TAX COURT OPINION

Case: Tree-Tech, Inc.
Docket Number: 11781-09L
Judge: Wells
Opinion Type: memo
Filed: 07/11/2011
Pages: 16

T.C. Memo. 2011-162 - UNITED STATES TAX COURT TREE-TECH, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent D6cket No. 11781-09L. Filed July 11, 2011. Julie Moon (an officer) and William P. Moon III (specially recognlized), for petitioner. Må.tthew S. Reddington, för respondent . MEMORANDiJM OPINION WELLS , " Judge : - This case is *be fore the Court on respondent ' s motion.. for summary judgment pursuant to Rule.121 Respondent IUnless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, and Rule references are to the Tax Court Rules of Practice and Procedure. 85VéD JUL M 21)11 -2- issued to petitioner a notice of determination concerning collection action. We must decide: (1) Whether petitioner may challenge its unclerlying employment tax liability despite having signed a closing agreement; (2) whether petitioner may raise its claim for section 530 relief2 before this Court; and (3) whether respondent's determination to proceed with collection was an abuse of discretion. Background The facts set forth below are based upon examination of the pleadings, moving papers, responses, and attachments filed in the instant case. Petitioner's principal place of business is in Hurt, Virginia. Petitioner's sole officer and director is Julie Moon (Mrs. Moon), but for the most part the business is run by Mrs. Moon' s husband, William Moon (Mr . Moon) , who also serves as its attorney-in-fact pursuant to a power of attorney. On February 1, 2007, respondent sent a letter notifying petitioner that respondent was conducting an employment tax examination for petitioner's 2004, 2005, and 2006 tax years. Init ially, respondent ' s examinat ion f ocused on pe t it ioner' s failure to report officer's compensation as wages, but after his first smeeting with,Mr. and Mrs. Moon, respondent's examiner 2Sec 530 relief refers to the "safe harbor" relief available under the Revenue Act of 1978, Pub. L. 95-600, sec. 530, 92 Stat. 2885, as amended. -3- Williàm Cookenour (Mr-... Cookenour) , expandeds his examination to include petitioner's classification of its workers. lŠr. Cookenour fi-rst met with Mr. and Mrs. Moon on February 16, 2007, regard:.ng the examination of petitioner's returns for its 2004, 2005, a.nd 2006, tax years. -- At that meeting Mr. Cookeriour-discussed only the officer compensation issué and did not mention worker classifica(tion. After the meeting Mr. Cookenour apparently did further research on worker classification and determined that there was a reclassification issue. Petition.r had classified its workers' as independent contractors, but Mr. Cookenour determined that they should have been classified as employees. During the ollowing months Mr . Cookenour had several more conversations with Mr. Moon during which they discussed whether petitioner -was entitled ' to section 530 relie f . Mr . Moon contended that p titioner was entitled to such relief,'but after some research Mr Cookenour determined that it was not . On July 6, 2007, after making his determination regarding section=530 re lie f , Mr . Cookenour again me t with pe t it ioner ' s representat ives and offered to discuss settlement under the Classification Settlement Procjram. Òn October 0, 2007, Mr. Cookenour met with Mr. and Mrs. Moon to explain he terms of respondent's offer under the Classification Settlement Program. Petitioner contends that at -4- the meeting Mr. Cookenour presented Mr. and Mrs. Moon with two different calculations of petitioner's liabilities.and told them that if they did not accept the offer-to settle for the lower amount, the Internal Revenue Service (IRS) would assess the higher amount.- Petitioner contends that Mr. Cookenour told' Mr. and-Mrs. Moon that they could appeal the assessment but that they would not win on appeal. Mrs. Moon accepted the settlement offer at that meetingsby signing a closingaagreement titled "Closing Agreement on Final Determination Covering Specific Matters Regarding Worker Classification" (closing agreement). In them closing agreement, petitioner agreed to pay the amount- shown on the agreement in full satisfaction of its liability stemming from its worker classification, -and it agreed to beginstreating its workers as employees. The closing agreement reclassified - petitioner's workers-only for 2004, leaving its classification of workers for 2005 and 