Letantia Bussell and Estate of John Bussell, Letantia Bussell, Surviving Spouse v. Commissioner

130 T.C. No. 13UNITED STATES TAX COURT
LETANTIA BUSSELL AND ESTATE OF JOHN BUSSELL, DECEASED,
LETANTIA BUSSELL, SURVIVING SPOUSE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5766-04L. Filed May 29, 2008.
R assessed income tax deficiencies, additions to
tax, penalties, and interest against PW and her husband
(H) for 1983, 1984, 1986, and 1987 (Ps’ unpaid tax
liabilities). In 1994 R filed notices of Federal tax
lien in California and Utah with regard to Ps’ unpaid
tax liabilities. In early 1995 PW and H filed a
bankruptcy petition under ch. 7 of the Bankruptcy Code.
The bankruptcy court issued a discharge order in the
bankruptcy case later that year.
In 2000 PW and H were indicted and charged with
various violations associated with bankruptcy fraud.
In February 2002 H died, and no verdict was returned as
to him. PW was convicted of, among other crimes,
attempted evasion of payment of Ps’ unpaid tax
liabilities in violation of sec. 7201, I.R.C.
In April 2002 R determined that (1) Ps’ unpaid tax
liabilities were excepted from discharge in bankruptcy
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because PW was convicted of attempted evasion of
payment of Ps’ unpaid tax liabilities, and (2)
collection of Ps’ unpaid tax liabilities would be
jeopardized by delay. R served jeopardy levies and
collected amounts that were applied to Ps’ unpaid tax
liabilities. R subsequently issued to Ps a notice of
the jeopardy levies pursuant to secs. 6330 and 7429,
I.R.C. Ps requested and received an Appeals Office
hearing under sec. 6330, I.R.C. In March 2004 R sent
Ps a notice of determination upholding the decision to
proceed with the jeopardy levies. Ps timely petitioned
this Court to review R’s determination.
Held: R did not abuse his discretion in
determining that (1) Ps’ unpaid tax liabilities were
excepted from discharge in bankruptcy by reason of PW’s
conviction for attempted evasion of payment of Ps’
unpaid tax liabilities and that (2) it was appropriate
to proceed with collection by serving the jeopardy
levies in dispute.
Held, further, although Ps received a discharge
and were relieved of personal (in personam) liability
for the penalties and related interest that R assessed
for the years in issue, the liens that R filed before
Ps filed for bankruptcy attached to certain of Ps’
assets, survived the bankruptcy proceeding, and enabled
R to collect the penalties and interest by an action
against Ps in rem.
Held, further, R complied with sec. 6331(a),
I.R.C., by providing Ps with notice and demand for
payment of their unpaid tax liabilities for the years
in issue before proceeding with collection by serving
the jeopardy levies in dispute.
Letantia Bussell, pro se.
Ronald S. Chun, for respondent.
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MARVEL, Judge: Petitioners1 invoked the Court’s
jurisdiction pursuant to section 6330(d)2 to review respondent’s
determination that it was appropriate to collect petitioners’
unpaid tax liabilities for 1983, 1984, 1986, and 1987 (sometimes
referred to as the years in issue) by serving jeopardy levies.
As explained in detail below, we shall sustain respondent’s
determination.
FINDINGS OF FACT
Some of the facts have been stipulated. We incorporate the
stipulated facts into our findings by this reference. Petitioner
Letantia Bussell (petitioner) resided in California when the
petition was filed.
Petitioner was married to John Bussell (Mr. Bussell)
(collectively the Bussells) from 1972 until his death in 2002.
Petitioner is a licensed physician with a specialty in
dermatology. Since 1979 she has maintained a dermatology
practice in Beverly Hills, California. From 1981 through
1
References to petitioners are to Letantia Bussell and the
Estate of John Bussell.
2
Unless indicated otherwise, all section references are to
the Internal Revenue Code in effect at all relevant times, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. References to sections and chapters of the Bankruptcy
Code are to tit. 11 of the United States Code after the effective
date of amendments made thereto by the Bankruptcy Reform Act of
1994, Pub. L. 103-394, 108 Stat. 4106, that were effective for
bankruptcies filed on and after Oct. 22, 1994. Id. sec. 702, 108
Stat. 4150.
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approximately 1995 petitioner conducted her medical practice
through various corporations including Letantia Bussell MD Inc.
Mr. Bussell was a licensed physician specializing in
anesthesiology until he became disabled in September 1992.
I. Assessments for 1983, 1984, 1986, and 1987
The Bussells filed joint Forms 1040, U.S. Individual Income
Tax Return, for 1983, 1984, 1986, and 1987. Respondent
subsequently examined those tax returns and, pursuant to
deficiency procedures and other means, entered substantial
assessments of Federal income tax, additions to tax, penalties,
and interest for each year. The validity of these assessments is
not in issue.3
3
Although the validity of the assessments is not in issue,
the Court has discovered an anomaly with regard to certain
assessments for 1986 and 1987. In particular, the Bussells filed
a petition with the Court at docket No. 6156-92 contesting a
notice of deficiency for 1986 and 1987. On June 25, 1993, the
Court entered an agreed decision at docket No. 6156-92 in which
the parties agreed in pertinent part that the Bussells were
liable for income tax deficiencies of $186,679 and $97,071.15 for
1986 and 1987, respectively. The agreed decision included a
stipulation below the signature of the Judge who entered the
decision that respondent claimed increased deficiencies of
$12,973 and $12,360.15 for 1986 and 1987, respectively. An
examination of the notice of deficiency for 1986 and 1987
suggests that these increased deficiencies were reflected in the
$186,679 and $97,071.15 deficiency amounts listed in the Court’s
decision. However, in September 1993 respondent entered
assessments for additional tax for 1986 and 1987 of $199,652 and
$109,431.30, respectively. Assuming the increased deficiencies
were already reflected in the deficiency amounts listed in the
Court’s decision, the $199,652 amount assessed for 1986 is
inflated by $12,973, and the $109,431.30 amount assessed for 1987
is inflated by $12,360.15.
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II. Notices of Balance Due and Notices of Intent To Levy
Between November 1992 and October 1993 respondent sent the
Bussells multiple notices of balance due for each of the years in
issue to correspond with the assessments mentioned above.
Between May and November 1993 respondent sent the Bussells
a separate notice of intent to levy for each of the years in
issue.
III. Balances Due for the Years in Issue
Petitioners failed to pay their taxes for the years in
issue. Respondent’s records, as of May 29, 2002, reflected that
petitioners’ unpaid balances for 1983, 1984, 1986, and 1987
totaled $44,556.55, $61,422.27, $600,789.65, and $309,085.73,
respectively. These amounts do not include substantial amounts
of accrued but unassessed interest for the years in issue
inasmuch as respondent’s Forms 4340, Certificate of Assessments,
Payments, and Other Specified Matters, indicate that respondent
last assessed interest for the taxable years 1983, 1984, 1986,
and 1987 between June and September 1993.
IV. Notices of Federal Tax Lien for 1983, 1984, 1986, and 1987
On March 10, 1994, respondent filed a notice of Federal tax
lien with the Los Angeles County Recorder’s Office with respect
to petitioners’ unpaid tax liabilities for the years in issue.
On September 6, 1994, respondent filed a notice of Federal tax
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lien in Coalville, Utah, with respect to petitioners’ unpaid tax
liabilities for the years in issue.
