t c no united_states tax_court howard and everlina washington petitioners v commissioner of internal revenue respondent docket no 11152-o0o1l filed date held the court has jurisdiction to determine whether the u s bankruptcy court discharged petition- ers from their respective unpaid federal_income_tax tax_liabilities for their taxable years and held further the u s bankruptcy court did not discharge petitioners from such liabilities held further respondent’s application of peti- tioners’ overpayment for their taxable_year as a credit against their unpaid tax_liability for their taxable_year and not was proper see sec_6402 i r c held further respondent may proceed with the collection action as determined in the notice of deter- mination with respect to each of petitioners’ taxable years and - - howard washington and everlina washington pro sese marie eb small for respondent chiechi judge the petition in this case was filed in response to a notice_of_determination concerning collection action s under sec_6320 and or 6330' notice of determina- tion findings_of_fact most of the facts have been stipulated and are so found at the time petitioners filed the petition in this case they resided in new york new york on date petitioners jointly filed late form_1040 u s individual_income_tax_return form_1040 for each of their taxable years return and return in their return petitioners reported that they owed dollar_figure in tax in their return petitioners reported that they owed dollar_figure in tax when petitioners filed form sec_1040 for their taxable years and they did not pay the respective amounts of tax that they owed for those years ‘al11 section references are to the internal_revenue_code in effect at all relevant times all rule references are to the tax_court rules_of_practice and procedure petitioners’ return was due on date the record does not establish when petitioners’ return was due however the maximum extension of time that respondent could have granted for the filing of petitioners’ return was months sec_6081 - on date respondent assessed petitioners’ tax as well as any penalties and interest as provided by law for each of their taxable years and in date petitioners jointly filed form_1040 for their taxable_year return in their return petition-- ers claimed a refund of dollar_figure petitioners’ overpayment on date when petitioners’ return was due petitioners’ unpaid tax_liability for petitioners’ unpaid liability exceeded dollar_figure the amount of petitioners’ overpayment on a date after date and before date that is not disclosed by the record respondent applied petitioners’ overpayment as a credit against petitioners’ unpaid liability ie respondent used that overpayment to offset part of that liability on date petitioners filed a petition bankruptcy 3in a notice dated date date notice relat- ing to petitioners’ taxable_year respondent informed petitioners that respondent had applied petitioners’ over- payment to other federal taxes and that petitioners were not entitled to any refund for their taxable_year only the first page of the date notice is part of the instant record the portion of that notice which showed inter alia the other federal taxes to which respondent applied petitioners’ overpayment is not part of the record in this case how- ever the parties stipulated that respondent applied the overpayment as a credit against petitioners’ unpaid liabil- ity the parties stipulated that petitioners filed their bank- ruptcy petition on date that stipulation is clearly contrary to the date of date that the u s bankruptcy continued q4e- petition in the u s bankruptcy court for the southern district of new york thereby commencing a bankruptcy proceeding under chapter of title of the united_states_code attached to petitioners’ bankruptcy petition was a document entitled sched- ule e --- creditors holding unsecured priority claims petition- ers’ bankruptcy schedule e petitioners’ bankruptcy schedule e listed the internal_revenue_service as a creditor with respect to a claim totaling dollar_figure relating to petitioners’ taxes for on date the u s bankruptcy court for the southern district of new york entered a discharge of debtor order of final decree date discharge order the date discharge order provided in pertinent part it is ordered that the debtor is released from all dischargeable debts any judgment not obtained in this court is null and void as to the personal liability of the debtor s regarding the following continued court for the southern district of new york stamped on that petition and we shall disregard that stipulation see 93_tc_181 the record establishes and we have found that petitioners filed their bankruptcy petition on date -the only other creditor listed in petitioners’ bankruptcy schedule e was the new york state department of taxation and finance with respect to a claim totaling dollar_figure relating to petitioners’ taxes for a debts dischargeable under u s c a b debts alleged to be excepted from discharge under u s c a or unless determined by this court to be nondischargeable c debts determined by this court to be discharged on date petitioners jointly filed form_1040 for their taxable_year return in their return petitioners reported a total_tax of dollar_figure reduced that amount by a dollar_figure which represented tax previously withheld and b dollar_figure which represented petitioners’ overpayment and reported that they owed dollar_figure in tax for their taxable_year when petitioners filed form_1040 for their taxable_year they did not pay the amount of tax that they owed for that year on date respondent assessed petitioners’ tax as well as any penalties and interest as provided by law for their taxable_year on date respondent filed a notice_of_federal_tax_lien in new york county new york with respect to petition- ers’ taxable years and that notice showed in pertinent part respondent did not apply petitioners’ overpayment as a credit against the total_tax reported in petitioners’ return that is because as we found above respondent had previously applied that overpayment as a credit against petitioners’ unpaid liability taxable_year unpaid balance of assessment s dollar_figure dollar_figure dollar_figure we shall refer to the foregoing unpaid balance of assessment for each of petitioners’ taxable years and as well as any accrued interest thereon not yet assessed as petitioners’ unpaid liability for each of those years on date respondent mailed to petitioners a notice informing them that respondent had filed a federal_tax_lien with respect to petitioners’ unpaid liability for each of their taxable years and and that they had a right to a hearing appeals_office hearing with respect to that lien on date petitioners filed form request for a collection_due_process_hearing form in an attach- ment to form petitioners stated in pertinent part first may we state for the record that your intent to enact a lien against any assets jobs or personal_property or finances that we may have is a grave error we insist that you cease from any impending actions to avert any embarrassment or possible legal consequences which can thus be avoided we trust that you will fax us _a statement immediately of your intent to suspend action as outlined in your collection appeals rights second we are eager to finally put closure to this outstanding tax matter for the years indicated and we trust that you will work fairly and cooperatively with us in reaching a mutual resolution we feel our posi- tion of not owing the outstanding balance for which payment is being requested is based on the bankruptcy court decree under case number ajg dated date see attached copy the tax years and were part of this charge off through bankruptcy and were granted along with other years that have already been resolved the irs was well informed of our intent to charge off the aforementioned years and had ample time to question refute or object to our intent to charge off said years a period of months passed without objection either in writing or in person prior to the final decree being rendered on by the honorable judge arthur j gonzalez therefore once the charge off was finalized we were under the complete understanding that these tax years were no longer an issue and that the entire matter had been acceptably resolved on date a hand written communiqué was sent to our attention by a customer service representative x instructing us to send you a copy of our dis- charge papers to the irs we were left with the understanding that once we complied with this request the necessary adjustment to our accounts would be made and this matter would no longer be an issue well we complied with this request and to no avail we are still dealing with this matter almost two years later so let me make our position very clear we do not wish to battle with you over what seems to be a major misunderstanding if in fact the amounts in gquestion have been legally charged off for the years and then a letter of acknowledgement indi- cating that the charge is acceptable will satisfy our request for resolution if in fact you do not agree with the charge off and you wish to discuss this with us in person we will comply with a prearranged visit in order to reach an amicable resolve that both sides can live with however it must be understood upon receipt of this letter that all actions to implement a lien garnishment of income seizure of assets or any other punitive actions are immediately suspended with- out prejudice and a notice acknowledging such will be forthcoming to abate any undue concern with regard to tax_year this year was not part of the bankruptcy charge off however the amount in guestion arises from a deduction taken from a refund due us that was used to pay for taxes for one of the years that was charged off when we filed our taxes --- - for the refund due us from that was applied to a year charged off was reclaimed as a deduction in evidently your account specialist did not agree with our accountant’s reclaiming that refund so arose the outstanding tax debt reproduced literally on date respondent held a telephonic appeals_office hearing with petitioners on date the appeals_office mailed to petitioners a notice_of_determination regarding the federal_tax_lien that respondent had filed with respect to petitioners’ unpaid