T.C. Memo. 2020-30



                         UNITED STATES TAX COURT



  SUN RIVER FINANCIAL TRUST, JAY A. GREEK, TRUSTEE, Petitioner v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20735-16L.                         Filed March 5, 2020.



      Jay A. Greek (trustee), for petitioner.

      Inga C. Plucinski-Holbrook, Rebekah A. Myers, and David Sorensen, for

respondent.



                           MEMORANDUM OPINION


      VASQUEZ, Judge: Pursuant to sections 6320(c) and 6330(d)(1),1 Jay A.

Greek, in his capacity as trustee for petitioner Sun River Financial Trust, seeks



      1
       Unless otherwise indicated, 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.
                                        -2-

[*2] review of respondent’s determination to proceed with collection. Respondent

has conceded petitioner’s income tax liabilities for the taxable years 2008, 2010,

2011, and 2012. After these concessions, the sole issue for decision is whether

respondent abused his discretion in sustaining a proposed levy and the filing of a

notice of Federal tax lien (NFTL) with respect to petitioner’s unpaid section 6702

penalties for 2010 and 2011.

                                    Background

      No stipulation of facts was filed in this case.2 The exhibits admitted at trial

are incorporated herein. Petitioner’s mailing address was in California when its

petition was timely filed.

I.    Petitioner’s Section 6702 Penalties and Respondent’s Collection Efforts

      Petitioner filed delinquent tax returns for 2010 and 2011 reporting taxable

income of $42,371 and $53,888, respectively. Petitioner also reported zero tax

due and claimed a full refund of the amount of tax withheld for each respective

      2
          The Court of Appeals for the Ninth Circuit has concluded that the record
rule applies to collection due process (CDP) cases before this Court. See Keller v.
Commissioner, 

, 718 (9th Cir. 2009), aff’g in part T.C. Memo.
2006-166, and aff’g in part, vacating in part decisions in related cases. Under
sec. 7482(b)(1)(B), appeal in this case would lie in the Court of Appeals for the
Ninth Circuit absent a stipulation to the contrary. See Golsen v. Commissioner, 

, 756-757 (1970), aff’d, 

(10th Cir. 1971). Accordingly, the
facts in this opinion are derived from the administrative record developed before
the Office of Appeals (Appeals) of the Internal Revenue Service (IRS).
                                         -3-

[*3] year. Attached to petitioner’s returns were Forms 1099-A, Acquisition or

Abandonment of Secured Property, 1099-B, Proceeds From Broker and Barter

Exchange Transactions, and 1099-OID, Original Issue Discount, all of which the

IRS found to be false. Accordingly, the IRS determined that petitioner’s 2010 and

2011 returns were frivolous and mailed a letter to petitioner notifying it of this

determination. The letter warned petitioner of the potential consequences of

taking frivolous return positions and gave petitioner an opportunity to withdraw its

“returns” and file nonfrivolous returns within 30 days. Petitioner, however, did

not file amended returns. Instead, petitioner submitted various correspondence

raising arguments3 the IRS considered to be frivolous and meritless. The IRS

subsequently assessed a $5,000 section 6702 penalty for each frivolous return and

notified petitioner in writing of the assessment of these penalties.

      Having received no payment with respect to the assessed civil penalties,

respondent issued petitioner a Letter 1058, Final Notice--Notice of Intent to Levy

and Notice of Your Right to a Hearing (levy notice), dated February 17, 2016, and




      3
         Among other arguments, petitioner asserted that IRS agents lack the
capacity to determine whether a return is frivolous because they are “not lawyers
and do not regularly read legal texts.” Petitioner contended that IRS agents
automatically assume a return is frivolous when a taxpayer files Forms 1099-OID.
Petitioner did not introduce any evidence to corroborate this claim.
                                         -4-

[*4] a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC

6320, dated March 3, 2016.

II.   CDP Hearing Proceedings

      Petitioner timely filed Forms 12153, Request for a Collection Due Process

or Equivalent Hearing, in response to the levy notice and the notice of filing of the

NFTL. On the Forms 12153 petitioner referred to reports issued by the U.S.

Government Accountability Office (GAO reports). On the basis of the GAO

reports petitioner alleged that the IRS’ computers are “unreliable, inaccurate,

untrustworthy and lack proper security.” Contending that the IRS’ computers are

“unable to produce a believable result”, petitioner stated that it was “reluctant” to

pay the penalties assessed against it without “proof that the mathematical

calculations * * * [were] correct.” Petitioner did not advance any additional

arguments or request any collection alternatives.

