Nasir v. Comm'r , 102 T.C.M. 558 ( 2011 )

T.C. Memo. 2011-283
UNITED STATES TAX COURT
OMAR J. NASIR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16721-08L. Filed December 5, 2011.
P filed a petition for review of a lien filing
pursuant to sec. 6320, I.R.C., in response to R’s
determination that the collection action was
appropriate.
Held: R’s determination is sustained.
Omar J. Nasir, pro se.
Najah J. Shariff, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case is before the Court on a petition
for review of a notice of determination concerning collection
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action(s) under section 6320 and/or 6330 (notice of
determination).1 Petitioner seeks review of respondent’s
determination sustaining a tax lien filing.
The collection action stems from late returns petitioner
filed for the 2000 and 2002 tax years. The issue for decision is
whether petitioner had reasonable cause for his failure to comply
with sections 6651(a)(1) and (2) and 6654(a).
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations,
with accompanying exhibits, are incorporated herein by this
reference. At the time the petition was filed, petitioner
resided in California.
Petitioner worked as an engineer in 2000 and 2002, reporting
adjusted gross income of $120,992 and $83,069, respectively.
Petitioner failed to timely file his Federal income tax returns
for tax years 2000 and 2002 and failed to timely pay his tax
liabilities for those years.
For 2000 respondent initially assessed an income tax
deficiency of $29,436 on April 10, 2006, on the basis of a
substitute for return he prepared pursuant to section 6020(b).
The substitute for return also showed, and petitioner was
assessed, a section 6651(a)(1) failure to timely file addition to
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and applicable to
the periods at issue.
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tax of $1,265.40, a section 6651(a)(2) failure to timely pay
addition to tax of $3,301.50, and a section 6654 failure to pay
estimated income tax addition to tax of $609.06. Petitioner
subsequently, on or about April 23, 2006, filed a Form 1040A,
U.S. Individual Income Tax Return, for his 2000 tax year, showing
a tax liability of $21,958. Thereafter, respondent abated $7,478
of his assessment and reduced the tax deficiency to $21,958.
Respondent also abated $1,895.50 of the late payment addition to
tax, reducing the late payment addition to tax amount to $1,406,
and removed the section 6654 addition to tax for failure to pay
estimated income tax.
For 2002 respondent initially assessed an income tax
deficiency of $37,734 on the basis of a substitute for return he
prepared pursuant to section 6020(b). The substitute for return
also showed, and petitioner was assessed, a section 6651(a)(1)
failure to timely file addition to tax of $4,261.50, a section
6651(a)(2) failure to timely pay addition to tax of $6,980.79,
and a section 6654 addition to tax for failure to pay estimated
income tax of $628. Petitioner subsequently, on or about October
14, 2007, filed a Form 1040A for his 2002 tax year, showing a tax
liability of $20,205. Thereafter, respondent abated $17,529 of
his assessment and reduced the tax deficiency amount to $20,205.
Respondent also abated $4,382.25 of the addition to tax for late
payment, reducing the amount to $2,598.54.
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On September 4, 2007, respondent mailed petitioner a Letter
3172, Notice of Federal Tax Lien (NFTL) Filing and Your Right to
A Hearing under IRC 6320, advising petitioner that respondent
would on the next day file an NFTL for 2000 and 2002. On
September 5, 2007, respondent filed an NFTL to collect the unpaid
tax liabilities. In response, respondent timely received
petitioner’s Form 12153, Request for a Collection Due Process or
Equivalent Hearing, dated October 2, 2007. Petitioner checked
the boxes on the Form 12153 for withdrawal and discharge of the
tax lien. Petitioner also checked boxes for the collection
alternatives of an installment agreement and an offer-in-
compromise.
From February to June of 2008, respondent processed
petitioner’s request, and on May 21, 2008, respondent ultimately
conducted a collection due process hearing by phone with
petitioner, although petitioner had requested a face-to-face
conference. Petitioner requested penalty relief as it relates to
the additions to tax for failure to timely file and the failure
to timely pay on the grounds that he suffered undue financial
hardship. Petitioner also requested collection alternatives,
including an offer-in-compromise, but failed to provide the
requested documentation.2 Respondent sent a notice of
2
The required documentation included a completed Form 433-A,
Collection Information Statement for Individuals, proof of
(continued...)
