Paynter v. Comm'r , 2017 Tax Ct. Summary LEXIS 12 ( 2017 )

T.C. Summary Opinion 2017-12
UNITED STATES TAX COURT
WILLIAM HENRY PAYNTER AND ELIZABETH A. PAYNTER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21021-15S L. Filed March 8, 2017.
William Henry Paynter and Elizabeth A. Paynter, pro sese.
Tyson R. Smith, for respondent.
SUMMARY OPINION
PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in effect when the
petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not
1
Unless otherwise indicated, subsequent section references are to the
(continued...)
2
reviewable by any other court, and this opinion shall not be treated as precedent
for any other case.
This case is before the Court on petitioners’ request for review of
respondent’s determination to sustain a notice of intent to levy to collect
petitioners’ 2006 Federal income tax liability. The issues for decision are: (1)
whether petitioners paid the assessed tax for 2006; (2) whether petitioners are
liable for the section 6651(a)(2) addition to tax for failure to timely pay their
income tax for 2006; (3) whether petitioners are liable for the section 6654(a)
addition to tax for failure to pay estimated income tax for 2006; and (4) whether
respondent is estopped from sustaining the proposed levy.
Background
Some of the facts have been stipulated, and we incorporate the stipulation of
facts by this reference. Petitioners resided in California when the petition was
timely filed.
Petitioners William Henry Paynter (petitioner) and Elizabeth A. Paynter
resided in California during 2006. Petitioner was self-employed as an attorney.
1
(...continued)
Internal Revenue Code in effect at all relevant times, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
3
Petitioners timely filed their 2006 Form 1040, U.S. Individual Income Tax
Return, on October 15, 2007, pursuant to an extension, reporting a tax due of
$15,989. Petitioners did not make estimated tax payments for 2006 and did not
remit payment when they filed their return. When petitioners’ 2006 return was
processed on November 26, 2007, the Internal Revenue Service (IRS or
respondent) assessed a tax of $16,132, a section 6654(a) addition to tax of $757,
and a section 6651(a)(2) addition to tax of $640. Including $815 in interest, the
assessed balance as of November 26, 2007, was $18,344.2 A notice of balance due
for 2006 was mailed to petitioners in 2007.3
For reasons not apparent from the record, respondent did not send another
notice of balance due for petitioners’ 2006 assessed balance until August 27, 2014.
The notice, sent to petitioners’ last known address, reflected an assessed balance
of $18,344, an addition to tax for late payment of $3,393, and accrued interest of
$5,560.
$16,132 (assessed tax) % $757 (sec. 6654(a) addition to tax) % $640 (sec.
2
6651(a)(2) addition to tax) % $815 (interest) ' $18,344 (assessed balance).
3
Respondent did not provide a copy of this notice. Respondent relied on a
certified copy of petitioners’ 2006 account transcript. Petitioners also did not
provide a copy, but they acknowledged that they had received a notice of balance
due for 2006.
4
Respondent sent petitioners a Letter 11, Notice of Intent to Levy and Notice
of Your Right to a Hearing (notice of intent to levy), dated March 6, 2015, at their
last known address. The notice of intent to levy reflected the same assessed
balance and additions to tax as the notice of balance due sent in 2014 plus accrued
interest of $5,990. In response to the notice of intent to levy, petitioners timely
filed a Form 12153, Request for a Collection Due Process or Equivalent Hearing,
which respondent received on April 1, 2015. On their Form 12153 petitioners
asserted that they had paid the tax for 2006.
Upon being assigned to petitioners’ case IRS Settlement Officer Smith (SO
Smith) reviewed the administrative file and petitioners’ account transcript and
confirmed that the tax for 2006 had been properly assessed. SO Smith also
verified that any requirements of applicable law and administrative procedure had
been met.
On May 12, 2015, SO Smith sent petitioners a letter scheduling a telephone
collection due process (CDP) hearing for June 23, 2015, and requested that
petitioners provide, among other things, a Form 1040 for 2014 within 21 days.
The letter indicated that IRS records reflected that the 2014 return had not been
filed. The date of the teleconference was rescheduled to June 29, 2015.
