T.C. Memo. 2009-217



                     UNITED STATES TAX COURT



                 ALPHONSE MOURAD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18038-05L.            Filed September 17, 2009.



     Alphonse Mourad, pro se.

     Louise R. Forbes, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GALE, Judge: Pursuant to section 6330(d)(1),1 petitioner

seeks review of respondent’s determination to proceed with a levy

to collect unpaid income tax with respect to petitioner’s 1995



     1
      Unless otherwise noted, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

and 1999 taxable years.    Respondent concedes that petitioner is

entitled to challenge the underlying tax liability for those

years.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

Petitioner resided in Massachusetts when he filed the petition.

     Petitioner was the sole shareholder of V&M Management, Inc.

(V&M Management), an S corporation, from 1994 and at all relevant

times thereafter.    V&M Management owned and operated a 275-unit

apartment complex known as Mandela Apartments in Roxbury,

Massachusetts.    On January 8, 1996, V&M Management filed a

petition for reorganization pursuant to chapter 11 of the U.S.

Bankruptcy Code in the U.S. Bankruptcy Court for the District of

Massachusetts in Boston.    The bankruptcy court appointed an

independent trustee (the bankruptcy trustee) to administer the

reorganization.

     On September 26, 1997, the bankruptcy court confirmed a plan

of reorganization, the crux of which involved selling Mandela

Apartments and its related property.    On December 18, 1997, the

bankruptcy trustee sold Mandela Apartments and its related

property by means of an installment sale.2    In 1997 the



     2
      V&M Management’s corporate income tax returns list the sale
of Mandela Apartments and related property, such as appliances,
on several different Forms 6252, Installment Sale Income. For
                                                   (continued...)
                                 - 3 -

bankruptcy trustee and a limited partnership were coapplicants on

a low-income housing tax credit application seeking to secure

low-income housing tax credits for Mandela Apartments in

subsequent years.3   The trustee intended to syndicate the tax

credits to provide the funds to make payments to V&M Management’s

creditors.

     The bankruptcy trustee prepared and filed Forms 1120S, U.S.

Income Tax Return for an S Corporation, on behalf of V&M

Management for taxable years 1997 through 1999.    V&M Management’s

income tax returns for each of those years reported income from

the installment sale.   V&M Management did not claim any low-

income housing tax credits on its income tax returns for any of

the years 1997 through 1999.

     Petitioner received an extension for filing his income tax

return for his 1995 taxable year until October 15, 1996.

Petitioner filed an income tax return for 1995 that respondent

received on November 15, 1999.    Petitioner reported a $5,613

income tax liability on his 1995 return but made no payment.     On

March 20, 2000, respondent assessed the reported $5,613 tax


     2
      (...continued)
convenience, we refer to the sale of Mandela Apartments and
related property in the singular throughout this opinion.
     3
      In connection with the redetermination of petitioner’s 1997
Federal income tax liability, the Court of Appeals for the First
Circuit found that the credits had been awarded to the Mandela
Apartments’ new owners in 1998. Mourad v. Commissioner, 

, 31 (1st Cir. 2004), affg. 

(2003).
                                - 4 -

liability, as well as additions to tax under section 6651(a)(1)

and (2) of $1,263 and $1,235, respectively, and $2,608 of

interest.

     Petitioner filed an income tax return for his 1999 taxable

year that was received by respondent on December 14, 2004.

Petitioner reported adjusted gross income of $310,692 and a tax

liability of $536,931 on the return.      Respondent adjusted

petitioner’s reported tax liability downward to $107,502 and on

February 7, 2005, assessed that amount, as well as additions to

tax under section 6651(a)(1) and (2) of $24,188 and $26,876,

respectively, and interest of $45,898.

