Montgomery v. Comm'r , 122 T.C. 1 ( 2004 )

OPINION

Dawson, Judge:

This case was assigned to Chief Special Trial Judge Peter J. Panuthos, pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 182.¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief Special Trial Judge:

This matter is before the Court on respondent’s motion for summary judgment, filed pursuant to Rule 121. As explained in detail below, we shall deny respondent’s motion.

Background

On or about October 18, 2001, petitioners filed a timely joint Federal income tax return for the taxable year 2000 on which they reported total tax of $2,831,360, total payments of $2,636,723, and tax due of $194,637 plus an estimated tax penalty of $1,369, interest due on the unpaid balance of $9,704, and a penalty for failure to pay of $7,785, for a total amount due of $213,495. Petitioners failed to remit the amount due with their tax return. Respondent accepted the tax return as filed and assessed the amount reported therein. Respondent did not audit petitioners’ tax return for 2000 and did not send petitioners a notice of deficiency for 2000.

On March 19, 2002, respondent issued to petitioners a Final Notice — Notice of Intent to Levy and Notice of Your Right to a Hearing with regard to their unpaid tax for 2000. The notice stated that petitioners owed tax, penalties, and interest totaling $222,315.34.

On April 18, 2002, petitioners submitted to respondent a Form 12153, Request for a Collection Due Process Hearing. Petitioners’ request for an administrative hearing stated in pertinent part:

The taxpayer has a good track record of paying his taxes timely in appropriate amounts, as evidenced by the 1997-1999 tax returns * * *. However, in tax year 2000, the taxpayer had an extraordinary tax liability ($2,831,360) due to his exercise of several incentive and nonqualified stock options and the application of the AMT rates. The taxpayer was able to pay $2,636,723 of the tax liability, but, unfortunately, the value of the stock received plummeted before year-end 2000 and is now essentially worthless. Thus, the remaining tax liability is currently thousands of times higher that the value of the asset received. The taxpayer is working diligently and in good faith with various professional advisors to evaluate the situation and remedy the outstanding tax liability.

Petitioners also stated that (1) they intended to prepare and submit an amended income tax return for 2000 that would reflect that they were entitled to a refund for that year; and (2) in any event, the parties should explore alternatives to the proposed levy including an installment agreement, an offer in compromise, posting a bond, or substitution of other assets.

On July 2, 2002, Appeals Officer Jerry L. Johnson wrote to petitioners to inform them that he had scheduled their Appeals Office hearing for July 25, 2002. Appeals Officer Johnson’s letter stated in pertinent part:

As explained in the above mentioned code sections and related documents, a taxpayer may dispute the underlying liability in a collection due process hearing only when a notice of deficiency was not provided to the last known address of the taxpayer, or where the taxpayer did not otherwise have an opportunity to dispute the tax. Since that is the case here, you will have the opportunity to discuss the liability at the hearing. In that regard, if you plan to present or discuss new material, please send me copies at least five days before our meeting.

On July 22, 2002, Appeals Officer Johnson had a telephone conversation with petitioners’ representative. During the conversation, petitioners’ representative stated that, through the misapplication of complex statutory provisions, petitioners had overstated their tax liability for 2000 on their original return and that they intended to submit an amended income tax return for 2000. Although the parties agreed that petitioners would be permitted to submit an amended return, the parties did not set a deadline for the submission of such amended return.

On September 26, 2002, without any further communication between the parties, the Appeals Office issued to petitioners a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The notice of determination, signed by Appeals Team Manager Debra M. Brush, stated in pertinent part: “The Taxpayer has indicated he would file amended returns to mitigate the liability, but such has not been done in a reasonable time, and the mere filing of such claim does not guarantee that the claim should be paid. Therefore, the levy should be allowed to proceed.” As of September 26, 2002, petitioners had not submitted to respondent an amended income tax return for 2000. However, on October 11, 2002, petitioners submitted to respondent an amended income tax return for 2000 which reflects that petitioners are due a refund of $519,087.

