Richard and Mabel Kelby v. Commissioner ( 2008 )


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    130 T.C. No. 6
    UNITED STATES TAX COURT
    RICHARD AND MABEL KELBY, Petitioners v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent
    Docket No. 13268-03L.            Filed April 28, 2008.
    Ps petitioned this Court for review of a notice of
    determination issued under sec. 6330, I.R.C.
    Thereafter, the case was remanded to R’s Appeals Office
    three times; each time a supplemental notice of
    determination was issued. On the third remand, R
    conceded that Ps’ 1989 tax liability was fully
    satisfied as of April 1990, and the parties agreed that
    Ps’ remaining liabilities would be satisfied by an
    installment agreement. Although the parties have
    substantially settled this case, Ps contend that each
    notice of determination must be separately reviewed in
    light of their personal and financial status at the
    time the notice was issued.
    Held: Under sec. 6330, I.R.C., the Court reviews
    the position taken by R’s Appeals Office in the last
    supplemental notice of determination, not each notice
    separately.
    -2-
    William E. Taggart, Jr., for petitioners.
    Rebecca Duewer-Grenville, for respondent.
    OPINION
    HAINES, Judge:   This collection review case under section
    6330 is before the Court on the parties’ cross-motions for entry
    of decision.1
    Background
    The parties have substantially agreed on the elements of a
    decision to be entered.   However, they dispute certain aspects of
    the decision.
    The cause of this dispute begins with petitioners’ 1989
    return.   Petitioners contend that they timely filed their 1989
    return in 1990.   Respondent disagrees.    Respondent’s transcripts
    indicate that petitioners were issued a substitute for return in
    1993 and that respondent filed petitioners’ joint 1989 tax return
    in 1995 and then assessed the balance due on that return.
    Petitioners claim that the return filed in 1995 was simply a copy
    of the return they timely filed in 1990 and that any assessment
    based on that return was erroneous.     The parties agree that
    petitioners’ 1989 return properly reported a tax liability of
    1
    Unless otherwise indicated, section references are to the
    Internal Revenue Code as amended. Rule references are to the Tax
    Court Rules of Practice and Procedure. Amounts are rounded to
    the nearest dollar.
    -3-
    $13,749 and a withholding credit of $8,764.    Furthermore,
    respondent concedes that petitioners are entitled to a credit of
    the difference, $4,985, as of April 1990.    The parties agree,
    therefore, that petitioners’ 1989 tax liability is fully
    satisfied.
    On July 30, 2002, respondent issued petitioners a Notice of
    Federal Tax Lien Filing and Notice of Your Right to a Hearing
    with respect to 1989, 1993, 1995, 1996, and 1999.    On August 30,
    2002, petitioners requested an Appeals hearing under section
    6330.    Petitioners disputed that they owed tax with respect to
    1989.2   They also disputed the lien on the grounds that it
    deprived them of their sole source of emergency funds, equity in
    their home.
    Respondent’s Appeals Office issued a notice of determination
    on July 10, 2003, allowing the collection action to proceed.
    Petitioners timely filed a petition with this Court.    On April
    30, 2004, respondent moved for a remand of the case.    The case
    was subsequently remanded to Appeals.    Meanwhile, the Court filed
    its first opinion in this case, Kelby v. Commissioner, 
    T.C. Memo. 2005-25
    , rejecting petitioners’ objection to the Court’s
    retaining jurisdiction over the case for the duration of the
    2
    Petitioners did not dispute the liabilities for the other
    years at issue.
    -4-
    remand.   The Court also rejected petitioners’ argument that the
    notice of determination should be vacated or invalidated.       
    Id.
    On June 21, 2005, Appeals issued a supplemental notice of
    determination, denying relief to petitioners.    On July 15, 2005,
    petitioners filed an amended petition, addressing additional
    issues raised by the supplemental notice.    On November 1, 2005,
    respondent moved for a second remand to Appeals.    The case was
    subsequently remanded.   On December 2, 2005, Appeals issued a
    second supplemental notice of determination to petitioners.      On
    February 6, 2006, petitioners filed a second amended petition to
    address issues raised by the second supplemental notice of
    determination.   On August 22, 2006, respondent again moved to
    remand the case to Appeals.    At a hearing on the motion for
    remand on August 28, 2006, respondent conceded that petitioners
    had no unpaid income tax liability for 1989.    On October 18,
    2006, the Court granted respondent’s motion, remanding the case
    to Appeals for a third time.
    After this third remand, the parties agreed that the 1989
    liability had been fully satisfied.    They further agreed on an
    installment plan which would allow petitioners to satisfy their
    1993, 1995, 1996, and 1999 income tax liabilities.    On May 31,
    2007, Appeals issued a third supplemental notice of
    determination, accepting the installment plan but denying release
    of the lien.