5
On June 29, 2015, SO Smith conducted a telephone CDP hearing with
petitioners’ representative Robert E. Sullivan. During the hearing SO Smith
advised Mr. Sullivan that there was a balance due for 2006. Mr. Sullivan asserted
that petitioners had paid the 2006 tax. SO Smith indicated that he could not find a
record of payment for 2006. Regarding petitioners’ asserted payment, SO Smith
informed Mr. Sullivan that account transcripts reflected that petitioners had made
the following payments: (1) $21,883, which was applied against their 2008
balance due on December 14, 2009, and (2) $20,811, which was applied against
their 2013 balance due on November 24, 2014.
During the CDP hearing Mr. Sullivan also raised the issue that the notice of
balance due for 2006 was not sent until 2014. Mr. Sullivan asserted that
petitioners’ records for 2006 had been destroyed in 2013 in accordance with the
IRS’ guidance regarding record retention. SO Smith did not provide an
explanation for the delay between the initial notice of balance due in November
2007 and the notice of balance due sent in August 2014. SO Smith informed Mr.
Sullivan that petitioners had an installment agreement with the IRS for 2005 in
effect at the time that the tax for 2006 was assessed and that they later defaulted on
the installment agreement. SO Smith requested a copy of petitioners’ 2006
6
Federal income tax return, but Mr. Sullivan asserted that this return was destroyed
with the other records for 2006.4
SO Smith sent petitioners a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 (notice of determination) dated July 27,
2015. The notice of determination stated that the levy was sustained because
petitioners “could not raise the underlying liability in the Collection Due Process
Hearing” and were not in compliance with filing their 2014 Federal income tax
return.
On August 18, 2015, petitioners timely filed a petition disputing the notice
of determination. Petitioners asserted in their petition that petitioner had paid the
2006 tax in person at the IRS office in Santa Rosa, California, in either late 2007
or early 2008. Petitioners did not have any records of payment. Petitioners also
asserted that in August 2010 their bank, Sonoma Valley Bank, was taken over by
the Federal Deposit Insurance Corporation (FDIC).5 Further, petitioners asserted
4
It is unclear why SO Smith requested a copy of petitioners’ 2006 Federal
income tax return. The parties stipulated a copy of petitioners’ 2006 Form 1040,
produced from respondent’s records.
5
The Court notes that on August 10, 2010, Sonoma Valley Bank was closed
by the California Department of Financial Institutions and the FDIC was named
receiver. All deposit accounts were transferred to Westamerica Bank, the
acquiring financial institution.
(continued...)
7
that in 2013 petitioner paid to have a number of personal and business records
shredded, including petitioners’ 2006 Federal income tax records and their proof
of payment of their 2006 tax.
Respondent provided a certified copy of petitioners’ account transcript for
2006. Respondent also provided a declaration by SO Smith and copies of all the
documents contained in the administrative file for petitioners’ collection due
process hearing. Petitioners’ 2006 account transcript did not reflect any payments
made as of July 12, 2016.
Additionally, respondent provided certified copies of petitioners’ account
transcripts for 2004, 2005, and 2007 through 2015. The copy of petitioners’ 2008
account transcript reflects a payment of $21,883 on December 14, 2009. The copy
of petitioners’ 2013 account transcript reflects a payment of $20,811 on November
5
(...continued)
https://www.fdic.gov/bank/individual/failed/sonoma.html. Generally, under Fed.
R. Evid. 201(b), an adjudicative fact can be judicially noticed only if it is (1)
generally known within the trial court’s territorial jurisdiction or (2) capable of
accurate and ready determination by sources whose accuracy cannot reasonably be
questioned. See Estate of Reis v. Commissioner, 87 T.C. 1016, 1026-1027 (1986).
We may take judicial notice on our own, and we may do so at any stage in the
proceeding. See Fed. R. Evid. 201(c) and (d).
