TAX COURT OPINION

Case: Michael A. & Gina A. Zapara
Docket Number: 9480-02L
Judge: Thornton
Opinion Type: reported
Filed: 05/17/2005
Pages: 18

124 T.C. No. 14 TG UNITED STATES TAX COURT MICHAEL A. ZAPARA AND GINA A. ZAPARA, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 9480-02L'. Filed May 17, 2005. In a prior District Court criminal proceeding, Ps Ps signed a Form 4549-CG, in which they waived the right to pleaded guilty to various tax-related offenses with respect to tax years 1993-95. Income Tax Examination Changes, contest their tax liability in Tax Court and consented to the immediate assessment and collection of their 1993-95 taxes. Subsequently, H's plea agreement was found to contain erroneous calculations as to the amount of Government's tax loss; received ineffective assistance of counsel and reduced his sentence using the correct calculation. the Dis.trict Court the found that H had in this regard In order to collect Ps' 1993-95 tax liabilities as shown on the Form 4549-CG, as well as Ps' unpaid tax liabilities for tax years 1997 and 1998, R made a jeopardy levy with respect accounts held on petitioners' behalf. Appeals Office hearing pursuant to sec. 6330(f), During the Appeals Office case, Ps challenged their underlying tax liabilities for 1993-95, alleging that Ps requested an I.R.C. to certain stock reported but SERVED MAY t 7 2005 - 3 - THORNTON, Judge: Pursuant to section 6330(d), petitioners seek review of an Appeals Office determination sustaining a jeopardy levy.¹ FINDINGS OF FACT The parties have stipulated some facts, which we incorporate herein. When they filed their petition, petitioners resided in Kilauea, Hawaii. Criminal Proceedings On February 25, 1999, Mr. Zapara signed a plea agreement, pleading guilty to tax evasion and bank fraud. In the plea agreement, Mr. Zapara admitted that he evaded his taxes for tax years 1993, 1994, and 1995, and that he should have reported $465,943.62 in income he received as a result of bank fraud and other fraudulent schemes. Also, on February 25, 1999, Mrs. Zapara signed a plea agreement, pleading guilty to subscribing to a false tax return and admitting that she signed a tax return that omitted income derived from the fraudulent activities of Mr. Zapara. Attorney Nicholas G. Spirtos (Mr. Spirtos) represented petitioners during their criminal prosecutions and in negotiating the plea agreements. On February 26, 2001, a Federal District Court sentenced Mr. Zapara. James D. Henderson (FOr. Henderson) represented Mr. Zapara in the sentencing phase of his criminal case. ¹ Unless otherwise indicated, ·all section references are to the Internal Revenue Code, as amended. Income Tax Examination and Form 4549-CG - 5 - On February 29, 2000, petitioners signed a Form 4549-CG, Income Tax Examination Changes, for taxable years 1993, 1994, and 1995. The unreported income adjustments on the Form 4549-CG total $361,559 for 1993, $23,894 for 1994, and $80,489 for 1995.2 The Form 4549-CG shows balances due, exclusive of interest and penalties, of $122,463 for 1993, $3,695 for 1994, and $17,312 for 1995. After adding section 6663 fraud penalties and interest, the Form 4549-CG shows balances due of $344,498 for 1993, $9,560 for 1994, and $40,657 for 1995. Petitioners' 1997 and 1998 Income Tax Liabilities On May 15, 2000, petitioners filed their 1997 and 1998 income tax returns showing taxes due. On May 15, 2000, on the basis of those returns, respondent made assessments of $30,744.60 for 1997 and $31,529.80 for 1998, as well as interest, penalties, and additions to tax. Jeopardy Levy On June 1, 2000, respondent provided petitioners with "Notice of Jeopardy Levy and Right of Appeal" for the following unpaid tax amounts: 2 The adjustments for 1993 include (in addition to the $361,559 unreported income adjustments) a $14,100 adjustment for exemptions. under duress; (2) that they believed the amounts asserted in the Form 4549-CG were too high because it was their belief that the amount of the liability in their criminal tax evasion proceeding was less than the amount asserted in the Form 4549-CG signed by petitioners; (3) that they wished to sell stock in the possession of a revenue officer and apply the proceeds to their outstanding tax liabilities; and (4) that they intended to submit an offer in compromise or installment agreement. Petitioners did not submit an offer in compromise or installment agreement for consideration by the Appeals officer and did not raise any challenges to their underlying tax liabilities for 1997 and 1998. With respect to the sale of stock, on August 23, 2001, Mr. Mather sent a fax to Appeals Officer Janice Rich asking her for a "letter to say okay to release stock for sale." On September 7, 2001, the Appeals officer called Mr. Mather regarding the requested stock sale. Respondent's case activity records reflect that the Appeals officer indicated to Mr. Mather: "I would like him to put his request in writing and send to me w/cc to RO [revenue officer] since he is still working