    -5-
    On June 12, 2007, petitioners filed their third amended
    petition.     Although petitioners were not satisfied with the third
    supplemental notice because of the failure to release the lien,
    they declined to pursue further appeal to this Court and reached
    the basis for a stipulated decision with respondent.
    This case was called from the calendar in San Francisco,
    California, on October 15, 2007.     The parties reported to the
    Court that the case had been substantially settled but that the
    parties could not reach agreement on the wording of the decision
    document.     The Court instructed the parties that in lieu of an
    agreement on the wording, they should file cross-motions for
    entry of decision.     The motions for entry of decision were filed
    on October 29, 2007.     On December 4, 2007, the parties filed
    objections to each other’s motions.
    Each party submitted a proposed decision document attached
    to the respective motion.     Respondent’s proposed decision
    document states:
    Pursuant to agreement of the parties in this case,
    it is
    ORDERED AND DECIDED: That the determinations set forth
    in the Notice of Determination Concerning Collection
    Action(s) under Section 6320 and/or 6330 issued to
    petitioners on July 10, 2003, the Supplemental Notice
    of Determination Concerning Collection Action(s) under
    Section 6320 and/or 6330 issued to petitioners on June
    25, 2005, the Second Supplemental Notice of
    Determination Concerning Collection Action(s)under
    Section 6320 and/or 6330 issued to petitioners on
    December 2, 2005, and the Third Supplemental Notice of
    Determination Concerning Collection Action(s) under
    -6-
    Section 6320 and/or 6330 issued to petitioners on May
    31, 2007 for Petitioners’ income tax liabilities for
    the 1989, 1993, 1995, 1996, and 1999 upon which this
    case is based, are sustained in full, except
    The determinations in the above mentioned Notice of
    Determination Concerning Collection Action(s) under
    Section 6320 and/or 6330 and Supplemental Notices of
    Determination Concerning Collection(s) with respect to
    the 1989 income tax liability are not sustained because
    the liability has been fully satisfied. The issues
    associated with this taxable year are therefore moot.
    It is further stipulated that petitioners are
    entitled to a credit in the amount of $4,985.00 made on
    April 15, 1990 and such credit shall be applied to
    petitioners’ tax liability for the 1989 taxable year
    and satisfies their liability for the 1989 taxable
    year.
    It is further stipulated that Petitioners are
    entitled to further credits in the amount of $265.00 as
    of August 18, 1995, $260.00 as of January 22, 1996,
    $9.00 as of April 15, 2003, $91.00 as of October 16,
    2003, $275.62 as of November 9, 2004, $1,063.00 as of
    April 15, 2005, and $1,862.00 as of April 15, 2006 that
    had been applied to the alleged liability of
    Petitioners for their 1989 taxable year. These credits
    shall be applied to petitioners’ outstanding
    liabilities for the 1993, 1995, 1996, and 1999 taxable
    years.
    It is further stipulated that collection of
    petitioners’ income tax liabilities for the 1993, 1995,
    1996, and 1999 taxable years shall be made in
    accordance with the terms of the May 31, 2006
    Installment Agreement entered into between the parties
    pursuant to the provisions of I.R.C. § 6159.
    It is hereby stipulated that the Court may enter
    the foregoing decision in this case.
    Petitioners’ proposed decision document states:
    Pursuant to agreement of the parties, it is
    ORDERED AND DECIDED:
    That the determination set forth in the NOTICE OF
    DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
    -7-
    SECTION 6320 issued on July 10, 2003, relating to
    Petitioners’ August 30, 2002, request for a Collection
    Due Process hearing is not upheld with respect
    Petitioners’ allegedly owed, but unpaid, 1989 income
    tax liability, and the supplemental determinations
    issued with respect to the July 3, 2003, NOTICE OF
    DETERMINATION on June 21, 2005, on December 2, 2005,
    and on May 31, 2007, with respect to the petitioners’
    1989 income tax liability are not upheld, and
    Respondent’s 1995 assessment of an income tax liability
    for 1989 against Petitioners is determined to be void.