On October 28, 2002, petitioners filed with the Court a Petition for Lien or Levy Action Under Section 6320 and/or 6330.² The sole issue raised in the petition is a challenge to the amount of petitioners’ underlying tax liability for 2000.

After filing an answer to the petition, respondent filed a motion for summary judgment. Respondent maintains that there is no dispute as to a material fact and the Court should enter judgment as a matter of law sustaining the notice of determination dated September 26, 2002. Respondent argues that petitioners are barred from challenging the existence or amount of their underlying tax liability for 2000 in this collection review proceeding on the ground that the tax liability in question was “self-assessed” on petitioners’ original tax return pursuant to section 6201(a)(1). Petitioners filed an Objection to respondent’s motion.

This matter was called for hearing at the Court’s motions session held in Washington, D.C. Counsel for both parties appeared at the hearing and made oral argument.

Discussion

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. See Florida Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy “if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.” Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences will be read in a manner most favorable to the party opposing summary judgment. See Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner, 79 T.C. 340, 344 (1982).

We are satisfied from our review of the record that there is no genuine issue as to any material fact. However, we conclude, contrary to respondent’s position, that petitioners may challenge the amount of their underlying tax liability in this proceeding. Consequently, we shall deny respondent’s motion.

Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to pay such tax within 10 days after notice and demand for payment, the Secretary is authorized to collect such tax by levy on the person’s property. Section 6331(d) provides that at least 30 days before enforcing collection by levy on the person’s property, the Secretary is obliged to provide the person with a final notice of intent to levy, including notice of the administrative appeals available to the person.

Section 6330 generally provides that the Commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for an administrative review of the matter (in the form of an Appeals Office hearing) and, if dissatisfied, with judicial review of the administrative determination. See Davis v. Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000). Section 6330(d) provides for judicial review of the administrative determination in the Tax Court or a Federal District Court, as may be appropriate.

Section 6330(c) prescribes the matters that a person may raise at an Appeals Office hearing. Section 6330(c)(2)(A) provides that a person may raise collection issues such as spousal defenses, the appropriateness of the Commissioner’s intended collection action, and possible alternative means of collection. See Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, supra. In addition, section 6330(c)(2)(B) establishes the circumstances under which a person may challenge the existence or amount of his or her underlying tax liability. Section 6330(c)(2)(B) provides:

(2). Issues at hearing.—

(B) Underlying liability. — The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

Respondent has promulgated interpretative regulations related to section 6330(c)(2)(B). Section 301.6330-l(e), Proced. & Admin. Regs., provides in pertinent part:

(e) Matters considered at CDP hearing — (1) In general. * * * The taxpayer also may raise challenges to the existence or amount of the tax liability specified on the CDP Notice for any tax period shown on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability.

Section 301.6330-l(e)(3), Proced. & Admin. Regs., provides in pertinent part:

(3) Questions and answers. The questions and answers illustrate the provisions of this paragraph (e) as follows: * * *

Q-E2. When is a taxpayer entitled to challenge the existence or amount of the tax liability specified in the CDP Notice?

A-E2. A taxpayer is entitled to challenge the existence or amount of the tax liability specified in the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such liability.

Notably, respondent’s regulations do not expressly bar a person from challenging the existence or amount of tax previously reported due on a tax return.

In any event, respondent’s position in this case is articulated in his motion as follows:

Respondent interprets section 6330(c)(2)(B) to mean that a taxpayer can challenge only those liabilities asserted by respondent that differ in amount from the taxpayer’s self-determination. By granting taxpayers a right to contest the existence or amount of an underlying tax liability, Congress was concerned with tax liabilities asserted by respondent, rather than those originally computed and reported by the taxpayers themselves. This concern is evident in the phrasing of section 6330(c)(2)(B), which permits a taxpayer to contest an underlying tax liability in the event that he or she has been denied a prior opportunity to contest that liability in the form of a “statutory notice of deficiency” or “otherwise.” It is nonsensical to permit taxpayers whose tax liabilities are self-determined to contest under section 6330 the liabilities they computed, voluntarily reported and declared to be correct under penalty of perjury.

