Ion Semen, et ux. v. Commissioner, TC Memo 2011-120 , Code
Sec(s) 6330; 6651; 7491.
ION AND PAULINA SEMEN, Petitioners v. COMMISSIONER OF
INTERNAL REVENUE, Respondent .
Case Information:
Code Sec(s):
6330; 6651; 7491
Docket: Docket
No. 11577-09L.
Date Issued:
06/2/2011
Judge: Opinion by
VASQUEZ
HEADNOTE
XX.
Reference(s): Code Sec. 6330 ; Code Sec. 6651 ; Code Sec.
7491
Syllabus
Official Tax Court Syllabus
Counsel
Ion and Paulina Semen, pro sese.
Robert H. Berman, for respondent.
Opinion by VASQUEZ
MEMORANDUM FINDINGS OF FACT AND OPINION
Pursuant to section
6330(d)(1), 1 petitioners seek review of respondent's Appeals Office's
(Appeals) determination to treat petitioners' outstanding Federal income tax
liabilities for 2001 and 2002 as currently not collectible (CNC) and to not
proceed with collection activity. The issues for decision are: (1) Whether
petitioners are liable for failure to timely pay additions to tax under section 6651(a)(3) for 2001 and 2002; and
(2) whether Appeals' determination constitutes an abuse of discretion.
FINDINGS OF FACT
There are no stipulations of facts. However, respondent's
Exhibits 1-R through 6-R and petitioners' Exhibit 7-P were received in evidence
and are incorporated herein by this reference. Petitioners resided in
California at the time they filed their petition.
Petitioners' 2001 and 2002 tax years previously were before
the Court on petitions for redetermination of deficiencies. On April 19, 2007,
the Court entered a stipulated decision setting forth an agreed-upon deficiency
in petitioners' 2001 Federal income tax of $15,780 and an addition to tax
pursuant to section 6651(a)(1) of
$708.75. On April 17, 2007, the Court entered a stipulated decision setting
forth an agreed-upon deficiency in petitioners' 2002 Federal income tax of
$8,516 and an addition to tax pursuant to
section 6651(a)(1) of $1,115.25. Both stipulated decisions stated that
interest would be assessed on the deficiencies and additions to tax as provided
by law.
In August 2007 respondent assessed petitioners' 2001 and
2002 Federal income tax liabilities in the amounts stated in the decision
documents. Respondent then mailed to petitioners statutory notices of balance
due covering the foregoing assessments (notice and demand letter). Petitioners
did not pay their liabilities, and in February 2008 respondent mailed to
petitioners a Final Notice of Intent to Levy and Notice of Your Right to a
Hearing (levy notice). The levy notice included an account summary showing that
petitioners owed “late payment [penalties]" of $946.80 and $420.75. 2 The
levy notice explained that petitioners had a right to request a hearing with
Appeals to challenge the proposed collection action and to discuss payment
method options by submitting Form 12153, Request for a Collection Due Process
or Equivalent Hearing.
Petitioners timely submitted Form 12153, on which Mr. Semen
stated: “The decision made by the United States Tax Court on the amount owed
for 2001 and 2002 does not match what the I.R.S. has sent to me. I am asking
that they fix it. The U.S. Tax Court decision also states there is no penalty
due.” On July 11, 2008, Appeals sent to petitioners a letter with copies of the
stipulated decisions for 2001 and 2002 and petitioners' account transcripts for
2001 and 2002.
Appeals and petitioners held a telephone conference to
discuss the proposed collection activity. Petitioners argued that the
stipulated decisions for 2001 and 2002 stated that they were not liable for a
penalty, yet the account summary included with the levy notice showed that
petitioners owed late payment penalties. Petitioners did not offer any
collection alternatives. However, Appeals analyzed petitioners' financial
situation and determined that their 2001 and 2002 liabilities were eligible for
CNC status. 3
On February 6, 2009, Appeals sent to petitioners a letter
informing them that respondent added only the
section 6651(a)(1) “penalties” petitioners agreed to. 4 The letter also
explained the possibility of CNC status and asked petitioners whether they
would accept this option. Petitioners did not respond, and Appeals issued a
notice of determination stating that petitioners' liabilities would be treated
as CNC and levy action was not appropriate. Petitioners then filed a petition
with the Court stating that they disagree with “interest and penalty”. 5
“interest”, it is not clear whether petitioners are arguing that interest
should begin to accrue on the date they signed the decision documents and not
from the date petitioners' 2001 and 2002 tax liabilities were originally due,
see sec. 6601(a), (e)(2)(B), or whether
petitioners feel that no interest should be
(continued...)
OPINION
Section 6330(a)
provides that the Secretary shall furnish taxpayers with written notice of
their right to a hearing before any property is levied upon. Section 6330(a) and (b) further provides that the taxpayer may
request administrative review of the matter (in the form of a hearing) within a
30-day period.
Pursuant to section
6330(c)(2)(A), a taxpayer may raise at the
section 6330 hearing any relevant issue with regard to the
Commissioner's collection activities, including spousal defenses, challenges to
the appropriateness of the Commissioner's intended collection action, and
alternative means of collection. Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v.
Commissioner, 114 T.C. 176, 180 (2000).
