TAX COURT OPINION

Case: Bradford G. Brown
Docket Number: 28708-14L
Judge: Gustafson
Opinion Type: bench
Filed: 12/21/2015
Pages: 16

CZ UNITED STATES TAX COURT WASHINGTON, DC 20217 BRADFORD G. BROWN, Petitioner, v. ) ) ) ) Docket No. 28708-14 L. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceeding at Atlanta, Georgia, on December 1, 2015, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge David Gustafson at Atlanta, Georgia, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, an appropriate order will be issued, granting respondent's (the IRS's) motion for partial summary judgment, and remanding this case to IRS Appeals to conduct a supplemental hearing at which it shall fulfill the verification requirements of section 6330(c)(1). (Signed) David Gustafson Judge Dated: Washington, D.C. December 21, 2015 SERVED Dec 21 2015 Capital Reporting Company 3 Bench Opinion by Judge David Gustafson December 1, 2015 Bradford G. Brown v. Commissioner Docket No. 28708-14L The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. This "collection due process" ("CDP") case is an appeal by petitioner Bradford G. Brown pursuant to 26 U.S.C. 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 Dr. Brown's unpaid income tax for the three years 1996, 1997, and 2003. Respondent (the Commissioner of the IRS) moved for partial summary judgment, and a hearing on that 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 motion was held November 30, 2015. Dr. Brown 23 24 25 represented himself at the hearing, and Brianna B. Taylor represented the Commissioner. We will grant the Commissioner's motion in part, but we will remand 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 the case to IRS Appeals to comply with the verification requirements of section 6330(c)(1). There is no dispute as to the following facts: BACKGROUND Tax liabilities Dr. Brown and the IRS have disputed his tax liabilities for many years. Dr. Brown was convicted of tax evasion for the years 1994 and 1995. For the three tax years at issue here--1996, 1997, and 2003-- Dr. Brown filed income tax returns reporting liabilities, and the IRS assessed the tax accordingly. Dr. Brown did not pay the self-reported tax liabilities for those three years. Dr. Brown's bankruptcy proceedings On January 31, 2005, Dr. Brown filed a petition for bankruptcy protection in the United States Bankruptcy Court for the Middle District of Georgia (No. 05-30144). The case was subsequently converted to a chapter 7 bankruptcy on December 15, 2005. The 20 Court takes judicial notice, under Fed. R. Evidence 21 201, of the bankruptcy docket (which is attached as 22 Exhibit E to the Commissioner's motion) and of 23 24 25 filings in Dr. Brown's bankruptcy proceedings (which are publicly available via PACER). In those proceedings, the IRS filed proofs of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 claim for Dr. Brown's unpaid tax liabilities from 1993 through 2004. The IRS attached to its motion, as 3 Exhibit H, the bankruptcy court claims register and, 5 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 as Exhibits I and J, the.proof of claim forms it filed in Dr. Brown's bankruptcy proceedings showing I income tax claims totaling $3,660,955. This included a secured claim in the amount of $791,334, a priority claim of $4,721, and a general unsecured claim of $2,864,900. On January 12, 2007, Dr. Brown filed an objection to the IRS's proof of claim. See No. 05- 30144, Doc. 248. Dr. Brown objected to the IRS's proof of claim because he disputed his criminal tax evasion conviction for tax years 1994 and 1995. He claimed that based on amended (but submitted and unprocessed) returns, he did not owe any tax for years 1994 and 1995. Although the IRS's claim was based on tax years 1993 through 2004, Dr. Brown's objection focused solely on his contention that "Defendant's true tax liability was zero for both years, 1994 and 1995", see Doc. 248, two years that are not at issue here. He did not challenge his liability as to any of the other years, including those at issue in the present case, 1996, 1997, or 2003. On March 9, 2007, after a hearing on the IRS's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 claim and Dr. Brown's objection, the bankruptcy court entered an order overruling Dr. Brown's claim objection. See Doc. 355. The IRS has attached, as Exhibit K to its 5 motion, the chapter 7 trustee's adversary proceeding 6 7 8 9 10 11 complaint, filed on February 2, 2007, against the IRS to determine the extent and validity of the IRS's lien and claim (No. 07-3007 M.D. Ga). After several years of negotiations, the chapter 7 trustee and the IRS entered into a settlement to resolve the adversary proceeding. The IRS has also attached as 12 Exhibit L to its motion, the chapter 7 trustee's 13 October 19, 2010 motion to compromise controversy 14 15 (No. 05-30144, Doc. 861) that memorialized the parties' settlement of the IRS's claim. Through the 16 motion to compromise controversy, the parties agreed 17 18 19 20 21 22 23 24 25 to reduce the IRS's claim by $1,244,866 and the IRS filed an amended proof of claim in the amount of $2,416,089. The amended proof of claim included a secured claim in the amount of $454,156, a priority claim in the amount of zero, and a general unsecured claim in the amount of $1,961,933. The motion to compromise controversy noted that Dr. Brown refused to cooperate with the chapter 7 trustee or provide him with records or evidence to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 establish legal tax deductions or Dr. Brown's position that he did not owe any taxes. It nonetheless provided that if Dr. Brown objected to the compromise and "produces credible, admissible evidence that he is entitled to deductions in addition to the deductions the USA/IRS has accepted to reduce the Debtor's tax liability to the amounts set forth in the attached letter, the USA/IRS will recalculate the claim. ... The Debtor will have one final opportunity