V. The Bussells’ Bankruptcy Proceeding
On March 7, 1995, the Bussells filed a petition under
chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court
for the Central District of California. The Bussells also filed
with the bankruptcy court a list of assets which included a
condominium unit in Utah and separate term life insurance
policies issued by Connecticut Mutual Life Insurance Co.
(Connecticut Mutual)4 and John Hancock Mutual Life Insurance Co.
(John Hancock). The Connecticut Mutual and John Hancock life
insurance policies were issued to Mr. Bussell as the insured in
September 1987 and April 1990, respectively, and petitioner was
named as the beneficiary under the Connecticut Mutual policy.5
Neither life insurance policy had a cash surrender value on the
date the Bussells’ bankruptcy petition was filed. However, under
the terms of each policy, Mr. Bussell had a right to renew the
policy without evidence of insurability.
The Bussells also disclosed in their list of assets that
(1) Mr. Bussell was receiving monthly disability payments
4
Connecticut Mutual Life Insurance Co. is now known as
Massachusetts Mutual Life Insurance Co., but we shall refer to
the company as Connecticut Mutual.
5
We assume, as petitioner asserts, that she was also the
beneficiary under the John Hancock policy, but the record does
not clearly establish this.
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totaling $45,650 on four different disability insurance policies,
and (2) Mr. Bussell had a pending lawsuit for a claim for unpaid
disability benefits against a fifth insurance company.
The Bussells failed to include various assets in the list of
assets they submitted to the bankruptcy court. One such asset
was a pension plan account that petitioner maintained at
Washington Mutual Bank under the name L.B. Bussell Medical Corp.
As of December 31, 1994, shortly before the Bussells filed their
bankruptcy petition, there was a balance of $284,040 in the
pension plan account.
On April 14, 1995, the bankruptcy trustee filed a so-called
no asset report with the bankruptcy court. On August 22, 1995,
the bankruptcy court entered an order of discharge in the
Bussells’ bankruptcy case which stated in pertinent part: “The
above-named debtor is released from all dischargeable debts”.
VI. Criminal Proceedings
On July 5, 2000, the Federal grand jury for the Central
District of California returned a 17-count indictment against the
Bussells and one of their attorneys. United States v. Bussell,
case No. SA CR 01-56(A)-AHS. On January 31, 2002, a superseding
indictment was filed against the Bussells and their attorney.
On February 6, 2002, at the close of the criminal trial, Mr.
Bussell died. Although no verdict was returned as to Mr.
Bussell, petitioner was convicted of one count of violating 18
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U.S.C. section 371 (conspiracy to commit an offense against or
defraud the United States), two counts of violating 18 U.S.C.
section 152(1) (concealment of assets in bankruptcy), two counts
of violating 18 U.S.C. section 152(3) (false declaration and
statement in bankruptcy), and one count of violating section 7201
(attempted evasion of payment of tax). With regard to this last
count, the superseding indictment stated that beginning in June
1992 and continuing until at least August 1995 the Bussells
willfully attempted to evade and defeat the payment of a total of
$353,394 of the income tax they owed for 1983, 1984, 1986, and
1987 by fraudulently causing the bankruptcy court to discharge
their tax debts.
Petitioner was sentenced to a term of incarceration and was
initially ordered to pay restitution to various creditors,
exclusive of special assessments and interest, totaling
$2,393,527. Pursuant to this order, petitioner was directed to
pay $1,067,621.90 to the Internal Revenue Service (IRS).
Petitioner was further ordered to pay the costs of prosecution
totaling $62,214.37, pursuant to section 7201.
Petitioner appealed to the Court of Appeals for the Ninth
Circuit, which issued an opinion affirming petitioner’s
convictions and remanding the case for further proceedings. See
United States v. Bussell, 414 F.3d 1048 (9th Cir. 2005).
Following the remand, the Court of Appeals issued a second
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opinion affirming both petitioner’s sentence and an order
directing petitioner to pay restitution of $2,284,172.87 and
prosecution costs of $55,626.09. See United States v. Bussell,
504 F.3d 956, 963-968 (9th Cir. 2007).
VII. Jeopardy Levies
On or about April 30, 2002, respondent’s area director for
Los Angeles, California, made a determination that collection of
petitioners’ unpaid income tax liabilities for 1983, 1984, 1986,
and 1987 would be jeopardized by delay. On or about April 30,
2002, respondent’s area director also entered a jeopardy
assessment under section 6861(a) of approximately $1.25 million
in respect of petitioners’ tax liability for 1996.6
6
After entering the jeopardy assessment for 1996, respondent
issued a notice of deficiency to petitioners for 1996. Sec.
6861(b). Petitioner filed a petition with the Court at docket
No. 15462-02 for redetermination of the deficiency.
Respondent also issued a notice of Federal tax lien dated
May 3, 2003, with regard to petitioners’ unpaid tax liability for
1996. Petitioners requested and received an administrative
hearing with regard to the lien pursuant to sec. 6320. On Mar.
3, 2004, respondent issued to petitioners a notice of
determination sustaining the filing of the lien for 1996 but
noting that the lien had been released because petitioners had
fully paid their tax liability for 1996. Petitioners did not
file a petition with the Court challenging the notice of
determination for 1996.
In Bussell v. Commissioner, T.C. Memo. 2005-77, affd.
without published opinion 101 AFTR 2d 2008-313, 2008-1 USTC par.
50,107 (9th Cir. 2007), the Court sustained respondent’s
determination that petitioner was liable for a substantial
deficiency for 1996, as well as a fraud penalty under sec.
6663(a). The Court also denied petitioner’s claim for relief
under sec. 6015.
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Revenue Officer Farrell Stevens (Revenue Officer Stevens)
was assigned to collect petitioners’ unpaid tax liabilities for
1983, 1984, 1986, 1987, and 1996. On April 30, 2002, Revenue
Officer Stevens hand delivered three notices of levy to
Washington Mutual Bank. Two of the levy notices pertained to
collection of $2,128,931.70 identified as petitioners’ unpaid tax
liabilities for 1983, 1984, 1986, and 1987. The third levy
notice was delivered with respect to collection of petitioners’
unpaid tax liability for 1996. In response to the levies,
Washington Mutual Bank delivered to respondent a single check for
$713,496.28. Of that amount, approximately $150,000 came from
three of petitioners’ checking accounts, and $563,000 came from a
pension plan account petitioners maintained at the bank.
Respondent subsequently served levies for 1983, 1984, 1986,
1987, and 1996 on Connecticut Mutual and John Hancock in respect
of the benefits payable to petitioner on term life insurance
policies issued to Mr. Bussell. Connecticut Mutual and John
Hancock responded to the levies by transferring to respondent
$1,043,525.66 and $1 million respectively.
VIII. Administrative and Judicial Proceedings Related to the
Jeopardy Levies
On May 2, 2002, 3 days after delivering the above-described
levy notices to Washington Mutual Bank, Revenue Officer Stevens
mailed to petitioners by certified mail a Notice of Jeopardy
Levy and Right of Appeal for 1983, 1984, 1986, and 1987. The
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notice stated that petitioners were entitled to (1) request an
administrative review of the jeopardy levy determination pursuant
to section 7429 and (2) request an Appeals Office hearing
regarding the jeopardy levy determination pursuant to section
6330.
