Court Opinion

ID: 9398282
Source: CourtListenerOpinion
Date Created: 2023-05-30 19:03:09.712992+00
Date Added: 2024-06-11T17:19:32.131723
License: Public Domain

United States Tax Court

                                T.C. Memo. 2023-67

                         JOSEPH WILLIAM KOVACH,
                                Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                      —————

Docket No. 12350-20L.                                            Filed May 30, 2023.

                                      —————

Joseph William Kovach, pro se.

Albert B. Brewster II, for respondent.

                           MEMORANDUM OPINION

       LAUBER, Judge: In this collection due process (CDP) case, peti-
tioner seeks review pursuant to section 6330(d)(1) 1 of the determination
by the Internal Revenue Service (IRS or respondent) to uphold collection
action for 2011–2015. Respondent has moved for summary judgment
under Rule 121, contending that petitioner was not entitled to challenge
his underlying tax liabilities and that the settlement officer (SO) did not
abuse her discretion. We agree and accordingly will grant the Motion.

                                     Background

      The following facts are derived from the parties’ pleadings, Mo-
tion papers, and the Declarations and Exhibits attached thereto. See

       1 Unless otherwise indicated, all statutory references are to the Internal Reve-

nue Code, Title 26 U.S.C., 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.

                                  Served 05/30/23
                                    2

[*2] Rule 121(c). Petitioner, who operated a shipping business, resided
in California when he timely petitioned this Court.

       Petitioner did not file timely Federal income tax returns for 2011–
2015. On June 20, 2016, he filed delinquent returns for 2011–2014; on
December 27, 2016, he filed a second delinquent return for 2014; and on
February 2, 2017, he filed a delinquent return for 2015. He did not pay
the tax shown as due on these returns. The IRS assessed the tax liabil-
ities shown as due, plus additions to tax and interest.

       The IRS commenced an examination of the returns described
above. On June 7, 2017 the IRS sent petitioner a notice of deficiency for
2011; on August 8, 2017, it sent him a notice of deficiency for 2012–2014;
and on October 18, 2017, it sent him a notice of deficiency for 2015.
These notices were sent by certified mail to petitioner at his last known
address in Fontana, California (Fontana address). The Fontana address
was petitioner’s address of record with this Court as of the filing of the
Petition, and it is the address that he has used at all relevant times in
corresponding with the IRS.

       Petitioner did not petition this Court in response to any of the
three notices of deficiency listed above. Upon expiration of the 90-day
period specified in section 6213(a) for the filing of a Tax Court petition,
the IRS assessed the deficiencies, additions to tax, and accuracy-related
penalties set forth in the notices. Petitioner did not pay his liabilities
upon notice and demand for payment. As of March 2019, his outstand-
ing liabilities for all open years exceeded $400,000.

        On December 22, 2017, in an effort to collect petitioner’s liabili-
ties, the IRS filed a Federal tax lien for 2011, 2012, 2014, and 2015 and
sent him a Letter 3172, Final Notice of Federal Tax Lien Filing and Your
Right to a Hearing (lien notice). On April 13, 2018, the IRS filed a notice
of Federal tax lien for 2013 and sent him a lien notice for that year. The
IRS mailed both lien notices to his Fontana address. He did not timely
request a CDP hearing with respect to the lien notices.

       On February 25, 2019, the IRS issued petitioner a Letter 1058,
Notice of Intent to Levy and Notice of Your Right to a Hearing (levy
notice), for 2011–2015. On March 25, 2019, petitioner submitted a Form
12153, Request for a Collection Due Process or Equivalent Hearing, to
which he attached a transmittal letter that showed the Fontana address
as his return address. On the Form 12153 he checked the boxes for
“Filed Notice of Federal Tax Lien” and “Proposed Levy.”
                                    3

[*3] As his reason for disagreeing with the collection actions, peti-
tioner directed attention to an “attached request for redetermination of
audit.” The attachment stated his position that he “doesn’t owe part of
the taxes determined during the audit” of his 2011–2015 tax returns.
He contended that the IRS examiner had “failed to review documenta-
tion of significant business expenses” and had “misclassif[ied]” certain
expenses. Petitioner did not check the box on the Form 12153 marked
“Collection Alternative,” and there is no indication in his hearing re-
quest that he sought a collective alternative.

       In July 2019 petitioner’s case was assigned to an SO in the IRS
Independent Office of Appeals (Appeals), then reassigned in October
2019 to a different Appeals officer (SO2). On November 1, 2019, SO2
reviewed petitioner’s file and verified that all requirements of applicable
law and administrative procedure had been satisfied. On January 10,
2020, SO2 mailed to petitioner’s Fontana address a letter acknowledg-
ing his hearing request and scheduling a telephone conference for March
3, 2020.

