Court Opinion

ID: 9906031
Source: CourtListenerOpinion
Date Created: 2023-11-30 20:02:44.700993+00
Date Added: 2024-06-11T09:24:04.714051
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-145

                       WARNER ENTERPRISES, INC.,
                               Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 17163-19L.                                    Filed November 30, 2023.

                                     —————

Richard L. Hunn and Jasper G. Taylor III, for petitioner.

Brooke N. Stan and Christina D. Sullivan, for respondent.

                          MEMORANDUM OPINION

       KERRIGAN, Chief Judge: The Petition in this case was filed in
response to a Notice of Determination Concerning Collection Action(s)
under IRC Section 6320 1 and/or 6330 (notice of determination) dated
August 20, 2019, sustaining the filing of a Notice of Federal Tax Lien
(NFTL) and proposed levy pertaining to an assessment, based on an
affected items notice of deficiency dated October 13, 2017.

      On August 22, 2022, the Court issued an opinion in this case,
Warner Enterprises, Inc. v. Commissioner (Warner I), T.C. Memo. 2022-
85, granting respondent’s Motion for Partial Summary Judgment. In
that opinion the Court determined that, in the context of a TEFRA

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

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure.

                                 Served 11/30/23
                                          2

[*2] partnership, 2 compliance with section 6751(b) must be raised in a
partnership-level proceeding, not in a partner’s subsequent collection
proceeding. We will not revisit any arguments on this point. After
concessions, 3 the issues for consideration are whether the settlement
officer properly verified respondent’s mailing of the notice of deficiency
and the notice and demand for payment under section 6303(a). 4

                                    Background

       This case was submitted fully stipulated under Rule 122. 5 The
stipulated facts and facts drawn from the stipulated exhibits are
incorporated herein by this reference. The opinion filed as Warner I is
also incorporated.

      Petitioner, a Delaware corporation, had its principal place of
business in New York when the Petition was filed. Petitioner’s proposed
findings of fact provide a mailing address of 950 Third Avenue, Floor 22,
New York, NY 10022. As discussed in Warner I, petitioner was a partner
in AD Investment 2000 Fund, LLC (partnership), during the 2000 tax
year.

      On November 27, 2007, respondent issued a Notice of Final
Partnership Administrative Adjustment for the partnership’s 2000 tax
year. That notice included various partnership-level determinations,
which were litigated in this Court at Docket No. 9177-08. On December
14, 2016, the Court issued its opinion in that case, AD Investment 2000

       2 Before its repeal for tax years beginning after December 31, 2017, the Tax

Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, §§ 401–407,
96 Stat. 324, 648–71, codified at sections 6221 through 6234, prescribed procedures for
audit and litigation concerning returns filed by partnerships. The Commissioner
followed these procedures in this case.
        3 Petitioner conceded its arguments regarding whether the settlement officer

(1) was subject to the Appointments Clause of the U.S. Constitution and (2) abused his
discretion in rejecting petitioner’s offer-in-compromise.
       4 Although petitioner made challenges to various other aspects of the collection

and the Internal Revenue Service (IRS) Independent Office of Appeals (Appeals)
process, its case now focuses only on the two issues mentioned here and the section
6751(b) matter, which we have already ruled on and will discuss no further.
        5 Respondent objected to admission of Exhibits 37–44 because they are not part

of the administrative record. Outside of the U.S. Courts of Appeals for the First,
Eighth, and Ninth Circuits, our review is not confined to the administrative record.
See Robinette v. Commissioner, 123 T.C. 85, 101 (2004), rev’d, 439 F.3d 455 (8th Cir.
2006); Jewell v. Commissioner, T.C. Memo. 2016-239, at *12–13. Exhibits 37–44 are
therefore admitted into evidence.
                                        3

[*3] Fund LLC v. Commissioner, T.C. Memo. 2016-226. 6 Respondent
began collection actions against the partners of the partnership
thereafter.

       On June 26 and July 10, 2018, respondent issued petitioner a
notice of filing of an NFTL and a notice of intent to levy, respectively,
stemming from the partnership proceeding. On July 23, 2018, petitioner
timely mailed Form 12153, Request for a Collection Due Process or
Equivalent Hearing, in response to both notices. Petitioner attached to
Form 12153 a statement alleging that it had never received the notice
of deficiency for the purported tax liability for the affected items. On
February 26, 2019, respondent mailed to petitioner a copy of the notice
of deficiency for the affected items dated October 13, 2017, as well as
two U.S. Postal Service Forms 3877, Firm Mailing Book For Accountable
Mail.