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determination to petitioner on June 2, 2008, informing him of the
decision to deny penalty relief and sustain the lien filing.
Petitioner filed a petition on July 7, 2008, and an amended
petition on July 31, 2008. This case was set for trial on June
22, 2009, but was continued on the joint motion of the parties.
However, because the requested face-to-face conference had not
been afforded to petitioner, respondent’s San Francisco Appeals
Office agreed to reconsider the case. In a letter dated May 7,
2009, in response to petitioner’s new request for an offer-in-
compromise, respondent again requested that petitioner provide a
variety of items for consideration to the settlement officer in
San Francisco before the face-to-face conference.3 Among the
items requested if petitioner still wished to pursue collection
alternatives was a Form 433-A, Collection Information Statement
for Individuals, and a Form 656, Offer in Compromise, both of
2
(...continued)
estimated tax payments for 2008, and delinquent tax returns for
2006 and 2007. Consequently, without these items, petitioner was
not eligible for any collection alternatives.
3
Respondent requested nine documents, plus the completed
Form 656, Offer in Compromise, and Form 433-A. The other
documents were: (1) Bank statements from January 2008 to date;
(2) paycheck stubs for the previous 6 months; (3) payoff letters
from mortgage lenders; (4) a copy of petitioner’s current lease
agreement; (5) copies of previous 6 months of rent payments; (6)
copies of previous 6 months of mortgage payments; (7) 2008
Federal tax return; (8) an amended 2002 Federal tax return; and
(9) documentation to substantiate any medical expenses incurred
during the tax years 2000 and 2002 for treatment of petitioner’s
former wife’s breast cancer.
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which were sent to petitioner with detailed instructions. As a
followup to the May 7 letter, Settlement Officer Deborah Conley
(Officer Conley) sent a letter to petitioner on May 19, 2009,
scheduling a face-to-face conference for June 16, 2009. This
letter once again requested that petitioner file delinquent tax
returns and provide respondent with a Form 433-A and other
documents pertaining to his finances and expenses.
Over the next 3 months petitioner provided the necessary
documents to discuss the offer-in-compromise. During this period
respondent granted additional time and rescheduled the face-to-
face conference with petitioner twice, in order that petitioner
could gather and provide all of the necessary documents.4 A
face-to-face conference between Officer Conley and petitioner
finally occurred on August 20, 2009.
At the conference petitioner submitted a completed Form 656.
Under the terms of the offer-in-compromise petitioner offered
$6,544 as a short-term periodic payment offer, which required him
to pay 24 monthly installments of $272.66.5
4
A face-to-face conference was originally scheduled for June
16, 2009. On June 4, 2009, petitioner requested that the
conference be rescheduled to a later date. Respondent granted
the request and rescheduled the face-to-face conference for Aug.
5, 2009. On July 27, petitioner once again requested that the
conference be rescheduled to a later date. Respondent granted
the request and rescheduled the face-to-face conference for Aug.
20, 2009.
5
Petitioner originally wrote $10,000 as his offer-in-
(continued...)
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A condition of the offer, stated on the Form 656 that
petitioner completed and signed, explained that he had to
continue to make the installment payments while the offer was
being investigated. Officer Conley further explained to
petitioner that a failure to make the payments would result in
the offer’s being deemed withdrawn. Petitioner paid the
application fee and made the first installment payment at the
face-to-face conference.
On August 20, 2009, after concluding the face-to-face
conference with petitioner, Officer Conley assembled the offer-
in-compromise package and sent it to the offer-in-compromise unit
in Memphis, Tennessee (Memphis Unit). Petitioner received a
letter dated September 17, 2009, from the Memphis Unit informing
him that his offer-in-compromise had been received and was being
investigated.
The Memphis Unit reached a preliminary decision to reject
the offer, conveying this to petitioner in a letter dated January
5
(...continued)
compromise but did so under the erroneous belief that refunds,
such as his stimulus refund, which the IRS had already taken,
would be considered as part of his offer. Petitioner modified
the Form 656 to change the offer-in-compromise amount to reflect
these amounts.