2006 untouched, and it granted petitioner relief of 75 percent of its, liability relating to worker classification for 2004. Petitioner concurrèntly-signed a Form 2504;s Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment. The Form 2504 covered not only petitioner's i liability with regard to worker classification but also petitioner's liability for its failure to report officer's a compensation. -5- Respondent has not agreed to petitioner' s account of the meeti g on October 10, 32007 Nevertheless, respondent contends that ëven if. the facts, are as petitioner alleges, respondent is still. entitled to summary judgment because petitioner has not alleged facts that amount to duress. The closing agreement signed by Mrs. Moon contained an incorgect Employer. Identification Number (EIN) in the document heading. Petitioner's correct EIN ends with a 7, but the EIN listed in the document heading of the closing- agreement substituted a 9 lor the 7. However, the closing agreement -did contain the correct EIN 'in the first paragraph and it identified petit½oner by name as a "Tree Tech Incorporated" . on September 18, 2008, respondent mailed petitioner a Final Notice of Intent to -Levy and Notice of Your Right to a Hearing (notice of intens to levy) . Petitioner timely filed Form 12153, Request for a Collection»Due Process or Equivalent Hearing. Throucyhout its correspondence with respòndent's Appeals Office, peti-tioner did not raise any collection alternatives but contended that the closing agreement contained the incorrect EIN and wäs therefore invalid and that Mr. Cookenour had coerced Mrs. Moon .j.nto signing the closing agreement . Petitioner contested its uliderlying liability, arguing that "it was entitled to section 530 relief on the worker classification issue. The Appeals Office determined that petitioner could not raise its underlying -6- tax liability during the collection due process hearing because the assessments ·were made in accordance with the closing a 2 - agreement-signed by Mrs. Moon. On April 21, 2009, respondent'«s Appeals Office- issued petitioner the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, sustaining the notice of intent to levy. Petitioner timely filed its petition.? On its petition, petitioner checked the boxes indicating that it was disputing respondent's notice of determination concerning collection action and respondent' s notice of determination concerning worker classification. However, petitioner was never issued.a notice of determination concerning worker classification. Discussion Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials, and may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law., Rule 121(a), and (b) ; Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988) . The moving party bears -the burden of proving that there is no genuine issue of "The original petition was signed only by Mr . Moon, but it is unclear because Mr. Moon is not an officer of petitioner, whether* Mr. Moon had the capacity to sign on behalf of petitioner . since ratified the petition. the date of Associates, Ltd. v. Commissioner, 95 T.C. 477, 482-484 (1990) i Carstenson v. Commissioner, 57 T.C. 542, 545-546 (1972). See Rules 24 (b) , 60 (c) . However, Mrs . Moon has Such a ratification relates back to the original petition. See Mont . Sapphire -7- material fact, a:1d factual inferences are viewed in a light most favor ble to the nonmoving party. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994) . However, the. party opposing summary judgment must set forth specif Lc facts that show a-genuine issue of material fact xists and may notr rely merely on allegations or denials in the pleadings . - :tule 121 (d) . 'Ì'he Commiss Loner may collect a tax by levy upon the property of the taxpayer Liable therefor if' the taxpayer neglects or refuses to pay t:1e tax. liability within 10 days after notice and demand for payme:1t. < Sec. 6331(a) . The Commissioner generally must provide the taxpayer written notice of the right 'to a - hearing before t:1e levy is made. Sec. 6330 (a) . Upon a timely request, the taxpayer is entitled to an administrative hearing before an impart tal officer or employee of the Appeals Office. Sec. 6330 (b) . Following the hearing, the' Appeals officer must deter nine whether the collection action iá to proceed, taking into account the verification-the Appeals officer has made, the issues raised by the taxpayer atr the hearing, and