Thursday, November 4, 2010
It is ordinarily not an abuse of discretion for an Appeals officer to reject an offer-in-compromise and sustain the Commissioner's proposed collection action where the taxpayer has failed to submit requested financial information timely. See, e.g., Shanley v. Commissioner, T.C. Memo. 2009-17 [TC Memo 2009-17] (citing Prater v. Commissioner, T.C. Memo. 2007-241 [TC Memo 2007-241], Chandler v. Commissioner, T.C. Memo. 2005-99 [TC Memo 2005-99], and Roman v. Commissioner, T.C. Memo. 2004-20 [TC Memo 2004-20]). MORDECHAI ORIAN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent GLOBAL HORIZONS, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent . Case Information: Code Sec(s): 6320; 6330; 6402; 6672 Docket: Docket Nos. 26466-07L, 10791-08L. Date Issued: 10/25/2010 Judge: Opinion by WHERRY HEADNOTE XX. Reference(s): Code Sec. 6320 ; Code Sec. 6330 ; Code Sec. 6402 ; Code Sec. 6672 Syllabus Official Tax Court Syllabus Mordechai Orian (an officer), for petitioner in docket No. 10791-08L. Counsel Mordechai Orian, pro se in docket No. 26466-07L. Elaine Fuller, for respondent. Opinion by WHERRY MEMORANDUM FINDINGS OF FACT AND OPINION These consolidated cases are before the Court on petitions for review of Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notices of determination). 1 Petitioner Mordechai Orian (Mr. Orian) seeks judicial review of respondent's determination to proceed with a filed lien and a proposed levy. These collection actions concern Mr. Orian's section 6672 penalty resulting from Global Horizons, Inc.'s unpaid employment taxes with respect to Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, for all four quarters of the 2005 taxable year. Review is also sought with respect to respondent's determination to proceed with a proposed levy against petitioner Global Horizons, Inc. (Global Horizons), with respect to its unpaid Form 943 employment taxes for all four quarters of the 2005 taxable year. The issues for decision are: (1) Whether Mr. Orian is precluded from contesting his underlying liability under section 6330(c)(2)(B); (2) whether petitioners' challenge to application of payments for the 2005 tax year constitutes an impermissible challenge; (3) whether respondent's determination to proceed with a proposed lien and a levy concerning Mr. Orian's 2005 section 6672 trust fund recovery penalty constitutes an abuse of discretion; and (4) whether respondent's determination to proceed with a proposed levy concerning Global Horizons' 2005 employment tax liability constitutes an abuse of discretion. OPINION I. Mr. Orian's Underlying Liability Section 6320(a) and (b) provides that a taxpayer shall be notified in writing by the Commissioner of the filing of a notice of Federal tax lien and provided with an opportunity for an administrative hearing. An administrative hearing under section 6320 is conducted in accordance with the procedural requirements of section 6330. Sec. 6320(c). Section 6331(a) authorizes the Commissioner to levy upon property or property rights of a taxpayer liable for taxes who fails to pay those taxes within 10 days after a notice and demand for payment is made. Section 6331(d) provides that the levy authorized in section 6331(a) may be made with respect to unpaid tax liability only if the Commissioner has given written notice to the taxpayer 30 days before the levy. Section 6330(a) requires the Commissioner to send a written notice to the taxpayer of the amount of the unpaid tax and of the taxpayer's right to a section 6330 hearing at least 30 days before the levy is begun. If an administrative hearing is requested in a lien or levy case, the hearing is to be conducted by the Appeals office. Secs. 6320(b)(1), 6330(b)(1). At the hearing, the Appeals officer conducting it must verify that the requirements of any applicable law or administrative procedure have been met. Secs. 6320(c), 6330(c)(1). The taxpayer may raise any relevant issue with regard to the Commissioner's intended collection activities, including spousal defenses, challenges to the appropriateness of the proposed levy, and alternative means of collection. Sec. 6330(c)(2)(A); see also Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180 (2000). Taxpayers are expected to provide all relevant information requested by Appeals, including financial statements, for its consideration of the facts and issues involved in the hearing. Secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin. Regs. If a taxpayer's underlying liability is properly at issue, the Court reviews any determination regarding the underlying liability de novo. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181-182. We review any other administrative determination regarding the proposed collection action for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra at 181-182. If raised at a hearing by the taxpayer, a taxpayer's underlying liability is properly at issue in a section 6330 collection case if the taxpayer “did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.” Sec. 6330(c)(2)(B). A taxpayer generally is treated as not having had an opportunity to dispute a liability that is self reported as due on a return. Montgomery v. Commissioner, 122 T.C. 1, 9 (2004). However, a taxpayer cannot challenge an underlying liability in a CDP hearing, and therefore this Court cannot review that liability, if the taxpayer received a notice of deficiency or otherwise had a previous opportunity to dispute the underlying liability. Sec. 6330(c)(2)(B). Mr. Orian claims he never received the proposed assessment. Similarly, respondent argues that the proposed assessment was sent by certified mail to Mr. Orian at his last known address, but he did not avail himself of his opportunity to contest the proposed assessment within the time prescribed. On these facts, respondent asserts that Mr. Orian is barred from bringing his underlying liability before the Court. Because the assessment against Mr. Orian was a trust fund penalty, respondent properly issued a proposed assessment under section 6672(b)(1), rather than a notice of deficiency. See secs. 6212(a), 6672(b). In respondent's opinion, a section 6672(b)(1) notice provides a taxpayer with the means for protesting a proposed trust fund penalty assessment administratively with the Commissioner. See sec. 301.6330- 1(e)(3), Q&A-E2, Proced. & Admin. Regs.; see also Mason v. Commissioner, 132 T.C. 301, 316 (2009). It follows that where a taxpayer has not received a section 6672(b)(1) notice, or in this case the proposed assessment, then that taxpayer has not been afforded an opportunity to dispute the underlying tax liability. Documentary evidence of mailing may suffice as proof that a notice of deficiency was properly mailed to a taxpayer. Coleman v. Commissioner, 94 T.C. 82, 90-91 (1990). When a proposed assessment is mailed, the Commissioner must follow the same mailing procedures that are provided for notices of deficiency in section 6212(b). Sec. 6672(b)(1). Hence, the same evidence that establishes that the Commissioner mailed a notice of deficiency to a taxpayer's last known address is sufficient to establish that the Commissioner properly sent a proposed assessment. Mason v. Commissioner, supra at 318; Hickey v. Commissioner, T.C. Memo. 2009-2 [TC Memo 2009-2]. Respondent has established that a proposed assessment was sent by certified mail to Mr. Orian's last known address; that it was not returned; and that, according to the U.S. Postal Service's Web site, it was delivered on July 13, 2007. While Mr. Orian testified that he had no memory of receiving the letter and was frequently out of town, actual personal receipt of the proposed assessment following its delivery to the taxpayer's home is not required in order to prove that the Commissioner provided Hickey v. Commissioner, supra. the required preliminary notice. Accordingly, Mr. Orian has not met the burden of proof requirements to overcome the presumption that he received the proposed assessment. Because respondent has met the requirements of section 6672(b)(1), the Court finds that Mr. Orian otherwise had an opportunity to contest his underlying liability. See Pough v. Commissioner, 135 T.C. ___, ___ (2010) (slip op. at 10). Consequently, Mr. Orian's liability for the trust fund penalty is not properly in issue, and we review respondent's determination of the proposed collection actions against Mr. Orian for abuse of discretion. II. Application of Payments Respondent argues that both petitioners are precluded from challenging the manner in which payments made by Global Horizons were applied. Respondent asserts that Global Horizons is precluded from pursuing this issue because it did not raise the issue at its CDP hearing and Mr. Orian is precluded because the issue constitutes an impermissible challenge to his underlying liability. In reviewing for abuse of