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15, 2010.6 The case was subsequently sent back to respondent’s
San Francisco office for a final determination.
Petitioner made timely payments under the terms of the
installment plan for the months of September, October, November,
and December of 2009. However, beginning in January 2010,
petitioner began to fall behind. In a letter dated March 4,
2010, Officer Conley sent petitioner a notice that payments for
January and February had not been received and that he owed
$545.32. The letter informed petitioner: “If I do not receive
the payment or proof that you made the payments, per IRC
7122(c)(1)(B)(ii) your offer will be considered withdrawn.”
Officer Conley requested that the payment be submitted by March
19, 2010. The letter also stated that if petitioner wished to
propose other alternatives he should also submit them to Officer
Conley by March 19. In response, petitioner submitted two
payments of $272.66 by the March 19, 2010, deadline.
Petitioner failed to timely submit his March, April, and May
installment payments under the terms of the offer-in-compromise.
In a letter dated June 15, 2010, Officer Conley informed
petitioner that she had not received his payments for March,
6
In the Memphis Unit’s preliminary decision to reject
petitioner’s offer-in-compromise, a clerical mistake was made as
to the amount petitioner offered. The introduction of the letter
stated that the offer was “in the amount of $1,200.” However, a
further reading of the letter reveals that the decision was based
on an offer of the correct amount of $6,544.
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April, and May and that he had to submit a payment of $817.98 by
June 29, 2010, or the offer-in-compromise would be withdrawn. In
correspondence dated June 25, 2010, petitioner submitted a single
payment of $272.66 and indicated that the April and May payments
would be made by September 2010.
In a letter dated July 26, 2010, respondent sent petitioner
a supplemental notice of determination sustaining the NFTL. The
letter also stated that the offer-in-compromise was withdrawn
because of failure to comply with the payment terms.
OPINION
I. Standard of Review
Section 6320(a) and (b) provides that a taxpayer shall be
notified in writing by the Commissioner of the filing of a notice
of Federal tax lien and provided with an opportunity for an
administrative hearing. An administrative hearing under section
6320 is conducted in accordance with the procedural requirements
of section 6330. Sec. 6320(c).
If an administrative hearing is requested in a lien or levy
case, the hearing is to be conducted by the Appeals Office.
Secs. 6320(b)(1), 6330(b)(1). At the hearing, the Appeals
officer conducting it must verify that the requirements of any
applicable law or administrative procedure have been met. Secs.
6320(c), 6330(c)(1). The taxpayer may raise any relevant issue
with regard to the Commissioner’s intended collection activities,
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including spousal defenses, challenges to the appropriateness of
the proposed levy, and alternative means of collection. Sec.
6330(c)(2)(A); see also Sego v. Commissioner, 114 T.C. 604, 609
(2000); Goza v. Commissioner, 114 T.C. 176, 180 (2000).
Taxpayers are expected to provide all relevant information
requested by Appeals, including financial statements, for its
consideration of the facts and issues involved in the hearing.
Secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin. Regs.
If a taxpayer’s underlying liability is properly at issue,7
the Court reviews any determination regarding the underlying
liability de novo. Sego v. Commissioner, supra at 610; Goza v.
Commissioner, supra at 181-182. We review any other
administrative determination regarding the proposed collection
action for abuse of discretion. Sego v. Commissioner, supra at
610; Goza v. Commissioner, supra at 181-182.
If raised at or before the Appeals hearing by the taxpayer,
a taxpayer’s underlying liability is properly at issue if the
taxpayer “did not receive any statutory notice of deficiency for
such tax liability or did not otherwise have an opportunity to
7
The parties stipulated that the underlying tax liabilities
for 2000 and 2002 are not in dispute. However, the Court is not
bound to stipulations as to matters of law, especially when the
stipulations are erroneous. King v. United States, 641 F.2d 253,
258 (5th Cir. 1981); Greene v. Commissioner, 85 T.C. 1024, 1026
n.3 (1985).
