Court Opinion

ID: 4541580
Source: CourtListenerOpinion
Date Created: 2020-06-16 05:01:24.142323+00
Date Added: 2024-06-11T12:48:46.618130
License: Public Domain

T.C. Memo. 2020-83

                         UNITED STATES TAX COURT

               FRITZ STEVEN SCHWAGER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

      Docket No. 17954-18L.                         Filed June 15, 2020.

      Fritz Steven Schwager, pro se.

      Robert D. Heitmeyer and Lawrence D. Sledz, for respondent.

                           MEMORANDUM OPINION

      URDA, Judge: In this collection due process (CDP) case, Fritz Steven

Schwager seeks review, pursuant to section 6330(d)(1),1 of the determination of

      1
        All section references are to the Internal Revenue Code (Code) in effect at
all relevant times, and all Rule references are to the Tax Court Rules of Practice
and Procedure. We round all monetary amounts to the nearest dollar.
                                         -2-

[*2] the Internal Revenue Service (IRS) Office of Appeals to sustain a notice of

intent to levy with respect to unpaid Federal income tax liabilities and additions to

tax for his 2009 through 2012 taxable years. Respondent has moved for summary

judgment under Rule 121, contending that the Office of Appeals did not abuse its

discretion in dismissing as frivolous Mr. Schwager’s arguments made during the

CDP proceedings and sustaining the proposed levy action. Mr. Schwager, for his

part, has cross-moved for summary judgment, arguing that the liabilities described

in the levy notice were improperly assessed for a range of reasons including that

he is not subject to Federal income tax. We will grant respondent’s motion and

deny Mr. Schwager’s.

                                    Background

       The following facts are based on the parties’ pleadings and motion papers,

including the attached declaration and exhibits that constitute the administrative

record. See Rule 121(b). Mr. Schwager resided in Michigan when he timely filed

his petition.

A.     Mr. Schwager’s Tax Liabilities

       Mr. Schwager did not file Federal income tax returns for his 2009 through

2012 taxable years. The IRS prepared substitutes for returns (SFRs) pursuant to

its authority under section 6020(b) and then mailed to Mr. Schwager (at an address
                                          -3-

[*3] in Sterling Heights, Michigan) a notice of deficiency for each year, consistent

with the SFRs. The notices determined deficiencies and additions to tax in the

following amounts:

                                                     Additions to tax

         Year     Deficiency     Sec. 6651(a)(1)     Sec. 6651(a)(2)     Sec. 6654

         2009      $8,050             $1,731              $1,154           $183

         2010       7,983              1,667                 815             157

         2011       9,887              2,202               1,272             194

         2012       7,552              1,699                 944             135

         Mr. Schwager filed a timely petition for redetermination in this Court

relating to his 2012 taxable year, one of the four years for which a notice of

deficiency had been issued. We later dismissed that case for failure to prosecute.

Schwager v. Commissioner, T.C. Dkt. No. 23806-15 (Apr. 5, 2017) (order of

dismissal and decision). Mr. Schwager neither sought appellate review of that

decision nor filed a petition with respect to any of the other years at issue. The

IRS thereafter assessed the foregoing deficiencies and additions to tax for all

years.
                                         -4-

[*4] B.      Collection Activities and CDP Hearing

      In an effort to collect these liabilities, the IRS issued to Mr. Schwager a

Notice of Intent to Levy and Notice of Your Right to a Hearing. He responded by

a letter in which he questioned the validity of the levy notice. In support he

referenced a panoply of statutes and cases addressing issues including the

Paperwork Reduction Act, the proper recording of tax assessments, the IRS’

supposed burden of proof, fraud, the ultra vires doctrine, and delegation of

authority. The IRS treated this letter as a timely request for a CDP hearing before

the Office of Appeals.

      The case thereafter was assigned to a settlement officer in the Office of

Appeals. The settlement officer reviewed the IRS’ TXMODA transcripts2 for Mr.