with RO. He said he will do." According to these same records, the Appeals officer also told Mr. Mather: "I was going to talk to RO about stock sale-he was okay with me doing that-rep [Mr. Mather] already talked to him about too. RO told him he wanted approval from me first." On September 13, 2001, the Appeals officer informed Mr. - 9 - Under section 6330(f), if the Secretary has made a finding that the collection of tax is in jeopardy, the requirement of notice and opportunity for hearing before levy under section 6330 shall not apply. Nonetheless, the taxpayer shall be given the opportunity for the hearing described in section 6330 within a reasonable period of time after the levy. Sec. 6330(f) (flush language). We have jurisdiction under section 6330(d) to review jeopardy levy determinations. Dorn v. Commissioner, 119 T.C. 356 (2002). Where the validity of the underlying tax liability is properly at issue, we review the matter de novo; otherwise, we review the Commissioner's determination for an abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000). In this proceeding, petitioners raise challenges to their underlying tax liabilities for 1993, 1994, and 1995, and the Appeals Office's determination not to withdraw respondent's jeopardy levy för 1993, 1994, 1995, 1997, and 1998.3 II. Underlying Tax Liabilities At an Appeals Office hearing, the taxpayer may raise "any relevant issue relating to the unpaid tax or the proposed levy". Sec. 6330(c) (2) (A). The taxpayer may challenge the existence or amount of the underlying tax liability for any tax period if the taxpayer received no statutory notice of deficiency for the tax 3 Petitioners make no argument that sec. 7491(a) applies in this case and have not established that they satisfied the requirements of sec. 7491(a)(2). - 11 - unfounded and misplaced. It stems from the Government's efforts to prosecute them for admittedly criminal conduct and to collect taxes and penalties. No doubt, given the circumstances, these efforts were zealous and disadvantageous to petitioners; however, petitioners have presented no evidence that these efforts went beyond what the law prescribes and, indeed, requires. Insofar as the Government's actions leading up to petitioners' signing of the Form 4549-CG were authorized by law, those actions do not give rise to duress or coercion. Shireman v. Commissioner, supra; Ballard v. Commissioner, T.C. Memo. 1987-471, affd. 851 F.2d 359 (5th Cir. 1988). On occasion, this Court has held that the Commissioner's threats to take otherwise lawful action against the taxpayer constituted duress or coercion. See Diescher v. Commissioner, supra (holding that the Commissioner's threat to impose fraud penalties if taxpayer did not sign waiver constituted duress); (cid:16)042Robertson v. Commissioner, T.C. Memo. 1973-205 (holding that the taxpayers consented to extending the limitations period under the Commissioner's duress). Petitioners allege that respondent's agents (as well as their attorney) pressured them to.sign the Form 4549-CG as a precondition to their plea.agreement. Petitioners allege that they were informed the plea agreement would be voided if they did not sign the Form 4549-CG before their sentencing date. - 13 - and reducing the sentence. The District Court concluded that petitioners otherwise "suffered no prejudice" from Mr. Spirtos's representation of them. The District Court did not throw out the plea agreement or otherwise vacate Mr. Zapara's sentence. As explained in more detail infra, the erroneous loss calculation is not reflected in the Form 4549-CG. Acco.rdingly, we are not persuaded that any ineffective assistance of counsel on Mr. Spirtos's part prejudiced petitioners, much less amounted to duress or coercion, with respect to their signing the Form 4549- CG. Petitioners also allege that, at the time they signed the Form 4549-CG, Mr. Spirtos's "conduct was self serving, he had an .. irreconcilable conflict between his own interests and the interests of his client * * * as he was under investigation from the Internal Revenue [Service] and the United States Attorney's Office at the time he was representing the Petitioners". In support of this allegation, petitioners rely on the declaration of Mr. Mather, which is attached to Mr. Zapara's motion to vacate, set aside, or correct his sentence, filed in the District Court in September 2001. In that declaration, Mr. Mather declared: "Mr. Scharf [petitioners' attorney] asked [Mr. Spirtos and Mrs. Spirtos] if, during their dealings with the government on behalf of Mr. and Mrs. Zapara, there was an investigation by the same agent and prosecutor concerning Mr. and Mrs. Spirtos. Mrs. Spirtos agreed that there was." Petitioners also rely on - 15 - precluded from challenging their underlying tax liabilities for 1993, 1994, and 1995. B. Does the Form 4549-CG Include Erroneous Loss Calculations? As just discussed, in the criminal proceedings in Federal District Court, Mr. Zapara challenged his sentence, arguing, among