TAX COURT OPINION

Case: Araya AnRa
Docket Number: 6805-22SL
Judge: Nega
Opinion Type: bench
Filed: 02/17/2023
Pages: 18

ARAYA ANRA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket No. 6805-22L. ORDER 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph W. Nega at Reno, Nevada, on January 26, 2023, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Joseph W. Nega Judge Served 02/17/23 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 3 Bench Opinion by Judge Joseph W. Nega January 26, 2023 Araya AnRa v. Commissioner of Internal Revenue Docket No. 6805-22SL THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. This case was commenced in response to a Notice of Determination Concerning Collection Actions under IRC Sections 6320 or 6330 of the Internal Revenue Code (notice of determination), dated February 23, 2022, that sustained a Notice of Federal Tax Lien Filing and Your Right to a Hearing (NFTL) for taxable years 2014, 2015, and 2016 (collectively, the years at issue). The issue for decision is whether the settlement officer (SO) from the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals Office) abused his discretion in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 sustaining the proposed collection actions. 4 This case was tried on January 26, 2023, in Reno, Nevada. Petitioner appeared pro se. Jonathan D. Walker represented respondent. On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the following facts: FINDINGS OF FACT Some of the facts are stipulated and are so found. The First Stipulation of Facts and the attached exhibits are incorporated herein by reference. At trial, Exhibits 1 through 42 were admitted into evidence without objection, and Exhibit 45 was admitted into evidence over respondent's objection. Petitioner resided in Reno, Nevada at the time she filed her petition in this case. Petitioner performed work for Petroleum Synergy Group, Inc. during the years at 18 issue. 19 I. 2014 20 21 22 23 24 25 Petitioner filed a Form 1040A for tax year 2014, dated April 1, 2015, reporting $0 in income and $961.36 in Federal income tax withholding and claiming a refund of $961.36. Petitioner attached to her Form 1040A a Form 4852, Substitute for Forms W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, 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 Retirement or Profit-Sharing Plans, IRAs, Insurance 5 Contracts, etc. (2014 Form 4852). On the 2014 Form 4852, petitioner listed $0 in wages, tips, and other compensation stated that she "did not receive any wages" as defined by sections 3121 and 3401. Respondent's Wage and Income Transcript corresponding to petitioner's 2014 taxable year reflects that petitioner received $12,566.00 in wages, tips and other compensation from Petroleum Synergy Group, Inc. and that Social Security and Medicare taxes totaling $961.00 were withheld on her behalf. The parties stipulated that petitioner does not dispute receiving $12,566.00 from Petroleum Synergy Group, Inc. during the 2014 taxable year; rather, petitioner disputes the characterization of these payments as taxable "wages." On May 15, 2015, respondent issued to petitioner a refund in the amount of $961.36, corresponding to petitioner's purported Federal income tax withholdings. On July 7, 2017, an employee in respondent's Frivolous Return Program, Lucy Bordley, created a Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, (2014 Form 8278) for petitioner's 2014 taxable year, assessing a single $5,000 penalty pursuant to section 6702(a). The 2014 Form 8278 was signed by manager Andrea Ipson on July 10, 2017. Respondent subsequently 1 2 3 4 5 6 7 8 9 assessed four additional instances of the section 6702(a) 6 penalty for the 2014 tax year; respondent has conceded that petitioner is not liable for these four additional instances. On July 31, 2017, respondent sent to petitioner a Notice CP22A, informing her of changes made to her 2014 Form 1040A to correct her total Federal income tax withheld and reflecting an increase in tax of $961.36 and an increase in interest of $78.85. No notice of 10 deficiency was sent to petitioner regarding the $961.36 11 assessment. 12 13 14 15 16 On April 16, 2018, respondent issued to petitioner a notice of deficiency for the 2014 taxable year (2014 notice of deficiency), determining a deficiency of $241.00 and an accuracy-related penalty under section 6662(a) of $48.20. 17 II. 2015 18 19 20 21 22 23 24 25 Petitioner filed a Form 1040A for tax year 2015, dated February 16, 2016, reporting $0 in income and $1,020.65 in Federal income tax withholding and claiming a refund of $1,020.65. Petitioner attached to her Form 1040A a Form 4852 (2015 Form 4852). On the 2015 Form 4852, petitioner listed $0 in wages, tips, and other compensation and stated that she "did not receive any wages" as defined by sections 3121 and 3401. 