     Respondent issued petitioner a notice of deficiency for his

1997 taxable year, and petitioner filed a Tax Court petition in

response thereto.    In 2003 this Court issued its Opinion in

Mourad v. Commissioner, 

(2003).      The Court in Mourad

sustained respondent’s deficiency determination for petitioner’s

1997 taxable year.    In doing so, the Court determined inter alia

that petitioner was not entitled to claim low-income housing tax

credits in 1997.    The Court’s decision was affirmed by the Court

of Appeals for the First Circuit.       Mourad v. Commissioner, 

(1st Cir. 2004).

     On April 13, 2005, respondent sent petitioner a Final Notice

of Intent to Levy and Notice of Your Right to a Hearing for

petitioner’s 1995 and 1999 taxable years.      Petitioner timely
                                 - 5 -

requested a hearing, and a telephone conference was conducted on

July 29, 2005.    The only issues petitioner raised during the

hearing were challenges to the underlying tax liabilities.

     Respondent issued petitioner a notice of determination

sustaining the proposed levy on August 24, 2005, and petitioner

timely filed a petition in response thereto.

                                OPINION

I.   Background

     Section 6331(a) authorizes the Secretary to levy upon

property and property rights of any person liable for taxes

(taxpayer) who fails to pay those taxes after notice and demand

for payment is made.    Section 6331(d) provides that the levy

authorized by section 6331(a) may be made with respect to any

unpaid tax only if the Secretary has given written notice to the

taxpayer 30 days before levy.    Section 6330(a) further requires

that the notice advise the taxpayer of the amount of the unpaid

tax and of the taxpayer’s right to a hearing.

     If a hearing is requested, the hearing is to be conducted by

an officer or employee of the Commissioner’s Appeals Office with

no prior involvement with respect to the unpaid tax at issue.

Sec. 6330(b)(1), (3).    The Appeals officer shall at the hearing

obtain verification that the requirements of any applicable law

or administrative procedure have been met.    Sec. 6330(c)(1).   The

taxpayer may raise at the hearing “any relevant issue relating to
                                - 6 -

the unpaid tax or the proposed levy”.   Sec. 6330(c)(2)(A).   The

taxpayer may also raise challenges to the existence or amount of

the underlying tax liability at the hearing if the taxpayer did

not receive a statutory notice of deficiency with respect to the

underlying tax liability or did not otherwise have an opportunity

to dispute that liability.   Sec. 6330(c)(2)(B).   Amounts reported

as due on the taxpayer’s original return may also be challenged.

Montgomery v. Commissioner, 

, 9-10 (2004).

     At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection and shall

take into account (1) the verification that the requirements of

any applicable law or administrative procedure have been met; (2)

the relevant issues raised by the taxpayer; (3) challenges to the

underlying tax liability by the taxpayer, where permitted; and

(4) whether any proposed collection action balances the need for

the efficient collection of taxes with the legitimate concern of

the taxpayer that the collection action be no more intrusive than

necessary.   Sec. 6330(c)(3).

     With respect to determinations made before October 17,

2006,4 we have jurisdiction to review the Appeals Office’s

determination where we have jurisdiction over the type of tax


     4
      Pursuant to the Pension Protection Act of 2006, Pub. L.
109-280, sec. 855, 120 Stat. 1019, this Court has exclusive
jurisdiction to review determinations under sec. 6330, effective
for determinations made after the date which is 60 days after the
Aug. 17, 2006, date of enactment, or Oct. 16, 2006.
                               - 7 -

involved in the case.   Sec. 6330(d)(1)(A); see Iannone v.

Commissioner, 

, 290 (2004).   Generally, we consider

only those issues that the taxpayer raised during the section

6330 hearing.   Giamelli v. Commissioner, 

, 112-113

(2007); Magana v. Commissioner, 

, 493 (2002).

However, the Appeals officer’s mandated verification under

section 6330(c)(1) that the requirements of any applicable law or

administrative procedure have been met is subject to review

without regard to a challenge by the taxpayer at the hearing.

Hoyle v. Commissioner, 131 T.C. ___ (2008).

