DocketNumber: Docket No. 1288-12L.
Citation Numbers: 2016 T.C. Memo. 24, 110 T.C.M. 1099, 111 T.C.M. 1099, 2016 Tax Ct. Memo LEXIS 24
Judges: BUCH
Filed Date: 2/16/2016
Status: Non-Precedential
Modified Date: 4/18/2021
Decision will be entered for respondent.
BUCH,
This case was submitted without trial under
Charles R. Mangum was a limited partner in Dillon Oil Technology Partners. The Dillon Oil partnership was created ostensibly to invest in enhanced oil recovery technology used to recover oil and natural gas.4 Dillon Oil was subject to the partnership audit and litigation procedures found at
Mr. Mangum's flowthrough loss from Dillon Oil was $98,858 for 1983. He and his wife, Marilyn, filed a joint Form 1040, U.S. Individual Income Tax Return, and reported that loss on their Schedule E, Supplemental Income and Loss.
The liability the Mangums are challenging was determined as a result of a proceeding involving Dillon Oil. The IRS examined Dillon Oil's 1983 return and issued a notice of final partnership administrative adjustment for the 1983 partnership taxable year. The IRS principally disallowed over $17 million of Dillon Oil's deductions. A petition was filed with respect to Dillon Oil and several other similarly situated partnerships, and the case was captioned
Congress enacted tax-motivated transaction interest under
*29 We eventually dismissed Dillon Oil's case for lack of prosecution. The decision entered on June 13, 2002, however, is silent on whether
By letter dated February 7, 2003, the IRS notified the Mangums that they owed additional tax and interest for 1983 because of the Dillon Oil partnership-level decision. The IRS included with this letter a Form 4549A-CG, Income Tax Examination Changes, which explained that the Mangums' income would be adjusted by $98,858 because of the Dillon Oil decision. This adjustment resulted in a tax increase of $47,554. The total amount due for 1983 was $364,870.99, consisting of $47,554 of tax, $215,666.93 in statutory interest pursuant to
On May 26, 2003, the IRS assessed and billed the Mangums $358,297.60 for tax year 1983 because of the Dillon Oil proceeding, which included $47,554 in tax, $310,755.01 in interest, and an $11.41 credit to adjust a previously imposed late payment penalty. This notice stated a lower balance due than the February 7 letter, and this lower amount is consistent with the IRS' assessment listed on Form *30 4340, Certificate of Assessments, Payments, and Other Specified Matters, for tax year 1983.
On November 25, 2003, the Mangums submitted an offer-in-compromise challenging their liability for the
The IRS rejected the Mangums' offer-in-compromise in October 2004 because the Court in
On November 24, 2004, the Mangums appealed the IRS' decision to reject their offer-in-compromise. The assigned Appeals officer notified the Mangums' attorney that she was waiting for the IRS Office of Chief Counsel to advise her on the
Ultimately, the Appeals officer sustained the rejection of the Mangums' offer-in-compromise. The Appeals officer left a message with the Mangums' attorney that she would be sustaining the rejection of the Mangums' offer. The Appeals officer then spoke with the Mangums' attorney by phone on February 28, 2007, explaining that she would sustain the rejection of the Mangums' offer. That same day, the Mangums' attorney faxed the Appeals officer a copy of a notice of intent to levy issued for 1983 that the Mangums had recently received, stating that *32 her "help to get this stayed until the offer is officially rejected would be greatly appreciated." The Appeals officer ultimately sustained*31 the rejection of the offer.
Later in 2007 Mrs. Mangum passed away, and Mr. Mangum was appointed executor of her estate.
The IRS sent the Mangums a Final Notice of Intent to Levy and Notice of Your Right to a Hearing dated January 14, 2010. This notice was for tax year 1983 and showed a $90,913.17 balance due, as well as a late payment penalty of $2,689.33.
The Mangums submitted a Form 12153, Request for a Collection Due Process or Equivalent Hearing, marking "Offer in Compromise" as a collection alternative, which the IRS received on February 8, 2010. In it they argued that "[n]umerous courts have held that IRS imposition of the
By letter dated May 24, 2010, the IRS rejected the Mangums' collection due process or equivalent hearing request. The IRS explained that the Mangums' request was not timely because their Form 12153 was received more than one year *33 after the IRS sent a notice of intent to levy to the Mangums on October 8, 2003. However, the IRS' administrative file for the Mangums*32 does not contain any information from certified mail lists for any mailings between May 2002 and October 2007.
The IRS sent Mr. Mangum a Form 8519, Taxpayer's Copy of Notice of Levy, that was dated July 1, 2010, and explained that the IRS had levied on his Wells Fargo bank account. The Mangums requested a stay on activity because the IRS has not issued a formal notice of determination. Neither this notice nor any that the IRS issued to the Mangums as of July 1, 2010, are before the Court.