Schwager’s account and concluded that the requirements of applicable law and

procedure had been satisfied. Specifically, she noted that Mr. Schwager’s

liabilities had been correctly assessed, that notice and demand for payment had

properly been sent to him, and that there had been a balance due from him when

the IRS issued the levy notice.

      2
       A TXMODA transcript contains current account information obtained from
the IRS’ master file. See Schroeder v. Commissioner, T.C. Memo. 2002-190,
2002 WL 1792084, at *2 n.3. The label “TXMODA” refers to the command code
entered into the IRS’ computer system to obtain the transcript. Id.
                                         -5-

[*5] The settlement officer sent Mr. Schwager a letter, scheduling his CDP

hearing and explaining the issues that she would consider during that hearing. The

letter informed Mr. Schwager that he could raise any disagreements with the

collection action, but that he would be prohibited from challenging the underlying

liabilities if he had previously had an opportunity to dispute them. The letter also

apprised Mr. Schwager that he could propose a collection alternative, which would

require him to provide certain identified documentation.

      Mr. Schwager sent another letter in response, in which he questioned the

need for a CDP hearing. Among other things, Mr. Schwager insisted that he was

not a “taxable person” under the Code, that the Office of Appeals had no

jurisdiction over him, and that he could support these positions with discovery and

reference to “Positive Laws”. Mr. Schwager invited further communication by

letter although he advised the settlement officer to “comply with Paper Work

Reduction Act with appropriate OMB number to explicitly express that I am that

statutory person to legally comply therewith”.

      The parties exchanged one additional round of letters. The settlement

officer wrote to Mr. Schwager acknowledging his request to conduct his CDP

hearing in writing and reminding him both of the issues she could consider and the

documentation she would need as part of her consideration. She further informed
                                         -6-

[*6] Mr. Schwager of her conclusion that the IRS had satisfied all applicable legal

and administrative requirements with respect to the proposed levy notice,

enclosing with her letter transcripts for Mr. Schwager’s account evidencing the

assessment of his liabilities. For his part, Mr. Schwager sent a return letter in

which he repeated the arguments that he had made in his previous missives and

accused the settlement officer of prejudging the case before he could obtain

documents that would “identify * * * [his] true natural status as oppose[d] to

statutory person.”

C.    Notice of Determination and Tax Court Proceedings

      Having received no documentation by the following month, the settlement

officer closed Mr. Schwager’s case. The Office of Appeals thereafter issued a

notice of determination sustaining the proposed levy action. The notice observed

that Mr. Schwager had offered no alternatives to collection (such as an installment

agreement or an offer in compromise) and had challenged the underlying liabilities

by taking positions that had been identified as frivolous. It further concluded that

the proposed levy action appropriately balanced efficient tax collection with Mr.

Schwager’s interest in ensuring that the collection action was minimally intrusive.
                                         -7-

[*7] Mr. Schwager timely petitioned this Court for review of the Office of

Appeals’ determination, and the parties subsequently filed dueling motions for

summary judgment.

                                     Discussion

A.    Summary Judgment Standard

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
T.C. 678, 681 (1988). Under Rule 121(b), we may grant summary judgment when

there is no genuine dispute as to any material fact and a decision may be rendered

as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992),

aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from them in the

light most favorable to the nonmoving party. Id. However, the nonmoving party

may not rest upon the mere allegations or denials in his pleadings but must set

forth specific facts, by affidavit or otherwise, showing that there is a genuine

dispute for trial. Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324

(1986).
                                         -8-

[*8] B.      Standard of Review

      We have jurisdiction to review the Office of Appeals’ determination

pursuant to section 6330(d)(1). See Murphy v. Commissioner, 125 T.C. 301, 308

(2005), aff’d, 469 F.3d 27 (1st Cir. 2006). Where the validity of the underlying

tax liability is properly at issue, we review the determination regarding the

underlying tax liability de novo. Sego v. Commissioner, 114 T.C. 604, 610

(2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). We review all

other aspects of the determination for abuse of discretion. Sego v. Commissioner,

114 T.C. 610; Goza v. Commissioner, 114 T.C. 182. In reviewing for abuse

of discretion, we must uphold the Office of Appeals’ determination unless it is

arbitrary, capricious, or without sound basis in fact or law. See, e.g., Murphy v.

