TAX COURT OPINION

Case: Shelly Tempelman
Docket Number: 14334-18L
Judge: Thornton
Opinion Type: bench
Filed: 12/10/2019
Pages: 18

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 SHELLY TEMPELMAN, Petitioner, v. ) ) ) ) Docket No. 14334-18 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) 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 Michael B. Thornton in New York, New York, 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 appropriate decision will be entered. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. December 10, 2019 SERVED Dec 11 2019 Bench Opinion by Judge Michael B. Thornton 3 October 29, 2019 Shelly Tempelman v. Commissioner Docket No. 14334-18L 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. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral 1 2 3 4 5 6 7 8 9 10 findings of fact and opinion shall not be relied upon as 11 Precedent in any other case. 12 This bench opinion is made pursuant to the 13 authority granted by section 7459(b) and Rule 152. 14 section references are to the Internal Revenue Code in 15 effect for the taxable year at issue. All rule references 16 are to the Tax Court Rules of Practice and Procedure. All 17 monetary amounts are rounded to the nearest dollar. 18 This case was tried on October 29, 2019 in New 19 York, New York. Mr. Marco Franco appeared on behalf of 20 respondent. Petitioner appeared pro se. At trial 21 Petitioner's husband advised the Court that petitioner is 22 not fluent in English and that he and petitioner had 23 attempted unsuccessfully to have an interpreter available 24 at trial. To help facilitate petitioner's testimony being 25 presented without the difficulty of her understanding questions and giving answers in English, the parties agreed that the "Summary of Facts", as contained in Petitioner's pre-trial memorandum, filed October 12, 2019, 4 would be received into evidence as the testimony of Petitioner. Petitioner also gave other testimony in English and on the basis of the Court's observation, she was sufficiently fluent in English to participate in the Proceedings without the assistance of a translator. This proceeding arises from a petition for 1 2 3 4 5 6 7 8 9 10 judicial review filed in response to a Notice of 11 Determination Concerning Collection Action(s) Under 12 13 14 15 section 6320 and/or 6330 dated June 21, 2018, which sustained respondent's levy action. The underlying liability is based upon two frivolous return penalties respondent assessed against petitioner for 2015. At trial 16 respondent conceded that petitioner is not liable for one 17 of the two frivolous return penalties. The issues 18 remaining for decision are whether petitioner is liable 19 for a single frivolous return penalty for tax year 2015 20 pursuant to section 6702(a) and whether respondent abused 21 his discretion in sustaining the levy action. 22 23 24 25 Petitioner was a resident of New Jersey when she filed her petition. Background Findings of Fact During 2015 petitioner was a homemaker and 5 earned no income. During 2015 her husband, Mr. Vincent Tempelman, worked for Greenman-Pederson, Inc. (Greenman), which paid him $82,825 for his services, and for Manheim Remarketing, Inc. (Manheim), which paid him $371 for his serv1ces. We'll be off the record for one moment. THE COURT: We're back on the record. A correction: When I just said background, I should've said findings of fact. I'm picking up where I left off. Greenman withheld $4,225 for Federal income tax, $5,427 for Social Security taxes, and $1,269 for Medicare taxes. Manheim withheld $23 for Social Security taxes and $5 for Medicare taxes, but did not withhold any amounts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 for Federal income tax. 17 During 2015 Mr. Tempelman also received $3,000 18 as settlement proceeds from a lawsuit with TransUnion, 19 LLC, as well as $5,030 of unemployment insurance 20 21 compensation. On their joint Form 1040, U.S. Individual Income 22 Tax Return, filed April 17, 2016, (the 2015 Form 1040), 23 Petitioner and Mr. Tempelman reported as gross income only 24 the $5,030 that Mr. Tempelman had received as unemployment 25 2nsurance compensation. After claiming deductions and exemptions, they reported no taxable income for 2015. On their 2015 Form 1040 they reported withholding of $10,949 6 and claimed a refund of the same amount. Attached to 2015 From 1040 were two self- generated Forms 4852, Substitute for the Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRAs, Insurance Contracts, et cetera. Each Form 4852 indicated at line 7a that Mr. Tempelman had received 1 2 3 4 5 6 7 8 9 10 wages, tips, and other compensation of zero. The Form 11 4852 purporting to correct the Form W-2, Wage and Tax 12 Statement, issued by Greenman, indicated that Mr. 13 14 Tempelman had $4,225 of Federal income taxes withheld, $5,427 of Social Security taxes withheld, and $1,269 of 15 Medicare taxes withheld. The Form 4852 purporting to 16 correct the From W-2 issued by Manheim indicated that Mr. 17 Tempelman had $23 of Social Security taxes withheld and $5 18 of Medicare taxes withheld. At line 9, in response the 19 question, "How did you determine the amounts on lines 7 20 and 8 above", the answers provided on these Forms 4852 21 22 stated identically: "Line 7(a), (b), and (c) were corrected as I did not receive any 'wages' as defined in 23 Section 3401(a) and Section 3121(a). Line 7(e), (f), (h), 24 and (i) were derived from the W-2 sent to me." At line 25 10, in response to the directive "Explain your efforts to obtain Form W-2, Form 1099-R, or Form W-2c, Corrected Wages and Tax Statement", the Forms 4852 stated identically: "None. W-2 was issued before 'wages' error 7 was noted." Also attached to the 2015 Form 1040 was a Form 1099-MISC, Miscellaneous Income, purporting to correct the informational return submitted to the Internal Revenue Service (IRS) by TransUnion, LLC. The Form 1099-MISC reports income of zero in every box. Accompanying the Form 1099-MISC is a statement which reads: "This corrected From 1099-MISC is submitted to rebut, and correct information on, a document known to have been submitted to the IRS by the party below as 'Payer', erroneously alleging that I received payment of Gross 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 proceeds paid to an attorney from them in the course of a 16 trade or business or other taxable activity. The payment 17 to me by this payer did not result from any taxable 18 activity and does not constitute any taxable activity and 19 does not constitute any taxable income under relevant law." 20 21 The IRS initially processed the 2015 From 1040 22 and on September 23, 2016, issued the refund requested by 23 Petitioner and her husband. On December 22, 2016, 24 however, respondent sent a Letter 3176C to petitioner and 25 her husband informing them that they had taken one or more 8 frivolous positions on their 2015 Form 1040. The letter invited them to submit a corrected return within 30 days of the letter and warned that if they did not do so, the IRS would assess a $5,000 frivolous return penalty Pursuant to section 6702. The letter also cautioned that the IRS would impose additional penalties for each additional frivolous return. On January 11, 2017, petitioner and her husband responded to respondent's letter with a letter of their own, making frivolous arguments. At some point in January 2017, petitioner and 1 2 3 4 5 6 7 8 9 10 11 12 her husband submitted to the IRS a document that 13 petitioners contend was a photocopy of the 2015 Form 1040 14 15 16 that had been filed on April 17, 2016 (the second Form 1040). An IRS agent reviewed the submissions made by 17 petitioner and her husband and on February 28, 2017, made 18 the initial determination to assess two frivolous return 19 Penalties under section 6702. On March 1, 2017, the 20 determination was approved in writing by the agent's 21 immediate supervisor on Form 8278, Assessment and 22 Abatement of Miscellaneous and Civil Penalties. The Form 23 8278 stated under "Remarks": "TP [taxpayer] has responded 24 to the 3176 letter on arg 44 with another friv return arg 25 44. Send for 6702 penalty approval." On April 3, 2017, 9 respondent assessed against petitioner and her husband two section 6702 penalties of s5,000 each. Respondent now concedes that petitioner is not liable for the frivolous return penalty assessed against the second Form 1040. On November 13, 2017, respondent issued to Petitioner, individually, a Notice CP92, Seizure of your State tax refund and notice of your right to a hearing (the levy notice). The levy notice indicated that the IRS had levied $4,595 of petitioner's State tax refund and 1 2 3 4 5 6 7 8 9 10 applied it to petitioner's 2015 unpaid Federal taxes. The 11 levy notice also explained that the petitioner had until 12 December 13, 2017, to request a Collection Due Process 13 14 (CDP) hearing. On December 9, 2017, in response to this levy 15 notice, petitioner and her husband filed a Form 12153, 16 Request for a Collection Due Process or Equivalent 17 Hearing. On the Form 12153 petitioner and Mr. Tempelman 18 did not request any collection alternative. Rather, they 19 contested the underlying frivolous return penalties and 20 21 22 23 claimed that "The IRS did NOT follow proper procedures". Attached to the Form 12153 were copies of documents that she and Mr. Tempelman had previously submitted to the IRS and various other documents which 24 purported to explain petitioner's reason for requesting a 25 CDP hearing. 