Reynolds v. Comm'r ( 2006 )

T.C. Memo. 2006-192
UNITED STATES TAX COURT
WOODROW REYNOLDS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17810-04L. Filed September 11, 2006.
P filed a petition for judicial review pursuant to
sec. 6330, I.R.C., in response to a determination by R
that levy action is appropriate.
Held: Because P has advanced only frivolous
arguments, R’s determination to proceed with collection
action is sustained.
Held, further, a penalty pursuant to sec. 6673(a),
I.R.C., is due from P and is awarded to the United
States in the amount of $1,500.
Woodrow Reynolds, pro se.
Timothy S. Murphy, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case is before the Court on a petition
for judicial review of a Notice of Determination Concerning
Collection Action(s) Under Section 6320 and/or 6330. The issues
for decision are: (1) Whether respondent may proceed with
collection action as so determined; and (2) whether the Court
should sua sponte impose a penalty pursuant to section 6673(a).1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of the parties, with accompanying exhibits, are
incorporated herein by this reference. At the time this petition
was filed, petitioner resided in Muskegon, Michigan.
For the 1999 and 2000 taxable years, petitioner submitted to
the Internal Revenue Service (IRS) Forms 1040, U.S. Individual
Income Tax Return, that contained entirely zeros. On October 2,
2002, respondent issued to petitioner a notice of deficiency for
the 2000 taxable year showing a deficiency of $19,566 and a
penalty pursuant to section 6662(a) and (b)(1) of $3,913.20. On
November 27, 2002, respondent issued to petitioner a notice of
deficiency for the 1999 taxable year that showed a deficiency of
$14,611 and additions to tax pursuant to sections 6651(a)(1) and
6654(a) of $3,294.55 and $630.07, respectively. Petitioner,
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) of 1986, as amended.
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following his receipt of the October 2, 2002, notice of
deficiency sent a letter in December 2002, to Mr. Richard
Creamer, the director of the compliance center that issued such
notices, requesting documentation of the Secretary’s delegation
to Mr. Creamer of authority to issue statutory notices of
deficiency. Petitioner did not receive a response and did not
file a petition contesting either of the determined tax
deficiencies with this Court.
On December 9, 2003, respondent mailed to petitioner a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing
for the 1999 and 2000 taxable years, reflecting a total unpaid
balance of $53,723.18. Petitioner timely submitted a Form 12153,
Request for a Collection Due Process Hearing, and attached a
lengthy letter threatening legal action against any revenue
officer or revenue agent who tries to collect tax from him and
containing tax-protester rhetoric, including such arguments as:
(1) There is no Code section that makes petitioner liable for
income taxes; (2) the IRS does not have the authority to change
the amount of taxes that a taxpayer claims to owe on a submitted
tax return; (3) an Appeals officer must present to a taxpayer
documentation from the Secretary verifying that any applicable
law and administrative procedure have been met; and (4)
petitioner did not receive a statutory notice and demand for
payment. Petitioner also demanded documentation proving that the
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Secretary delegated authority to various IRS directors and
employees involved in petitioner’s case.
Mr. Lawrence Phillips, the settlement officer assigned to
petitioner’s case, mailed petitioner a letter dated July 20,
2004, that advised petitioner on the procedures of a collection
hearing. The letter warned that “items that you mention in your
CDP request are items that: 1. Courts have determined are
frivolous or groundless, or 2. Appeals does not consider. These
are moral, religious, political, constitutional, conscientious,
or similar grounds.” Mr. Phillips further enclosed with the
letter copies of Forms 4340, Certificate of Assessments,
Payments, and Other Specified Matters, for 1999 and 2000.
The collection hearing was held via telephone on August 5,
2004. During the hearing petitioner again demanded documentation
and reiterated tax-protester rhetoric. Petitioner also
questioned Mr. Phillips as to why his hearing was being conducted
by a settlement officer and not an Appeals officer.
On August 18, 2004, respondent mailed to petitioner the
above-mentioned Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330 for the 1999 and 2000
taxable years. Petitioner timely filed a petition with this
Court for redetermination of the collection action. Therein, in
addition to contentions akin to those set forth in his Form
12153, petitioner argued: (1) Notices of Deficiency that are
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signed by the director of the service center and not the
Secretary are invalid; (2) he did not receive a proper collection
hearing because Mr. Phillips was a settlement officer, not an
Appeals officer; and (3) he was improperly precluded from raising
relevant issues that challenged the validity of the underlying
tax liabilities.