       The notice of deficiency shows a mailing address of 950 Third
Avenue, Floor 22, New York, NY 10022. Submitted Postal Service
Forms 3877 indicate that the notice of deficiency was mailed to floors 22
and 23 of the same address. Respondent’s Case Activity Record (CAR)
notes that the deficiency notice was mailed to an address on Floor 22;
however, it was returned to respondent as “undeliverable, moved no
address.” The settlement officer nonetheless determined that the notice
of deficiency was properly issued on the basis of the document itself and
the Postal Service Forms 3877.

       On May 29, 2019, petitioner mailed respondent a letter stating
that while it did not contest the underlying liability, it disagreed that
respondent had properly mailed petitioner the affected items notice of
deficiency as well as the section 6303(a) notice and demand for payment.
Petitioner asserted that respondent failed to comply with section
6303(a) because the first notice of the assessment petitioner received
was dated May 7, 2018.

       The parties filed stipulated Exhibit 36 consisting of a Form 4340,
Certificate of Assessments, Payments, and Other Specified Matters,
which provides a transcript of petitioner’s account. This transcript
contains transactional entries on February 20 and May 7, 2018, for the
issuance of a statutory notice of balance due and a statutory notice of
intent to levy, respectively.

      6 We incorporate that opinion as well.
                                    4

[*4] On June 25, 2019, respondent mailed a letter in response,
indicating that even if the notice and demand for payment was not sent
until May 7, 2018, the notice remained valid. On August 20, 2019,
respondent issued the notice of determination to the same address
indicated on the October 13, 2017, notice of deficiency. The notice of
determination sustained the proposed collection by levy and the filing of
the NFTL.

                               Discussion

I.    Notice of Determination Review

       Section 6321 provides that “[i]f any person liable to pay any tax
neglects or refuses to pay the same after demand, the amount . . . shall
be a lien in favor of the United States upon all property and rights to
property, whether real or personal, belonging to such person.”
Generally, “the lien imposed by section 6321 shall arise at the time the
assessment is made and shall continue until the liability for the amount
so assessed . . . is satisfied or becomes unenforceable by reason of lapse
of time.” § 6322. Section 6320 requires the Commissioner to notify a
taxpayer of the filing of a notice of lien.

      Section 6331(a) authorizes the Secretary to levy upon the
property and property rights of a taxpayer who fails to pay a tax within
ten days after notice and demand. Before the Secretary may levy upon
the taxpayer’s property, the Secretary must notify the taxpayer of the
Secretary’s intention to make the levy. § 6331(d)(1).

       In the case of either a lien or a levy, the notice must inform the
taxpayer of his or her right to a collection due process (CDP) hearing on
the propriety of the filing. §§ 6320(a)(3)(B), 6330(a)(1). If the taxpayer
requests a CDP hearing, the hearing is conducted by IRS Appeals.
§§ 6320(b)(1), 6330(b)(1). At the hearing the taxpayer may raise any
relevant issue relating to the unpaid tax or the proposed collection
action. § 6330(c)(2)(A). The taxpayer may challenge the existence or the
amount of the underlying tax liability for any period only if they did not
receive a notice of deficiency or did not otherwise have an opportunity to
dispute the liability. § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C.
604, 609 (2000).

       Petitioner asserts that it did not receive notice of deficiency and
that it may contest the underlying liability in this proceeding. Section
6221 provides that the tax treatment of partnership items is determined
at the partnership level. If a determination of partnership items in a
                                    5

[*5] partnership-level proceeding is memorialized by final court
decision, the underlying tax liability is conclusive to the extent it stems
from that decision, and any further challenge to it is precluded. Malone
v. Commissioner, 148 T.C. 372, 375 (2017). Here such a determination
was made and memorialized in AD Investment 2000. Petitioner’s
underlying tax liability, which stems from the partnership proceeding,
is therefore conclusive, and any further challenge is precluded.

       Following the CDP hearing the settlement officer must determine
whether proceeding with the proposed collection action is appropriate.
In making that determination the settlement officer is required to take
into consideration: (1) whether the requirements of any applicable law
or administrative procedure have been met; (2) any relevant issues
raised by the taxpayer; and (3) whether the proposed collection action
balances the need for the efficient collection of taxes with the legitimate
concern of the taxpayer that the collection action be no more intrusive
than necessary. § 6330(c)(3); see also Lunsford v. Commissioner, 117
T.C. 183, 184 (2001).

       This Court may review the settlement officer’s verification under
section 6330(c)(1) without regard to whether the taxpayer raised it at
the CDP hearing. §§ 6320(c), 6330(c)(1), (3)(A); see also Hoyle
v. Commissioner, 131 T.C. 197, 202–03 (2008), supplemented by 136 T.C.
463 (2011). A settlement officer is required to base the notice of
determination, in part, on the verification obtained under section
6330(c)(1) by ensuring that all legal requirements have been followed.
Hoyle, 131 T.C. at 201–02; see also § 6330(c)(3).

