TAX COURT OPINION

Case: Dennis A. & Mary I. Gregory
Docket Number: 14755-14L
Judge: Kerrigan
Opinion Type: bench
Filed: 06/24/2015
Pages: 14

JRN UNITED STATES TAX COURT WASHINGTON, DC 20217 DENNIS A. & MARY I. GREGORY, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent 14755-14 L. ) ) ) ) ) Docket No. ) ) ) ) ) ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at Portland, Oregon on June 9, 2015, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. June 24, 2015 SERVEDJun 252015 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Bench Opinion by Judge Kathleen Kerrigan June 9, 2015 Dennis A. & Mary I. Gregory v. Commissioner Docket No. 14755-14 L THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied upon 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. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All 16 monetary amounts are rounded to the nearest dollar. 17 By a Notice of Determination Concerning 18. Collection Action(s) under Section 6320 and/or 6330 19 20 21 22 23 24 25 (notice of determination) dated May 15, 2014, respondent determined to proceed with a proposed levy to collect petitioners' unpaid income tax liabilities for the tax years 2005, 2009, and 2010. Trial of this case was conducted on June 8, 2015. Petitioners represented themselves. Kimberly L. Clark represented respondent. The parties' stipulation of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 facts and attached exhibits were admitted into evidence. We find the following facts: FINDINGS OF FACT Petitioners resided in Oregon when they filed their petition. Petitioners filed income tax returns for the years at issue. Respondent received petitioners' 2005 tax return on April 28, 2010, and received petitioners' 2009 tax return on November 22, 2010. 2010 10 Petitioners' A tax return was n,6t filed timely. 11 Respondent determined that petitioners made 12 multiple math errors on their tax returns for 2005, 13 14 15 16 17 18 19 20 21 22 23 24 25 2009, and 2010. For 2005, respondent determined that petitioners carried forward the incorrect loss amount from their Schedule C, Profit or Loss from Business, to their return and claimed a standard deduction in excess of the amount allowed for 2005. On July 19, 2010, respondent made a summary tax assessment under Section 6213(b)(1) based on the adjustments and also assessed additions to tax under Section 6651(a)(1) and (2) for failure to timely file and pay the tax on the return, and interest. For 2009, respondent determined that petitioners failed to correctly calculate the taxable amount on social security benefits and claimed a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 standard deduction in an amount lower than they were allowed. On November 11, 2010, respondent assessed an addition to tax under Section 6651(b)(2) for failing to timely pay the tax, an addition to tax under Section 6654(a) for failing to pay estimated taxes and interest. On November 22, 2010, respondent made a summary tax assessment under Section 6213(b)(1) based on the adjustments. For 2010, respondent determined that the tax return he received did not have income amounts listed on the majority of the first page of the tax return, claimed a standard deduction in an amount less than petitioners were entitled, and did not include the Form 4136, Credit for Federal Tax Paid on Fuels, required to claim the credit for federal tax on fuels. For 2010, respondent attempted to complete the income amounts based on information returns filed 18 with respondent, and originally determined that the 19 20 21 22 23 24 25 tax owed by petitioners was less than the amount listed on the tax return. On August 1, 2011, respondent made a summary tax assessment under Section 6213(b)(1) based on the adjustments. On June 2, 2012, respondent issued a notice of deficiency to petitioners for 2010 asserting a deficiency of $886. Petitioners did not file a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 petition, and respondent assessed the additional tax. 2 3 4 5 6 7 8 On July 29, 2013, respondent sent to petitioners a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, for petitioners' income tax liabilities for the years at issue. Petitioners timely submitted a Form 12153, Request for a Collection Due Process Hearing. On December 5, 2013, a settlement officer 9 mailed petitioners a letter scheduling a collection 10 11 12 13 14 15 16 17 18 19 due process (CDP) hearing for January 6, 2014. In the letter, the settlement officer offered petitioners a streamlined installment agreement in the amount of $200 per month. Petitioners participated in a face-to-face CDP hearing on January 6, 2014. During petitioners' CDP hearing, petitioñers disputed their liabilities for 2005 and 2010 and requested an offer in compromise (OIC) based on doubt as to collectability. . On April 8, 2014, the settlement officer 20 mailed petitioners a letter, which offered them the 21 22 23 opportunity to file an amended tax return for 2005 by May 2, 2014. The letter further stated that if the settlement officer did not hear from petitioners in a 24 manner that substantively addressed the 2005 25 liability or the offered streamline installment 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 agreement, he would issue a notice of determination. 