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 Respondent's Wage and Income Transcript 7 corresponding to petitioner's 2015 taxable year reflects that petitioner received $13,341.00 in wages, tips and other compensation from Petroleum Synergy Group, Inc. and that Social Security and Medicare taxes totaling $1,020.00 were withheld on her behalf. The parties stipulated that petitioner does not dispute receiving $13,341.00 from Petroleum Synergy Group, Inc. during the 2015 taxable year; rather, petitioner disputes the characterization of these payments as taxable "wages." On March 23, 2016, respondent issued to petitioner a refund in the amount of $1,020.65, corresponding to petitioner's purported withholdings. On July 13, 2017, Ms. Bordley created a Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, (2015 Form 8278) for petitioner's 2015 taxable year, assessing a single $5,000 penalty pursuant to section 6702(a). The 2015 Form 8278 was signed by Ms. Ipson on July 17, 2017. Respondent subsequently assessed one additional instance of the section 6702(a) penalty for the 2015 tax year; respondent has conceded that petitioner is not liable for this additional instance. On August 14, 2017, respondent sent to petitioner a second Notice CP22A, informing her of changes made to her 2015 Form 1040A to correct her total Federal 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 income tax withheld and reflecting an increase in tax of 8 $1,020.65 and an increase in interest of $55.74. No notice of deficiency was sent to petitioner regarding this assessment. III. 2016 Petitioner filed a Form 1040A for tax year 2016, dated February 16, 2016, reporting $0 in income and $1,244.24 in Federal income tax withholding and claiming a refund of $1,244.24. Petitioner attached to her Form 1040A a Form 4852 (2016 Form 4852). On the 2015 Form 4852, petitioner listed $0 in wages, tips, and other compensation and stated that she "did not receive any wages" as defined by sections 3121 and 3401. Respondent disallowed petitioner's refund because it was "based on a frivolous position." Respondent's Wage and Income Transcript corresponding to petitioner's 2016 taxable year reflects that petitioner received $16,264.00 in wages, tips and other compensation from Petroleum Synergy Group, Inc. and that Social Security and Medicare taxes totaling $1,243.00 were withheld on her behalf. The parties stipulated that petitioner does not dispute receiving $16,264.00 from Petroleum Synergy Group, Inc. during the 2016 taxable year; rather, petitioner disputes the characterization of these payments as taxable "wages." 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 On June 28, 2017, Ms. Bordley created a Form 9 8278, Assessment and Abatement of Miscellaneous Civil Penalties, (2016 Form 8278) for petitioner's 2016 taxable year, assessing a single $5,000 penalty pursuant to section 6702(a). The 2016 Form 8278 was signed by Ms. Ipson on June 29, 2017. Respondent subsequently assessed one additional instance of the section 6702(a) penalty for the 2016 tax year; respondent has conceded that petitioner is not liable for this additional instance. On June 21, 2019, respondent sent to petitioner a Letter 525, informing petitioner that, based on review of her 2016 Form 1040A, respondent had found that she owed a balance of $793.00 for the 2016 tax year, encompassing tax, penalty under section 6662(a), and accrued interest. Petitioner made two attempts to respond to the Letter 525 via certified mail. On August 14, 2019, respondent issued to petitioner a notice of deficiency for the 2016 taxable year (2016 notice of deficiency), determining a deficiency of $593.00 and an accuracy-related penalty under section 6662(a) of $118.60. IV. NFTL and CDP Hearing On February 20, 2020, respondent issued to petitioner an NFTL, concerning her unpaid tax balances for the years at issue. Petitioner submitted to respondent 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 letter, dated March 16, 2020, requesting a Collection Due 10 Process (CDP) hearing, which was timely received by respondent on March 20, 2020. In the letter, petitioner stated that she was requesting a hearing because she: (1) did not believe that she had "any liability for all or part of the taxes," (2) disputed "any liability for the penalties," and (3) challenged "the appropriateness of the lien." Petitioner did not request a collection alternative. On July 20, 2020, Kevin Healy (SO) from respondent's Appeals Office sent to petitioner an initial contact letter, stating that he had received petitioner's hearing request and scheduling a telephonic hearing. In response, petitioner sent to the SO a letter, dated August 1, 2020, in which petitioner outlined her arguments and provided "all documentation being presented" for the CDP hearing. Therein, petitioner disputed her tax liability, contended that she did not take a frivolous position in her Forms 1040A and 4852 for the years at issue, and alleged that "there can be no validity to the lien." On July 27, 2020, petitioner and the SO agreed to conduct the hearing by mail. The parties have stipulated that the CDP hearing process ran for approximately 20 months, from June 15, 2020, to February 25 18, 2022. 