TAX COURT OPINION

Case: Zero Vector Solutions, Inc.
Docket Number: 16803-16SL
Judge: Morrison
Opinion Type: bench
Filed: 01/31/2019
Pages: 10

SR UNITED STATES TAX COURT WASHINGTON, DC 20217 ZERO VECTOR SOLUTIONS, INC., Petitioner v. Docket No. 16803-16SL. COMMISSIONER OF INTERNAL REVENUE, Respondent ORDER OF SERVICE OF TRANSCRIPT 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 petitioner and respondent a copy of the pages of the transcript in the above case before Judge Richard T. Morrison, at Tallahassee, Florida, on December 21, 2018, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, an order will be issued. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. January 31, 2019 SERVED Feb 01 2019 Bench Opinion by Judge Richard T. Morrison December 21, 2018 Zero Vector Solutions, Inc. v. Commissioner of Internal 3 Revenue Docket No. 16803-16SL 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 1 2 3 4 5 6 7 8 9 10 BE RELIED ON AS PRECEDENT IN ANY OTHER CASE. 11 12 This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal 13 Revenue Code of 1986, as amended, and Rules 170 through 14 15 174 of the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the 16 authority granted by section 7459(b) of the Internal 17 Revenue Code of 1986, as amended, and Rule 152 of the Tax 18 Court Rules of Practice and Procedure. 19 20 In this bench opinion, all section numbers refer to the Internal Revenue Code of 1986, as amended. All 21 Rule numbers refer to the Tax Court Rules of Practice and 22 Procedure. 23 On June 25, 2016, the Internal Revenue Service 24 Office of Appeals sustained a proposed levy to collect 25 various liabilities associated with petitioner's (973)406-2250|opvations©esak-rs.netlwww.escibersmet employment taxes for the second quarter of 2012, 4 the third quarter of 2012, the fourth quarter of 2012, the first quarter of 2013, and the third quarter of 2013; and income tax for the year 2012. The petition was timely filed on July 25, 2016. We have jurisdiction under section 6330(d)(1). We sustain the determination in part and do not sustain the determination in part. Findings of Fact Petitioner's principal place of business was in 1 2 3 4 5 6 7 8 9 10 Florida when it filed the petition. 11 12 13 14 15 16 17 18 19 Respondent determined that petitioner was liable for penalties for filing late quarterly employment tax returns on Form 941 for the second, the third, and the fourth quarters of 2012, the first quarter of 2013, and the third quarter of 2013; for failing to timely pay employment taxes for these quarters; for failing to timely file an income tax return for tax year 2012; and for failing to timely pay the income tax for this year. In April 2014, petitioner filed five Forms 843, 20 Claim for Refund and Request for Abatement, seeking 21 abatement of the late filing penalties, late payment 22 penalties, and interest charges for each of the five 23 quarters. Respondent denied petitioner's request for 24 abatement for the five quarters by sending petitioner five 25 separate respective Letters 854c. The Letters 854c stated (973)406-2250|operations+esail--rsnetlwww.esaibers.net 1 2 that petitioner could appeal the denial of the requests for abatement by requesting a conference with respondent's 3 Office of Appeals. Petitioner received the Letters 854c 4 5 6 7 8 9 but did not respond to them either because its sole employee did not understand them or because of deaths in the employee's family. On November 30, 2015, respondent issued petitioner a notice of proposed levy. The notice sought to collect $472.10 of 10 employment tax liabilities for the second quarter of 2012. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 These compromised a $341.14 late filing penalty, a $60.65 late payment penalty, $44.87 of interest assessed February 24, 2014, $20.50 of interest assessed August 24, 2015, and $4.94 in additional interest. The notice sought to collect $432.18 of employment tax liabilities for the third quarter of 2012. These comprised a $340.86 late filing penalty, a $37.87 late payment penalty, $30.63 of interest assessed March 10, 2014, $18.30 of interest assessed August 24, 2015, and $4.52 of additional interest. The notice sought to collect $476.67 of employment tax liabilities for the fourth quarter of 2012. These comprised a $414.96 late filing penalty, a $17.29 late payment penalty, $19.51 of interest assessed on March 17, 2014, $19.92 of interest assessed on August 24, 2015, cribers (973}406-2250|opmtionséesailnes.netlwwwescribers.net and $4.99 of additional interest. 6 The notice sought to collect $484.55 of employment tax liabilities for the first quarter of 2013. These comprised a late filing penalty of $409.89, a late payment penalty of $26.16, $22.39 of interest assessed on February 24, 2014, $21.04 of interest assessed on August 24, 2015, and $5.07 of additional interest. The notice sought to collect $288.51 of employment tax liabilities for the third quarter of 2013. These comprised a $235.47 late filing penalty, a $26.16 late payment penalty, $11.49 in interest assessed on March 3, 2014, $12.37 of interest assessed on August 24, 2015, and $3.02 of additional interest. The notice sought to collect $554.14 of income tax liabilities for the tax year 2012. These comprised a $377.55 late filing penalty, a $92.29 late payment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 penalty, $54.74 of interest assessed on March 3, 2014, 18 $23.76 of interest assessed on August 24, 2015, and $5.80 19 of additional interest. 20 21 By a request dated December 28, 2015, petitioner timely requested a collection due process, or CDP, 22 hearing. In the request, petitioner stated that it should 23 24 be relieved of the late filing penalties and interest because of reasonable cause. However, petitioner also 25 stated that it sought to be relieved of $2,708.15 of (973)406-2250lopeeations©esoihrs.net|www.extibers.net liabilities, which is the total amount of liabilities reflected in the notice of proposed levy. This amount included the penalties for late payment of employment 7 taxes and income tax. On January 26, 2016, respondent wrote a letter to petitioner in response to petitioner's CDP hearing request of December 28, 2015. Respondent stated that he had removed "the penalty(s)" related to petitioner's income tax liability for the 2012 tax year. Respondent's letter stated that interest accrues regardless of whether the taxpayer has reasonable cause. In entries dated February 22, 2016, respondent's records show that for petitioner's income tax liabilities for tax year 2012, he abated the $377.55 late filing 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 penalty, the $92.29 late payment penalty, and relieved 16 petitioner of paying $32.22 of interest. 