       In the letter SO2 explained that petitioner would be prohibited
from challenging his underlying liabilities for 2011–2015 because he had
received notices of deficiency for those years but failed to petition the
Tax Court for redetermination of the deficiencies. See § 6330(c)(2)(B).
SO2 also advised that, in order for her to consider a collection alterna-
tive, petitioner needed to provide a copy of a signed tax return for 2018,
which IRS records showed that he had not filed, and IRS forms supply-
ing information about his ability to pay. SO2 indicated that she could
consider a collection alternative only with respect to the levy notice: Pe-
titioner’s hearing request was untimely as to the lien notices, having
been submitted more than 11 months after the lien notices were mailed
to him. See § 6320(a)(3)(B).

      The telephone conference was rescheduled to March 6, 2020, and
held on that date. SO2 reiterated that petitioner could not challenge his
underlying liabilities because the IRS had sent him notices of deficiency
that he had failed to dispute. Petitioner said that he had not received
the notices of deficiency, but SO2 provided him with U.S. Postal Service
(USPS) certified mail information showing that notices of deficiency for
2011–2015 had been mailed to his Fontana address.

      Petitioner indicated that he desired audit reconsideration, stating
that he would submit amended returns in conjunction with that
                                            4

[*4] request. 2 SO2 indicated that she would consider a request for audit
reconsideration, so long as petitioner submitted amended returns by
May 4, 2020. When SO2 asked petitioner if he was interested in a col-
lection alternative, he again said “no.”

       During the ensuing months petitioner failed to submit the prom-
ised amended returns, failed to submit a signed copy of a tax return for
2018, and failed to submit the IRS forms and financial information req-
uisite for consideration of a collection alternative. On August 3, 2020,
SO2 confirmed that the IRS had received no amended returns; on Au-
gust 10, 2020, she verified that petitioner had not filed a Federal income
tax return for 2018 or for 2019. She accordingly decided to close the
case. On September 15, 2020, the IRS mailed petitioner a notice of de-
termination sustaining the levy.

       Petitioner timely petitioned this Court, alleging that the IRS had
failed to consider documents he submitted during the audit. He re-
quested that “this Court redetermine the tax deficiency . . . for the cal-
endar year[s] [2011–2015].” On September 10, 2021, the Court granted
respondent’s unopposed Motion for Remand to Appeals to determine
whether the IRS had secured supervisory approval of the penalties de-
termined against petitioner. See § 6751(b)(1).

       Petitioner’s case on remand was again assigned to SO2. On No-
vember 15, 2021, petitioner and SO2 spoke by phone. He inquired again
about his entitlement to challenge his underlying tax liabilities; SO2 re-
iterated that he could not, but agreed to fax him copies of the USPS cer-
tified mail lists (CMLs) indicating that notices of deficiency for 2011–
2015 had been mailed to him at his Fontana address. SO2 asked
whether he would be seeking a collection alternative as part of the sup-
plemental hearing and he replied “no.” On another phone call two days

         2 A grant of audit reconsideration is discretionary with the IRS and is con-

ducted outside the CDP process; an SO’s determination on this point is not subject to
judicial review. See Daniel v. Commissioner, T.C. Memo. 2009-28, 97 T.C.M. (CCH)
1120, 1121 (describing audit reconsideration as a proceeding “separate and apart from
the instant CDP collection case”); Jones v. Commissioner, T.C. Memo. 2007-142 (hold-
ing that the IRS did not abuse its discretion by declining to wait for the results of audit
reconsideration before sustaining collection action). Petitioner appears to have re-
quested audit reconsideration previously: In April 2018 an IRS revenue officer mailed
him Form 12661, Disputed Issue Verification, and Publication 3598, What You Should
Know About the Audit Reconsideration Process. Petitioner did not supply the docu-
mentation that the revenue officer requested of him, and in October 2018 the revenue
officer closed that prior audit reconsideration process.
                                    5

[*5] later petitioner requested that the supplemental hearing be re-
scheduled to December 6, 2021, and SO2 granted that request.

       Around this time petitioner sent SO2 two bankers boxes contain-
ing documents. On December 3 petitioner called SO2, explaining that
these documents supported his challenge to his underlying liabilities.
SO2 replied that his case had been remanded for the sole purpose of
determining whether the IRS had complied with section 6751(b). When
petitioner acknowledged that the documents had nothing to do with
that, SO2 advised that she would delve no further into the boxes.

       The supplemental conference was held on December 6, 2021. SO2
explained that she was in the process of ascertaining whether the IRS
had secured proper supervisory approval for the penalties determined
during the audit. On March 2, 2022, having found no evidence of super-
visory approval, SO2 determined that the penalties should be abated for
tax years 2011–2014 (no penalty had been asserted for 2015). On March
22, SO2 phoned petitioner, advising that the penalties had been abated
and offering him another chance to request a collection alternative. On
March 31 he confirmed that he would not be seeking a collection alter-
native but reiterated his intention to challenge his underlying liabilities
in this Court.

