TAX COURT OPINION

Case: Omar J. Nasir
Docket Number: 16721-08L
Judge: Wherry
Opinion Type: memo
Filed: 12/05/2011
Pages: 20

T.C. Memo. 2011-283 UNITED STATES TAX COURT OMAR J. NASIR, Petitioner v. i! ii COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 16721-08L. Filed December 5, 2011. il P filed a petition for review of a lien filing || to sec . 6320 , pursuant determination that the collection action was appropriate . . R . C. , in reåponse to R' s Held: R' s determination is suskained. Omar J. Nasir, pro se. Nai ah J. Shari f f , f or re spondent . MEMORANDUM FINDINGS OF FACT AND OPINION WHERRY, Judge: This case is before the Court on a petition for review of a notice of depermination c ncern ng collection gggg0 DEC -5 204 - 2 - action(s) under section 6320 and/or 6330 (notice of determination).1 Petitioner seeks review of respondent's determination sustaining a tax lien filing. The collection action stems from late returns petitioner filed for the 2000 and 2002 tax years. The issue for decision is whether petitioner had reasonable cause for his failure to comply with sections 6651(a) (1) and (2) and 6654 (a). FINDINGS OF FACT Some of the facts have been stipulated. The stipulations, with accompanying exhibits, are incorporated herein by this reference. At the time the petition was filed, petitioner resided in California. Petitioner worked as an engineer in 2000 and 2002, reporting adjusted gross income of $120,992 and $83,069, respectively. Petitioner failed to timely file his Federal income tax returns for tax years 2000 and 2002 and failed to timely pay his tax liabilities for those years For 2000 respondent initially assessed an income tax deficiency of $29,436 on April 10, 2006, on the basis of. a substitute for return he pr pared pursuant to section 6020(b). The substitute for return also showed, and petitioner was assessed, a section 6651(a) (1) failure to timely file addition to 1Unless othefwise indicated, all section references are to the Internal Revenue Code of 1986, as amended and applicable to the periods at issue. - 3 - tax.of $1,265.40, a section 6651(a) (2) fa lure t timely pay addition to tax of $3,301.50, and a section 6654 failure to pay estimated income tax addition to tax of $609.06. Petitioner subsequently, on or about April 23, 2006, filed a Form 1040A, U.S. Individual Income Tax Return, for hi 2000 tax year, showing a tax liability of $21,958. Thereafter, respondent abated $7,478 of his assessment and reduced the tax deficiency o $21,958. Respondent also abated $1,895.50 of the late payment addition to tax, reducing the late payment addition t tax mount to $1,406, and removed the section 6654.addition to tax fof failure to pay estimated income tax. || For 2002 respondent initially assessed an income tax deficiency of $37,734 on the basis of a substitgte for return he prepared pursuant to section 6020(b). The substitute for return also showed, and petitioner was assessed, a section 6651(a) (1) failure to timely file addition to tax of $4,261.50, a section 6651(a) (2) failure to timely; pay addition to ta of $6,980.79, and a section 6654 addition ito tax for failure to pay estimated income tax of $628. Petitioner subsequently, on or about October 14, 2007, filed a Form 1040A for his 2002 tax year, showing a tax liability of $20,205. Thergafter, respo dent a ated $17,529 of his assessment and reduced dhe tax defic ency a ount to $20,205. Respondent also abated $4,382.25 of the addition to tax for late payment, reducing the amount to $2,598.54. On September 4, 2007, respondent mailed petitioner a Letter 3172, Notice of Federal Tax Lien (NFTL) Filing and Your Right to A Hearing under IRC 6320, advising petitioner that respondent would on the next day file n NFTL for 2000 and 2002. On September 5, 2007, respondent filed an NFTL to collect the unpaid tax liabilities. In response, respondent timely received petitioner's Form 12153, Request for a Collection Due Process or Equivalent Hearing, dated October 2, 2007. Petitioner checked the boxes on the Form 12153 for withdrawal and discharge of the tax lien. Petitioner also Èhecked boxes for the collection alternatives of an installment agreement and an offer-in- compromise. From February to June of 2003, respondent processed - petitioner's request, and on May 21, 2008, respondent ultimately conducted a collection due rocess hearing by phone with petitioner, although petitioner had requested a face-to-face conference. Petitioner requested penalty relief as it relates to the additions to tax for failure to timely file and the failure to