TAX COURT OPINION

Case: Flynn Christian Johnson
Docket Number: 15892-11L
Judge: Wherry
Opinion Type: bench
Filed: 01/07/2013
Pages: 14

UNITED STATES TAX COURT WASHINGTON, DC 20217 FLYNN CHRISTIAN JOHNSON, Petitioner ) ) ) v. ) Docket No. 15892-11 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDE R 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 Robert A. Wherry, Jr., at Las Vegas, Nevada, 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 sustaining the notice of determination dated June 6, 2011, will be entered. Dated: Washington, D.C. January 7, 2013 (Signed) Robert A. Wherry, Jr. Judge SERVED dAN 8 20ß Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 Bench Opinion by Judge Robert Wherry, Jr. November 7, 2 2012 Flynn Christian Johnson v. Commissioner Docket 3 3 No. 15892-11L 4 THE COURT: The Court has decided to render 5 oral findings of fact and opinion in this case, and 6 the following constitutes the Court's oral findings 7 of fact and opinion. This bench opinion is made 8 pursuant to the authority granted by section 7459(b) 9 and Rule 152.. Unless otherwise indicated, all 10 section references are to the Internal Revenue Code 11 of 1986, as amended, and all Rule references are to 12 13 the Tax Court Rules of Practice and Procedure. Certain facts have been stipulated. The 14 stipulation of facts filed by the parties, with 15 attached exhibits, are incorporated herein by this . 16 reference. At the time petitioner filed his petition 17 18 in this case he was a resident of Nevada. The instant pro,ceeding arises from a 19 petition for judicial review filed in response to a 20 Notice of ,Determination Concerning Collection 21 Action(s) Under Section 6320 and/or Section 6330 22 dated June 6, 2011. The issue for decision is 23 whether respondent may proceed with collection action as so determined.. 24 25 Background, (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 2 3 4 5 6 The collection action stems from substitute for returns respondent prepared pursuant to section 6020 (b) for petitioner's 2000 through 2006 tax years and penalties for filing frivolous returns under section 6702 for the 2000 and 2003 tax years. The issue for decision is whether respondent's settlement 7 officer, Mr. Feinman, and his appeals manager Ms. 8 Bayley, abused their discretion in determining the 9 proposed collection action was appropriate. 10 11 12 13 14 For tax years 2001, 2002, and 2004 through 2006, petitioner did not file Federal income tax returns. For tax years 2000 and 2003, petitioner filed tax returns that reported all zeros and advanced arguments that this Court and respondent 15 have previously determined to be frivolous. 16 On March 22, 2006, respondent sent 17 petitioner a notice of deficiency for the 2000 tax 18 year. On June 7, 2005, respondent sent petitioner a 19 notice of deficiency for the 2003 tax year. On 20 January 13, 2009, respondent sent petitioner a notice 21 of deficiency for the 2004 tax year. Petitioner did 22 not petition the Court for redetermination of any of 23 the determined deficiencies. Respondent assessed the 24 deficiencies, additions to tax, and penalties. 25 On November 2, 2010, respondent mailed (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 5 1 petitioner a Letter 1058, Final Notice of Intent to 2 3 4 5 6 7 Levy and Notice of Your Right to A Hearing, for the income tax liabilities for the 2000 through 2006 tax years and the section 6702 penalties for the 2000 and 2003 tax years. On December 9, 2010, respondent received a timely Request for Collection Due Process (CDP) Hearing from petitioner. In this letter, 8 petitioner advanced arguments that this Court has 9 previously found to be frivolous and requested a 10 11 face-to-face hearing in Las Vegas, Nevada. In a letter dated April 7, 2011, the IRS 12 Appeals Officer advised petitioner that the CDP 13 hearing would be conducted over the telephone and 14 that no face-to-face meetings would be granted unless 15 petitioner withdrew his frivolous argument. The 16 Appeals officer further advised petitioner that 17 Appeals would not reconsider the tax liabilities 18 unless petitioner filed valid income tax returns for 19 the tax years at issue. Finally, the Appeals officer 20 told petitioner that in order to be considered for 21 collection alternatives, petitioner would have to 22 23 file tax returns for tax years 2007 through 2009. Petitioner did not withdraw his frivolous 24 argument, did not file valid tax returns for the 25 years at is.sue, and did not file tax returns for the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 2 3 2007 through 2009 tax years. On June 6, 2011, respondent issued a Notice of Determination. On July 6, 2011, petitioner timely filed a petition with this 4 Court. A trial was held on November 6, 2012, in Las 6 5 Vegas, Nevada. 