TAX COURT OPINION

Case: Wendell C. Robinson & May T. Jung-Robinson
Docket Number: 6446-19L
Judge: Gustafson
Opinion Type: bench
Filed: 01/10/2022
Pages: 37

United States Tax Court Washington, DC 20217 Wendell C. Robinson & May T. JungRobinson, Petitioners v. Commissioner of Internal Revenue, Respondent - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Docket No. 6446-19L is O R D E R Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the trial in this case before the undersigned judge at the Washington, D.C. session 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, decision will be entered under Rule 155. (Signed) David Gustafson Judge Served 01/10/22 Bench Opinion by Judge David Gustafson December 17, 2021 3 Wendell C. Robinson & May T. Jung-Robinson v. Commissioner Docket No. 6446-19L THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. References in this opinion to sections are to the Internal Revenue Code (26 U.S.C.), as amended and in effect at the relevant times. Some dollar amounts are rounded. This "collection due process" ("CDP") case is brought by petitioners Wendell C. Robinson and May T. Jung-Robinson pursuant to section 6330(d), asking this Court to review the determination by the Office of Appeals of the Internal Revenue Service ("IRS") to sustain a notice of proposed levy to collect the Robinsons' unpaid income tax, additions to tax, and interest for the tax years 2009 and 2012. Trial of this case was conducted in Washington, D.C. on December 15, 2021. The Robinsons represented themselves, and Mr. William J. Gregg represented the respondent, the Commissioner of the IRS. 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 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 issues for decision are: (1) whether the IRS 4 correctly determined for 2009 and 2012 that the Robinsons are liable for (a) additional tax due to mathematical or clerical errors, (b) additions to tax under section 6651(a)(2) and (a)(3), and (c) interest; and (2) whether the Office of Appeals of the IRS abused its discretion in sustaining the notice of proposed levy to collect the Robinsons' unpaid liabilities. (The proposed levy that Appeals sustained included an asserted 2012 liability for the addition to tax under section 6654 for failure to pay estimated tax; but at trial the Commissioner conceded that the Robinsons are not liable for that addition to tax, and we therefore do not discuss that liability further.) We hold that the Robinsons are liable for a portion of the assessed additional tax for 2009 (but not 2012), and are liable for additions to tax under section 6651(a)(2) and (a)(3) for 2009 (but not 2012), and we hold that the Office of Appeals of the IRS abused its discretion in sustaining the notice of proposed levy to the extent it was directed to the collection of amounts for which the Robinsons are not liable. On the evidence before us, and using the burden- of-proof principles explained hereafter, the Court finds the following facts: FINDINGS OF FACT 1 2 3 4 5 6 7 8 9 10 11 The Robinsons resided in Washington, D.C. at the 5 time they filed their petition in this case. (Stip. 1) Ms. Jung-Robinson is a physician, and Mr. Robinson is a lawyer admitted to practice in the Tax Court. Advance payments for 2009 In 2009 about $46,000 was withheld as income tax from petitioners' wages. In addition, petitioners made estimated tax payments of a little over $120,000, totaling about $166,000. (See Ex. 37-P, para. 2 (Doc. 85 at 83)); see also Ex. 30-R.) As we will see, the Robinsons incorrectly reported these amounts when they filed their 12 return. 13 14 15 16 17 18 19 20 21 22 23 24 25 2009 Federal income tax return The Robinsons timely filed their 2009 Form 1040, "U.S. Individual Income Tax Return" (Stip. 24; Ex. 20-J; Doc. 82 at 125), reporting a total tax liability of $217,246. In so computing that tax liability, they made at least two errors: First, they failed to impose the limit of section 68(a) on the total amount of itemized deductions they claimed on Schedule A, "Itemized Deductions". They totaled their deductible taxes, interest, and contributions as $51,356. Line 29 of Schedule A asks whether AGI is "over $166,800", and the Robinsons correctly checked the box marked "Yes". The line then 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 advised, "Your deduction may be limited. See page A-11 6 for the amount to enter." But the Robinsons entered their unlimited total on line 29 and carried it over to line 40a on Form 1040. We take judicial notice that page A-11 of the "2009 Instructions for Schedule A (Form 1040)", which we file herewith as Exhibit 44-C, presents a worksheet (which we have completed using the numbers that the Robinsons reported on their return) that yields a $5,284 reduction of the itemized deduction total. (Our number is a dollar off the amount--$5,285--that the IRS evidently reckoned, reflected as "shown on return" on the post- correction statutory notice of deficiency ("SNOD"). See Ex. 41-C, Ex. A, page 10; see also the Commissioner's pretrial memorandum (Doc. 65) at 6, stating corrected and uncorrected "Itemized deductions" amounts with a difference of $5,284.) Second, the Robinsons also made an error in their reporting of self- employment tax. On Schedule SE they computed their self-employment tax (apparently correctly) as $26,399; but to their own detriment they reported that tax on Form 1040, line 56, as $26,634, thus overstating their liability by $235. On their return the Robinsons also misreported their advance payment information. In calculating their balance due, the Robinsons understated their estimated tax 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 payments as zero (rather than about $120,000) and 7 overstated their income tax withholding as $166,608, rather than $46,000. The