TAX COURT OPINION

Case: Kenneth R. Lindberg
Docket Number: 5421-08L
Judge: Morrison
Opinion Type: memo
Filed: 04/06/2010
Pages: 16

%r T .C . Memo . 2010-6 7 UNITED STATES TAX COUR T KENNETH R . LINDBERG, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 5421-08L . Filed April 6, 2010 . Kenneth R . Lindberg, pro se . Michael A . Pesavento , for respondent . MEMORANDUM OPINIO N MORRISON, Judge : This case is before this Court on respondent Internal Revenue Service's (IRS) motion for summary judgment and to impose a penalty under section 6673 . The issue is whether to sustain the IRS's. determination to collect by mean s AP ° 6 2010 requested a full refund of that amount ($5,315 .56) in the appropriate box . Lindberg did not attach a Form W-2 to his return . Instead, he attached IRS Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions , Annuities, Retirement or Profit-Sharing Plans, IRAs, . Insurance Contracts, etc .3 In item 7 of the Form 4852, he listed $1,945 .51 as Federal income tax withheld, $861 .04 as State tax withheld, $2,731 .28 as Social Security tax withheld, and $638 .77 as Medicare tax withheld (for a total of $6,176 .60) . Those amounts were consistent with the amounts reported on the actual Form W-2 and other documents his employer submitted to the IRS . He reported zero in total wages, . zero in wages subject to Social Security tax, and zero in wages subject to Medicare tax in item 7 . Lindberg answered two questions as follows : 8 . How did you determine the ., amounts in item 7 above ? 2( . . .continued) types of Federal taxes : The income tax, the Social Security tax, and the Medicare tax . 3According to the instructions for Form 4852, the form serves as a substitute for Forms W-2 and 1099-R and is to be completed by taxpayers when (a) their employer or payer does not give them a Form W-2 or Form 1099-R, or (b) when an employer or payer has issued an incorrect Form W-2 or Form 1099-R . We surmise from Lindberg's answer to question 9 that Lindberg did receive a Form W-2 from his employer, but he believes it was incorrect because it failed to report "wages as defined in 3401(a) and 3121(a) ." - 5 - penalty was sent to his last known address .4 He stated that no assessment had been made . He requested (i) proof that the IRS had verified that the requirements of all applicable law and procedure had been met, (ii) proof that a notice of deficiency and notice and demand for payment of the penalty had been sent, and (iii) "assessment documentation," including a Form 4340, Certificate of Assessments, Payments, and Other, Specified Matters . He stated that he challenged the existence and amount of the frivolous-return penalty in his collection due process (CDP) hearing under section 6330(c)(2)(B) because he did not receive a notice of deficiency and thus had not yet had an opportunity to make such a-challenge . He demanded to know why the IRS considered his return to be frivolous . He denied that the requirements for imposing a frivolous-return penalty had been met . He also suggested tha t I may withdraw any Constitutional, moral, . political, religious or conscientious arguments that I have heretofore made, if any . Further, I also may withdraw any legal positions which are classified and published by the IRS as "frivolous or groundless," if any . This includes any arguments that the courts have determined are frivolous or groundless, or published on the IRS website . He argued that the proposed collection action (i .e ., the levy) "does not balance with the needs for the .Service to collect the tax and, considering the circumstances, it is an intrusive action 'As discussed below, a notice of,deficiency is not required before the IRS can assess a sec . 6702 penalty . Sec . 6703(b) . Lindberg responded on November 6, 2007, with a .letter rejecting the invitation to a telephone hearing and requesting instead a face-to-face hearing in Greenville, South Carolina, or the "nearest big city" to him .' He denied that he was raising frivolous arguments and stated that he withdrew any such arguments . He claimed that at a face-to-face hearing he wished to discuss "procedural irregularities, liability for penalties, etc ., plus collection alternatives" and requested "the necessary forms to effect this, including the financial statement form . " The IRS transferred his case from Fresno, California, to St . Paul, Minnesota, a city near Lindberg's residence, on November 19, 2007 . The Appeals officer assigned to the case in St . Paul sent Lindberg a letter on December 20,'2007, to schedule .a CDP hearing by telephone on January 16, 2008 . The Appeals officer explained that the Appeals office does not offer face-to-face hearings to those advancing only frivolous arguments or to those requesting collection alternatives for which they do not qualify . He requested that Lindberg submit copies of all of his unfiled returns from 1999 to 2006 and provide financial information on Form 433-A, Collection Information Statement for Wage Earners an d 6( . . continued ) collection alternatives for which he or she does not qualify . 