Clough v. Comm'r ( 2007 )

T.C. Memo. 2007-106
UNITED STATES TAX COURT
EDWARD W. CLOUGH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21898-05L. Filed April 30, 2007.
Edward W. Clough, pro se.
Louise R. Forbes, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: Pursuant to section 6330(d),1 petitioner
seeks review of respondent’s determination to proceed with the
collection of petitioner’s 1996, 1997, 1998, and 2000 Federal
income tax liabilities.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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FINDINGS OF FACT
Some of the facts have been stipulated. We incorporate the
stipulated facts into our findings by this reference. Petitioner
resided in Shrewsbury, Massachusetts, when his petition in this
case was filed.
Petitioner failed to file Federal income tax returns for
1996, 1997, 1998, and 2000. Respondent prepared substitute
returns pursuant to section 6020(b) and determined deficiencies
for all relevant years. Respondent mailed a notice of deficiency
dated April 19, 2002, for 1996, 1997, and 1998 to petitioner, and
petitioner received the notice.2 However, the record does not
disclose whether respondent mailed a notice of deficiency to
petitioner for 2000.
Petitioner failed to petition this Court regarding the
notice of deficiency for 1996, 1997, and 1998, and on March 3,
2003, respondent assessed tax deficiencies against petitioner for
1996, 1997, and 1998. Also, on March 3, 2003, respondent
assessed a tax deficiency against petitioner for 2000. For
reasons that are not explained in the record, in March 2003
respondent erroneously abated the deficiencies owed by petitioner
for 1996, 1997, and 1998. On April 21, 2003, respondent reversed
the abatement and reinstated the 1997 assessment, and on April
2
Petitioner attached a copy of this notice to his request
for a sec. 6330 hearing.
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28, 2003, respondent reversed the abatements and reinstated the
1996 and 1998 assessments. Respondent subsequently sent
petitioner notices of balance due for the unpaid balances of the
1996, 1997, 1998, and 2000 assessments.
On October 25, 2003, respondent mailed to petitioner a Final
Notice of Intent to Levy and Your Right to a Hearing Under
Section 6330. In response, petitioner submitted a timely request
for a section 6330 hearing, attaching to it a nine-page statement
containing mostly frivolous and groundless arguments.
Petitioner’s case was originally assigned to Settlement
Officer S. Gropack (Officer Gropack). After reviewing
petitioner’s request for a hearing, Officer Gropack mailed to
petitioner a letter dated January 21, 2005, indicating that (1)
the Appeals Office does not provide a face-to-face hearing if the
only issues raised are frivolous or groundless, (2) the arguments
included in petitioner’s hearing request are frivolous or
groundless, (3) petitioner is not entitled to a face-to-face
hearing if the only issues raised are frivolous and groundless,
and (4) petitioner could have a telephone or correspondence
hearing to discuss any relevant challenges to respondent’s
proposed collection action. Officer Gropack scheduled a
telephone hearing for February 24, 2005, but also informed
petitioner that if he wanted to have a face-to-face
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hearing, he would have to send a letter to Officer Gropack
describing the legitimate issues he wished to discuss.
On February 24, 2005, petitioner submitted a letter to
Officer Gropack containing frivolous and groundless arguments and
a request for a face-to-face hearing at the closest Appeals
Office to petitioner’s residence. Respondent transferred
petitioner’s case to the Boston Appeals Office, where it was
assigned to Settlement Officer Lisa Boudreau (Officer Boudreau or
hearing officer). By letter dated June 14, 2005, Officer
Boudreau advised petitioner that he did not qualify for a face-
to-face hearing because the arguments he had presented were
frivolous. Officer Boudreau reiterated that petitioner would
only receive a face-to-face hearing if he presented legitimate
issues. In the alternative, Officer Boudreau offered petitioner
a telephone hearing and the right to discuss by correspondence
any relevant challenges to the proposed levy. In a letter dated
July 9, 2005, petitioner continued to assert frivolous arguments,
refused to participate in a telephone hearing, and reiterated his
request for a face-to-face hearing.
