TAX COURT OPINION

Case: E.J. Harrison & Sons, Inc.
Docket Number: 29889-09L
Judge: Kroupa
Opinion Type: memo
Filed: 07/05/2011
Pages: 12

T.C. Memo. 2011-157 UNITED STATES TAX COURT E.J. HARRISON & SONS, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 29889-09L, 9961-10. Filed July 5, 2011. Philip G. Panidz, for petitioner. Ae lv K . Ullr ich, f or respondent . MEMORANDUM OPINION KROUPA, Judge: These ,consolidated cases are before the Court to address a collection review matter in reäponse to a Notice of Determination Coñce ning Collection Action(s) Under Section 6320 and/or 63301 (determination notice) and to address All section references are to the Internal Revenue Code, (continued...) SERVED JUL -5 200 - 2 - an interest abatement action únder section 6404 (e) .2 We are asked to decide two issues. The first issue is whether petitioner is liable for failure to pay additions to tax under section 6651(a) (3) of $17,8753 for 1995, $15,903 for 1996 and $6, 082 for 1997 (collectively, the failure to pay additions) .E We.hold petitioner is liable. The second issue is whether respondent's determination to sustain the proposed levy action was an abuse of discretion. We hold it was not . (...continued) and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. 2The Court treated petitioner' s separate petition at docket interest on failure to pay additions, No. 9961-10 as an interest abatement claim under sec. 6404(e) . The Court consolidated the interest abatement case with the collection case under Rule 141(a) . Petitioner asserts that it is entitled to abatement of under sec. 6404 (e) . attributable to his unreasonable error or delay. Sec. 6404 (e) . We may order interest abatement only if the Commissioner abused his-discretion in denyïng a request 6404 (h) . Petitioner' s only argument because respondent erroneously imposed additions to tax. We dold therefore that respondent did not abuse his discretion in denying petitioner's interest abatement request. Sec. is it owes no interest The Commissioner may abate interest to abate interest. 3All monetary amounts are rounded to the nearest dollar. 4 The determination notice was issued for 1995 and 1996. Me have jurisdiction to consider petitioner's Federal liability for 1997, a non-determination year, it affects the collection action for unpaid Federal liabilities for 1995 and 1996. T.C. 14, 28 (2005) . See Freiie v. Commissioner 125 income tax to the extent that tax B ckground This case was submitted fully stipulated under Rule 122. The stipulation tof facts rand the accompanying exhibits are incorporated*bye this re f erence . Petitioner" is a California ÷ corporation with its principal place of business in Ventura, California, at the time .it filed the petitions Petitioner performs waste pickap and disposal services for various municipalities in Ventura and Santa Barbara Counties in California. Respondent audited. petiti'oner' s Federal income tax returns for 1]I995 1996 and 1997. Respondent disallowed a portion of petitioner' s deductions for compensation paid, asserting it was unreasonable and excesside Consequently,trespondent' deteismined defic:.encies iri petitioner's Federah income- tax of . $161,680 ffor 1995 $152,933$för 1996 and $61,628 for 1997. Petitioner timely filed a petition with this Courti seeking redetermination of the deficiencies.. r ' This Court redetermined yetitioner's- deficiencies to my $152,.537 for 1999, $223, 155 for '1996 and $91a, 306 for 199.7 on October 14, 2003 (Firste Decision) . E . Hai-r:isou & Sons;, Inc . v. Commissioner, T.C.A Memo. 2003 239. Petitioner appealed to the U.S. Court of Appeals for the Ninth Circuit i(the-Ninth Circuit) on the same, day this Court entered its First-Decision. Petitioner did not -file a bón under esection 7485, however, to stay assessment and collection - 4 - Without a bond to stay, assessment and collection, respondent issued petitioner a Statutory Notice of Balance Due on March 1, 2004. Petitioner did not make the required payment. iThe next" year, the Ninth Circuit reversed this Court's reasonable compensation findings and remanded the case for further findings. E.J. Harrison & Sons, Inc. v. Commissioner, 138 Fed. Appx. 994 (9th Cir. 2005), affg. in part,.revg. in part and remanding T.C Memo. 2003-239.3 Respondent assessed failure to pay additionsefor 1996 and 1997 in April 2006 (over seven months after the.First Decision was remanded) -based on the deficiencies "determined in this Court's First Decision. This Court, entered its second decision on July 26,- 2006, substantially reducing petitioner's deficiencies to $72,137 for 1995, $63,612 for2 1996 and.$24,327 for 1997 (Second Decision). E.J. Harrison- & Sons, Inc. v. Commissioner, T.C..Memo. 2006-133. Petitioner appealed this Court's Second Decision to the Ninth Circuit. Petitioner again failed to..file a bond- under section 7485 to stay assessment andicollection. The Ninth Circuit a affirmed this Court's Second Decision on May "20, 2008. E.J. Harrison & Sons, Inc. v. Commissioner, 270 Fed. Appx. 667 (9th Cir. 2008), affg. T.C.