Court Opinion

ID: 4335610
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:21:12.980204+00
Date Added: 2024-06-11T14:47:20.407539
License: Public Domain

125 T.C. No. 5

                 UNITED STATES TAX COURT

          SERVICE EMPLOYEES INTERNATIONAL UNION,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

         100 OAK STREET CORPORATION, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent

 Docket Nos. 8398-04L, 8399-04L.   Filed September 15, 2005.

      Ps are qualified labor organizations under I.R.C.
 sec. 501(c)(5) and are exempt from taxation under
 I.R.C. sec. 501(a). Ps did not timely file annual
 returns required by I.R.C. sec. 6033(a)(1). R assessed
 penalties against Ps under I.R.C. sec. 6652(c)(1) for
 failure to timely file those returns. Pursuant to
 I.R.C. sec. 6330(a), R issued notices of determination,
 attempting to collect the penalties by levy. Ps filed
 petitions contesting R’s determination. R filed
 motions to dismiss for lack of jurisdiction.

      Held: The Tax Court does not have jurisdiction
 over I.R.C. sec. 6652(c)(1) penalties for purposes of
 I.R.C. sec. 6330, and R’s motions will be granted.
                               - 2 -

     William E. Taggart, Jr., for petitioners.

     Michael E. Melone, for respondent.

                              OPINION

     HAINES, Judge:   The matter in these cases is before the

Court on respondent’s motions to dismiss for lack of jurisdiction

(motions).   Respondent’s motions present an issue of first

impression--whether section 6330(d) vests this Court with

jurisdiction over penalties imposed under section 6652(c)(1) on a

tax-exempt organization for failure to timely file a complete

section 6033(a)(1) return.1   For the reasons discussed below, we

shall grant respondent’s motions.

Background

     100 Oak Street Corporation (100 Oak Street) is a wholly

owned subsidiary of Service Employees International Union

(Service Employees) (collectively referred to as petitioners).

Petitioners share the same address, and many of the officers

serve in the same capacity for both organizations.    Petitioners

are qualified labor organizations under section 501(c)(5) and are

exempt from taxation under section 501(a).   Petitioners’

principal place of business is Oakland, California.

     1
        All section references are to the Internal Revenue Code,
as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 3 -

     For its taxable year ending June 30, 1998, 100 Oak Street

did not file a timely section 6033(a)(1) return.    On November 1,

1999, respondent assessed a section 6652(c)(1) penalty of $2,460

against 100 Oak Street for failure to timely file a section

6033(a)(1) return.    A notice of deficiency was not issued.

     Pursuant to section 6330(a), respondent issued 100 Oak

Street a Final Notice of Intent to Levy and Notice of Your Right

to a Hearing (notice of intent to levy) on December 18, 2002.     A

section 6330 hearing requested by 100 Oak Street was held on

December 10, 2003.

     For its taxable year ending June 30, 1999, Service Employees

did not timely file a section 6033(a)(1) return.    On April 8,

2002, respondent assessed a section 6652(c)(1) penalty of $50,000

against Service Employees for failure to timely file a section

6033(a)(1) return.    A notice of deficiency was not issued.

     Pursuant to section 6330(a), respondent issued Service

Employees a notice of intent to levy on August 13, 2002.     Service

Employees requested a section 6330 hearing, which was held on

September 10, 2003.

     On April 23, 2004, respondent sent each petitioner a Notice

of Determination Concerning Collection Actions Under Section

6330, upholding the respective levies.    On May 21, 2004,

petitioners filed petitions with this Court seeking review of

respondent’s determinations.
                                   - 4 -

        Pursuant to Rule 53, respondent filed the motions to dismiss

for lack of jurisdiction against petitioners on July 12, 2004.

On October 14, 2004, upon order of this Court, the two cases were

consolidated for hearing on the motions to dismiss.           The hearing

was held on November 29, 2004, in San Francisco, California.