total of their advance payments was indeed about $160,000, as they reported; but the components of that total were incorrectly reported and therefore did not correspond to the amounts that the IRS had recorded when those payments were credited to the Robinsons' 2009 account. (See Ex. 37-P, para. 2 (Doc. 85 at 83)); see also Ex. 30-R.) With their return the Robinsons included a check for $15,000 (Stip. 24; Ex. 20-J). This check, combined with their advance payments, brought their total payments as of the time they filed their return to approximately $181,000, which did not satisfy the $217,000 liability that they reported. IRS treatment of the 2009 return Effective April 15, 2010, the IRS eventually assessed not $217,246 (the "total tax" reported on the Robinsons' return) but $220,564 (Ex. 30-R)--a difference of $3,318 (approximately $3,300). That difference is attributable to the IRS's correction, under section 6213(b)(2) and (g)(2), of "mathematical or clerical errors". With a Notice CP24 dated June 23, 2010 (Ex. 22- R), the IRS notified the Robinsons of the two errors described above. The notice stated: 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 We limited your total itemized deductions on 8 Line 29 of your Schedule A, Itemized Deductions. Certain deductions on Schedule A are limited if your adjusted gross income is more than $159,950 . . . .[For 2009 the actual inflation-adjusted figure in section 68(b) was in fact $166,800, but the Robinsons' AGI as reported on their return was nearly $700,000.] We changed the amount of self-employment tax on Line 56 of your Form 1040 because there was an error on Schedule SE, Self-Employment Tax. The error was in the * * * [t]ransfer of that amount to line 56 of your Form 1040. The two errors described on Notice CP24 are insufficient to account for the $3,300 increase in tax that the IRS eventually determined. Only one of those two described errors increased the liability, and that $5,285 decrease in itemized deductions could not by itself yield a tax liability of $3,300. How is the $3,300 explained? The Commissioner pointed out in his pretrial memorandum (Doc. 65 at 5 n.2, 6) and at trial--but not in the Notice CP24 discussed above--that on their 2009 return the Robinsons made a third error that affected the tax computation: They claimed on line 42 "Exemptions" totaling $14,600, following instructions for taxpayers with AGI of 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 "$125,100 or less" (whereas the Robinsons had AGI of 9 nearly $700,000), ignoring the instruction "Otherwise, see page 37." We take judicial notice that page 37 of "1040 Instructions 2009" (Ex. 45-C filed herewith) provides a worksheet to implement the exemptions phaseout of section 151(d)(3) for taxpayers with higher AGI. The Commissioner shows (Doc. 65 at 6) that they should have claimed exemptions of only $9,732 and that this error therefore understated taxable income by $4,868. That error, in conjunction with the two described on the Notice CP24, yields a $3,300 tax increase above what the Robinsons had reported. To correct those three errors (only two of which were in the Notice CP24), the IRS assessed not what the Robinsons reported but $220,564. However, at the time it issued the Notice CP24 in June 2010, the IRS evidently did not spot the Robinsons' error in overstating their income tax withholding. Rather, the IRS evidently accepted as correct their asserted $166,000 of withholding (overstated by about $120,000) but also gave them credit for the $120,000 of estimated payments that the Robinsons had failed to report. Consequently, the Notice CP24 incorrectly stated that the Robinsons were due a refund. The IRS initially processed an overpayment and credited it to other tax years of the Robinsons, but the IRS 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 eventually corrected itself and reversed those credits. 10 In August 2011 the Robinsons tried to obtain a refund of the supposed overpayment (Ex. 33-J, Attachment 4); but they never got it; and on the contrary, the IRS concluded that they owed even more than had been previously determined. 2009 SNOD and Tax Court petition On February 27, 2012, the IRS issued to the Robinsons an SNOD for the 2009 tax year, determining a deficiency in the amount of $1,931. (Ex. 41-C at 6.) (This asserted deficiency was apparently based mainly on purported distributions from a Health Savings Account, but the deficiency was not later sustained by the Tax Court.) On "page 10" of the SNOD, the "Total Tax, line 60", as "Shown on Return", is stated to be $220,564--i.e., the total as previously assessed by the IRS. The "Total Tax, line 60", "as Corrected", is stated to be $222,495. The difference of these two amounts is $1,931, which was the amount determined as a deficiency on the SNOD. The SNOD also notified the Robinsons of the IRS's correction of their $120,000 error in reporting their withholding. In May 2012 the Robinsons filed a petition in the Tax Court to contest the SNOD, which filing commenced the case in Docket No. 13367-12. The petition in that case stated in paragraph 5 that "Petitioner disputes the 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 entire amount of: $1,931.00" and stated in paragraph 6: 11 "The determination of the Petitioner's [sic] tax liabilities, as set forth in the attached Notice of Deficiency, is based upon the following errors: . . . the determination of Petitioners' tax liability . . . was the product of Internal Revenue Service error(s)". (Ex. 40- C.) The petition did not invoke the Tax Court's overpayment jurisdiction. See sec. 6512(b). Assessment of additions to tax for 2009 Although the pendency of the deficiency case temporarily barred the IRS from assessing any additional deficiency, a substantial amount of the