discretion under section 6330(d)(1), generally the Court may consider only arguments, issues, and other matters that were raised at the CDP hearing or otherwise brought to the attention of Appeals. Giamelli v. Commissioner, 129 T.C. 107, 115 (2007); Magana v. Commissioner, 118 T.C. 488, 493 (2002); see also Porter v. Commissioner, 130 T.C. 115, 117 (2008) (when determining whether a taxpayer is entitled to relief under section 6015, the Court may consider evidence introduced at trial but not included in the administrative record); sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs. According to the record, both Mr. Orian and Global Horizons questioned at their respective CDP hearings whether all credits and payments made by Global Horizons with regard to its 2005 tax liability had been properly applied to its Form 943 liability. The Court considers that a challenge to the application of payments to the taxpayer's overall liability is sufficient to preserve the issue for review. We disagree with respondent that because petitioners did not specifically dispute the “allocation of payments to the non-trust fund (as opposed to the trust fund) portion of the tax during the CDP Hearings”, they are precluded from raising the issue with the Court. This Court held in Kovacevich v. Commissioner, T.C. Memo. 2009-160 [TC Memo 2009-160], that “questions about whether a particular check was properly credited to a particular taxpayer's account for a particular tax year are not challenges to his underlying tax liability.” See also Freije v. Commissioner, 125 T.C. 14, 26-27 (2005). The Court in Kovacevich v. Commissioner, supra note 10, distinguished instances in which taxpayers assert they are due refunds from prior years, as these types of challenges are considered a challenge to the taxpayer's underlying liability. See also Perkins v. Commissioner, 129 T.C. 58 (2007); Landry v. Commissioner, 116 T.C. 60 (2001). Petitioners, like the taxpayers in Kovacevich, are questioning the application of payments, not claiming they are due refunds. Accordingly, the Court finds that neither petitioner is barred from challenging respondent's application of payments with regards to Global Horizons' 2005 tax liability. Consequently, we review respondent's application of payments for abuse of discretion. See Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 181-182. Petitioners contend that respondent was obliged to apply payments made towards Global Horizons' Form 941 tax liability for the first, second, third, and fourth quarters of 2005 against the balance of its Form 943 trust fund tax liability for 2005. Specifically, petitioners allege that the abatements of tax credited to Global Horizons because of overpayments of its Form 941 tax liability for the periods ending March 31 and June 30, 2005, should have been credited to its 2005 Form 943 tax liability. Additionally, petitioners claim that respondent's disregard of Global Horizons' request that the overpayment of $250,586.83 for its December 30, 2005, Form 941 tax liability be applied to its Form 943 liability for 2005 is an abuse of discretion. When a taxpayer owing more than one tax or owing tax for more than one year makes voluntary payments to the Commissioner, he or she may, by specific written directions, assign the application of those payments to any portion of the liability. Tull v. United States, 69 F.3d 394, 396 [76 AFTR 2d 95-7312] (9th Cir. 1995); Wood v. United States, 808 F.2d 411, 416 [59 AFTR 2d 87-512] (5th Cir. 1987); O'Dell v. United States, 326 F.2d 451, 456 [13 AFTR 2d 567] (10th Cir. 1964); see also Rev. Proc. 2002-26, 2002-1 C.B. 746. Under the voluntary payment rule, when a taxpayer who has outstanding tax liabilities voluntarily makes a payment, the Commissioner usually will honor the taxpayer's request as to how to apply that payment. United States v. Ryan, 64 F.3d 1516, 1522 [76 AFTR 2d 95-6629] (11th Cir. 1995). However, section 6402(a) and the regulations promulgated thereunder demonstrate that a taxpayer's right to designate the application of his voluntary payment does not extend to an overpayment reported on a return. Section 6402(a) allows the Commissioner to credit an “overpayment, including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment” and, subject to certain limitations, refund any balance to the person. In lieu of a refund, a taxpayer can instruct the Commissioner to credit his overpayment against the