       On June 6, 2022, the IRS issued petitioner a supplemental notice
of determination, noting that all penalties had been abated but sustain-
ing the proposed levy. After the case was returned to this Court, re-
spondent filed, on October 3, 2022, a Motion for Partial Summary Judg-
ment, seeking summary judgment as to tax years 2011–2014. On De-
cember 21, 2022, respondent filed a Supplement to his Motion, seeking
summary judgment as to tax year 2015. On March 16, 2023, petitioner
filed a Response.

                               Discussion

A.    Summary Judgment Standard

       Our decision in this case is most likely appealable to the U.S.
Court of Appeals for the Ninth Circuit. See § 7482(b)(1)(G)(i), (2). That
court has held that, where de novo review is not applicable, the scope of
review in a CDP case is confined to the administrative record. See Keller
v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part T.C.
Memo. 2006-166, and aff’g in part, vacating in part decisions in related
cases. For the reasons discussed below, de novo review is not available
in this case, and petitioner has offered no reason to believe that the
                                    6

[*6] administrative record is incomplete. Accordingly, “summary judg-
ment serves as a mechanism for deciding, as a matter of law, whether
the agency action is supported by the administrative record and is not
arbitrary, capricious, an abuse of discretion, or otherwise not in accord-
ance with law.” Belair v. Commissioner, 157 T.C. 10, 17 (2021) (quoting
Van Bemmelen v. Commissioner, 155 T.C. 64, 79 (2020)).

B.    Standard of Review

       Section 6330(d)(1) does not prescribe the standard of review that
this Court should apply in reviewing an IRS administrative determina-
tion in a CDP case. The general parameters for such review are marked
out by our precedents. Where the taxpayer’s underlying tax liability is
properly at issue, we review the IRS’s determination de novo. Sego v.
Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C.
176, 181–82 (2000). Where the taxpayer’s underlying liability is not
properly in dispute, we review the IRS decision for abuse of discretion
only. Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003); Goza,
114 T.C. at 182. Abuse of discretion exists when a determination is ar-
bitrary, capricious, or 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).

C.    Underlying Liabilities

       During the CDP hearing and subsequently, petitioner expressed
his desire to dispute the 2011–2015 tax liabilities that gave rise to the
IRS collection actions. But a taxpayer may challenge his underlying li-
ability at a CDP hearing only if he did not receive a statutory notice of
deficiency for that liability or did not otherwise have an opportunity to
dispute it. § 6330(c)(2)(B); Sego, 114 T.C. at 609. For purposes of deter-
mining whether a taxpayer can raise a liability challenge under section
6330(c)(2)(B), actual receipt of the statutory notice must be determined.
See Sego, 114 T.C. at 610–11. A notice of deficiency is presumed to have
been received by the taxpayer if it was properly mailed to him at his last
known address. See § 6212(b)(1); Hoyle v. Commissioner, 131 T.C. 197,
200, 203–04 (2008), supplemented by 136 T.C. 463 (2011).

      Petitioner does not dispute that the Fontana address was his “last
known address” at the time the notices of deficiency were mailed. See
§ 6212(b)(1). He received the lien and levy notices at that address, re-
quested a CDP hearing, and listed the Fontana address as his return
address. He showed the Fontana address on his Petition to this Court,
                                           7

[*7] and he does not dispute respondent’s assertion that the Fontana
address was his last known address at all relevant times.

       The administrative record of the CDP proceeding includes copies
of the notices of deficiency for 2011–2014. The record also includes
USPS CMLs showing that notices of deficiency for all five years were
sent via certified mail to petitioner at his Fontana address. The CMLs
are properly stamped by the USPS and contain no obvious omissions or
irregularities. Generally, if the IRS produces a USPS CML showing that
a notice of deficiency was timely sent to the taxpayer’s last known ad-
dress (as it has done here), we will presume that the notice was properly
mailed. See United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984);
Cataldo v. Commissioner, 60 T.C. 522, 524 (1973), aff’d per curiam, 499
F.2d 550 (2d Cir. 1974). We find that notices of deficiency for 2011–2015
were timely mailed to petitioner’s last known address. 3

       For these reasons, SO2 correctly determined that petitioner was
not entitled during the CDP hearing to challenge his underlying tax li-
abilities for 2011–2015. Because petitioner’s underlying liabilities are
not properly at issue in this Court, we will review SO2’s action for abuse
of discretion only. See § 6330(c)(2)(B); Goza, 114 T.C. at 182. 4