other things, that the tax loss to the Government was erroneously computed in his plea agreement. On the basis of this argument, the District Court granted, in part, Mr. Zapara's motion to vacate, set aside, or correct sentence and revised Mr. Zapara's sentence using the correct tax loss figure. Petitioners contend that their tax liabilities in the Form 4549-CG contain these same erroneous calculations. We need not decide whether petitioners' signing the Form 4549-CG precludes them from arguing that the Form 4549-CG contains errors, because petitioners have failed to show that the Form 454.9-CG contains the same erroneous calculations as Mr. Zapara's plea agreement. In calculating the Government's tax loss for 1993, 1994, and 1995, the plea agreement erroneously included in income 100 percent (instead of 20 percent) of a certain "Toya check" in 1994 and $250,000 (instead of $75,000) of a certain "Booz check" in 1995. Using these erroneous figures, the plea agreement computed the Government's tax loss as being more than $200,000, whereas the correct tax loss figure was $128,390.29. At trial, Revenue Agent Barry Johnson, who prepared - 17 - conclude that petitioners have abandoned this argument. See Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001) (concluding that taxpayers abandoned arguments and contentions asserted prior to the filing of their brief where they failed to advance those arguments and contentions on brief). Even if we had not concluded that petitioners have abandoned this argument, however, we would reject such an argument for the reasons described below. As a general rule, if the Commissioner wishes to collect a tax liability by levy, he must provide 10 days' advance notice and demand to the person who owes the tax. Sec. 6331(a). If the Commissioner makes a finding that the collection of tax is in jeopardy, however, he may make notice and demand for immediate payment. Id. If the person who owes the tax then fails or refuses to pay it, the Commissioner may collect without regard to the usual 10-day notice and demand period. Id. Generally, notice and demand for payment of tax shall be left at the dwelling.or usual place of business of the taxpayer, or shall be sent by mail to the taxpayer's last known address. See sec. 6303(a). Generally, the taxpayer's last known address is the address shown on the taxpayer's most recently filed return, absent clear and concise notice of a change of address. Abeles v. Commissioner, 91 T.C. 1019, 1035 (1988). The taxpayer bears the burden of proving that notice was not sent to his or - 19 - 2000, or that it was their last known address. Second, petitioners contend that their housekeeper did not speak English, had no authority to accept any letters or paperwork for petitioners, and did not give any of the notices to petitioners. We need not linger long over this latter contention, however, for as previously discussed, the Appeals officer verified (and petitioners have not refuted) that the notices were also mailed to petitioners, by both regular and certified mail, on the same date. Petitioners have failed to refute the Appeals officer's verification that respondent made notice and demand for payment of petitioners' tax liabilities as required by section 6331(a).6 IV. Notice of Intent To Levy . On brief, petitioners argue that they were not given proper notice of intent to levy under section 6331(d). Section 6331(d)(1) and (2) provides that at least 30 days before taking levy action, the Commissioner must provide the taxpayer with a written notice of intent to levy. The notice requirement of section 6331(d), however, does not apply to a levy if the Commissioner has made a finding that collection of tax is in 6 At trial, respondent introduced into evidence Forms 3552, Notice of Tax Due on Federal Tax Return, dated June 1, 2000 (the same date the jeopardy levy was made), that are addressed to P.O. Box 1405, Rancho Mirage, California 92270. deny receiving these notices. Appeals officer's verification that respondent made proper notice and demand on May 2, 2000, we need not and do not decide whether these Forms 3552 satisfied the sec. 6331(a) notice and demand requirements for the jeopardy levy. Inasmuch as we have upheld the Petitioners do not - 21 - upon service of the notice of levy. Resolution Trust Corporation v. Gill, 960 F.2d 336, 340 (3d Cir. 1992).7 Service of a notice of levy constitutes a seizure of property, see sec. 6331(b) (equating levy and seizure); Phelps v. United States, 421 U.S. 330, 337 (1975) (stating that "notice of levy and demand are equivalent to seizure"); however, it does not transfer ownership of property to the Internal Revenue Service (IRS). "Ownership of the property is transferred only when the property is sold to a bona fide purchaser at a tax sale." United States v. Whiting Pools, Inc., 462 U.S. 198, 211 (1983). Instead, a notice of levy gives the Commissioner the right to all property levied upon and creates a custodial relationship between the third party and the