On October 19, 2005, the Appeals Office issued to petitioner
a Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 (notice of determination) with respect
to petitioner’s outstanding tax liabilities for the years in
issue. In the notice of determination and an attachment to the
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notice, the Appeals Office determined that the proposed levy
should be sustained because all statutory and administrative
requirements had been met, petitioner had raised only frivolous
arguments, petitioner did not propose a viable collection
alternative, and the intrusiveness of the enforced collection was
necessary to provide for the efficient collection of the taxes
owed. However, in the attachment to the notice of determination,
the Appeals Office3 stated the following:
I have not verified whether the taxpayer received a
statutory notice of deficiency for form 1040 for the
calendar year ending December 31, 2000 and as such he
may be able to challenge the existence or amount of the
liability.
Neither the notice of determination nor the attachment indicates
that the Appeals Office considered the legal effect on the 2000
assessment of a failure by respondent to issue a notice of
deficiency for 2000 to petitioner.
On November 21, 2005, the petition in this case was filed.
Among his arguments, petitioner alleges that respondent’s
determination is invalid because (1) petitioner never received a
valid notice of deficiency, (2) petitioner was denied an
opportunity to challenge the existence of the underlying tax
liability for the years at issue, (3) respondent never assessed
3
Although the attachment was unsigned, we infer from the
attachment that it was prepared by Officer Boudreau as it
summarizes in the first person what happened during the sec. 6330
proceeding.
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petitioner’s alleged tax liability or delivered notice and demand
for payment, and (4) respondent failed to comply with statutory
and regulatory provisions for section 6330 hearings by refusing
to grant petitioner a face-to-face hearing.
OPINION
I. Determination To Proceed With Collection
Section 6330(a) provides that no levy may be made on any
property or right to property of any person unless the Secretary
has notified such person in writing of the right to a hearing
before the levy is made. If a taxpayer makes a request for a
hearing, a hearing shall be held before an impartial officer or
employee of the Internal Revenue Service Office of Appeals. Sec.
6330(b)(1), (3). At the hearing, a taxpayer may raise any
relevant issue, including appropriate spousal defenses,
challenges to the appropriateness of the collection action, and
collection alternatives. Sec. 6330(c)(2)(A). A taxpayer is
precluded from contesting the existence or amount of the
underlying tax liability at the hearing unless the taxpayer did
not receive a notice of deficiency for the tax in question or did
not otherwise have an earlier opportunity to dispute the
tax liability. Sec. 6330(c)(2)(B); see also Sego v.
Commissioner, 114 T.C. 604, 609 (2000).
Following a hearing, the Appeals Office must make a
determination whether the proposed levy action may proceed. In
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so doing, the Appeals Office is required to take into
consideration: (1) Verification presented by the Secretary that
the requirements of applicable law and administrative procedures
have been met, (2) relevant issues raised by the taxpayer, and
(3) whether the proposed levy action appropriately balances the
need for efficient collection of taxes with a taxpayer’s concerns
regarding the intrusiveness of the proposed levy action. Sec.
6330(c)(3).