Robinsons' already-assessed self-reported liability (and the additional $3,300 that had been assessed) remained unpaid and was subject to collection. In October 2012 the IRS assessed additions to tax under section 6651(a)(2) for failure to pay the amount of tax shown on the Robinsons' return. (Ex. 30-R.) The IRS made this assessment summarily (i.e., without deficiency procedures), as permitted by section 6665(b). By a Notice CP22A dated October 8, 2012, the IRS demanded payment from the Robinsons of more than $48,000 that it considered due for 2009. (Ex. 33-J, Attachment 1.) Thereafter, as the months passed and the additions accrued, the IRS continued assessing additions to tax under section 6651(a)(2) for 1 2 3 4 5 6 7 8 9 10 11 the unpaid portion of tax shown on the Robinsons' return 12 and, after the October 2012 notice, apparently began assessing additions to tax under section 6651(a)(3) on the additional liability arising from mathematical or clerical errors that remained unpaid after the notice. Despite the fact that the February 2012 SNOD had explained the Robinsons' $120,000 error in reporting their withholding, and despite this October 2012 demand for payment, the Robinsons professed not to understand how they could owe this balance and why they were not instead entitled to a refund for 2009, and they did not pay in response to the 12 IRS's demands. 13 14 15 16 17 18 19 20 21 22 23 24 25 Decision in the 2009 deficiency case On March 11, 2014, the Tax Court issued an "Order of Dismissal and Decision" (Ex. 43-C), dismissing the Robinsons' 2009 deficiency case for lack of prosecution but deciding (as the Commissioner by then requested) that for the taxable year 2009 there was no deficiency of tax due from the Robinsons. The Tax Court's decision determined no overpayment. This left the assessed tax liability as approximately $220,000, and it still remained partially unpaid. Additional payment for 2009 Almost five years later, the Robinsons made an additional payment toward their 2009 income tax liability 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 on February 25, 2019, when they submitted a check in the 13 amount of $39,438. (Ex. 18-J.) When this amount is added to their actual withholdings, their estimated tax payments, and their $15,000 payment made with the return, the combined total of all the Robinsons' payments toward their 2009 income tax liability is $220,912. The Robinsons' letter of February 25, 2019 (Ex. 37-P), stated that this payment of roughly $39,000 fully satisfied their 2009 liability (which they stated to be the $217,000 they reported, not the $220,000 that the IRS had assessed) plus interest they computed of about $3,800. The Robinsons did not assert that any of their $39,000 payment was made toward the failure-to- pay additions to tax assessed for their non-payment of the tax they had reported, nor for the $3,300 tax assessment arising from correction of their mathematical or clerical errors, nor towards the failure- to-pay addition to tax arising from their non- payment of that $3,300 (nor for interest on any of those unaddressed 19 2009 liabilities). 20 21 22 23 24 25 2012 Federal income tax return In 2012 $65,351 was withheld as income tax from the Robinsons' wages. (Ex. 21-J, line 62; Ex. 31-R.) They timely filed their return for 2012 (Ex. 31-R), reporting a total tax liability of $88,722 (Ex. 21-J, line 60). They included with their return a check for $23,371 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (which the Robinsons calculated as their balance due). 14 (Ex. 21-J, line 76; Ex. 29-J.) That check combined with their withholding did equal the amount of the tax liability that they self-reported. However, the IRS assessed a liability in a different amount, because of five mathematical or clerical errors (see Ex. 27-J, Doc. 82 at 170) that appear on the face of the return: First, the return included a Schedule C, "Profit or Loss from Business," for Mr. Robinson's "Law Practice" (Ex. 21-J, Doc. 82 at 138) that reported on line 31 a "Net profit" of $58,618; but on Line 12 of the Form 1040 (Doc. 82 at 135), reporting their "Business income . . . Attach Schedule C", the Robinsons stated an amount of $43,800 (i.e., about $14,000 less). (The Robinsons did not report any amount on Form 1040, line 17 ("partnerships, S corporations . . . Attach Schedule E"), nor did they attach to their return a Schedule E, "Supplemental Income and Loss", nor a Form 1065 or a Schedule K-1 for any 19 entity.) 20 21 22 23 24 25 Second, the return reported on line 20a social security benefits received totaling $17,496, but it reported on line 20b the taxable amount thereof as zero. The Robinsons have suggested no reason why that taxable amount should be zero, nor why it should not rather be 85% of the benefits (i.e., $14,871, as the IRS determined) 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 consistent with section 86(a)(2)(B). 15 Third, the Robinsons omitted (to their detriment) any deduction from adjusted gross income ("AGI") for the amount of their self-employment tax. (However, the deduction to which they were entitled (i.e., $4,139) arose from, and was more than offset by, the fifth error, discussed below.) Fourth, the Robinsons overstated by $79 their liability for alternative minimum tax on capital gains as $6,817, rather than $6,738. Fifth, on Schedule SE, "Self-Employment Tax," the Robinsons made an apparent arithmetic error. Line 4 gave their taxable amount of self-employment income as $54,133 (which we assume correct); but rather than multiplying that amount by 13.3% and stating $7,200 as "Self-employment tax" on line 5, they stated $957.56--an error of more than $6,200 in their liability. Because of those five errors, the IRS assessed, on July 8, 2013, not $88,721 (the "total tax" reported on the