      Appeals assigned Settlement Officer (SO) Charles Duff to petitioner’s case.

SO Duff verified that a notice and demand for payment had been properly mailed

to petitioner’s last known address. He also reviewed the administrative file and

confirmed that the section 6702 penalties had been properly assessed. In making
                                         -5-

[*5] this determination SO Duff relied in part on TXMODA transcripts4 of

petitioner’s accounts for 2008, 2010, 2011, and 2012.5

      On May 25, 2016, SO Duff issued petitioner a letter scheduling a telephone

CDP hearing for August 3, 2016. Petitioner, however, requested that the CDP

hearing be conducted via correspondence only. In a letter dated June 30, 2016, SO

Duff granted petitioner’s request and informed it that a determination would be

made on the basis of correspondence that petitioner submitted before the

conference date.

      On August 2, 2016, petitioner submitted to SO Duff a copy of the GAO

reports. These reports state that for the years at issue the IRS’ lack of effective

control over financial reporting affected the agency’s ability to produce reliable

financial statements. Citing the GAO reports, petitioner argued that the




      4
         A TXMODA transcript contains current account information from the
Commissioner’s master file. TXMODA is a command that the Commissioner’s
employee enters into the Commissioner’s integrated data retrieval system (IDRS)
to obtain a transcript. Crow v. Commissioner, T.C. Memo. 2002-149, slip op.
at 11 n.6. In essence IDRS is the interface between the Commissioner’s
employees and the Commissioner’s various computer systems. 

tax liabilities at issue consist solely of the penalties assessed under
sec. 6702 for the submission of frivolous tax returns for 2010 and 2011.
Respondent has conceded the income tax liabilities for the taxable years 2008,
2010, 2011, and 2012.
                                         -6-

[*6] assessments the IRS made against it are unreliable. Petitioner did not submit

any additional correspondence to SO Duff.

      SO Duff reviewed the documents petitioner submitted and determined that

petitioner failed to connect the GAO reports with the assessment of the section

6702 penalties at issue. After finding that the proposed collection activities

against the trust were proper, SO Duff closed the case and, on August 15, 2016,

sent petitioner two separate notices of determination. One of the notices sustained

the filing of the NFTL and the other sustained the proposed levy. Petitioner timely

sought review in this Court.

                                     Discussion

I.    Jurisdiction

      After trial petitioner filed a motion to dismiss, arguing that this Court does

not have jurisdiction to hear this case. On February 13, 2019, respondent filed an

objection to petitioner’s motion.

      It is well settled that this Court can proceed only if it has jurisdiction and

that any party can question jurisdiction at any time. Romann v. Commissioner,

, 280 (1998). This is a Court of limited jurisdiction; we exercise our

jurisdiction only as explicitly authorized by statute. See Naftel v. Commissioner,

, 529 (1985). We have jurisdiction to review the Commissioner’s
                                        -7-

[*7] determination to proceed with a collection action, including review of the

Commissioner’s determinations to collect a section 6702 frivolous return penalty.

See sec. 6330(d)(1); Callahan v. Commissioner, 

, 48-49 (2008). And

our jurisdiction can include a review of the underlying liability for a section 6702

frivolous return penalty, if otherwise appropriate. See Callahan v. Commissioner,

.

      Petitioner does not dispute that respondent issued a valid notice of

determination to proceed with the collection action and that petitioner timely filed

a petition for review of that determination. Instead, petitioner makes a series of

frivolous legal arguments, all of which we reject.6 See Crain v. Commissioner,

(5th Cir. 1984); Wnuck v. Commissioner, 

, 510-512

(2011) (noting that addressing frivolous arguments wastes time and resources and

delays the assessment of tax). Because petitioner properly invoked our

jurisdiction, we will deny its motion to dismiss.