'Lindberg . does, not explain nor does the record-explain why, he requested Greenville, South Carolina, as a possible location for a face-to-face hearing . returns and forms, and .(2) this appears to be an ex parte request for private and personal information . The Appeals officer sent a response dated January 4, 2008, in which he explained : I've read and considered your letter dated 01/02/2008 . In short, you are not entitled to a face to face hearing because you decline to take the steps necessary to qualify for one . You decline to file your delinquent 1040 tax returns or complete a form 433-A . Without compliance and financial disclosure, you don't qualify for the alternatives to collection action that you raised . 110.1 hearing to taxpayers who don't qualify for the relief they request . * * * Appeals doesn't grant a face to face Furthermore, your statement [that you withdraw your legal positions classified as frivolous] does not constitute you actually abandoning your frivolous tax arguments . The first step to withdrawing from a frivolous position . against filing and paying Federal taxes would be to file your delinquent tax returns . The second step, assuming that you couldn't full pay the balances due on your 1999-2006 delinquent returns, would be to submit the form .433-A financial I requested . The Appeals officer also asserted that he was not required to provide copies of each document he used to verify that the requirements of any applicable law or administrative procedure were met . He stated that he would mail Lindberg a transcript of account" once it was available, and he mentioned that Lindber g "Lindberg had not raised any collection alternatives . in his prior correspondence but claimed in his letter of Jam . 2, 2008, that he would do so if offered a face-to-face hearing . 11A transcript of account is an IRS record for a particular taxpayer which reveals certain data, including whether the taxpayer filed a return for a given year, and if so, on wha t (continued . . .) - 11 - administrative procedure had been met pursuant to section 6330(c)(1) . He also stated that he had determined that the proposed collection action (i .e ., levy) appropriately balanced the efficient collection of taxes with Lindberg's legitimate concern that the collection . action be no more intrusive than necessary pursuant to section 6330(c)(3)(C) . He reiterated why he could not grant a face-to-face hearing and noted that Lindberg had failed to participate, in the ,January 16, 2008, telephone hearing or to reschedule it . He therefore sustained the propose d levy action . On March 3, 2008, Lindberg timely petitioned this Court . his petition, he stated that he was not required to "[fill] out forms'? and [submit] a payment schedule" to the IRS and that he had a right to a face-to-face hearing under the Code and th e regulations . He requested no specific relief . The IRS filed a motion for summary judgment and to impose a section-6673 penalty on January 1, 2009 . On February 9, 2009, Lindberg filed a n objection to the motion for summary judgment and to impose the penalty . In its motion the IRS argues that Lindberg's return, whic h contained zeros in all gross income boxes .except for one item of taxable interest, is an essentially "zero income return which o n 12Lindberg did not clarify whether the forms he referred to included past-due income tax returns or Form 433-A, the collection information statement, or both . - 13 - reporting of the $7 of taxable interest does not mitigate the frivolous nature of his return . The IRS argues that (i) taxpayers who raise frivolous arguments in their request for a hearing are not entitled to face-to-face collection hearings and that (ii) taxpayers who do not file past-due returns'and submit financial information do not qualify for consideration of collection alternatives . Regarding Lindberg's demand for documents, the IRS argues that a taxpayer has no right to conduct discovery during a CDP hearing . The IRS argues that sanctions under section 6673 are appropriate because it maintains that Lindberg argued, both in documents submitted during the Appeals process, and in his petition, that he is not obligated to file a return . In his objection to the motion for summary judgment, Lindberg states that he disagrees with "all of the notice of determination ." He asserts that he has a right to all pertinent documents from the IRS so that he can confirm they are accurat e . .continued ) 13( We discuss Hendrickson and Herriman in order to distinguish these theories from the theory that wages,are(cid:127)not income . A proponent'of the latter theory concedes to have earned wages but argues that the wages are not taxable because there is supposedly no gain from receiving compensation for the "loss" of one's labor . See Casper v . Commissioner , 805 F .2d 902, 904-905 (10th Cir . 