8
24, 2014. For 2004 through 2014 petitioners filed timely Federal income tax
returns without remittance and later paid their tax as follows:6
Date notice
Year issued Payment date
2004 --- Dec. 30, 2005
2005 --- Jan. 12, 2007
2006 Nov. 6, 2007; No payment
Aug. 27, 2014 on record
2007 Nov. 24, 2008 Dec. 24, 2008
2008 Nov. 23, 2009 Dec. 14, 2009
2009 Nov. 22, 2010 Feb. 28, 2011
2010 Nov. 14, 2011 Jan. 3, 2012
2011 Nov. 26, 2012 Feb. 6, 2013
2012 Dec. 9, 2013 Jan. 21, 2014
2013 Nov. 17, 2014 Nov. 24, 2014
2014 Nov. 30, 2015 Dec. 31, 2015
6
Petitioners timely filed requests for extensions to file their returns for 2004
through 2014. Respondent did not impose additions to tax for late filing for these
years. Petitioners filed a request for extension to file for 2015 (making the
extended due date October 17, 2016), and had not filed their return or made
payments as of July 20, 2016. Additionally, petitioners paid their 2005 tax on
January 12, 2007, and were issued a notice on May 18, 2015, to pay interest and
additions to tax for 2005.
9
The certified copy of petitioners’ account transcript also reflects that an
installment agreement for 2005 was entered into on December 27, 2006. The
agreement ended on January 1, 2007.
Petitioners provided a copy of a check that they assert was used to pay for
the shredding of their 2006 Federal income tax records in 2013, including the
record of payment of the 2006 tax. The check, for $1,093, is dated October 8,
2013, and is payable to Integrity Shred.7
The parties also stipulated a copy of an advisory from the IRS on the
retention of tax records. This advisory states: “The length of time you should
keep a document depends on the action, expense, or event which the document
records”. The advisory discusses how long a taxpayer should retain records for
income tax returns in various situations. This advisory also states that if you no
longer need your records for tax purposes, “do not discard them until you check to
see if you have to keep them longer for other purposes. For example, your
insurance company or creditors may require you to keep them longer than the IRS
does.”
7
The check was drawn on the checking account for petitioner’s law office
(William H. Paynter, Esq. Attorney at Law). The memorandum on the check is
“#37314”. Petitioners assert that their 2006 records, including Federal income tax
records and proof of payment of their tax, were shredded with a number of other
documents from petitioner’s law office at the end of 2013.
10
Petitioners assert that they always timely file their income tax returns
without remittance and subsequently pay their tax after they receive a notice of
balance due for each year.8 Petitioners further assert that they shredded their
relevant tax records and proof of payment for 2006 in late 2013, which is beyond
the three-year period recommended by the IRS for retaining tax returns (absent
allegations of fraud or underreporting of income).
Discussion
I. Sections 6330 and 6331
The Secretary is authorized to collect tax by levy upon a taxpayer’s property
if any taxpayer liable to pay any tax neglects or refuses to pay such tax within 10
days after notice and demand for payment. Sec. 6331(a). Before the Secretary
may levy upon the taxpayer’s property, the Secretary must first notify the taxpayer
of the Secretary’s intent to levy. Id. subsec. (d)(1). The Secretary must also notify
the taxpayer of his or her right to a CDP hearing. Sec. 6330(a)(1).
If the taxpayer makes a timely request for a hearing, the hearing is
conducted by the Appeals Office. Id. subsec. (b)(1). At the hearing the taxpayer
8
Petitioner asserted at trial that petitioners do not pay estimated income tax
because “I never have and I don’t like the process”.
11
may raise any relevant issue relating to the unpaid tax or the proposed collection
action. Id. subsec. (c)(2)(A).
Following a CDP hearing the settlement officer must determine whether to
sustain the proposed levy. In making that determination, section 6330(c)(3)
requires the settlement officer to consider: (1) whether the requirements of any
applicable law or administrative procedure have been met; (2) any issues
appropriately raised by the taxpayer; and (3) whether the collection actions
balance the need for the efficient collection of taxes and the legitimate concern of
the taxpayer that any collection action be no more intrusive than necessary. See
also Lunsford v. Commissioner, 117 T.C. 183, 184 (2001); Diamond v.
Commissioner, 2012 WL 1021284, at *2.
This Court has jurisdiction under section 6330(d) to review the
Commissioner’s administrative determinations. Where the underlying tax liability
is not at issue we review the determination for abuse of discretion. Sego v.
Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,
181-182 (2000). 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).
12
Where the underlying tax liability is properly at issue we review the
determination de novo. Sego v. Commissioner, 114 T.C. 610; Goza v.
