Judges: "Gustafson, David"
Attorneys: Frederick J. O'Laughlin , for petitioner. G. Chad Barton , for respondent.
Filed: Nov. 17, 2008
Latest Update: Dec. 05, 2020
Summary: T.C. Memo. 2008-257 UNITED STATES TAX COURT DAVID CAVAZOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 28664-07L. Filed November 17, 2008. P filed a Federal income tax return reporting tax due for the year 2002, but did not fully pay the liability. In 2005 P submitted to R an Offer-in- Compromise (OIC) as to his 2002 liability, which R rejected because P had not complied with all return- filing requirements. R issued a notice of intent to levy, and P requested a hearing
Summary: T.C. Memo. 2008-257 UNITED STATES TAX COURT DAVID CAVAZOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 28664-07L. Filed November 17, 2008. P filed a Federal income tax return reporting tax due for the year 2002, but did not fully pay the liability. In 2005 P submitted to R an Offer-in- Compromise (OIC) as to his 2002 liability, which R rejected because P had not complied with all return- filing requirements. R issued a notice of intent to levy, and P requested a hearing ..
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T.C. Memo. 2008-257
UNITED STATES TAX COURT
DAVID CAVAZOS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 28664-07L. Filed November 17, 2008.
P filed a Federal income tax return reporting tax
due for the year 2002, but did not fully pay the
liability. In 2005 P submitted to R an Offer-in-
Compromise (OIC) as to his 2002 liability, which R
rejected because P had not complied with all return-
filing requirements. R issued a notice of intent to
levy, and P requested a hearing under I.R.C. sec. 6330.
During the hearing P conceded that he was not current
with all his filing requirements. P also failed to
propose any collection alternatives, other than his
previously rejected OIC, or to provide R with requested
financial information. R’s appeals officer issued to P
a final notice of determination, in which she
determined that a levy was appropriate. P appealed
that determination to this Court. R moved for summary
judgment, and P opposed R’s motion.
Held: R’s motion for summary judgment will be
granted. R’s appeals officer did not abuse her
discretion in sustaining the levy when (1) P failed to
submit requested financial information, (2) P proposed
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no other collection alternatives, and (3) P was
noncompliant with return-filing obligations.
Frederick J. O’Laughlin, for petitioner.
G. Chad Barton, for respondent.
MEMORANDUM OPINION
GUSTAFSON, Judge: This case is an appeal by petitioner
David Cavazos, pursuant to section 6330(d)(1),1 from the
determination by an appeals officer of the Internal Revenue
Service (IRS) to uphold the IRS’s proposed use of a levy to
collect Mr. Cavazos’s unpaid Federal income tax liability for
2002. The case is before us on a motion for summary judgment
filed by the respondent under Rule 121.
Background
There is no dispute as to the following facts:
For the year 2002, Mr. Cavazos filed a Form 1040, U.S.
Individual Income Tax Return, on which he reported that he was
liable for $12,577 in tax; but he did not fully pay that self-
reported liability.2 On October 28, 2005, Mr. Cavazos submitted
1
Except as otherwise noted, all section references are to
the Internal Revenue Code (26 U.S.C.), and all Rule references
are to the Tax Court Rules of Practice and Procedure.
2
Mr. Cavazos did remit $2,000 with his return. However,
Mr. Cavazos’s failure to pay the tax liability in full resulted
(continued...)
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to the IRS an Offer-in-Compromise (OIC) proposing to compromise
his income tax liability for 2002. However, the IRS rejected
that offer no later than January 23, 2007,3 because of
Mr. Cavazos’s noncompliance with return-filing requirements.
On February 14, 2007, the IRS sent to Mr. Cavazos, pursuant
to section 6330(a), a Notice of Intent to Levy and Notice of Your
Right to a Hearing regarding unpaid taxes for 2002. Pursuant to
section 6330(b)(1), Mr. Cavazos timely requested a hearing by
sending to the IRS, on March 10, 2007, a Form 12153, Request for
a Collection Due Process [CDP] or Equivalent Hearing. In his
request for a hearing, Mr. Cavazos stated that a levy would cause
him extreme hardship and that he had already submitted an OIC
regarding the 2002 liability.
On June 13, 2007, an IRS Appeals resolution specialist sent
Mr. Cavazos a letter enclosing a blank Form 433-A, Collection
Information Statement for Wage Earners and Self-Employed
2
(...continued)
in penalties and interest being added to his account. At the
time the IRS issued the Notice of Intent to Levy and Notice of
Your Right to a Hearing, Mr. Cavazos’s outstanding liability for
2002 was $16,537.32.