estimated tax for the taxable year immediately succeeding the year of the overpayment. Sec. 301.6402-3(a)(5), Proced. & Admin. Regs. The Commissioner need only refund, or apply to the taxpayer's estimated tax, that portion of the overpayment that exceeds the taxpayer's “outstanding liability for any tax”. Sec. 301.6402-3(a)(6), Proced. & Admin. Regs.; see N. States Power Co. v. United States, 73 F.3d 764, 767 [77 AFTR 2d 96-323] (8th Cir. 1996) (”`[Section] 6402(a), plainly gives the *** [Commissioner] the discretion to apply overpayments to any tax liability.” (quoting United States v. Ryan, supra at 1523)); Pettibone Corp. v. United States, 34 F.3d 536, 538 [74 AFTR 2d 94-6214] (7th Cir. 1994) ( section 6402(a) “leaves to the Commissioner's discretion whether to apply overpayments to delinquencies or to refund them to the taxpayer”). Respondent's partial application of Global Horizons' 2005 overpayment to its 2005 and 2006 Form 941 tax liabilities falls within respondent's authority to credit overpayments to any liability for any tax year and, therefore, was proper and not an abuse of discretion. See also Bryant v. Commissioner, T.C. Memo. 2009-78 [TC Memo 2009-78], affd. ___ Fed. Appx. ___ (6th Cir., Oct. 12, 2010); Richmond v. Commissioner, T.C. Memo. 2005-238 [TC Memo 2005-238]. III. Abuse of Discretion In the light of our conclusions supra regarding challenges to the underlying liabilities and application of payments, disposition of these cases rests upon whether the record reflects an abuse of discretion on the part of respondent in determining to proceed with collection efforts in the form of the filed lien and the proposed levies. Under this standard, action constitutes an abuse of discretion where it is arbitrary, capricious, or Woodral v. Commissioner, 112 without sound basis in fact or law. T.C. 19, 23 (1999). The Court considers whether the Commissioner committed an abuse of discretion in rejecting a taxpayer's position with respect to any relevant issues, including those items enumerated in section 6330(c)(2)(A); i.e., spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives. Whether an abuse of discretion has occurred depends upon whether the exercise of discretion is without sound basis in fact or law. Freije v. Commissioner, 125 T.C. at 23. At the hearing, generally, the Appeals officer must consider the above-stated issues raised by the taxpayer, verify that the requirements of applicable law and administrative procedure have been met, and consider “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)(C). Consequently, an Appeals officer must verify that the underlying tax was properly assessed. An Appeals officer may rely on a computer transcript or Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, to verify that a valid assessment was made and that a notice and demand for payment was sent to the taxpayer in Nestor v. Commissioner, 118 T.C. accordance with section 6303. 162, 166 (2002); Schaper v. Commissioner, T.C. Memo. 2002-203 [TC Memo 2002-203]; Schroeder v. Commissioner, T.C. Memo. 2002-190 [TC Memo 2002-190]. Absent a showing of irregularity, a transcript that shows such information is sufficient to establish that the procedural requirements of Nestor v. Commissioner, supra at section 6330 have been met. 166; see sec. 6330(c)(1), (3). It is ordinarily not an abuse of discretion for an Appeals officer to reject an offer-in-compromise and sustain the Commissioner's proposed collection action where the taxpayer has failed to submit requested financial information timely. See, e.g., Shanley v. Commissioner, T.C. Memo. 2009-17 [TC Memo 2009-17] (citing Prater v. Commissioner, T.C. Memo. 2007-241 [TC Memo 2007-241], Chandler v. Commissioner, T.C. Memo. 2005-99 [TC Memo 2005-99], and Roman v. Commissioner, T.C. Memo. 2004-20 [TC Memo 2004-20]). Petitioners raised no issues at their respective CDP hearings other than the application of the H-2A visas of Global Horizons' employees and the proper allocation of payments to Global Horizons' 2005 employment tax liability. The Appeals settlement officer assigned to Mr. Orian's CDP hearing reviewed the documentation provided to substantiate the H-2A visas, namely the Forms 1099. The Appeals settlement officer questioned the accuracy of the Social Security numbers and addresses listed on the Forms 1099 and noted his “enormous trepidation” with regard to any abatement of Global Horizons' Form 943 liability based