Commissioner, 114 T.C. 181-182. We need not decide the standard of review
in this case since we sustain respondent’s determination under either standard of
review.9 See Estate of Adell v. Commissioner, T.C. Memo. 2014-89, at *11;
Golub v. Commissioner, T.C. Memo. 2013-196, at *7.
II. Petitioners’ 2006 Assessed Tax
An assessed tax may be collected by levy or by a proceeding in court if the
levy is made or the proceeding began within 10 years after the date of assessment.
Sec. 6502(a)(1). If a timely proceeding is commenced in court, the period during
which such tax may be collected by levy shall not expire until the liability for the
tax is satisfied or becomes unenforceable. Id. subsec. (a). Petitioners’ 2006 tax
9
See Freije v. Commissioner, 125 T.C. 14, 23, 26-27 (2005) (applying abuse
of discretion standard where taxpayer in CDP case challenged IRS’ failure to
credit overpayments). Compare Landry v. Commissioner, 116 T.C. 60, 62 (2001)
(applying de novo standard where taxpayer challenged application of overpayment
credits, reasoning that “the validity of the underlying tax liability, i.e., the amount
unpaid after application of credits to which petitioner is entitled * * * [was]
properly at issue”), with Kovacevich v. Commissioner, T.C. Memo. 2009-160,
2009 WL 1916351, at *6 & n.10 (applying abuse of discretion standard where
taxpayer challenged application of tax payments, reasoning that “questions about
whether a particular check was properly credited to a particular taxpayer’s account
for a particular tax year are not challenges to his underlying tax liability”), and
Orian v. Commissioner, T.C. Memo. 2010-234, 2010 WL 4205704, at *6 (same).
13
was assessed on November 26, 2007, and therefore the period of limitations to
collect by levy or court proceeding had not expired at the time of the Notice of
Intent to Levy dated March 6, 2015. Thus, SO Smith’s decision to sustain the levy
for 2006, which was commenced within the prescribed period, had a sound basis
in law. See id.; see also Woodral v. Commissioner, 112 T.C. 23.
Respondent provided copies of the notice of balance due for 2006 and
petitioners’ account transcript for 2006. Both documents reflect that petitioners
had not made any payments for 2006. Petitioners assert that petitioner paid their
2006 assessed tax in person at the Santa Rosa office in either late 2007 or 2008
after they received the notice of balance due for 2006. Petitioners demonstrated a
pattern of filing their Federal income tax returns without remittance and later
paying their assessed tax for 2004, 2005, and 2007 through 2015, usually after
they had received a notice of balance due. But petitioners did not provide any
evidence of this payment (outside of petitioner’s testimony) to refute respondent’s
records, such as a receipt or a canceled check. Because petitioners did not provide
sufficient evidence to support their assertion that the 2006 tax was paid, and the
IRS’ records reflect that the tax was not paid, SO Smith did not make a decision
arbitrarily, capriciously, or without sound basis in fact or law. Thus, she did not
abuse her discretion. See Woodral v. Commissioner, 112 T.C. 23.
14
Further, SO Smith properly verified that the requirements of all applicable
law and administrative procedure were met in the processing of petitioners’ case
and that the proposed levy action balances the Government’s interest in the
efficient collection of tax with petitioners’ concern that the collection action be no
more intrusive than necessary. See sec. 6330(c)(3); see also Lunsford v.
Commissioner, 117 T.C. 184; Diamond v. Commissioner, 2012 WL 1021284, at
*2.
Even if we were to apply the de novo standard of review, we find that
petitioners did not prove that they paid their 2006 tax. In general, the
Commissioner’s determination is presumed correct, and the taxpayer bears the
burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). In the absence of corroborating evidence, the Court is not required to
accept a taxpayer’s self-serving testimony. Tokarski v. Commissioner, 87 T.C. 74,
77 (1986).
Petitioners have not provided sufficient evidence that they paid their 2006
tax. Petitioners assert in their petition that because their bank, Sonoma Valley
Bank, was closed by the FDIC in 2010, there are no bank records available to
show the 2006 payment. Additionally, the parties stipulated a copy of the 2013
15
check payable to Integrity Shred, which petitioners assert was hired to have the
record of payment for their 2006 tax shredded.10
Petitioners did not provide documentation or other evidence outside of
petitioner’s testimony. Further, there is nothing in the record suggesting that
respondent’s records reflecting no payment are incorrect. See id. For these
reasons, we hold that petitioners have not met their burden of proving that they
paid their assessed tax for 2006. See Rule 142(a); Welch v. Helvering, 290 U.S. at
115; Tokarski v. Commissioner, 87 T.C. 77.