Section 6330(d)(1) grants this Court jurisdiction to review
the determination made by the Appeals Office in connection with
the section 6330 hearing. Where the underlying tax liability is
properly at issue, the Court reviews any determination regarding
the underlying tax liability de novo. Sego v. Commissioner,
supra at 610. The Court reviews any other administrative
determination regarding the proposed levy action for abuse of
discretion. Id. An abuse of discretion occurs if the Appeals
Office exercises its discretion “arbitrarily, capriciously, or
without sound basis in fact or law.” Woodral v. Commissioner,
112 T.C. 19, 23 (1999).
A. 1996, 1997, and 1998
1. Notice of Deficiency
Petitioner argues that he did not receive a valid notice of
deficiency for 1996, 1997, and 1998. However, petitioner does
not dispute that respondent mailed him a notice of deficiency
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dated April 19, 2002, for 1996, 1997, and 1998 or that he
received it. His arguments focus solely on the adequacy of the
notice. Among his arguments, petitioner claims that the notice
was not delivered by an authorized party, was not signed, and
showed no deficiency. Petitioner’s assertions, however, are
completely without merit. A notice of deficiency is validly
issued if sent by certified or registered mail to the taxpayer’s
last known address. Sec. 6212(a) and (b). There is no
requirement that the notice be specially delivered by an
authorized agent. The Commissioner is also under no obligation
to sign a statutory notice of deficiency in order for the notice
to be valid. Sec. 6212; see Commissioner v. Oswego Falls Corp.,
71 F.2d 673, 677 (2d Cir. 1934), affg. 26 B.T.A. 60 (1932);
Pendola v. Commissioner, 50 T.C. 509, 514 (1968); Stone v.
Commissioner, T.C. Memo. 1998-314. Moreover, petitioner’s
interpretation that the notice he received represented a mere
“suggestion” to pay tax is baseless given the clarity of the
language used.4 The notice was clearly labeled “Notice of
Deficiency”, stated that additional amounts were owed, and
provided a detailed listing of the deficiencies determined by
4
Sec. 7522(a) provides insight as to the content required
in a notice of deficiency by stating that “Any notice to which
this section applies shall describe the basis for, and identify
the amounts (if any) of, the tax due, interest, additional
amounts, additions to the tax, and assessable penalties included
in such notice.” However, sec. 7522(a) also provides that an
inadequate description “shall not invalidate such notice.”
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respondent for the years covered by the notice. We reject
petitioner’s misguided reading of the notice and hold that
respondent complied with all statutory requirements for a valid
notice of deficiency.5
2. Assessment and Notice and Demand
Petitioner argues that respondent failed to validly assess
petitioner’s 1996-98 tax liabilities. Federal tax assessments
are formally recorded on a summary record of assessment when they
are made. Sec. 6203. The summary record must “provide
identification of the taxpayer, the character of the liability
assessed, the taxable period, if applicable, and the amount of
the assessment.” Sec. 301.6203-1, Proced. & Admin. Regs.
Section 6330(c)(1) does not require the Appeals Office to rely on
a particular document to verify that it properly assessed the tax
liabilities in question. See Roberts v. Commissioner, 118 T.C.
365, 371 n.10 (2002), affd. 329 F.3d 1224 (11th Cir. 2003); Kubon
v. Commissioner, T.C. Memo. 2005-71. It is now well established
that Appeals officers may rely on Form 4340,6 Certificate of
Assessments, Payments, and Other Specified Matters, to verify
5
Because we find that petitioner received a valid notice of
deficiency for 1996, 1997, and 1998, petitioner is precluded from
contesting his underlying tax liability for 1996, 1997, and 1998.
6
Form 4340, Certificate of Assessments, Payments, and Other
Specified Matters, constitutes a valid verification that the
requirements of any applicable law or administrative procedure
have been met under sec. 6330(c)(1). See Craig v. Commissioner,
119 T.C. 252, 262 (2002).
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that a valid assessment was made. See Nestor v. Commissioner,
118 T.C. 162, 166 (2002); Schaper v. Commissioner, T.C. Memo.
2002-203; Schroeder v. Commissioner, T.C. Memo. 2002-190. Absent
a showing of irregularity, a Form 4340 is sufficient to establish
that a valid assessment was made. See Nestor v. Commissioner,
supra at 167; Davis v. Commissioner, 115 T.C. 35, 40-41 (2000);
Yazzie v. Commissioner, T.C. Memo. 2004-233. In the present
case, the Forms 4340 for 1996, 1997, and 1998 identify
petitioner, the type of liability assessed, the taxable period,
and the amount of the assessment. Because petitioner does not
identify any irregularities in the assessment procedure used to
assess the 1996, 1997, and 1998 liabilities, we must conclude
that valid assessments for those years were made.
