessed amount was paid in full and should have ended the accruing of penalties and interest for that amount. Consequently, petitioners' proper remedy to dispute the balances for tax years 2002 through 2005 would be to file for an abatement under section 6404, for interest and penalties that may have accrued after the alleged payoff amount was fulfilled. The Tax Court does have jurisdiction to review a denial of a request for abatement if and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 when petitioners should receive that determination. The Court has previously addressed and appropriately filed abatement petitions, the issue of erroneous payoff amounts. In H&H Trim & Upholstery Co. v. Commissioner, T.C. Memo 2003-9, the taxpayer contacted an IRS employee on January 15, 1997, and asked for a pay-off amount for its then-outstanding Federal employment tax liabilities. The IRS employee quoted the taxpayer an erroneous pay-off amount that failed to take into account interest and additions to tax that had accrued but has not yet been assessed. Unaware of the Commissioner's error, the taxpayer paid this pay-off amount and assumed that it had satisfied its then-outstanding liability. When apprised of the remaining balance on June 30, 1998, the taxpayer requested that the Commissioner abate the unpaid interest and penalties. The Commissioner denied the request. The Court found that because there was no suggestion that the taxpayer was not otherwise liable for the interest and additions to tax accrued but not yet assessed at the time of the pay-off quote on January 15, 2007, the taxpayer was still liable for that amount. However, the Court found that any 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.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 interest and additions to tax that accrued during the period between when the taxpayer paid what it believed was the full liability on January 15, 2007, and when it was apprised of the remaining balance on June 30, 1998, were excess1ve under the definition of section 6404 (a) and should be abated. The Court further held that the taxpayer was liable for any interest accrue after the taxpayer was made aware of the balance on June 30, 1998, as that accrual resulted from the taxpayer's decision not to pay the liability, rather than the Commissioner's erroneous advice. In Douponce v. Commissioner, T.C. Memo. 1999-398, the Court issued a similar decision. In that case, the taxpayer was quoted a pay-off amount for three years of outstanding Federal income tax liability on May 9, 1996. By May 30, 1996, the taxpayer had satisfied the quoted pay-off amount. Again it was determined that the IRS employee had given the taxpayer an erroneous pay-off amount that failed to take into account interest and additions to tax that had accrued but had not yet been assessed. 23 When the taxpayer was made aware that there was a 24 25 remaining balance on November 4, 1996, he immediately paid it. The taxpayer then requested abatement of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 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 the interest accrued above the pay-off amount given by the IRS employee. The Commissioner denied the request. The Court once again found that the taxpayer was liable for the.accrued but not yet assessed interest at the time of the pay-off quote on May 9, 1996. The Court similarly found that the taxpayer was liable for any interest accrued between May 9, 1996, when the quote was given and May 30, 1996, when the taxpayer paid what he believed to be the full liability, as this delay was due to the taxpayer's failure to pay. However, the Court found that any interest that accrued between May 30, 1996, when the taxpayer paid the quoted amount, and November 4, 1996, when he was apprised of the balance and immediately paid it, should have been abated. The Court held that the Commissioner's failure to do so was an abuse of discretion. This issue may only be considered, however, when the Court's subject matter jurisdiction springs from a denial of a request to abate interest and penalties under section 6404. Here, in today's opinion, the Court's jurisdiction springs from a notice of determination of collection action only for tax year 2006. In this context, the Court's review 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 is limited to whether or not SO Chavez abused her discretion in sustaining the proposed levy for tax year 2006. In making her determination, SO Chavez found that all legal and administrative requirements were met for the proposed collection action to collect petitioners' joint Federal income tax for tax year 2006. SO Chavez further verified that petitioners' income tax for tax year 2006 was properly assessed and that there was a balance due for tax year 2006 at the time the notice of intent to levy was sent on December 17, 2009. SO Chavez also offered to discuss collection alternatives but petitioners declined. Petitioners did not produce at their CDP hearing evidence that respondent determined an overpayment of interest or penalties with respect to tax years 2002 through 2005. Petitioners have likewise never perfected a claim of abatement of penalties and interest under section 6404. Therefore, petitioners did not have an "available credit" that had fully materialized, and consequently their unperfected claims are beyond the scope of this CDP case. Accordingly, the Court finds that SO Chavez did not abuse her discretion in determining to 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.CapitalReportingCompany.com Capital Reporting Company 19 proceed with the proposed collection action. Respondent's determination is sustained. VII. In order to give effect to our disposition of the disputed issues, an appropriate decision will be entered. VIII. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 11:20 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.CapitalReportingCompany.com