10
We note that respondent did not object to the admission of evidence that is
not in the administrative record, but we discuss its consideration for completeness.
There is a circuit split as to whether review of CDP cases is limited to the evidence
in the administrative record. The U.S. Court of Appeals for the Eighth Circuit has
held that the trial court should not consider evidence outside the administrative
record in CDP cases. Robinette v. Commissioner, 439 F.3d 455, 462 (8th Cir.
2006), rev’g123 T.C. 85 (2004). The Court of Appeals for the Ninth and First
Circuits agree. See Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009),
aff’g in part as to this issue T.C. Memo. 2006-166; Murphy v. Commissioner, 469
F.3d 27, 31 (1st Cir. 2006), aff’g 125 T.C. 301 (2005). The Court of Appeals for
the Seventh and Third Circuits have declined to decide the issue. See Gyorgy v.
Commissioner, 779 F.3d 466, 473 n.5 (7th Cir. 2015); Tuka v. Commissioner, 324
F. App’x 193, 195 n.2 (3d Cir. 2006). The Court of Appeals for the Tenth Circuit
has not specifically addressed this issue. See Jewell v. Commissioner, T.C.
Memo. 2016-239, at *4. We apply the scope of review mandated in the Ninth
Circuit, in which an appeal in this case would lie but for sec. 7463(b). See Golsen
v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).
However, even if we were to consider the additional evidence submitted and not
objected to by respondent, our conclusion that petitioners failed in their burden of
proof would not differ.
16
III. Additions to Tax
Since we sustain respondent’s determination under either standard of
review, we will also discuss the imposition of additions to tax under the de novo
standard of review.
A. Section 6651(a)(2) Addition to Tax
Section 6651(a)(2) imposes an addition to tax for failure to pay the amount
shown as tax on the taxpayer’s return on or before the date prescribed. The
section 6651(a)(2) addition to tax applies only when an amount of tax is shown on
a return filed by the taxpayer or prepared by the Secretary. Sec. 6651(a)(2), (g)(2);
Cabirac v. Commissioner, 120 T.C. 163, 170 (2003), aff’d without published
opinion, 2004 WL 7318960 (3d Cir. 2004).
Section 7491(c) provides that the Commissioner has the burden of
production in any court proceeding with respect to liability for an addition to tax.
The Commissioner satisfies this burden of production by coming forward with
sufficient evidence that indicates that imposing the addition to tax is appropriate.
See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The Commissioner
meets the burden of production for an addition to tax under section 6651(a)(2) by
providing sufficient evidence that the taxpayer filed a return showing his tax
liability for the year at issue. Wheeler v. Commissioner, 127 T.C. 200, 210
17
(2006), aff’d, 521 F.3d 1289 (10th Cir. 2008); Glover v. Commissioner, T.C.
Memo. 2010-228, 2010 WL 4120987, at *4. Respondent met this burden by
providing a copy of petitioners’ 2006 Form 1040 as filed reflecting a balance due.
See sec. 6651(a)(2); Wheeler v. Commissioner, 127 T.C. 210; Higbee v.
Commissioner, 116 T.C. 446; Glover v. Commissioner, 2010 WL 4120987, at
*4.
Reasonable cause and the absence of “willful neglect” is a defense to the
section 6651(a)(1) and (2) additions to tax. “[W]illful neglect” means a
“conscious, intentional failure or reckless indifference.” United States v. Boyle,
469 U.S. 241, 245 (1985). “The determination of whether reasonable cause exists
is based on all the facts and circumstances.” Ruggeri v. Commissioner, T.C.
Memo. 2008-300, 2008 WL 5411919, at *2.
A taxpayer meets the reasonable cause exception if he demonstrates that he
“exercised ordinary business care and prudence” in trying to pay his tax and either
could not pay or would suffer “undue hardship” if he paid his tax when due. Sec.