-Memo. 2006-133. Petitioner made three substantial payments toward.the deficiencies determined in this Court's Second Decision between May 2008 and April 2009. Respondent abated tax and related - 5 - interest for 1993, 1996 and 1997 pursuant to this Court's Second Decision during June of 2009. Respondent also abated failure to pay additions ;foi 1996 and 1997 pursuant to this Court' s Second Decision. Final Ly, -respondent assessed failure to.pay additions for 1995 . The abatements eliminated :petitioner' s 1997 F.ederal income' tax liability Respondent issued petitioner÷acFinal Notice ,of Intent to Levy and Notice of Your. Right to a Hearing, (Levy Notice) af -.er" petitioner again failed to pay its tax liabilities for 1995 - and 1996 . Petitioner timely requested a collection due process (CDP) hearinge - Settleuent-Officer Patrick Lin (SO Lin) scheduled a CDP hearing with pet tioner.: Pet-itionericontested the failure to pay additionso and related, interest at the . CDP hearing . SO Lin - sustained the -pr<pposed levy action- and issued petitioner a determinat ion noir ice . In making his de termination, SO- Lin verified that al . requiremente of applicable law and administrative p ocedure had been met . SO Lin also considered the issues petit:.oner raised and whether the proposed collection action balanced: the need for fficient collect-ion with any! legitimaterconcerns of petiti ner. Petitioner.timely" filed ; petitions with this Court diskuting the failure to pay additions and related integest . - Discussion This òase'involves when the Commissioner can assess failure to pay additions if the 'taxpayer aßpeals the Court's deficiency redetermination without filing a bond but ultimately pays the deficiency amounts when they are finally determined. Respondent first assessed failure to pay additions after the Ninth Circuit reversed in part and remanded the Court's First Decisions Petitioner argues that respondent impfoperly assessed the failuré to pay additions, as the First Decision had been remandediand "it paid the deficienciesswhen the amounts were finally determined-. Respondent argues that the failure to pay additions -werer properly assessed because petitioner failed to file a bond and petitioner received valid notice and demand for payment of tax, which petitioner-ignored. We first, begin with the standard of review in collection review matters. Standard of Review This Court in collection review matters will revied an" Appeals Office determination'de novo where the-underlying tax liability is at issue. Goza v'. Commissioner, 114 T:.C.. 1'76, 181- 182 (2000). A taxpayer's underlying tax liability may be at i issue if the taxpayer did not receive a deficiency notice or edid not otherwise have an opportunity to dispute the tax liability. Sec. 6330(c) (2) (]B). Issues other than the underlying liability concerning the Appeals Office determination will be reviewed for - abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000) ; Goza -v. Commissioner supra at 182. , In reviewing an administrative determination for abuse of : discretion, we must decide whether t le Commissioner exercised .his discretion arbitrarily, capriciously or ìwithout sound basis in fact or law. See Woodral-v: Commissioner, 112 T.C. 219, -23 (1999) . -Petitiorier seither received a deficiency :notice for othe failure to pay additions nor wast g:Lven an oppOrtunity atO diSpute the additions beCore the CDP hearing. Thus,. we review,de novo respondent' s determination that. petitioner is liable for the I failure to pay additions . We review for abuse of discretion all other issues related to respondent' s determination to proceed with the- proposed levy actio against petitioner. Failure To Pay Additions - ? We.now address whether spetitioner is liable for the failure to pay -additions The -Commissioner has the burden of production with respect to additions to tax. . Sec. 7491(c) ; Higbee v. Commissioner, 116 T.C. 438, 446 (2001) . Tormeet this .burden, the Commissioner must produlce su icient evidenåe estab]ishing that it is appfopriate to inpose the additiions to tax See Higbee v. Commissionkr, supra at 446-44 . A failure to pay additio ma-y be imposed ehen a taxpayer fails to pay any tax required to be shown o a return within 21 calendar days of rotiee and emand for payment. Sec. 6651(a) (3). - 8 - The failure to pay addition, however, is not imposede if a taxpayer can show that the failure was due to reasonable cause and not due to willful neglect. Id. Respondent .has met the prima facie requirements for imposing the failurê to pay addition. Respondent, ;relying on Form 4340, Certificate of Assessments, Payments, and Other Specified i Matters, showed that he provided notice and demand-to.petitioner for payment of assessed tax liabilities." Respondent also showed that petitioner failed to pay its tax liabilities within 21 calendar days of notice and demand. Petitioner next argues that the March 1, 2004, anotice nd demand was* invalid because it was based on a, deficiency amount that was redetermined-after appeal of this Court'saFirst Decision. Put simply, petitioner argues respondent can assess and collect sa failure to pay addition only once a deficiency is finally determined (or this Court's decision becomes final). Petitioner's argument, however, lacks merit. "Petitioner argues that respondent may not rely on the - We disagree. A Statutory Notice of Balance Due entry in Ford 4340 to establish that he sent petitioner notice and demand. Statutory Notice of Balance Due entry on Form 4340 is suffiáïent to presumptively establish that notice and demand was sent on the date corresponding to the Statutory:Notice of Balance Duelentry. See United States v. Scott, 290 _F. Supp. 2d 1201, 1207 & n.4 (S.D. Cal. 2003) entry on Form 4340 provides evidence that notice and demand was given). Moreover, petitioner has failed to provide any credible evidence to rebut notice and demand. petitioner notice and demand on March 1, 2004s. (holding that a Statutory Notice of Balance Due the presumption that respondent provided it We find.therefore that respondent isáued Respondent has met the prima' facie requirements for imposing the failure to pay Addition.