liability for each of their taxable years and that notice stated in pertinent part summary of determination you protested the filing of the notice_of_federal_tax_lien nftl because you believed and tax years had been discharged in a bankruptcy proceeding the tax_liability is also in dispute you are incorrect in your assumption that and were discharged in bankruptcy they did not qualify as dischargeable debts and survived the bankruptcy the liability for arose from a disallowed deduction and is considered a valid liability relevant issues presented by the taxpayer you believe the and liabilities were dis- charged under the bankruptcy proceeding docketed as the bankruptcy petition was filed on and listed these and prior years the discharge was dated thus the lien for these two years would be erroneous you further believe that a refund due to you for tax_year was improperly applied to the liability for a year that was discharged when you filed your return you claimed the amount of the refund as a deduction this claim was disallowed and the liability arose it is your contention that the refund is due to with you and there should be no liability for and therefore no reason to file the lien balancing efficient collection and intrusiveness it is necessary to balance the need to efficiently collect the outstanding liability against the taxpay- ers’ legitimate concerns that collection activity is not overly intrusive in this case you are mistaken in your belief that the and liabilities were discharged under bankruptcy law usc sec a b the debt in respect to a tax is not discharged if the return was filed after two years before the date of the filing of the petition the returns for and were filed to be dischargeable they had to be filed no later than therefore by statute they were not dischargeable the refund you expected for became part of the bankruptcy_estate when you filed the petition for chapter this is a liquidation of assets and pro- vides the mechanism for taking control of the property of the debtor you no longer had an interest in the property of the bankruptcy_estate therefore you lack standing to challenge the treatment of the refund see in re gucci 126_f3d_380 2d cir the disallowance of the deduction of the amount of the refund was the correct action and the liability created by the disallowance is due and owing all legal and procedural guidelines were met prior to the filing of the nftl the years in question are based on valid assessments the lien is considered to be the least intrusive method of protecting the govern- ment’s interest in the collection of the debt the determination to file the lien is sustained opinion in support of their position that respondent may not proceed collection with respect to their taxable years and petitioners contend that the u s bankruptcy court for the -- - southern district of new york discharged them from their respec-- tive unpaid liabilities for such years respondent does not dispute that if we find that that court discharged petitioners from such unpaid liabilities respondent may not proceed with the collection action as determined in the notice_of_determination with respect to petitioners’ taxable years and however respondent disagrees with petitioners’ contention that the u s bankruptcy court for the southern district of new york discharged petitioners from their respective unpaid liabilities for those years we must first determine whether we have juris- diction to resolve the parties’ dispute over whether that court discharged petitioners from such unpaid liabilities ’ it is the position of the parties that the court has that jurisdiction where the court has jurisdiction over the underlying tax_liability the court has jurisdiction to review a determination by the appeals_office to proceed by lien with respect to any such ‘shortly after having received the parties’ respective trial memoranda in this case the court advised the parties during a telephonic conference inter alia that an issue exists as to whether the court has jurisdiction to resolve the dispute that they discussed in such memoranda over whether the u s bankruptcy court for the southern district of new york discharged petition-- ers from their respective unpaid liabilities for their taxable years and at the beginning of the trial in this case the court reminded the parties about that jurisdictional issue after that trial the court directed the parties to address in the posttrial briefs the jurisdictional issue that the court had raised unpaid liability see sec_6330 in the instant case the appeals_office determined in the notice_of_determination inter alia that the u s bankruptcy court for the southern district of new york did not discharge petitioners from their respective unpaid liabilities for their taxable years and and that respondent may proceed by lien with respect to such liabilities we have held in deficiency proceedings commenced in the court under sec_6213 that we do not have jurisdiction to determine whether a u s bankruptcy court has discharged a taxpayer from an unpaid tax_liability in a bankruptcy proceeding instituted by such taxpayer 94_tc_1 graham v commissioner t c in so holding we relied on 65_tc_1180 in which we observed that an action brought for redetermination of a deficiency has nothing to do with collec-- tion of the tax nor any similarity to an action for collection of a debt in contrast to a deficiency proceeding a lien proceeding commenced in the court under sec_6330 such as the instant lien proceeding is closely related to and has everything ‘the instant case deals with a lien which is subject_to sec_6320 sec_6320 provides that subsections c d other than paragraph b thereof and e of sec_6330 relating to proposed levies shall apply to do with collection of a taxpayer’s unpaid liability for a taxable_year we must determine in the instant lien proceeding whether respondent may proceed with the collection action as determined in the notice_of_determination with respect to inter alia petitioners’ taxable years and whether the u s bankruptcy court for the southern district of new york discharged petitioners from their respective unpaid liabilities for those years is an issue that has a direct bearing on whether respondent may proceed with the lien at issue ’ we hold that in the instant lien proceeding commenced under sec_6330 the court has jurisdiction to determine whether the u s bankruptcy court for the southern district of new york discharged petitioners from such unpaid liabilities having held that we have jurisdiction to resolve the dispute between the parties over whether the u s bankruptcy court for the southern district of new york discharged petitioners from their respective unpaid liabilities for their taxable years and we now address that dispute sec_6330 allowed petitioners to raise at their appeals_office hearing any relevant issue with respect to their respective unpaid liabilities for their taxable years and including ii challenges to the appropriateness of collection actions sec_6330 a respondent does not dispute that petitioners’ claim at their appeals_office hearing that the u s bankruptcy court for the southern district of new york discharged them from their respective unpaid liabilities for their taxable years and which are the subject of a lien raised a relevant issue that challenges the appropriateness of such lien an individual debtor is not to be discharged in a bankruptcy proceeding from certain specified categories of debts u s c sec a the first such category is described in pertinent part in u s c sec a as follows exceptions to discharge a a discharge under section a b or b of this title title does not discharge an individual debtor from any debt--- for a tax or a customs duty- a of the kind and for the periods specified in sec_507 or a of this title whether or not a claim for such tax was filed or allowed b with respect to which a return if required-- was not filed or was filed after the date on which such return was last due under applicable law or under any extension and after two years before the date of the filing of the petition petitioners argue that their respective unpaid liabilities for their taxable years and do not fit within the exception to discharge set forth in u s c sec a b according to petitioners only if the taxes were filed after years before the date of filing of the petition would the years in guestion be non dischargeable sic the tax years in question were filed months before the date of the petition and not after years before the date of the petition the above-quoted argument of petitioners misconstrues and -- misapplie sec_11 u s c sec a b an individual debtor is not discharged in a bankruptcy proceeding from a debt for tax with respect to which a return is filed after the date on which such return was last due and after years before the date of the filing of the bankruptcy petition u s c sec a b in other words an individual debtor is not discharged in a bankruptcy proceeding from a debt for tax with respect to which a return is filed late and within the 2-year period immediately preceding the filing of the bankruptcy peti- tion e g 535_us_43 the date discharge order of the u s bank- ruptcy court for the southern district of new york provided in pertinent part that petitioners were released from all dischargeable debts in the instant case petitioners’ return and petitioners’ return both were filed late on date petitioners filed their bankruptcy petition on date on the record before us we find that petition-- ers filed their return and their return after the respective dates on which such returns were last due and after years before the date on which they filed their bankruptcy petition see u s c sec a b see also young v united_states supra we further find on that record that pursuant to u s c sec a b the u s bankruptcy court for the southern district of new york did not discharge - - petitioners from their respective unpaid liabilities for their taxable years and we now consider petitioners’ unpaid liability for it is petitioners’ position that respondent should have applied petitioners’ overpayment to offset part of their unpaid liability for and not their unpaid liability for respondent argues that pursuant to sec_6402 respondent’s application of petitioners’ overpayment as a credit against petitioners’ unpaid liability was proper petitioners do not address that argument sec_6402 provides in pertinent part tnstead for the first time on brief petitioners contend that respondent violated the automatic_stay imposed by u s c sec_362 when respondent applied petitioners’ overpayment as a credit against their unpaid liability we shall not consider that contention the record does not estab- lish that petitioners raised that contention at their appeals_office hearing see 118_tc_488 115_tc_582 n see also sec_301_6320-1 q a-f5 proced admin regs or at trial see 87_tc_1046 55_tc_862 in any event we note that as pertinent here the automatic_stay imposed by u s c sec_362 was effective on date the date on which petitioners filed their bankruptcy petition in the u s bankruptcy court for the southern district of new york see u s c sec_362 in date petitioners filed their return which showed petitioners’ overpayment the notice informing petitioners that respondent had applied petitioners’ overpayment as a credit against another tax_liability of petitioners was dated date we find that the record does not establish that respondent applied petition- ers’ overpayment as a credit against petitioners’ unpaid liability on or after date the date on which petitioners filed their bankruptcy petition -- - in the case of any overpayment the secretary x may credit the amount of such overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment xk k when petitioners filed their return in date they had an unpaid liability with respect to their taxable_year that exceeded the amount of petitioners’ overpayment shown in that return we hold that sec_6402 authorized respon- dent to credit petitioners’ overpayment against their unpaid liability we now address what we understand to be petitioners’ posi- tion that the court should review respondent’s failure to abate any penalties and interest under sec_6404 with respect to their taxable years and and should abate any such penalties and interest we turn first to petitioners’ position regarding respondent’s failure to abate interest under sec_6404 the record does not establish that petitioners raised at their appeals_office hearing respondent’s failure to abate interest under sec_6404 consequently we shall not consider that matter ' see magana v commissioner t c ‘in support of their contention that they raised at their appeals_office hearing respondent’s failure to abate interest under sec_6404 petitioners rely on a document that they at-- tached to their answering brief and that is not part of the instant record the court has disregarded that document see rule b assuming arguendo that the record before us had estab- continued 115_tc_582 n see also sec_301_6320-1 q a-f5 proced admin regs we turn next to petitioners’ position regarding respondent’s failure to abate penalties under sec_6404 the record does not establish that petitioners raised at their appeals_office hearing respondent’s failure to abate penalties under sec_12 continued lished that petitioners raised at their appeals_office hearing respondent’s failure to abate interest under sec_6404 with respect to their taxable years and and that we concluded that we have jurisdiction under sec_6404 to con- sider petitioners’ request that we review such failure see 115_tc_329 on the instant record we find that petitioners have not shown that respondent abused respondent’s discretion in failing to abate interest under sec_6404 for any of their taxable years and see sec_6404 in fact we find on that record that petition-- ers have failed to establish any error or delay attributable to an officer_or_employee of respondent being erroneous or dilatory in performing a ministerial_act within the meaning of sec_6404 requiring an abatement of interest with respect to their taxable years and and a ministerial or managerial act within the meaning of sec_6404 requiring an abatement of interest with respect to their taxable_year see katz v commissioner supra pincite in this connection at trial peti- tioner howard washington mr washington testified about several alleged acts of certain employees of the internal revenue ser- vice which petitioners contend require abatement of interest under sec_6404 we find that none of the alleged acts about which mr washington testified qualifies as a ministerial_act or a managerial act within the meaning of sec_6404 see sec_301_6404-2 and proced admin regs 3the record does not disclose the nature of the penalties for which respondent contends petitioners are liable -- - dollar_figure consequently we shall not consider that matter ' see magana v commissioner supra miller v commissioner supra see also sec_301_6320-1 q a-f5 proced admin regs based upon our examination of the entire record before us we find that respondent may proceed with the collection action as determined in the notice_of_determination with respect to each of petitioners’ taxable years and we have considered all of petitioners’ arguments and conten- tions that are not discussed herein and we find them to be without merit and or irrelevant to reflect the foregoing decision will be entered for respondent reviewed by the court cohen swift colvin beghe foley thornton and marvel jj agree with this majority opinion ‘in support of their contention that they raised at their appeals_office hearing respondent’s failure to abate penalties under sec_6404 petitioners rely on a document that they at-- tached to their answering brief and that is not part of the instant record the court has disregarded that document see rule b assuming arguendo that the record before us had estab- lished that petitioners raised at their appeals_office hearing respondent’s failure to abate any penalties under sec_6404 with respect to their taxable years and we hold that the court does not have jurisdiction to review petitioners’ request that we review any such failure see sec_6404 see also 112_tc_19 n wells c j concurring i respectfully concur in this court's decision to exercise jurisdiction in the instant case to decide whether a tax_liability has been discharged in bankruptcy i write to note however that our opinion does not necessarily preclude taxpayers from seeking review in an appropriate bank- ruptcy court after they have petitioned this court although the issue to be decided in the instant case is relatively straight-- forward it is possible that taxpayers will present this court with more difficult questions that may be better suited for consideration by a bankruptcy court under such circumstances this court may defer to a bankruptcy court to decide the matter such deference would not be premised upon any concerns that we lack jurisdictional capacity to consider the issue rather it would be based upon considerations of comity and judicial effi- ciency combined with our recognition that this court does not deal with bankruptcy matters with the expertise that a bankruptcy court possesses see 83_tc_309 gerber beghe and foley jj agree with this concurring opinion halpern j concurring i introduction i concur with the conclusion of the majority that respondent may proceed with the collection action as determined in the notice_of_determination with respect to each of petitioner’s taxable years and i write separately princi- pally to add some observations concerning what we have character- ized as the standard of review described infra applicable to our jurisdiction under sec_6330 to review a sec_6330 determination ti sec_6330 sec_6330 entitles a taxpayer to notice and an opportu- nity for a hearing before certain lien and levy actions are taken by the commissioner in furtherance of the collection from the taxpayer of unpaid federal taxes at such required hearing the sec_6330 hearing the appeals officer conducting the hearing must verify that the requirements of any applicable law or administrative procedure have been met sec_6330 the taxpayer requesting the sec_6330 hearing may raise any relevant issue relating to the unpaid tax or the proposed levy sec_6330 a the taxpayer may also raise challenges to the existence or amount of the underlying tax_liability if the person did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to --- - dispute such tax_liability sec_6330 b following the sec_6330 hearing the appeals officer must determine whether the collection action is to proceed taking into account the verification the appeals officer has made the issues raised by the person requesting the hearing and whether any proposed collection action balances the need for the efficient collection_of_taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary sec_6330 we have jurisdiction to review such determinations where we have jurisdiction of the underlying tax_liability sec_6330 d a tiil the nature of the hearing before us in 114_tc_604 we discussed the standard of review that a court is to apply in reviewing a sec_6330 determination after reviewing a portion of the legislative_history relevant to the enactment of sec_6330 we stated w here the validity of the underlying tax_liability is properly at issue the court will review the matter on a de novo basis however where the validity of the underlying tax_liability is not properly at issue the court will review the commissioner’s administrative determination for abuse_of_discretion see also 114_tc_176 the same perhaps a more instructive way to describe the process involved when we review a sec_6330 determination would be to -- - distinguish between situations in which the taxpayer must rely on the record made before the appeals officer and situations in which he is entitled to make a new record in reviewing adminis-- trative determinations a court ordinarily is limited to consid- eration of the decision of the agency involved and of the evi- dence on which it was based 373_us_709 nevertheless we have concluded that in sec_6330 congress intended an exception to that general_rule in situations where the existence or amount of the underly- ing tax_liability was properly before the appeals officer under sec_6330 b and the appeals officer’s determination in that respect is presented to a court for review in such situa- tions the court must accord the taxpayer a hearing de novo on the existence or amount of the underlying tax_liability the taxpayer may make a new record and he is not restricted to arguing from the record made before the