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dispute such tax liability.” Sec. 6330(c)(2)(B). Under section
6330(d)(1) a taxpayer’s underlying tax liability is “any amounts
owed by a taxpayer pursuant to the tax laws”, including assessed
additions to tax. Katz v. Commissioner, 115 T.C. 329, 339
(2000). Petitioner challenged respondent’s assessed additions to
tax. Petitioner did not receive a statutory notice of
deficiency.8 Respondent has not shown, indicated, or alleged
that petitioner had an opportunity to dispute the tax
liabilities. Consequently, these underlying liabilities are
properly at issue. See sec. 6330(c)(2)(B).
II. Review De Novo
Petitioner requested relief as it relates to the assessed
additions to tax pursuant to sections 6651(a)(1) and (2) and
6654(a) on the grounds of reasonable cause. The aforementioned
sections permit relief from assessed additions to tax when it is
shown that the taxpayer’s failure to comply was due to reasonable
cause and not willful neglect.9 See sec. 6651(a)(1) and (2).
8
Inasmuch as petitioner filed delinquent tax returns for
2000 and 2002 reporting tax due of $21,958 and $20,205,
respectively, respondent was authorized under sec. 6201(a) to
assess said amounts without issuing a notice of deficiency. In
addition, respondent was free to assess the additions to tax
under secs. 6651(a)(1) and (2) and 6654 without first issuing a
notice of deficiency. See sec. 6665(b).
9
No general reasonable cause exception exists with regard to
an addition to tax assessed under sec. 6654(a). Relief is
available, however, pursuant to the narrow exception of sec.
6654(e)(3)(B).
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The Court’s standard of review on what elements must be present
to constitute “reasonable cause” is de novo. United States v.
Boyle, 469 U.S. 241, 249 n.8 (1985) (“[W]hat elements must be
present to constitute ‘reasonable cause’ is a question of law.”).
Whether those elements are present in a given case is a question
of fact. Id. The burden of proving reasonable cause and lack of
willful neglect rests on the taxpayer. Id. at 244.
A. Section 6651(a)(1): Failure To File a Timely Return
Section 6651(a)(1) imposes an addition to tax for failure to
file a timely Federal income tax return unless the taxpayer can
demonstrate that such failure is due to reasonable cause and not
due to willful neglect.10 The Code does not define reasonable
cause nor willful neglect. However, the regulations explain that
reasonable cause for the failure to file a timely return exists
if the taxpayer exercised ordinary business care and prudence but
was unable to file his return within the time prescribed by law.
Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. The term “willful
neglect” has been read as meaning “conscious, intentional failure
or reckless indifference.” United States v. Boyle, supra at 245.
Respondent determined that petitioner is liable for an
addition to tax under section 6651(a)(1) for tax years 2000 and
10
The amount of the addition to tax is 5 percent of the
amount required to be shown as tax on the return for each month
or portion thereof that the delinquency continues, up to a
maximum of 25 percent. Sec. 6651(a)(1).
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2002. The parties stipulated that petitioner filed late returns
for both of the years at issue, filing his return for 2000 in
2006 and his return for 2002 in 2007. Petitioner was assessed a
tax liability of $21,958 for 2000 and $20,205 for 2002.
Petitioner sets forth two arguments as to why he had
reasonable cause and was thus excused from filing a timely return
for the tax years 2000 and 2002: (1) Petitioner claims to have
suffered undue financial hardship, and (2) petitioner experienced
the prolonged sickness and illness of an immediate family member.
Without venturing into whether petitioner actually did suffer
undue financial hardship, we reject the argument that reasonable
cause due to financial hardship is a basis to abate additions to
tax. Under the standard of “ordinary business care and prudence”
set forth in the regulations, petitioner was not excused from
timely filing even if he would have been unable to pay. One’s
ability to pay a tax liability has no bearing on the ability to
file one’s tax return. Sec. 301.6651-1(c)(1), Proced. & Admin.
Regs. Ordinary business care and prudence required petitioner to
file his return timely and address the inability to pay the
liability as a separate issue.
Petitioner also alleges reasonable cause because of prolonged
sickness and illness of an immediate family member. In the Ninth
Circuit, where this case would be appealable absent a stipulation
to the contrary, a taxpayer’s or a member of his immediate
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family’s serious illness can constitute reasonable cause. Van
Camp & Bennion v. United States, 251 F.3d 862, 867 (9th Cir.