timely pay on the grounds that he·suffered undue financial hardship. Petitioner also requested collection alternatives, including an offer-in-comprömise, but failed to provide the requested documentation.2 R spondent sent a notice of 2The required documentation included a completed Form 433-A, Collection Information Statement for Individuals, proof of (continued...) determination to petitioner ;on June 2, 2008, !I infòrming him of the decision to deny penalty relief and sustain the" lien filing. Petitioner filed a petijtion on July 7, 2008, and an .amended petition on July 31, 2008. bThis case was set for trial on June 22, 2009, but was continued on the joint motion of the parties. However, because the requested face-to-face confÁrence had not been afforded to petitioner, respondent's San Francisco Appeals Office agreed to reconsider the case. In a let er dated May 7, 2009, in response to petiticner's new reÖuest f r an offer-in- compromise, respondent again. requested that petitioner provide a variety of items for consideration to the settlement officer in San Francisco before the face-to-face conferencei3 Among the items requested if petitioner still wished to pµrsue collection alternatives was a Form 433-A, Collectio(cid:16)0401Infornation Statement for Individuals, and a Form1656, Offer in Compromise, both of 2 ( . . . continued) estimated tax payments for 2008, and delinquent 2006 and 2007. Consequently, without not eligible for any collection alternatives. tax returns for these items, petitioner was 3Respondent requested r$ine document , plus the completed (1) Bank statements from January 2008 to date; Form 656, Offer in Compromi e, and Form 33-A. documents were: (2) paycheck stubs for the previous 6 months; from mortgage lenders; agreement; copies of previous 6 months.of mortgage payments; Federal tax return; and (9) documentation to substantiate any medical expenses incurred during the tax years 2000 and 2002 for treatmer}t of petitioner's former wife's breast cancer; (5) copies of previous 6 months of rent payments; (4) a copy of petitioner's current tax return; (8) an amended 2002 . Federal (3) payoff letters The other lease (6) (7) 2008 11 which were sent to petitioner with detailed instructions. As a followup to the May 7 letter, Settlement Officer Deborah Conley (Officer Conley) sent a letter to petitioner on May 19, 2009, scheduling a face-to-face conference for June 16, 2009. This letter once again requested that petitioner file delinquent tax returns and provide respond nt with a Form 433-A and other documents pertaining to his finances and expenses. Over the next 3 months petitioner provided the necessary documents to discuss the offer-in-compromise. During this period respondent granted additional time and rescheduled the face-to- face conference with petitioner twice, in order that petitioner could gather and provide ali of the necessary documents.4 A face-to-face conference between Officer Conley and petitioner finally occurred on August 20, 2009. At the conference petißioner submitted a completed Form 656. Under the terms of the offer-in-compromise petitioner offered $6,544 as a short-term periodic payment offer, which required him to pay 24 monthly installments of $272.66.5 4A face-to-face conference was originally scheduled for June On June 4, 2009, petitioner requested that the 16, 2009. conference be rescheduled tn a later date. Respondent granted the request and rescheduled the face-to-face conference for Aug. 5, 2009. the conference be rescheduled to a later date. Respondent granted the request and rescheduled the face-to-face conference for Aug. 20, 2009. On July 27, petit oner once again requested that sPetitioner Originally TOte $10,000 as his offer-in- (continued...) A condition of the offer, stated on the Form 656 that petitioner completed and signed, explainèd that he had to continue to make the installment payments while he offer was being investigated. Officer Conley further expl ined to petitioner that a failure to make the pafments would result in the offer's being deemed w thdrawn. Petitioner paid the application fee and made the first installment p yment at the face-to-face conference. On August 20, 2009, after concludincjJ the fa e-to-face conference with petitioner, Officer Conley asse led the offer- in-compromise package and sent it to the:offer-i -compromise unit in Memphis, Tennessee (Memphis Unit) . Petitione received a letter dated September 17, 2009, from the Memphi Unit informing him that his offer-in-compromise had been received and was being investigated. The Memphis