Robinsons' return) but $101,989 (a difference of $13,268, the net effect of the five errors set out above) (Ex. 31-R.) The IRS also assessed interest and additions to tax for failure to pay. The IRS mailed to the Robinsons a Notice CP11 (Ex. 27-J, Doc. 82 at 166) demanding payment of $13,648 (additional tax, interest, 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 and additions to tax) and describing (at 5) the five 16 mathematical errors on the Robinsons' 2012 return. The Notice CP11 also included instructions under the caption "If you don't agree with the changes": If you contact us in writing within 60 days of the date of this notice, we will reverse the change we made to your account. However, if you are unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we will forward your case for audit. This step gives you formal appeal right, including the right to appeal our decision in court before you have to pay the additional tax. . . . If you do not contact us within the 60-day period, you will lose your right to appeal our decision before payment of the tax. If you do not contact us within 60 days, the change will not be reversed and you must pay the additional tax. . . . That is, the Notice CP11 said that the IRS would "reverse the change" if the Robinsons "contact us in writing within 60 days". On July 17, 2013 (i.e., not 60 but only 9 days after the IRS sent the Notice CP11), the Robinsons 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 responded by a letter (Ex. 34-J, Doc. 85 at 45) to which 17 they attached a copy of the Notice CP11. Their letter stated that the Notice CP11 -- "alleges that we miscalculated our tax obligations as to the following [five items] . . . . Although your letter alleges these miscalculations, it does not indicate how you arrived at the alleged $13,647.92 deficiency [sic] and why our calculations are incorrect. We are requesting information that substantiates your allegation that we owe $13,647.92, for our 2012 taxes. We would appreciate your prompt response, to this request. We're also requesting that any alleged interest and penalties, you allege should be assessed, on the alleged $13,647.92 deficiency [sic], be stayed pending resolution of this matter." In response to the Robinsons' letter, the IRS did not "reverse the change" and abate the approximately $13,000 of additional tax. Rather, the IRS thereafter summarily assessed additions to tax under section 6651(a)(3) for failure to pay tax required to be shown on return. (Ex. 31-R.) This was presumably in response to the Robinsons' failure to pay the outstanding liability of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 $13,648 demanded by the Notice CP11. Notice of intent to levy and CDP hearing 18 On May 7, 2018, the IRS issued to the Robinsons a notice of intent to levy, Notice CP90, informing them of the IRS's intent to levy their assets for outstanding tax liabilities for 2003 (not at issue here), 2009, and 2012 and their right to a CDP hearing. (Ex. 3-J.) The Robinsons timely filed a Form 12153, "Request for a Collection Due Process or Equivalent Hearing" (Ex. 4-J), to contest the IRS's proposed levy action. Their request stated, "We deny owing the stated amounts because they were paid, lack of deficiency notice, 90 day notice & statute of lim[itations]". The Robinsons' request did not express an interest in any collection alternative. The CDP hearing was thereafter conducted by correspondence and 16 telephone. 17 18 19 20 21 22 23 24 25 On July 12, 2018, the Robinsons mailed to the IRS a letter in which they contested their tax liability for 2009 and 2012. (Ex. 11-J.) Specifically, they stated that, by their calculations, approximately $35,000 of tax liability remained outstanding for 2009 and their 2012 tax liability had been paid in full. Throughout July, August, and September of 2018, the parties scheduled and rescheduled telephone conferences to discuss the Robinsons' outstanding liabilities, but ultimately, the 1 2 3 4 5 6 7 8 9 10 11 parties never connected. (Exs. 9-J, 10-J.) Notice of determination and petition 19 On April 3, 2019, the IRS Appeals Team Manager sent to the Robinsons a Notice of Determination sustaining the notice of levy. (Ex. 17-J.) In addition to showing verification of compliance with other statutory requirements, the Notice of Determination verified that the Robinsons disputed their underlying tax liabilities for 2009 and 2012, that the liabilities had been reviewed by the Appeals team, and that the liabilities stemmed from math errors made on the Robinson's original returns. (Ex. 12 17-J at 4.) 13 14 15 16 17 18 19 20 21 22 23 24 25 The Robinsons timely filed their petition in this Court contesting the IRS's determination. Specifically, the Robinsons dispute the IRS's determination of underlying tax liabilities for 2009 and 2012, assert that they have paid all outstanding liabilities in full, and contend that the IRS has not assessed any additional tax within the applicable statute of limitations. (Doc. 1 at 2.) OPINION I. General Legal Principles A. CDP principles If a taxpayer fails to pay any Federal income tax liability after demand, section 6331(a) authorizes the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 IRS to collect the tax by levy on the taxpayer's property. 20 However, the IRS must first issue a final notice of intent to levy and notify the taxpayer of the right to an administrative hearing before the Office of Appeals. Sec. 6330(a) and (b)(1). After receiving such a notice, the taxpayer may request an administrative hearing before IRS Appeals. Sec. 6330(a)(3)(B), (b)(1). At the CDP hearing, the appeals officer must make a determination whether the proposed collection action may proceed. A CDP hearing may, but is not required to, consist of a face-to-face meeting, or it may be conducted by means of one or more written or oral communications between an appeals officer and the taxpayer. 