Respondent further asserts that there is no suggestion in the legislative history underlying section 6330 that Congress intended to permit taxpayers to challenge taxes that were “self-assessed” on a tax return. Finally, respondent maintains that, inasmuch as section 6330 constitutes a waiver of sovereign immunity, the provision should be narrowly construed in the Commissioner’s favor.

Before proceeding, we briefly review the principles of statutory construction .that guide our analysis. It is well settled that in interpreting a statute, we start with the language of the statute itself. Consumer Prod. Safety Commn. v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). If the language of the statute is plain, clear, and unambiguous, we generally apply it according to its terms. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989); Burke v. Commissioner, 105 T.C. 41, 59 (1995). In Huntsberry v. Commissioner, 83 T.C. 742, 747-748 (1984), we stated that “where a statute is clear on its face, we would require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein.” However, if a statute “is ambiguous or silent, we may look to the statute’s legislative history to determine congressional intent.” Ewing v. Commissioner, 118 T.C. 494, 503 (2002) (citing Burlington N. R.R. v. Okla. Tax Commn., 481 U.S. 454, 461 (1987)); see Wells Fargo & Co. v. Commissioner, 120 T.C. 69, 89 (2003); Allen v. Commissioner, 118 T.C. 1, 7 (2002).

Turning to section 6330(c)(2)(B), the provision plainly states that a person may challenge “the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.” The term “underlying tax liability” is not defined in section 6320 or 6330, nor is there any specific reference to that term in the legislative history of the provisions. Taken in context, it is reasonable to interpret the term “underlying tax liability” as a reference to the amounts that the Commissioner assessed for a particular tax period. In this regard, the term “underlying tax liability’ may encompass an amount assessed following the issuance of a notice of deficiency under section 6213(a), an amount “self-assessed” under section 6201(a), or a combination of such amounts.

Consistent with the foregoing, the plain language of section 6330(c)(2)(B) bars a person who has received a notice of deficiency from challenging his or her underlying tax liability for that year (whether the liability was self-assessed or assessed as a deficiency) in a collection review proceeding inasmuch as the person was afforded a prior opportunity to challenge such liability under the deficiency procedures.³ In contrast, where a person has not received a notice of deficiency and has not had a prior administrative or judicial opportunity to challenge the amounts the Commissioner assessed, section 6330(c)(2)(B) provides that such person may challenge the liability as part of the collection review procedure.

In the present case, petitioners’ underlying tax liability consists of the amount that petitioners reported due on their tax return along with statutory interest and penalties. It is clear that petitioners did not receive a notice of deficiency for 2000. Indeed, respondent was not obliged to issue a notice of deficiency to petitioners because the assessment in question was entered under section 6201(a)(1).⁴ Moreover, the tax that petitioners reported due on their return is excluded from the definition of a deficiency under section 6211(a).

The question that remains under section 6330(c)(2)(B) is whether petitioners “did not otherwise have an opportunity to dispute such tax liability” for 2000. Respondent contends that the phrase quoted above should be interpreted to exclude persons, such as petitioners, who have reported their tax liability on a duly filed tax return. However, respondent’s proposed interpretation would have the effect of adding terms and conditions to section 6330(c)(2)(B) that are inconsistent with the plain language of the provision. As we see it, if Congress had intended to preclude taxpayers from challenging in a collection review proceeding taxes that were assessed pursuant to section 6201(a)(1), the statute would have been drafted to clearly so provide. Simply put, the plain language of the statute as enacted, with an emphasis on whether there was an earlier opportunity to dispute the tax liability, provides a broader remedy than respondent’s interpretation would allow.