Commissioner, 125 T.C. 320; Taylor v. Commissioner, T.C. Memo. 2009-27,

2009 WL 275721, at *9.

C.    Underlying Liability

      A taxpayer may challenge the existence or amount of his underlying

liabilities in a CDP proceeding only if he “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(c)(2)(B); see also Bell v. Commissioner, 126
T.C. 356, 358 (2006). For these purposes, the phrase “underlying tax liability”
                                         -9-

[*9] includes the tax deficiency, any penalties and additions to tax, and statutory

interest. Katz v. Commissioner, 115 T.C. 329, 339 (2000).

      Both in the Office of Appeals and in this Court Mr. Schwager has sought to

challenge his underlying liabilities with a raft of patently frivolous arguments.

The record before us, however, illustrates that he had a prior opportunity to

dispute those liabilities. The record shows that the IRS sent a notice of deficiency

for each of the years at issue to Mr. Schwager, and he has offered no evidence to

the contrary. Indeed, Mr. Schwager’s petition to this Court with respect to 2012

belies such a notion. As Mr. Schwager had a prior opportunity to dispute his

liabilities, he is precluded from doing so here. See sec. 6330(c)(2)(B); see also

Bell v. Commissioner, 126 T.C. 358; Pierson v. Commissioner, 115 T.C. 576,

579-580 (2000).

D.    Abuse of Discretion

      We next consider whether the settlement officer: (1) properly verified that

the requirements of any applicable law or administrative procedure have been met;

(2) considered any relevant issues which Mr. Schwager raised; and (3) considered

whether “any proposed collection action balances the need for the efficient

collection of taxes with the legitimate concern of * * * [Mr. Schwager] that any

collection action be no more intrusive than necessary.” Sec. 6330(c)(3). Our
                                         -10-

[*10] review of the administrative record establishes that the settlement officer did

not abuse her discretion in satisfying the requirements set forth in section 6330(c).

      1.     Verification

      The record reflects that the settlement officer reviewed the IRS’ transcripts

for Mr. Schwager’s account and his administrative file. On the basis of her

review, the settlement officer determined that the IRS had properly assessed Mr.

Schwager’s liabilities, sent a notice and demand for payment, and issued a notice

of deficiency for each year. She further determined that there was a balance due

when the IRS issued the levy notice to Mr. Schwager.

      As we understand him, Mr. Schwager argues that there can be no legal

assessment against him in the absence of the IRS’ production of a Form 23-C,

Assessment Certificate--Summary Record of Assessments, which reflects the

making of the assessments. This position is frivolous, as we have said before. See

Carothers v. Commissioner, T.C. Memo. 2013-165, at *8 n.7; Cain v.

Commissioner, T.C. Memo. 2006-148, 2006 WL 2035610, at *2. We have further

explained that a settlement officer “does not abuse his discretion when, to obtain

the verification required by sec. 6330(c)(1), he relies on an IRS transcript, rather

than producing or relying upon a Form 23C.” Carothers v. Commissioner, at *8

n.7; see also Craig v. Commissioner, 119 T.C. 252, 262 (2002) (“Section
                                         -11-

[*11] 6330(c)(1) does not require the * * * [settlement] officer to rely upon a

particular document (e.g., the summary record itself rather than transcripts of

account) in order to satisfy this verification requirement.”); Nestor v.

Commissioner, 118 T.C. 162, 166-167 (2002).

      In this case the settlement officer verified that Mr. Schwager’s liabilities had

been correctly assessed on the basis of her review of the IRS’ TXMODA

transcripts for his account. We have repeatedly held that it is not an abuse of

discretion for a settlement officer to rely upon such transcripts in performing her

verification where the taxpayer fails to demonstrate an irregularity in the IRS’

assessment procedures. See Sun River Fin. Tr. v. Commissioner, T.C.