Petitioner also argues that respondent failed to issue
notice and demand for payment with respect to the 1996-98
liabilities. The Appeals officer may rely on Form 4340 to verify
that a notice and demand for payment was sent to the taxpayer.
See Schaper v. Commissioner, supra; Schroeder v. Commissioner,
supra. In this case, the Forms 4340 for 1996, 1997, and 1998
show that respondent issued to petitioner notices of balance due
for each of the unpaid tax liabilities.7 Petitioner has failed to
7
Notices of balance due constitute notice and demand for
payment within the meaning of sec. 6303(a). See Thompson v.
Commissioner, T.C. Memo. 2004-204; Henderson v. Commissioner,
T.C. Memo. 2004-157; Standifird v. Commissioner, T.C. Memo. 2002-
(continued...)
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present any credible evidence that notice and demand was not
issued as indicated on the Forms 4340. Consequently, we conclude
that notices and demands were properly issued to petitioner with
respect to the 1996-98 liabilities.
3. Section 6330 Hearing
Lastly, petitioner argues that he was denied a proper
section 6330 hearing. Petitioner’s principal argument is that
respondent improperly denied him a face-to-face section 6330
hearing. We have held repeatedly that because a hearing
conducted under section 6330 is an informal proceeding instead of
a formal adjudication, a face-to-face hearing is not mandatory.
See Katz v. Commissioner, 115 T.C. 329, 337 (2000); Davis v.
Commissioner, supra at 41. Accordingly, while a hearing may take
the form of a face-to-face meeting, a proper section 6330 hearing
may also be conducted by telephone or written correspondence.
Katz v. Commissioner, supra at 337-338; sec. 301.6330-1(d)(2),
Q&A-D6, Proced. & Admin. Regs. Once a taxpayer is given a
reasonable opportunity for a hearing and fails to avail himself
of that opportunity, this Court has sustained respondent’s
determination to proceed with collection based upon an Appeals
officer’s review of the case file. See, e.g., Bean v.
7
(...continued)
245, affd. 72 Fed. Appx. 729 (9th Cir. 2003).
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Commissioner, T.C. Memo. 2006-88; Ho v. Commissioner, T.C. Memo.
2006-41; Leineweber v. Commissioner, T.C. Memo. 2004-17.
Petitioner repeatedly asserted frivolous and groundless
arguments regarding all of his unpaid tax liabilities throughout
the section 6330 hearing process and at trial. The Appeals
Office offered petitioner the right to conduct his section 6330
hearing by telephone and/or through written correspondence. The
Appeals Office also advised petitioner on several occasions that
it would grant petitioner’s request for a face-to-face hearing if
petitioner identified relevant issues he wanted to discuss. In
lieu of identifying relevant issues, petitioner continually
responded with more frivolous arguments and refused to
participate in a telephone hearing. At no time did petitioner
identify any relevant issue he would discuss if granted a face-
to-face hearing.
With respect to petitioner’s 1996, 1997, and 1998
liabilities, we hold that respondent did not err in refusing to
grant petitioner a face-to-face hearing, and we sustain
respondent’s proposed collection action.
B. 2000
Section 6330(c)(1) provides that a hearing officer, during a
section 6330 hearing, shall “obtain verification from the
Secretary that the requirements of any applicable law or
administrative procedure have been met.” The obligation imposed
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upon a hearing officer by section 6330(c)(1) is mandatory. The
hearing officer’s obligation to obtain verification that
applicable legal and administrative procedures have been met
attaches whenever a taxpayer has made a timely request for a
hearing. See sec. 6330(b)(1) (“If [a] person requests a hearing
under subsection (a)(3)(B), such hearing shall be held by the
Internal Revenue Service Office of Appeals.”). When a taxpayer
makes a timely request for a section 6330 hearing, the hearing
must be offered, and it must be conducted in accordance with
section 6330(c).