    That the NOTICE OF DETERMINATION CONCERNING
    COLLECTION ACTION(S) UNDER SECTION 6320 issued by
    Respondent on July 10, 2003, relating to Petitioners’
    August 30, 2002, request for a Collection Due Process
    hearing with respect to tax liabilities of Petitioners
    allegedly owed, but unpaid, for Petitioners’ 1993,
    1995, 1996, and 1999 tax years is not upheld;
    That the NOTICE OF DETERMINATION issued by
    Respondent on July 10, 2003, relating to Petitioners’
    August 30, 2002, request for a Collection Due Process
    hearing with respect to tax liabilities of Petitioners
    allegedly owed, but unpaid, for Petitioners’ 1993,
    1995, 1996, and 1999 tax years, as supplemented by the
    SUPPLEMENTAL NOTICE OF DETERMINATION CONCERNING
    COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330
    issued on June 21, 2005, is not upheld;
    That the NOTICE OF DETERMINATION issued by
    Respondent on July 10, 2003, relating to Petitioners’
    August 30, 2002, request for a Collection Due Process
    hearing with respect to tax liabilities of Petitioners
    allegedly owed, but unpaid, for Petitioners’ 1993,
    1995, 1996, and 1999 tax years, as supplemented by the
    supplemental determination issued on June 21, 2005, and
    as supplemented by the NOTICE OF DETERMINATION
    CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320
    and/or 6330 issued on December 2, 2005, is not upheld;
    That the NOTICE OF DETERMINATION issued by
    Respondent on July 10, 2003, relating to Petitioners’
    August 30, 2002, request for a Collection Due Process
    hearing with respect to tax liabilities of Petitioners
    allegedly owed, but unpaid, for Petitioners’ 1993,
    1995, 1996, and 1999 tax years, as supplemented by the
    supplemental determinations issued on June 21, 2005,
    -8-
    and December 2, 2005, and by the SUPPLEMENTAL NOTICE OF
    DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER
    SECTION 6320 and/or 6330 issued on May 31, 2007, is
    upheld with respect to the agreement of Petitioners and
    Respondent regarding the terms and conditions of an
    installment payment arrangement for the installment
    payment by Petitioners of the unpaid income tax
    liabilities of Petitioners for their 1993, 1995, 1996,
    and 1999 tax years; and
    That Petitioners are entitled to credits in the
    amount of $265.00 as of August 18, 1995, $260.00 as of
    January 22, 1996, $9.00 as of April 15, 2003, $91.00 as
    of October 16, 2003, $275.62 as of November 9, 2004,
    $1,063.00 as of April 15, 2005, and $1,862.00 as of
    April 15, 2006, for amounts that were applied to
    Petitioners’ allegedly owed, but, unpaid, tax liability
    for their 1989 taxable year, which amounts shall be
    applied to Petitioners’ outstanding income tax
    liabilities for Petitioners’ 1993, 1995, 1996 and 1999
    tax years.
    Discussion
    Before the Commissioner may levy on any property or property
    right, the taxpayer must be provided written notice of the right
    to request a hearing during the 30-day period before the first
    levy.   Sec. 6330(a).   If the taxpayer requests a hearing, an
    Appeals officer of the Commissioner must hold the hearing.    Sec.
    6330(b)(1).   Within 30 days of the issuance of the Appeals
    officer’s determination, the taxpayer may seek judicial review of
    the determination.   Sec. 6330(d)(1).
    Where the validity of the underlying tax liability is
    properly at issue, we review the matter de novo.    Sego v.
    Commissioner, 
    114 T.C. 604
    , 610 (2000); Goza v. Commissioner, 
    114 T.C. 176
    , 181 (2000).    Where the validity of the underlying tax
    -9-
    liability is not properly at issue, however, we review the
    Commissioner’s determination for an abuse of discretion.     Sego v.
    Commissioner, supra at 610; Goza v. Commissioner, supra at 181.
    This case involves issues related to the underlying tax
    liability under section 6330(c)(2)(B) and to collection
    alternatives and the appropriateness of the collection action
    under section 6330(c)(2)(A).   The parties have agreed to the
    material terms of a stipulated decision; namely, that petitioners
    owe no tax for 1989 and that they will satisfy their remaining
    liabilities via an installment agreement.   However, the parties’
    proposed decision documents differ in two key respects.
    First, petitioners’ decision document seeks to void the 1995
    assessment of their 1989 tax liability.   Respondent would allow
    petitioners a credit of the unpaid tax as of April 1990,
    rendering all other issues concerning 1989 moot.   Second, the
    parties disagree as to whether, with respect to the years at
    issue other than 1989, the original notice of determination and
    the first and second supplemental notices of determination should
    be sustained.
    Petitioners’ 1989 Tax Liability
    Petitioners contend that the allowance of a credit as of
    April 1990 fully satisfying the 1989 liability renders
    respondent’s 1995 assessment of the 1989 liability void.
    -10-
    Respondent contends that the allowance of the credit renders all
    other issues concerning petitioners’ 1989 liability moot.