Memo. 2020-30, at *14; Schroeder v. Commissioner, T.C. Memo. 2002-190, 2002
WL 1792084, at *5; see also Harp v. Commissioner, T.C. Memo. 2007-83, 2007
WL 1051514, at *3 (“Generally, the * * * [settlement] officer may rely on

TXMODA transcripts of account to satisfy the verification requirement[.]”). And

Mr. Schwager has not alleged any irregularity in the IRS’ assessment procedures

that would call into question the validity of the assessments or the information in

the TXMODA transcripts. Cf. Roberts v. Commissioner, 118 T.C. 365, 370-371

(2002) (rejecting the notion that the IRS’ use of a computer-generated report rather

than a Form 23-C to make an assessment constitutes an irregularity in the IRS’
                                         -12-

[*12] assessment procedure), aff’d, 329 F.3d 1224 (11th Cir. 2003). We thus see

no abuse of discretion in this regard.

      To the extent that Mr. Schwager faults the settlement officer for failing to

provide him with a Form 23-C or other assessment records, he misses the mark.

The settlement officer was not required to obtain Mr. Schwager’s Form 23-C to

verify assessment, as we explained above, and was under no obligation to provide

him with the documents that she reviewed as part of her verification. See, e.g.,

Craig v. Commissioner, 119 T.C. 262. In any event, the record shows the

settlement officer sent Mr. Schwager copies of his literal transcripts with all the

assessment information required to be provided to him under section 6203 and

section 301.6203-1, Proced. & Admin. Regs. See Carrillo v. Commissioner, T.C.

Memo. 2005-290, 2005 WL 3486022, at *10 (“This Court likewise has upheld

collection actions where taxpayers were provided with literal transcripts of

account[.]”).3

      3
        Mr. Schwager also asserts that he never received any notice and demand
for payment. His assertion, however, is not supported by affidavit or other
evidence and thus is insufficient to give rise to a genuine factual dispute. See
Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Even if
it were sufficient, this line of argumentation would not carry the day for Mr.
Schwager. The record reflects that Mr. Schwager received the IRS’ notice of
intent to levy, and he does not dispute his receipt of the notices of deficiency for
the years at issue. These various notices were adequate, as a matter of law, to
                                                                         (continued...)
                                         -13-

[*13] On the basis of our review of the record, we conclude that the settlement

officer did not abuse her discretion in her verification that all applicable legal and

administrative requirements had been met.4

      2.     Issues Raised

      Throughout his CDP hearing (and in this Court) Mr. Schwager argued, inter

alia, that as a citizen of the State of Michigan he is not a “taxpayer” for purposes

of the Code, that the IRS at various points violated the Paperwork Reduction Act,

and that his liabilities were void for lack of a Form 23-C. Even assuming

arguendo that these arguments can be construed as anything other than prohibited

challenges to his underlying liabilities, Mr. Schwager would not prevail.

      As we and other courts have said in scores of cases before, these

contentions are frivolous. See, e.g., United States v. Mundt, 29 F.3d 233, 237 (6th

Cir. 1994) (describing the argument that the taxpayer was a citizen of Michigan

      3
        (...continued)
satisfy the notice and demand requirement of sec. 6303(a). See Craig v.
Commissioner, 119 T.C. 252, 262-263 (2002).
      4
        In the context of a settlement officer’s verification under sec. 6330(c), we
have held that “[w]here the supervisory approval requirement of
section 6751(b)(1) applies, the * * * [settlement] officer should obtain verification
that such approval was obtained”. ATL & Sons Holdings, Inc. v. Commissioner,
152 T.C. 138, 144 (2019). The approval requirement of sec. 6751(b)(1), however,
does not apply to the additions to tax under secs. 6651(a)(1) and (2) and 6654 at
issue in this case. See sec. 6751(b)(2)(A).
                                        -14-

[*14] and therefore not subject to Federal income tax laws as “completely without

merit and patently frivolous”); United States v. Hicks, 947 F.2d 1356, 1359 (9th

Cir. 1991) (explaining that “Congress enacted the * * * [Paperwork Reduction

Act] to keep agencies, including the IRS, from deluging the public with needless

paperwork” and that “[i]t did not do so to create a loophole in the tax code”);

Wheeler v. Commissioner, 127 T.C. 200, 213 (2006) (deeming a similar argument

under the Paperwork Reduction Act frivolous), aff’d, 521 F.3d 1289 (10th Cir.