      Where it is properly at issue, we review the underlying tax

liability de novo; the Appeals officer’s determinations

concerning collection matters are reviewed for abuse of

discretion.   See, e.g., Goza v. Commissioner, 

, 181-

182 (2000).

II.   Challenges to the Underlying Tax Liability

      The parties agree that petitioner did not receive a notice

of deficiency or otherwise have an opportunity to dispute his

underlying tax liabilities for 1995 and 1999.   Therefore, the

underlying tax liabilities for 1995 and 1999 are properly at

issue, see Montgomery v. 

, and we review them

de novo.5   Petitioner bears the burden of proving that the


      5
      However, as discussed infra, petitioner is collaterally
estopped from contesting certain issues affecting his underlying
                                                   (continued...)
                                 - 8 -

underlying tax liabilities are incorrect.6    See Rule 142(a);

Welch v. Helvering, 

, 115 (1933).

     However, under section 7491(c) the Commissioner bears the

burden of production with respect to the additions to tax.       In

order to meet that burden, the Commissioner must offer sufficient

evidence to indicate that it is appropriate to impose the

relevant addition.     Higbee v. Commissioner, 

, 446

(2001).   Once the Commissioner meets his burden of production,

the taxpayer bears the burden of proving error in the

determination, including evidence of reasonable cause or other

exculpatory factors.

     A.    1995 Taxable Year

     Petitioner reported a $5,613 income tax liability on his

1995 return but made no payments toward the liability.

Petitioner’s only challenge to the 1995 liability is his claim

that he is entitled to an investment interest expense



     5
      (...continued)
tax liability for 1999.
     6
      Petitioner failed to cooperate with respondent in preparing
this case for trial, including (by his own admission) spurning
respondent’s counsel’s requests for information and meetings
until the day before trial. Consequently, petitioner is not
entitled to any shift in the burden of proof with respect to the
underlying tax liabilities. See sec. 7491(a)(1) and (2)(B); see
also, e.g., Connors v. Commissioner, T.C. Memo. 2006-239, affd.

(2d Cir. 2008); Krohn v. Commissioner, T.C.
Memo. 2005-145; Lopez v. Commissioner, T.C. Memo. 2003-142, affd.
on this issue without published opinion 

(5th
Cir. 2004).
                                - 9 -

carryforward from his 1994 taxable year to reduce the 1995

liability.

     A noncorporate taxpayer may deduct investment interest for

any taxable year only to the extent of any net investment income.

Sec. 163(d)(1).    Any amount not allowed as a deduction because of

section 163(d)(1) may be carried forward to succeeding taxable

years.    Sec. 163(d)(2).

     Petitioner reported no investment income on his 1995 return

which could be offset by an investment interest expense

carryforward, and petitioner has adduced no evidence in this

proceeding that he had such investment income in 1995.7   In sum,

petitioner has not shown that his underlying tax liability for

1995 as reported on his return should be adjusted to account for

an investment interest expense carryforward.   Accordingly, the

assessment of the amounts reported as due on the 1995 return was

proper.

     With respect to the 1995 addition to tax under section

6651(a)(1), that section provides for an addition to tax for a

taxpayer’s failure to file a required return on or before the due

date of the return, including extensions, unless the failure to


     7
      We note, however, that petitioner attached a Form 4952,
Investment Interest Expense Deduction, to his 1995 return
claiming an investment interest expense of $965,226, which he
intended to carry forward to 1996. Petitioner was allowed to
carry forward and deduct a $965,226 investment interest expense
in his 1997 taxable year. See Mourad v. 

n.6.
                               - 10 -

file is due to reasonable cause and not due to willful neglect.

Respondent introduced a Form 4340, Certificate of Assessments,

Payments, and Other Specified Matters, for petitioner’s 1995

taxable year, which records that petitioner received an extension

until October 15, 1996, to file his 1995 return and that

petitioner actually filed his return on November 15, 1999.

