TAX COURT OPINION

Case: Kevin Jerome McCloskey
Docket Number: 29250-12L
Judge: Goeke
Opinion Type: bench
Filed: 02/10/2014
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 KEVIN JEROME MCCLOSKEY, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 29250-12 L. ) ) ) ) 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at San Diego, California, 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, an order and decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. February 10, 2014 SERVED FEB 1 8 2014 Capital Reporting Company Bench Opinion by Judge Joseph Robert Goeke 3 January 30, 2014 Kevin Jerome McCloskey Docket No. 29250-12L 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 opinion is rendered pursuant to Rule 152 of the Tax Court Rules of Practice and Procedure and Internal Revenue Code Section 7459(b). Herein- after, Rule references will be to the Tax Court Rules of Practice and Procedure, and Section references will be to the Internal Revenue Code. This case is specifically before the Court based upon Respondent's motion for summary judgment pursuant to Rule 121, which was filed on November 25th, 2013. And despite an order from this Court providing that Petitioner should respond to said 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 motion, Petitioner has failed to respond to the mo,tion 23 24 25 and Petitioner failed to appear when the motion was called on January 27th, 2014. The Court has jurisdiction over the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 underlying issue in this case pursuant to Section 6330(b)(3) as this case arises based upon Respondent's attempt to collect an assessed liability of $5,000 based upon a frivolous return penalty. Respondent attempts to collect this liability pursuant to levy. The liability relates to Petitioner's 2008 federal income tax return, and Petitioner timely requested a hearing before Respondent's settlement officer and then subsequently requested a review of the deter- 10 mination of the settlement officer before this Court. 11 12 13 Respondent filed with the motion for summary judgment a declaration of the settlement officer in the case who conducted the hearing with the 14 Petitioner. That declaration also includes various 15 exhibits that were reviewed by the settlement officer 16 which verify that the assessment Respondent seeks to 17 18 19 20 21 22 23 24 25 collect was made and conforms with applicable law and regulations. The basic facts, which are undisputed, are as follows: The Petitioner filed a Form 1040 individual income tax return for the year 2008 on January 26th, 2010. That return reflects a claim for refund in the amount of $68,140 based upon withholding credits claimed of $73,036 and a reported tax liability of $4,896. The withholding credits relate 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 to Forms 1099-OID attached to the Form 1040 for 2008. These withholding credits are substantially more than the income reported on the return, as the return reflected gross income of only $23,660. Based upon those circumstances, Respondent determined that the 2008 return contained a frivolous position and that, on the face of the return, the self-assessment was substantially incorrect. 9 Accordingly, on January 2nd, 2012, the Respondent 10 11 12 assessed a penalty of $5,000 pursuant to Section 6702(a). On May 22nd, 2012, Respondent sent to 13 Petitioner a final notice, "Notice of Intent to Levy 14 15 16 17 18 19 20 21 22 23 24 25 and Notice of Your Right to a Hearing." On May 23rd, 2012, Petitioner submitted a Form 12153, "Request for Collection Due Process or Equivalent Hearing." Petitioner's request stated that it related to penalties asserted for 2008 and 2010. The Petitioner did not request a collection alterna- tive in this submission. On June 20th, 2010, the Internal Revenue Service sent Petitioner a letter stating that the year 2010 was invalid because there was no notice of lien filing or right to request a hearing or final notice of intent to levy issued to the Petitioner for 2010. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 On July 26th, 2010 and August 29th, 2010, the settlement officer assigned to the case sent to the Petitioner information informing the Petitioner that there were no credits reflected on Petitioner's accounts with the Internal Revenue Service for the years 2008 and 2010 but, rather, Respondent took the position that the Petitioner owed liabilities for those two years. The· settlement officer also informed the Petitioner that a reduction in the $5,000 assessed 10 penalty was possible if the Petitioner filed legiti- 11 mate tax returns for the years 2008, 2009, and 2010. 12 13 The settlement officer also advised the Petitioner that she would consider collection alternatives if the 14 Petitioner submitted the appropriate financial infor- 15 mation and filed the related tax returns. 16 A telephone conference was held with the 17 Petitioner on September 26th, 2012. 18 19 20 21 22 23 On September 27th, 2012, Petitioner submitted various documents to the settlement officer, including the same 2008 return which had triggered the assessed $5,000 penalty in the first instance. Having considered this information, the settlement officer issued a notice of determination on 24 October 31st, 2012 sustaining the proposed collection 25 via levy of the $5,000 frivolous return penalty. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 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 Petitioner filed a petition to seek review of that determination on December 3rd, 2012 and the case became docketed in this court. The circumstances related to when it is appropriate for summary judgment are set forth in Rule 121. And summary judgment is appropriate if there is no genuine issue as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); O'Neal v. Commissioner, 102 T.C. 666, 674 (1994). If there is a legitimate factual dispute, summary judgment is inappropriate. And the Respondent, being the moving party, bears the burden of establishing that there is no factual dispute. However, the opposing party to a summary judgment must set forth specific facts showing that there is a genuine question of material fact and cannot simply rely upon general allegations in denial of a motion for summary judgment. Rule 121(d). In applying this standard, this Court has held that the opposing party's evidence must be more than merely colorable and that the opposing party evidence must be probative in order to avoid the summary judgment. Goodman v. Commissioner, T.C. Memo 2006-220. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 In the present case, as stated, the 2 Petitioner submitted no response to the motion for 3 4 5 6 7 summary judgment. But the Court, nevertheless, undertakes a careful review of the information submitted by Respondent in support of the motion to determine if the facts which are not in dispute support the motion. Those facts establish that the 8 Petitioner's return did in fact seek a significant 9 refund in excess of the taxable income reported and 10 11 12 13 14 15 16 17 18 19 that, on the face of the return, Respondent's determination e et the frivolous return penalty under Section 6702(a) was reasonable. This was verified by the fact that the credits associated with the claimed refund on the return were not actually supported by Respondent's records, and it appears the 1099 Forms which formed the basis for the claimed withholding credits were specious. The Court undertakes a review of the Section 6702(a) penalty in question in this case as a de novo 20 matter because the Petitioner was not issued a notice 21 22 23 of deficiency relative to the assessed frivolous return penalty and did not have a prior opportunity for a review of the merits of the penalty. However, 24 Petitioner is required to submit evidence which would 25 demonstrate that the assessed penalty is inapplicable. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 Petitioner has obviously failed to do so and, in fact, 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 the evidence submitted by Respondent, which is unchallenged, supports the applicability of the penalty under Section 6702(a). This Court, in a case very similar to the present case, Osband v. Commissioner, T.C. Memo 2013- 188, has held that the Section 6702(a) penalty is applicable if the petitioner filed a document purport- ing to be a tax return, the purported return lacked information on which the substantial correctness of the self-assessment may be judged, or contained information which, on its face, indicated that the self-assessment was incorrect, and that the petitioner's conduct in filing the return was based on a position that had been identified by the Secretary of the Treasury as frivolous, or that the conduct in filing the return reflected a desire to delay or impede the administration of the federal income tax laws. We find on the facts of this case, as submitted in the affidavit attached to Respondent's 22 motion and reflected in the documents attached to that 23 affidavit, that these elements have been met in that 24 Petitioner did file a document purporting to be a 25 return for the year 2008; this document contained 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 information which, on its face, indicated that the 2 withholding credits claimed were substantially 3 4 5 6 7 8 9 incorrect; and that the Petitioner, by filing the return and his subsequent actions in the context of the settlement due process hearing in this case, has demonstrated a desire to delay or impede the administration of the federal income tax laws. We also find that the settlement officer weighed the need for the efficient collection of taxes 10 with the legitimate concerns of the taxpayer regarding 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the intrusiveness of the collection action as required by Section 6630(c). Section 6331(a) authorizes the IRS to levy upon property and property rights of a taxpayer liable for tax if the taxpayer fails to pay the tax within ten days after notice and demand for payment. See Section 6671(a). Section 6330(a) provides that no levy may be made unless the IRS notifies the taxpayers of the right to a hearing. Here, a hearing was timely requested and was held before an impartial settlement officer, as prescribed by Section 6330(b)(3). In the present case, as stated previously, the Petitioner was entitled to challenge the under- lying tax liability at the hearing. But based upon 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 the undisputed facts, as established by the declaration submitted by the settlement officer, the 3 Petitioner's submissions merely attempted to support 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 the specious position taken on the original 2008 federal income tax return. Based upon the undisputed facts, we also find that the settlement officer verified that the requirements of applicable law had been met. Given these circumstances and the failure of the Petitioner to provide any basis on which the factual assertions contained in the declaration of the settlement officer should be challenged, we sustain Respondent's position and we will grant the motion for summary judgment and enter a decision for the Respondent in this case with respect to the assessment of the $5,000 associated with a frivolous return penalty under Section 6702(a). By way of background, we note that Section 6702(a) was originally passed by Congress as part of a comprehensive plan to combat the proliferation of abusive tax shelters in 1982. Section 6702 remained largely unchanged 23 until 2006 when, as part of the Tax Relief and 24 25 Healthcare Act of 2006, Public Law Number 109-432, Congress amended Section 6702, increasing the penalty 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 from $500 to $5,000 and broadening the reach of the penalty to include various types of frivolous tax submissions. This amendment was made effective for submissions made by taxpayers after the date the Secretary first prescribed a list of frivolous positions pursuant to Section 6702(c). The Secretary issued such a list of frivolous positions on March 16th, 2007. So the 2008 return in question in the present case is clearly covered by the $5,000 addition added by Congress to Section 6702. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 1:17 p.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