17 On March 2, 2016, the Office of Appeals in 18 Memphis wrote petitioner scheduling a telephone conference 19 on April 6, 2016. The letter stated that for the Office 20 of Appeals to consider alternative collection methods, 21 petitioner had to submit a Form 433-B, collection 22 23 24 25 information statement, within 14 days. On March 28, 2016, petitioner wrote a letter to the Office of Appeals responding to its March 2, 2016 letter. Petitioner asked to meet with a representative of (973)406-2250lopentions esahis.net|www.esaibers.net 8 1 2 3 4 5 6 7 8 9 the Office of Appeals in Tallahassee. On March 29, 2016, petitioner left a telephone message withite Office of Appeals asking for a face-to- h face meeting. On April 1, 2016, the Office of Appeals received petitioner's March 28, 2016 letter. On April 5, 2016, the Office of Appeals called petitioner for the telephone conference originally scheduled for April 6. This telephone conference was part 10 of the CDP hearing. 11 12 The notice of determination was issued on June 25, 2016. The notice of determination stated that 13 petitioner had challenged penalties but that this issue 14 could not be considered because petitioner had had a prior 15 opportunity to challenge the penalties when it received 16 17 18 the Letters 854c. Discussion At the CDP hearing the Office of Appeals must 19 verify that the requirements of applicable law and 20 administrative procedure have been met. Sec. 6330(c)(3). 21 At the hearing the taxpayer may raise any relevant issue 22 23 24 25 relating to the unpaid tax or the proposed levy, including challenges to the appropriateness of collection actions, and including offers of collection alternatives. Sec. 6330(c)(2) (A). The taxpayer may raise challenges to the (973)406-2250|operationseesciibersnet|www.escribers.net I 1 2 3 4 5 6 7 8 9 existence or amount of the underlying tax liability only 9 if the taxpayer did not have a prior opportunity to dispute the liability. Sec. 6330(c)(2)(B). The underlying tax liability includes interest, additions to tax, and penalties. See Montgomery v. Commissioner, 122 T.C. 1, 7-8 (2004). An opportunity to dispute the underlying tax liability includes an opportunity for a conference with the Office of Appeals. Sec. 301.6330- 1(e)(3), Q&A-E2, Proced. & Admin. Regs. 10 The CDP determination of the Office of Appeals 11 must take into consideration (1) the verification that the 12 13 14 15 requirements of applicable law and administrative procedure have been met, (2) issues raised by the taxpayer, and (3) whether any proposed collection action balances the need for the efficient collection of taxes 16 with the legitimate concern of the person that any 17 18 19 20 21 22 collection action be no more intrusive than necessary. Sec. 6330(c)(3). Respondent concedes that petitioner is not liable for the following amounts of year 2012 income tax liabilities that he proposed to collect by levy: the $377.55 late filing penalty, the $92.29 late payment 23 penalty, and $32.22 of interest that had been assessed 24 prior to the mailing of the notice of proposed levy. 25 Hence we do not sustain the June 25, 2016 determination to cribers (973)406-2250|operationscescribers.net|www.escrbers.net the extent of these amounts. 10 We sustain the remainder of the determination. Petitioner asks the Court to relieve it of all late filing penalties -- related to employment taxes -- on grounds of reasonable cause. However, petitioner already had an opportunity to ask to be relieved of these penalties when it received the Letters 854c with their offer of a conference with the Office of Appeals. Petitioner was therefore barred from raising this matter 1 2 3 4 5 6 7 8 9 10 of underlying tax liability with the Office of Appeals in 11 its CDP hearing and is similarly barred from raising this 12 matter with the Tax Court. 13 14 15 16 17 18 19 20 Petitioner expressly disavowed at trial any challenge to any late payment penalty related to employment taxes. At trial petitioner did not seek to challenge any interest charges related to employment taxes. In any event petitioner had a prior opportunity to challenge the interest charges when it received the Letters 854c with their offer of a conference with the Office of Appeals. 21 Neither did petitioner seek to challenge any interest 22 23 24 25 charges related to the income tax liability. Furthermore, reasonable cause, the ground given by petitioner in his request for CDP hearing, is not a defense to interest. Thus, petitioner has made no appropriate (973)406-2250|operationseerrht|www.eerssiet 11 challenge to any of the underlying tax liabilities in this judicial proceeding. Petitioner contends that the Office of Appeals erred by failing to inform it that a collection information form would be needed in order for it to request a face to face hearing. If it was an error for the Office of Appeals not to grant a face to face hearing to petitioner, the error is harmless. Despite the lack of a face to face hearing, the Office of Appeals still 1 2 3 4 5 6 7 8 9 10 understood that petitioner was attempting to challenge the 11 12 13 14 15 imposition of the late filing penalties on reasonable cause grounds. Furthermore, petitioner's attempt to make such a challenge -- in whatever form of hearing -- was barred by the prior-opportunity rule. An appropriate decision will be issued under 16 Rule 155. This concludes the bench opinion. This trial session is adjourned. (Whereupon, at 12:17 p.m., the above-entitled matter was concluded.) 17 18 19 20 21 22 23 24 25 73)406-2250|operationsgescribers.net|www.escribers.net