2001); see United States v. Boyle, supra at 243 n.1; sec.
301.6651-1(c)(1), Proced. & Admin. Regs. The Court of Appeals
for the Seventh Circuit has determined that “the type of illness
or debilitation that might create reasonable cause is one that
because of severity or timing makes it virtually impossible for
the taxpayer to comply--things like emergency hospitalization or
other incapacity occurring around tax time.” Carlson v. United
States, 126 F.3d 915, 923 (7th Cir. 1997).
Petitioner provided some medical billing records of his
former wife, who he was married to during the tax years at issue.
The records indicate that she underwent a mastectomy in the end
of April 2002 and then possibly had reconstructive surgery
related to the mastectomy in July 2002.11 When determining
whether a taxpayer had reasonable cause due to serious illness of
an immediate family member we consider whether “tax duties were
attended to promptly when the illness passed”. Internal Revenue
Manual pt. 20.1.1.3.2.2.1(3)(G) (Nov. 25, 2011). We sympathize
with petitioner and his former wife regarding her previous health
problems. However, the two procedures occurred approximately 1
11
Petitioner’s former wife’s treatments for cancer did not
begin until 1 year after his 2000 Federal income tax return was
due, and therefore did not constitute reasonable cause for his
failure to timely file the return for the 2000 tax year.
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year and 8 months, respectively, before the filing deadline that
petitioner missed.
Even if we give petitioner the benefit of the doubt that his
former wife’s ailments precluded the timely filing of his 2002
tax returns by April 15, 2003, petitioner did not file his 2002
tax return until October 2007, more than 5 years after his former
wife’s last procedure. Petitioner was required to promptly file
his return for 2002 once his former wife’s illness had passed;
petitioner offered no evidence to show that his former wife was
still ailing until October 2007. We also note that petitioner
did not attempt to comply with his duty to timely file his 2002
Federal income tax return by requesting an extension of time to
file.
During this time petitioner still managed to conduct the rest
of his financial affairs with ordinary business care and
prudence, such as paying his mortgage on time. He was also able
to perform the essential functions of his day-to-day activities,
including going to work and making an income in excess of
$100,000 during the 2002 tax year. See Wright v. Commissioner,
T.C. Memo. 1998-224, affd. without published opinion 173 F.3d 848
(2d Cir. 1999). We conclude that petitioner has failed to
establish reasonable cause to abate the addition to tax pursuant
to section 6651(a)(1) for 2000 or 2002.
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B. Section 6651(a)(2): Failure To Pay Amount of Tax
Section 6651(a)(2) imposes an addition to tax for failure to
pay the amount of tax shown on the taxpayer’s Federal income tax
return on or before the payment due date, unless such failure is
due to reasonable cause and not due to willful neglect.12 A
failure to pay will be considered due to reasonable cause if the
taxpayer makes a satisfactory showing that he exercised ordinary
business care and prudence in providing for payment of his tax
liability and was nevertheless either unable to pay the tax or
would suffer undue hardship if he paid on the due date. Sec.
301.6651-1(c)(1), Proced. & Admin. Regs. Petitioner asserts the
same reasonable cause arguments for section 6651(a)(2) as he did
for section 6651(a)(1)--undue financial hardship and the
prolonged illness of an immediate family member.
In determining whether the taxpayer was unable to pay the
tax in spite of the exercise of ordinary business care and
prudence in providing for payment of his tax liability,
consideration will be given to all the facts and circumstances of
the taxpayer’s financial situation. Van Camp & Bennion v. United
States, supra at 867. For the same reasons we found that
12
The sec. 6651(a)(2) addition to tax is 0.5 percent of the
amount of tax shown on the return, with an additional 0.5 percent
per month during which the failure to pay continues, up to a
maximum of 25 percent. The 5-percent failure to file penalty is
reduced to 4.5 percent for any month that the failure to pay
penalty is also assessed. Sec. 6651(c).