whether the collection, actio:1 balances the need for the efficient collection of taxes . with the legitimate concern of the taxpayer that any collection actio:1 be no more intrusive than- necessary. Sec. 6330 (ä) (3) . We :lave jurisdiction to review the determination if we have jurisdic :ion over the type of tax involved in the case . -8- Sec. 6330 (d) (1) ;; Iannone v. Commissioner, 122 T.C. 287, 290 (2004) . Where the validity of, the underlying tax liability is properly in issue, we review the matter on a de novo basis. Sego v. Commissioner, 114 T.C. 604, 610 (2000) . However, where the validity of the underlying liability is not properly in issue, we review the determination of the Appeals Office for abuse of discretion. Goza v. Commissioner, " 114 T . C. 176, 182 (2000) . The taxpayer.may challenge the existence or amount of the underlying tax liability only if the taxpayer did not receive a notice of-deficiency or did not otherwise have an opportunity to challenge the underlying liability. Sec . 6330 (c) (2) (B) . The taxpayer may waive the right to challenge the underlying liability by consenting to the assessment of a proposed liability. See Aguirre v. Commissioner, 117 T.C. 324, 327 (2001) ; A-Z Optics, Inc. v. Commissioner, T.C. Memo. 2007-27; Deutsch v. Commissioner, T.C. Memo. 2006-27, affd. 478 Ft.3d.450T (2d Cir. 2007) . Section 7121 authorizes the Commissioner to enter into a written "closing agreement" with -a taxpayer relating to the liability of such person for any taxable period; it . I provides that if such agreement is approved by the Comínissionere or his delegate, it will be- final and conclusive. iludock v. Commissioner, - 65 T . C. .351, 362 (1975) . Closing- agreements may be reopened only in exceptional circumstances such as fraud, 9- malfe sance, or the misrepresantation of a material facts. Sec. 7121( ) ... The pa::ty seeking to seta aside ,ther closing agreement bears the. burden of proving; fraud, malfeasance, s or misre] resentation.: eBrinkman v .Commissioner,. T.C.. -Memo. 1989-217.- Someelosing agreements corfstitute a final deter ination of the taxpayer's liabìlity for the years intissue; but ot hers decide only specific :issues and bind the partiest only as to those issues-.- Manko v. Commissioner, 126 T.C. 195 201-202 (2006) ;t Estate r o:t Magarian vt Commissioner, 97 T . C. 1, 5 (1991s) ; Zaent v. Commissioner",390 -T.C. 753, 760-761 (13988) Petitiöner attempts to contest i'ts underlying liability with regarci to worker classifidation before this. Coui-t, asserting that it is1elsigible for section 530 reliefa - Because petitioner did- not receive a notice of deficiencyrorsotherwise have the opport unity to d:.spute its ta liability, s it woüld generally bel permit ted to challënge its underlying liabil-ity as part of the : colle tion due process hearing.r See sec. 6330 (c) (2) (B) . However, a taxpayer may also waive its opportunity too challenge t its uriderlyirig tai liability if sit enters•into atbinding*closing agreetient withathe Cominissionerdhat covers that issue or consentsito the liability's.immediate assessmenti and collection. See Aduirre vu Commissioner, šupra at 32te Pespondent contends that petitioner waived its, right to . chall nge its underlyingoliabilitypinclúdincythe?issue of a -10- whether it is entitled to section 530: relie'f, because, it signed a closing agreement consenting to- respondent's- determinátion i 4 regarding worker classification. Petitioner contends that the closing agreement was invalid and should be 'set aside because Mrs . Moon signed it under duress and because it contains. the incorrect EINE . - - We will first consider whether the closing lagreement is valid or whether it should be set- aside. Section 301.7121-1-(d) , Proced*. & Admin. Regs., establishes the procedure-to be used with respect to closing agreements, and it provides-that- all closing agreements shall be executed on forms prescribed by the IRS: See Hudock v. Commissionei-, supra at 362. The closing agreement / sighed by Mrs. Moon complies with the procedures established and is executed on the form prescribed. See Internal Revenue Manual (IRM) 'pt. 4.23.6.14:3 (Mar.:1, 2003) . The closing agreement signed by Mrs. Moon states in bold letters:- ."This agreement is final and. conclusive except" in the event of fraud, malfeasance or «misrepresentation of material fact . The closing agreement settles -ther worker classification issue, providing that