6 7 8 9 I. Standard of Review Discussion Section 6331 (a) authorizes the Commissioner to levy upon all property and rights to property of a 10 taxpayer where there exists a failure to pay any tax 11 12 liability within 10 days after notice and demand for payment. Sections 6331(d) and 6330 then set forth 13 procedures generally applicable to afford protections 14 15 for taxpayers in such levy situations. Section 6331(d) establishes the requirement that a person be 16 provided with at least 30 days' prior written notice 17 of the Commis sioner ' s intent to levy be fore 18 collection may proceed. Section 6331(d) also 19 indicates that this notification ·should include a 20 statement of available administrative appeals. 21 Section 6330 (a) expands in several respects upon the 22 premise of section 6331(d), forbidding collection by 23 levy until the taxpayer has received notice of the 24 opportunity for administrative review of the matter 25 in the form of a hearing before the Internal Revenue (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flyrm Christian Johnson 11-07-2012 7 1 Service Office of Appeals. Section 6330 (b) grants a 2 3 4 5 6 7 taxpayer, who timely requests a hearing, the right to a fair hearing before an impartial Appeals officer. Section 6330 (c) (2) (B) permits challenges to the existence or amount of the underlying tax liabilities in collection proceedings only where the taxpayer did not receive a notice of deficiency or 8 otherwise have a previous opportunity to challenge 9 the liability. If the validity of the underlying tax 10 is not properly at issue, the Court will review the 11 Commissioner's administrative determination for abuse 12 of discretion. Goza v. Commissioner, 114 T.C. 176, 13 181-182 (2000). However, where the validity of the 14 underlying tax liability is properly at issue, the 15 Court will review the matter on a de novo basis. Id. 16 Respondent issued petitioner a notice of 17 deficiency for the tax liabilities and additions to 18 tax for tax years 2000, 2003, and 2004. Thus, 19 petitioner had the opportunity to challenge the 20 underlying liabilities for those tax years and cannot 21 now challenge them. With respect to the 2001, 2002, 22 23 24 2005, and 2006 tax years, respondent gave petitioner an opportunity to contest the underlying liabilities in the CDP hearing, but only if petitioner prepared 25 and filed valid returns for the years at issue. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 Petitioner did not file valid returns, nor did he 2 desist in contesting liability using frivolous 8 3 4 5 arguments. II. 6702 Penalties With respect to the frivolous return 6 penalties under section 6702, petitioner did not have 7 8 9 a prior opportunity to challenge his liability for these penalties. We therefore review de novo respondent's determination that petitioners are 10 liable for these additions to tax. See Sego v. 11 Commissioner, 114 T.C. 604, 610 (2010); Goza v. 12 Commissioner, 11.4 T.C. at 181-182. 13 Respondent bears the burden of production 14 with respect to the additions to tax. See sec. 15 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446- 16 447 (200.1) . To meet this burden, respondent must 17 produce sufficient evidence establishing that it is 18 appropriate to impose the addition to tax. See 19 Higbee v. Commissioner, 116 T.C. at 446. 