« Respondent properly issued notice and demand to petitioner for payment of ass ssed tax liabilities. Respondent also showed that petitioner failed to pay its tax a liabilities within 21 calendar days of that notícë and sdemand. The Commission~er need hot await a sfinal deficiency determination~ to assessi tand collect a failures to pay addition. See Burke Ý Cómn ssoner, T.C Memo. 2009-282. - He can assess ;and collect a failure to spay addition after issuing proper notice and demand for paymert of tax. Sec: 6651(a) (3):.*. Notice -and demand may be issued once an assessment of tàx has been made. Sec. 6303. Whe e a taxpayer -appeals a decision of this Court and files a bond, assessmer,t is stayed until the deficiency is -finally deterinined. Sec .a 7485. Here a petitioner did nót file a bond when it appealed this Court' s First Decision. Consequently, respondent was nct stayed frot assessings ta: and issuing notice and demand for paymenn of tax on March 1, 2004. We atherefore hold thät the notice, and dema d was valid and petitioner is liable- for the failure to pay additions unless, petitioner can prove its failure to pay was due to-reasonable' cause and not - willful neglect. We now consider whether petitioner's failure to pay tax was due to reasonable cause and not due to swillfulaneglect,. The - 10 - taxpayer has the burden of proving reasonable cause and the absence of willful neglect. Rule 142(a) ; Higbee v. Commissioner, supra at 447. « Petitioner argues its failure to pay was due to reasonable cause because the tax deficiency stated in the notice and demand was " incorrec t . " Reasonable cause may be found where a taxpayer shows that he or she was.unable to pay the tax or would suffer an undue hardship, despite exercising sordinary care and prudence in providing for payment. See sec. 301.6651-l(c) (1), Proced. & Admin: Regs. Petitioner has not alleged or argued that it was- unable to pay or would, suffer an undue hardship by timely paying its ¯tax liabilities. Moreover, petitioner has failed to a establish reasonable cause. In fact, petitioner argues it- paid the correct amount after the deficiency.amount was finally determined. We decided this argument lacks merit. Petitioner has not met =its burden, and we find petitioner is liable for the failure to pay additions. Abuse of Discretion Regarding Collection Activities We now review whether respondent abused his discretiori in deciding to sustain the proposed, levy action against petitioner to collect- unpaid tax liabilities, for 1995 and 1996. We begirl with general rules that apply to collection actions . The Secretary is required to -furnish the taxpayer with " written notice -of a proposed levy . Sec . 6330 . The taxpayer is 11 - entitled, upon rëquest, to a hearing before the Appeals Office. Sec . r 6330 (b) (1) . The taxpayer may raise at that hearing any relevant issues elating to t e unpaid tax or the proposed colle'ction actior . Sec. ~6330 c) (2) . -Relevant' issues include any appropriate spousal defenses, challenges to theeappropriateness of collection ani yossible'af ernative means of collection such as an installment| agreement o an of f er ine compromise . Sec . 6330 (c) (2) (A) After the hEaring, ' the Appeals officer is/required to. make a determination thét addresses issues the taxpayer raised, verify that all.requirenents of applicable law andradministrative « z procedure have been met and bål'ance 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.a Sec. 6330(c) (3). Petitioner may prove abuse of discretion by showing that respondent exercised his discretion arbitrarily, cápticiously or without sound basis in fact or law. See Giamelli v. dommissioner, 129 T.C. 107, 111 (2007) . The record reflects that SO Lin properly verified that respondent followed the appli able law and administrative procedure. He reviewed respondent's accounti.transcript and concluded that petitioner received all notices and was accorded all rights to whiah it was entitled regarding the assessments. Additionally, SO Lin considered all relevant issues and defenses. - 12 - Petitioner did not, provide any collection alternatives for SO Lin's consideration. Finally,, the srecord refalects that SO. Lin properly balanced the need for efficient collection of taxes with petitioner' s legitimate concern that any collection be no more intrusive than necessary. Petitioner argues that respondent- abused his discreti,on because respondent improperly assessed the failure to pay additions. We have already found that respondent properly assessed them. We therefore conclude that SO Lin did not abuse his discretion in sustaining the levy action to collect . 4 petitioner's 1995 and,1996 tax. We have considered all arguments made in reaching our decision, and, to the s extent snot mentioned, we conclude that they are moot, irrelevant, or without merit. To reflect the foregoing, Decisions will be entered for respondent.