appeals officer iv determining the applicability of sec_6330 b in order to determine which matters are properly raised by a taxpayer under sec_6330 b e those matters with respect to which the reviewing court must accord the taxpayer a hearing de novo it is necessary to review some basic provisions of chapter sec_63 assessment and collection of the internal_revenue_code sec_6201 provides that the secretary is authorized and required to make assessments of all taxes - - x imposed by this title such authority extends to ‘all taxes determined by the taxpayer or by the secretary for which a return is required sec_6201 a preliminary step is required however in the case of income estate gift and certain excise_taxes with respect to those types of taxes if the tax imposed exceeds the amount shown if any as the tax by the taxpayer on the required return the commissioner acting for the secretary generally may not assess such deficiency without first issuing a notice_of_deficiency to the taxpayer and allowing the taxpayer to petition this court for a redetermination of such deficiency sec_6201 sec_6211 sec_6212 sec_6213 sec_6214 and sec_6215 on the collection side sec_6303 provides generally that the secretary shall after the making of an assessment of a tax give notice to each person liable for the unpaid tax stating the amount and demanding payment thereof when sec_6330 is read against the backdrop of the statutory provisions discussed in the preceding paragraph it becomes apparent that the term underlying tax_liability as used in sec_6330 b means the tax which may or may not be the correct_tax on which the commissioner based his assessment whether such tax is the tax shown on the taxpayer’s return or the tax determined as a result of an examination by the commissioner whereas the term unpaid tax as used in section -- - c a refers to the unpaid portion of the assessed tax a fixed amount that is the subject of the notice of lien or proposed levy that is part of the commissioner’s collection function that interpretation is consistent with the proviso in sec_6330 b that a petitioner may challenge the existence or amount of the underlying tax_liability only if the taxpayer did not receive any statutory_notice_of_deficiency for such tax_liability or did not otherwise have an opportunity to dispute such tax_liability that is a taxpayer may dispute the determination of the tax that formed the basis of the commis-- sioner’s assessment only if he did not have such an opportunity prior to assessment to summarize the only issues that a taxpayer may properly raise under sec_6330 b and therefore the only issues with respect to which the reviewing court must accord the tax- payer a hearing de novo are issues relating to a redetermination of the tax on which the commissioner based his assessment provided that the petitioner did not have an opportunity to seek such a redetermination prior to assessment all other challenges to the proposed collection action are properly raised under sec_6330 a and a taxpayer seeking judicial review of the appeals officer’s disposition of any such challenge is restricted to arguing from the record made before the appeals officer - - v the discharge_in_bankruptcy issue petitioners’ claim that the u s bankruptcy court for the southern district of new york the bankruptcy court discharged them from their respective unpaid liabilities for and is not a challenge to the preassessment determination of the tax but rather is in the nature of an affirmative defense that petitioners could raise in any postassessment action to collect the unpaid portion of the assessed tax from them see eg first natl bank v haymes n y s 2d city civ ct stating w here the bankrupt is sued upon a debt a discharge_in_bankruptcy is a defense which must be affirmatively pleaded by him such a defense is relevant to collection of the unpaid portion of the assessed tax and thus is appropriately raised under sec_6330 a but not under sec_6330 c b vi standard of review where upon appeal from a sec_6330 determination a challenge to the existence or amount of the taxpayer’s underlying tax_liability ie a challenge to the determination of the tax on which the commissioner based his assessment is properly before us the taxpayer is entitled to a hearing de novo and may make a record and we should decide that challenge in the same manner as we would redetermine a deficiency pursuant to sec_6214 in most other instances where we are asked to review a - - sec_6330 determination the taxpayer will be asking us to review some exercise of discretion by the appeals officer such as his determination that the proposed collection action balances the need for efficient collection against the intrusiveness of the collection action such a review of discretionary action necessarily involves a question of what was before the appeals officer and we determine whether the appeals officer abused his discretion by considering the record before him the standard of review in such instances may thus be characterized as an abuse_of_discretion standard of course we may be asked to review whether the appeals officer correctly applied the law eg whether he correctly interpreted some provision of sec_6015 which provides relief from joint_and_several_liability on joint returns whether characterized as a review for abuse of discre- tion or as a consideration de novo of a question of law we must reject erroneous views of the law see 496_us_384 finally if we are asked to review whether the appeals officer satisfied his obliga-- tion under sec_6330 to obtain verification that all legal and administrative regquirements have been met we are not as put by the court_of_appeals for the second circuit in the context of reviewing a discretionary action taken by the district_court for the southern district of new york it is not inconsistent with the discretion standard for an appellate court to decline to honor a purported exercise of discretion which was infected by an error of law 719_f2d_23 2d cir o7 - presented with a matter of discretion at the two extremes we are presented either with a purely factual question whether the appeals officer did it or a purely legal question whether his actions were legally sufficient vii conclusion in the case before us the appeals officer had before him the bankruptcy court’s discharge order the discharge order which in pertinent part provided that the debtor is released from all dischargeable debts the appeals officer examined the pertinent provisions of the bankruptcy law in particular u s c sec a and determined that petitioners’ and federal_income_tax liabilities had not been dis- charged the appeals officer did not abuse his discretion in determining that the discharge order did not discharge petition- ers’ and tax_liabilities gerber beghe and gale jj agree with this concurring opinion - - beghe j concurring i write separately to address concerns expressed by judge vasquez and other concerns and to attempt to provide explanations of matters left to implication by the majority opinion on the initial question of the court’s jurisdiction to address the bankruptcy discharge issue i would flesh out the majority opinion’s conclusion that the tax_court has jurisdiction to address the issue under its statutory mandate to observe that the bankruptcy act u s c sec_1334 and b does not deprive the tax_court of jurisdiction although sub- section a provides that the district courts shall have origi- nal and exclusive jurisdiction of all cases under title the case at hand appears to be a situation described in subsection b arising under title or arising in or related to cases under title in which the district courts have original but not exclusive jurisdiction the corollary proposition is that the case at hand is one in which other courts including the tax u s c sec_1334 and b provides as follows a except as provided in subsection b of this section the district courts shall have original and exclusive jurisdiction of all cases under title b notwithstanding any act of congress that confers exclusive jurisdiction on a court or courts other than the district courts the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title or arising in or related to cases under title - - court have concurrent jurisdiction with the district courts to decide various bankruptcy discharge issues ’ the second paragraph of judge vasquez’s concurring opinion indicates some uncertainty about what aspect of respondent’s determination with respect to and we are reviewing the court is reviewing respondent’s ultimate determination that the determination to file the lien is sustained and the determination in support of that ultimate determination that the bankruptcy court did not discharge petitioners from their unpaid tax_liabilities for the taxable years and judge vasquez states in his third paragraph that a challenge to the appropriateness of collection action under sec_6330 c a ii appears to him to be more about the type and or method of collection chosen by the irs rather than being about whether petitioners’ taxes were discharged in bankruptcy in my view a question about the appropriateness of the collection action includes whether it is proper for the irs to proceed with the collection action as determined in the notice of determina- tion i would conclude and the parties agree that if the bankruptcy court discharged petitioners from their unpaid tax_liabilities for and any collection action for those see text infra at note sec_3 and and authorities cited for the proposition that other courts have concurrent jurisdiction with the district courts sitting in bankruptcy and bankruptcy courts under u s c sec a over all but certain specified bankruptcy discharge issues - - years would be inappropriate and therefore respondent could not proceed in any event a challenge to the appropriateness of collection action under sec_6330 a is illustrative of the type of any relevant issue relating to the unpaid tax the taxpayer may raise under sec_6330 a judge vasquez goes on to state in his fourth paragraph that whether petitioners’ taxes have been discharged in bankruptcy appears to be a challenge to the existence or amount of their underlying tax_liability under sec_6330 b preliminarily i note that whether there is an issue under sec_6330 b is not crucial to resolving whether