Unit reached a preliminary dec.ision to reject the offer, conveying this to petitioner in a let er dated January 5 ( . . . continued) compromise but did so under the erroneous belief that refunds, such as his stimulus refund which the. would be considered as part of his offer. Petitioner modified the Form 656 to change the offer-in-compromise a ount the se amount s . IRS had a&ready taken, to reflect 15, 2010.' The case was subsequently sent back to respondent's San Francisco office for a final determination. Petitioner made timely payments under the terms of the installment plan for the months of September, October, November, and December of 2009. However, beginning in January 2010, petitioner began to fall behind. In a letter dated March 4, 2010, Officer Conley sent petitioner a notice that payments for January and February had not been received and that he owed $545.32. The letter informed petitioner: "If I do not receive the payment or proof that you made the payments, per IRC 7122(c) (1) (B) (ii) your offe will be considered withdrawn." Officer conley requested that the payment be submitted by March 19, 2010. The letter also stated that if petitioner wished to propose other alternatives he should also submit them to Officer Conley by March 19. In response, petitioner submitted two payments of $272.66 by the March 19, 2010, deadline. Petitioner failed to timely submit his March, April, and May installment payments under he terms of the offer-in-compromise. In a letter dated June 15, 2010, Officer Conley informed petitioner that she had not received his payments for March, 'In the Memphis Unit's reliminary decision to reject petitioner's offer-in-compromise, a clerical mistake was made as to the amount petitioner offered. stated that further reading of the letter reveals that the decision was based on an offer of the offer was "in the amount of $1,200." However, a the correct amount of $6,544. The introduction of the letter April, and May and that he had to submit a payment of $817.98 by June 29, 2010, or the offer-in-compromisè would e withdrawn. In córrespondence dated June 25, 2010, petitioner submitted a single payment of $272 . 66 and indicated that the April nd May payments would be made by September 2010. In a letter dated July 2'6, 2010, respondent sent petitioner a suppl'emental notice of dedermination sûstainin the NFTL. The letter also stated that the offer-in-comþromise! as withdrawn because of failure to compl with the payment terms. I. Standard of Review OPINION Section 6320 (a) and (b) phovides that a taxpayer shall.=be, notified in writing by the Commissioner of the f ling of a notice of Federal tax lien and provided with an opportupity for an administrative hearing. An administrative heari g under section 6320 is conducted in accordânce with the{procedural requirements of section 6330.' Sec. 6320(c). If an administrative hèaring is req'uested in a lien or levy case, the hearing is to be conducted by the Appe ls Office. Secs. 6320(b) (1), 6330(b) (1). At the hearing, the Appeals officer conducting it must verify that the reqµirements of any applicable law or administrative procedu e have een met. Secs. 6320(c), 6330(c) (1). The t(cid:0)540xpayermay r ise any relevant issue with regard to the Commissioner's intended collection activities, - 10 - including spousal defenses, hallenges to the appropriateness of the proposed levy, and alter ative means of collection. Sec.. 6330(c) (2.) (A); see also Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 76, 180 (2000).. Taxpayers are expected to provide all relevant information requested by Appeals, including financial statement.s, for its consideration of the.facts and issues involyed in the hearing. Secs. .301.6320-1(e) (.1) 301. 330-1(e) (1) , Proced. & Admin. Regs.. If a taxpayer's underlying liability is properly at issue,7 the Court reviews any determination regarding the underlying liability de novo. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181-1E2. We review any other. administrative determination regarding the proposed collection action for abuse of discretion. Sego v. Commissioner, supra,at 610; Goza v. Commissioner, suprag at 181-182.. . -If raised at or before the Appeals hearing by the taxpayer, a taxpayer's underlying lia ility is properly at issue if the taxpayer "did not receive any statutory notice of.deficiency for such tax liability or did not otherwise have an opportunity to 7The partiës stipulated that the underlying tax liabilities the Court 1s not for 2000 and 2002 are not bound to stipulations as to matters of stipulations. are erroneous. King v. United States, 641 F.2d 253, 258 (5th Cir. 19Ê1); Greene v. Commissioner, 85 T.C. 1024, 1026 n.3 (1985). in dispute. However, law, especia-1·ly when the - 11 - dispute such tax liability." Sec. 6330(c) (2) (B) Under section 6330(d) (1) a taxpayer's underlying tax liability is "any amounts owed by a taxpayer pursuant to the tax laws", in luding assessed additions to tax. Katz v. Commissioner, 115 T.C 329, 339 (2000). Petitioner challenged respondent's asseásed additions to tax. Petitioner did not receive a statutory notice of deficiency.a Respondent has not shown, indicated, or alleged that petitioner had an opportunity to dispute the tax liabilities. Consequently, these underlying li bilities are properly at issue. See sec. 6330(c) (2) ( ). II. Review De Novo Petitioner requested rdlief as it r lates o the assessed additions to tax pursuant to sections 6651(a) (1) and (2) and H 6654 (.a) on the grounds of reasonable cause. The'aforementioned sections permit relief from assessed additions to tax when it is shown that the taxpayer's failure to comply was due to reasonable cause and not willful neglect.' See sec. 6651(a) (1) and (2). 8Inasmuch as petitioner filed delinÊuent ta returns for 2000 and 2002 reporting tax due of $21,958 and $20,205, respectively, assess said amounts without addition, under secs. 6651(a) (1) and (2) and 6654 without first issuing a notice of deficiency. respondent was free to assess the additions to tax issuing a nopice of eficiency. See sec. 6665.(b). respondent was authorized under se . 6201(a) to In No general reasonable cause exception exists with regard to an addition to tax assessed under sec. 6654 (a).; ·Relief is available, however, pursuant 6654 (e) (3) (B). to the narrow exception of sec. - 12 - The Court's standard of review on what elements must be present to constitute "reasonable cause" is de novo. United States v. Boyle, 469 U.S. 241, 249 n.8 (1985) ("[W]hat elements must be present to constitute 'reasonable cause'. is a question of law."). Whether those .elements are resent in a given case is a question of fact. Id. The burden o proving reasonable cause and lack of willful neglect rests on thè taxpayer. Idm at 244. A. Section 6651(a) (1): Failure To File a Timely Return .Section 6651(a) (1) imposes an addition to tax for failure to file a timely Federal incomè tax return.unless. the taxpayer can demonstrate that such failure is due to reasonable cause and not due to willful neglect." The Code does not define reasonable cause nor willful.neglect. However, the regulations explain that reasonable cause for the fa lure to file a timely return exists if the taxpayer exercised o dinary business care and prudence but was unable to file his return within the time prescribed by law. Sec. 301.6651-1(c) (1), Proced. & Admin. Regs. The term "willful neglect" has been read as meaning "conscious, intentional failure or reckless indifference." United States v. Boyle, supra at 245. Respondent determined that petitioner is liable for an addition to tax under sectiÊn 6651(a) (1) for tax years 2000 and "The amount·of the addition to tax is 5 percent of the amount required to be shown las tax on the return for each month or portion thereof maximum of 25 percent. the delinquency continues, up to a Sec. 6651(a) (1). that - 13 - .. í! 2002. The parties stipulated that petitioner filed late returns for both of the years at iäsue, filing his return for 2000 in 2006 and his return for 2002! in 2007. Petitioney was assessed a tax liability of $21,958 for 2000 and $20,205 for 2002. Petitioner sets forth. two arguments as to wl y he had 1. reasonable cause and was thus excused fróm filinc a timely return for the tax years 2000 andy 2002: (1) Petitioner claims to have suffered undue financial hardship, and (2) petitioner experienced the prolonged sickness and illness of ani immediate family member. Il || . . Without venturing into whehher petitiones actually did suffer undue financial hardship, we reject the argument. that reasonable cause due to financial hardship is a basis to abate additions to tax. Under the standard of *"ordinary business c re and prudence" set forth in the regulations, petitionerr was not excused from timely filing even if he would have been unable to pay. One's ability to pay a tax liability has no beÑring o the ability to file one's tax return. Sec.. 301.6651-1(b) (1), P oced. & Admin. Regs . Ordinary business care and prudenäe requi ed petitioner to file his return timely and address the inability to pay the liability as a separate issue. Petitioner