Court Opinion

ID: 9955575
Source: CourtListenerOpinion
Date Created: 2024-03-28 19:03:12.905206+00
Date Added: 2024-06-11T08:15:05.917404
License: Public Domain

United States Tax Court

                                T.C. Memo. 2024-37

                              MERRIE P. WYCOFF,
                                  Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                      __________

Docket No. 4034-21L.                                          Filed March 28, 2024.

                                      __________

Merrie P. Wycoff, pro se.

Jonathan D. Walker and Melinda K. Fisher, for respondent.

                           MEMORANDUM OPINION

       LAUBER, Judge: In this collection due process (CDP) case
petitioner seeks review pursuant to section 6330(d)(1) 1 of the
determinations by the Internal Revenue Service (IRS or respondent)
regarding her tax liabilities for 2001 and 2002. The IRS Independent
Office of Appeals (Appeals) issued her a notice of determination
sustaining the proposed collection action and rejecting her request for a
collection alternative in the form of an offer-in-compromise (OIC), an
installment agreement (IA), and/or currently not collectible (CNC)
status. After being docketed in this Court the case was remanded to
Appeals for further consideration. Following a supplemental hearing
Appeals issued a supplemental notice of determination, finding

       1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax
Court Rules of Practice and Procedure.

                                  Served 03/28/24
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[*2] petitioner ineligible for CNC status and sustaining the proposed
collection action.

      Respondent has filed a Motion for Summary Judgment,
contending that there are no disputes of material fact and that the
settlement officers did not abuse their discretion in rejecting petitioner’s
request for a collection alternative. Separately, respondent filed a
Motion to Impose a Sanction, contending that petitioner’s position in the
case is frivolous and groundless. See § 6673(a). Agreeing with
respondent on both points, we will grant his Motions.

                               Background

       The following facts are based upon the parties’ pleadings and
respondent’s Motion papers, Declarations, and attached Exhibits, which
include the Administrative Record of the CDP proceeding along with a
Certificate of Genuineness of the Administrative Record.             See
Rule 121(c). Petitioner resided in Colorado when she filed her Petition.

I.    Petitioner’s Tax Liabilities

       Petitioner’s husband was a successful entrepreneur.       His
principal business was Zap! Products, Inc. (Zap), which manufactured
various cleaning products. Petitioner has been the sole owner of Zap
since her husband’s death in March 2018.

       The IRS examined the joint Federal income tax returns filed by
petitioner and her husband for 2001 and 2002 and sent them a timely
notice of deficiency. They timely petitioned this Court in October 2009.
See Wycoff v. Commissioner, Docket No. 24158-09. Following a trial the
Court issued an opinion sustaining the bulk of the adjustments and
penalties determined in the notice of deficiency. See Wycoff v.
Commissioner, T.C. Memo. 2017-203. We entered a Decision in January
2018, determining deficiencies of $3,743,741 and $1,200, and
accuracy-related penalties of $743,061 and $240, respectively. We also
held that petitioner was not entitled to “innocent spouse” relief under
section 6015 with respect to any of the tax liabilities redetermined for
2001 and 2002.

       The IRS assessed petitioner’s 2001 and 2002 liabilities as
redetermined in our Decision. Petitioner and her husband failed to pay
those liabilities upon notice and demand for payment. On October 15,
2018, in an effort to collect petitioner’s unpaid liabilities, the IRS sent
her two Notices of Intent to Seize Your Assets and Notice of Your Right
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[*3] to a Hearing (collectively, levy notice). As of October 13, 2023,
petitioner’s outstanding Federal income tax liabilities exceeded
$13 million.

II.   Collection Due Process Proceedings

      A.     Initial CDP Hearing

      Petitioner, through her former counsel, timely submitted Form
12153, Request for a Collection Due Process or Equivalent Hearing. She
requested a collection alternative in the form of “an installment
agreement, an offer in compromise, or placing the account in currently
not collectible status.” Her case was assigned to a settlement officer
(SO1) in Appeals, who verified that petitioner’s 2001 and 2002 liabilities
had been properly assessed and that all requirements of applicable law
and administrative procedure had been satisfied.

       On April 8, 2019, SO1 sent petitioner and her representative a
letter scheduling a telephone conference for May 1, 2019. SO1 informed
petitioner that, to enable Appeals to consider a collection alternative,
she needed to supply before the hearing a completed Form 433–A,
Collection Information Statement for Wage Earners and Self-Employed
Individuals, with supporting financial information. If petitioner wished
to propose an OIC, she was instructed also to submit Form 656, Offer in
Compromise. The CDP hearing was later rescheduled to May 15, 2019.