we have jurisdiction to decide whether petitioners were discharged from their unpaid tax_liabilities for and and if we do have such jurisdiction whether they were so discharged whether there is an issue under sec_6330 b is relevant only for the purpose of determining whether we are deciding this case under a de novo standard of review or an abuse-of-discretion standard of review this leads to judge vasquez’s comments regarding the stan- dard of review judge vasquez indicates that assuming we have jurisdiction it is unclear what standard of review to apply in resolving the bankruptcy discharge issue although the majority opinion does not explicitly state what that standard is the opinion clearly and properly applies a de novo standard and holds - - that the bankruptcy court did not discharge petitioners from their unpaid tax_liabilities for and a fortiori respondent did not abuse respondent’s discretion in determining to sustain the lien with respect to and on the ground that the bankruptcy court did not discharge petitioners from those liabilities regardless of the standard of review peti- tioners have not satisfied that standard in other words resolution of the bankruptcy discharge issue does not depend on the standard of review i therefore see no harm in the majority opinion’s not explicitly stating the standard of review i now return to judge vasquez’s statement that whether petitioners’ taxes have been discharged in bankruptcy appears to be a challenge to the existence or amount of their underlying tax_liability under sec_6330 b while that is not an unreasonable position i believe the better view is that the bankruptcy discharge issue in the case at hand does not relate to the existence or amount of the underlying tax_liability that is because the so-called discharge_in_bankruptcy does not discharge a tax debt it discharges the individual debtor from the tax debt as pertinent here u s c section a b provides that a discharge under section a b or b of title does not discharge an individual debtor from any debt for a tax with respect to which a return was filed late and within the two-year period immediately preceding the date of - - the filing of the bankruptcy petition in my view a discharge_in_bankruptcy of a tax debt does not vitiate the existence or the amount of that debt rather the discharge discharges the individual debtor from paying the tax debt that exists the question might be asked if the bankruptcy court should have expressly determined that a taxpayer was discharged from a tax debt whether we would be at liberty to reach a different result and vice versa judge vasquez answered that guestion for the court in 115_tc_329 in katz the court held because the bankruptcy court had considered and rejected the taxpayer’s claim that he was discharged from a tax_liability for the year in question we would not address that guestion that was the correct result under the rule_of res_judicata or claim preclusion similarly if the tax_court were to hold that a taxpayer was or was not discharged from a particu- lar tax debt the bankruptcy court would be bound by our holding see 647_f2d_550 5th cir in this connection rule a of the federal rules of bankruptcy procedure provides that either a debtor or a creditor may file a complaint in the bankruptcy court to obtain a determination whether a debtor was discharged from a particular debt however the bankruptcy court’s jurisdiction to resolve the dischargeability issue involving most debts including tax - - debts is not exclusive but is concurrent with other courts ’ there may be concern whether as a matter of comity and discretion we should refrain from deciding the discharge issue and instead remit petitioners to the bankruptcy court which has expertise and authority to construe and apply its own order of discharge of course this court has decided myriad cases in which in order to resolve the tax issues we decided issues of law both federal and state outside our primary expertise we have not hesitated to do so before and we properly do so in the case at hand it should be noted that if we declined to resolve the bankruptcy dischargeability issue we could not force petitioners to return to the bankruptcy court to have that court resolve that question what would we do if petitioners should refuse to go to the bankruptcy court and insist that we decide the bankruptcy bankruptcy courts have exclusive jurisdiction only with respect to debts enumerated in u s c sec a and see u s c sec c see eg 46_fsupp_314 e d n y in re crawford bankr bankr w d va in re galbreath bankr bankr s d ill fed r bankr proced advisory committee’s note jurisdiction over this issue on these debts is held concurrently by the bankruptcy court and any appropriate nonbankruptcy forum collier on bankruptcy par pincite 15th ed rev jurisdiction to determine bankruptcy dischargeability issues may be exercised by the bankruptcy court as well as other courts with respect to all debts enumerated in u s c sec a including u s c sec a relating to tax debts except u s c sec_923 a and - -- dischargeability issue we would have an obligation and a responsibility to enter a decision sustaining or rejecting in whole or in part the collection action set forth in the notice_of_determination we would not be fulfilling that obligation and that responsibility if we were to request the taxpayer to ask the bankruptcy court to resolve a question over which we have concur- rent jurisdiction our request to that effect would be inconsistent with the goals of judicial and party economy embodied in the slogan one- stop shopping if we have jurisdiction to resolve the bank- ruptcy dischargeability issue we should not ask the taxpayer who raises that issue at an appeals_office hearing and in this court to go to another court to resolve that issue and then return to this court so we can decide at the end of what will by then have become a very long figurative day whether respondent may proceed with the collection action as determined in the notice of deter- mination even if the taxpayer were willing to go back to the bank- ruptcy court it would be a waste of time and money to try to force or allow them to do so the money would consist not only of additional legal fees but also of additional interest accruing while the liability remains unpaid and if the taxpayers are willing for purposes of delay to take these extra steps and to incur the additional costs the irs should not be impeded further -- - in the collection of tax debts that are due and owing if they have not been discharged in bankruptcy having decided we have jurisdiction there is only one guestion we must address in the lien proceeding at hand in order to decide whether to sustain or reject in whole or in part the collection action in respondent’s notice_of_determination that one question is whether petitioners were discharged under u s c section a b from their unpaid tax_liabilities for the taxable years and this court not the bank- ruptcy court should resolve that question in the lien proceeding at hand and the court has properly done so a final note the bankruptcy discharge issue in the case at hand is a slam dunk for respondent petitioners’ argument on the merits of this issue borders on being frivolous the majority opinion properly shows no hesitation in deciding the issue nothing the court does today will prevent us from revisiting in subsequent collection cases in which other bankruptcy discharge issues are raised whether as a matter of comity and discretion we should defer to the bankruptcy court’s expertise and authority to construe and apply its own order of discharge gerber j agrees with this concurring opinion - - vasquez j concurring i concur with the majority that we have jurisdiction to review respondent’s determination in this case i write separately however because the majority opinion fails to address what standard of review we should apply sec_6330 provides that the commissioner’s determi- nation shall take into consideration the verification presented under sec_6330 the issues raised under sec_6330 and whether the proposed collection action balances the need for efficient collection with the collection action’s being no more intrusive than necessary sec_6330 c provides that at the sec_6330 hearing a taxpayer may raise any relevant issue relating to the unpaid tax or proposed levy including appropriate spousal defenses challenges to the appro- priateness of the collection actions and offers of collection alternatives sec_6330 a in appropriate circumstances a taxpayer may also raise challenges to the existence or amount of the underlying tax_liability sec_6330 b although the majority interprets petitioners’ bankruptcy discharge argument as a challenge to the appropriateness of collection action under sec_6330 a majority op p note it is unclear to me how a challenge to the appro- priateness of the collection action includes whether the bank- ruptcy court discharged the tax_liability a challenge to the appropriateness of the collection action appears to me to be more - - about the type and or method of collection action chosen by the irs whether petitioners’ taxes have been discharged in bank- ruptcy appears to be a challenge to the existence or amount of their underlying tax_liability under sec_6330 b by claiming that the bankruptcy court discharged their tax liabili- ties petitioners are claiming either that as a result of the discharge their tax_liability no longer exists or regardless of the continuing existence of the debt as a result of the discharge the amount of tax they are liable for is zero whether a taxpayer is challenging the existence or amount of the underlying tax_liability is relevant because it determines the standard of review we apply if the validity of the underly- ing tax_liability is properly at issue the court reviews the matter on a de novo basis however if the validity of the underlying tax_liability is not properly at issue the court reviews the commissioner’s administrative determination for an abuse_of_discretion 114_tc_604 114_tc_176 we adopted these standards of review based on the legislative_history of sec_6330 where the validity of the tax_liability was properly at issue in the hearing and where the determination with regard to the tax_liability is part of the appeal no levy may take place during the