2008); Wagenknecht v. Commissioner, T.C. Memo. 2008-288, 2008 WL 5330886,

at *1-*2 (cataloging a list of “frivolous and groundless” arguments, including

narrow readings of the statutory terms “person”, “individual”, and “taxpayer”);

Cain v. Commissioner, 2006 WL 2035610, at *2 (rejecting as “groundless” the

position that the IRS is required to use a Form 23-C when making an assessment).

      We will not painstakingly document every groundless argument advanced

by Mr. Schwager, or dignify them with reasoned analysis, for doing so might be

misinterpreted as suggesting that they have some colorable merit. See Crain v.

Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984); Grunsted v. Commissioner,

136 T.C. 455, 460 (2011); see also Wnuck v. Commissioner, 136 T.C. 498, 510-

513 (2011) (explaining that addressing frivolous arguments wastes time and

resources and delays the assessment of tax). They do not.
                                        -15-

[*15] The settlement officer did not abuse her discretion in sustaining the levy

notice in the face of Mr. Schwager’s frivolous arguments.

      3.    Balancing Analysis

      The notice of determination expressly reflects the settlement officer’s

judgment that the IRS’ proposed levy action balanced the efficient collection of

taxes with Mr. Schwager’s legitimate concern that the collection action be no more

intrusive than necessary, as required under section 6330(c)(3)(C). Mr. Schwager

challenges that determination, arguing that any balancing was required to favor

him because he does not fit the Code’s definition of “taxpayer”.

      Mr. Schwager’s position is frivolous and fails to cast the least doubt on the

settlement officer’s balancing determination. The settlement officer gave Mr.

Schwager multiple opportunities to propose collection alternatives and raise

objections to the SFRs, but he preferred to repeat hackneyed, frivolous arguments

instead. Mr. Schwager fails to show that the settlement officer abused her

discretion in concluding that the levy struck the proper balance under these

circumstances.

E.    Section 6673 Penalty

      We have previously directed Mr. Schwager’s attention to our authority

under section 6673 to impose a penalty not in excess of $25,000 “[w]henever it
                                        -16-

[*16] appears to the Tax Court” that a taxpayer has instituted or maintained a

proceeding “primarily for delay” or has taken a position that is “frivolous or

groundless”.5 See, e.g., Roberts v. Commissioner, 118 T.C. 373 (imposing a

$10,000 penalty); Standifird v. Commissioner, T.C. Memo. 2002-245, 2002 WL
31151194, at *4 (imposing a $7,500 penalty), aff’d, 72 F. App’x 729 (9th Cir.

2003); Davis v. Commissioner, T.C. Memo. 2001-87, 2001 WL 378831, at *3

(imposing a $4,000 penalty); cf. Sullivan v. United States, 788 F.2d 813, 816 (1st

Cir. 1986) (imposing double costs against a taxpayer for raising related frivolous

arguments). Mr. Schwager’s arguments are plainly frivolous, and we warn him

that making such arguments in the future risks the hefty fines authorized by

section 6673.

F.    Conclusion

      Finding no abuse of discretion in any respect, we will grant respondent’s

motion for summary judgment (and deny Mr. Schwager’s cross-motion for

summary judgment) and uphold the determination of the Office of Appeals to

sustain the proposed levy action.

      5
        At an earlier stage of the case, Mr. Schwager argued that he had a
constitutional right to be represented by an individual who was not admitted to
practice before this Court. We disagreed. After Mr. Schwager continued to press
this point, we warned him that he was running the risk that we would impose a
penalty under sec. 6673.
                                   -17-

[*17] To reflect the foregoing,

                                          An appropriate order and decision

                                  will be entered.