IRS so that the property comes into the constructive possession of the Government. United States v. Natl. Bank of Commerce, 472 U.S. 713, 720 (1985). For these 7 Under sec. 6332(a), any person in possession of (or to the Secretary. to) property or rights to property subject the obligated with respect to levy upon which a levy has been made shall, upon demand of Secretary, surrender such property or rights (or discharge such obligation) levy, he or she is discharged from any obligation or liability to the delinquent such property or rights to property arising from such surrender or payment. party refuses to honor a levy, he or she becomes personally liable to the Government. States v. Natl. Bank of Commerce, 472 U.S. 713, 721 (1985). Sec. 6332(d)(1) and (2); see United If the third party honors the taxpayer (or any other person) with respect to Sec. 6332(e). If, on the other hand, the third - 23 - instead entered into an installment payment agreement with the debtor. The third-party debtor made some payments pursuant to this agreement but ultimately defaulted on it. The Commissioner failed to take any further action to collect on the account receivable or the installment payment agreement. In United States v. Pittman, supra, the Commissioner served notice of levy on a third-party nominee that held legal title to the taxpayer's real property. The nominee thereafter quitclaimed this property to the Commissioner, who recorded the deed, maintained insurance on the property, and rented the property. These cases are factually distinguishable from the instant case, and petitioners' reliance upon them is misplaced. Petitioners have failed to allege facts that would support a finding that respondent exercised dominion and control over their seized property. Petitioners have alleged no action by respondent with respect to their stock accounts, other than (cid:16)042levying upon them. Petitioners' lack of control over the accounts and their ihability to sell the stocks does not establish conduct on respondent's part analogous to the Commissioner's conduct in United States v. Barlow's, Inc., supra, or United States v. Pittman, supra. Cf. Murphy v. United States, 45 F.3d 520 (1st Cir. 1995); Enos v. Commissioner, 123 T.C. 284, 298 (2004). Petitioners have failed to show that respondent exercised dominion and control over the stock accounts. - 25 - of * * * [section 6335(f)] gives the owner a remedy if the IRS has seized the property, a long time has passed, yet the IRS has not given notice of when the sale will be held." Id. In this sense, section 6335(f) effectively "regulates the time period between seizure and sale". Id. Because section 6335(f) provides an adequate remedy for any delays in selling property and in the absence of a definite statutory time period for providing notice of public sale, we decline to impose on respondent a general duty to timely sell seized property pursuant to section 6335(b).9 Cf. Cash v. United States, 961 F.2d 562, 567 (5th Cir. 1992) (rejecting taxpayers' contention that section 6335(b) requires the Commissioner to sell all property it seizes: "We read that section as merely setting forth the procedures the Service must follow when it does sell such property."). D. Request To Sell Seized Property Pursuant to Section 6335(f) Under section 6335(f), the owner of any property seized by (cid:16)042levy may request the Commissioner to sell the seized property within 60 days after the request (or within any longer period 9 We note that sec. 6336 authorizes the Commissioner to sell is liable to perish or become greatly any seized property that reduced in price or value by keeping. Except petitioners do not allege facts that might have authorized an immediate sale of their stock under sec. 6336. See Galusha v. Commissioner, 95 T.C. 218 (1990); Williams v. Commissioner, 92 T.C. 920 (1989). general duty to sell property of section. in hindsight, We do not decide whether the Commissioner has a the type described in that - 27.- request (or, if later, the date specified by the owner for the sale). Sec. 301.6335-1(d)(3), Proced. & Admin. Regs. Petitioners contend that their counsel requested respondent to sell the stocks in the seized accounts. On the basis of all the evidence, we believe that such a request was made. Indeed, the Appeals officer's case memo states: "The request to sell the stock was made during consideration of this case." The question is when was the request made. The evidence is skimpy. Petitioners rely upon a letter to Mr. Spirtos from Revenue Officer F. Stevens, dated November 2, 2000. This letter states: "The funds under levy at Travis Morgan Securities, Inc. have not been liquidated to date because of your request for a Collection Due Process hearing, otherwise the funds would have been forwarded to the IRS within 45 days of the date the levy was served." On the basis of this letter, petitioners claim that they must have made a request before November 2, 2000. Ih the absence of additional evidence, however, we cannot infer that this statement was made in response to any request from petitioners to sell their stock.