TAX COURT OPINION

Case: Erich S. & Linda A. Yesse
Docket Number: 21745-05L
Judge: Gale
Opinion Type: memo
Filed: 06/23/2008
Pages: 12

T .C . Memo . 2008-1 7 UNITED STATES TAX C UR T Petitioners v . ERICH S . AND LINDA A . YESSE, COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 21745-05L . F iled June 23, 2008 . Elliott K . Braverman , for petitione rs . Kristina L . Rico , for respondent . MEMORANDUM OPINIO N GALE, Judge : This is a section 63101 proceeding for revie w of respondent's determination to proceed by levy to collec t 'Unless otherwise noted, all section references are to the Internal Revenue Code as in effect for 1985 and 1986 with respec t to the underlying liabilities or as pre respect to review of collection actions Rule references are to the Tax Court Rules of Practice and Procedure . ently in effect with under sec . 6330 . Al l SERVED JUN 2 3 2008 unpaid income taxes with respect to petitioners' 1985 and 1986 taxable years . Pending before the Court is respondent's motion for summary judgment . As discussed more fully below, we conclude that there are no genuine issues of material fact, and respondent is entitled to judgment as a matter of law . Background 2 At the time the petition was filed, petitioners resided in Pennsylvania . Petitioners timely filed Form 1040, U .S . Individual Income Tax Return, for taxable year 1985 on April 15, 1986 . On August 18, 1995, respondent sent petitioners a statutory notice o f deficiency, determining deficiencies for petitioners' 1985 and 1986 taxable years, as well as fraud additions under section 6653(b)3 against petitioner Erich S . Yesse (Mr . Yesse) for both taxable years .' Petitioners received the notice of deficiency . 2The following findings are established in the record, have been stipulated, and/or are undisputed . 3Sec . 6653(b), applicable in 1985 and 1986, was in substantial form recodified as sec . 6663 in 1989 for returns due .after Dec . 31, 1989 . Omnibus Budget Reconciliation Act of 1989 (OBRA), Pub . L . 101-239, sec . 7721, 103 Stat . 2395 . 'The Court dismissed this case as to the income tax liability for taxable year 1986, excluding the fraud addition, for lack of jurisdiction . See infra note 5 . - 3 - Petitioners did not petition the Ta x Court with respect to the notice of deficiency . Consequently, respondent assessed the deficiencies, including the fraud additi~ ns, on March 25, 1996 . On February 8, 2005, respondent se n Final Notices--Notice of Intent to Levy and Notice of Your Rig t to a Hearing to petitioners with respect to the unpaid i come tax liability , excluding the fraud addition, for 19855 a,d to Mr . Yesse with respect to the fraud additions for 1985 nd 1986 . Petitioners timely submitted a request for a hearing with respect to both notices . During their hearing respondent's A peals officer advised petitioners that she would not consider hallenges to the underlying liabilities because petitione s had received a statutory notice of deficiency concernin them and had failed t o petition the Tax Court . Petitioners indicated that they wante d respondent's Appeals Office to consider n offer-in-compromise based on doubt as to liability . Howeverl, petitioners did no t submit an offer-in-compromise during the hearing . On October 21, 2005, the Appeals 0 fice issued petitioners a Notice of Determination Concerning Coll ctions Action(s) Unde r 5Earlier, on Jan . 14, 2004, respondent had sent petitioner s to the unpaid income tax a notice of intent to levy with respect liability, excluding the fraud addition, petitioners' request for a hearing under Jan . 14, 2004, notice was untimely, the hearing, and respondent's motion to dism ; jurisdiction over this portion of the liability was granted . for 1986 . Becaus e sec . 6330 concerning the received an equivalent .ss for lack o f Section 6320 and/or 6330 (notice of determination) sustaining the proposed levy . Petitioners timely petitioned the Court in response to the notice of determination . Thereafter, respondent filed the pending motion for summary judgment, to which petitioners responded . Subsequently, the parties were allowed to submit additional memoranda of law in support of their positions . Discussion Summary judgment "is intended to expedite litigation and avoid unnecessary and expensive trials ." Fla . Peach Corp . v . Commissioner , 90 T .C . 678, 681 (1988) . Summary judgment may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law . Rule 121(a) and (b) . The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences are viewed in a light most favorable to the nonmoving party . Craig v . Commissioner , 119 T .C . 252, 260 (2002) ; Dahlstrom v . Commissioner , 85 T .C . 812, 821 (1985) ; Jacklin v . Commissioner , 79 T .C . 340, 344 (1982) . The party opposing summary judgment must set forth specific facts which show that a genuine question of material fact exists and may not rely merely on allegations or denials in the pleadings . Grant Creek Water Works, Ltd . v . Commissioner , 91 T .C . 