Discussion

        Section 6033(a)(1) requires an organization exempt from

taxation under section 501(a) to file “an annual return, stating

specifically the items of gross income, receipts, and

disbursements, and such other information * * * as the Secretary

may by forms or regulations prescribe”.2           If the organization

fails to timely file a complete section 6033(a)(1) return, the

organization is subject to a penalty under section 6652(c)(1)

(A).3       Section 6652(c)(1) penalties are paid on notice and demand

        2
        Sec. 6033(a)(2) exempts certain organizations, such as
churches and religious organizations, from this filing
requirement; no such exceptions are at issue in the present
cases.
        3
             Sec. 6652(c)(1)(A)(i) provides, in pertinent part:

               (A) Penalty on organization.--In the case of--

                    (i) a failure to file a return required
               under section 6033 * * * on the date and in
               the manner prescribed therefor * * *

                    *    *    *    *       *   *      *

        there shall be paid by the exempt organization $20 for
        each day during which such failure continues. The
        maximum penalty under this subparagraph * * * shall not
                                                      (continued...)
                               - 5 -

of the Secretary, and in the same manner as taxes.   Sec.

6652(c)(4)(A).

     Section 6331(a) provides that, if a person liable to pay any

tax neglects or refuses to do so within 10 days after notice and

demand, the Secretary can collect the tax by levy upon the

property belonging to the person, subject to the notice and fair

hearing requirements of sections 6330 and 6331(d).   Pursuant to

section 6330(d)(1), after the administrative review process has

been completed and the Secretary has issued a notice of

determination, the person may appeal that determination within 30

days to this Court.4

     3
      (...continued)
     exceed the lesser of $10,000 or 5 percent of the gross
     receipts of the organization for the year. In the case
     of an organization having gross receipts exceeding
     $1,000,000 for any year * * * the first sentence of
     this subparagraph shall be applied by substituting
     “$100” for “$20” and, in lieu of applying the second
     sentence of this subparagraph, the maximum penalty
     under this subparagraph shall not exceed $50,000.

     4
         Sec. 6330(d)(1) provides in full:

          (1) Judicial review of determination.--The person
     may, within 30 days of a determination under this
     section, appeal such determination–-

                (A) to the Tax Court (and the Tax Court
           shall have jurisdiction to such hear matter);
           or

                (B) if the Tax Court does not have
           jurisdiction of the underlying tax liability,
           to a district court of the United States.
                                                     (continued...)
                                - 6 -

     The Tax Court has jurisdiction to review lien and levy

determinations under section 6330(d)(1) if we have jurisdiction

over the underlying tax liability.      Sec. 6330(d)(1)(A); Downing

v. Commissioner, 118 T.C. 22, 26 (2002); Van Es v. Commissioner,

115 T.C. 324, 327 (2000); Moore v. Commissioner, 114 T.C. 171,

175 (2000).    Thus, we must determine whether this Court has

jurisdiction over section 6652(c)(1) penalties.

     In his motions, respondent argues that this Court does not

have jurisdiction over section 6652(c)(1) penalties under section

6330(d)(1).    Respondent states:   “there has to be a specific

grant of authority for the Court to have jurisdiction over the

penalty under section 6652(c)(1) * * * .     And respondent can find

no specific grant of specific authority.”

     Petitioners contend that this Court does have jurisdiction

over section 6652(c)(1) penalties and advance three primary

arguments:    (1) It is clear from the language of section

6330(d)(1) that Congress intended this Court to have jurisdiction

over section 6652(c)(1); (2) this Court’s analysis in Downing,

finding jurisdiction over section 6651(a)(2) additions to tax, is

equally applicable to section 6652(c)(1) penalties; and (3) this

     4
      (...continued)
     If a court determines that the appeal was to an
     incorrect court, a person shall have 30 days after the
     court determination to file such appeal with the
     correct court.
                                - 7 -

Court has jurisdiction over many other aspects of petitioners’

tax status and should therefore have jurisdiction over the

section 6652(c)(1) penalties assessed against them.     For purposes

of clarity and organization, we shall first address Tax Court

jurisdiction generally, followed by an analysis of petitioners’

three arguments.