also alleges reasonable because f prolonged sickness and illness of an immediate family memb r. In the Ninth Circuit, where this case would be appealable absent a stipulation to the contrary, a taxpayer' s or a member of hïs immediate - 14 - family's serious illness can constitute reasonable cause. Van Camp & Bennion v. United Ståtes, 251 F.3d 862, 867. (9th Cir. 2001); see United States v. Boyle, supra at 243 n.1; sec. 301.6651-1(c) (1), Proced. & Admin. Regs. The Court of Appeals for the Seventh Circuit has determined that "the type of illness or debilitation that might create reasonable cause is one that because of severity or timing makes it virtually impossible for the taxpayer to comply--things like emergency hospitalization or other incapacity occurring around tax time." Carlson v. United States, 126 F.3d 915, 923 (7th. Cir. 1997). Petitioner provided so¶e medical billing records of his former wife, who he was married to during the tax years at issue. The records indicate that she underwent.a mastectomy in the end of April.2002 and then possibly had reconstructive surgery related to the mastectomy in July 2002." When determining whether a taxpayer had reasonable cause due to serious illness of an immediate family member we consider whether "tax duties were attended to promptly when the illness passed". Internal Revenue Manual pt. 20.1.1.3.2.2.1(3) (G) (Nov. 25, 2011) . We sympathize with petitioner and his former wife regarding her previous health problems. However, the two procedures occurred approximately 1 "Petitioner's former wife's treatments for cancer did not income tax return was begin until 1 year after his 2000 Federal due, and therefore did not constitute reasonable cause for his failure to timely file the return for the 2000 tax year. - 15 - year and 8 months, respectively, before the filing deadline that petitioner missed. Even if we give petitioner the benefit of t e doubt that his former wife's ailments precluded the timely fili g of his 2002 tax returns by April 15, 2003, petitioner did not file his 2002 tax return until October 2007, more than 5 years after his former wife's last procedure. Petitioner was required to promptly file his return for 2002 once his former wife s illnbss had passed; petitioner offered no eviderce to show t at his former wife was still ailing until October 007. We als note hat petitioner did not attempt to comply with his duty to timely file his 2002 Federal income tax return by requesting an extension of time to file. During this time petitioner still managed to!conduct the rest of his financial affairs with ordinary business bare and prudence, such as paying his mortgage on time . He was also able to perform the essential functions of his day-to-day activities, including going to work and making an income in excess of $100, 000 during the 2002 tax year. See Wright v. Commissioner, T . C . Memo . 1998 -- 224 , af f d . without published opinion 173 F . 3d 84 8 (2d Cir. 1999) . We conclude that petitioner has failed to establish reasonable cause o abate the dditi n to tax pursuant to section 6651(a) (1) for 2000 or 2002. - 16 - B. Section 6651(a) (2): Failure To Pay Amount of Tax Section 6651(a) (2) imposes an addition to tax for failure to pay the amount of tax shown on,the taxpayer's Federal income tax return on or before the payment due date, unless such failure is due to reasonable cause and not due to willful neglect." A failure to pay will lx3 considered due to reasonable cause if the taxpayer makes a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer undue hardship if he paid on the due date. Sec. 301.6651-1(c) (1), Proced. & Admin. Regs. Petitioner asserts the same reasonable cause arguments for section 6651(a) (2) as he did for section 6651(a) (1)--undue financial hardship and the prolonged ,illness of an immediate family member.. . In determining whether the taxpayer was unable to pay the tax in spite of the exercise of ordinary business care and prudence*in providing for payment of his. tax liability, consideration will be given ,to all the facts and circumstances ·of the taxpayer's financial situation. Van Camp & Bennion v. United States, supra at 867. For the same reasons we found that "The sec. 6651(a) (2) addition to tax is 0.5 percent of the amount of tax shown on the return, with an additional 0.5 percent per month during which the failure to pay continues, up to a maximum of 25 percent. reduced to 4.5 percent for any month that penalty is also assessed. The 5-percent failure to file penalty is $ec. 6651(c). the failure to pay - - 17 - petitioner