301.6651-1(c)(1), Proced. & Admin. Regs. This determination is factual, and the
burden of proof is on the taxpayer. Merriam v. Commissioner, T.C. Memo. 1995-
432, 1995 WL 522813, at *11, aff’d without published opinion, 107 F.3d 877 (9th
Cir. 1997). “Undue hardship” must be more than an “inconvenience” to the
18
taxpayer; it requires that he had the “risk of a substantial financial loss resulting
from making the tax payment on time.” Id. 1995 WL 522813, at *13; sec. 1.6161-
1(b), Income Tax Regs.
Petitioners filed a Form 1040 for 2006 reflecting tax due and admit that they
did not send in estimated tax payments, nor did they remit payment with their
return. Thus, the addition to tax will be upheld unless petitioners can show
reasonable cause for this failure to timely pay their 2006 tax. See sec. 6651(a)(2),
(g)(2); Cabirac v. Commissioner, 120 T.C. 170.
Petitioner asserted at trial that he does not make estimated tax payments
because of his dislike of the process, and petitioners usually do not pay their tax
for a given year until after they receive a notice of balance due. Petitioners’
failure to make estimated tax payments because petitioner dislikes the process is
not an exercise of ordinary business care and prudence in complying with the
requirement to pay their tax due on or before the due date for their return; instead
this conscious failure is willful neglect. See Boyle, 469 U.S. at 246. Further,
petitioners have not asserted that they could not pay their tax or would suffer
undue hardship if they paid their income tax at the time of filing their 2006 return.
See Ruggeri v. Commissioner, 2008 WL 5411919, at *2; Merriam v.
Commissioner, 1995 WL 522813, at *11; sec. 1.6161-1(b), Income Tax Regs.; sec.
19
301.6651-1(c)(1), Proced. & Admin. Regs. Thus, petitioners have not shown
reasonable cause and do not have a valid defense against the section 6651(a)(2)
addition to tax.
B. Section 6654(a) Addition to Tax
Section 6654(a) imposes an addition to tax on a taxpayer who underpays his
estimated income tax unless an exception applies. See sec. 6654(e). The section
6654(a) addition to tax is determined by applying the underpayment rate
established under section 6621 to the amount of the underpayment11 for the period
of the underpayment.12
If the taxpayer challenges the section 6654(a) addition to tax, the
Commissioner must introduce evidence to prove that the taxpayer had an
obligation to make estimated tax payments for the year at issue, by showing
whether the taxpayer filed a return for the prior year and if so, the amount of tax
shown on that return. Secs. 6654(d)(1)(B), 7491(c); Wheeler v. Commissioner,
11
“[A]mount of the underpayment” means the excess of the required
installment over the amount, if any, of the installment paid on or before the due
date for the installment. Sec. 6654(b)(1).
12
The period of the underpayment runs from the due date for the installment
to the earlier of the 15th day of the 4th month following the close of the taxable
year or with respect to any portion of the underpayment, the date on which such
portion is paid. Sec. 6654(b)(2).
20
127 T.C. 212. But if the taxpayer does not challenge an addition to tax by
assigning error to it, the Commissioner need not plead the addition to tax and has
no obligation under section 7491(c) to produce evidence that the addition to tax is
appropriate. See Rule 34(b)(4); Swain v. Commissioner, 118 T.C. 358, 365
(2002). Petitioners did not challenge the addition to tax and admit that they did
not make estimated tax payments for 2006. Therefore, the addition to tax is
appropriate unless an exception applies.13 See Rule 34(b)(4); Swain v.
Commissioner, 118 T.C. 365.
This addition to tax under section 6654 is mandatory unless the taxpayer
can place himself under one of the computational exceptions provided in that
section. Grosshandler v. Commissioner, 75 T.C. 1, 21 (1980); Estate of Ruben v.
Commissioner, 33 T.C. 1071, 1072 (1960). Section 6654(e) provides two
mechanical exceptions to the applicability of the section 6654 addition to tax.14
First, the addition is not applicable if the tax shown on the taxpayer’s return for
13
If petitioners had challenged the sec. 6654(a) addition to tax, respondent
met the burden of production because he provided a certified copy of petitioners’
2005 account transcript reflecting that they had an obligation to make estimated
tax payments for 2006. See sec. 6654(a), (d)(1); Wheeler v. Commissioner, 127
T.C. 200, 212 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).