1.   The Tax Court Is a Court of Limited Jurisdiction

       The Tax Court is a court of limited jurisdiction, and we may

exercise our jurisdiction only to the extent authorized by

Congress.    Sec. 7442; Moore v. Commissioner, supra at 175; Naftel

v. Commissioner, 85 T.C. 527, 529 (1985).    The Tax Court

generally has deficiency jurisdiction over income, gift, and

estate tax cases.    See secs. 6211(a), 6213(a), 6214(a); Downing

v. Commissioner, supra at 27; Van Es v. Commissioner, supra at

328.    For purposes of section 6330(d), the Court may have

jurisdiction over an underlying liability for income, estate, or

gift tax even when no deficiency has been determined.     Montgomery

v. Commissioner, 122 T.C. 1, 7-8 (2004); Downing v. Commissioner,

supra at 27-28; Landry v. Commissioner, 116 T.C. 60, 62 (2001).

However, Congress did not intend to expand the Court’s

jurisdiction under section 6330(d)(1) beyond the types of tax

over which we normally have jurisdiction.    See Van Es v.

Commissioner, supra at 328-329; Moore v. Commissioner, supra at

175.
                               - 8 -

2. Section 6330(d)(1) Does Not Expand the Tax Court’s
Jurisdiction

     Petitioners assert that section 6330(d)(1) is a new and

independent grant of jurisdiction, that Congress intended this

Court to have primary jurisdiction over section 6330 hearings,

and “If the limiting language of IRC §6330(d)(1)(B) is examined

with an [sic] view to the purpose of the language, it is obvious

[section 6652(c)(1)] is a matter over which the Tax Court should

insist it has jurisdiction.”   Petitioners further argue:

“If Congress intended to narrowly conscribe the Tax Court’s

jurisdiction under IRC §6330(d)(1), it could easily have done so.

Instead, Congress used the broadest possible language to describe

the jurisdiction of the Tax Court under §6330(d)(1).”   We

disagree.

     In Moore v. Commissioner, supra at 175, this Court stated:

     While Congress clearly intended for section 6330 to
     provide an opportunity for judicial review of
     collection matters, we interpret section 6330(d)(1)(A)
     and (B) together to mean that Congress did not intend
     to expand the Court’s jurisdiction beyond the types of
     taxes that the Court may normally consider. Thus,
     section 6330(d)(1)(A) and (B) provides for Tax Court
     jurisdiction except where the Court does not normally
     have jurisdiction over the underlying liability.

See also Van Es v. Commissioner, supra at 328 (holding that

section 6330(d)(1) does not expand the Court’s jurisdiction to

cover section 6702 frivolous return penalties).   Petitioners

assert that Congress did not intend such a narrow reading but

cite no authority.
                                - 9 -

     Petitioners’ assertion that Congress used the broadest

possible language to describe this Court’s jurisdiction under

section 6330(d)(1) is contradicted by the language of the section

itself.   Section 6330(d)(1)(B) provides that when the Tax Court

does not have jurisdiction over the underlying tax liability, the

District Courts will instead have jurisdiction.     See also sec.

301.6330-1(f)(1), Q&A-F3, Proced. & Admin. Regs.

     Therefore, section 6330(d)(1) does not expand this Court’s

jurisdiction beyond the types of tax we may normally consider.

See Van Es v. Commissioner, supra at 328-329; Moore v.

Commissioner, supra at 175.

3. The Court’s Analysis in Downing v. Commissioner Does Not
Control the Present Cases

     Petitioners next argue that this Court’s analysis in Downing

v. Commissioner, supra, is equally applicable to the present

cases, and using the same rationale, the Court should have

jurisdiction over section 6652(c)(1) penalties.

     In Downing, this Court considered whether we have

jurisdiction over section 6651(a)(2) additions to tax for failure

to timely pay the amount shown on a tax return.     Downing v.

Commissioner, 118 T.C. at 26.   The Court stated:

     The Tax Court generally has jurisdiction over income,
     gift, and estate tax cases for purposes of section
     6330(d)(1)(A) because we have deficiency jurisdiction
     relating to those taxes. * * * Thus, just as we
     generally have jurisdiction to decide income, gift, and
                               - 10 -

     estate tax cases, we generally have jurisdiction over
     additions to tax for failure to pay those taxes for
     purposes of section 6330(d)(1)(A). [Emphasis added.]