1 Respondent assigned the case to Settlement 2 Officer Kristine Martinez-Padua (SO Padua). On April 17, 10 3 4 5 6 7 8 9 2018, SO Padua sent petitioner a letter scheduling a telephone conference on May 8, 2018. On May 4, 2018, Petitioner and her husband called SO Padua inquiring why the letters were addressed only to petitioner and not Mr. Tempelman and why SO Padua had not responded to all the issues on their Form 12153 and accompanying attachments. SO Padua explained that with regard to the frivolous 10 return penalties each party is separately assessed the 11 penalty, that this hearing was only for the penalties 12 assessed against petitioner, and that she was not required 13 14 15 to respond to frivolous issues. On May 6, 2018, petitioner and her husband sent to SO Padua a letter asserting that the entry marked 16 "CVPNARG44" in the IRS Tax Module Records transcript for 17 Petitioner refers to Argument #44 on 1RS Notice 2010-33, 18 2010-17 I.R.B., which identifies as frivolous the 19 attribution of income to a religious organization such as 20 a corporation sole or a ministerial trust. As petitioner 21 and her husband did not attribute any income to a 22 religious organization, the letter reasoned that 23 Petitioner's return was not frivolous and that the 24 "imposition of penalties is clearly extortion and willful 25 OPPression under the color of law." cr ne s Petitioner did not attend the conference 11 scheduled for May 8, 2018, and the conference was ultimately held via telephone on May 23, 2018. On June 21, 2018, SO Padua issued a Notice of Determination sustaining the levy action with respect to petitioner's liabilities. In this notice SO Padua determined that all legal and administrative requirements had been met; that the underlying frivolous return penalties were properly assessed; that petitioner did not offer any collection 1 2 3 4 5 6 7 8 9 10 alternatives for consideration or provide any financial 11 12 13 14 15 16 17 18 information to support any collection alternative; and that the levy properly balanced the need for efficient collection of taxes with petitioner's concern regarding the intrusiveness of the collection action. Discussion Section 6330(d)(1) grants this Court jurisdiction to review a determination under section 6330, including a determination to collect a section 6702 19 frivolous-return penalty by levy. See Callahan v. 20 Commissioner, 130 T.C. 44, 48-49 (2008). If the validity 21 of the underlying tax liability is properly at issue, the 22 Court will review the taxpayer's lability de novo. See 23 24 Sego v. Commissioner, 114 T.C. 604, 609-610 (2000). Where there is no dispute concerning the underlying tax 25 liability, the Court reviews the IRS' decision for abuse (973)406-2250|operations@escribers.net|wwwescribermet 12 1 2 3 4 of discretion. Goza v. Commissioner, 114 T.C. 176, 182 (2000). An abuse of discretion occurs if the Appeals officer renders his determination "arbitrarily, capriciously, or without sound basis in fact or law." 5 Woodral v. Commissioner, 112 T.C. 19, 23 (1999). 6 7 8 9 Respondent concedes that petitioner is entitled to challenge the assessment of the section 6702 frivolous return penalty because, in accordance with section 6703(b), no notice of deficiency was issued with respect 10 to the penalty and petitioner otherwise had no prior 11 opportunity to dispute the assessment. Accordingly, we 12 review petitioner's liability for the frivolous return 13 penalties de novo. Respondent further concedes that 14 petitioner is not liable for the frivolous return penalty 15 assessed against the second Form 1040. Consequently, we 16 shall address only the section 6702 frivolous return 17 Penalty assessed with respect to petitioner's and Mr. 18 19 Tempelman's 2015 Form 1040 filed on April 17, 2016. A taxpayer is liable for a $5,000 frivolous- 20 return penalty under section 