2 Petitioners did not contact the settlement officer, 7 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and on May 15, 2014, the settlement officer issued the notice of determination sustaining the proposed levy action for 2005, 2009, and 2010. Respondent made concessions based on a review of the taxpayers' returns, including changing the amount assessed for tax year 2009. Other concessions were based on allowances and credits due to petitioners. OPINION Section 6331(a) authorizes the Secretary to levy upon the property and property rights of a taxpayer who fails to pay a tax within ten days after notice and demand. Before the Secretary may levy upon the taxpayers' property, the Secretary must notify him or her of the Secretary's intention to make the levy. Sec. 6331(d)(1). The Secretary must also notify the taxpayer of his or her right to a CDP hearing. Sec. 6330(a)(1). If the taxpayer requests a CDP hearing, the hearing is conducted by the Appeals Office. Sec. 6330(b)(1). At the hearing the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy. Sec. 6330(c)(2) (A). Once the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 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 settlement officer makes a determination, the taxpayer may appeal the determination to this Court. Sec. 6330(d)(1). The Court has jurisdiction to review the Commissioner's administrative determinations. Id. Where the validity of the underlying tax liability is properly in issue, we review that matter de novo.. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000). Respondent concedes that petitioners may challenge their underlying liabilities for the years at issue, and we have held that a taxpayer is generally entitled to challenge an underlying liability in a CDP proceeding that is attributable to a summary assessment made under Section 6213(b)(1) on account of a math error. Perkins v. Commissioner, 129 T.C. 58, 67 (2007). Respondent does not contend that the issuance of the notice of deficiency for 2010 precludes petitioners from challenging their liability for that year. Section 6213(b)(1) generally allows the assessment of tax in excess of that shown on a tax return without resort to the deficiency procedures of Sections 6211-6216 in cases where the additional amount of tax is attributable to "a mathematical or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 clerical error appearing on the return". A "mathematical or clerical error" includes the following: an error in addition, subtraction, 4 multiplication, or division shown on a tax return; an 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 incorrect use of an Internal Revenue Service table if apparent from the existence of other information on a tax return; an item entry on a tax return, which is inconsistent with another entry of the same or another ·item on the tax return; an omission of information, which is required to be supplied on a tax return to substantiate an entry; an entry on a tax return of a deduction in an amount which exceeds a statutory limit if the items entering into the computation of the limit appear on the tax return; and various other instances not pertinent here. See Sec. 6213 (g) (2) (A) - (M) . The income tax assessed in this case resulted primarily from multiple math error adjustments to petitioners' tax returns for 2005, 2009, and 2010. Petitioners contend that they filed a previous return for 2005, but they did not produce this return. Petitioner husband testified that the address on the 2005 return was not their address for 2005. Petitioners have not provided amended tax returns, any necessary forms, or any computations of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 tax which would substantively dispute respondent's assessments or adjustments to their tax returns. We sustain respondent's adjustments for the tax years at issues based on respondent's concessions. Under Section 7491(c), respondent bears the burden of production with respect to penalties and additions to tax. See Higbee v. Commissioner, 116 T.C. 441, 446-447 (2001). Section 6651(a)(1) authorizes the imposition of an addition to tax for failure to timely file a return, unless it is shown that such failure is due to reasonable cause and not due to 13 willful neglect. Section 6651(a)(2) imposes an 14 15 16 17 18 19 20 21 22 23 24 25 addition to tax for failure to pay the amount of tax shown on a taxpayer's federal income tax return on or before the payment due date unless such failure is due to reasonable cause and not due to willful neglect. A failure to file a timely federal income tax return is due to reasonable cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time. See Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 she exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he or she paid on the due date. Id. Willful neglect means a conscious, intentional failure, or reckless indifference. 7 United States v. Boyle, 469 U.S. 241, 245 (1985). 