pendency of the appeal the amount of the tax_liability will in such cases be reviewed by the appropriate court on a de novo basis -- - where the validity of the tax_liability is not properly part of the appeal the taxpayer may challenge the determination of the appeals officer for abuse_of_discretion h conf rept pincite 1998_3_cb_747 sego v commissioner supra pincite goza v commissioner supra pincite i see no reason to depart from our established case law the majority opinion does not explicitly state what standard of review it applies after concluding that we have jurisdiction to determine whether the bankruptcy court discharged petitioners from their unpaid tax_liabilities the majority opinion analyzes the discharge order of the bankruptcy court the bankruptcy code and existing precedent and concludes that the bankruptcy court did not discharge petitioners from their unpaid tax_liabilities majority op pp this analysis appears to be a review of respondent’s determination on a de novo basis if we are not reviewing the existence or amount of the underlying tax_liability a de novo review would be inappropriate ’ sego v commissioner supra pincite goza v commissioner supra pincite the resolution of this case may not depend on what standard of review we apply even so we should apply the correct standard ' it is my opinion however that we should be applying a de novo standard of review in this case because i believe petitioners are challenging the existence or amount of the underlying tax_liability of review in this and future cases laro j agrees with this concurring opinion furthermore applying a de novo standard of review where the validity of the underlying tax_liability is not in issue raises guestions about our holdings 114_tc_604 and 114_tc_176


department of the treasury internal_revenue_service washington d c date cc dom fs uilc number release date internal_revenue_service national_office field_service_advice memorandum for district_counsel attn from deborah a butler assistant chief_counsel field service cc dom fs subject this field_service_advice responds to your memorandum dated field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend t u v w dollar_figurex2 dollar_figurex3 dollar_figurex4 dollar_figurex5 dollar_figurex6 dollar_figurex7 year year date date date issue should the intangibles settlement initiatiive isi be applied in this case conclusion based upon the information provided the concern raised by appeals regarding the common relationship of the parties raises doubts as to whether this was an arm’s length transaction the isi should not be applied in this case until the taxpayer and the service agree upon a purchase_price for the transaction the remaining concerns raised have no bearing on whether the isi should be applied in this case facts pursuant to an asset purchase agreement dated date t acquired certain assets of u a division of w t also acquired certain assets of v a wholly owned subsidiary of w t’s representative has stated that the purchase_price was dollar_figurex6 the purchase was made with a combination of cash stock and cancellation of various notes based upon appraisals rendered at or about the time of the acquisition t the subject taxpayer made the estimates of fair_market_value as follows engineering drawings from u and v dollar_figurex2 and computer_software from v dollar_figurex3 the service’s redetermination of allocable fair_market_value resulted in disallowances of claimed amortization deductions in the amounts of dollar_figurex4 and dollar_figurex5 for the taxable years ending year and year respectively the service issued at least two engineering and valuation reports dated date and date concerning the value of the intangibles the service and t appear to agree that the tangibles are valued at dollar_figurex7 ultimately appeals issued a statutory_notice_of_deficiency for the taxable years in question after the deficiency_notice was issued there were discussions between t and appeals concerning the availability of the isi guidelines for this case appeals is concerned that the purchase_price did not represent fair_market_value and hence that the isi guidelines should not be applied without adjustment appeals raised the following three specific concerns one the taxpayer did not include in its valuation the nonamortizable rights to be an original equipment manufacturer oem ie t’s right to portray itself as an oem of w’s replacement parts should be separately_stated assets acquired from w two the direct and indirect relationship between the parties involved in the asset purchase agreement indicate that the transaction may not have been at arm’s length three there may have been a cancellation of indebtedness on notes that were part of the transaction law and analysis as a result of the supreme court decision in 507_us_546 as well as legislative changes to the tax treatment of intangibles in the omnibus_budget_reconciliation_act_of_1993 the internal_revenue_service announced a settlement initiative for most of the intangible issues pending in the controversy system the initiative is an attempt to resolve disputes between the government and taxpayers regarding the fair_market_value attributable to intangibles with an attempt to avoid the cost and time of appraisals and experts needed to resolve these disputes under the settlement initiative a taxpayer must agree to adjust the basis of its amortized intangibles by the greater of a percent cost_recovery adjustment or a percent minimum concession adjustment appeals has raised three concerns and district_counsel has inquired as to whether these concerns should prevent the service from offering the isi the first concern raised by appeals is that the taxpayer did not include in its valuation the nonamortizable rights to be an original equipment manufacturer in this case there is not a dispute concerning the value of the tangibles acquired once the purchase_price is established that value less the value of the tangibles provides the amount attributable to the intangibles to be utilized in applying the isi the fact that the taxpayer did not separately list oem in its valuation is inconsequential because the value attributable to the intangibles will remain the same and oem will be allocated into the class with goodwill appeals also states that the direct and indirect relationship between the parties involved in the asset purchase agreement indicates that the transaction may not have been at arm’s length appeals implies that the amount_paid by t was greater than fair_market_value so that greater depreciation benefits could be claimed the facts indicate that there was some common ownership of t w and v at the time of the acquisition the service and t must first agree as to the amount of the purchase_price before applying the isi the questions concerning the relationship between these parties may be resolved by a valuation of the business transferred the issue is highly factual and we clearly do not have enough facts to determine if this was an arm’s length transaction once the service and t agree on the purchase_price the isi may be applied to the value attributable to the intangibles the third concern raised by appeals is that there may have been a cancellation of indebtedness on notes that were part of the transaction while cancellation of indebtedness may have other tax implications it should not bear on the service’s decision as to whether the isi should be offered in a certain case the fact that there may have been cancellation of indebtedness as part of the purchase_price has tax implications for the entity which sold the assets and not the taxpayer at issue see sec_61 sec_108 based upon the information provided we conclude that the first and third concerns have no bearing on whether the isi should be applied in this case further the isi may only be applied after the second concern is resolved the settlement initiative was implemented to fairly and effectively resolve claims concerning depreciation of intangibles specifically the isi is aimed at resolving disputes between the government and taxpayers regarding the fair_market_value attributable to intangibles with an attempt to avoid the cost and time of appraisals and experts needed to resolve these disputes at the heart of this dispute is the value of the intangibles the very issue which the settlement initiative is intended to resolve assuming that the service and t can agree upon a purchase_price the isi should be offered in this case case development hazards and other considerations in addition we believe that your case also involves an sec_482 issue however we have insufficient facts with which to make any determinations by deborah a butler branch field service division


t c memo united_states tax_court robert f de sylva petitioner v commissioner of internal revenue respondent docket no filed date robert f de sylva pro_se casinova o henderson for respondent memorandum findings_of_fact and opinion ashford judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax and additions to tax pursuant to sec_6651 and and of dollar_figure dollar_figure and dollar_figure respectively for the taxable_year the issues for decision are whether petitioner is entitled to deduct certain expenses attributable to a boat rental business he claimed to operate is entitled to a net_operating_loss nol_carryover of dollar_figure and is liable for the additions to tax we resolve all issues in favor of respondent findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated herein by this reference petitioner resided in california at the time the petition was filed with the court petitioner has a degree in electrical engineering from the university of california los angeles ucla which he received in the 1990s since graduating from ucla petitioner has performed patent application drafting and review services 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure some monetary amounts are rounded to the nearest dollar 2the basis of the federal_income_tax deficiency determined against petitioner was that he had unreported self-employment_income of dollar_figure from patent drafting services he provided before trial the parties agreed and stipulated that petitioner received this unreported income petitioner challenges only his right to offset that income by certain deductions however