Petitioner reported sufficient income on his 1995 return to

obligate him to file an income tax return for that year.      See

sec. 6012.    Accordingly, respondent has met his burden of

production under section 7491(c) with respect to the section

6651(a)(1) addition to tax.    Petitioner presented no evidence of

reasonable cause for his failure to timely file his 1995 return,

and we consequently conclude that the assessment of the section

6651(a)(1) addition to tax for 1995 was proper.

       With respect to the 1995 addition to tax under section

6651(a)(2), that section provides for an addition to tax for a

taxpayer’s failure to timely pay any amount shown as tax on an

income tax return, unless such failure is due to reasonable cause

and not due to willful neglect.    We have found no error in the

underlying tax liability for 1995, and the Form 4340 for 1995

records that petitioner failed to pay the tax reported on his

1995 return.    Accordingly, respondent has met his burden of

production with respect to the section 6651(a)(2) addition to

tax.    As petitioner has adduced no evidence indicating that his
                                - 11 -

failure to pay the tax was due to reasonable cause and not due to

willful neglect, the assessment of the section 6651(a)(2)

addition to tax was proper.8

     B.    1999 Taxable Year

     Petitioner filed his return for 1999 on December 14, 2004.

Attached to the 1999 return was a Schedule K-1 (Form 1120S),

Shareholder’s Share of Income, Credits, Deductions, etc., from

V&M Management.   The return reported adjusted gross income of

$310,692 and a tax liability of $536,739 (the amount listed as a

net section 1231 gain on the Schedule K-1 from V&M Management).

Respondent reduced this liability to $107,502 pursuant to section

6213(b)(1).

     Notwithstanding the position he took on the return,

petitioner argues that he should not be taxed on passthrough

income earned by his S corporation while it was in chapter 11

bankruptcy reorganization.     He contends that the bankruptcy

trustee was the real owner of V&M Management when its assets were

sold and that he was no longer the actual owner of V&M Management

in 1999.   Petitioner further argues that the assets of V&M

Management were sold in 1997 and he should therefore have no

income from V&M Management in 1999.      Petitioner argues in the

alternative that if he is liable for taxes in 1999 from the sale


     8
      Petitioner has made no claim for abatement or otherwise
disputed the interest assessed with respect to the 1995 tax
liability.
                             - 12 -

of V&M Management’s assets, then he should be entitled to offset

the tax with low-income housing credits.

     Petitioner has previously argued to this Court that V&M

Management’s bankruptcy filing caused him to cease to be

obligated for V&M Management’s tax liability.    Petitioner’s

argument was considered and rejected by this Court and the Court

of Appeals for the First Circuit.   See Mourad v. Commissioner,

(2003), affd. 

(1st Cir. 2004).     In Mourad,

we held that the filing of a bankruptcy petition for

reorganization neither terminates an S corporation’s tax status

nor creates a separate taxable entity.     Petitioner’s argument

that V&M Management’s bankruptcy proceeding extinguished his

obligation for V&M Management’s taxes is therefore incorrect.

Petitioner was the sole shareholder of V&M Management, an S

corporation, when its assets were sold in 1997, and any

installment sale income passed through to petitioner.9    See sec.

1366.

     V&M Management reported the sale of its assets on its

corporate income tax returns for 1997, 1998, and 1999 as an

installment sale, with installment sale income in each of those


     9
      As this Court observed in Mourad v. 

, there is no unfairness in taxing petitioner on his
passthrough income from V&M Management while the corporation is
in bankruptcy, given petitioner’s receipt of prior tax benefits
from V&M Management’s S corporation status and the reduction of
petitioner’s taxable income from V&M Management’s depreciation
deductions.
                              - 13 -

years.   See generally sec. 453.   V&M Management’s 1999 return

reported the installment sale gain for that year as $536,931, all

of which was listed on the Schedule K-1 issued to petitioner for

that year.   Petitioner attached a copy of the Schedule K-1 to his

1999 return but reported the $536,931 of installment sale gain as

his tax due for the year.   Respondent adjusted the reported

liability downward pursuant to the “math error” procedures of

section 6213(b)(1).   Petitioner’s contention that he could not

have had income from V&M Management in 1999 because the sale

occurred in 1997 is contradicted by V&M Management’s returns.