20 Section 6702 (a), during the taxable years 21 2000 and 2003 authorizes the IRS to impose a penalty 22 of $500, which has since been increased to $5,000 for 23 later taxable years, Pub. L. No. 109-432, 120 Stat. 24 2960 (2006), on a taxpayer who "files what purports 25 to be a return of a tax imposed by this title but (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 9 1 which -- (A) does not contain information on which 2 the substantial correctness of the self-assessment 3 may be judged, or (B) contains information that on 4 its face indicates that the self-assessment is 5 substantially incorrect" if the conduct is based on a 6 7 frivolous position as identified by the IRS or reflects a desire to delay or impede the 8 administration of justice. The IRS may reduce the 9 amount of the penalty if it deems that "a reduction 10 would promote compliance with and administration of 11 12 the Federal tax laws . " Sec. 6702 (d) . Section 6702 (c) authorizes the IRS to maintain a list of 13 positions it has identified as frivolous. See, e.g., 14 Notice 2010-33 (available at 15 http://www.irs.gov/irb/2010-17 IRB/ar13.html) 16 17 18 19 (listing common frivolous arguments and warning taxpayers that potential penalties include a $500 fine under section 6702). Respondent produced records showing that 20 petitioner filed his 2000 and 2003 returns reporting 21 all zeros despite having received wages and/or non- 22 employee compensation in those years. In addition, 23 petitioner attached to these returns a statement 24 advancing various frivolous arguments as to why he 25 owed no Federal income tax. Thus, respondent has met (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 his burden of production. Petitioner has advanced no 2 sound reason as to why the penalty should not apply. 3 Therefore, we sustain respondent's determination with 10 4 5 6 7 8 9 respect to these penalties. III. Review for Abuse of Discretion Section 6330 (a) regulres the Commissioner to send a written notice to the taxpayer of the amount of the unpaid tax and of the taxpayer's right to a section 6330 hearing at least 30 days before the 10 levy. If an administrative hearing is requested, the 11 hearing is to be conducted by the Appeals Office. 12 Sec. 6330 (b) (1) . At the hearing, the Appeals officer 13 14 conducting it must verify that the requirements of any applicable law or administrative procedure have 15 been met. Sec. 6330 (c) (1). The taxpayer may raise 16 any relevant issue with regard to the Commissioner's 17 18 intended collection activities, including spousal defenses, challenges to the appropriateness of the 19 proposed lien, and alternative means of collection. 20 Sec. 6330 (c) (2) (A); see also Sego v. Commissioner, 21 114 T.C. at 609; Goza v. Commissioner, 114 T.C. at 22 180. Taxpayers are expected to provide all relevant 23 information requested by Appeals, including financial 24 statements, for its consideration of the facts and 25 issues involved in the hearing. Sec. 301.6330- (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 11 1 2 3 1(e) (1), Proced. & Admin. Regs. A. Denial of a Face-to-Face Hearing Petitioner repeatedly argues that he was 4 entitled to a face-to-face hearing. Although a 5 6 7 8 9 section 6330 hearing may consist of a face-to-face conference, a proper hearing may also occur by telephone or by correspondence under certain circumstances. Lunsford v. Commissioner, 117 T.C. 183, 189 (2001);. Katz v. Commissioner, 115 T.C. 329, 10 337-338 (2000) ; sec. 301. 6330-1 (d) (2) , Q&A-D6, 11 Proced. & Admin. Regs. In particular, taxpayers will 12 not be granted a face-to-face hearing "if the request 13 for a hearing or other taxpayer communication 14 15 indicates that the taxpayer wishes only to raise irrelevant or frivolous issues concerning that 16 liability. " Sec. 301. 6330-1 (d) (2) , Q&A-D8, Proced. & 17 Admin. Regs. We treat Treasury regulations with 18 deference. Mayo Foundation v. United States, 562 19 U.S. , , 131 S.Ct. 704, 714 (2011). Denial of 20 a face-to-face hearing when the taxpayer refused to 21 raise nonfrivolous arguments does not constitute an 22 abuse of discretion. See Seaver v. Commissioner, 23 T.C. Memo. 2012-55 ("no abuse of discretion in the 24 25 IRS' refusal of a face-to-face hearing where a taxpayer has failed to present nonfrivolous (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 2 arguments, file past-due returns, and submit financial statements as prerequisites to a collection 12 3 alternative . ") . 