as discussed infra pp he abandoned the issue of whether he is entitled to deduct certain expenses attributable to the patent drafting services he provided and the issue of whether he is entitled to deduct a capital_loss of dollar_figure in date petitioner without any prior boating experience purchased a 70-foot tait boat petitioner chose this boat because he believed the structure and size of its deck could be modified to support a landing pad for helicopters helipad petitioner believed that this modification would be unique for a boat this size and because he had a helicopter pilot’s license and also knew owners of helicopter companies he could both use the boat personally and make money renting it out to companies and high-net-worth individuals notwithstanding the proposed modification at the time of purchase the boat needed a fair number of repairs to bring it up to a condition in which it could be rented at a time in not established by the record paul oravecz a friend of petitioner’s from his ucla days who worked in residential construction and who also claimed to have clients interested in renting the boat convinced petitioner that he should meet stephen haber and hire him to modify the boat to support a helipad and to make the needed repairs on date petitioner contracted with stephen b haber construction inc haber construction under a vessel service agreement vsa to refurbish augment adjust and or replace features of the boat as authorized by petitioner petitioner pursuant to the vsa was obligated to haber construction to repay project costs pay a supervision fee and pay a commission from future boat rental revenues haber construction commenced work under the vsa but by some time in did not complete the work and according to petitioner left the boat in disarray haber construction later that year sued petitioner in federal district_court to terminate the vsa alleging that the condition of the boat was worse than he had represented petitioner employed several other contractors to repair the damage to the boat allegedly caused by haber construction and to fix it up the way he envisioned so that he could rent it out however petitioner began experiencing financial difficulties and could never afford to pay to have the necessary repairs completed in petitioner’s boat was docked at the marina in marina del rey california during this time petitioner tried to do some repair work on the boat himself in combination with giving mr oravecz and mr oravecz’s girlfriend access to the boat to assist with some of the repairs mr oravecz and mr oravecz’s girlfriend orally agreed that they would help fix parts of the boat and 3petitioner countersued for damages the record is silent as to the outcome of the federal district_court litigation said they could secure renters and that petitioner could pay them from the fees paid_by these renters ultimately similar to the haber construction situation mr oravecz and mr oravecz’s girlfriend allegedly damaged the boat further and petitioner’s relationship with them devolved into litigation since petitioner’s purchase of the boat it has not been safe or certified to be rented and taken out on the open water petitioner did not have a business plan for rental of the boat he has never had any contracts or agreements for rental of the boat he has never marketed the boat as available for charter or rental and he has never made a profit with respect to the boat during petitioner received payments of dollar_figure dollar_figure and dollar_figure from charles j kulas tanner research inc and trellis intellectual_property law group p c respectively these payments were compensation_for patent-related services petitioner rendered to them in his capacity as a self-employed independent_contractor petitioner however did not file a federal_income_tax return and did not make any federal tax_payments for consequently using information_return documents he received from the aforementioned payers respondent prepared a substitute for return for petitioner for pursuant to sec_6020 4the record is silent as to the outcome of this litigation sfr the sfr included as income ie nonemployee compensation the aforementioned payments and allowed a standard_deduction for a single filer and one exemption on date respondent issued a notice_of_deficiency to petitioner based on the sfr determining that he had self-employment_income of dollar_figure was liable for an income_tax deficiency of dollar_figure and was liable for additions to tax under sec_6651 and and of dollar_figure dollar_figure and dollar_figure respectively on date shortly before petitioning this court for redetermination of the deficiency and additions to tax petitioner submitted to respondent a form_1040 u s individual_income_tax_return for on thi sec_2012 form_1040 petitioner claimed the following a net_loss totaling dollar_figure from two businesses-- patent drafting and boat rental --he operated which he detailed on two schedules c profit or loss from business attached to the form_1040 a dollar_figure capital_loss deduction a dollar_figure nol and the standard_deduction for single status and one exemption for himself 5petitioner also did not file a federal_income_tax return for the taxable years despite being required to do so accordingly respondent prepared a substitute for return under sec_6020 for each of those years as well on the schedule c for his patent drafting business he reported gross_receipts of dollar_figure and total expenses of dollar_figure these expenses consisted of dollar_figure for car and truck expenses dollar_figure for depreciation and a sec_179 expense deduction dollar_figure for nonmortgage interest dollar_figure for rent or lease of business property other than vehicles machinery and equipment dollar_figure for supplies dollar_figure for taxes and licenses dollar_figure for deductible meals and entertainment dollar_figure for utilities and dollar_figure for other expenses consisting of dollar_figure for business_gifts and dollar_figure for software petitioner also reported on this schedule c expenses for business use of his home of dollar_figure on the schedule c for his boat rental business petitioner reported gross_receipts of dollar_figure and total expenses of dollar_figure these expenses consisted of dollar_figure for insurance dollar_figure for repairs and maintenance and dollar_figure for other expenses consisting of dollar_figure for boat slip fees paid to the marina del rey marina to dock the boat and dollar_figure for a sec_465 carryover respondent neither accepted nor processed petitioner’ sec_2012 form_1040 and the attached schedules c 6we note that petitioner’s claimed dollar_figure sec_465 carryover is a duplicate loss he also claimed a dollar_figure nol on line of the form_1040 see supra p in his petition petitioner challenged the notice_of_deficiency on the ground that it contradicts his tax_return which has neither been audited nor subject_to a due process hearing whereby substantial documentation evidence supporting his return can be presented opinion i burden_of_proof in general the commissioner’s determinations set forth in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 tax deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction claimed 503_us_79 292_us_435 this burden requires the taxpayer to demonstrate that the claimed deductions are allowable pursuant to some statutory provision and to substantiate the expenses giving rise to the claimed deductions by maintaining and producing adequate_records that enable the commissioner to determine the taxpayer’s correct liability sec_6001 116_tc_438 in the case of an nol deduction this burden requires the taxpayer to substantiate the nol deduction by establishing both the existence of the nol and the amount that may be carried over to the year or years in question 349_us_232 the commissioner bears the burden of production with respect to the additions to tax under sec_6651 and sec_6654 see sec_7491 but the taxpayer bears the burden of proving that the commissioner’s determinations with respect to the additions to tax should not be sustained see 127_tc_200 aff’d 521_f3d_1289 10th cir ii failure to pursue certain issues on brief on brief petitioner claims only that he is entitled to a deduction for boat slip fees of dollar_figure and an nol_carryover of dollar_figure as reflected on the 7we note and as we observed supra note this case originated as an unreported income case in an unreported income case the internal_revenue_service irs must provide some reasonable foundation connecting the taxpayer with the income-producing activity see 596_f2d_358 9th cir rev’g 67_tc_672 once the irs has produced evidence linking the taxpayer with an income-producing activity the burden_of_proof shifts to the taxpayer to prove by a preponderance_of_the_evidence that the irs’ determination is arbitrary or erroneous 293_us_507 similarly under sec_6201 if a taxpayer in any court_proceeding asserts a reasonable dispute with respect to any item_of_income reported on an information_return the irs shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information_return we sustain respondent’s determination of unreported income because petitioner agrees that he received this income petitioner does not otherwise contend that the burden_of_proof should shift to respondent under sec_7491 as to any relevant issue of fact nor has he established that he has met the requirements for shifting the burden_of_proof form_1040 he submitted in to respondent but which respondent neither accepted nor processed we thus conclude that petitioner has abandoned any argument or contention that he is entitled to the other claimed deductions reflected on the form_1040 ie the dollar_figure capital_loss the expenses attributable to his patent drafting services and the expenses attributable to the boat other than boat slip fees see 138_tc_228 121_tc_308 and cases cited thereat see also rule e and requiring that a party’s brief set forth and discuss the points and arguments on which the party relies iii trade_or_business deductions sec_162 allows a taxpayer to deduct all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business sec_162 sec_1_162-1 income_tax regs an expense is ordinary if it is normal usual or customary in the taxpayer’s trade_or_business or arises from a