A. Petitioners’ Request for an Appeals Office Hearing
Under Section 6330
On May 13, 2002, petitioners filed with respondent pursuant
to section 6330 a handwritten Form 12153, Request for a
Collection Due Process Hearing, listing the years in dispute as
1983, 1984, 1986, 1987, and 1996. On or about May 30, 2002,
petitioners’ representative filed with respondent a second
(typed) request for an administrative hearing. In both requests
petitioners asserted that (1) their underlying tax liabilities
were not subject to collection because they were discharged in
bankruptcy and (2) petitioner was eligible for relief under
section 6015.
B. Petitioners’ Civil Complaint Filed Pursuant to Section
7429
On August 23, 2002, petitioners filed a complaint in the
U.S. District Court for the Central District of California,
Bussell v. Commissioner, case No. CV-02-6629 SVW, seeking review
pursuant to section 7429(b) of the jeopardy levies (described
above) and the jeopardy assessment for 1996. Shortly after the
complaint was filed, the parties filed cross-motions for summary
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judgment. Petitioners argued that they were unable to hide or
dissipate assets because of court supervision, that the
Government was able to acquire petitioners’ assets by other
means, that other assets were available to satisfy the tax
liabilities, and that all tax penalties were discharged in
bankruptcy.
On or about December 11, 2002, the District Court entered an
order granting the Commissioner’s motion for summary judgment and
denying petitioners’ motion for summary judgment. The District
Court held that the Commissioner had satisfied his burden of
proof, i.e., that his jeopardy determination was reasonable,
inasmuch as petitioner’s criminal history demonstrated that
petitioner failed to report income and engaged in a scheme to
hide assets from the Commissioner in an attempt to defeat
collection of unpaid taxes. The District Court also held that
petitioners failed to satisfy their burden of showing that the
jeopardy assessment for 1996 pursuant to section 6861(a) was not
appropriate under the circumstances.7
7
The District Court declined to address petitioners’
assertion that penalties assessed for 1983, 1984, 1986, and 1987
were discharged in bankruptcy. The District Court noted that the
penalties had been assessed years earlier and were not the
subject of the disputed jeopardy assessment for 1996. See
Bussell v. Commissioner, case No. CV-02-6629 SVW (C.D. Cal.
2002). The District Court suggested that the question whether
the penalties were discharged in bankruptcy could be raised in
the Tax Court or in a refund action.
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C. Petitioner’s Payment
On or about May 19, 2003, petitioner remitted to respondent
a cashier’s check in the amount of $680,000. Petitioner included
the following notation on the back of the check: “This check is
being tendered for full payment of claimed alleged taxes,
interest, and penalties by the IRS against Letantia Bussell. It
is tendered with full reservation of rights and under protest.”
By letter to petitioner dated May 19, 2003, Revenue Officer
Stevens acknowledged receipt of the check and indicated that
petitioners’ tax liability for 1996 was paid in full and that the
IRS would release any outstanding liens and levies for 1983,
1984, 1986, 1987, and 1996. However, by letter dated September
10, 2003, Revenue Officer Stevens informed petitioners’ counsel
that, taking into account additional interest assessments,
petitioner still owed $541,372.24 for 1983, 1984, and 1986 and
that amount might be abated for lack of additional prepetition
assets to provide a source for collection, but that the matter
ultimately would be decided by respondent’s counsel.
D. Petitioner’s Refund Claim
In 2003 petitioner submitted to respondent a Form 843, Claim
for Refund and Request for Abatement, for 1986 and 1987.
Petitioner alleged in her petition that she did not receive a
response to her claim.
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E. Appeals Office Proceedings and Notice of Determination
On December 1, 2003, Appeals Officer Charlotte Edginton met
with petitioner to conduct an administrative hearing pursuant to
section 6330. On March 3, 2004, respondent issued to petitioners
a Notice of Determination Concerning Collection Action(s) Under
Section 6320 and/or 6330 (notice of determination) with respect
to the collection of their tax liabilities for 1983, 1984, 1986,
and 1987. The notice of determination includes the following
determinations:8 (1) All legal and procedural requirements were
met; (2) petitioners were sent multiple notices and demand for
payment of the tax liabilities in question; (3) petitioners had
ample opportunity to resolve their tax matters with the
Commissioner; (4) petitioners failed to submit financial
statements as required for consideration of alternative payment
methods; (5) petitioners were precluded from challenging their
1983, 1984, 1986, and 1987 tax liabilities because respondent
issued notices of deficiency for those years; (6) petitioners’
tax liabilities for the years in issue were not discharged in
bankruptcy because petitioner was convicted of attempted evasion
of payment of those taxes under section 7201, among other crimes;
(7) Federal tax liens attached to the Bussells’ assets and
8
The notice of determination admitted as Exhibit 22-J is not
a complete copy of the notice of determination issued for 1983,
1984, 1986, 1987. A copy of the notice of determination,
however, was attached to petitioner’s petition, and we rely on it
for these findings.
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survived any bankruptcy discharge; (8) petitioner was precluded
from asserting a claim for relief under section 6015 because her
application for section 6015 relief was unprocessable; and (9)
petitioners failed to submit any evidence to establish that the
jeopardy levies did not balance the need for efficient collection
of taxes with the legitimate concern that any collection action
be no more intrusive than necessary. The notice of determination
also stated that the Appeals Office declined to consider the
taxable year 1996 because petitioners were engaged in a separate
collection review proceeding regarding a lien that respondent had
filed for 1996.
Petitioners filed with the Court a timely petition and an
amendment to petition, challenging respondent’s notice of
determination. Petitioners contend that (1) their tax
liabilities for 1983, 1984, 1986, and 1987, and interest thereon,
were discharged in bankruptcy, (2) all penalties assessed for the
years in issue, and interest thereon, were discharged in
bankruptcy, (3) the liens that respondent filed before
petitioners filed for bankruptcy did not attach to any of the
assets that respondent levied on during 2002, (4) respondent
failed to provide petitioners with notice and demand for payment
in advance of the jeopardy levies, and (5) respondent waived the
right to challenge issues (1) and (3) above.
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OPINION
Our review of respondent’s determination to proceed with
collection requires an understanding of the interplay between
laws governing collection of Federal income taxes and laws
extending protections to debtors who file for bankruptcy.
Consequently, we shall preface our analysis with a brief overview
of (1) the Secretary’s authority to collect Federal income taxes,
(2) the protections extended to taxpayers in collection matters
pursuant to sections 6320 and 6330, and (3) protections afforded
taxpayers under the Federal bankruptcy laws.
I. The Secretary’s Authority To Assess and Collect Income Taxes
The Secretary is required to make inquiries, determinations,
and assessments of all taxes imposed under the Internal Revenue
Code. Sec. 6201(a). An assessment is made when the liability of
the taxpayer is recorded in the Office of the Secretary. Sec.
6203.
Section 6301 authorizes the Secretary to collect taxes
imposed by the internal revenue laws. As a general rule, the
Secretary is obliged, within 60 days after making an assessment
of tax under section 6203, to give notice to each person liable
for such tax stating the amount due and demanding payment
thereof. Sec. 6303(a). Such notice may be left at the person’s
dwelling or usual place of business or shall be sent by mail to
the person’s last known address. Sec. 6303(a).