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Respondent has met the burden of production for both additions to tax. Respondent has shown that he did not receive from petitioners an income tax return for 2005 until April 28, 2010, and petitioners have not provided proof of timely filing. Petitioners did not pay timely the tax shown on their returns for 2005 and 2009. Petitioners have not asserted any facts that would establish reasonable cause with respect to these additions to tax for the taxable years at issue. Petitioners are liable for the 6651(a)(1) addition to tax for 2005 and the Section 6651(a)(2) addition to tax for 2005 and 2009. Section 6654(a) imposes an addition to tax on a taxpayer who underpays his or her estimated tax. The addition to tax is calculated with reference to four required installment payments of the taxpayers' estimated tax liability. Sec. 6654(c) and (d). Each required installment of estimated tax is equal to 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 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 percent of the "required annual payment". Sec. 6654(d). The required annual payment is equal to the lesser of (1) 90 percent of the tax shown on the individual's tax return for that year (or, if no tax return is filed, 90 percent of his or her tax for such year), or (2) if the individual filed a tax return for the immediately preceding taxable year, 100 percent of the tax shown on that tax return. Sec. 6654(d)(1)(A)-(C). A taxpayer has an obligation to pay estimated tax only if he or she has a required annual payment. Wheeler v. Commissioner, 127 T.C. 200, 212 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). The provisions of Section 6654 are mandatory unless the taxpayer shows that one of the exceptions at Section 6654(e) applies. Meeks v. Commissioner, T.C. Memo. 1988-452; Kuhl v. Commissioner, T.C. Memo 1988-446. Ninety percent of petitioners' income tax for 2009 ($5,506) is $4,955, which is less than petitioners' tax for 2008 ($6,994). Therefore, petitioners' required annual payment for 2009 was $4,955. Petitioners were required to make installment payments of estimated tax equal to 25 percent of $4,955, or $1,239. Petitioners only had income tax withholding for 2009 of $507, which does 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 not meet the requirements of Section 6654. 2 Petitioners have failed to show that any of the 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 exceptions to Section 6654(a) apply. Petitioners are liable for the Section 6654(a) addition to tax for tax year 2009. We review the Commissioner's administrative determinations for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 182 (2000). A settlement officer has abused his or her discretion if the determination is arbitrary, capricious, or without sound basis in fact or law. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral v. Commissioner, 112 T.C. 19, 23 (1999). Section 6330(c)(3) requires the settlement officer to consider the following during a CDP hearing: (1) whether the requirements of any applicable law or administrative procedure have been 19 met; (2) any issues appropriately raised by the 20 21 22 23 24 25 taxpayer; and (3) whether the proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. See also Lunsford v. Commissioner, 117 T.C. 183, 184 (2001). We note that the settlement 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 10 11 12 13 officer properly based his determination on the factors specified by Section 6330(c)(3). Petitioners requested an offer in compromise (OIC) based on doubt as to collectability. Section 7122(a) authorizes compromise of a taxpayer's federal income tax liability in accordance with guidelines to be adopted by the Treasury. The grounds for compromise of a tax liability include doubt as to collectability. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Doubt as to collectability, "exists in any case where the taxpayer's assets and income are less than the full amount of the liability." Id. 14 Generally, under the Commissioner's administrative 15 16 17 18 19 20 21 22 23 24 25 guidelines, an offer to compromise based on doubt as to collectability will be acceptable only if it reflects the taxpayer's reasonable collection potential (RCP). See Internal Revenue Manual (IRM), pt. 5.8.1.1.3(3) (Mar. 16, 2010); see also Rev. Proc. 2003-71, Sec. 4.02(2), 2003-2 C.B. 517, 517 (stating that an offer will be considered acceptable if it reflects the taxpayer's RCP). Where the settlement officer has followed the Internal Revenue Service's (IRS) guidelines to ascertain a taxpayer's RCP and has rejected the taxpayer's collection alternative on 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 that basis, we generally have found no abuse of discretion. See McClanahan v. Commissioner, T. C. Memo. 2008-161; Lemann v. Commissioner, T.C. Memo 2006-37. Petitioners supplied information and explanations to the settlement officer and based on that information, the settlement officer determined that petitioners' RCP was greater than the amount of the outstanding liabilities. The record reflects that the settlement officer followed IRS guidelines to determine petitioners' RCP and determined that the RCP exceeded petitioners' offer. We find that the settlement officer did not abuse his discretion, and decision will be entered for respondent. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:48 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