3
There is no dispute that the IRS rejected the October 2005
OIC, but the record bears some discrepancy about the date of that
rejection. A transcript shows rejection on January 23, 2006;
notes from the case activity log of the hearing officer show that
the OIC was “returned 01/23/07”; and the attachment to the notice
of determination states that the OIC was “returned 11/20/2006”.
(Emphasis added.) However, the discrepancy is immaterial for
present purposes, since the relevant fact is that the OIC was no
longer pending at the time of the CDP hearing.
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Individuals, and requesting that the Form 433-A and all
supporting documents be submitted to the IRS by June 28, 2007, to
describe Mr. Cavazos’s financial situation.4 Mr. Cavazos did not
complete and submit the Form 433-A by that deadline. On June 28,
2007, an IRS settlement officer sent Mr. Cavazos a letter
acknowledging the receipt of Mr. Cavazos’s request for a CDP
hearing and advising Mr. Cavazos that--
For me [the settlement officer] to consider alternative
collection methods such as an installment agreement or offer
in compromise, you must provide any items listed below. In
addition, you must have filed all federal tax returns
required to be filed.[5]
The required items that were then listed in the June 28 letter
included a “completed Collection Information Statement
(Form 433-A for individuals and/or Form 433-B for businesses)”.
4
The request was consistent with agency procedure: In a
section 6330 hearing, “Taxpayers will be expected to provide all
relevant information requested by Appeals, including financial
statements, for its consideration of the facts and issues
involved in the hearing.” Sec. 301.6330-1(e)(1), Proced. &
Admin. Regs. Furthermore, an appeals officer may not consider a
collection alternative unless the taxpayer has provided adequate
financial information, such as a current Form 433-A. See Rev.
Proc. 2003-71, sec. 4.03, 2003-2 C.B. 517, 518; see also Internal
Revenue Manual (IRM), pt. 5.14.1.5 (July 12, 2005).
5
See sec. 301.6330-1(d)(2), Q&A-D8, Proced. & Admin. Regs.
(“the IRS does not consider offers in compromise from taxpayers
who have not filed required returns or have not made certain
required deposits of tax”); see also IRM, pts. 5.8.3.4.1,
5.19.1.6.2(3) (Sept. 1, 2005). Likewise, a taxpayer must be in
compliance with all filing and paying requirements before an
installment agreement can be considered. See Giamelli v.
Commissioner,
129 T.C. 107, 111-112 (2007); IRM, pts.
5.14.1.2(9)(e), 5.14.1.5.1, 5.14.1.3(4)(d) (July 12, 2005).
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On July 12, 2007, Mr. Cavazos requested that his collection
review (initially assigned to the Memphis Campus Appeals Office)
be transferred to a local Appeals Office for a face-to-face CDP
hearing, so the IRS transferred the case to the Oklahoma City
Appeals Office. On August 23, 2007, the IRS settlement officer
sent Mr. Cavazos a letter acknowledging the receipt by the
Oklahoma City Appeals Office of Mr. Cavazos’s request for a CDP
hearing. In that letter the IRS scheduled Mr. Cavazos’s hearing
and, for a third time, requested that Mr. Cavazos provide
financial information and submit his past-due returns:
For me [the settlement officer] to consider alternative
collection methods such as an installment agreement or offer
in compromise, you must provide any items listed below. In
addition, you must have filed all federal tax returns
required to be filed.
• A completed and verifiable Collection Information
Statement (Form 433-A for individuals and/or Form
433-B for business-D&C Masonry, LLC) * * *
• Proof of estimated tax payments for the
period: 12/2007 * * *
• Current taxes will continue to be a recurring
problem as long as you fail to make required
estimate[d] payments. In the 2006 year you did
pay $6,140.00. There is still however no return
yet filed for 2006. * * *
Appeals cannot assist you until you become compliant.
Therefore, prior to the CDP hearing, I will require:
• You to provide proof that you are current with all
filing and paying. * * *
The IRS’s settlement officer conducted a telephone hearing
with Mr. Cavazos’s counsel on November 1, 2007. During the
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hearing Mr. Cavazos’s counsel acknowledged that Mr. Cavazos was
not current with his return filing requirements. Neither before
the hearing nor at the hearing did Mr. Cavazos or his counsel
provide the settlement officer with the Form 433-A or other
documentation requested in the IRS’s letters of June 13, June 28,
and August 23, 2007.