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A. Liens
Section 6321 provides that if any person liable to pay any
tax neglects or refuses to pay the same after demand, the tax and
any interest, additional amount, addition to tax, or assessable
penalty shall be a lien in favor of the United States upon all
property and rights to property, whether real or personal,
belonging to such person. The lien imposed under section 6321
generally arises at the time the assessment is made and continues
until the tax liability is satisfied or becomes unenforceable by
reason of lapse of time. Sec. 6322. However, the lien imposed
under section 6321 is not valid against any purchaser, holder of
a security interest, mechanic’s lienor, or judgment lien creditor
until the Secretary files notice of the lien with the proper
State or Federal authorities. Sec. 6323(a), (f).
B. Levies
Section 6331(a) provides that, if any person liable to pay
any tax neglects or refuses to pay the tax within 10 days after
notice and demand, the Secretary is authorized to collect such
tax by levy upon all property and rights to property belonging to
such person or on which there is a lien for the payment of such
tax. The final sentence of section 6331(a) provides:
If the Secretary makes a finding that the collection of
such tax is in jeopardy, notice and demand for
immediate payment of such tax may be made by the
Secretary and, upon failure or refusal to pay such tax,
collection thereof by levy shall be lawful without
regard to the 10-day period provided in this section.
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In connection with the foregoing, section 6331(d)(1) and (2)
sets forth the general rule that the Secretary must provide a
taxpayer with 30 days’ advance notice before proceeding with
collection by levy. Nevertheless, section 6331(d)(3) provides
that paragraph (1) shall not apply to a levy if the Secretary
determines that collection of the tax is in jeopardy under the
final sentence of section 6331(a).
II. Collection Review Proceedings Under Sections 6320 and 6330
Section 6330(a) provides the general rule that no levy may
be made on any property or right to property of any taxpayer
unless the Secretary has provided 30 days’ advance notice to the
taxpayer of the right to an administrative hearing before the
levy is carried out. Section 6330(f) provides, however, that if
the Secretary finds that the collection of the tax is in
jeopardy, the taxpayer shall be given the opportunity for a
section 6330 hearing within a reasonable time after the levy.
If the taxpayer makes a timely request for an administrative
hearing, the hearing shall be conducted by the IRS Office of
Appeals (Appeals Office) before an impartial officer. Sec.
6330(b)(1), (3). The parameters for the hearing are set forth in
section 6330(c). First, the Appeals officer must obtain
verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met. Sec.
6330(c)(1). Second, the taxpayer may raise at the hearing any
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issue relevant to the collection action, including spousal
defenses, challenges to the appropriateness of the collection
action, and offers of collection alternatives. Sec.
6330(c)(2)(A). Additionally, the taxpayer may contest the
existence and amount of the underlying tax liability, but only if
he or she did not receive a notice of deficiency or otherwise
have an opportunity to dispute the tax liability. Sec.
6330(c)(2)(B). The Appeals officer must make a determination
after reviewing the matters prescribed in section 6330(c)(1) and
(2) and considering whether the proposed collection action
balances the need for efficient collection of taxes with the
legitimate concern of the taxpayer that the collection should be
no more intrusive than necessary. Sec. 6330(c)(3).
After the Appeals Office makes a determination under section
6330(c), the taxpayer may petition the Tax Court for judicial
review. Sec. 6330(d). If the taxpayer’s underlying tax
liability is properly at issue, the Court reviews any
determination regarding the underlying tax liability de novo.
Sego v. Commissioner, 114 T.C. 604, 610 (2000). The Court
reviews any other administrative determinations regarding the
proposed collection action for abuse of discretion. Id.III. Protections Afforded Taxpayers Under the Bankruptcy Code
A debtor who files a bankruptcy petition under chapter 7 of
the Bankruptcy Code shall be granted a discharge unless one of
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the grounds for denial of discharge enumerated in that chapter
exists. 11 U.S.C. sec. 727(a). Title 11 U.S.C. section 727(b)
provides in relevant part that, except as provided in 11 U.S.C.
section 523, a discharge under subsection (a) of 11 U.S.C.
section 727 discharges a debtor from personal liability for all
debts incurred before the bankruptcy petition was filed. See
United States v. Hatton, 220 F.3d 1057, 1059-1060 (9th Cir.
2000).
Title 11 U.S.C. section 523(a) sets forth several exceptions
to discharge under 11 U.S.C. section 727 and provides in
pertinent part:
§ 523. Exceptions to discharge
(a) A discharge under section 727 * * * of this
title does not discharge an individual debtor from any
debt–-
(1) for a tax or a customs duty-–
(A) of the kind and for the periods specified in
section 507(a)(2) or 507(a)(8) of this title, whether
or not a claim for such tax was filed or allowed;
(B) with respect to which a return, if required–-
(i) was not filed; or
(ii) was filed after the date on which such return
was last due, under applicable law or under any
extension, and after two years before the date of the
filing of the petition; or
(C) with respect to which the debtor made a
fraudulent return or willfully attempted in any manner
to evade or defeat such tax * * *
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Title 11 U.S.C. section 507(a)(8) refers to certain income taxes
due for specified periods before the bankruptcy petition was
filed. See Washington v. Commissioner, 120 T.C. 114, 121-122
(2003). Thus, 11 U.S.C. section 523(a)(1)(C) provides that a
discharge under 11 U.S.C. section 727 does not discharge an
individual debtor with regard to certain Federal income taxes if
the debtor willfully attempted in any manner to evade or defeat
such taxes.
A discharge under 11 U.S.C. section 727 relieves the debtor
of personal (or in personam) liability. See, e.g., Schott v.
WyHy Fed. Credit Union, 282 Bankr. 1, 5 (B.A.P. 10th Cir. 2002).
Such a discharge, however, does not protect the debtor’s assets
if those assets were subject to a Federal tax lien that was
properly filed pursuant to section 6323 before the bankruptcy
petition was filed. See 11 U.S.C. sec. 522(c)(2)(B). As the
Supreme Court explained in Johnson v. Home State Bank, 501 U.S.
78, 84 (1991), a discharge of personal liability in bankruptcy
“extinguishes only one mode of enforcing a claim-–namely, an
action against the debtor in personam-–while leaving intact
another-–namely, an action against the debtor in rem.” See
Connor v. United States, 27 F.3d 365, 366 (9th Cir. 1994);
Iannone v. Commissioner, 122 T.C. 287, 292-293 (2004); Woods v.
Commissioner, T.C. Memo. 2006-38.
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IV. Analysis
A. Jurisdiction
In the light of the relatively novel set of circumstances
that preceded the filing of the petition, we feel compelled to
briefly outline the scope of the Court’s jurisdiction in this
case. We first note that this case comes before the Court after
respondent collected substantial amounts from petitioners for the
years 1983, 1984, 1986, and 1987 by issuing jeopardy levies.9
There is no dispute that the Court’s jurisdiction to review
collection actions under section 6330(d) vests the Court with
authority to review the Commissioner’s determination to issue a
jeopardy levy. See Dorn v. Commissioner, 119 T.C. 356, 359
(2002); see also sec. 301.6330-1(a)(2)(ii), Proced. & Admin.
Regs.
We also observe that although petitioners do not dispute the
specific amounts of their underlying tax liabilities for any of
the years in issue,10 they do assert that some or all of their
9
Although the parties stipulated that respondent issued
jeopardy levies with regard to petitioners’ unpaid taxes for
1983, 1984, 1986, 1987, and 1996, and respondent applied amounts
that he collected to each of those years, petitioners did not
challenge the notice of determination for 1996 that respondent
issued to them on Mar. 3, 2004, nor did they attempt to place the
taxable year 1996 at issue. Thus, our review is limited to
respondent’s determination to proceed with collection for 1983,
1984, 1986, and 1987.
