TAX COURT OPINION

Case: Synchronized Design & Development
Docket Number: 29568-08S
Judge: Colvin
Opinion Type: bench
Filed: 03/16/2010
Pages: 10

"-A L~') ~' V3 &Vx~j\ 6-P - O-A~W UNITED STATES TAX COURT WASHINGTON , DC 2021 7 SYNCHRONIZED DESIGN & DEVELOPMENT, Petitioner, v . ) Docket No . 29568-08 S . COMMISSIONER OF INTERNAL REVENUE, ) Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Special Trial Judge Robert N . Armen , Jr . at Detroit, Michigan, on March 3, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, a Decision will be entered for respondent . (Signed) Robert N. Armen, Jr. Special Trial Judg e Dated : Washington, D .C . March 16, 2010 SERVED MAR 18 201 0 n 4 1 Bench Opinion by Special Trial Judge Robert N . Armen 2 March 3, 201 0 Synchronized Design & Development v . Commissione r THE COURT HAS DECIDED TO RENDER ORAL 3 6 7 FINDINGS OF FACT AND OPINION IN THIS CASE, AND TH E 8 FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT 9 AND OPINION . THE ORAL FINDINGS OF FACT AND OPINIO N 10 SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER 11 CASE . 12 II . 13 This proceeding was heard as a Small Tax 14 Case pursuant to the provisions of section 7463(f)(2) 15 of the Internal Revenue Code of 1986, as amended, and 16 Rules 170 through 175 of the Tax Court Rules o f 17 Practice and Procedure . See and compare Rules 330 18 through 334 of the Tax Court Rules of Practice and 19 Procedure . 20 III . 21 This bench opinion is made pursuant to the 22 authority granted by section 7459(b) of the Internal 23 Revenue Code of 1986, as amended, and Rule 152 of the 24 Tax Court Rules of Practice and Procedure . 25 Hereinafter in this bench opinion, and Heritage Reporting Corporatio n (202) 628-488 8 a 1 unless otherwise indicated, all section numbers refer 2 to the Internal Revenue Code of 1986, as amended, and 3 all Rule numbers refer to the Tax Court Rules o f 3 4 Practice and Procedure . 5 IV . 6 Synchronized Design & Development, a defunct 7 Michigan corporation, appeared by its forme r 8 vice-president, William D . Zack, and by its forme r 9 president, Zuzanna Spencer . (Mr . Zack and Ms . Spencer 10 are married to one another ; as president, Ms . Spencer 11 appears to have been a mere figurehead, as the 12 corporation was run and controlled solely by Mr . 13 Zack .) Mindy Y . Chou and A . Gary Begun appeared on 14 behalf of respondent . 15 V . 16 This case represents an appeal by petitioner 17 from the determination of respondent's Office o f 18 Appeals regarding a proposed levy to collec t 19 petitioner's outstanding employment tax liabilities 20 for the 12 calendar quarters of 2003, 2004, and 2005, 21 the taxable periods in issue . Respondent's office of 22 Appeals did not sustain the proposed levy . 23 Nevertheless, petitioner appealed that determination . 24 The issue for decision is whether petitioner 25 may challenge the existence or amount of th e Heritage Reporting Corporation (202) 628-4888 J 4 1 underlying employment tax liabilities . 2 VI . 3 None of the facts have been stipulated . 4 Petitioner was formerly a Michiga n 5 corporation with its principal office or place o f 6 business in the State of Michigan . At the time that 7 the petition was filed in December 2008, petitione r 8 was, and had been for some time, defunct . The record 9 does not disclose whether it was ever formall y 10 dissolved . 11 During an examination that took place in or 12 about 2006, respondent's agent proposed adjustments to 13 petitioner's FICA and Medicare taxes as follows : 14 Approximately $2,814 for each of the 4 calenda r 15 quarters of 2003 ; approximately $809 for each of the 4 16 calendar quarters of 2004 ; and $930 .85 for each of the 17 4 calendar quarters of 2005 . 18 Petitioner did not agree with thes e 19 adjustments and protested to respondent's office of 20 Appeals . Bonnie Boak, an Appeals officer i n 21 respondent's Appeals Office in Detroit, Michigan 22 considered the appeal . Petitioner, through its 23 representative, participated in the appeal . 24 In a multi-page Appeals Transmittal and Case 25 Memo, Appeals Officer Boak summarized the issue under Heritage Reporting Corporation (202) 628-4888 J 5 1 consideration and her recommendation as follows : 2 "William D . Zack was vice President and 170 3 shareholder of Synchronized Design and Development , 4 Inc . in the years at issue . He performed services for 5 the corporation ; he did not take any wages . He too k 6 money out of the company on a regular basis, and 7 called the money loan repayments . 8 "The examiner recharacterized these payments 9 as wages . 10 "Did Mr . Zack receive wages that are subject 11 to Social Security and Medicare taxes, or was th e 12 money repayment of loans ? 13 "Mr . Zack performed services for the 14 company ; he could not document any loans or an y 15 sources of income to make such loans ; therefore, I 16 recommend that the Government sustain th e 17 recharacterization of the payments as wages . " 18 In November 2007, Ms . Boak's Team Manager, 19 Leonard Bartold of the Detroit Appeals Office , 20 approved Ms . Boak's recommendation . By letter dated 21 December 7, 2007, Mr . Bartold notified Synchronized 22 Design & Development as follows : 23 "During the 2003, 2004 and 2005 taxable 24 years, Mr . William D . Zack performed services fo r 25 Synchronized Design and Development Incorporated . Mr Heritage Reporting Corporatio n (202) 628-4888 6 1 Zack took money out of the corporation on a regular 2 basis ; he called these monies loan repayments . Th e 3 agent recharacterized these monies as wages . Mr . Zack 4 has not documented any loans or any sources of income ; 5 therefore, Appeals is sustaining the characterization 6 of monies as wages . The employment taxes from th e 7 characterization of monies will be assessed . 