      6
         Sec. 6673(a)(1) authorizes the Court to impose a penalty of up to $25,000
for frivolous arguments or whenever it appears to the Court that proceedings
before us “have been instituted or maintained by the taxpayer primarily for delay”.
The arguments petitioner advances on its motion are frivolous, and this Court
would therefore be justified in sanctioning it. We decline to impose a sec. 6673
penalty; however, we warn petitioner to refrain from advancing frivolous
arguments in any future filings it may make in this Court, as they may subject it to
future penalties.
                                         -8-

[*8] II.     Statutory Framework

       Section 6321 imposes a lien in favor of the United States on all property and

rights to property of a taxpayer liable for tax when a demand for payment of the

tax has been made and the taxpayer fails to pay the tax. Section 6320(a) provides

that the Secretary7 shall furnish the taxpayer with a notice of the filing of an NFTL

within five business days after the NFTL is filed.

       Section 6331(a) authorizes the Secretary to levy upon property and property

rights of any person8 liable for tax if such person fails to pay the tax within 10

days after notice and demand for payment is made. A “tax” may include the

liability for the section 6702 penalty. See sec. 6671(a); see also Blaga v.

Commissioner, T.C. Memo. 2010-170, slip op. at 11. Section 6330(a) provides

that no levy may be made on any property or right to property of any person unless

the Secretary has notified such person in writing of the right to a hearing before

the levy is made.




       7
        The term “Secretary” means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
       8
         Sec. 6331(a) applies to “any person liable to pay any tax”. This Court has
held that a trust is a “person liable to pay any tax”, and thus, it is covered by the
levy procedures under sec. 6331. See Wilson Heirs Tr. v. Commissioner, T.C.
Memo. 2016-76.
                                          -9-

[*9] If a taxpayer requests a hearing in response to the notice of filing of an

NFTL or a notice of levy pursuant to section 6320 or 6330, a hearing shall be held

before an impartial officer or employee of Appeals. Secs. 6320(b)(1), (3),

6330(b)(1), (3). The hearing under section 6320 generally shall be conducted in a

manner consistent with the procedures set forth in section 6330(c), (d), (e),

and (g). Sec. 6320(c). At the hearing the taxpayer may raise any relevant issue,

including appropriate spousal defenses, challenges to the appropriateness of the

collection action, and collection alternatives. Sec. 6330(c)(2)(A). A taxpayer is

precluded from contesting the existence or the amount of the underlying liability

unless the taxpayer did not receive a notice of deficiency for the liability in

question or did not otherwise have an opportunity to dispute the liability. Sec.

6330(c)(2)(B); see also Sego v. Commissioner, 

, 609 (2000).

III.   Standard of Review

       Section 6330(d)(1) does not prescribe the standard of review that this Court

shall apply in reviewing an IRS administrative determination in a CDP case. The

general parameters for such review are marked out by our precedents. Where the

validity of the underlying tax liability is at issue, the Court will review the

Commissioner’s determination de novo. Goza v. Commissioner, 

,
                                        - 10 -

[*10] 181-182 (2000). Where there is no dispute concerning the underlying tax

liability, the Court reviews the IRS decision for abuse of discretion. 

      A taxpayer may challenge his underlying tax liability during a CDP hearing

if he did not receive a statutory notice of deficiency or did not otherwise have a

prior opportunity to dispute the underlying tax liability. See sec. 6330(c)(2)(B).

The section 6702 frivolous return penalty, as an assessable penalty, is not subject

to the deficiency procedures outlined in sections 6211-6216. See sec. 6703(b).

Because a taxpayer will not have received a notice of deficiency before assessment

of this penalty, he can dispute his liability for the penalty at a CDP hearing and on

review of the CDP determination in this Court, in the absence of any other

opportunity to contest it. See Callahan v. Commissioner, 

-50.

      This Court considers a taxpayer’s challenge to his underlying tax liability in

a CDP case only if he properly raised that challenge at his CDP hearing. Giamelli

v. Commissioner, 

, 114-116 (2007); see sec. 301.6320-1(f)(2),

Q&A-F3, Proced. & Admin. Regs. An issue is not properly raised at the CDP

hearing if the taxpayer fails to request consideration of that issue by the SO or if

he requests consideration but fails to present any evidence after being given a

reasonable opportunity to do so. See sec. 301.6320-1(f)(2), Q&A-F3, Proced. &

Admin. Regs.; see also Giamelli v. Commissioner, 

; McRae v.
                                         - 11 -

[*11] Commissioner, T.C. Memo. 2015-132, at *8-*9 (holding that the taxpayer

failed explicitly to contest his underlying liability during the administrative

hearing and failed to provide any evidence concerning his liability); Zook v.