Id. at 27.

     Petitioners argue that the Court’s statements in Downing, as

quoted above, “could be construed as anticipatory of the precise

issue before the [Court].”    Because the penalties involved in the

present cases are readily distinguishable from the additions to

tax involved in Downing, we disagree.

     In Downing, as emphasized above, the Court held that we have

jurisdiction over additions to tax for failure to pay income,

gift, or estate taxes for purposes of section 6330(d)(1)(A).         Id.

at 27-28.    Because section 6651(a)(2) imposes additions to tax

for a failure to pay taxes shown on a return, this Court has

jurisdiction over those additions.      See id.   However, unlike the

additions to tax at issue in Downing, section 6652(c)(1)

penalties are not imposed for failure to pay income, gift, or

estate taxes, but are instead imposed for the failure to file a

section 6033(a)(1) return.5   The language in Downing limits the

Court’s analysis to additions to tax and penalties for failure to

pay income, gift, or estate taxes.      Because section 6652(c)(1)

does not impose such a penalty, the analysis in Downing does not

apply to the present cases.

     5
        This is not to suggest that under sec. 6330(d) we would
lack jurisdiction over a sec. 6651(a)(1) addition to tax for
failure to file.
                                - 11 -

       Petitioners further argue that section 6652(c)(1) penalties

are analogous to 6651(a)(2) additions to tax because “There is a

scaling of the penalty * * * that is tied to gross revenue--a

more appropriate measure of size for an exempt organization than

tax liability.”    The section 6651(a)(2) addition to tax is

calculated as follows: “there shall be added to the amount shown

as tax on such return 0.5 percent of the amount of such tax if

the failure is for not more than 1 month, with an additional 0.5

percent for each additional month.” (Emphasis added.)     The

section 6652(c)(1) penalty is calculated as follows:

       $20 for each day during which [failure to file] * * *
       continues. The maximum penalty under this subparagraph
       * * * shall not exceed the lesser of $10,000 or 5
       percent of the gross receipts of the organization for
       the year. In the case of an organization having gross
       receipts exceeding $1,000,000 for any year * * * the
       first sentence of this subparagraph shall be applied by
       substituting “$100” for “$20” and, in lieu of applying
       the second sentence of this subparagraph, the
       maximum penalty under this subparagraph shall not
       exceed $50,000. [Emphasis added.]

       As is clear from the above-emphasized language, a section

6651(a)(2) addition to tax is directly tied to the amount of tax

due.    On the other hand, a section 6652(c)(1) penalty is not tied

to the amount of tax due, but instead it is a flat daily rate of

accumulation.     While the flat daily rate and the cap on the

penalty are scaled depending on the gross revenue of the

organization, they are not directly tied to the amount of tax

due.    Thus, the manner in which the section 6652(c)(1) penalty
                             - 12 -

and the section 6651(a)(2) addition to tax are calculated is

distinguishable.6

     For the above stated reasons, we conclude that a section

6652(c)(1) penalty for failure to timely file a section

6033(a)(1) return is not analogous to a section 6651(a)(2)

addition to tax for failure to pay the amount shown.   Because

sections 6651(a)(2) and 6652(c)(1) are distinguishable, the

Court’s analysis in Downing does not control the present cases.

4. The Tax Court Cannot Extend Its Jurisdiction Based on Policy
Arguments

     Petitioners finally argue that because this Court has

jurisdiction over many other aspects of petitioners’ tax status,

it should also have jurisdiction over section 6652(c)(1) for

purposes of section 6330(d)(1):

          This [Court] has jurisdiction to adjudicate
     whether a tax exempt organization has unrelated
     business taxable income pursuant to IRC §512, as well
     as to determine any penalties in connection with such
     an assertion, Arkansas State Police Association v.
     Commissioner, T.C. Memo. 2001-38 * * * as well as any
     penalties imposed with respect to the return on which
     the exempt organization either failed to report, or
     under-reported, its unrelated business income. State
     Police Association of Massachusetts v. Commissioner,
     T.C. Memo. 1996-407 * * *