8 "You may seek judicial review of the 9 assessment by filing a refund suit in district court 10 or in the United States Court of Federal Claims . 11 Please note that before a refund suit can be filed, 12 you must pay to the IRS the amount of employment tax 13 that relates to one worker for one tax period and file 14 a claim for refund with the IRS . If the claim fo r 15 refund is denied, you may file a refund suit i n 16 district court or the United States Court of Federal 17 Claims and challenge the employment tax assessment ." 18 Following the culmination of the appeal to 19 the Detroit Appeals Office, the employment taxes in 20 question, together with statutory interest, wer e 21 assessed by respondent on December 31, 2007 . ( A 22 failure to pay tax penalty was also assessed for the 23 final 3 calendar quarters of 2005, which were th e 24 quarters for which petitioner had failed to file any 25 employment tax return .) Also on December 31, 2007, Heritage Reporting Corporatio n (202) 628-4888 7 1 respondent sent petitioner a statutory notice of 2 balance due, i .e ., notice and demand for payment 3 within the meaning of section 6303(a), for each of the 4 12 calendar quarters in issue . Petitioner did not pay 5 the amounts owing . 6 Petitioner never sought judicial review by 7 commencing a refund action in either a district court 8 or in the United States Court of Federal Claims . 9 On or about May 6, 2008, respondent' s 10 collection division sent petitioner a final notice of 11 intent to levy in respect of petitioner's outstanding 12 employment tax liabilities for the 12 calenda r 13 quarters in issue . Petitioner timely filed a Form 14 12153 requesting an administrative hearing . The 15 hearing was conducted, and reviewed, by members o f 16 respondent's office of Appeals in Cleveland, Ohio, and 17 not by members of respondent's Office of Appeals, i n 18 Detroit, Michigan . See sec . 6330(b)(3), regarding the 19 requirement of an impartial officer having no prio r 20 involvement with respect to the unpaid tax in issue . 21 Ultimately, respondent's Cleveland Appeals 22 Office sent petitioner a Notice of Determination dated 23 November 14, 2008 . The Summary of Determinatio n 24 states simply : "The proposed levy action is not 25 sustained ." (Emphasis added . ) Heritage Reporting Corporation (202) 628-4888 8 1 The Attachment to the Notice o f 2 Determination, which was prepared by the settlement 3 officer who conducted the administrative hearing , 4 provides elaboration . The Attachment states tha t 5 "your account should be in currently not collectible 6 status (CNC) because the corporation is no longe r operating and there are no assets to aid collection ." In this regard , the Attachment also states that "your corporation is defunct ", that "there was minima l 10 business activity in 2006 and no activity in 2007", 11 that "the corporation does not have any assets and is 12 currently not operating", and that the 2007 corporate 13 income tax return (Form 1120 series) was the "final 14 return" . 15 Further, the Attachment states tha t 16 petitioner's representative had asked for a collection 17 alternative . There is nothing in the record t o 18 suggest that the collection alternative requested was 19 other than CNC . In any event, a collection 20 alternative such as an installment payment agreement 21 or an offer-in-compromise would have required th e 22 payment of money, whereas CNC did not . 23 Finally as relevant herein, the Attachment 24 states that petitioner's representative had sought to 25 "raise the liability as an issue .'! However, th e Heritage Reporting Corporation (202) 628-4888 9 1 Attachment makes plain that Appeals would not consider 2 such a challenge, presumably because petitione r 3 already had an opportunity to do so, and had in fact 4 taken advantage of that opportunity . 5 Having received the November 14, 2008 Notice 6 of Determination, petitioner timely filed a petitio n 7 with this Court . See sec . 6330(d) . In the petition, 8 and throughout this proceeding, petitioner seeks only 9 to challenge the underlying liabilities for the 1 2 10 calendar quarters in issue . 11 VII . 12 Under section 6330(c)(2)(B), a taxpayer may 13 dispute the underlying liability in a collectio n 14 review proceeding "if the person did not receive any 15 statutory notice of deficiency for such tax liability 16 or did not otherwise have an opportunity to dispute 17 such tax liability ." The Commissioner interpret s 18 "otherwise have an opportunity to dispute such tax 19 liability" to include a,conference with th e 20 Commissioner's Office of Appeals . Sec . 21 301 .6330-1(e)(3), Q&A-E2, Proced . & Admin . Regs . In 22 Lewis v . Commissioner , 128 T .C . 48 (2007), we held 23 that such section was a reasonable interpretation of 24 section 6330(c)(2)(B) and that the regulation wa s 25 therefore valid . Heritage Reporting Corporation (202) 628-4888 . 1 0 1 In the instant case, petitioner had an 2 opportunity to dispute its employment tax liabilities 3 with respondent's Detroit Appeals office and did in 4 fact do so . Accordingly, petitioner may not dispute 5 its employment tax liabilities again in a collection 6 review hearing or before this Court . Sec . 7 6330(c)(2)(B) ; sec . 301 .6330-1(e)(3), Q&A-E2, Proced . 8 & Admin . Regs . ; Estate of Sblendorio v . Commissioner , 9 T .C . Memo . 2007-94 . 10 VIII . 11 In view of the foregoing, we shall enter a 12 Decision confirming the November 14, 2008 Notice of 13 Determination, upon which notice this case is based, 14 that the proposed levy for the 12 calendar quarters in 15 issue is NOT sustained . 16 IX . 17 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF 18 FACT AND OPINION IN THIS CASE . 19 (Whereupon, at 10 :20 a .m ., the bench opinion 20 in the above-entitled matter was concluded . ) 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888