6702(a) if three requirements 21 are met. First, the taxpayer must file a document that 22 purports to be a tax return. Sec. 6702(a)(1). Second, 23 the purported return must suffer from one of the following 24 defects: It either (a) lacks the information needed to 25 judge the substantial correctness of the self-assessment Cr L)PTS 13 (b) contains information indicating the self-assessment or on the purported return is substantially incorrect. Id. Third, the defect must be (a) based on a position that the Treasury Secretary has identified as frivolous (b) reflects a desire to delay or impeded the administration of Federal tax law. Sec. 6702(a)(2). The IRS has the burden of proving that the taxpayer is liable for the Penalty. Sec. 6703(a). Petitioner's and Mr. Tempelman's 2015 Form 1040 filed on April 17, 2016, was submitted to claim a refund and consequently purports to be an income tax return. One cannot obtain a refund without filing a return. Sec. 301.6402-3(a)(1), Procedural & Administrative Regs. If the taxpayer submits a Form 1040 in an effort to obtain a refund, the document necessarily "purports to be a tax 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 return" for purposes of section 6702(a)(1). See Olson v. 17 United States, 760 F.2d 1003, 1005 (9th Cir. 1985). 18 Petitioner's 2015 Form 1040, showing zero 19 taxable income and accompanied by self-generated Forms 20 4852 purporting to "correct" information reports issues by 21 third-party payers, lacked information by which the 22 substantial correctness of the self-assessment could be 23 determined; moreover, petitioner's claim on the Form 1040 24 that Mr. Tempelman had no taxable wages but that his 25 employers withheld Federal income taxes, as well as 14 employment taxes, was substantially incorrect on its face. See Grunsted v. Commissioner, 136 T.C. 455, 460 (2011); Cabirac v. Commissioner, 120 T.C. 163, 169 (2003), aff'd without published opinion, 94 A.F.T.R.2d (RIA) 2004-5490 (3d Cir. 2004); see also Bradley v. United States, 817 F.2d 1400, 1403-1404 (9th Cir. 1987) (discussing factors to be considered in determining that a taxpayer's submission to the IRS purported to be a tax return for Purposes of imposing a frivolous return penalty). 1 2 3 4 5 6 7 8 9 10 Further, petitioner claimed a $10,949 refund based on an 11 overpayment of purported Federal income tax withholdings 12 of that same amount, yet the Forms W-2 and Forms 4852 13 attached to the 2015 Form 1040 indicated that there were 14 only $4,225 of Federal income tax withholdings for 2015, 15 all in relation to Mr. Tempelman's employment with 16 Greenman. The discrepancy constitutes "information that 17 18 19 on its face indicates that the self-assessment is substantially incorrect". Sec. 6702(a)(1) (A) and (B). The third condition is also met: the 2015 Form 20 1040 reflected various positions listed as frivolous in 21 Notice 2010-33, 2010-17 I.R.B. 609, including: the 22 position listed at paragraphs (4) that "Wages, tips, and 23 other compensation received for the performance of 24 personal services are not income"; the position listed at 25 paragraph (7) that "Only certain types of taxpayers are operations@escribers.net ! wwwescribersnet 15 subject to income and employment taxes, such as employees of Federal government, corporations, or similar arguments described as frivolous in Revenue Ruling 2006-18, 2006-1 C.B. 743"; and the position listed at paragraph (18) that "a taxpayer is entitled to a refund of... the Social security taxes that the taxpayer has paid". With respect to this latter point, we note that the 2015 Form 1040 claimed a refund that included all Social Security taxes that had been withheld from Mr. Tempelman's wages. Respondent has carried his burden of proof to show that petitioner is liable for the section 6702 1 2 3 4 5 6 7 8 9 10 11 12 penalty assessed with respect to the 2015 Form 1040. In 13 reaching this conclusion, we have considered and reject as 14 meriting no further discussion various frivolous and 15 groundless arguments that petitioner has made during the 16 administrative proceedings and in these proceedings, 17 18 including her argument that Mr. Tempelman's wages do not constitute taxable income. For the reasons explained in 19 Wnuck v. Commissioner, 136 T.C. 498 (2011), we decline to 20 respond further to these groundless and frivolous 21 arguments. 