    In a case where the validity of the Commissioner’s
    assessment or the proposed lien or levy is not fairly in dispute
    and the liability that is the subject of the proposed lien or
    levy has been fully satisfied, we have held that a proceeding
    under section 6330 challenging the proposed collection action is
    moot.   Greene-Thapedi v. Commissioner, 
    126 T.C. 1
    , 7 (2006); see
    also Gerakios v. Commissioner, 
    T.C. Memo. 2004-203
     (dismissing
    the collection review proceeding as moot where the parties agreed
    that there was no unpaid liability upon which a lien or levy
    could be based after the taxpayer had paid the liability in
    full); Chocallo v. Commissioner, 
    T.C. Memo. 2004-152
     (dismissing
    the case as moot where the Commissioner acknowledged the tax
    liability was improperly assessed and agreed that there was no
    unpaid tax liability upon which a levy could be based).
    In each of Greene-Thapedi, Gerakios, and Chocallo the entire
    case was rendered moot because the liabilities for all tax years
    at issue were paid.   In this case the liability related to a
    single year, 1989, is no longer at issue.    Respondent still
    proposes to collect unpaid taxes with respect to other years.
    Nevertheless, we see no reason to apply a different standard to a
    single year out of many years at issue when the liability for
    that single year has been fully satisfied.    Therefore,
    -11-
    respondent’s proposed wording, deciding that the issues related
    to 1989 are moot, is entirely appropriate.   Issues related to the
    other years before the Court are not moot.
    Whether To Sustain the Notice of Determination and the
    Supplemental Notices of Determination
    Petitioners would have the Court include language in the
    decision document specifically not upholding with respect to the
    years at issue other than 1989:   (1) The notice of determination,
    (2) the notice of determination as supplemented by the first
    supplemental notice of determination, and (3) the notice of
    determination as supplemented by the first and second
    supplemental notices of determination.3   Petitioners would then
    have the Court sustain the notice of determination as
    supplemented by the first, second, and third supplemental notices
    of determination with respect to the years at issue other than
    1989.    Respondent would have the Court sustain the notice of
    determination and the supplemental notices of determination in
    full, except with respect to the 1989 liability which was fully
    satisfied.
    3
    Petitioners’ argument here is substantially different from
    their argument discussed in Kelby v. Commissioner, 
    T.C. Memo. 2005-25
    . At that time, petitioners argued that the notice of
    determination must be vacated because respondent’s Appeals Office
    would lack the authority to make a new decision in the case if
    the notice was not vacated. As evidenced by the resolution of
    this case, petitioners were mistaken.
    -12-
    Petitioners argue that each determination must be separately
    reviewed with respect to the question of respondent’s abuse of
    discretion.   Petitioners further argue that separate reviews are
    necessary in cases such as this one where respondent makes
    several determinations, each based on the personal and financial
    status of the taxpayers at that time.
    Respondent argues that each of the supplemental notices of
    determination supplements the previous notices.    Respondent
    further argues that independent review of the notice of
    determination and the supplemental notices is contrary to the
    express provision of section 6330 that taxpayers are entitled to
    a single hearing per tax period.   We agree.   However,
    respondent’s proposed decision document does not accurately
    reflect his argument.
    It is well settled that a taxpayer is entitled to a single
    hearing under section 6330 with respect to the year to which the
    unpaid liability relates.   Sec. 6330(b)(2); Freije v.
    Commissioner, 
    125 T.C. 14
    , 22 (2005).   Therefore, when the Court
    remands a case to Appeals, the further hearing is a supplement to
    the taxpayer’s original section 6330 hearing, not a new hearing.4
    4
    Contrary to petitioners’ assertion, the remand of a case
    does not necessarily mean that the Commissioner abused his
    discretion. We remand a case to Appeals when the taxpayer did
    not have a proper hearing and the new hearing is necessary or
    will be productive. Lunsford v. Commissioner, 
    117 T.C. 183
    , 189
    (2001); Lites v. Commissioner, 
    T.C. Memo. 2005-206
    ; Day v.
    (continued...)
    -13-
    Drake v. Commissioner, 
    T.C. Memo. 2006-151
    , affd. 
    511 F.3d 65
    (1st Cir. 2007).   “The resulting section 6330 hearing on remand
    provides the parties with the opportunity to complete the initial
    section 6330 hearing while preserving the taxpayer’s right to
    receive judicial review of the ultimate administrative
    determination.”    
    Id.
     (emphasis added).