petitioner wi-ll pay the amount shown in full discharge of its employment tax liability relating to worker álassification and e that it will begin treating its, workers - as employees: Petitioner contends that, the closing,agreement is invalid and should- be set aside because Mrs. Moon-was coerced into -11- signing it and because it sho s an incorrect EIN ini the -document heading. Petitioner's support for its coercion argument consists of -its contention that Mr. Cookenour offered"Mrs. Moon two dif febent -calculations of, el'iabilities and proposed that the IRS would assess the lower one if she accepted the closing agreement . Yet Mr. Cookenour's offer is precisely the kind of arrangement contemplated under respondent's Classification Settlement Program. See id . pt . 4 . 23 . 6 . 13 . 1 . Indeed, the very nature of a settlèment is that ones party offers the other party a concession to induce that party to agree to a matter. Respondent agreed to assess only a po::tion of the taxes due under the reclassification in ex hange for petitioner's agreement to settle the matter. Section 7121(b) provides that a closing agreement shall be final "exaept upon a showing of fraud or malfeasance, or misrepresentation of a material fact". We understand petitioner to be econtending that duress would be the kind of "malfeasance" that would requi::e the - closing agreement to be set aside under sectién 7121(b) . However; the facts petitioner has alleged do not ainount to du::ess. Petitioner has not set forth any specific facts[that would create a genuine issue for trial as 'to fraud, malfensance, or nisrepresentation of a material fact. Accordingly, we t:onclude as a inatter of law that there was no fraud, malfeasance, or misreprésentation of a material fact. -12- Petitioner also contends that the closing agreement should -be- invalid because of a minor error in the EIN. While it is uncontested that the EIN listed in the heading of the closing agreement is off by one digit, petitioner was in no way prejudiced or confused by the minor.error.4 Accordingly, we hold that the closing agreement is valid.despite the incorrect EIN in the document heading. We therefore hold that the closing agreement shall not be - set aside. Respondent contends that if we conclude the closing agreement is valid, petitioner is precluded from raising its . claim for section 530 relief. However, respondent's contention appearssinconsistent with the-position taken- by the Commissioner in Rev. Proc. 85-18, 1985=1 C.B. $18 which states: the Act is available to Relief under section-530(a) (1) of taxpayers who are under audit by the Service or who are involved in administrative (including Appellate) or judicial processes with respect to assessments based on employment status reclassifications. Relief also is extended to any claim for a refund or credit of any overpayment of an employment tax.resulting from the termination of liability under section 530(a) (1), provided the claim is not barred on the date of enactment of this provision (November 6, 1978) by any law or rule of law. 'We have repeatedly held that minor errors will not See, e.g., Estate of McElroy v. Commissioner, 82 invalidate notices of deficiency where taxpayers were'not prejudiced. (misspelling öf street name and T.C. 509, 514 n.4 (1984) incorrect digit in ZIP Code did not invalidate notice of deficiency where it did not prejudicially delay receipt); Clodfelter v. Commissioner, 57 T.C. 102, 107 (1971) street number did not received by taxpayer), affd. 527 F.2d 754 (9th Cir. 1975). (incorrect invalidate notice of deficiency actually -13- the Code or compromises under section to employment status controversies are Taxpayers wao have enterede into final closing agreements under section 7121 of 7122 with respect ineligible Eor relief under the Act, unless they have not completely paid their liability. taxpayer wh> has agreed to or compromised a liability for an amount whic has one or more installments to pay, liability for such outstanding installments. is to be paid in installments, but who still for example, a is relieved of Thus, Pursuant to that revenue ruling, which is taken almost verbatim from the legisla:ive history of section 530,5 it would appear that a taxpayer who has entered into a final closing agreement with the Commissioner pursuant- to section 7121 may nonetheless be entitled to sectLon 530 relief as long as the taxpayer has not completely paid off its tax