We examine the record to decide whether the hearing officer
complied with section 6330(c)(1). In the notice of
determination, the Appeals Office refers petitioner to an
attached statement which “shows, in detail, the matters we
considered at your Appeals hearing and our conclusions about
them” and concludes that the “Issuance of the Final Notice and
the proposed levy action are fully sustained.” In the attachment
to the notice of determination, the hearing officer states that
she did not verify whether petitioner received a statutory notice
of deficiency for 2000.8 In the hearing officer’s activity
record, which was introduced as an exhibit by respondent, the
hearing officer made the following entry for June 14, 2005: “Per
8
The Form 4340 for 2000 contains no reference to a notice
of deficiency being issued for that year, and the record does not
contain a copy of a notice of deficiency for 2000.
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the documents that were requested For 2000: these are not the
SNOD. Requested DLN of the TC 290. Checked ICS: no ICS history
for this t/p.”9 The activity record also shows that the hearing
officer made the following entry on July 20, 2005: “To date I
have been unable to verify a SNOD for 2000. For 1996-1998
liability issues are precluded from consideration. For 2000 they
may not be, but the t/p has not brought up any relevant
arguments, just frivolous arguments.”
The relevant parts of the record summarized above establish
that the hearing officer did not receive verification during
petitioner’s section 6330 hearing that respondent had issued a
notice of deficiency for 2000 to petitioner before assessing
petitioner’s 2000 deficiency. Moreover, the record contains no
indication that the hearing officer or the Appeals Office
considered the effect on the 2000 assessment of a failure by
respondent to verify that a notice of deficiency for 2000 was
mailed to petitioner.
9
Although the entries in the activity record are not always
intelligible due to the coding and numbering utilized by
respondent’s employees, we understand the term “SNOD” to be an
acronym for a statutory notice of deficiency.
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If the Secretary10 determines that there is a deficiency in
income tax, he may send a notice of deficiency to the taxpayer by
certified mail or registered mail. Sec. 6212(a). The notice
must be sent to the taxpayer’s last known address. Sec.
6212(b)(1). Within 90 days, or 150 days if the notice is
addressed to a person outside the United States, after the notice
of deficiency is mailed, the taxpayer may file a petition with
the Tax Court for a redetermination of the deficiency. Sec.
6213(a). Section 6213(a) expressly prohibits the Secretary,
except in the case of termination and jeopardy assessments made
under sections 6851, 6852, and 6861, from assessing a deficiency
and attempting to collect a deficiency before a notice of
10
The term “Secretary” means “the Secretary of the Treasury
or his delegate”, sec. 7701(a)(11)(B), and the term “or his
delegate” means “any officer, employee, or agency of the Treasury
Department duly authorized by the Secretary of the Treasury
directly, or indirectly by one or more redelegations of
authority, to perform the function mentioned or described in the
context”, sec. 7701(a)(12)(A).
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deficiency is sent.11 See Freije v. Commissioner, 125 T.C. 14,
35-36 (2005).
As we previously noted, section 6330(c)(1) requires an
officer who is presiding over a section 6330 hearing to “obtain
verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met.” The
record before us clearly establishes that the hearing officer in
this case did not receive verification that a critical legal
requirement for a valid 2000 assessment had been met. She did
not personally verify, or receive any verification from the
Secretary or his designee, that a notice of deficiency had been
sent to petitioner for 2000. Absent such verification, it was
impossible for the hearing officer to properly conclude, as
required by section 6330(c)(1), that applicable legal and
11
Sec. 6213(a) provides, in pertinent part:
Except as otherwise provided in section 6851, 6852, or
6861 no assessment of a deficiency * * * and no levy or
proceeding in court for its collection shall be made,
begun, or prosecuted until such notice has been mailed
to the taxpayer, nor until the expiration of such 90-
day or 150-day period, as the case may be, nor, if a
petition has been filed with the Tax Court, until the
decision of the Tax Court has become final.
Notwithstanding the provisions of section 7421(a), the
making of such assessment or the beginning of such
proceeding or levy during the time such prohibition is
in force may be enjoined by a proceeding in the proper
court, including the Tax Court, and a refund may be
ordered by such court of any amount collected within
the period during which the Secretary is prohibited
from collecting by levy or through a proceeding in
court under the provisions of this subsection.