Furthermore, neither Mr. Cavazos nor his counsel proposed
any collection alternatives at the hearing. As noted above, more
than two years earlier--on October 28, 2005--Mr. Cavazos had
submitted an OIC to the IRS relating to his income tax liability
for 2002, but the IRS had rejected that OIC no later than January
23, 2007 (i.e., before the IRS issued its notice of intent to
levy and before Mr. Cavazos submitted his request for a CDP
hearing). That particular collection alternative proposal had
therefore been disposed of before the commencement of
Mr. Cavazos’s collection proceeding; and at the time of his
hearing, Mr. Cavazos therefore had no outstanding requests for
any collection alternative for the appeals officer to consider.
On November 5, 2007, the Appeals Office issued to
Mr. Cavazos a Notice of Determination Concerning Collection
Action(s) Under Section 6320 and/or 6330, sustaining the levy
action as the least intrusive collection alternative. The notice
reflected that the Appeals Office had “obtain[ed] verification
* * * that the requirements of any applicable law or
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administrative procedure ha[d] been met” (as required by
section 6330(c)(1)),6 and reported that the Appeals Office had
determined that the levy was appropriate. The attachment to the
Notice of Determination stated, inter alia:
IRC § 6330 Collection Due Process Hearing
* * * Your POA [i.e., your representative with a Power of
Attorney] * * * requested the CDP hearing to be rescheduled
for 11/01/2007. The request was granted[;] however you were
to provide the requested documents as set forth in the CDP
hearing letter sent to you and your POA dated 08/23/2007.
Nothing has been received.
The CDP hearing was held 11/01/2007 with your POA via
telephone. He indicates you are not current with filing
required tax reports (12/2006 Form 1040) and you also have
not provided the necessary documents to make a viable
collection alternative. Thus, the proposed levy action is
deemed no more intrusive than necessary.
Collection Alternatives
There were no collection alternatives proposed during the
CDP hearing process.
Other Issues Raised
No relevant issues were raised during the CDP hearing
process. * * *
On December 11, 2007, Mr. Cavazos petitioned the Tax Court,
seeking review, pursuant to section 6330(d)(1), of the IRS’s
6
Mr. Cavazos has not disputed that the “verification”
required by section 6330(c)(1) was obtained, nor that the
preconditions for a levy, see sec. 6331(a), (d), had been
satisfied. An IRS transcript in the hearing record shows that
the IRS had assessed Mr. Cavazos’s self-reported liability
(pursuant to sec. 6201(a)(1), and within the time prescribed by
sec. 6501(a)), and that the IRS had made notice and demand
(pursuant to sec. 6303) that Mr. Cavazos pay the liability. The
Notice of Intent to Levy and Notice of Your Right to a Hearing
that the IRS issued to Mr. Cavazos on February 14, 2007,
fulfilled the requirements of sections 6330(a) and 6331(d).
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determination. At the time he filed his petition, Mr. Cavazos
resided in Oklahoma. In his petition, Mr. Cavazos assigns as
error in the determination the findings “that: (A) levy is
appropriate; and (B) that the proposed levy is no more intrusive
than necessary.”
On August 13, 2008, the IRS filed a motion for summary
judgment, contending that the determination did not constitute an
abuse of discretion by the IRS. On October 2, 2008, Mr. Cavazos
filed his response.
Discussion
Where the pertinent facts are not in dispute, a party may
move for summary judgment to expedite the litigation and avoid an
unnecessary (and potentially expensive) trial. Fla. Peach Corp.
v. Commissioner,
90 T.C. 678, 681 (1988). Summary judgment may
be granted where there is no genuine issue as to any material
fact and a decision may be rendered as a matter of law. Rule
121(a) and (b); see Sundstrand Corp. v. Commissioner,
98 T.C.
518, 520 (1992), affd.
17 F.3d 965 (7th Cir. 1994); Zaentz v.
Commissioner,
90 T.C. 753, 754 (1988). The party moving for
summary judgment (here, the IRS) bears the burden of showing that
there is no genuine issue as to any material fact, and factual
inferences will be drawn in the manner most favorable to the
party opposing summary judgment (here, Mr. Cavazos). Dahlstrom
v. Commissioner,
85 T.C. 812, 821 (1985); Jacklin v.
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Commissioner,
79 T.C. 340, 344 (1982). The instant case can be
resolved on the basis of the undisputed facts.
If a taxpayer fails to pay any Federal income tax liability
within 10 days of notice and demand, the Secretary is authorized
to collect the tax by levy on the person’s property. Sec.