Petitioner has demonstrated no error in V&M Management’s

reporting of its 1999 income or in respondent’s adjustment of

petitioner’s 1999 tax liability.

     Petitioner alternatively argues that he should be allowed to

offset any tax for 1999 by means of low-income housing credits

that the bankruptcy trustee secured for Mandela Apartments.

Section 38 provides for a general business credit, which includes

a low-income housing credit under section 42.    Section 39

provides rules under which an unused section 38 credit may be

carried back or forward to other taxable years.    Under section

42, an owner of a qualified low-income building is allowed to

claim a low-income housing credit for any year only if, and to

the extent that, the owner receives a housing credit allocation

from a State or local housing credit agency.    Sec. 42(h)(1)(A),
                              - 14 -

(7)(D).   The credit allocation is deemed made when part I of Form

8609, Low-Income Housing Credit Allocation Certification, is

completed and signed by an authorized officer of the housing

credit agency.   Sec. 1.42-1T(d)(8)(ii), (e)(1), Temporary Income

Tax Regs., 52 Fed. Reg. 23437 (June 22, 1987).   Further, to be

eligible for the credit, a taxpayer is required to file a

completed Form 8609 and a Form 8586, Low-Income Housing Credit,

with his return for each year the credit is claimed.   Sec. 1.42-

1T(h)(2), Temporary Income Tax Regs., 52 Fed. Reg. 23439 (June

22, 1987).10

     Petitioner has not demonstrated his entitlement to a low-

income housing credit for 1999.   V&M Management sold Mandela

Apartments on December 14, 1997, so V&M Management was not an

owner of Mandela Apartments in 1999.   Thus, the only way

petitioner could be entitled to offset his 1999 tax with a low-

income housing credit attributable to the Mandela Apartments

would be if he were entitled to carry forward a credit from 1997

or from an earlier year in which V&M Management owned Mandela

Apartments.

     In Mourad v. Commissioner, 

(2003), this Court

considered petitioner’s income tax liability for 1997, including


     10
      As applicable for 1999, these requirements were contained
in sec. 1.42-1T(h)(2), Temporary Income Tax Regs., 52 Fed. Reg.
23439 (June 22, 1987). Effective Jan. 27, 2004, the temporary
regulation was replaced with sec. 1.42-1(h), Income Tax Regs.
T.D. 9112, 2004-1 C.B. 523.
                              - 15 -

his claim that he was entitled to a low-income housing credit for

that year, and determined that he was not entitled to any such

credit.   The issue of petitioner’s entitlement to a low-income

housing credit for 1997 was fully litigated and resolved in that

case, and petitioner is therefore precluded from relitigating it.

“When an issue of fact or law is actually litigated and

determined by a valid and final judgment, and the determination

is essential to the judgment, the determination is conclusive to

a subsequent action between the parties, whether on the same or a

different claim.”   1 Restatement, Judgments 2d, sec. 27 (1982);

see also Montana v. United States, 

, 153-154 (1979).

The Court’s determination that petitioner was not entitled to the

credit for 1997 was a necessary component of the Court’s

determination of petitioner’s 1997 tax liability in Mourad, and

this Court’s decision in that case is a valid and final judgment,

affirmed on this issue on appeal.   Thus, collateral estoppel11

bars petitioner from claiming that he was entitled to a low-

income housing credit in 1997.12


     11
      Respondent has made no claim that sec. 6330(c)(4) limits
the issues petitioner may raise, and we therefore do not consider
the applicability of that section.
     12
      Petitioner attached to his posttrial brief a Feb. 26,
1998, letter that petitioner apparently believes shows that low-
income housing credits were awarded to Mandela Apartments in 1997
(notwithstanding the Court of Appeals finding that the credits
were awarded in 1998. See supra note 3.). Material attached to
posttrial briefs is not competent evidence. Rule 143(b); Evans
                                                   (continued...)
                              - 16 -

     With respect to years before 1997, petitioner has neither

claimed nor introduced any evidence showing that he was entitled

to low-income housing credits for any pre-1997 year.   This

precludes any demonstration that petitioner was entitled to a

carryforward of a low-income housing tax credit from an earlier

year to 1999 under section 39.13   We therefore conclude that

petitioner is not entitled to offset his 1999 tax by means of a

low-income housing credit.   Accordingly, the assessment of the

1999 tax was proper.