26 C.F.R. sec. 301.6320-1, Q&A-D6. The appeals officer is required to take into consideration 15 several matters: 16 17 18 19 20 21 22 23 24 25 First, the appeals officer must verify that "the requirements of any applicable law or administrative procedure have been met" by IRS personnel. Sec. 6330(c)(3)(A). In view of the mandatory nature of the verification requirement, "this Court will review the Appeals officer's verification under section 6330(c)(1) without regard to whether the taxpayer raised it at the Appeals hearing", see Hoyle v. Commissioner, 131 T.C. 197, 201 (2008); but "[t]he taxpayer must adequately raise the verification issue in his petition in order for this Court 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 to consider it", Norman v. Commissioner, T.C. Memo. 2016- 21 98, *8, n.2, citing Rule 331(b)(4). Second, the appeals officer must consider "any relevant issues relating to the unpaid tax or the proposed levy, including-- (i) appropriate spousal defenses; (ii) challenges to the appropriateness of collection actions; and (iii) offers of collection alternatives" proposed by the taxpayer. See sec. 6330(c)(2)(A); see also sec. 6330(c)(3)(B). The Robinsons did not raise any of these issues nor propose or justify any collection alternative during the CDP hearing, so IRS Appeals did not abuse its discretion in not considering them, see Busche v. Commissioner, T.C. Memo. 2011-285, and the Robinsons do not contend otherwise. Third, pursuant to section 6330(c)(2)(B), the appeals officer must consider a taxpayer's challenge to his underlying tax liability, but only if the taxpayer "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." Like other issues under section 6330(c), underlying tax liability must have been raised with the Appeals officer before we can review that issue in the Tax Court. Giamelli v. Commissioner, 129 T.C. 107, 114 (2007). Whereas we review for abuse of discretion most of the determinations of 1 2 3 4 5 6 7 8 9 10 11 Appeals in a CDP case, see Murphy v. Commissioner, 125 22 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006), we review de novo the determination of the underlying tax liability. Sego v. Commissioner, 114 T.C. 604, 610 (2000). Fourth, the appeals officer must consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary," sec. 6330(c)(3)(C), but the Robinsons do not allege any defect or failure in this 12 regard. 13 14 15 16 17 18 19 20 21 22 23 24 25 The Robinsons' contentions include their assertion that they do not owe the liabilities because the IRS made improper corrections of "mathematical or clerical errors" pursuant to section 6213(b)(1), which we discuss below in part II. Arguably, this could be a failure of verification under section 6330(c)(1) and (c)(3)(A), if Appeals should verify that such errors were made on the return, that those errors were the occasion for the assessment (see sec. 6213(g)(2)), and that notice was given setting forth the error alleged (and an explanation thereof) as required by section 6213(b)(1). However, the contention that one is not liable for a tax because it was not properly assessed could arguably be a "challenge to 1 2 3 4 5 6 7 8 9 the existence or amount of the underlying liability" under 23 section 6330(c)(2)(B)--and that is how the parties in this case have characterized it. The Commissioner agrees that the Robinsons are entitled to challenge their underlying liability in this case. (Ex. 17-J at 4.) We do not see how treating it as a "verification" issue would require a different analysis or yield a different outcome on the facts of this case, so we follow the parties' characterization and address the issue in this case as a 10 liability issue. 11 12 13 14 15 B. Burden of proof As petitioners, the Robinsons bear the burden of proof in this case. See Rule 142(a)(1). The Robinsons make no contention that the burden has shifted for any reason, and we see no basis in the record for such a 16 contention. 17 18 19 20 21 22 23 24 25 C. Mathematical and clerical errors Generally, the IRS may assess income tax reported on a return, sec. 6201(a)(1); and, if it wants to assess more, it must follow deficiency procedures and assess the deficiency determined by the Tax Court, sec. 6215. However, there is an exception relevant here: The IRS may assess (and attempt to collect) tax in an amount greater than the amount reported on a return without first issuing a statutory notice of deficiency to the taxpayer 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 if that greater amount is based on mathematical or 24 clerical errors found on a return. Section 6213(b)(1). "Mathematical or clerical error" is a term of art that comprises a specific list of enumerated errors, such as errors of addition, subtraction, multiplication or division, or an entry on a return of an item which is inconsistent with another entry of another item on the same return. See section 6213(g). To employ this "math error" assessment authority, the IRS must issue a notice to the taxpayer that "sets forth the error alleged and an explanation thereof." Section 6213(b)(1). A taxpayer who has received such a notice-- "may file with the Secretary within 60 days after notice is sent . . . a request for an abatement of any assessment specified in such notice, and upon receipt of such request, the Secretary shall abate the assessment. Any reassessment of the tax with respect to which an abatement is made under this subparagraph shall be subject to the deficiency procedures prescribed by this subchapter." Section 6213(b)(2)(A). We note that "the Secretary shall abate." That provision is mandatory. D. Additions to tax 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Section 6651(a)(2) provides for an addition to 25 tax for failure to timely pay "the amount shown as tax on any return specified in paragraph (1)" unless the taxpayer establishes that the failure was due to reasonable cause and not willful neglect. The addition consists of 0.5% per month of "the amount shown as tax on such return," up to a maximum of 25%. Sec. 6651(a)(2). That is, the addition accrues for no more than 50 months. Section 6651(a)(3) imposes an addition to tax in the case of a failure to pay a tax required to be shown on a return, which was not so shown, within 21 days after the date of the IRS's notice and demand letter. That addition to tax accrues only after notice and demand; and notice and demand can be made only after assessment. See sec. 15 6303(a). 