322, 325 (1988) ; Casanova Co . v . Commissioner , 87 T .C . 214, 217 (1986) . - 5 - Section 6331(a) authorizes the Secre tary to levy upo n property and property rights of a taxpay e r liable for taxes who fails to pay those taxes within 10 days fter notice and demand for payment is made . Section 6330(a) re uires the Secretary to send a written notice to the taxpayer of the amount of the unpai d tax and of the taxpayer's right to a sec ion 6330 hearing a t least 30 days before any levy is begun . If a section 6330 hearing is reques ed, the hearing is to be conducted by the Commissioner's Office o Appeals, and at the hearing the Appeals officer or employee onducting it must verify that the requirements of any applicable aw or administrative procedure have been met . Sec . 6330(b)(1 , (c)(1) . The taxpayer may raise at the hearing "any relevant i sue" relating to the unpaid tax or the proposed levy . Sec . 6 30(c)(2)(A) . The taxpayer may also raise challenges to the existence or amount of the underlying tax liability if the taxpayer did not receive an y statutory notice of deficiency with respiect thereto or did no t otherwise have an opportunity to dispute the liability . Sec . 6330 (c) (2) (B) . At the conclusion of the hearing, he Appeals officer mus t determine whether and how to proceed wi, h collection and shal l take into account : (i) The verification that the requirements of any applicable law or administrative procedure have been met , (ii) the relevant issues raised by the taxpayer, (iii) the challenges to the underlying tax liability by the taxpayer, where permitted, and (iv) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary . Sec . 6330(c)(3) . In the case of the determination at issue, which pertains to the income tax, we have jurisdiction to review the Appeals officer's determination by virtue of section 6330(d)(1)(A), before its amendment in the Pension Protection Act of 2006, Pub . L . 109- 280, sec . 855(a ), 120 Stat . 1019 .6 See Iannone v . Commissioner , 122 T .C . 287, 290 (2004) . Respondent contends that he is entitled to summary judgment because the only issues petitioners raised in connection with their hearing were challenges to the underlying tax liabilities which were precluded under section 6330(c)(2)(B) because petitioners received a notice of deficiency with respect to the underlying liabilities . Petitioners contend that respondent's Appeals officer abused her discretion by refusing to consider during the hearing an offer-in-compromise based upon doubt as to liability . Responden t 6Sec . 6330(d)(1) has been amended to give this Court jurisdiction to review all determinations under sec . 6330, effective for determinations made after 60 days after Aug . 17 , 2006 . Pension Protection Act of 2006, Pub . L . 109-280, sec . 855(a), 120 Stat . 1019 . The determination in this case was made on Oct . 21, 2005 . - 7 - argues that petitioners never submitted a n offer-in-compromise and that , in any event , an offer - in-compr omise based on doubt as to liability would constitute an impermis sible challenge to th e underlying liability . Petitioners argue that there was an abuse of discretion in the failure to consider their offer-in-c mpromise7 because there was substantial doubt as to their liabil' ty for the 198 5 deficiency and the 1985 and 1986 fraud a ditions . I n petitioners ' view , there is substantial oubt because the notice of deficiency for their 1985 and 1986 to able years was mailed more than 3 years after their returns fo those years were file d and consequently after the period of lim tations on assessment had expired , see sec . 6501 ( a), and becau e respondent may rely upon the unlimited assessment period pro ided in sectio n 6501(c)(1) only upon a showing by clear and convincing evidenc e 'Although petitioners concede that they did not actually submit a specific offer-in-compromise based on doubt as to liability to the Appeals officer conducting their sec . 6330 hearing they argue that the Appeals officer's stated unwillingness to consider any such offer-in-compromise was the cause of their failure . Since, as disc ssed hereinafter, any consideration at the sec . 6330 hearing f an offer-in-compromise based on doubt as to liability would ha e been precluded under sec . 6330(c)(2)(B), it is-immaterial wh ther petitioners' failure to submit an actual offer-in-compromise,was attributable to the Appeals officer's representations . We note, however, that respondent alleges, the Appeals officer' case activity records document, and petitioners have not specifically disputed that the Appeals officer advised petitioners' rep esentative that if they wished to dispute the liability they sh uld seek audit reconsideration or submit an offer-in-compromise (outside their sec . 6330 hearing) . - 8 - that the returns were fraudulent, which respondent has not done, see sec . 