6331(a). However, Congress has added certain provisions to the
Code (in chapter 64, subchapter D, part I) as “Due Process for
Collections”, and those provisions must be complied with before
the IRS can proceed with a levy:
Before a levy, the taxpayer must be notified of the right to
an administrative hearing before the Appeals Office of the IRS.
Sec. 6330(a) and (b)(1). At that hearing, the taxpayer may
generally raise relevant issues relating to the unpaid tax or the
proposed levy, including offers of collection alternatives, which
may include, among other things, an installment agreement or an
OIC. Sec. 6330(c)(2)(A). The appeals officer must then make a
determination whether the proposed levy action may proceed. The
appeals officer is required to take into consideration:
(1) “verification from the Secretary that the requirements of any
applicable law and administrative procedure have been met” (see
sec. 6330(c)(3)(A), citing sec. 6330(c)(1)7); (2) relevant issues
7
The legislative history of this provision explains that
“the IRS is required to verify that all statutory, regulatory,
and administrative requirements for the proposed collection
action have been met.” H. Conf. Rept. 105-599, at 264 (1998),
(continued...)
- 10 -
raised by the taxpayer (see sec. 6330(c)(3)(B), citing
sec. 6330(c)(2)8); and (3) whether the proposed levy
appropriately balances the need for efficient collection of taxes
with a taxpayer’s concerns regarding the intrusiveness of the
proposed levy action (see sec. 6330(c)(3)(C)). If the Appeals
Office then issues a notice of determination upholding the
7
(...continued)
1998-3 C.B. 747, 1018 (emphasis added); see Green-Thapedi v.
Commissioner,
126 T.C. 1, 6 (2006). In the case of a levy to
collect self-reported income tax liability, the basic
requirements (see sec. 6331(a), (d)) for which the appeals
officer must obtain verification are: the IRS’s timely assessment
of the liability (secs. 6201(a)(1), 6501(a)); the giving to the
taxpayer of notice and demand for payment of the liability
(sec. 6303); and the giving to the taxpayer of notice of
intention to levy and of the taxpayer’s right to a hearing (secs.
6330(a) and 6331(d)). See Cox v. Commissioner,
126 T.C. 237, 255
(2006) (holding the verification requirement to be met “where the
Appeals officer had secured formal or informal transcripts
showing both that the taxes were properly assessed and that the
taxpayer had been notified of those assessments through issuance
of notices of balance due”), revd. on other grounds,
514 F.3d
1119 (10th Cir. 2008). As noted supra note 6, those requirements
were verified in this instance.
8
Under section 6330(c)(2), a taxpayer may raise collection
issues under subsection (c)(2)(A) and may, under certain
circumstances, challenge the underlying tax liability under
subsection (c)(2)(B). Where the underlying tax liability is
properly at issue in a section 6330 hearing, the Court will
review the matter de novo. Davis v. Commissioner,
115 T.C. 35,
39 (2000). However, where the underlying liability is not at
issue, we review the appeals officer’s determinations regarding
the collection action for an abuse of discretion. Goza v.
Commissioner,
114 T.C. 176 (2000). Mr. Cavazos has not
challenged his underlying liability. Accordingly, we review the
IRS’s determination for abuse of discretion; that is, whether the
determinations were arbitrary, capricious, or without sound basis
in fact or law. See Murphy v. Commissioner,
125 T.C. 301, 320
(2005), affd.
469 F.3d 27 (1st Cir. 2006); Sego v. Commissioner,
114 T.C. 604, 610 (2000).
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proposed levy, the taxpayer may appeal the determination to this
Court within 30 days (see sec. 6330(d)(1)), as Mr. Cavazos has
done.
In his petition Mr. Cavazos disputes the determination that
a levy is an appropriate action to collect his income tax,
penalties, and interest owing for 2002; but his position is
without merit. The appeals officer acted reasonably in rejecting
collection alternatives and determining instead that the levy was
appropriate, for the reasons recounted in the attachment to the
determination and addressed here:
First, the appeals officer’s determination was reasonable in
view of Mr. Cavazos’s repeated failure to provide requested
financial information, especially the Form 433-A. It is not an
abuse of discretion for an appeals officer to reject collection
alternatives and sustain the proposed collection action on the
basis of the taxpayer’s failure to submit requested financial
information. Prater v. Commissioner, T.C. Memo. 2007-241;
Chandler v. Commissioner, T.C. Memo. 2005-99; Roman v.
Commissioner, T.C. Memo. 2004-20. In doing so, the appeals
officer followed the requirements of the regulations and
Rev. Proc. 2003-71, 2003-2 C.B. 517. See supra note 4.