4 5 6 7 Petitioner never raised any nonfrivolous issue. His prior communications with respondent, including the request for a CDP hearing, indicated that he intended to pursue frivolous arguments at the 8 hearing. Thus, respondent did not abuse his 9 discretion in denying petitioner the opportunity for 10 a face-to-face hearing until such time as petitioner 11 withdrew the frivolous issues. 12 13 B. Denial of Offer-in-Compromise Among the issues that may be raised at 14 Appeals are "offers of collection alternatives", such 15 as offers-in-compromise. Sec. 6330 (c) (2) (A) (iii) . 16 The Court reviews the Appeals officer's rejection of 17 18 an offer-in-compromise to decide whether the rejection was arbitrary, capricious, or without sound 19 basis in fact or law and therefore an abuse of 20 discretion. Murphy v. Commissioner, 125 T.C. 301, 21 320 (2005), aff'd 469 F.3d 27 (1st Cir. 2006). 22 23 24 Section 7122 (a) authorizes the Commissioner to compromise any civil case arising under the internal revenue laws. In general, the decision to 25 accept or reject an offer, as well as the terms and (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 2 conditions agreed to, are left to the discretion of the Commis sioner . Se c . 301. 7122-1 (c ) (1) , Pr oced . & 13 3 Admin. Regs. 4 The Appeals officer did not abuse his 5 discretion in refusing to process the offer. Because 6 petitioner had not filed his 2007, 2008, and 2009 7 Federal income tax returns, he did not qualify for an 8 offer-in-compromise. See IRM pt. 5.8.7.2.2.1(1) (May 9 10, 2011) ("A processable offer must be returned when 10 11 the investigation reveals the taxpayer has not remained in filing compliance."); see also Rodriguez 12 v. Commissioner, T.C. Memo. 2003-153 ("The 13 Commissioner's decision not to process an offer in 14 15 16 17 18 compromise or a proposed collection alternative from taxpayers who have not filed all required tax returns is not an abuse of discretion."). Respondent did not abuse his discretion. In making his determination the Appeals officer 19 verified that all requirements of applicable law and 20 administrative procedure had been met. Petitioner 21 22 23 24 25 never offered a concrete collection alternative or raised any nonfrivolous issues and did not provide the requested Forms 433-A and 433-B or any other financial information or testify at trial. C. Sanctions (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flyrm Christian Johnson 11-07-2012 Section 6673(a) (1) authorizes this Court to 14 impose a penalty not in excess of $25,000 on a taxpayer for instituting or maintaining proceedings 1 2 3 4 primarily for delay or in which the taxpayer's 5 position is frivolous or groundless . A position "is 6 7 8 'frivolous' where it is 'contrary to established law and unsupported by a reasoned, colorable argument for change in the law. '" Williams v. Commissioner, 114 9 T.C. 136, 144 (2000) (quoting Coleman v. 10 Commissioner, 791 F.2d 68, 71 (7th Cir·. 1986). 11 Petitioner's continued reliance on frivolous and 12 groundless arguments certainly falls within the gamut 13 of sanctionable actions. However, as petitioner has 14 not previously raised such argument before the Court 15 and we have not previously warned petitioner, we 16 decline to impose a section 6673 penalty at this 17 18 time. If petitioner continues to advance such arguments before this Court, we may, in the future, 19 in our discretion, impose a section 6673 penalty. 20 Accordingly, the Court concludes that 21 respondent's determination to proceed with collection 22 of petitioner's tax liabilities was not an abuse of 23 discretion. To reflect the foregoing, an appropriate 24 decision sustaining the notice of determination dated 25 June 6, 2011, will be entered. This concludes the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Flynn Christian Johnson 11-07-2012 1 Court's opinion in this case. 15 2 3 4 5 6 9 10 11 12 13 14 15 16 17 18 19 2 0 21 22 23 2 4 2 5 (Whereupon, at 4:20 p.m., the bench opinion in the above-entitled matter was concluded.) (866) 448 - DEPO www.CapitalReportingCompany.com 2012