II.   Abuse of Discretion

       We review a settlement officer’s determinations for abuse of
discretion. Sego, 114 T.C. at 610. An abuse of discretion occurs if
Appeals exercises its discretion “arbitrarily, capriciously, or without
sound basis in fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23
(1999). The Court does not conduct an independent review and
substitute its judgment for that of the settlement officer. Murphy
v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
2006). If the Appeals officer follows all statutory and administrative
guidelines and provides a reasoned, balanced decision, the Court will
not reweigh the equities. Link v. Commissioner, T.C. Memo. 2013-53,
at *12.
                                    6

[*6]   A.    Deficiency Notice Mailing

        Per section 6212(a) and (b) respondent must send a deficiency
notice to the taxpayer’s last known address by certified mail or
registered mail before it assesses liability for unpaid taxes. Actual
receipt of the notice by the taxpayer is not required to establish the
validity of the assessment. See Ruddy v. Commissioner, T.C. Memo.
2017-39, at * 9, aff’d per curiam, 727 F. App’x 777 (4th Cir. 2018). The
IRS must prove it complied with the mailing requirement “by competent
and persuasive evidence.” Welch v. United States, 678 F.3d 1371, 1378
(Fed. Cir. 2012). If the IRS fails to prove that it properly mailed a
deficiency notice, any tax assessment based on that notice is invalid.
§ 6213(a) (requiring the IRS to notify the taxpayer of a deficiency and
permit timely petition for redetermination before assessing tax
liability); Hoyle, 131 T.C. at 205.

       Evidence of postal service forms certifying that a notice of
deficiency has been mailed is highly probative and sufficient in the
absence of contrary evidence. United States v. Zolla, 724 F.2d 808, 810
(9th Cir. 1984). Petitioner contends that the settlement officer did not
properly verify that the notice of deficiency was correctly issued because
he relied on an unsigned copy of the deficiency notice and the Postal
Service Form 3877 documents. Petitioner does not contest the validity
of the deficiency notice itself. Rather it argues that there is no mention
in the account transcripts of the deficiency notice and furthermore that
respondent failed to put forth any evidence on his procedures for
preparing notices.

       As petitioner itself notes, the deficiency notice need not be signed
to be valid. See Commissioner v. Oswego Falls Corp., 71 F.2d. 673
(2d Cir. 1934), aff’g 26 B.T.A. 60 (1932). The absence of transcript
information, which “may . . . constitute[] an arguable irregularity,”
cannot serve as grounds to invalidate the assessment. See Ruddy, T.C.
Memo. 2017-39, at *13 (emphasis added). The “Court simply requires
the [Commissioner] to establish his procedure for the mailing of such
notices and to introduce evidence showing that such procedure was
followed in the case before it.” Cataldo v. Commissioner, 60 T.C. 522,
524 (1973), aff’d per curiam, 499 F.2d 550 (2d Cir. 1974).

      Given that this case was submitted under Rule 122, respondent
did not have witnesses, as in Cataldo, to lay out in detail his procedures.
Rather respondent introduced evidence—the deficiency notice and
                                    7

[*7] Forms 3877—to show that his internal procedures were followed.
Respondent is entitled to a rebuttable presumption of proper mailing.

      Petitioner argues that it can rebut the presumption because the
Postal Service Forms 3877 were not certified and the CAR indicates that
the notice of deficiency was returned as undeliverable. Petitioner argues
that Pietanza v. Commissioner, 92 T.C. 729 (1989), aff’d, 935 F.2d 1282
(3d Cir. 1991), supports its position. We disagree.

       In Pietanza, 92 T.C. at 735, the Commissioner had misplaced the
taxpayers’ administrative file, could not supply a copy of the deficiency
notice, and produced only an uncertified Form 3877. The Commissioner
also failed to present any evidence of his mailing procedures. Id. We
held then that the uncertified Form 3877 standing alone could not serve
as proof of valid mailing. Id. at 742.

       The facts of this case are different. Here respondent produced a
copy of the deficiency notice that is addressed to the same location that
was petitioner’s principal place of business. Additionally, both Postal
Service Forms 3877 are certified, date-stamped for October 13, 2017,
and include tracking numbers. Taken together with the notice of
deficiency, we believe that this evidence satisfies respondent’s duty
prescribed by section 6212(a).