          This [Court] has jurisdiction to adjudicate
     whether an organization such as Petitioner is entitled
     to exemption from income tax under IRC §501. If this
     [Court] concludes that an organization such as

     6
        Although not argued by the parties, the sec. 6651(a)(1)
addition to tax for failure to file a return is distinguishable
for the same reason.
                                - 13 -

     Petitioner is not entitled to exemption from income tax
     pursuant to IRC §501, this [Court] has jurisdiction to
     determine the amount of income tax to which the
     organization is subject, including the imposition of
     penalties. Florida Hospital Trust Fund v.
     Commissioner, * * * 103 T.C. 140 (1994).

The issue in the present cases is not whether this Court has

jurisdiction over different aspects of petitioners’ tax status,

but whether we have jurisdiction over the section 6652(c)(1)

penalty.    None of the above-listed instances of jurisdiction

relates to the penalty at issue.

     In Henry Randolph Consulting v. Commissioner, 112 T.C. 1

(1999), the taxpayer made an argument similar to petitioners’.

In that case, the Commissioner determined that the taxpayer’s

workers were classified as employees for the purposes of Federal

employment taxes under section 7436 and assessed employment taxes

against the taxpayer.    Id. at 2-3.     The taxpayer filed a petition

with the Tax Court contesting the employment taxes as assessed,

and the Commissioner filed a motion to dismiss for lack of

jurisdiction.    Id. at 1-3.   The Tax Court is expressly given

jurisdiction to review the classification of workers as employees

under section 7436(a), but at the time the case was filed, the

Court did not have jurisdiction over employment taxes.7      See id.

at 13-14.    The taxpayer argued that, on grounds of judicial

     7
        Sec. 7436(a) has since been amended by the Consolidated
Appropriations Act, 2001, Pub. L. 106-554, sec. 314(f), 114 Stat.
2763A-643 (2000) to confer jurisdiction to determine “the proper
amount of employment tax.”
                                 - 14 -

economy and convenience to the parties, it was illogical for the

Tax Court to have jurisdiction over worker classification but not

over employment taxes assessed as a result of that

classification.     Id. at 12.   The Court held that “we do not

acquire jurisdiction from theories based on public policy,

convenience of the parties, or judicial economy”, and granted the

Commissioner’s motion to dismiss.      Id. at 12-14.

        In the present cases, petitioners argue that if the Court

has jurisdiction over many other aspects of petitioners’ tax

status, then for convenience to the parties and judicial economy,

the Court should also have jurisdiction over any penalties

assessed against petitioners.     However, as noted above, we may

exercise our jurisdiction only to the extent authorized by

Congress.     Moore v. Commissioner, 115 T.C. at 175; Naftel v.

Commissioner, 85 T.C. at 529.      We do not acquire jurisdiction

from theories based on public policy.     See Henry Randolph

Consulting v. Commissioner, supra at 12; see also Trost v.

Commissioner, 95 T.C. 560, 565 (1990).      Therefore, petitioners’

public policy arguments are insufficient to allow this Court to

exercise jurisdiction over the section 6652(c)(1) penalties.

Conclusion

     Petitioners have not pointed to any specific grant of

jurisdiction over section 6652(c)(1) penalties, and we can find

none.     Instead, petitioners’ assertion that this Court has
                               - 15 -

jurisdiction is based on the above-stated arguments, all of which

we find unpersuasive.   We agree with respondent that this Court

does not have jurisdiction over section 6652(c)(1) penalties for

purposes of section 6330(d)(1).   For this and all other reasons

stated herein, we shall grant respondent’s motions to dismiss for

lack of jurisdiction.

     We have considered all of petitioners’ arguments, and to the

extent they are not discussed herein, we conclude that they are

without merit or irrelevant.

     To reflect the foregoing,

                                              Appropriate orders

                                         of dismissal for lack of

                                         jurisdiction will be

                                         entered.