to provide the evidence that he has previously been unable to produce." No. 05-30144, Doc. 861 at ¶ 5. On November 9, 2010, Dr. Brown filed a response 14 with opposition to the motion to compromise 15 16 17 18 19 20 21 22 23 24 25 controversy (Doc. 863). On December 7, 2010, the bankruptcy court held a hearing on the motion to compromise controversy and overruled Dr. Brown's objections to the settlement. The IRS has attached as Exhibit A to its reply, the December 7, 2010, hearing transcript. The transcript reveals that Dr. Brown did not attend the hearing, because he was incarcerated. At the hearing, the bankruptcy court ruled that the evidence that Dr. Brown relied on throughout the bankruptcy case to contest the IRS's claim had little 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 value in challenging the reasonableness of the settlement agreement. The bankruptcy court approved the motion to compromise controversy in an order dated December 8, 2010. The bankruptcy docket for the lead bankruptcy proceeding (No. 05-30144) shows that between February 2005 through December 2012, Dr. Brown filed over 80 documents in the case seeking to protect his interests and challenge creditors' claims. 10 Similarly, once the trustee commenced the adversary 11 proceeding against the IRS, Dr. Brown filed several 12 motions seeking to challenge his tax liability. Dr. 13 14 15 16 17 18 19 20 21 Brown's motions urged the bankruptcy court to modify his tax liabilities and deductions for the pertinent years upon which the IRS's claim was based. Each of these motions was denied by the bankruptcy court. The chapter 7 trustee's final account reflects that, as agreed to in the settlement, the IRS's secured claim of $454,156 was paid in full (see No. 05-30144, Doc. 931, at 5) and that the IRS's general unsecured claim of $1,961,933 was partially satisfied 22 with a payment of $726,843 (see Doc. 931, at 12). 23 24 25 However, the IRS account transcripts for Dr. Brown's 1996, 1997, and 2003 income tax liabilities do not appear to reflect any credits for these payments. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 CDP request On December 2, 2013, the IRS issued to Dr. Brown a Letter 1058, "Notice of Intent to Levy and Your 4 Right to Hearing", proposing to collect by levy his 5 6 7 8 unpaid income tax liabilities for the 1996, 1997, and 2003 tax years. Although it is not in the record, Dr. Brown apparently timely submitted to the IRS a request for a CDP hearing. During a phone conference 9 with IRS Appeals, the only issue Dr. Brown proposed 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to discuss was his underlying liability. IRS Appeals advised him that he previously had an opportunity to contest his underlying liability during his bankruptcy proceedings. After the phone conference, IRS Appeals issued a letter to Dr. Brown reiterating its position that he already had a prior opportunity to contest his underlying liability and that IRS Appeals needed to proceed with his CDP hearing. The letter advised Dr. Brown that if he wished to submit a collection alternative, he needed to provide IRS Appeals with information they previously requested (i.e., a completed Form 433A, "Collection Information Statement", signed tax returns for tax years 2007 through 2013, and proof of estimated tax payments for the then-current year (2014)). IRS Appeals did not receive from Dr. Brown the Form 433A or any of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 unfiled tax returns. Consequently, IRS Appeals determined that it could not place Dr. Brown's accounts in currently-not-collectible status or implement a collection alternative because Dr. Brown did not submit the required financial information. On Novemb'er 14, 2014, IRS Appeals issued its "Notice of Determination" sustaining the levy notice. On December 2, 2014, Dr. Brown filed his petition in this Court. 10 Court proceedings 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The Commissioner moved for partial summary judgment, and Dr. Brown opposed. The Court ordered that the motion be heard on November 30, 2015. Respondent filed his pretrial memorandum ("PTM") on November 16, 2015, and it included the following statements: "[W]hat factually and legally occurred in the bankruptcy case is a rather thorny issue that respondent is still trying to work out. * * * It is unclear why * * * [the IRS did not abate the portion of Dr. Brown's liability that exceeded the amount agreed upon by the trustee and the IRS] at the conclusion of Mr. Brown's bankruptcy proceeding. Mr. Brown's tax liabilities likely should have been abated to reflect the finalized 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 settlement when the IRS Insolvency Unit closed its case. * * * The IRS Insolvency Unit has not yet made a determination regarding dischargeability in this case. [PTM at 10.] * * * Respondent believes that the balances due for one or more of the tax periods at issue in this case may go away. If so, those periods can be dismissed for mootness. If any issues are remaining after that, a remand to Appeals might be appropriate to attempt to resolve those issues. [PTM at 11.]" The Court's order of November 17, 2015, ordered that "respondent shall be prepared [at the hearing] to show IRS Appeals' compliance with the 'verification' requirement of section 6330(c)(1)", in view of the IRS's admitted failure to credit Dr. Brown's accounts 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 with credits for payments made and to discharge 18 19 20 21 22 23 24 25 liabilities in accordance with the outcome of the bankruptcy case. I. Basic legal principles OPINION Now before us is a motion for partial summary judgment under Rule 121, as to which our responsibility is not to find facts but rather to determine the presence or absence of a dispute of 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 12 1 material fact. 2 3 4 5 6 7 8 9 10 11 12 13 14 We make that determination here in the context of a CDP case. If a taxpayer fails to pay any Federal income tax liability after demand, section 6331(a) authorizes the IRS to collect the tax by levy on the taxpayer's property. 