liability. However, we need not decide whether Rev. Ruli 85-18, supra, entitles petitio:1er to relief under section 530 because we conclude that we lack jurisdiction to consider petitioner's claim for section 530 relief. The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. Sec. 7442; Naftel v. Commissioner, 85 See H. Rept. 95-1748, at 6 (1978), 1978-3 C.B. (Vol. 1) 629, 634, which states: Taxpayers who have entered into final closing agreements under Code section 7121 or compromises under section 7122 with respect are ineligible for relief under the bill, unless they have not completely paid their liability. to employment status controversies for example, a . Thus, axpayer who has agreed or compromised a liability for an ámount which is to be paid in installments, but who still has one or uore installments to pay, liability for such outstanding installments. is relieved of * * * -14- T.C. 527 529 (1985) . We have jurisdiction under section 7436(a) to decide whether a taxpayer: is entitled to section 530 relief . Charlotte's Office Boutique, Inc.. v. Commissioner, 121 T.C. 89, 103 (2003) , affd. 425 F.3d 1203- (9th Cir. 2005) . However, our jurisdiction under section 7436 (a) is dependent upon the Commissioner' s issuance of a notice of determination concerning worker classification Id.; Neely v. «Commissioner, 115 «T.C. x287, 290 (2000)-. Petitioner indicated in its petition that it was contesting respondent's notice of determinations concerning collection aetion and notice of determination -concerning worker classification However, because petitioner signed a.closing agreement, respondent never issued. petitioner a notice of determination concerning worker classification. By signing the closing agreement, petitioner chose not to receive suchta notice and therefore waived its opportunity to challenge- its underlying liability regarding worker classification before this Coubt. See Aguirre v. Commissioner, 117 T.C. at 327 (holding that where a taxpayer signed a Form 4549, Income, Tax Examination Changes, consenting to an immediate assessment and collection of tax, the taxpayer chose noti to receive a notice of deficiency and t-hereby waived the taxpayer' s right to challenge its underlying liability in this Court) . Accordingly, we hold that we lack jurisdiction to consider petitioner's request for section 530 relief . See -15- Charlåtte's Office Boutique, Incow. -Commissioner, supra at 103; Aguirre v. Commissioner, supra -at 327. Consequentl , because, as a amatter 'of law, petitioner has not alleged fact that would allow the closing agreement to be set aàide and because we otherwise lack jurisdiction to consider petitioner's claim for section 530 relief, petitioner may not challenge its underlying liability regarding worker classification before this Court. Finally, we consider whether respondent's Appeals Office abuse its discretion by sustaining the collection action. Because petitioner' s underlying tax liability is not properly in issue, we-review the determination of respondent's Appeals Office for abuse of dis<:retion. See Sego v. Commissioner, 114 T.C. at 610. The settlenent officer bonsidered all of petitioner's contentions, ver: fied compliance by the IRS with all applicable laws and regulat:.ons, and considered whether the proposed colle< tion actions balanced the need for efficient tax collection with petitioner' s concern that they be no more intrusive than necessary. On the basis of the record before us, we hold that the séttlement officer did not abuse her discretion in sustaining the nc tice of int.ent to levy. Táe conclude that respondent is entitled to summary judgment on the issues of whether the closing agreement should be set aside to allow pé titioner to challenge its underlying employment -'16- tax liability and whether respondent's Appeals Office abused its discretion in determining that respondent may proceed with collection. We shall therefore grant respondent summary judgment on. those issues . .Additionally, we conclude that we lack jurisdiction to consider petitioner' s claim that it is entitled to section 530 relief, and we shall therefore dismiss petitioner' s case with respect to that claim. In reaching these holdings, we have considered all the parties' - arguments, and, to- .the extent not addressed herein, we conclude that they are moot, irrelevant, or without merit . To reflect the foregoing, An appropriate order and decision will be ente ed for respondent .