       On May 15, 2019, petitioner’s representative sent SO1 a package
of documents, including a completed Form 433–A for petitioner and
Form 433–B, Collection Information Statement for Businesses, for Zap
(petitioner’s wholly owned company). Included in the package was a
letter urging that petitioner and Zap were undergoing financial stress.
The letter requested that petitioner’s accounts be placed in CNC status.

      The Form 433–A identified five personal bank accounts with
balances that totaled $247,406. Aside from equity of $5,000 in personal
property, no other personal assets were reported. The Form 433–B
showed that Zap had no assets, liabilities of $1.4 million (consisting of
accounts payable), and income of $1,417,037 (stemming from
compromised settlement adjustments to accounts payable that Zap, an
accrual-basis taxpayer, had previously deducted).

      The telephone conference took place as scheduled. SO1 confirmed
her receipt of the financial information and explained that she was
planning to submit an Appeals Referral Investigation (ARI) request to
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[*4] the IRS Collection Division (Collection), which would analyze the
documents to determine petitioner’s ability to pay. She noted that
petitioner still had not supplied a completed Form 656. At no point
during the Appeals process did petitioner make a formal request for a
collection alternative in the form of an IA or OIC.

       On October 7, 2019, Collection responded to SO1’s ARI request,
concluding that petitioner had the ability to pay at least a portion of her
tax liabilities and was not eligible for CNC status. Collection found the
following:

   •   Petitioner had $247,408 of cash in five personal bank accounts.
       Although petitioner’s representative alleged that this cash could
       not be applied to her tax liability, Collection found no evidence to
       support that allegation.

   •   Petitioner had equity of $1.8 million in her personal residence.
       That residence was titled to a limited liability company (LLC) of
       which petitioner’s two daughters were the managing members.
       Collection determined that the LLC was a nominee of petitioner.

   •   Shortly after this Court entered its decision in 2018, petitioner
       transferred $350,000 to a third party. Collection determined that
       this was not the legitimate repayment of a loan, as alleged by
       petitioner’s representative, but a transfer for no consideration.

       SO1 forwarded the ARI results to petitioner’s representative, who
reiterated the arguments he had previously advanced unsuccessfully.
On the basis of Collection’s determination that petitioner had “equity in
assets to pay towards the balances due,” SO1 recommended that the levy
notice be sustained. She forwarded a draft notice of determination to
her Appeals Team Manager, who approved her recommendation to
sustain the levy.

       On March 19, 2021, Appeals sent petitioner a notice of
determination, informing her that it was “unable to consider the
collection alternatives of IA or OIC as you’ve made no formal request for
either.” The notice rejected her request for CNC status because her
bank accounts had “funds available for payment towards [her]
outstanding liabilities” and she had not shown that liquidation of the
accounts would “cause [her] to be unable to meet necessary living
expenses or result in hardship.” The notice determined, however, that
“Appeals must return the matter to Collection to complete [its]
                                    5

[*5] investigation” with respect to the ownership of the personal
residence and the purported loan transaction.

      B.     Remand and Supplemental CDP Hearing

       On June 21, 2021, petitioner timely petitioned this Court,
contending that SO1 abused her discretion by sustaining the proposed
levy and rejecting her request for CNC status. By Order served January
27, 2022, we granted the parties’ joint Motion to Remand the case to
Appeals for a supplemental CDP hearing on the two issues identified in
the preceding paragraph. On February 7, 2022, respondent issued a
remand memorandum and advised that Appeals should reconsider
petitioner’s request for CNC status after issuing a second ARI to
Collection.

       In March 2022 the remanded case was assigned to a new
settlement officer (SO2) who reviewed the record and verified that all
applicable legal requirements had been satisfied. Collection invited
petitioner to supply additional information for its consideration, but she
supplied none. Collection issued a second ARI concluding, on the basis
of the information already in the case file, that petitioner had failed to
provide evidence that the $350,000 paid to a third party in 2018 was the
repayment of a loan.

        With respect to whether petitioner was the true owner of her
primary residence, valued at $1.8 million, Collection concluded that
additional investigation would be needed to establish a fraudulent
transfer. But when the supplemental hearing was held on December 20,
2022, petitioner chose not to participate. Having heard nothing further
from petitioner during the ensuing three months, Appeals issued, on
April 11, 2023, a supplemental notice of determination sustaining the
proposed levy. The notice concluded that Appeals’ original decision to
deny petitioner’s request for CNC status was proper because she had
“sufficient assets from which to pay” at least a portion of her tax
liabilities. Even without considering the $350,000 transfer to a third
party and petitioner’s likely equity in her $1.8 million residence,
Appeals concluded that her bank account balances of $247,408 “alone
are sufficient . . . to determine that CNC status is not acceptable.”