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petitioner failed to show reasonable cause for failing to file
his Federal returns on time, petitioner has failed to show that
he exercised ordinary business care and prudence in failing to
pay his tax liabilities for 2000 and 2002 on time.
Petitioner cannot rely on undue financial hardship alone to
excuse his inability to pay taxes. The regulations require a
showing of reasonable cause even if undue hardship would be
suffered. As the District Court noted in Wolfe v. United States,
612 F. Supp. 605, 608 (D. Mont. 1985), affd. 798 F.2d 1241 (9th
Cir. 1986), opinion amended, 806 F.2d 1410 (9th Cir. 1986):
“Almost every non-willful failure to pay taxes is a result of
financial difficulties.” We conclude that petitioner is liable
for the section 6651(a)(2) addition to tax for 2000 and 2002.
C. Section 6654(a): Failure To Pay Estimated Tax
Section 6654(a) imposes an addition to tax for the
underpayment of any installment of estimated tax.13 The
underpayment addition rate is determined pursuant to section 6621
and is applied to the amount of the estimated tax underpayment
for the period of underpayment. Sec. 6654(a) and (b). Except
for the narrow circumstances provided for in section
13
Sec. 6654(c)(1) requires the payment of four installments
of a taxpayer’s estimated tax liability for each taxable year.
Each required installment of estimated tax is equal to 25 percent
of the required annual payment.
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6654(e)(3)(A) and (B), no reasonable cause exception exists to
the section 6654(a) addition to tax.
The narrow exceptions to section 6654(a) provide that an
addition to tax will not be imposed if the Secretary determines
that (1) By reason of casualty, disaster, or unusual
circumstances the additions assessed would be inequitable or
unfair or; (2) the taxpayer retired (after reaching age 62) or
became disabled in either the taxable year for which estimated
tax payments were required or in the taxable year preceding such
year and such underpayment was due to reasonable cause and not
willful neglect.
Petitioner asserts the same reasonable cause arguments for
section 6654(a) as he did for section 6651(a)(1) and (2).
Petitioner did not introduce any evidence that he was retired,
nor did he put forth any evidence that he was disabled.
Therefore he does not fall into the narrow exception for
reasonable cause pursuant to section 6654(e)(3)(B). The record
does not establish that petitioner’s failure to make estimated
tax payments for 2002 was due to casualty, disaster, or other
unusual circumstances, and we are not persuaded that the
imposition of the section 6654 addition to tax would be against
equity and good conscience. We conclude that petitioner is
liable for the section 6654 addition to tax for 2002.
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D. Offer-in-Compromise
Petitioner submitted an offer-in-compromise based on doubt
as to collectability during the face-to-face conference on August
20, 2009. The offer-in-compromise was a 24-month short-term
periodic payment offer made pursuant to section 7122(c)(1)(B).
The payment offer required petitioner to make monthly payments of
$272.66. Pursuant to section 7122(c)(1)(B)(i) petitioner
submitted payment of the first installment with the offer-in-
compromise.
Section 7122(c)(1)(B)(ii) required petitioner to make
regular payments during the period respondent was evaluating the
offer-in-compromise. Petitioner failed to make continuous
payments beginning in January 2010. In late March of 2010
petitioner made his January and February payments after being
notified by Officer Conley that a failure to pay would result in
the offer-in-compromise’s being deemed withdrawn by petitioner.
Petitioner subsequently failed to make timely payments for
March, April, and May 2010. Once again Officer Conley sent a
letter to petitioner notifying him of the consequences of a
failure to pay and to adhere to the terms of his offer-in-
compromise. Petitioner responded by sending in only one payment
for the month of March. We conclude that pursuant to section
7122(c)(1)(B)(ii), petitioner’s continued payment noncompliance
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was permissibly treated by respondent as a withdrawal by
petitioner of his offer-in-compromise.
III. Conclusion
As detailed above petitioner is liable for the sections
6651(a)(1) and (2) and 6654(a) additions to tax. Further,
respondent did not abuse his discretion in rejecting petitioner’s
offer-in-compromise. Therefore, the notice of determination
respondent issued to petitioner dated June 2, 2008, is sustained
in its entirety.
To reflect the foregoing,
Decision will be entered
for respondent.