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 On February 23, 2022, the SO issued to 11 petitioner a notice of determination, sustaining the NFTL. On March 21, 2022, petitioner filed a Petition with the Court. In her attachment to the Petition, petitioner contends that she "is not liable for any additional tax liability and did not make any errors" on her Forms 1040A for the years at issue. OPINION I. Standard of Review Section 6320 requires the Commissioner to notify a taxpayer of the filing of an NFTL. The notice must inform the taxpayer of his or her right for a CDP hearing regarding the proposed collection action. § 6330(a). At the CDP hearing, the taxpayer may raise any relevant issue relating to the collection of the unpaid tax, including a request for consideration of a collection alternative. See § 6330(c)(2)(A). A taxpayer is expected to provide all relevant information requested by the Appeals Office for its consideration of the facts and issues involved in the hearing. See Treas. Reg. § 6330(c)(2)(A). After the CDP hearing, the taxpayer may seek judicial review of a determination sustaining a lien filing by filing a petition with this Court. § 6330(d)(1). Where the taxpayer's underlying liability is properly at issue, the Court reviews any determination 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 regarding the underlying liability de novo. Goza v. 12 Commissioner, 114 T.C. 176, 181-82 (2000). Where the taxpayer's underlying liability is not properly at issue, the Court reviews the SO's determination for abuse of discretion. See Swanson v. Commissioner, 121 T.C. 111, 119 (2003). Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006). II. Challenge to Underlying Liability A taxpayer may challenge the existence or amount of her underlying tax liability in a CDP proceeding only "if the person did not receive any statutory notice of deficiency for such tax liability or otherwise did not have an opportunity to dispute such tax liability." § 6330(c)(2)(B). The phrase "underlying tax liability" includes the tax due, any additions to tax or penalties, and statutory interest. See Katz v. Commissioner, 115 T.C. 329, 339 (2000). This Court considers a challenge to underlying liability in a CDP case only if the taxpayer properly raised a challenge in the CDP proceeding. See Giamelli v. Commissioner, 129 T.C. 107, 115 (2007); Treas. Reg. § 301.6330-1(f)(2); Q&A-F3. The taxpayer does not properly raise an issue, including the underlying liability, during the CDP hearing 1 2 3 4 5 6 7 8 9 if she "fails to present to Appeals any evidence with 13 respect to that issue after being given a reasonable opportunity to present such evidence." Treas. Reg. § 301.6330-1(f)(2), Q&A-F3. We now turn to whether petitioner properly raised an underlying liability challenge. In the present case, the underlying liability consists of section 6702 frivolous return penalties, income tax liabilities, accuracy-related penalties, and interest. 10 A. Section 6702 Penalties 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 At the outset, we note that respondent has conceded that petitioner is not liable for all but the first instance of the section 6702(a) penalty for each of the years at issue. The parties disagree as to whether petitioner is liable for a single instance of the section 6702(a) penalty for each of the years at issue. As a threshold matter, we conclude that petitioner is not precluded from challenging her underlying liability for section 6702(a) penalties by section 6330(c)(2)(B). Section 6703(b) provides that the deficiency procedures do not apply to the assessment of frivolous return penalties under section 6702. Consequently, petitioner did not receive a notice of deficiency for the section 6702 penalties at issue here and did not have a previous opportunity to dispute such 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 liability. 14 However, we have previously observed that "de novo review of frivolous return penalties is not automatic" and that a taxpayer "must make a meaningful challenge to the penalty itself" in order to preserve an underlying liability challenge for review. Pohl v. Commissioner, T.C. Memo. 2013-291, at *8. Accordingly, a taxpayer must plausibly contend that her return either (1) contained sufficient "information on which the substantial correctness of the self-assessment" could be judged, § 6702(a)(1)(A), or (2) was not "based on a position which the Secretary has identified as frivolous." Pohl, T.C. Memo. 2013-291, at *8; § 6702(a)(2)(B). Petitioner cannot plausibly contend that her Forms 1040A and 4852 for the years at issue contained sufficient information on which the substantial correctness of her self-assessment could be judged. To the contrary, as so-called zero returns, reporting no taxable income, each return "contained information that on its face indicate[d] that the self-assessment [was] substantially incorrect." Walker v. Commissioner, T.C. Memo. 2022-63, at *9 (quoting § 6702(a)(1(B)); see Grunsted v. Commissioner, 136 T.C. 455, 460 (2011) ("This Court and others have repeatedly characterized returns reflecting zero income and zero tax as frivolous."). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Further, we disagree with petitioner's 15 unsupported assertion that her position in her Forms 1040A and 4852 for the years at issue was not one identified by the Secretary as frivolous. Petitioner offered no plausible contentions during the CDP proceeding as to why her returns did not reflect a position that had been identified by the Secretary as frivolous. See Notice 2010-33, III(1)(e), (h)(7). Rather, petitioner's arguments are a "hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish" to which we will not respond "with somber reasoning and copious citation of precedent." Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). We thus conclude that petitioner failed to preserve an underlying liability challenge for review in this Court on this issue. 17 B. Income Tax Liabilities 18 19 20 21 22 23 24 25 The parties have stipulated that petitioner received both the 2014 notice of deficiency and the 2016 notice of deficiency. Although petitioner contends that her 2014 and 2016 income tax liabilities may be challenged, the law is clear: a taxpayer is precluded from raising the underlying liability in a CDP proceeding, and therefore before this Court, when she has previously received a valid notice of deficiency. See § 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 6330(c)(2)(B). 16 The 2015 liability presents a slightly different issue; that liability was summarily assessed pursuant to section 6201(a)(3) and petitioner did not subsequently receive a notice of deficiency for the 2015 tax year. Respondent has not established that petitioner otherwise had a prior opportunity to dispute this liability, and we thus conclude that she may raise an underlying liability challenge. See Ashmore v. Commissioner, T.C. Memo. 2017- 233, at *16-17. However, we may quickly dispense of such a challenge on the merits; reviewing petitioner's 2015 liability de novo, we agree with respondent. On her 2015 Form 1040A, petitioner claimed an overstated amount of federal income tax withholding, which was subsequently refunded to her; respondent's summary assessment of an offsetting amount resulted in the correct amount of 17 liability. 18 19 20 21 22 23 24 25 We now review the remainder of the SO's determination for abuse of discretion. III. Abuse of Discretion In determining whether the SO's determination was an abuse of discretion, we examine whether he complied with section 6330(c)(3), which requires him to (1) verify whether the requirements of applicable law and administrative procedure have been met; (2) consider 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 issues raised by the taxpayer; and (3) consider whether 17 the proposed collection action balances the need for the efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary. See Thompson v. Commissioner, 140 T.C. 173, 178-79 (2013). Our review of the record establishes that the SO verified that the requirements of applicable law or administrative procedure were followed. In both his case activity notes and the notice of determination, the SO documented that he verified: (1) that the assessment was properly made for tax years 2014, 2015, and 2016; (2) that notice and demand was mailed to petitioner's last known address; (3) that a balance was due and owing when the NFTL was issued; and (4) that the SO had no prior involvement with respect to tax years 2014, 2015, and 2016. The SO further verified written supervisory approval of both the section 6702(a) and the section 6662(a) 19 penalties. 20 21 22 23 24 25 Likewise, in the notice of determination, the SO documented that he had conducted a balancing analysis and concluded that sustaining the NFTL was appropriate; we find that the SO balanced the need for efficient collection of taxes with the legitimate concern of petitioner that a collection action be no more intrusive 1 2 3 4 5 6 7 8 9 than necessary. 18 Petitioner did not request a collection alternative. Petitioner raised no relevant issues for the SO to consider. See, e.g., Burnett v. Commissioner, T.C. Memo. 2018-204, at *9 ("The term 'relevant' does not include frivolous or groundless issues."). At trial, petitioner argued that she is entitled to interest abatement; however, she failed to raise such a contention during the underlying CDP proceeding and thus is barred 10 from raising it before us. See Treas. Reg. § 301.6330- 11 1(f) Q&A-F3. 12 13 14 15 16 17 18 19 At trial, petitioner also contended that respondent committed numerous errors through the CDP hearing process, which preclude respondent from processing the NFTL. We disagree. To the extent that respondent made any errors during the CDP hearing, we find that those errors were harmless. We conclude that the SO did not abuse his discretion in making the determination to sustain the 20 NFTL. 21 IV. Conclusion 22 23 24 25 Accordingly, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. In reaching our holdings herein, the Court considered all arguments made, and, to the extent not mentioned above, the Court concludes that 19 they are moot, irrelevant, or without merit. (Whereupon, at 5:18 p.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