    A corollary to the fact that a taxpayer is entitled to one
    hearing is that the Commissioner’s Appeals Office makes a single
    determination, which may or may not be supplemented.   When a case
    is remanded to Appeals and supplemental determinations are
    issued, the position of the Commissioner that we review is the
    position taken in the last supplemental determination.5
    From the fact that the position of the Commissioner that we
    review is the position taken in the determination as
    supplemented, as opposed to each determination separately, it
    follows that we need not consider the Commissioner’s position
    stated in prior notices of determination.   This emanates not from
    4
    (...continued)
    Commissioner, 
    T.C. Memo. 2004-30
    .
    5
    We also decide today Ginsberg v. Commissioner, 130 T.C. ___
    (2008), holding that we lack jurisdiction to review a
    supplemental notice of determination when we did not have
    jurisdiction to review the original notice. In this case we had
    jurisdiction to review the original notice and therefore we have
    jurisdiction over all supplemental notices. Although a
    supplemental notice of determination does not provide the Court
    jurisdiction under sec. 6330(d), when we have jurisdiction over
    the matter we will review the supplemental determination.
    -14-
    a finding that the Commissioner abused his discretion in the
    original determination, as petitioners suggest, but rather from
    the fact that the issuance of the supplemental notice of
    determination would generally make it unnecessary for the Court
    to review the Commissioner’s position taken before the
    determination was supplemented.
    In Sapp v. Commissioner, 
    T.C. Memo. 2006-104
    , the Court
    remanded a section 6330 case to Appeals for further hearing.
    After conducting the hearing, Appeals issued a supplemental
    notice of determination.    At trial the taxpayer alleged certain
    errors with respect to the original notice of determination.      The
    Court found the taxpayer’s allegations of error with respect to
    the original notice moot because the taxpayer received a
    supplemental notice.
    Similarly, in Drake v. Commissioner, supra, a section 6330
    case was remanded to Appeals for further hearing.   After that
    hearing a supplemental notice of determination was issued.     The
    taxpayer contended that the original section 6330 hearing was not
    held in good faith.    The Court held that because the taxpayer
    received a hearing in good faith on remand, the issue was moot.6
    6
    We note that the Court addressed certain issues with
    respect to the original notice, specifically the taxpayer’s Fifth
    Amendment concerns regarding sec. 6330 hearings in general and
    the taxpayer’s argument that he submitted a viable collection
    alternative during the original hearing. Drake v. Commissioner,
    
    T.C. Memo. 2006-151
    , affd. 
    511 F.3d 65
     (1st Cir. 2007).
    -15-
    The third supplemental notice of determination in this case
    addresses all relevant issues addressed in the prior notices
    except the 1989 liability.   Specifically, the third notice
    addresses petitioners’ eligibility for collection alternatives
    and whether the lien was more intrusive than necessary and
    confirms that all legal and procedural requirements were met.
    The third supplemental notice, therefore, makes it unnecessary
    for the Court to consider the prior notices.
    For these reasons, respondent’s wording that all the notices
    of determination are sustained with the exception of
    determinations relating to the 1989 liability is improper.
    Petitioners’ wording sustaining the notice of determination as
    supplemented by the first, second, and third supplemental notices
    with respect to the years at issue other than 1989 is proper and
    will be included in the Court’s decision.   Petitioners’ proposed
    wording specifically not sustaining the prior notices of
    determination is repetitive and unnecessary.   The Court will
    enter a decision which states in relevant part:
    ORDERED AND DECIDED: That the NOTICE OF DETERMINATION
    CONCERNING COLLECTION ACTIONS(S) UNDER SECTION 6320
    issued by respondent on July 10, 2003, relating to
    petitioners’ August 30, 2002, request for an Appeals
    hearing, as supplemented by the NOTICES OF
    DETERMINATION issued on June 21, 2005, December 2,
    2005, and May 31, 2007, is sustained in full, except
    The determinations in the above mentioned NOTICES OF
    DETERMINATION with respect to petitioners’ 1989 income
    tax liability are not sustained because the liability
    -16-
    has been fully satisfied. The issues associated with
    petitioners’ 1989 tax year are therefore moot.
    Whether Petitioners Are Entitled to an Award of Costs
    The Court understands that much of this dispute arises from
    the requirement in section 7430 that in order to receive an award
    of costs, taxpayers must prove that they substantially prevailed
    with respect to the most significant issue or issues presented.
    See sec. 7430(a).   The Court makes no judgment at this time as to
    the validity of petitioners’ claim.      Petitioners may file a
    motion for litigation and administrative costs within 30 days
    after the service of this Opinion.      See Rules 231(a), 331(b).
    To reflect the foregoing,
    An appropriate order and decision
    will be entered.
    

Document Info

Docket Number: 13268-03L

Filed Date: 4/28/2008

Precedential Status: Precedential

Modified Date: 11/14/2018