14
Sec. 6654(e)(3) provides for limited situations in which the Secretary can
waive the addition to tax, none of which is applicable here.
21
the year in question (or, if no return is filed, the taxpayer’s tax for that year),
reduced by any allowable credit for wage withholding, is less than $1,000. Sec.
6654(e)(1). Second, the addition to tax is not applicable if the taxpayer’s tax
liability for the preceding taxable year was zero. Sec. 6654(e)(2).
On the basis of the record, neither of these mechanical exceptions applies.
Thus, petitioners are liable for the section 6654 addition to tax. See sec. 6654(a),
(e); Grosshandler v. Commissioner, 75 T.C. 21; Estate of Ruben v.
Commissioner, 33 T.C. 1072.
IV. Estoppel
Petitioners assert that the Court should apply equitable estoppel against
respondent because of their reliance on the IRS’ advisory regarding retention of
tax records and respondent’s delay in attempts to collect the 2006 liability.
Petitioners assert that they relied on the IRS’ advisory and destroyed their tax and
payment records for 2006 and thus no longer have records to prove that they paid
the tax.
Equitable estoppel is a judicial doctrine that requires finding a party relied
on another party’s representations and suffered a detriment because of that
reliance. Hofstetter v. Commissioner, 98 T.C. 695, 700 (1992). Equitable
estoppel is applied against the Commissioner “with utmost caution and restraint”
22
and “such situations must necessarily be rare, for the policy in favor of an efficient
collection of the public revenue outweighs the policy of the estoppel doctrine in its
usual and customary context.” Schuster v. Commissioner, 312 F.2d 311, 317 (9th
Cir. 1962), aff’g in part, rev’g in part 32 T.C. 998 (1959); see also Kronish v.
Commissioner, 90 T.C. 684, 695 (1988); Estate of Emerson v. Commissioner, 67
T.C. 612, 617 (1977).
In order to invoke the doctrine of equitable estoppel against the
Commissioner, a taxpayer must satisfy all the traditional elements of an equitable
estoppel claim: (1) the Government knew the facts of the taxpayer’s situation; (2)
the Government intended that its conduct be acted on or acted so that the taxpayer
had a right to believe it was so intended; (3) the taxpayer was ignorant of the facts;
and (4) the taxpayer relied on the Government’s conduct to his injury. Baccei v.
United States, 632 F.3d 1140, 1147 (9th Cir. 2011).
In addition to the traditional elements of equitable estoppel, the Court of
Appeals for the Ninth Circuit requires that the party seeking to apply the doctrine
against the Government prove affirmative misconduct. Id.; see also Purcell v.
United States, 1 F.3d 932, 939 (9th Cir. 1993). Affirmative misconduct by the
Government must go beyond mere negligence and requires an affirmative
misrepresentation or affirmative concealment of a material fact, such as “a
23
deliberate lie or a pattern of false promises.” Baccei, 632 F.3d at 1147; Purcell, 1
F.3d at 939. Affirmative misconduct is a threshold issue to be decided before
determining whether the traditional elements of equitable estoppel are present.
Purcell, 1 F.3d at 939.
Petitioners assert that they relied on the IRS’ advisory regarding retention of
tax records when they decided to shred their payment record for 2006. Petitioners
have not asserted nor provided evidence that respondent engaged in affirmative
misconduct, such as deliberate lies or making false promises. See Baccei, 632
F.3d at 1147; Purcell, 1 F.3d at 939. Because petitioners did not establish
affirmative misconduct, we do not address whether the traditional elements of
equitable estoppel are present. See Purcell, 1 F.3d at 939. Accordingly,
respondent is not estopped from sustaining the proposed levy against petitioners.
We do not condone respondent’s failure to pursue collection action between
November 2007 and August 2014. Congress has made clear by statute that the
IRS has 10 years from the date of assessment to collect a tax, and this collection is
within that timeframe. Sec. 6502(a)(1). However, respondent did not provide any
24
explanation for the failure to pursue collection during this intervening time.
Without doubt this delay has created certain hardships for petitioners.15
We have considered all of the parties’ arguments, and, to the extent not
addressed herein, we conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered for
respondent.
15
We further note that petitioners have not sought other remedies in this
proceeding such as abatement of interest.