1986), affg . T .C . Memo . 1985-154 ; Stelly v . Commissioner , 761 F .2d 1113, 1115 (5th Cir . 1985), affg . an unpublished decision of this Court ; Rev . Rul . 2007-19, 2007-1 C .B . 843, 844 ; Rev . Rul . 2004-29, 2004-1 C .B . 627, 627 . -" 15 - materials, together with any affidavits, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law . Rule 121(b) . ; Elec . Arts, Inc . v . Commissioner , 118 T .C . 2'26, 238 (2002) . A partial summary adjudication may be made which does not dispose of all the issues in the case . Rule 121(b) ; Tracinda Corp . v . Commissioner , 111 T .C . 315, 323-324 (1998) . The moving party, here the IRS, has the burden of proving that no genuine issue . of material fact exists and that~it is entitled to judgment as a matter of law . Rauenhorst v . Commissioner , 119 T .C . 157, 162 (2002) . A . Matters That Must Be Considered at the Section 6330 Hearing The IRS is authorized to collect a tax by levy . Sec . 6331(a) . A "tax" includes the liability for the section 6702 frivolous return penalty . Sec . 6665(a)(2) . Section 6330(a)(1) and (b)(1) provides that before the IRS may impose a levy, it must notify the taxpayer that the taxpayer has a right to an administrative hearing, and it must conduct such a hearing if one is requested . Certain issues must be considered by-the Appeals officer, even if the taxpayer did not raise them. The Appeals officer is required to verify that "the requirements of any applicable law or . administrative procedure have been met ." Sec . 6330(c)(1) ; see also sec . 6330(c)(3)(A) . The Appeals officer is also required to take into consideration whether the proposed collection action - 17 - Where the validity of the underlying tax liability is properly at issue, the Court will review the determination de novo . Davis v . Commissioner ,' 115 T .C . 35, 39 (2000) . We review the-balance .of the IRS's determination for abuse of .discretion . Sego v . Commissioner , 114 T .C . 604, 610 (2000) . Generally we consider only those arguments, issues, and other matters that the taxpayer raised at the collection hearing or otherwise brought to the attention of Appeals . Magana v . Commissioner , 118 T .C . 488, 493 (2002) ; see also sec . 301 .6330-1(f)(2), Q&-,A-F3, Proced . & Admin . Regs . . Whether an abuse of discretion has occurred depends upon whether the exercise of discretion is without sound basis in fact or law . Freije v . Commissioner , 125 T .C . 14, 23 (2005) . Lindberg did not receive a notice of deficiency with respect to the frivolous-return penalty because no such notice is required under the Code . See sec . 6703(b) . The IRS was entitled to assess the penalty immediately, and it did so . As Lindberg , ,"( . . .continued) to review an IRS collection determination only if the Tax Court would have had . jurisdiction over the amount of the underlying liability that is the subject~of the collection hearing) ; Callahan v . Commissioner , 130 T .C . 44, 47-48 (2008) . The Pension Protection Act of 2006, Pub . L . 109-280, sec . 855, 120 Stat . 780, 1019, gave this Court jurisdiction to review an appeal from a notice of a collection determination issued after Oct . 16, 2006, regardless of the type of underlying liability involved . See Callahan v . Commissioner , supra at 48-49 . The IRS issued the notice of determination in this case on Feb . 6, 2008, which is after the effective date of the Pension Protection Act of 2006 . Thus, we have jurisdiction to review it . - 19 - taxpayer must file a document that purports to be an .income tax return . Sec . 6702(a)(1) . Second, the purported return must suffer from one of the following defects : . it .'either (a) lacks the information needed to judge the substantial correctness of the self-assessment'? or (b) contains information indicating the self-assessment on the purported return is substantially incorrect . Id . Third, the defect must be due to a position (a) that is frivolous or (b) demonstrates a desire to delay or impede the administration of Federal income tax law (a desire that is evidenced on the purported return) . Sec . 6702(a)(2) . With regard to the first element of the frivolous-return penalty, Lindberg's Form 1040, U .S . Individual Income Tax Return , 16 . . .continued ) (2) the conduct referred to in paragraph (1) is due to-- (A) a position which is frivolous, o r (B) a desire ( which appears on the purported return ) to delay or impede the administration of Federal income tax laws , then such individual shall pay a penalty of $500 . , For submissions to the IRS before Mar . 