D.      Abuse of Discretion

       In deciding whether an SO abused her discretion in sustaining
collection action, we consider whether she: (1) properly verified that the
requirements of applicable law or administrative procedure have been
met; (2) considered any relevant issues petitioner raised; and (3) consid-
ered whether “any proposed collection action balances the need for the

        3 The administrative record reviewed by SO2 did not include a copy of the no-
tice of deficiency for 2015. In this situation IRS procedures instruct an SO to review
any available CML to determine whether there was proper mailing. See Internal Rev-
enue Manual 8.22.5.4.2.1.1(9) (Aug. 31, 2020). Here SO2, as part of her verification
that the IRS had met all requirements of law and administrative procedure, reviewed
the CML showing that a notice of deficiency for 2015 had indeed been mailed to peti-
tioner at his last known address. We find that SO2’s verification was sufficient. (Re-
spondent subsequently secured a copy of the notice of deficiency for 2015 and has at-
tached it to his Supplement to the Motion for Partial Summary Judgment.)
        4 Ultimately petitioner seems to have come around to the view that he was

ineligible to challenge his underlying liabilities at his CDP hearing, stating in his Re-
sponse to the summary judgment motions that he “now understands . . . that the CDP
hearing that gave rise to this Tax Court case was not the appropriate place to challenge
the amount of [his] Federal income tax.”
                                         8

[*8] efficient collection of taxes with the legitimate concern of [peti-
tioner] that any collection action be no more intrusive than necessary.”
See § 6330(c)(3). Our review of the record establishes that SO2 properly
discharged all of her responsibilities under section 6330(c).

       This case was remanded to Appeals to determine whether super-
visory approval had been secured for the penalties determined in the
notices of deficiency. See § 6751(b)(1) (requiring supervisory approval),
§ 6330(c)(3) (requiring SO to verify that all requirements of applicable
law or administrative procedure have been met). On remand SO2 re-
searched this issue, found no evidence of timely supervisory approval,
and promptly abated the penalties.

       SO2 reasonably concluded that petitioner did not qualify for a col-
lection alternative. He proposed no such alternative and repeatedly in-
dicated that he did not wish to pursue one. He declined to supply the
financial information requisite for consideration of a collection alterna-
tive, and he did not come into compliance with his Federal tax obliga-
tions by filing tax returns for 2018 and 2019. Each of these omissions
by itself was disqualifying. See Boulware v. Commissioner, T.C. Memo.
2014-80, 107 T.C.M. (CCH) 1419, 1424 (not in compliance with Federal
tax obligations), aff’d, 816 F.3d 133 (D.C. Cir. 2016); Gentile v. Commis-
sioner, T.C. Memo. 2013-175, 106 T.C.M. (CCH) 75, 77 (no alternative
proposed), aff’d, 592 F. App’x 824 (11th Cir. 2014); Coleman v. Commis-
sioner, T.C. Memo. 2010-51, 99 T.C.M. (CCH) 1213, 1215 (no financial
information provided), aff’d, 420 F. App’x 663 (8th Cir. 2011). 5

       Finding no abuse of discretion in any respect, we will grant sum-
mary judgment for respondent. We note that petitioner is free to submit
to the IRS at any time, for its consideration and possible acceptance, a
collection alternative in the form of an offer-in-compromise or an install-
ment agreement, supported by the requisite financial information. 6

        5 During the CDP hearing SO2 expressed willingness to entertain a request for

audit reconsideration and set a deadline for petitioner to submit amended returns as
part of that process. Petitioner did not submit any documents by SO2’s deadline or
within the ensuing two months, and she did not abuse her discretion by closing the
case when she did.
       6  SO2 determined that petitioner could not challenge the lien notices because
he had submitted his CDP hearing request more than 11 months after the IRS mailed
the lien notices to him. See § 6320(a)(3)(B) (requiring that CDP hearing be requested
within 30 days). The Supreme Court recently held that at least one filing deadline
                                           9

[*9]    To reflect the foregoing,

        An appropriate order and decision will be entered.

connected with a CDP proceeding is not jurisdictional. Boechler, P.C. v. Commissioner,
142 S. Ct. 1493, 1501 (2022) (holding that untimely filing of a petition in a CDP case
is not a jurisdictional defect and may be subject to equitable tolling). If that decision
were deemed relevant here and if SO2 were deemed to have erred in excluding the lien
notices from the hearing, that error would be harmless. The lien notices concerned the
same tax years (2011–2015) as the levy notices, and SO2 properly concluded that pe-
titioner could not challenge his underlying liability for any of these years. Petitioner
repeatedly stated that he had no interest in pursuing a collection alternative and (for
the reasons discussed in the text) he was ineligible for one in any event. SO2 would
thus have come to exactly the same conclusions if the lien notices had been before her.