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administrative requirements had been met with respect to the
assessment of the 2000 deficiency.
Although petitioner made numerous frivolous and groundless
arguments,12 including arguments that he is not required to pay
income tax and that no law authorizes the Internal Revenue
Service to make substitute returns, and generally engaged in
irresponsible behavior during the section 6330 hearing process
and at trial, his conduct does not obviate the responsibility of
a hearing officer under section 6330(c)(1) to obtain verification
that the legal and administrative requirements for a proper
assessment and related collection activity have been met.
Because it is clear from the record that the hearing officer did
not obtain or receive verification that respondent had issued a
notice of deficiency for 2000 to petitioner, we must conclude
that the requirements of section 6330(c)(1) were not met and that
the Appeals Office’s conclusion to the contrary was erroneous.
See Freije v. Commissioner, supra at 36. Because it is clear
that the Appeals Office reached its conclusion regarding the
section 6330(c)(1) requirement without a sound basis for the
conclusion in either fact or law, we hold that the Appeals Office
12
Among his arguments, petitioner asserts that there is no
statutory authority for imposing liability in connection with the
income taxes at issue and that no statute requires him to pay the
taxes assessed.
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abused its discretion in sustaining respondent’s levy action with
respect to the 2000 liability.
II. Section 6673(a)
Section 6673(a)(1) authorizes this Court to require a
taxpayer to pay to the United States a penalty, not to exceed
$25,000, if it appears that the taxpayer has instituted or
maintained a proceeding primarily for delay or that the
taxpayer's position is frivolous or groundless. Section
6673(a)(1) applies to proceedings under section 6330. See
Pierson v. Commissioner, 115 T.C. 576, 581 (2000). In
proceedings under section 6330, we have imposed the penalty on
taxpayers who raised frivolous and groundless arguments with
respect to the legality of the Federal tax laws. See, e.g.,
Roberts v. Commissioner, 118 T.C. 372-373; Eiselstein v.
Commissioner, T.C. Memo. 2003-22; Yacksyzn v. Commissioner, T.C.
Memo. 2002-99.
In a motion for summary judgment and to impose a penalty
under section 6673, respondent warned petitioner that his
unfounded allegations constituted a frivolous appeal subject to
monetary sanctions under section 6673(a)(1). Although we denied
the motion before trial because we were not convinced that
summary judgment was appropriate, petitioner continued at trial
to assert meritless arguments regarding the validity of the
1996-98 notice of deficiency, his obligation to pay taxes, and
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other matters. Petitioner's conduct to date as summarized in
this opinion demonstrates that petitioner's arguments challenging
respondent's collection action with respect to petitioner's
1996-98 liabilities were frivolous and/or groundless. We shall
require petitioner to pay to the United States a penalty under
section 6673(a)(1) in the amount of $6,000.
Our conclusion that it is appropriate to impose a section
6673 penalty on petitioner is the direct result of petitioner's
arguments. We believe that our conclusion is warranted even
though we have also held that the Appeals Office abused its
discretion regarding petitioner's 2000 liability. Our holding
regarding the 2000 liability is not the result of any argument
that petitioner made. Rather, it stems from the rather obvious
failure of respondent, as shown by the record, to present
verification to the hearing officer that he issued a notice of
deficiency for 2000 to petitioner before he assessed the 2000
deficiency. Our authority to impose a section 6673 penalty in
this case arises from section 6673(a)(1) and is invoked by
petitioner's frivolous and groundless arguments regarding his
1996-98 liabilities. There is nothing in section 6673(a)(1) to
suggest that our authority to impose a section 6673 penalty is
constrained in any way by the fact that petitioner was lucky
enough to obtain a favorable ruling regarding respondent's
proposed collection action with respect to the 2000 liability.
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We have considered the remaining arguments of both parties
and to the extent not discussed above, conclude those arguments
are irrelevant, moot, or without merit.
To reflect the foregoing,
An appropriate decision
will be entered.