To date petitioners have not had an opportunity to “dispute” their tax liability for the taxable year 2000 in any sense of the term. Although petitioners reported the tax liability that is the subject of respondent’s proposed levy on their original tax return, they now contend (and would like the opportunity to show) that they erred in computing the tax attributable to certain stock options that Mr. Montgomery exercised in 2000. The record does not reflect whether respondent has given consideration to petitioners’ amended tax return for 2000 and their claim that their original return contained an error. In sum, we hold that section 6330(c)(2)(B) permits petitioners to challenge the existence or amount of the tax liability reported on their original income tax return because they have not received a notice of deficiency for 2000 and they have not otherwise had an opportunity to dispute the tax liability in question.⁵

Respondent asserts that it is nonsensical to permit petitioners to challenge in a collection review proceeding the very tax that they reported to be due (or “self-determined”) on their original income tax return. We would not characterize an opportunity for respondent to review the correct amount of petitioners’ tax liability as nonsensical. As discussed above, the controlling statutory language focuses on whether the person had a prior opportunity to dispute the tax liability — and petitioners have not had any such opportunity. Read in context, and as applied in this case, section 6330(c)(2)(B) extends the substantive and procedural protections of sections 6320 and 6330 to taxpayers who may have erred (in the Government’s favor) in preparing and filing their tax returns. Given the complexity of the Federal income tax laws, such taxpayer errors may well be common. We con-' elude that section 6330(c)(2)(B) is fairly read as providing a remedy to such taxpayers.

Respondent also urges that the legislative history of section 6330(c)(2)(B) and principles of sovereign immunity require that the provision be construed narrowly in the Commissioner’s favor. We disagree. We see no ambiguity in the plain language of section 6330(c)(2)(B) that would justify resort to the legislative history for guidance in interpreting the provision. Moreover, we are not aware of any specific expression of congressional intent in the legislative history that would bar persons, such as petitioners, from raising a valid challenge to the existence or amount of tax previously reported due on a tax return. See Huntsberry v. Commissioner, 83 T.C. at 747-748. Considering the plain language of the statute, we find respondent’s reliance on principles of sovereign immunity equally unavailing.

Our holding in this case advances the policies underlying sections 6320 and 6330. Those sections were enacted to provide taxpayers who have been notified that the Commissioner has filed a lien or intends to collect unpaid taxes by levy with a final opportunity to raise a spousal defense, offer an alternative means of collection, and/or challenge the appropriateness of the proposed collection action. Moreover, as pertinent herein, Congress provided taxpayers who are confronted with a lien or proposed levy, but who have not had a prior opportunity to challenge the existence or amount of the tax liability in question, with the opportunity to do so. In view of the statutory scheme as a whole, we think the substantive and procedural protections contained in sections 6320 and 6330 reflect congressional intent that the Commissioner should collect the correct amount of tax, and do so by observing all applicable laws and administrative procedures.

To reflect the foregoing,

An order will be issued denying respondent’s motion for summary judgment.

Reviewed by the Court.

Wells, Cohen, Swift, Laro, Foley, Vasquez, Thornton, Haines, Wherry, and Kroupa, JJ., agree with this majority opinion.

1 Section references are to the Internal Revenue Code, as amended. Rule references are to the Tax Court Rules of Practice and Procedure.

2 The petition was timely mailed to the Court on Oct. 25, 2002. Secs. 6330(d), 7502(a).

3 See Naftel v. Commissioner, 85 T.C. 527, 531 (1985), where we observed that in a deficiency proceeding brought under sec. 6213(a), the Court may also consider the taxpayer’s claim of an overpayment for the year(s) in issue under sec. 6512(b)(1).

4 Sec. 6201(a)(1) provides:

(1) Taxes shown on RETURN. — The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title.

5 We also observe that carving out self-assessed amounts from the term “underlying tax liability” under sec. 6330(c)(2)(B), as respondent would have us do, does not comport with the use of that term in sec. 6311, which deals with the payment of tax by commercially acceptable means. Like sec. 6330, it is another provision of the Code relating to collection. Specifically, sec. 6311(d)(3)(A) provides in relevant part that “a payment of internal revenue taxes * * * by use of a credit card shall not be subject to section 161 of the Truth in Lending Act * * * if the error alleged by the person is an error relating to the underlying tax liability”. Similarly, sec. 6311(d)(3)(C) provides in relevant part that “a payment of internal revenue taxes * * * by use of a debit card shall not be subject to section 908 of the Electronic Fund Transfer Act * * * if the error alleged by the person is an error relating to the underlying tax liability”. In both instances, use of the term “underlying tax liability” in sec. 6311 patently includes self-assessed amounts.