failed to show reasonable cause for failing to file his Federal returns on time, petitioner has failed to show that he exercised ordinary business care and pFudence n failing to pay his tax liabilities for ·2000 and 2002 on time. Petitioner cannot rely on undue finapcial hardship alone to excuse his inability to pay taxes. The rpgulat ons require a showing of reasonable cause even if undue hardship would be suffered. As the District Còurt noted in Wolfe v. United States, 612 F. Supp. 605, 608 (D. Mont. 1985), affd. 798 F.2d 1241 (9th Cir. 1986), opinion amended, 806 F.2d 1410 (9th Cir. 1986): "Almost every non-willful failure to pay taxes is a result of financial difficulties." We conclude that petitioner is liable for the section 6651(a) (2) addition to tax for 2000 and 2002. C. Section 6654(a): Failure To Pay Estimated Tax Section 6654 (a) imposes an addition o tax for the underpayment of any.installment of est1ma ed tag." The underpayment addition rate is determined pursuant to section 6621 and is applied to the amount of the estimated tax underpayment for the period of underpayment. Sec. 6654 (a) and (b). Except for the narrow circumstances provided for in section "Sec. 6654 (c) (1) requir s the paymedt of föur installments of a taxpayer's estimated ta liability f r eac Each required installment of estimated tax is equal of the required annual payment. taxable year. to 25 percent - 18 - 6654 (e) (3) (A) and (B), no reasonable cause exception exists to the section 6654 (a) 'addition to tax. The narrow exceptions to section 6654 (a) provide that an addition to tax will not be imposed if the Secretary determines that (1) By reason of casualty, disaster, or unusual circumstances the additions assessed would be inequitable or unfair or; (2) the taxpayer retired (after reaching age 62) or became disabled in either the taxable year for which estimated tax payments were required or in the taxable year preceding such year and such underpayment as due to.reasonable cause and not willful neglect. Petitioner asserts the same reasonable cause arguments for section 6654 (a) as he did f r section 6651(a) (1) and (2). Petitioner did not introduce any evidence that he was retired, nor did he put forth any evidence that he was disabled. Therefore he does not fall into the narrow exception for reasonable cause pursuant to section 6654 (e) (3) (B). The record does not establïsh that petitioner's failure to make estimated tax payments for 2002 was due to casualty, disaster, or other unusual circumstances, and we are not persuaded that the imposition of the section 6654 addition to tax would be against equity and good conscience. | We conclude that petitioner is liable for the section 6654 |addition to tax for 2002. D. Offer-in-Compromise - 19 - Petitioner submitted an offer-in-compromise based on doubt as to collectability during the face-to-face con erence on August 20, 2009. The offer-in-compromise was a 24-mont short-term periodic payment offer made pursuant to section 122(c) (1) (B). The payment offer required petitioner to make monthly payments of $272.66. Pursuant to section 7122(c) (1) (:B) (i) petitioner submitted payment of the first installment with the offer-in- compromise. Section 7122(c) (1) (:B) (ii) required petitioner to make regular payments during the period respondent was evaluating the offer-in-compromise. Petitioner failed to make continuous payments beginning in January 2010. In late March of 2010 petitioner made his January and February payments after being notified by Officer Conley ¶hat a failure to pa would result in the offer-in-compromise's being deemed w thdraw by petitioner. Petitioner subsequently failed to m¼ke tim ly payments for March, April, and May 2010. Once again Officer Conley sent a letter to petitioner notifying him of the consequences of a failure to pay and to adhere to the terms of his offer-in- compromise. Petitioner responded by sending in only one payment for the month of March. We conclude that pursuant to section 7122(c) (1) (B) (ii), petitioner's continued payment noncompliance was permissibly treated by respondent as a withdrawal by - 20 - petitioner of his offer-in-compromise. III. Conclusion . As detailed above petitioner is liable for the sections 6651(a) (1) and (2) and 6654 (a) additions to tax. Further, respondent did not abuse his discretion in rejecting petitioner's offer-in-compromise. Therefore, the notice of determination respondent issued to petitiöner dated June 2, 2008,. is sustained in its entirety. To reflect the foregoing, Decision will be entered for respondent.