If a taxpayer received a statutory notice of deficiency for the years in issue
or otherwise had the opportunity to dispute the underlying tax liability, the
taxpayer is precluded from challenging the existence or amount of the
underlying tax liability. Sec.
6330(c)(2)(B); Sego v. Commissioner, supra at 610-611; Goza v. Commissioner,
supra at 182-183. The phrase “underlying tax liability” includes the tax
deficiency, additions to tax, penalties, and statutory interest. Katz v.
Commissioner, 115 T.C. 329, 339 (2000).
Petitioners received notices of deficiency for 2001 and
2002, challenged the Commissioner's determinations for each year before the
Court, and agreed to the stipulated decisions for each year. Accordingly, they
cannot challenge the existence or amount of the underlying liabilities for the
years at issue. See sec. 6330(c)(2)(B);
Sego v. Commissioner, supra at 610-611; Goza v. Commissioner, supra at 182-183.
With respect to the section 6651(a)(3)
additions to tax, however, petitioners did not have a prior opportunity to
dispute that determination. Thus, petitioners were entitled to challenge
the section 6651(a)(3) additions to tax
during the section 6330 hearing and to
litigate them here. See Burke v. Commissioner,
T.C. Memo. 2009-282 [TC Memo 2009-282].
Where the validity of the underlying tax liability is
properly at issue, the Court will review the matter de novo. Sego v.
Commissioner, supra at 610; Goza v. Commissioner, supra at 181-182. The Court
reviews any other administrative determination regarding the proposed levy
action for abuse of discretion. Sego v. Commissioner, supra at 610; Goza v.
Commissioner, supra at 182. Appeals abuses its discretion if its determination
“has been exercised arbitrarily, capriciously, or without sound basis in fact.”
Mailman v. Commissioner, 91 T.C. 1079,
1084 (1988).
I. Petitioners' Liability for the Section 6651(a)(3) Additions to Tax Section 6651(a)(3) imposes an addition to
tax in the case of a failure to pay a tax required to be shown on a return,
which was not so shown, within 21 days after the date of the IRS' notice and
demand letter. The Commissioner has the burden of production with respect to a
taxpayer's liability for the addition to tax.
Sec. 7491(c). To meet that burden, respondent must come forward with
sufficient evidence indicating that it is appropriate to impose the addition to
tax. See Higbee v. Commissioner, 116
T.C. 438, 446 (2001). Petitioners failed to pay the tax required to be shown on
their 2001 and 2002 returns within 21 days after the date of the IRS' notice
and demand for payment. Therefore, respondent has met his burden.
However, the section
6651(a)(3) addition to tax is not imposed if the taxpayer proves that the
failure to pay is due to reasonable cause and not willful neglect. Sec. 301.6651-1(a)(3), Proced. & Admin.
Regs. Reasonable cause is shown if the taxpayer “exercised ordinary business
care and prudence in providing for payment of his tax liability and was
nevertheless either unable to pay the tax or would suffer an undue hardship ***
if he paid on the due date.” Sec.
301.6651-1(c)(1), Proced. & Admin. Regs. Whether the taxpayer has shown
reasonable cause is a question of fact to be decided on the entire record.
Duncan v. Commissioner, T.C. Memo.
2000-269 [TC Memo 2000-269].
We believe petitioners' failure to timely pay is due to
reasonable cause and not willful neglect. At the time petitioners' 2001 and
2002 tax liabilities became due, petitioners' monthly expenses (as adjusted by
Appeals) exceeded their monthly income by $960. Petitioners were therefore
unable to pay the tax liabilities on the due dates and would have suffered an
undue hardship if they had. Significantly, this inability to pay is the reason
Appeals treated petitioners' outstanding liabilities as CNC. Accordingly, we
find that petitioners are not liable for the
section 6651(a)(3) additions to tax.
II. Whether Appeals Abused Its Discretion Petitioners did
not argue that Appeals abused its discretion in treating petitioners'
liabilities as CNC and determining that collection activity should not proceed,
nor did they offer any other collection alternatives. In making its
determination, Appeals verified that the requirements of all applicable law and
administrative procedure had been met.
Under these circumstances, Appeals did not abuse its
discretion when it determined that petitioners' liabilities should be reported
as CNC and collection activity should not proceed. To reflect the foregoing,
An appropriate decision will be entered.
1
All section
references are to the Internal Revenue Code, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
2
The late payment
penalties referred to in the account summary were failure to timely pay
additions to tax under section
6651(a)(3).
3
Appeals determined
that petitioners' monthly expenses exceeded their monthly income by $960.
Appeals calculated petitioners' income by averaging the amounts of income
reported on petitioners' 2005, 2006, and 2007 Federal income tax returns.
4
It is not clear
whether Appeals explained to petitioners why they were liable for the sec. 6651(a)(3) additions to tax.
5
With respect to
petitioners' disagreement with charged. At trial the Court explained to
petitioners that they had agreed to the assessments of interest by signing the
stipulated decisions. The Court also explained that Congress determines when
interest begins to accrue and at what rate, not the Court or the Commissioner.
www.irstaxattorney.com 888-712-7690
No comments:
Post a Comment