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 IRS Appeals. Secs. 6320(a), 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, IRS Appeals must make a determination whether the proposed collection action 15 may proceed. In so doing, the appeals officer is 16 17 18 19 20 21 22 23 24 25 required to do several things: First, IRS Appeals must verify that the requirements of any applicable law and administrative procedure have been met by IRS personnel. See 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". Hoyle v. Commissioner, 131 T.C. 197, 202 (2008). We discuss 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 this requirement below in part IV, in connection with the remand of this case to IRS Appeals for a supplemental CDP hearing. Second, pursuant to section 6330(c)(2)(B), IRS Appeals must consider a taxpayer's challenge to his underlying tax liability, but only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportun- ity to dispute such tax liability." This is the issue as to which the Commissioner filed his motion for partial summary judgment, which we discuss below in part III. Third, the appeals officer must consider any collection alternatives proposed by the taxpayer. See sec. 6330(c)(3)(B), citing sec. 6330(c)(2)). Dr. Brown did not propose or justify any collection alternative during the CDP hearing, so IRS Appeals did not abuse its discretion in not considering one, see Busche v. Commissioner, T.C. Memo. 2011-285, and Dr. Brown does not seem to contend otherwise. Fourth, IRS Appeals must consider "whether any proposed collection action balances the need for the 23 efficient collection of taxes with the legitimate 24 25 concern of the person that any collection action be no more intrusive than necessary", sec. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 6330(c)(3)(C), but Dr. Brown does not allege any defect or failure in this regard. III. The Commissioner's motion for partial summary judgment As we stated above, IRS Appeals must consider a taxpayer's challenge to his underlying tax liability only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." A bankruptcy case where the IRS files a proof of claim constitutes a prior opportunity under section 6330(c) (2) (B), even if the debtor fails to object to the claim, see Kendricks v. Commissioner, 124 T.C. 69, 77 (2005); Sabath v. Commissioner, T.C. Memo. 2005-222; but in this instance Dr. Brown did object. The IRS filed a proof of claim in Dr. Brown's bankruptcy proceedings that included the three years at issue in this case, 1996, 1997 and 2003. Dr. Brown objected to the IRS's claim and filed several motions requesting the bankruptcy court to modify his tax liability and challenging the reasonableness of the settlement entered into between the chapter 7 trustee and the IRS to resolve the IRS's claim. Dr. Brown is therefore precluded from 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 challenging, in his CDP hearing and in our review of it, his underlying liability for the taxes and penalties in the years at issue, which IRS Appeals previously considered. Moreover, to the extent Dr. Brown is attempting to challenge here his liabilities for the pre-suit years 1994 and 1995, we currently lack jurisdiction over those years, since he has not shown or even alleged the IRS's issuance of any collection notice for those years, any request by him for a CDP hearing for those years, any notice of determination issued by IRS Appeals for those years, or the filing of any timely petition in this Court for those years. Consequently, the Commissioner's motion for 15 partial summary judgment is well-founded, and we will 16 17 18 19 20 21 22 23 24 25 grant it. IV. Verification As we noted above, IRS Appeals' first obligation in the CDP hearing is to verify that the requirements of any applicable law and administrative procedure have been met by IRS personnel. See sec. 6330(c)(3) (A). The IRS's pretrial memorandum acknowledged lapses (i.e., failure to abate tax consistent with the Government's agreement with the bankruptcy trustee, failure to credit Dr. Brown's 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 16 accounts with payments made in the bankruptcy, and failure to discharge liabilities consistent with the outcome of the bankruptcy) that appear to constitute failures of "verification"; and at the hearing in this case the IRS called a witness who candidly and helpfully described the actions that should have been taken at the closing of the bankruptcy case but were not. (See Ex. 1-R.) The Commissioner does not object to our remanding the case so that these actions (apparently now underway administratively) can be accomplished by the IRS and then verified by IRS Appeals. We therefore find that there was inadequate verification of the fulfillment of the requirements of applicable law and administrative procedure, and we will remand the case to IRS Appeals so that this verification can be accomplished. CONCLUSION The Commissioner has established that there is no genuine dispute of material fact that Dr. Brown had a prior opportunity to dispute his liability (for purposes of section 6330(c)(2) (B)) during his bankruptcy proceedings and that, therefore, IRS Appeals did not abuse its discretion when it declined to entertain Mr. Brown's challenge to his underlying liability. However, the admitted facts reflect a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 17 failure of verification under section 6330(c)(1), and we will therefore remand the case to IRS Appeals to properly verify the fulfillment of the requirements of applicable law and administrative procedure. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:20 a.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 25 866.488.DEPO www.CapitalReportingCompany.com