     With respect to the 1999 addition to tax under section

6651(a)(1), respondent introduced a Form 4340 for petitioner’s

1999 taxable year, which recorded that petitioner filed his




     12
      (...continued)
v. Commissioner, 

, 709 (1967), affd. per curiam 

(9th Cir. 1969); Hoang v. Commissioner, T.C. Memo.
2006-47. The letter was not offered as evidence at trial and is
hearsay. In any event, because the issue of petitioner’s
entitlement to low-income housing credits in 1997 was litigated
in Mourad v. Commissioner, 

(2003), petitioner is
collaterally estopped from further contesting the issue in this
proceeding. The letter petitioner would have us consider was
written before the decision in Mourad v. Commissioner, 

(1st Cir. 2004), and thus would not prevent the operation of
collateral estoppel. See Lea, Inc. v. Commissioner, 

,
769-770 (1978).
     13
      In Mourad v. 

, this Court also
found that V&M Management never claimed low-income housing tax
credits for 1995 or 1996 and that petitioner did not file a
return for 1996. Since petitioner makes no claim in this
proceeding that he is entitled to low-income housing tax credit
carryforwards from those years, we find it unnecessary to decide
whether he is collaterally estopped from doing so.
                               - 17 -

return on December 14, 2004.    The Form 4340 does not indicate

that petitioner had been granted an extension to file his 1999

return.   In the absence of any other evidence, we conclude the

return was due on April 15, 2000.    See sec. 6072(a).

Petitioner’s 1999 income was sufficient to obligate him to file

an income tax return for that year.     See sec. 6012.   Accordingly,

respondent has met his burden of production under section 7491(c)

with respect to the section 6651(a)(1) addition to tax.

Petitioner presented no evidence of reasonable cause for his

failure to timely file his 1999 return, and we consequently

conclude that respondent’s assessment of the section 6651(a)(1)

addition to tax was appropriate.

     Petitioner’s 1999 return showed $536,931 as the tax due.

Respondent reduced that amount to $107,502 and computed an

addition to tax under section 6651(a)(2) on the lesser amount.

The Form 4340 for petitioner’s 1999 tax year shows that he failed

to pay any tax with respect to 1999.     Accordingly, respondent has

met his burden of production with respect to the section

6651(a)(2) addition to tax.    As petitioner has adduced no

evidence indicating that his failure to pay the tax was due to

reasonable cause and not due to willful neglect, we conclude that
                               - 18 -

respondent’s assessment of the section 6651(a)(2) addition to tax

was appropriate.14

III. Other Requirements

     Petitioner did not raise any issues at his hearing other

than the underlying tax liabilities.    The Appeals officer

verified that the requirements of applicable law and

administrative procedure had been met through the examination of

computer records.    He further took into account whether the

proposed collection action balanced the need for the efficient

collection of taxes with the legitimate concern of petitioner

that the collection action be no more intrusive that necessary.

See sec. 6330(c)(3).    Petitioner has identified no specific

infirmities in the foregoing not heretofore addressed which would

suggest any abuse of discretion by the Appeals officer.

     We therefore hold that respondent may proceed with the levy

that is the subject of the notice of determination at issue.

     To reflect the foregoing,


                                        Decision will be entered

                                  for respondent.




     14
      Petitioner has made no claim for abatement or otherwise
disputed the interest assessed with respect to the 1999 tax
liability.