22 During the administrative phase of this case, it 23 appears that the IRS incorrectly included on petitioner's 24 transcript a numerical code incorrectly identifying the 25 relevant frivolous position as described in Notice 2010- 33, 2010-17 as "CVPNARG44". This would appear to have been a ministerial error and the code should instead have read "CVPNARG4", which describes the position that wages 16 are not taxable income. Any such error, however, does not affect the outcome of this case. As previously discussed, our review of petitioner's underlying liability for the section 6702(a) penalty is de novo. Consequently, our determination as to petitioner's underlying liability for the section 6702(a) penalty must be based on the merits of 1 2 3 4 5 6 7 8 9 10 the case rather than the purported footfaults at the 11 administrative level. 12 13 14 15 Petitioner contends that because her IRS transcript contained an incorrect argument code for the frivolous return position, SO Padua failed to verify supervisory approval of the section 6702 penalty pursuant 16 to section 675103)(1). We disagree. Section 675103) (1) 17 generally requires special approval of the "initial 18 determination" of a penalty by the "immediate supervisor 19 of the individual" who makes the initial determination of 20 the penalty liability. The record includes Form 8278, 21 which shows that the initial penalty determination was 22 approved in writing by the revenue agent's immediate 23 24 25 supervisor on March 1, 2017. This suffices to satisfy the supervisory approval requirement of section 6751(b)(1). Petitioner seems to suggest that respondent was . c:nners required to make a substitute for return pursuant to 17 section 6020(b) before determining that the 2015 Form 1040 was frivolous. Petitioner is mistaken. Nothing in the Code limits the amount of any assessment to the amount of tax shown on some return (either the taxpayer's own return or a section 6020(b) substitute for return), see Malone v. Commissioner, T.C. Memo. 1998-372, and cases cited therein, or otherwise preconditions the determination of a section 6702(b) penalty on the Commissioner's making a substitute for return. Petitioner also seems to contend that she did 1 2 3 4 5 6 7 8 9 10 11 12 not receive proper notice and demand in that she was not 13 given an opportunity for a CDP hearing before the levy. 14 Any such argument is unavailing. Pursuant to the express 15 provision of section 6330(f)(2) there is no requirement for 16 notice before levy where, as in this case, "the Secretary 17 has served a levy on a State to collect a Federal tax 18 liability from a State tax refund." 19 Our review of the record satisfies us that SO 20 Padua verified that the requirements of any applicable law 21 and administrative procedure were followed; that 22 petitioner's claims lack merit; and that in sustaining the 23 levy action the SO Padua properly balanced "the need for 24 the efficient collection of taxes with legitimate concern 25 of- - - [Petitioner] that any collection action be no more intrusive than necessary." Sec. 6330(c)(3). 18 Petitioner has made no intelligible contentions that respondent abused his discretion in any manner in this case. During the CDP hearing petitioner did not Propose any collection alternative. Generally, a taxpayer must raise an issue at CDP hearing to preserve it for the Court's consideration. Giamelli v. Commissioner, 129 T.C. 107, 115 (2007); sec. 301.6330-1(f)(2), Q&A-F3, Procedural & Administrative Regs. Finding no abuse of discretion in any respect, respondent's levy action as to the section 6702(a) penalty imposed with respect to petitioner's 2015 Form 1040 is sustained but is not sustained as to the section 6702(a) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Penalty for the second Form 1040. 15 This concludes the Court's findings of fact and 16 OPinion in this case. 17 18 19 20 21 22 23 24 25 (Whereupon, at 1:11 p.m., the above-entitled matter was concluded.) cuners CERTIFICATE OF TRANSCRIBER AND PROOFREADER 19 CASE NAME: Shelly Tempelman v. Commissioner DOCKET NO.: 14334-18L We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 19 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Adrian 1 2 3 4 5 6 7 8 Morris on October 29, 2019 before the United States Tax 9 Court at its session in New York, NY, in accordance with 10 11 12 the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 13 transcript against the verbal recording. Amy Parnell, CDLT-179 Transcriber Howard Posner Proofreader 11/12/19 Date 11/12/19 Date 5 16 17 18 19 20 21 22 23 24 25