10
Petitioner likewise did not challenge the statement in the
notice of determination that her claim for relief under sec. 6015
was “unprocessable” and not part of the administrative hearing.
(continued...)
- 23 -
tax liabilities for the years in issue were discharged in
bankruptcy. The Court’s jurisdiction to review a collection
action under section 6320 and/or 6330 includes the authority to
determine whether a taxpayer’s unpaid tax liabilities were
discharged in a bankruptcy proceeding. See Swanson v.
Commissioner, 121 T.C. 111, 118-119 (2003); Washington v.
Commissioner, supra at 120-121. A taxpayer’s assertion that his
or her tax liabilities were discharged in bankruptcy amounts to a
challenge to the appropriateness of the collection action under
section 6330(c)(2)(A). Swanson v. Commissioner, supra at 119.
Accordingly, we have jurisdiction to review respondent’s
determination that petitioners’ tax liabilities were excepted
from discharge in the bankruptcy proceeding. See Kendricks v.
Commissioner, 124 T.C. 69, 75 (2005); Swanson v. Commissioner,
supra at 119.
Finally, the notice of determination includes a statement
that any question regarding the appropriateness of the disputed
jeopardy levies is moot inasmuch as petitioners’ tax liabilities
for the years in issue were fully paid by application of the
amounts collected through the jeopardy levies and petitioner’s
payment in May 2003.11 We conclude that this matter is not moot.
10
(...continued)
Under the circumstances, petitioner is deemed to have conceded
this issue. See Rule 331(b)(4).
11
Respondent did not assert that this matter is moot in his
(continued...)
- 24 -
When the Commissioner determines that collection of tax is
in jeopardy, the taxpayer is not afforded a prior opportunity for
a hearing under section 6330 to challenge the appropriateness of
the levy before it is issued. See sec. 6330(f)(1). In
recognition of this reality, section 6330(f) provides that the
taxpayer against whom a jeopardy levy is issued “shall be given
the opportunity for the hearing described in [section 6330]
within a reasonable time after the levy.” The right to a hearing
conferred by section 6330(f) is not limited to situations where
some portion of the taxpayer’s tax liability remains unpaid. In
sum, subsections (d) and (f) of section 6330 confer upon a
taxpayer against whom a jeopardy levy has been issued an
unqualified right to a postlevy hearing (if timely requested) and
judicial review by this Court, regardless of whether the jeopardy
levy resulted in the seizure of assets sufficient to fully pay
the disputed tax liabilities. See Dorn v. Commissioner, supra.Consistent with the foregoing, the issues we are called upon
to decide are (1) whether the requirements of all applicable laws
and administrative procedures were met in respect of the disputed
jeopardy levies, and (2) the related questions whether
petitioners’ tax liabilities were discharged in bankruptcy and
11
(...continued)
pleadings or at trial. Respondent made a passing reference to
mootness in a footnote in his opening brief, but he did not offer
any meaningful discussion with regard to the issue.
- 25 -
whether respondent improperly levied on certain of petitioners’
assets.12
B. Dischargeability of Unpaid Taxes
The notice of determination states the Appeals officer
concluded petitioners’ tax liabilities for the years in issue
were excepted from discharge in bankruptcy under 11 U.S.C.
section 523(a)(1)(C) and therefore respondent was free to proceed
with collection. Petitioners contend that the Appeals officer
erred in this determination.
Title 11 U.S.C. section 523(a)(1)(C) excepts from discharge
a debtor’s liability for taxes if the debtor “willfully attempted
in any manner to evade or defeat such tax”. Although bankruptcy
courts normally make determinations regarding the
dischargeability of specific debts, nonbankruptcy courts may
exercise jurisdiction to determine the applicability of the
exceptions to discharge enumerated in 11 U.S.C. section 523(a)
(other than the exceptions contained in subsection (a)(2), (4),
12
In connection with the argument that some or all of their
taxes for the years in issue were discharged in bankruptcy,
petitioners erroneously maintain that (1) they are entitled to a
determination that they overpaid their taxes, and (2) the Court
has the authority under sec. 6512(b) to order respondent to
process a refund. To the contrary, we recently held in Greene-
Thapedi v. Commissioner, 126 T.C. 1, 8-13 (2006), that sec. 6330
does not provide this Court with jurisdiction to determine an
overpayment or to order a refund or credit of taxes paid. On the
other hand, we also noted in Greene-Thapedi v. Commissioner,
supra at 9 n.13, that the Court has inherent equitable powers to
order the Commissioner to return to a taxpayer property that was
improperly levied upon.
- 26 -
and (6)). See 4 Collier on Bankruptcy, par. 523.03, at 523-19 to
523-21 (March 2006). As we explained in Swanson v. Commissioner,
supra, the question whether a taxpayer’s debts are excepted from
discharge may have a direct bearing on whether the Commissioner’s
determination in a collection action should be sustained.
Neither the Bankruptcy Code nor the Federal Rules of
Bankruptcy Procedure impose a time limit or deadline in respect
of a determination of the applicability of an exception to
discharge under 11 U.S.C. section 523(a)(1)(C). See Fed. R.
Bankr. P. 4007(b) (a complaint that a debt is excepted from
discharge may be filed anytime during a bankruptcy case, and if
the case is closed, the case may be reopened for the purpose of
filing such a complaint); see also 4 Collier on Bankruptcy, par.
523.04, at 523-23 (September 2005) (“If the dischargeability
issue is not raised during the bankruptcy case, it may be
determined potentially in the state court or other nonbankruptcy
court in an action initiated by the debtor or as an affirmative
defense in an action initiated by the creditor.”).13
13
We reject petitioners’ contention that respondent was
obliged to bring an action in the bankruptcy court to revoke
petitioners’ discharge under 11 U.S.C. sec. 727(d) and (e)
(revocation of discharge obtained through debtor’s fraud). An
action under 11 U.S.C. sec. 727(e)(1) to revoke a discharge
extends to all of the debtor’s debts and constitutes an action
that is distinct from the two-party dispute contemplated in an
action to determine whether a particular tax debt is excepted
from discharge under 11 U.S.C. sec. 523(a). See Menk v.
Lapaglia, 241 Bankr. 896, 906-907, 911 (B.A.P. 9th Cir. 1999)
(recognizing the distinctions between the two actions); see also
(continued...)
- 27 -
The exception to discharge under 11 U.S.C. section
523(a)(1)(C) is applicable if the following elements are present:
(1) The debtor engaged in an affirmative act or omission to evade
or defeat the payment or collection of tax, and (2) the debtor
acted willfully. See United States v. Jacobs, 490 F.3d 913, 921
(11th Cir. 2007) (and cases cited therein); United States v.
Fegeley, 118 F.3d 979, 983-984 (3d Cir. 1997). A debtor acts
willfully under 11 U.S.C. section 523(a)(1)(C) by voluntarily and
intentionally violating a known legal duty. Griffith v. United
States, 206 F.3d 1389, 1396 (11th Cir. 2000).