The IRS sent the Mangums a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under
On November 3, 2010, the Mangums submitted a new Form 12153, marking "Offer in Compromise" as a collection alternative. The Mangums again challenged the
A settlement officer who had had no prior involvement with the unpaid liability at issue was assigned the case. He determined that the Mangums could *34 not challenge the underlying liability attributable to the
On December 15, 2011, the IRS sent the Mangums a notice of determination sustaining the lien for tax year 1983. The IRS explained in this determination letter that the Mangums could not challenge the
The parties moved to submit the case fully stipulated under
This case comes before us on a petition for review of the IRS' determination sustaining the lien for the 1983 tax year. The Mangums assert that the underlying liability attributable to the
The IRS assessed
The Secretary must notify taxpayers in writing of their right to request a hearing upon the filing of a notice of lien.21 These hearings are often called collection due process, or CDP, hearings.22 In a CDP hearing taxpayers may raise any issue that is relevant to an unpaid tax or a collection action, including *37 appropriate spousal defenses, challenges to*36 the appropriateness of collection actions, and offers of collection alternatives.23
Taxpayers may challenge the existence or amount of the underlying tax liability in their CDP hearing if they did not receive a statutory notice of deficiency or did not otherwise have the opportunity to dispute the liability.24 While the term "underlying liability" is not defined in Q-E2. When is a taxpayer entitled to challenge the existence or amount of the tax liability specified in the CDP Notice? A-E2. A taxpayer is entitled to challenge the existence or amount of the underlying liability for any tax period specified on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such liability. Receipt of a statutory notice*37 of deficiency for this purpose means receipt in time to petition the Tax Court for a redetermination of the deficiency determined in the notice of deficiency. An opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability. An opportunity for a conference with Appeals prior to the assessment of a tax subject to deficiency procedures is not a prior opportunity for this purpose.
*39 The record in this case is clear that the Mangums had a prior opportunity to challenge their underlying liability.*38 No one disputes that the Mangums had prior consideration of their arguments related to their underlying tax liability in Appeals before their CDP hearing requests. As a result, we are precluded from considering the issues they raise.
Because the Mangums had a prior opportunity with Appeals to challenge their underlying liability, they are statutorily barred from challenging the existence or amount of that liability in this proceeding.28 Currently the Mangums' only forum to challenge their tax would be to pay the underlying liability and sue for a refund.29
Because the validity of the underlying liability is not properly at issue, we review the IRS' determination for abuse of discretion.30 An abuse of discretion will be found where the determination was "arbitrary, capricious, or without sound basis in fact or law."31
The IRS must take into consideration: (1) the verification that the requirements of any applicable law or administrative procedure have been met; (2) issues raised by the taxpayer; and (3) whether any proposed collection action balances the need for efficient collection with the legitimate concern of the taxpayer*39 that any collection action be no more intrusive than necessary.32 The settlement officer properly based his determination on these factors.
First, the settlement officer verified that the requirements of applicable law and administrative procedure were met. The Federal Government obtains a lien against "all property and rights to property, whether real or personal" of any *41 person liable for Federal taxes upon demand for payment and failure to pay.33 The Secretary has the discretion to withdraw the notice of lien if certain circumstances are present, such as the filing of the notice was premature, the taxpayer entered into an agreement to satisfy the liability, withdrawal would facilitate collection, or with the consent of the National Taxpayer Advocate, withdrawal would be in the best interests of the taxpayer.34 The settlement officer determined that none of the permissive circumstances for lien notice withdrawal were present. He further determined that the IRS had sent the Mangums a bill for the 1983 tax that had not been fully paid. Finally, although he determined that the assessment date listed on the notice of Federal tax lien was incorrect, he explained that this was a "non-fatal procedural*40 error that * * * [would] be corrected with the filing of an amended tax lien." The IRS filed an amended tax lien notice and notified Mr. Mangum.35 Further, the original notice of Federal tax lien, albeit with *42 an incorrect assessment date, was sufficient to give the Mangums notice as required under
Second, the settlement officer considered the only issue raised by the Mangums. The Mangums submitted an offer-in-compromise as a collection alternative, arguing that the portion of their liability attributable to the
Third, the settlement officer determined that upholding the lien balanced the Government's need for efficient collection of tax with the Mangums' concerns that the collection action be no more intrusive than necessary.
*43 Accordingly, the settlement officer did not abuse his discretion when he sustained the lien.
The Mangums had a prior opportunity to challenge the underlying liability attributable to the
To reflect the foregoing,
1. Omnibus Budget Reconciliation Act of 1989 (OBRA),
Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Mrs. Mangum died during this dispute with the IRS. In this case, her estate appears through her husband as executor. For convenience, we will refer to Mr. Mangum and his late wife or her estate collectively as "the Mangums".↩
3.
4.
5. TEFRA is short for the Tax Equity and Fiscal Responsibility Act of 1982,
6.
7.
8.
9.
10.
11. Deficit Reduction Act of 1984,
12. OBRA
13.
14.
15.
16. The IRS also argues that the Mangums are barred from challenging the underlying liability because they had a prior opportunity to participate in the partnership-level proceeding under
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
Security State Bank v. Commissioner , 214 F.3d 1254 ( 2000 )
ra-hildebrand-and-dorothy-a-hildebrand-wahl-v-commissioner-of-internal , 28 F.3d 1024 ( 1994 )
Copeland v. Commissioner , 290 F.3d 326 ( 2002 )
Katz v. Commissioner , 115 T.C. 329 ( 2000 )
Sanderling, Inc. v. Commissioner of Internal Revenue , 571 F.2d 174 ( 1978 )
John A. Sage v. United States , 908 F.2d 18 ( 1990 )
Sego v. Commissioner , 114 T.C. 604 ( 2000 )
Goza v. Commissioner , 114 T.C. 176 ( 2000 )
Lewis v. Comm'r , 128 T.C. 48 ( 2007 )