Second, the appeals officer’s determination was reasonable
in view of Mr. Cavazos’s failure to raise during the collection
hearing any relevant issues or appropriate defenses pertaining to
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the proposed collection action, and his failure to offer any
collection alternatives for the appeals officer to consider.9 It
is not an abuse of discretion for an appeals officer to sustain a
levy and not consider any collection alternatives when the
taxpayer has proposed none. Kendricks v. Commissioner,
124 T.C.
69, 79 (2005).
Third, the appeals officer’s determination was reasonable in
view of Mr. Cavazos’s failure to file his income tax return for
2006. Mr. Cavazos had been advised that his 2006 return was
overdue, yet he never fulfilled this obligation. It is not an
abuse of discretion for an appeals officer to reject an OIC on
the ground that the taxpayer has a history of noncompliance with
the tax laws or is noncompliant with current tax obligations.
Giamelli v. Commissioner,
129 T.C. 107, 111-112 (2007). In doing
so, the appeals officer followed the requirements of the
regulations. See supra note 5.
In response to the IRS’s motion, Mr. Cavazos answers that
the appeals officer’s determination constitutes an abuse of
discretion because, while “[r]espondent has requested that
9
As stated supra note 3, the record shows that the only OIC
Mr. Cavazos submitted (in October 2005) had been rejected before
the hearing commenced. At one point during the hearing,
Mr. Cavazos’s counsel appears to have suggested that he never
received from the IRS a response to that OIC (perhaps suggesting
that the October 2005 OIC might still have been pending in 2007),
but Mr. Cavazos did not raise this contention in his response to
the motion for summary judgment, and we consider that, if he ever
did maintain this position, he has abandoned it.
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Petitioner be current with all filing and paying requirement
* * * Petitioner was not provided with notice of what Respondent
required for compliance”. In other words, though Appeals did
advise Mr. Cavazos that, in order for Appeals to consider any
collection alternatives, Mr. Cavazos needed to be “current with
all filing and paying requirements”, there was nonetheless an
abuse of discretion (Mr. Cavazos contends) because the appeals
officer did not advise Mr. Cavazos on precisely how to become
compliant. Specifically, Mr. Cavazos contends that the IRS’s
request “is arbitrary when Respondent’s requirements are not
detailed so as to give Petitioner notice of what is required by
Petitioner to become compliant.”
We decline to hold--as petitioner’s argument would require--
that a section 6330 hearing officer is obliged to remind every
taxpayer that each year on April 15 an income tax return is due.
“As a general rule, taxpayers are charged with knowledge of the
law.” Niedringhaus v. Commissioner,
99 T.C. 202, 222 (1992). At
issue here is not an esoteric requirement but the annual filing
of Form 1040. A taxpayer need not be an expert in tax law to
know that tax returns must be filed and that taxes must be paid
when they are due. United States v. Boyle,
469 U.S. 241, 251
(1985). Consequently, it was not the appeals officer’s
responsibility to remind Mr. Cavazos of the most basic tax
obligation.
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In fact, however, Mr. Cavazos was given such explicit
reminders: In the letters of both June 13 and August 23, 2007,
the IRS expressly warned Mr. Cavazos that before Appeals could
consider any collection alternatives, Mr. Cavazos needed to file
all required Federal tax returns. Furthermore, in the letter of
August 23, 2007, the IRS advised Mr. Cavazos that the agency’s
records showed (1) that there was “no return yet filed for 2006,”
(2) “there is also no ES tax paid for 2007,” and (3) that Mr.
Cavazos still “owe[s] for other non-CDP tax periods” (i.e.,
periods other than 2002). The IRS further advised Mr. Cavazos
that before a collection alternative could be considered, he
would have to “provide proof that [he was] current with all
filing and paying” requirements delineated above.
It cannot be seriously maintained that these instructions
were not “detailed so as to give Petitioner notice of what is
required by Petitioner to become compliant”, as petitioner
suggests. Rather, the IRS’s August 23, 2007, letter clearly
listed the specifics of Mr. Cavazos’s noncompliance. The IRS’s
request that Mr. Cavazos provide proof of compliance in these
areas before the agency would consider collection alternatives
was hardly arbitrary.
We conclude that there is no genuine issue of material fact
requiring a trial in this case, and we hold that respondent is
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entitled to the entry of a decision sustaining the determination
and proposed levy as a matter of law.
To reflect the foregoing,
An appropriate order and
decision will be entered.