15, 2007, as in this case, the amendments to section 6702(a) effected by the Tax Relief and Health Care Act of 2006, Pub . L . 109-432, sec . 407(a), 120 Stat . 2960, are not applicable . Id . , sec . 407(f), 120 Stat . 2962 . 17Only the IRS may assess tax liability under the Code, see sec . 6201(a), but the term "self-assessment" is nevertheless used in sec . 6702 to describe a taxpayer's self-reporting of his tax liability on a return . 21 - Ga . 2003) ., Lindberg's reporting of a mere $7 of interest does not render his return substantially correct .( See United States v . Farber , 630 F .2d 569, 571 n .2 (8th_Cir . 1980) (only $95 of taxable .income reported) ; Rice v . Commissioner , supra (only $17 of taxable income reported) . Regarding the third element of the frivolous -return penalty ., the IRS contends that the defects in Lindberg ' s return were due to a frivolous position . See sec . 6702 ( a)(2) . We need only concern ourselves with the IRS ' s argument that the return was based on a frivolous position , see sec . 6702 ( a)(2)(A), because it did not argue that the return was intended to delay or impede the admin'ist 'ration of tax laws , see sec . 6702(a) (2) (B) . The burden of demonstrating at .the summary judgment stage that no material dispute of fact exists rests with the moving party , here the IRS . Adickes v . S .H . Kress & Co . , 398 U .S . 144, 157 (1970 ) (" the moving party * * * [ has] the burden of showing the absence of a genuine issue as to any material fact, and for these purposes the material it lodged must be viewed in the light most favorable to the opposing party" ) ; Brosi v . Commissioner , 120 T .C . 5, 7 (2003 ) ; Dahlstrom v . Commissioner , 85 T .C . 812, 821 (1985 ) ; Jacklin v . Commissioner , 79 T .C . 340, 344 ( 1982) . But Rule 121 ( d) requires that a party adverse to a summary judgment motion "may not rest upon the mere allegations or denials of such party's pleading , but such party ' s response , by affidavits or as 23 income were consistent with that of an independent contractor, he established no facts indicating that he is an independent contractor .. The IRS presented evidence that he was an employee of Accraply . Lindberg failed to rebut this evidence . See Rule 121(d) . We need not-consider any further possible legitimate reasons for Lindberg's reporting . We can end our inquiry here for two reasons . First, Lindberg failed to give a legitimate explanation for his tax return in his objection to the IRS's motion for summary judgment . He merely denied that his return was frivolous without providing any relevant support for his statement (th e Chief Counsel memoranda that he cited were irrelevant) . Second , Lindberg has a history of propounding frivolous theories . He sent a letter to the IRS in . which he purported'to subject the IRS to a nonsensical "International Commercial Claim Administrative Remedy" . Then Lindberg attempted to pay his 2004 tax liability by issuing a "Private Offset Bond" to the IRS . The peculiar language of the "bond" asserted that it had a face value of $50 million and demanded that Secretary of the Treasury Henry Paulson wipe out Lindberg's debt to the Federal Government "by end o f business on the day of presentment . " The third element of the penalty is also met . We hold that the IRS correctly assessed the section 6702 penalty . _ 25 _ alternative, such as an .installment agreement or an offer-in- compromise, will not be granted unless the .taxpayer has filed past-due returns and submitted financial statements . See Giamelli v . Commissioner , 129 T .C . 107, 111-112 (2007) ; Nelson v . Commissioner , T .C . Memo . 2009-108 ; Keenan v . Commissioner , T .C . Memo . 2006-260, affd . 308 Fed . Appx . .91 (9th'Cir . 2009) ; Rodriguez .v . Commissioner , T .C . Memo . 2003-153 ; sec . 301 .6330- 1(d)(2), Q&A-D8, (e) (1) , Proced . & Admin . Regs .1 8 Lindberg's initial request for a hearing consisted solely of (1) frivolous arguments and (2) requests to discuss collection alternatives for which he did not qualify because he did not file past-due tax returns or submit financial statements . The Appeals officer in Fresno offered Lindberg an opportunity for a face-to- face hearing, provided that Lindberg could identify nonfrivolous arguments against the proposed levy by November 9, 2007, bu t Lindberg did not identify any nonfrivolous arguments in r subsequent correspondence other than to repeat-his request to .discuss collection alternatives . The Appeals officer in St . Paul then offered Lindberg a face - to-face hearing if he would take steps to qualify for consideration of collection alternatives by submitting his financial statements and file all past-du e 18The requirement that the taxpayer file past-due returns is repeated in the Internal Revenue Manual (IRM) . 