Respondent avers that petitioner is collaterally estopped
from denying that her tax liabilities for the years in issue were
excepted from discharge under 11 U.S.C. section 523(a)(1)(C)
because petitioner was convicted of willfully attempting to evade
the payment of her tax liabilities for 1983, 1984, 1986, and 1987
under section 7201.14
13
(...continued)
6 Collier on Bankruptcy, par. 727.01[1], at 727-8 (June 2006)
(“The concept of nondischargeability of a particular debt under
section 523 is not to be confused with denial of discharge for
all debts under section 727.”).
14
Petitioners contend that respondent did not properly plead
collateral estoppel in his answer. We disagree. The notice of
determination includes a statement that petitioner’s tax
liabilities were not dischargeable, as a result of petitioner’s
criminal conviction under sec. 7201, and petitioners specifically
challenged this point in their petition. Moreover, respondent
addressed the matter in his answer by admitting that collateral
estoppel would not be applicable if petitioner’s convictions were
overturned on appeal. In short, both parties understood that
(continued...)
- 28 -
As explained by the Supreme Court in Montana v. United
States, 440 U.S. 147, 153 (1979), the doctrine of issue
preclusion, or collateral estoppel, provides that, once an issue
of fact or law is “actually and necessarily determined by a court
of competent jurisdiction, that determination is conclusive in
subsequent suits based on a different cause of action involving a
party to the prior litigation.” See Parklane Hosiery Co. v.
Shore, 439 U.S. 322, 329 (1979). Collateral estoppel is a
judicially created equitable principle the purposes of which are
to protect parties from unnecessary and redundant litigation, to
conserve judicial resources, and to foster certainty in and
reliance on judicial action. Montana v. United States, supra at
153-154; United States v. ITT Rayonier, Inc., 627 F.2d 996, 1000
(9th Cir. 1980).
It is well settled that bankruptcy courts may apply the
doctrine of collateral estoppel in making dischargeability
determinations. See Grogan v. Garner, 498 U.S. 279, 285 n.11
(1991); Simone v. United States, 252 Bankr. 302, 306-307 (Bankr.
E.D. Pa. 2000). Inasmuch as this Court has undertaken to
determine in the disposition of this collection review proceeding
whether petitioners’ tax liabilities were excepted from
discharge, and with a view to furthering the policies underlying
14
(...continued)
application of the doctrine of collateral estoppel was a disputed
issue.
- 29 -
the doctrine of collateral estoppel, we conclude that the
doctrine may be asserted and considered by the Court in this
collection review proceeding under section 6330.
In Peck v. Commissioner, 90 T.C. 162, 166-167 (1988), affd.
904 F.2d 525 (9th Cir. 1990), the Court identified the following
five conditions that must be satisfied before collateral estoppel
may be applied in the context of a factual dispute: (1) The
issue in the second suit must be identical in all respects with
the issue decided in the first suit, (2) the issue in the first
suit must have been the subject of a final judgment entered by a
court of competent jurisdiction, (3) the person against whom
collateral estoppel is asserted must have been a party or in
privity with a party in the first suit, (4) the parties must
actually have litigated the issue in the first suit and
resolution of the issue must have been essential to the prior
decision, and (5) the controlling facts and applicable legal
principles must remain unchanged from those in the first suit.
See United States IRS v. Palmer, 207 F.3d 566, 568 (9th Cir.
2000) (citing Pena v. Gardner, 976 F.2d 469, 472 (9th Cir.
1992)). We shall examine each of these conditions in turn.
Section 7201 provides in pertinent part that “Any person who
willfully attempts in any manner to evade or defeat any tax
imposed by this title or the payment thereof shall * * * be
guilty of a felony”. We note that section 7201 encompasses two
closely related but distinct crimes: (1) An attempt to evade or
- 30 -
defeat any tax (evasion of assessment),15 and (2) an attempt to
evade or defeat the payment of any tax (evasion of payment). See
Sansone v. United States, 380 U.S. 343, 354 (1965) (citing Lawn
v. United States, 355 U.S. 339 (1958)). Petitioner was convicted
of attempting to evade the payment of her taxes for the years in
issue.
To prove that a taxpayer attempted to evade payment of tax,
the Government must establish that the taxpayer failed to pay a
tax imposed under the Internal Revenue Code,16 the taxpayer
engaged in an affirmative act to evade payment, and the taxpayer
acted willfully. See United States v. Schoppert, 362 F.3d 451,
454-456 (8th Cir. 2004). Like the willfulness element under 11
U.S.C. section 523(a)(1)(C), willfulness for purposes of section
7201 requires proof that the taxpayer voluntarily and
intentionally violated a known legal duty. Cheek v. United
States, 498 U.S. 192, 201 (1991); United States v. Pomponio, 429
U.S. 10, 12 (1976). Because the elements necessary for a
15
To prove that a taxpayer attempted to evade assessment of
tax, the Government normally must establish three elements:
willfulness, the existence of a tax deficiency, and an
affirmative act constituting an evasion or attempted evasion of
tax. See Sansone v. United States, 380 U.S. 343, 351 (1965);
United States v. Wilkins, 385 F.2d 465, 472 (4th Cir. 1967).
16
In an evasion of payment case, the Government normally is
not required to show that a tax deficiency exists because the
underlying tax liability has been assessed but remains unpaid.
See United States v. Conley, 826 F.2d 551, 557 (7th Cir. 1987)
(taxpayer filed timely and accurate returns reporting tax due but
concealed his assets to evade payment); United States v. Hook,
781 F.2d 1166, 1168-1169 (6th Cir. 1986) (same).
- 31 -
conviction under section 7201 overlap with the elements necessary
to establish the applicability of the exception to discharge
under 11 U.S.C. section 523(a)(1)(C), we conclude the first
condition for collateral estoppel is present.
Petitioner was charged in a single count of the superseding
indictment with violating section 7201 by willfully attempting to
evade and defeat the payment of income taxes she owed for 1983,
1984, 1986, and 1987. The superseding indictment alleged that
petitioner fraudulently caused the bankruptcy court to discharge
her tax debts for the years in issue. When an act of evasion of
payment of taxes involves transfers of funds or concealing assets
that cannot logically be assigned to a particular taxable year,
section 7201 permits a unit of prosecution charging an evasion of
payment of taxes owed for a group of tax years. See United
States v. Pollen, 978 F.2d 78, 85-87 (3d Cir. 1992). In United
States v. Shorter, 809 F.2d 54, 56-58 (D.C. Cir. 1987), the court
explained that tax evasion covering several taxable years may be
charged in a single count where the defendant has allegedly
engaged in a course of conduct directed at evading payment of
those taxes.
After a hard-fought and lengthy trial, petitioner was
convicted of several crimes, including a violation of section
7201, as outlined above, and each such conviction was upheld on
appeal. See United States v. Bussell, 414 F.3d at 1052.
Consequently, we conclude that the second, third, and fourth
- 32 -
conditions for the application of collateral estoppel are
present. Specifically, petitioner was the defendant in the
earlier criminal proceeding, the parties litigated the charge
that petitioner violated section 7201, and petitioner’s
conviction under section 7201 was affirmed by a final judgment
entered by the Court of Appeals for the Ninth Circuit.
Finally, there is no dispute that the controlling facts and
legal principles remain unchanged from the time of the criminal
proceeding to the present. Consistent with the foregoing, we
hold that petitioner is collaterally estopped from contesting
respondent’s determination that her tax liabilities for the years
in issue were excepted from discharge under 11 U.S.C. section
523(a)(1)(C).17 See Grothues v. IRS, 226 F.3d 334, 339 (5th Cir.