16 17 18 19 20 21 22 23 24 25 The Commissioner bears the burden of production with respect to additions to tax under section 6651(a)(2) and (a)(3). See section 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet this burden, he must produce sufficient evidence that it is appropriate to impose the addition to tax. Once the Commissioner has met his burden, the burden of proof as to reasonable cause or other mitigating factors shifts to the taxpayer. See Higbee v. Commissioner, 116 T.C. at 447. A failure to pay will be considered to be due to reasonable cause to the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 extent that the taxpayer has made a satisfactory showing 26 that he exercised ordinary business care and prudence in providing for payment of his tax liability. 26 C.F.R. sec. 301.6651-1(c). "Whether the elements that constitute 'reasonable cause' are present in a given situation is a question of fact," answered on the basis of the circumstances of the individual case. United States v. Boyle, 469 U.S. 241, 249 n.8 (1985). II. Analysis A. 2009 tax year 1. Underlying liability The Robinsons do not dispute their liability for the $217,000 tax liability they self-reported for 2009 but only for the additional $3,300 that the IRS proposed on account of the mathematical and clerical errors on the 2009 return. We hold that all three of the asserted errors were indeed errors. Correction of the $235 self- employment tax error would now reduce the assessment, in the Robinsons' favor, but they have not argued for such a reduction, nor met the burden of proving that they really did overpay their self-employment tax as their return seems to indicate. We therefore give this self-employment tax error no further consideration and turn to the other 24 two. 25 The other error on their return that was 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 explained in the Form CP24--failure to limit their total 27 itemized deductions pursuant to section 68(b)--resulted in a $5,284 understatement of their taxable income; the IRS was right to correct it; and the IRS duly gave the Robinsons notice of the correction. The portion of tax arising from that correction was properly assessed. The Robinsons did not timely request abatement. The third error on the Robinsons' 2009 return-- its failure to limit their exemptions pursuant to section 151(d)(3), and the resulting $4,868 overstatement of their exemptions--was likewise an error that the IRS rightly spotted, and the tax liability that results from it was a proper potential subject of math error correction by section 6213(b)--except that the IRS did not follow the procedures of section 6213(b)(1). An assessment may be made to correct a math error "[i]f the taxpayer is notified" by a notice that "set[s] forth the error alleged and an explanation thereof." But the IRS did not give notice of correcting the excess exemptions. That error is not on the Notice CP24, and the IRS does not suggest any other document that could constitute such notice. Consequently, the IRS was not allowed to assess the tax arising from the excess exemptions of $4,868. The $3,300 additional assessment was therefore excessive, in an amount that will be 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 determined under Rule 155. 2. Additions to tax 28 The IRS assessed additions to tax for the Robinsons' failure to pay their income taxes for 2009, which the Robinsons contest. a. Tax shown on the return (sec. 6651(a)(2)) The Commissioner alleges, and the Robinsons agree, that about $35,000 of the tax shown on their 2009 return remained outstanding until their last payment of $39,438 on February 25, 2019. Thus, the Commissioner has met his burden of production, and the burden shifts to the Robinsons to prove reasonable cause or other mitigating factors that prevented until February 2019 their payment of the unpaid tax shown on their return. The Robinsons point to the IRS's Notice CP24 on June 21, 2010 as raising reasonable cause for the Robinsons' non-payment of the unpaid liability. They argue that the IRS's notice led them to believe that the IRS accepted their return position and that no further liability was outstanding (but rather that they were due a refund). We are not persuaded. The error in the IRS's Notice CP24 was attributable to the Robinsons' own error on their return. It was the Robinsons who overstated their withholding by $120,000. The IRS's error was in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 accepting the Robinsons' return position (and also giving 29 them credit for the $120,000 of estimated tax payments that they had in fact made). Even if the Robinsons did not perceive their own error and were genuinely confused by the situation, they themselves were the underlying cause of their own confusion, and this hardly constitutes reasonable cause to excuse their non-payment of the liability that they had reported. They knew when they filed the 2009 return that they were not fully paying the tax that they were reporting due; and they must have known (or could have known) that they had not made any subsequent payments. Moreover, the IRS corrected the excess withholding error and issued an SNOD to the Robinsons on February 27, 2012, at which point the Robinsons were made aware of their unpaid liability. After that point in time, the Robinsons lacked any reason for further delaying payment of their original unpaid balance. Even if it were correct (which we reject) that the addition to tax should not have begun accruing until the issuance of the February 2012 SNOD, the addition would have thereafter accrued at 0.5% per month until it reached the maximum 25% 50 months later in April 2016--but the Robinsons did not make any further payment until almost 3 years after that in 25 February 2019. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 And even if we were to assume (contrary to our 30 conclusion) that the Robinsons did not receive adequate notice of the remaining 2009 liability until 8 months after the SNOD--when the IRS issued the October 2012 Notice CP22A demanding payment--the 50-month accrual of the addition to tax that would have started then would have ended in December 2016, still more than two years before the Robinsons finally paid the balance of what they had reported on their return. Professed confusion in June 2010 about a supposed overpayment does not constitute "reasonable cause" for waiting until February 2019 to pay their balance for 2009. The Robinsons were properly assessed for an addition to tax for failure to pay the balance of the tax shown on their return, beginning on the filing date of their return (April 15, 2010) until the 25% maximum had 17 been reached. 18 19 20 21 22 23 24 25 b. Tax not shown on the return (sec. 6651(a)(3)) The Commissioner has likewise shown that the Robinsons did not pay the additional $3,300 that the IRS proposed on account of the mathematical and clerical errors on the 2009 return following the IRS's notice and demand made in the Notice CP22A issued on October 8, 2012. We sustain a portion of that $3,300 liability (yet to be 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 computed). The Commissioner has met his burden of 31 production, and the burden now shifts to the Robinsons to prove reasonable cause for their non-payment. Their argument based on a supposed belief that they were entitled to an overpayment is unavailing as of October 2012, and they offer no other reasonable cause. Therefore, the Robinsons were properly assessed for an addition to tax for the failure to pay the portion of the additional liability arising from mathematical and clerical error that we uphold above (i.e., the amount of tax not shown on their return but assessed and demanded by the IRS) from the date of notice and demand (October 8, 2012) until the 25% maximum had been reached. B. 2012 tax year The Robinsons dispute the entire amount of their 2012 liability assessed by the IRS on account of mathematical or clerical errors on their return. The Robinsons argue that they have paid their entire liability, and that the IRS has not assessed additional liability within the statute of limitations. See section 6501(a). The Robinsons are correct in this regard, though perhaps not for the precise reasons that they suppose. The IRS's July 2013 Notice CP11 (Ex. 27-J, Doc. 82 at 166) "notified" the Robinsons (within the meaning of section 6213(b)(1)) of five mathematical errors on their 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 2012 return, which yielded a greater tax liability than 32 they had reported and which the IRS assessed. This was their occasion to "file . . .a request for an abatement," and the IRS "shall abate the assessment," after which the IRS may make a "reassessment . . . subject to the deficiency procedures." Sec. 6213(b)(2)(A). How should the Robinsons "file . . . a request for an abatement"? The Notice CP11 informed them: "If you contact us in writing within 60 days of the date of this notice, we will reverse the change we made to your account. If you do not contact us within the 60-day period, you will lose your right to appeal our decision before payment of the tax. If you do not contact us within 60 days, the change will not be reversed and you must pay the additional tax." Well within the 60 days, the Robinsons followed this instruction and "contacted [the IRS] in writing" with their letter to the IRS dated July 17, 2013, in which they requested explanations for the IRS's calculations, demanded to know "why our calculations are incorrect", and requested a "stay" of any "interest and penalties [sic]" assessed in relation to the liability. This was indisputably their response to the Notice CP11. The IRS was bound to abate the portion of the assessment that exceeded what the Robinsons had reported, and any subsequent "reassessment" of that liability would have to 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 take place (by deficiency procedures) within the period of 33 limitations of section 6501(a)--generally, "3 years after the return was filed" in April 2013; i.e., it would have to be assessed by April 2016. That deadline is now more than 5 years past; the IRS has not issued an SNOD to commence deficiency procedures for 2012 (see Ex. 31-R); and the IRS is thus evidently barred from reassessing the additional liability for 2012. The Commissioner contends that the Robinsons' letter was not a request for abatement because it did not expressly (in the language of the statute) "request" an "abatement." However, we are satisfied that, even without the statutory terminology, their letter qualifies as a request for abatement. The Robinsons plainly indicated their lack of acquiescence, requested information substantiating the IRS's assertions, demanded to know why their own calculations were not correct, and asked that the related interest and additions to tax be "stayed." The legislative history accompanying the 1976 amendment of section 6213 anticipates a broad interpretation of requests for abatement, indicating that a taxpayer "who receives notice of an assessment for additional tax. . . [may] file a request for an abatement of the assessment stating his disagreement with the amount of the assessment". (That is, he requests an abatement by 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 stating that he "disagree[s] with the . . . assessment.") 