       We acknowledge that the CAR indicates that the deficiency notice
was returned as undeliverable. But the statute merely requires that the
notice be sent to the taxpayer’s last known address, and petitioner does
not dispute that the 950 Third Avenue address listed on the Forms 3877
was its last known address at the time. See Treas. Reg. § 301.6212-2(a)
(defining “last known address” as “the address that appears on the
taxpayer’s most recently filed and properly processed Federal tax
return”). Respondent’s obligation is satisfied “even if the taxpayer does
not actually receive the notice.” Cropper v. Commissioner, 826 F.3d
1280, 1285 (10th Cir. 2016) (quoting Guthrie v. Sawyer, 970 F.2d 733,
737 (10th Cir. 1992)), aff’g T.C. Memo. 2014-139. For that reason we
find that the settlement officer properly verified compliance with section
6212(a) and did not abuse his discretion.

      B.     Notice and Demand Mailing

       Section 6303(a) provides that the Commissioner must “as soon as
practicable, and within 60 days, after the making of an assessment of a
tax pursuant to section 6203, give notice to each person liable for the
unpaid tax, stating the amount and demanding payment thereof.” The
                                    8

[*8] notice must “be left at the dwelling or usual place of business of
such person, or shall be sent by mail to such person’s last known
address.” § 6303(a).

      Petitioner argues that at no point has it received the notice and
demand for payment, and for that reason, the lien and levy are invalid.
This is puzzling because Exhibit 13 includes a letter sent to the
settlement officer dated May 29, 2019, wherein petitioner’s counsel
stated that “the first notice of th[e] assessment the Taxpayer received is
dated May 7, 2018.” Petitioner has therefore received a notice and
demand for payment.

       Petitioner further argues that even if it did receive a notice and
demand for payment dated May 7, 2018, this violates the section 6303(a)
mandate for the notice to be given within 60 days of the assessment. We
have consistently held that the 60-day timeframe in section 6303 is not
a hard deadline. See Scott Lab., LLC v. Commissioner, T.C. Memo. 2015-
194, at *32 (“[T]his Court has treated notice that was provided more
than 60 days after assessment (in some cases, many years after
assessment) as satisfying, in whole or in part, the notice requirement of
section 6303(a).” (Emphasis added.)); Treas. Reg. § 301.6303-1(a)
(providing that “failure to give notice within 60 days does not invalidate
the notice”).

       In any event notice and demand for payment appears to have
been sent within 60 days as contemplated by the statute. As stated in
the notice of determination, the settlement officer relied on respondent’s
“computer records” to verify that the section 6303(a) notice and demand
for payment was first issued on February 20, 2018, the same day that
the liability was assessed. This is confirmed by the Form 4340, which
shows a transaction entry on February 20, 2018, for “Statutory Notice
of Balance Due.” A Form 4340 is simply a transcript containing data
from an IRS master file associated with a particular taxpayer. Hazel v.
Commissioner, T.C. Memo. 2008-134, 2008 WL 2095614, at *3.

       Petitioner advances two arguments concerning our review of the
settlement officer’s reliance on digital account transcripts. First it
suggests that the longstanding Chenery principle precludes our
consideration of the Form 4340 because the settlement officer did not
specifically review it in making his determination. The Chenery doctrine
is an administrative law principle that requires courts reviewing
administrative determinations to “judge the propriety of such action
solely by the grounds invoked by the agency.” SEC v. Chenery Corp.,
                                     9

[*9] 332 U.S. 194, 196 (1947) (emphasis added) (explaining the holding
in SEC v. Chenery Corp., 318 U.S. 80 (1943)).

      The Chenery doctrine does not apply. In this case respondent
references the Form 4340 to support the same grounds on which the
settlement officer made his determination that the notice and demand
was properly issued. Hence, the Form 4340 is not precluded from our
consideration as petitioner suggests.

       Secondly petitioner argues that this electronic transcript cannot
provide proper verification of the notice and demand requirement. We
disagree. See McLaine v. Commissioner, 138 T.C. 228, 241 (2012) (“[I]t
is well established that a Form 4340 or a computer printout of a
taxpayer’s transcript of account, absent a showing of irregularity,
provides sufficient verification of the taxpayer’s outstanding liability to
satisfy the requirements of section 6330(c)(1) . . . .”). If transcripts are
sufficient verification of a taxpayer’s outstanding liability, they are also
sufficient verification of providing notice. On that basis we find that the
settlement officer did not abuse his discretion in verifying that section
6303(a) notice and demand for payment was made.

III.   Conclusion

       The settlement officer did not abuse his discretion in verifying
that the affected items notice of deficiency was properly mailed nor in
verifying that the section 6303(a) notice and demand for payment was
made. We sustain respondent’s filing of the NFTL and the proposed
levy.

      We have considered all of the arguments made and the facts
presented, and to the extent not discussed above, we conclude that they
are moot, irrelevant, or without merit.

       To reflect the foregoing,

       An appropriate decision will be entered.