7454(a) ; Rule 142(b) . Respondent counters that the period of limitations on assessment remained open pursuant to section 6501(c)(1) because petitioners' returns for 1985 and 198 6 were fraudulent, as determined in the notice of deficiency issued to petitioners for those years . Since petitioners received the notice of deficiency and failed to timely petition the Tax Court, respondent argues, they may not challenge the underlying liability, including the fraud additions, either directly, or indirectly by raising an offer-in-compromise based on doubt as to liability, in a section 6330 collection proceeding . We agree with respondent . In Baltic v . Commissioner , 129 T .C . 178, 183 (2007), we held that a challenge to the amount of the tax liability made in the form of an offer-in-compromise based on doubt as to liability by a taxpayer who has received a notice of deficiency is a challenge to the underlying liability precluded by section 6330(c)(2)(B) . We conclude that under Baltic it was not an abuse of discretion for the Appeals officer to refuse to consider at the section 6330 hearing an offer-in- compromise by petitioners premised on Mr . Yesse's asserted doubtful liability for the fraud additions, because such an offer-in-compromise would constitute a challenge to the underlying tax liability . Although not defined in the statute or the legislative history, the term "underlying tax liability" as 9 - used in section 63.30 is "a reference to the amounts that the Commissioner assessed for a particular t x period * * * [and] may encompass an amount assessed following t e issuance of a notice of deficiency under section 6213(a)" . M nt omer v . Commissioner , 122 T .C . 1, 7-8 (2004) . F r the years at issue, the punishment for fraud was an addition to tax, see sec . 6653, and such additions to tax, as well as pe alties, "shall be assessed, collected, and paid in the sam manner as taxes", and any reference to "tax" imposed by the In ernal Revenue Cod e "shall be deemed also to refer to the ad itions to the tax" and penalties, sec . 6662(a) .8 Petitioners a< mit that they received the notice of deficiency that determined fraud additions against Mr . Yesse for 1985 and 1986 and decided gainst petitioning the Tax Court on the basis of "apparent impr bper legal advice" . Consequently, petitioners' opportunity t o dispute the fraud additions (and the 1985 deficiency9) in I --he Tax Court before 8In 1989 sec . 6662(a) was recodifie as sec . 6665(a), and as previously noted, sec . 6653(b) was in s bstantial form recodified as sec . 6663 with fraud redesignated as a "penalty" rather than "addition to tax", effective for return due after Dec . 31, 1989 . See OBRA sec . 7721 . 9The fraud addition for 1985 determined and assessed against Mr . Yesse suspends the period of limitations on assessment for the 1985 deficiency with respect to both petitioners . See Ballard v . Commissioner , 740 F .2d 659, ~63 (8th Cir . 1984), affg . in part and revg . in part T .C . Memo . 1982-466 ; Vannaman v . Commissioner , 54 T .C . 1011, 1018 (1970), I - 10 - paying them10 ended with the expiration of the 90-day period in which they could have petitioned the Tax Court with respect to the notice of deficiency . Under Baltic they may not resurrect that opportunity by raising an offer-in-compromise based on doubt as to liability in a section 6330 proceeding . The Appeals officer's refusal to consider their offer-in-compromise was therefore no abuse of discretion . Finally, as recorded in the notice of determination, the Appeals officer verified that the requirements of applicable law and administrative procedure had been met and took into account whether any proposed collection action balanced the need for the efficient collection of taxes with the legitimate concern o f petitioners that the collection action be no more intrusive than necessary . See sec . 6330(c)(3) . Petitioners have identified no specific infirmities in the foregoing not heretofore addressed . Conclusion Since we have found that the Appeals officer's refusal to consider an offer-in-compromise based on doubt as to liability was not an abuse of discretion, we conclude that no genuin e 10As part of their claim that their offer-in-compromise based on doubt as to liability should have been considered, petitioners insist that respondent would be unable to demonstrat e fraud by clear and convincing evidence in any refund litigation . Because petitioners received a notice of deficiency regarding the fraud additions, they may not dispute them in a sec . 6330 proceeding, either directly or indirectly through their offer-incompromise . Accordingly, their contentions regarding the outcome of any refund litigation are irrelevant . - 11 - issues of material fact remain and hold hat respondent i s entitled to judgment as a matter of law hat he may proceed with the proposed levy to collect petitioners' income tax liabilities for 1985 and 1986 . Accordingly, we shal grant respondent' s motion for summary judgment . To reflect the foregoing, An appropriate order an d decisiorrl will be entered .