¹¹ The Appeals officer's case activity record contains this entry, dated March 20, 2001: "TC [telephone call] from manager of RO [Revenue Officer) group-wanted to know if we had resolved ¹¹ This letter appears to have been made in response to a payment plan proposal from petitioners. - 29 - Under section 6335(f), after petitioners' request, respondent had 60 days to sell the stock accounts or to make a determination that a sale would not be in the best interests of the United States. Respondent did not sell the stock accounts and made no such determination. Instead, the Appeals officer took the position that petitioners first had to establish the fair market value of the stocks in the accounts. Respondent cites no authority for conditioning sale on submission of this information. Neither section 6335(f) nor the regulation requires the taxpayer to submit information regarding the fair market value of the seized property.¹³ Instead, section 6335(f) is clear that upon request, respondent must sell the seized property or make a determination why a sale is not in the best interests of the United States. E. Did Section 6330(e)(1) Preclude Respondent From Selling the Stock? Respondent argues that under section 6330(e)(1), he was precluded from taking any action to collect pursuant to the levy, including selling the stock. ¹³ Cf. sec. 6343(a)(1) (authorizing the Commissioner to the property exceeds the release a levy under certain specified conditions, where the fair market value of taxpayer's liability and release of the levy on a part of property could be made without hindering the collection of liability); sec. 301.6343-1(b)(5), Example, Proced. Regs. establishes that fair market value exceeds tax liability). is no indication that Mr. Mather's Aug. 23, 2001, treated as a request for release of (providing for release of seized property where taxpayer including levy. the the & Admin. There request was - 31 - sec. 5.10.4.1.1(2), which.provides that the sale of seized property will generally be suspended during the administrative review process provided in section 7429. Within 5 days after a jeopardy assessment is made under section 6861 or a .jeopardy levy is made under section 6331(a), the Commissioner must provide the taxpayer a written statement of the information upon which ·the Commissioner relied in making the assessment or levy. Sec. 7429(a)(1) (B). Within 30 days after the taxpayer is furnished this written statement, or within 30 days after the last day of the period within which such statement is required to be furnished, the taxpayer may request the Commissiòner to review the action taken. Sec. 7429(a)(2). After a request for review is made, the Commissioner must make a determination whether the jeopardy assessment or jeopardy levy is reasonable under the circumstances and whether the amount assessed is appropriate. Sec. 7429(a)(3). On June 1, 2000, respondent issued to petitioners a notice of jeopardy levy and right of appeal under section 7429(a)(1). Petitioners then had 30 days within which to make a request for administrative review under section 7429(a)(2). They made no such request. Instead, petitioners submitted a Form 12153, Request for a Collection Due Proòess Hearing, under section 6330. Under these circumstances, a sale of the seized stock accounts was stayed by section 6863(c) only for the 30-day period that - 33 - remain unpaid, after crediting their accounts in accordance with this Opinion. VI. Whether the Appeals Officer Abused Her Discretion A. Installment Agreement At some point before Appeals Officer Janice Rich was assigned to petitioners' section 6330 case, petitioners proposed to pay $4,000 each month or $12,000 each quarter towards their 1997 and 1998 unpaid income tax liabilities. In a letter dated November , 2000, Revenue Officer F. Stevens informed petitioners that respondent could not accept their proposal, partly because they were not current in filing Federal tax returns. Petitioners argue that respondent's failure to accept their payment proposal was an abuse of discretion. Petitioners allege that respondent's own actions precluded petitioners from filing returns in subsequent tax years. Petitioners fail to explain, however, how respondent's actions precluded them from filing tax returns. On the record before us, we find petitioners' allegation implausible. In any event, respondent cited numerous reasons for rejecting petitioners' payment proposal, including their ability to make full or significant payment of all taxes due, their failure to submit collection information statements, and their failure to include all outstanding tax years. Finally, there is no indication in the record that petitioners proposed their payment plan in the Appeals hearing. Generally, this Court - 35 - determining the value of the seized stock accounts as of the date which is 60 days after August 23, 2001. An appropriate order will be issued.