2000) (taxpayer estopped from challenging 11 U.S.C. section
17
Petitioners make the point that Mr. Bussell was not
convicted of tax evasion or any other crime, and therefore, the
doctrine of collateral estoppel does not apply to the Estate of
John Bussell. As discussed in detail in this Opinion, however,
we conclude that petitioner is collaterally estopped from
contesting respondent’s determination that her tax liabilities
for the years in issue were excepted from discharge under 11
U.S.C. sec. 523(a)(1)(C). Further, we observe that petitioner
resides in California, a community property State, and there has
been no showing that respondent levied upon anything other than
the Bussells’ “community property” under California law. See,
e.g., Ordlock v. Commissioner, 126 T.C. 47, 58 (2006) (citing
McIntyre v. United States, 222 F.3d 655 (9th Cir. 2000), for the
proposition that under California law the Commissioner may
collect one spouse’s separate tax liability out of community
assets). Consequently, absent any indication that respondent
levied on separate property of the Estate of John Bussell, the
nonapplicability of collateral estoppel as to the Estate of John
Bussell is simply irrelevant to the question concerning the
appropriateness of the disputed collection action.
- 33 -
523(a)(1)(C) discharge exception because taxpayer pleaded guilty
to evading the payment of excise taxes under section 7201);
Simone v. United States, 252 Bankr. 302 (Bankr. E.D. Pa. 2000).
Petitioner seeks to avoid the application of collateral
estoppel by arguing that it is possible the jury decided that she
was guilty of violating section 7201 because she attempted to
evade the payment of tax for one or more (but not all) of the
years in issue. To the contrary, the Government charged
petitioner with a single count of violating section 7201 by
engaging in a course of conduct intended to evade the payment of
taxes for each of the years in issue. As previously mentioned,
section 7201 permits a unit of prosecution (a single count)
charging evasion of payment of taxes owed for a group of tax
years in a case (such as the present case) where it is not
practicable to assign to a particular taxable year the value of
assets a taxpayer attempted to hide from the Commissioner. See
United States v. Pollen, supra at 85-87. Moreover, the record
clearly shows that, before filing for bankruptcy, petitioners
failed to pay substantial amounts of their tax liabilities for
each of the years in issue. There is no indication that
petitioners attempted to contest that fact in the criminal case,
and it is evident that any attempt to do so would have been
futile. Finally, what the Government alleged and proved to the
satisfaction of the jury in petitioner’s criminal case was that
petitioners failed to disclose all of their assets in the
- 34 -
bankruptcy proceeding in a willful attempt to use the bankruptcy
proceeding as a means to evade the payment of their tax
liabilities for the years in issue. Petitioner simply cannot
relitigate these facts.
Petitioner also asserts that the exception to discharge
under 11 U.S.C. section 523(a)(1)(C), which uses the past tense
in referring to a debtor who “willfully attempted” to evade or
defeat a tax, is applicable only if the debtor attempted to
defeat or evade taxes before filing for bankruptcy; i.e.,
prepetition. Petitioner reasons that, because the superseding
indictment stated that petitioner violated section 7201 by acts
committed both prepetition and postpetition,18 the possibility
exists that the jury based its guilty verdict solely on
petitioner’s postpetition activities.
Petitioner does not cite any case in which 11 U.S.C. section
523(a)(1)(C) has been interpreted in this fashion, and we are not
aware of such a case. In any event, petitioner’s argument is
strained and unconvincing--we see no justification for limiting
the scope of the exception to discharge set forth in 11 U.S.C.
section 523(a)(1)(C) to a taxpayer’s prepetition activities when
opportunities to deceive the Commissioner and the bankruptcy
court are available throughout a bankruptcy proceeding. In sum,
18
The superseding indictment referred to petitioner’s course
of conduct between June 1992 through at least Aug. 22, 1995--the
latter being the date the bankruptcy court issued its discharge
order.
- 35 -
we reject petitioner’s argument and conclude that the plain
language of 11 U.S.C. section 523(a)(1)(C) is properly read as
excepting from discharge any tax that petitioner attempted to
defeat or evade either before or during the bankruptcy
proceeding.
C. Dischargeability of Interest
Petitioners contend that the bankruptcy court’s discharge
order relieved them of liability for interest accrued on their
unpaid tax liabilities. However, interest accrued on a tax
liability excepted from discharge is also nondischargeable. See
Bruning v. United States, 376 U.S. 358, 360 (1964); Ward v. Board
of Equalization (In re Artisan Woodworkers), 204 F.3d 888, 891
(9th Cir. 2000). Because petitioners’ 1983, 1984, 1986, and 1987
tax liabilities are excepted from discharge, they remain liable
for the interest that accrued on those liabilities.
D. Dischargeability of Penalties
The parties agree that the penalties respondent assessed
against petitioners for the years in issue were discharged under
11 U.S.C. section 523(a)(7)(B), which provides for the discharge
of any tax penalty “imposed with respect to a transaction or
event that occurred before three years before the date of the
filing of the petition”.19 Respondent apparently does not
19
The Bussells filed their bankruptcy petition on Mar. 7,
1995, and their unpaid income tax liabilities for 1983, 1984,
1986, and 1987 arose more than 3 years before that date.
- 36 -
dispute that there is no exception to discharge for these
penalties because 11 U.S.C. section 523(a)(1)(A), which refers to
11 U.S.C. section 507(a), excepts from discharge only priority
tax penalties, a term defined in 11 U.S.C. section 507(a)(8)(G)
as penalties “in compensation for actual pecuniary loss.”
Respondent acknowledges that the penalties assessed against
petitioners were not “pecuniary loss” penalties. Respondent
argues, however, that he was free to collect the penalties in
question because the notice of Federal tax lien filed with the
Los Angeles County Recorder’s Office in March 1994 attached to
certain of the Bussells’ assets before they filed their
bankruptcy petition.
A Federal tax lien that is properly filed before a debtor
files for bankruptcy attaches to the debtor’s property and is not
extinguished by a subsequent bankruptcy discharge. See 11 U.S.C.
sec. 522(c)(2)(B); Johnson v. Home State Bank, 501 U.S. at 84;
Connor v. United States, 27 F.3d at 366; Iannone v. Commissioner,
122 T.C. at 292-293. On the other hand, a prepetition lien does
not attach to property acquired by the debtor after a bankruptcy
petition is filed. See, e.g., United States v. McGugin (In re
Braund), 423 F.2d 718, 718-719 (9th Cir. 1970).
Respondent contends that the notice of Federal tax lien
filed with the Los Angeles County Recorder’s Office attached to
the pension plan account that petitioners maintained at
Washington Mutual Bank and to the Connecticut Mutual and John
- 37 -
Hancock term life insurance policies and therefore respondent was
justified in levying upon and applying the proceeds from those
assets to satisfy the penalties in question.20
Petitioners do not challenge the validity of respondent’s
lien, nor do they dispute that the Bussells owned the pension
plan account and the life insurance policies when they filed
their bankruptcy petition. Petitioners argue instead that
respondent failed to prove that those assets had sufficient value
as of the date of the bankruptcy filing to offset all of the
penalties in question. As petitioners see it, respondent must
have improperly collected petitioners’ postpetition assets and
applied the proceeds against petitioners’ penalties. Petitioners
contend that they are entitled to a refund of any amounts that
respondent collected in violation of the bankruptcy discharge as
it pertains to tax penalties.