       On January 5, 2024, respondent concurrently filed a Motion for
Summary Judgment and Motion to Impose a Penalty. We directed
petitioner to file a single Response to the Motions by February 23, 2024.
Petitioner responded to the Motions by mailing a letter to the Court,
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[*6] filed on February 14, 2024. The letter, the content of which is very
difficult to decipher, makes no substantive arguments. Rather, it states
(among other things) that petitioner “do[es] not argue . . . facts,
jurisdiction, or venue.”     We have recharacterized this letter as
petitioner’s Response to the IRS Motions for Summary Judgment and to
Impose a Penalty. 2

                                    Discussion

I.     Summary Judgment Standard

       The purpose of summary judgment is to expedite litigation and
avoid unnecessary and time-consuming trials. FPL Grp., Inc. & Subs.
v. Commissioner, 116 T.C. 73, 74 (2001). 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. Rule 121(a)(2);
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. Sundstrand
Corp., 98 T.C. at 520. We find that there exist no genuine disputes of
material fact and that summary adjudication is appropriate.

      Petitioner’s filings devote no attention to the issues raised in
respondent’s Motion for Summary Judgment. She does not allege any
genuine dispute of material fact and admits that she is not contesting
the facts that respondent alleges. We find the case appropriate for
summary judgment.

II.    Standard of Review

        Section 6330(d)(1) does not prescribe the standard of review that
this Court should apply in reviewing an IRS administrative
determination in a CDP case. The general parameters for such review
are marked out by our precedents. Where the taxpayer’s underlying
liability is not properly in dispute, we review the IRS’s determination
for abuse of discretion only. Jones v. Commissioner, 338 F.3d 463, 466
(5th Cir. 2003); Goza v. Commissioner, 114 T.C. 176, 182 (2000). Abuse
of discretion exists when a determination is arbitrary, capricious, or

        2 The Court subsequently received from petitioner two similar letters, filed on

February 20, 2024. Those letters are likewise incoherent and state that petitioner
“do[es] not argue . . . facts, jurisdiction, or venue.”
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[*7] without sound basis in fact or law. See Murphy v. Commissioner,
125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

       Taxpayers may challenge their underlying tax liabilities at a CDP
hearing only if they did not receive a statutory notice of deficiency for
those liabilities or did not otherwise have an opportunity to dispute
them. § 6330(c)(2)(B). Petitioner received a notice of deficiency for 2001
and 2002 and challenged the Commissioner’s determination in the case
at Docket No. 24158-09. We entered a decision for respondent in that
case, and the decision is now final. See § 7481(a). Petitioner did not
dispute her underlying liability at her initial or supplemental CDP
hearing, and therefore she cannot challenge it here. See Thompson v.
Commissioner, 140 T.C. 173, 178 (2013). We thus review the SOs’
determinations for abuse of discretion only. See § 6330(c)(3); Goza, 114
T.C. at 182.

III.   Abuse of Discretion

       In deciding whether the SOs abused their discretion, we consider
whether they (1) properly verified that the requirements of applicable
law or administrative procedure were met, (2) considered relevant
issues petitioner raised, and (3) considered “whether any proposed
collection action balances the need for the efficient collection of taxes
with the legitimate concern of [petitioner] that any collection action be
no more intrusive than necessary.” § 6330(c)(3). Our review of the
record establishes that the SOs properly discharged all of their
responsibilities under section 6330(c).

       At her initial CDP hearing petitioner was entitled to make offers
of collection alternatives, including an OIC or an IA. See § 6330(c)(2)
and (3). But petitioner did not propose either form of relief. There is no
abuse of discretion when Appeals does not consider an OIC where (as
here) a completed Form 656 was not submitted.                  Gentile v.
Commissioner, T.C. Memo. 2013-175, 106 T.C.M. (CCH) 75, 77, aff’d,
592 F. App’x 824 (11th Cir. 2014). And it is not an abuse of discretion
for an SO to decline to consider an IA where the taxpayer does not place
a specific proposal on the table. See McLaine v. Commissioner, 138 T.C.
228, 243 (2012). Accordingly, SO1’s determination that petitioner was
ineligible for an IA or an OIC was appropriate.