on the documentation provided. Petitioners presented no further documentation to substantiate the application of H-2A employee visas to the abatement of the Form 943 tax liability. Following Mr. Orian's CDP hearing, the Appeals settlement officer conducted a thorough investigation of the application of credits generated by Global Horizons' payments for its Form 941 liability to its Form 943 liability for the 2005 tax year, including a review of the applicable Forms 4340. The Appeals settlement officer determined that respondent had followed all correct procedures in the assertion and the computation of the trust fund penalty assessed against Mr. Orian. The Appeals settlement officer assigned to Global Horizons' CDP hearing also thoroughly reviewed the Forms 4340. She too determined that respondent followed all correct procedures and verified the accuracy of the levy proposed against Global Horizons. The Court has reviewed the record, in particular the Forms 4340 for petitioners' 2005 tax year, and finds that the procedural requirements of section 6330 have been met. See sec. 6330(c)(1); sec. 301.6330-1(e)(1), Proced. & Admin. Regs. The request for a CDP hearing submitted by Global Horizons did not articulate a desire for any specific collection action, although the two requests submitted by Mr. Orian proposed both an offer-in-compromise and an installment arrangement. However, Mr. Orian never submitted a proposal for payment or resolution of the unpaid trust fund liability during his CDP hearing. Additionally, petitioners provided no financial information at their CDP hearings, and they were not in filing compliance during the time their CDP cases were pending before Appeals. Accordingly, both Appeals settlement officers determined to proceed with the lien and levy actions, and did not entertain an installment agreement or other collection alternatives, because petitioners failed to fulfill two prerequisites for consideration of such alternatives: (1) Submission of financial information sufficient to enable the Commissioner to evaluate collection potential; and (2) a showing of compliance with obligations to make estimated tax payments for the following year (2006). In the light of this history and on this record, respondent committed no abuse of discretion in concluding that petitioners would not be eligible for an offer-in-compromise or a similar collection alternative. In conclusion, the facts of these cases do not establish any abuse of discretion on respondent's part. The Court will sustain respondent's proposed collection actions as to the 2005 tax year. The Court has considered all of petitioners' contentions, arguments, requests, and statements. To the extent not discussed herein, the Court concludes that they are meritless, moot, or irrelevant. To reflect the foregoing, Appropriate orders and decisions will be entered. ________________________________________ 1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended. ________________________________________ 2 The record does not disclose the basis for the $761.12 difference before consideration of the $5,281.99 tax deposit penalty. After consideration of the penalty, the difference is $4,520.87, which arises from the claimed amount of total tax deposits that Global Horizons' Form 941 indicates was $304,167.88 while respondent's records indicate the amount was $308,688.75. As Global Horizons has failed to show how its deposit total was derived or file a brief in these cases, we shall accept respondent's $308,688.75 amount. ________________________________________ 3 The record in these cases does not contain a computer transcript or Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for Global Horizons' Mar. 31, 2006, Form 941 tax liability. Therefore, the Court cannot verify that all overpayments were properly credited. However, because petitioners failed to raise this issue at trial or file a brief in these cases, the Court accepts the record as it stands. ________________________________________ 4 At the time the CDP levy notice was sent, Global Horizons also had an unpaid Form 940 tax liability for the 2005 tax year. This liability has since been paid. ________________________________________ 5 The Form 12153 is stamped as received on June 15, 2007, but the settlement officer's memorandum attached to the notice of determination indicates that a faxed copy was received by the Internal Revenue Service on June 14, 2007.