OPINION
I. Collection Action
A. General Rules
Pursuant to section 6331(a), if a taxpayer liable to pay
taxes fails to do so within 10 days after notice and demand for
payment, the Secretary is authorized to collect such tax by levy
upon the taxpayer’s property. The Secretary is obliged to
provide the taxpayer with 30 days’ advance notice of levy
collection and of the administrative appeals available to the
taxpayer. Sec. 6331(d). Upon a timely request a taxpayer is
entitled to a collection hearing before the IRS Office of
Appeals. Sec. 6330(b)(1).
At the collection hearing, the taxpayer may raise “any
relevant issue relating to the unpaid tax or the proposed levy,”
including appropriate spousal defenses, challenges to the
appropriateness of collection actions, and offers of collection
alternatives. Sec. 6330(c)(2)(A). The taxpayer may not contest
the validity of the underlying tax liability unless the taxpayer
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did not receive a notice of deficiency for such tax liability or
did not otherwise have an earlier opportunity to dispute such tax
liability. Sec. 6330(c)(2)(B). In rendering a determination,
the Appeals officer must take into consideration verification
that any applicable law and administrative procedure have been
met, relevant issues relating to the unpaid tax or proposed levy,
and “whether any proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern of
the person that any collection action be no more intrusive than
necessary.” Sec. 6330(c)(3).
The taxpayer is entitled to appeal the determination of the
Appeals Office made on or before October 16, 2006, to the Tax
Court or a U.S. District Court, depending on the type of tax at
issue. Sec. 6330(d).2 Where the validity of the underlying tax
liability is properly at issue, the Court will review the matter
de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.
Commissioner, 114 T.C. 176, 181-182 (2000). The Court reviews
any other administrative determination regarding the proposed
levy action for an abuse of discretion. Sego v. Commissioner,
supra at 610; Goza v. Commissioner, supra at 182.
2
Determinations made after Oct. 16, 2006, are appealable
only to the Tax Court. See Pension Protection Act of 2006, Pub.
L. 109-280, sec. 855, 120 Stat. 1019.
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B. Analysis
1. Appeals Hearing
Petitioner argues that he did not receive a proper
collection hearing because his hearing was conducted by a
settlement officer, not an Appeals officer. While section
6330(c) references “appeals officer”, the remainder of section
6330 and corresponding regulations more broadly use the terms
“officer” and “employee”. Section 6330(b)(3) provides that the
collection hearing shall be “conducted by an officer or employee
who has had no prior involvement with respect to the unpaid tax”.
The regulations further explain that “A CDP hearing will be
conducted by an employee or officer of Appeals who * * * has had
no involvement with respect to the tax for the tax periods to be
covered by the hearing”. Sec. 301.6330-1(d)(1), Proced. & Admin.
Regs. Accordingly, there is no requirement that the collection
hearing be conducted by an Appeals officer; the hearing need only
be conducted by an officer or employee of the Appeals Office,
which includes a settlement officer. Rohner v. United States, 91
AFTR 2d 2003-2135 (N.D. Ohio 2003).
2. Review of Underlying Liability
Petitioner claims that he received invalid notices of
deficiency and was improperly precluded from challenging the
underlying tax liabilities at the collection hearing. In
particular, petitioner contends that the notices of deficiency
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are invalid because they were signed by the compliance center
director of the Ogden Service Center instead of the Secretary and
there was no documentation delegating authority to such director.
It is well established that the Secretary or his delegates may
issue notices of deficiency. Secs. 6212(a), 7701(a)(11)(B) and
(12)(A)(i). A notice of deficiency prepared and issued by a
director is valid, and the director is not obligated to produce a
copy of the order delegating such authority from the Secretary.
Nestor v. Commissioner, 118 T.C. 162, 165-166 (2002); Secs.
301.6212-1(a), 301.7701-9(b), Proced. & Admin. Regs.
In addition, petitioner contends that the Secretary cannot
recalculate the amount of taxes he determined on his “zero”
returns. Petitioner’s submitting “zero” returns does not
preclude the Commissioner from determining petitioner’s tax
liability.
The Court is satisfied that petitioner received valid
notices of deficiency for the 1999 and 2000 taxable years and had
the opportunity to challenge the validity of the underlying tax
liabilities but failed to do so. Accordingly, petitioner was
properly precluded from contesting the validity of the underlying
tax liabilities at the collection hearing.