transaction of common or frequent occurrence in the type of business involved 8petitioner states on brief that arguments as to whether he may deduct detailed line items as reflected on the form_1040 are substantially irrelevant and that he does not herein argue details of the return item by item 9even if we had not made this conclusion we reject any argument or contention that petitioner is entitled to the other claimed deductions as there is not a scintilla of evidence in the record to show that he is so entitled 308_us_488 an expense is necessary if it is appropriate and helpful to the taxpayer’s business but it need not be absolutely essential 383_us_687 quoting welch v helvering u s pincite in contrast a taxpayer may not deduct a personal living or family expense unless the internal_revenue_code expressly provides otherwise sec_262 the determination of whether an expense satisfies the requirements of sec_162 is a question of fact 97_tc_613 citing 320_us_467 whether a taxpayer is engaged in a trade_or_business is a question of fact to be decided on the basis of all the relevant facts and circumstances stanton v commissioner tcmemo_1967_137 aff’d 399_f2d_326 5th cir see also 312_us_212 applying this facts_and_circumstances_test courts have focused on the following three factors indicative of whether a trade_or_business exists whether the taxpayer undertook the activity intending to earn a profit whether the taxpayer is regularly and actively involved in the activity and whether the taxpayer’s activity has actually commenced jafarpour v commissioner tcmemo_2012_165 slip op pincite first citing 480_us_23 and then citing mcmanus v commissioner tcmemo_1987_457 aff’d without published opinion 865_f2d_255 4th cir respondent contends that petitioner’s boat rental_activity was not a going concern during in other words that petitioner was not engaged in the active_conduct_of_a_trade_or_business on the basis of the third factor ie petitioner’s boat rental_activity had not actually commenceddollar_figure during petitioner did not rent out the boat to anyone since his purchase of the boat in the boat has been unusable and never in any condition to be rented consequently petitioner has never had any contracts or agreements for rental of the boat11 or marketed the boat as available for charter or 10at trial and on brief petitioner merely focuses on whether he undertook the boat rental_activity intending to earn a profit and respondent argues in the alternative that petitioner’s boat rental_activity if found to be a going concern was not operated for profit because we find that petitioner’s boat rental_activity has not actually commenced as discussed infra pp we need not decide whether petitioner intended to earn a profit similarly in the light of our finding we obviously need not decide whether petitioner was regularly and actively involved in the boat rental_activity 11on the schedule c for the boat rental business petitioner reported gross_receipts or sales of dollar_figure however at trial petitioner indicated that he did not receive any boat rental income in and on brief he acknowledged that the dollar_figure may have been a deposit of his own funds back into his account which had been previously withdrawn also at trial in the context of discussing his unfiled federal_income_tax returns for and petitioner testified that either mr oravecz or mr oravecz’s girlfriend paid him dollar_figure in and continued rental accordingly even though petitioner made a decision in to enter into a boat rental business by purchasing the boat and he has strived over a considerable period to repair it so that it can be rented out he has yet to commence the boat rental_activity and be engaged in carrying on any trade_or_business within the meaning of sec_162 thus we conclude that the boat slip fees of dollar_figure are not deductible under sec_162 see 114_tc_333 holding taxpayers could not deduct expenses_incurred while renovating cabins that were not offered for rent until four years later because it was not an active trade_or_business see also sec_195 and b a taxpayer may not deduct startup expenses for a year that predates the start of an active trade_or_business iv nol deduction sec_172 allows a deduction in a taxable_year for the full amount of allowable nol carrybacks from subsequent years and carryovers from previous years as long as taxable_income for the current_year is not less than zero sec_11 continued dollar_figure in for back rent for the time mr oravecz accessed the boat while he was supposed to be repairing it there is however no evidence whatsoever to corroborate this although we found petitioner to be genuine and candid a s we have stated many times before this court is not bound to accept a taxpayer’s self- serving unverified and undocumented testimony 112_tc_183 citing 87_tc_74 a b an nol occurs in a tax_year when deductions as modified by sec_172 exceed gross_income for that year sec_172 as noted with all deductions see supra p a taxpayer is required to maintain adequate_records substantiating the claimed nol deduction see sec_6001 obedin v commissioner tcmemo_2013_223 at aff’d 655_fedappx_583 9th cir the only evidence offered herein to show the amount of the claimed nol deduction and the nol on which it was based consists of unfiled federal_income_tax returns for that petitioner prepared the mere introduction into evidence of these returns even if they had been filed is clearly inadequate to sustain petitioner’s burden_of_proof with respect to the claimed nol deduction see 8_bta_749 see also 103_tc_428 tax returns do not establish the truth of the facts stated therein accordingly petitioner is not entitled to an nol_carryover in any amount for v additions to tax a failure_to_file sec_6651 authorizes the imposition of an addition_to_tax for failure to timely file a federal_income_tax return unless the taxpayer shows that the failure was due to reasonable_cause and not due to willful neglect 469_us_241 the record establishes that no federal_income_tax return was filed in petitioner’s name for other than the sfr respondent thereby satisfies his burden of production under sec_7491dollar_figure petitioner offered no evidence at trial that his failure_to_file was due to reasonable_cause and not due to willful neglect and on brief he makes no principled defense accordingly we find that petitioner is liable for the addition_to_tax under sec_6651 b failure to pay sec_6651 authorizes the imposition of an addition_to_tax for failure to timely pay the amount shown as tax on a federal_income_tax return unless the taxpayer shows that the failure was due to reasonable_cause and not due to willful neglect in this regard the commissioner’s burden of production under sec_7491 requires him to come forward with sufficient evidence that the tax was shown on a federal_income_tax return and was not paid see wheeler v commissioner t c pincite 120_tc_163 aff’d without published opinion a f t r 2d ria 3d cir 12under sec_6651 any return prepared under sec_6020 is disregarded for purposes of sec_6651 in a case such as this where the taxpayer has not filed a federal_income_tax return for the taxable_year at issue a substitute for return prepared by the commissioner that meets the requirements of sec_6020 is treated as the return filed by the taxpayer for purposes of sec_6651 see sec_6651 wheeler v commissioner t c pincite to constitute a valid sec_6020 substitute for return the return must be subscribed it must contain sufficient information from which to compute the taxpayer’s tax_liability and the return form and any attachments must purport to be a ‘return’ 143_tc_376 quoting spurlock v commissioner tcmemo_2003_124 slip op pincite aff’d in part appeal dismissed in part 616_fedappx_391 10th cir see also sec_301_6020-1 proced admin regs the sfr consisted of a form sec_6020 certification a form_4549 income_tax examination changes and a form 886-a explanations of items this combination of documents is sufficient to constitute a valid sec_6020 substitute for return rader v commissioner t c pincite the record also establishes that petitioner made no federal tax_payments for respondent thereby satisfies his burden of production under sec_7491 as with his failure_to_file a federal_income_tax return for petitioner offered no evidence at trial that his failure to pay was due to reasonable_cause and not due to willful neglect and on brief he makes no principled defense accordingly we find that petitioner is liable for the addition_to_tax under sec_6651dollar_figure c failure to pay estimated_tax sec_6654 imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual the addition_to_tax is calculated with reference to four required_installment payments of the individual’s estimated_tax liability sec_6654 and d each required_installment payment is equal to of the required_annual_payment which in turn is equal to the lesser_of of the tax shown on the individual’s return for that year or if no return is filed of the individual’s tax for such year or if the individual filed a return_for_the_preceding_taxable_year of the tax shown on the individual’s return_for_the_preceding_taxable_year sec_6654 and b in this regard the commissioner’s burden of production under sec_7491 requires him to produce evidence that the taxpayer had a required_annual_payment and in order to do so he must establish the tax shown on the taxpayer’s return for the previous 13the application of the additions to tax under sec_6651 and is limited as provided in sec_6651 year or that the taxpayer filed no such return wheeler v commissioner t c pincite schlussel v commissioner tcmemo_2013_185 respondent met his burden of production because the record establishes that petitioner did not file a federal_income_tax return for or petitioner’s required_annual_payment for thus equaled of the tax due for that taxable_year the record also establishes that petitioner made no federal tax_payments for petitioner has not argued that any of the statutory exceptions under sec_6654 applies indeed he makes no principled defense accordingly we find that petitioner is liable for the addition_to_tax under sec_6654 we have considered all of the arguments made by the parties and to the extent they are not addressed herein we find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered for respondent