1 Administration, IRM (CCH), pt . 5 .8 .3 .13(1), at 16,313-16,314 (Sept . 23, 2008) ; 2 Administration, IRM (CCH), pt . 5 .14 .1 .2(8)(f), at 17,505 (Sept . 26, . 2008) . . .certain penalties to approve the initial determination in - 27 - writing . Lindberg is incorrect on each point . Regarding Lindberg's section 6203 argument, this Court has held that the transcript of account of the kind sent'to Lindberg satisfies the requirements of section 6203 . See Wagner v . Commissioner , T .C . Memo . 2002- 180 ; Weishan v . Commissioner , T .C . Memo . 2002-88 ; Lindsey .v . Commissioner , T .C . Memo .,2002-87 . Thus, .he received a record of assessment . Regarding Lindberg's section 6751 argument, section 6751 by its terms does not require supervisory approval of penalties "automatically calculated through electronic means . 11-9 Sec . 19Sec . 6751 provides : SEC . .6751 . . PROCEDURAL REQUIREMENTS . (a) Computation of Penalty Included in Notice .-- The Secretary shall include with each notice of penalty under this title information with respect to the name of the penalty, the section of this title under which the penalty is imposed, . and a computation of the penalty . (b) Approval of Assessment . (1) In general .--No penalty under this title shall be assessed unless the initial determination . of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level-official as the Secretary may designate . (2) Exceptions . Paragraph (1) shall not apply to-- (continued . . .) 29 - irregularity in the assessment procedure that would raise a question about the validity of the assessments or the information in the transcript of account sent to him . See Lunsford v . Commissioner , supra at 188 ; Pomerantz v . Commissioner , T .C . Memo . 2005-295 ; Kubon v . Commissioner , T .C . Memo . 2005-71 ; Schroeder v . Commissioner , T .C .Memo . 2002-190 . Thus, we conclude that the Appeals officer properly verified IRS compliance with applicable law . The Appeals officer did not abuse his discretion in refusing to produce all of the documents Lindberg requested for th e hearing . The IRS is correct that a taxpayer has no right to subpoena documents and conduct general discovery during an informal proceeding such as a CDP hearing . See Davis v . Commissioner , 115 T .C . at 41-42 ; Watson v . Commissioner , T .C . Memo . 2001-213 ; Wylie v . Commissioner , T .C . Memo . 2001-65 .2 0 20Sec . 6330(c) (1) ' by its terms does not even require, the Nestor v . Commissioner , Appeals officer to provide the taxpayer with a copy of a document verifying that the requirements of any applicable law or administrative procedure have been met . 118 T .C . 162, 166 (2002) ; Davis v . Commissioner , T .C . Memo . 2007- . Scott v . Commissioner , T. .C . Memo . 2007-91, affd . 262 Fed . 160 ; Appx . 597 (5th Cir . 2008) . Sec . 6330(c)(1) and sec . 301 .6330-1(e)(3), Q&A-E8, Proced . & Admin . Regs . ., require that the Appeals officer perform the verification and memorialize it in the notice of determination . While the taxpayer has no right at the CDP hearing to a copy of a document stating that the Appeals officer has performed the verification, this Court may require that such a document (and any underlying relevant documents the Appeals .officer examined while performing the verification) be produced during the process of judicial review . .II . Section 6673 Sanction s - 31 - Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty not to exceed $25,000 if the taxpayer took frivolous or groundless positions in the Tax Court proceedings or instituted the proceedings primarily for delay . A position maintained by the taxpayer is frivolous where it is "contrary to established law and unsupported by a reasoned, colorable argument for change in the law . ." Coleman v . Commissioner , 791 F .2d 68, 71 (7th Cir . 1986) . In Pierson v . Commissioner , 115 T .C . 576, 581 (2000), we warned that a penalty under section 6673(a) could be imposed on those taxpayers who abuse the protections afforded by sections 6320 and 6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in actions under these sections . We believe that Lindberg advanced frivolous and/or .groundless contentions, arguments, statements, and requests primarily for delay, thereby causing this Court to waste'its limited resources . See Schmith v . Commissioner , T .C . Memo . 2002- 252 . We will require Lindberg pursuant to section 6673(a)(1) to pay to the United States a penalty of $1 ;000 . We admonish Lindberg that the Court will consider imposing a higher penalty