      The only collection alternative petitioner proposed was her
request that her accounts be placed in CNC status. To be entitled to
such relief, taxpayers must demonstrate, on the basis of their assets,
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[*8] equity, income, and expenses, that they have no apparent ability to
make payments on their outstanding tax liabilities. See Foley v.
Commissioner, T.C. Memo. 2007-242, 94 T.C.M. (CCH) 210, 212. An
account may not be placed in CNC status if the taxpayer has income or
equity in assets unless enforced collection would cause hardship.
See Siebert v. Commissioner, T.C. Memo. 2021-34, 121 T.C.M. (CCH)
1230, 1236 (citing Internal Revenue Manual (IRM) 5.16.1.2.9(1)
(Aug. 25, 2014)). Hardship exists if the taxpayer is unable to pay
reasonable basic living expenses. Margolis-Sellers v. Commissioner,
T.C. Memo. 2019-165, 118 T.C.M. (CCH) 488, 498 (citing IRM
5.16.1.2.9(1)).

       The initial notice of determination indicated that further
investigation was needed to address questions relating to petitioner’s
$1.8 million equity in her residence and $350,000 transfer to a third
party. The case was remanded to Appeals to investigate those matters.
When the Court remands a case to Appeals, the further hearing is a
supplement to the taxpayer’s original CDP hearing, not a new hearing
in and of itself. See Kelby v. Commissioner, 130 T.C. 79, 86 (2008).
Because a supplemental notice of determination was issued, we review
the position taken by Appeals in that notice. Ibid.

       That notice found the denial of petitioner’s request for CNC status
to be proper. Appeals determined that petitioner, far from being unable
to pay anything at all, had reported on her Form 433–A assets that could
be used to reduce her tax liabilities. Considering the information that
petitioner herself supplied, SO2 concluded that she could pay at least
some of her tax liabilities and that she had not shown that payment
would cause hardship. Collection determined, in responding to the
second ARI request, that petitioner had supplied no evidence that the
$350,000 transfer in 2018 was the repayment of a bona fide loan. In any
event, SO2 determined that petitioner’s reported bank account balances
of $247,408 “alone are sufficient for Appeals to determine that CNC
status is not acceptable.” This Court will neither substitute its
judgment for that of an SO nor recalculate a taxpayer’s ability to pay.
See O’Donnell v. Commissioner, T.C. Memo. 2013-247, 106 T.C.M. (CCH)
477, 481.

       The record shows that SO2 performed a balancing test, finding
that the proposed levy action adequately balances the need for efficient
tax collection with petitioner’s concerns. Given petitioner’s history of
noncompliance, the magnitude of her outstanding liabilities, and her
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[*9] equity, we conclude that SO2 did not abuse her discretion in
sustaining the proposed levy.

IV.   Motion to Impose a Penalty

       The Court may impose a penalty of up to $25,000 if a taxpayer
has instituted or maintained proceedings primarily for delay or has
taken positions that are frivolous or groundless. § 6673(a)(1)(A) and (B).
Petitioner has repeatedly been warned of this fact. In April 2022 she
began filing letters with the Court without the advice of her now-former
counsel. We have stricken three letters from the record since then,
warning petitioner numerous times about the risk of penalty for
frivolous filings.

       Since July 12, 2022, when we issued our first Order cautioning
petitioner, she has submitted more than 20 letters containing
arguments that are frivolous and have been identified as such by the
IRS. See I.R.S. Notice 2010-33, 2010-17 I.R.B. 609, 609–12. Even
though petitioner is not a lawyer, a modest inquiry using an internet
search engine would have led her to online sources showing the frivolous
nature of these arguments. See Wnuck v. Commissioner, 136 T.C. 498,
504 (2011) (“Anyone with the inclination to do legal research . . . will
confront such authorities.”).

       The purpose of section 6673 is to compel taxpayers to think and
to conform their conduct to settled principles before they file and litigate.
Takaba v. Commissioner, 119 T.C. 285, 295 (2002). This is because
frivolous and groundless claims “divert the Court’s time, energy, and
resources away from more serious claims and increase the needless costs
imposed on other litigants.” Kernan v. Commissioner, T.C. Memo.
2014-228, 108 T.C.M. (CCH) 503, 512, aff’d, 670 F. App’x 944 (9th Cir.
2016). With a view to deterring abuse of judicial and IRS resources, this
Court must exercise its discretion to determine when a penalty under
section 6673 is appropriate, and in what amount. See Precourt v.
Commissioner, T.C. Memo. 2010-24, 99 T.C.M. (CCH) 1112, 1118.

       Petitioner has continued her pattern of frivolous filings despite
our warnings. However, her filings display confusion and make it clear
that she has suffered from loss of representation by her former counsel.
We will therefore exercise our discretion to impose a modest penalty of
$250.
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[*10] To reflect the foregoing,

      An appropriate order and decision will be entered.