C. Review for Abuse of Discretion
Given the foregoing, the notice of determination at issue is
subject to review for abuse of discretion because the existence
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or amounts of petitioner’s underlying tax liabilities is not
properly at issue. An abuse of discretion has occurred if the
“Commissioner exercised * * * [his] discretion arbitrarily,
capriciously, or without sound basis in fact or law.” Woodral v.
Commissioner, 112 T.C. 19, 23 (1999).
Petitioner alleges he did not receive a statutory notice and
demand for payment. Section 6303(a) provides that “the Secretary
shall, as soon as practicable, and within 60 days, after the
making of an assessment of a tax pursuant to section 6203, give
notice to each person liable for the unpaid tax, stating the
amount and demanding payment thereof.” If the notice is mailed,
it shall be sent to the taxpayer’s last known address. Sec.
6303(a). A notice of balance due constitutes a notice and demand
for payment for purposes of section 6303(a). Craig v.
Commissioner, 119 T.C. 252, 262-263 (2002). Forms 4340 show that
respondent promptly sent petitioner notices of balance due for
both 1999 and 2000.
Petitioner also contends that the Appeals officer must
present to the taxpayer documentation from the Secretary
verifying that any applicable law and administrative procedure
have been met. Section 6330(c)(1) provides that the Appeals
officer “shall at the hearing obtain verification from the
Secretary that the requirements of any applicable law or
administrative procedure have been met.” However, section
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6330(c)(1) only requires that the officer obtain such
verification before making a determination; it does not require
the officer to present a copy of the verification to the
taxpayer. Nestor v. Commissioner, supra at 166-167. Nor does
section 6330(c)(1) require the officer to rely on a particular
document to satisfy the verification requirement imposed by that
section. Craig v. Commissioner, supra at 261-262. The officer
may rely on a Form 4340 to make such a verification because it
“provides at least presumptive evidence that a tax has been
validly assessed”. Davis v. Commissioner, 115 T.C. 35, 40
(2000). Petitioner actually received copies of the relevant
Forms 4340 and has made no showing that would tend to call into
question the accuracy of the information reported thereon. No
abuse of discretion was committed with respect to the
verification requirement.
Petitioner did not show that there was any irregularity in
the assessment procedure that would raise a question about the
validity of the assessments. Respondent noted verification in
the notice of determination that all requirements of applicable
law and administrative procedure had been met and that respondent
had properly balanced the need for efficient collection against
any legitimate concerns of intrusiveness raised by petitioner.
Petitioner has not presented any evidence or persuasive arguments
that respondent abused his discretion but instead has repeatedly
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raised frivolous tax protester arguments. Hence, the Court
concludes that respondent’s determination to proceed with
collection of petitioner’s tax liabilities was not an abuse of
discretion, and respondent may proceed with the proposed
collection.
II. Section 6673 Penalty
Section 6673(a)(1) authorizes the Tax Court to impose a
penalty not in excess of $25,000 on a taxpayer for proceedings
instituted primarily for delay or in which the taxpayer’s
position is frivolous or groundless. “A petition to the Tax
Court, or a tax return, is frivolous if it is contrary to
established law and unsupported by a reasoned, colorable argument
for change in the law.” Coleman v. Commissioner, 791 F.2d 68, 71
(7th Cir. 1986).
Respondent warned petitioner about the section 6673(a)(1)
penalty in the notice of determination, and the Court warned
petitioner at trial that he may be subject to such a penalty if
he continued to raise frivolous arguments. Although respondent
has not asked the Court to impose a penalty pursuant to section
6673(a)(1), the Court may sua sponte impose such a penalty
against a taxpayer. Pierson v. Commissioner, 115 T.C. 576, 580-
581 (2000). The Court is convinced that petitioner’s position is
frivolous and made for delay because it is based on tax-protester
rhetoric, which has been rejected by this Court and many others.
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See Roberts v. Commissioner, 118 T.C. 365 (2002), affd. 329 F.3d
1224 (11th Cir. 2003); Lunsford v. Commissioner, 117 T.C. 183
(2001); Goza v. Commissioner, 114 T.C. 176 (2000); Keenan v.
Commissioner, T.C. Memo. 2006-45; Frey v. Commissioner, T.C.
Memo. 2004-87. Therefore, the Court concludes that a penalty of
$1,500 should be imposed on petitioner.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
An appropriate decision will
be entered.