This is not a case in which the levies in question were
preceded by an invalid assessment, see Chocallo v. Commissioner,
T.C. Memo. 2004-152, nor (as discussed below) did respondent fail
to adhere to any of the statutory provisions governing jeopardy
levies, see Zapara v. Commissioner, 124 T.C. 223 (2005), as
20
We reject petitioners’ assertion that respondent “waived”
the right to make this argument. To the contrary, although the
issue was discussed in the notice of determination, petitioners
did not address it in their petition. Nevertheless, because the
parties stipulated matters related to this issue and developed
the issue through testimony at trial, we conclude the issue was
tried by consent of the parties and is properly before the Court.
See Rule 41(b).
- 38 -
supplemented 126 T.C. 215 (2006). Respondent was entitled,
pursuant to the notice of Federal tax lien filed in March 1994,
to levy upon prepetition assets to satisfy petitioners’ tax
liabilities, including the discharged penalties. Because
respondent had the right to proceed in rem against petitioners’
prepetition assets, respondent’s decision to pursue a jeopardy
levy was appropriate and was not an abuse of discretion.
Because respondent had the right to proceed in rem against
prepetition assets to satisfy the discharged penalties,
petitioners’ contention that they are entitled to a refund to the
extent respondent may have improperly applied proceeds of
postpetition assets in partial satisfaction of the discharged
penalties is not relevant to the issue before us--whether
respondent’s use of a jeopardy levy was appropriate.
Petitioners’ contention may be relevant in an action seeking
refund of an overpayment. See sec. 6342(b). However, any ruling
by this Court on that subject would amount to an advisory
opinion. See, e.g., Greene-Thapedi v. Commissioner, 126 T.C. 1,
13 (2006).
For the reasons already described, we do not have to decide
the value of the pension plan account21 or the value of the life
21
The record shows that the Bussells’ pension plan account
had substantial value on the date the bankruptcy petition was
filed. Revenue Officer Stevens testified that the prepetition
value of the pension plan was $284,040 and that he determined the
value from account statements and other documents sent to him by
(continued...)
- 39 -
insurance policies22 on the date the Bussells filed their
bankruptcy petition in order to decide whether the jeopardy levy
was appropriate. We conclude only that respondent was entitled
to levy on all of these assets and apply the proceeds against
petitioners’ unpaid tax liabilities, interest thereon, and the
penalties in question.
E. Satisfaction of Notice Requirements for Collection
Petitioners contend that the Appeals officer erroneously
concluded that petitioners received proper notice before the
jeopardy levies were served on Washington Mutual Bank.
Specifically, petitioners contend that respondent failed to
provide them with notice and demand for immediate payment and, as
a result, they were denied the opportunity to fail or refuse to
pay their tax liabilities before respondent served the jeopardy
levies. As explained below, petitioners simply misconstrue the
applicable statutory provisions.
21
(...continued)
the plan administrator and by petitioners’ representative at that
time.
22
A term life insurance policy may have value to the extent
(1) the insured has the right to renew the policy at the end of
the term regardless of his or her medical condition, and (2) the
beneficiary of the policy has the right to receive death benefits
if the insured dies during the period the policy is in effect.
See Minnesota Mut. Life Ins. Co. v. Ensley, 174 F.3d 977, 984 n.3
(9th Cir. 1999); Elfmont v. Elfmont, 891 P.2d 136, 141-142 (Cal.
1995) (citing Pritchard v. Logan (Estate of Logan), 236 Cal.
Rptr. 368, 371 (Ct. App. 1987)).
- 40 -
The first sentence of section 6331(a) provides that, if any
person liable to pay any tax neglects or refuses to pay the tax
within 10 days after notice and demand, the Secretary is
authorized to collect such tax by levy upon all property and
rights to property belonging to such person or on which there is
a lien for the payment of such tax. The final sentence of
section 6331(a) provides that if the collection of tax is in
jeopardy and the Commissioner finds it necessary to expedite
collection, the normal 10 days’ advance notice requirement may be
set aside and the Commissioner may instead serve the taxpayer
with a notice and demand for immediate payment. Petitioners
assert that respondent was obliged under the last sentence of
section 6331(a) to provide them with notice and demand for
immediate payment before proceeding with the jeopardy levies in
dispute. We disagree.
The record shows that respondent complied with the first
sentence of section 6331(a) by sending the Bussells multiple
notices of balance due with regard to their unpaid taxes for the
years in issue during 1992 and 1993. In addition, respondent
sent them notices of intent to levy for each of the years in
issue during 1993, and respondent filed Federal tax liens for the
years in issue during 1994. All of these collection notices were
issued well in advance of the jeopardy levies which were served
in 2002. It is well settled that a notice of balance due
constitutes a notice and demand for payment within the meaning of
- 41 -
section 6303(a). See Hughes v. United States, 953 F.2d 531, 536
(9th Cir. 1992); see also Hansen v. United States, 7 F.3d 137,
138 (9th Cir. 1993); Craig v. Commissioner, 119 T.C. 252, 262-263
(2002).
Considering that respondent fully complied with the first
sentence of section 6331(a) and petitioners repeatedly failed to
pay their taxes for the years in issue, respondent was under no
obligation to provide petitioners with any additional notice and
demand for payment before serving the jeopardy levies in
question. Requiring a notice and demand for immediate payment in
all jeopardy situations, as petitioners suggest, is inconsistent
with both section 6331(d)(3), which provides that the
Commissioner is not required to give a taxpayer any notice of his
intent to levy if collection is in jeopardy, and section
7429(a)(1)(B), which provides that the Commissioner has 5 days
from the date of a jeopardy levy to give the taxpayer written
notice of the information upon which he relied in determining
that collection was in jeopardy. Simply put, by the time
respondent determined that collection of petitioners’ tax
liabilities was in jeopardy, he had already complied with the 30
days’ advance notice requirement, and therefore he was free to
serve the jeopardy levies in dispute.23
23
We also note that the last sentence of sec. 6331(a) is
permissive in that it states that the Secretary may issue a
notice and demand for immediate payment. Compare sec. 6861(a),
(continued...)
- 42 -
Petitioners received each collection notice that they were
entitled to under the law. In addition to providing petitioners
with notice and demand for payment, respondent complied with
sections 6330(f) and 7429(a)(1)(B) by providing petitioners with
notice of the jeopardy levies and of their rights to
administrative and judicial review of the levies 3 days after the
levies were served. Petitioners took full advantage of both
avenues of review.
V. Conclusion
We conclude that respondent did not abuse his discretion in
determining that it was appropriate to proceed with collection by
jeopardy levy. The Appeals officer determined that all
procedural requirements were met, addressed petitioners’
arguments raised at the Appeals Office hearing, and balanced the
need for efficient collection of taxes against petitioners’
concern that the collection method was overly intrusive.
Petitioners’ unpaid tax liabilities and the interest accrued
thereon were not discharged in bankruptcy, and respondent held a
lien on petitioners’ property that survived bankruptcy and
provided an avenue for respondent to collect some, if not all, of
the penalties petitioners owed.
23
(...continued)
which provides that in a case of jeopardy the Secretary shall
immediately assess such deficiency and notice and demand shall be
made for the payment.
- 43 -
We have considered the remaining arguments of both parties
for results contrary to those discussed herein, and to the extent
not discussed above, conclude those arguments are irrelevant,
moot, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.