34 Or, "[w]here the necessary supporting schedule is omitted from the return . . . [and] the taxpayer supplies the omitted schedule . . . the supplying of the schedule is to be treated as a request for an abatement of the summary assessment". See H.R. Rep. No. 94-658, at 292 (1976), as reprinted in 1976 U.S.C.C.A.N. 2897, 3188, 1976-3 C.B., vol. 2, at 983-984. Additionally, our construction of section 6213(b)(2)(A) is conditioned in this case by the IRS's express communication to the Robinsons. The Notice CP11 required only that the Robinsons "contact [the IRS] in writing within 60 days of the date of [the] notice" before the IRS will "reverse the change[s] . . . made." Here, the IRS informed the taxpayer of the appropriate procedure--saying nothing about "request[ing]" (but rather "contact[ing]"), and saying nothing about "abatement" (but rather "reversing")--and the taxpayer followed the suggested procedure: The Robinsons responded within 9 days 20 of the notice. 21 22 23 24 25 One might wonder whether perhaps the Notice CP11 was insufficiently rigorous--out of step with the agency-- in colloquially saying that the IRS would "reverse the changes" if the Robinsons would simply "contact us in writing". But in fact the notice was fully consistent 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 with--or perhaps even more demanding than--the roughly 35 contemporaneous Internal Revenue Manual, which instructed: An Unsubstantiated Protest occurs when taxpayer does not provide supporting documentation to prove the math error notice is incorrect. If, after explanation, taxpayer does not agree with assessment, explain taxpayer's abatement rights, and the consequences of abatement (the case may be referred to Examination and the refund may be held). Ask whether taxpayer wishes to request abatement. An abatement request may be written or oral. Taxpayer is entitled to abatement even if he/she does not substantiate. After abatement, any assessment must be made pursuant to deficiency procedures. I.R.M. 21.5.4.4.5 (09-06-2013). (The current I.R.M. is materially unchanged. See I.R.M. 21.5.4.5.5 18 (05-27-2021).) 19 20 21 22 23 24 25 The constituency for section 6213(b)(2) is not the Section of Taxation of the American Bar Association; it is the taxpayer who has made an arguable mathematical or clerical error on his return. When the IRS notifies a taxpayer of such an error, it does not provide him with a form or publication telling him how to "request an abatement." That being so, the IRS sensibly advises its 1 2 3 4 5 6 7 8 9 10 11 12 13 employees that it will abate tax even in response to an 36 oral request. Much more should it abate when a taxpayer returns the math error notification and objects in writing. The IRS should have abated in July 2013 the $13,000 portion of the assessed liability that had resulted from correction of mathematical or clerical errors on the Robinsons' 2012 return (and the interest and additions to tax assessed therewith); it was an abuse of discretion for Appeals not to do so; and the IRS must now do so. We therefore cannot sustain the proposed levy as to this portion of the liability, the additions to tax associated with it, or the interest running on it. 14 III. Conclusion 15 16 17 18 19 20 21 22 The Robinsons allege that the Office of Appeals of the IRS abused its discretion in sustaining the notice of proposed levy to collect the Robinsons' unpaid liability for 2009 and 2012, because they argue that they are not liable. We hold that: The Robinsons are liable for the interest and additions to tax that accrued on the unpaid portion of their self-reported liability (i.e., $35,637 of the 23 $217,246). 24 25 The Robinsons are liable for the portion of the $3,318 addition to their 2009 tax liability assessed by 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 IRS that was attributable to the mathematical and 37 clerical error (i.e., excess itemized deductions) for which they properly received notice pursuant to section 6213(b)(2)(A), and for interest and additions to tax under section 6651(a)(3) for failure to pay that portion of the liability. The Robinsons are not liable for the portion of the $3,318 addition to their 2009 tax liability attributable to the math error for which they did not receive notice (failure to limit exemptions) nor for interest and additions to tax accruing on that portion. The Robinsons are not liable for the additional 2012 liability of $13,268 (nor interest and additions to tax) assessed by the IRS that was attributable to mathematical or clerical errors, for which they timely requested abatement, but which the IRS failed to abate. To the extent that the proposed levy at issue in this case authorized collection of amounts as to which we hold that the Robinsons are liable, it was properly sustained. However, to the extent that the proposed levy authorized collection of amounts as to which we hold that the Robinsons are not liable, the Office of Appeals abused its discretion in sustaining the proposed levy. So that we can quantify the Robinsons' liability and non-liability, decision will be entered under Rule 155. 38 This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 3:17 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