Commissioner, T.C. Memo. 2013-128, at *6-*7 (holding that the taxpayer failed to

raise her underlying liabilities properly when she failed to provide any

documentation of the underlying liabilities and asserted frivolous arguments).

With respect to section 6702 penalties, a taxpayer properly raises the issue if he

makes a meaningful challenge to the penalty itself. See sec. 6702(a)(1)(A),

(2)(A); see also Pohl v. Commissioner, T.C. Memo. 2013-291, at *8; Buckardt v.

Commissioner, T.C. Memo. 2012-170, slip op. at 12, aff’d, 584 F. App’x 612 (9th

Cir. 2014).

      Although petitioner was entitled to challenge the section 6702 penalties

during the CDP hearing, petitioner did not present evidence or arguments

addressing the merits of its liability for the section 6702 penalties. During the

hearing petitioner’s sole contention was that it was not liable for the section 6702

penalties because the IRS’ computers are not reliable. On the basis of this

contention petitioner demanded proof that the assessments of the section 6702

penalties were mathematically correct.
                                         - 12 -

[*12] Petitioner’s demand of proof does not equate to a meaningful challenge to

its liability for the section 6702 penalties. Petitioner did not alert SO Duff to any

specific errors on its account. Nor did it contend that its returns contained

sufficient information or lacked frivolous positions. Instead, petitioner made

general allegations about the unreliability of the IRS’ computer system without

connecting the GAO reports to the assessments at issue. Accordingly, we find that

petitioner did not properly raise its underlying liability for its section 6702

penalties during its CDP hearing.9

IV.   Abuse of Discretion

      Because petitioner’s underlying liability is not at issue, the only question we

consider is whether respondent abused his discretion in sustaining the proposed

levy and the filing of the NFTL to collect petitioner’s section 6702 penalties. An

abuse of discretion occurs if the SO exercises his or her discretion “arbitrarily,

capriciously, or without sound basis in fact or law.” Woodral v. Commissioner,

, 23 (1999). The Court does not conduct an independent review and

substitute its judgment for that of the SO. Murphy v. Commissioner, 

         In addition we deem petitioner to have conceded the issue of whether it is
liable for the sec. 6702 penalties because its petition contains no specific
allegations or supporting facts regarding them. See Rules 34(b)(4), 331(b)(4).
Petitioner’s arguments at trial also do not raise any legitimate issue regarding these
penalties.
                                        - 13 -

[*13] 301, 320 (2005), aff’d, 

(1st Cir. 2006). If the SO follows all

statutory and administrative guidelines and provides a reasoned, balanced

decision, the Court will not reweigh the equities. Link v. Commissioner, T.C.

Memo. 2013-53, at *12.

      Following a CDP hearing the SO must determine whether to sustain the

proposed collection action. In making that determination, section 6330(c)(3)

requires the SO to consider: (1) whether the requirements of any applicable law or

administrative procedure have been met, (2) any issues appropriately raised by the

taxpayer, and (3) whether the collection action balances the need for the efficient

collection of taxes and the legitimate concern of the taxpayer that any collection

action be no more intrusive than necessary. See Lunsford v. Commissioner, 

, 184 (2001); Diamond v. Commissioner, T.C. Memo. 2012-90, slip op.

at 6-7. Petitioner did not introduce any credible evidence or persuasive arguments

that would convince us that the determination to sustain the proposed collection

actions was arbitrary, capricious, or without foundation in fact or law.

      The only argument petitioner advanced during the CDP hearing and in this

proceeding was its contention that the IRS’ computers are unreliable.10 One could

      10
        Petitioner did not allege during the CDP hearing, in its petition, or in its
opening brief that the sec. 6702 penalties, which are assessable penalties, were not
                                                                       (continued...)
                                         - 14 -

[*14] arguably interpret petitioner’s argument as a challenge to SO Duff’s

compliance with the verification requirement under section 6330(c)(1). However,

it is well settled that, absent a showing by the taxpayer of an irregularity in the

Commissioner’s assessment procedure, it is not an abuse of discretion for an

Appeals officer to rely on TXMODA computer transcripts to comply with section

6330(c)(1). Schroeder v. Commissioner, T.C. Memo. 2002-190, slip op. at 12;

Mann v. Commissioner, T.C. Memo. 2002-48. Petitioner has not demonstrated

that there was any irregularity in respondent’s assessment procedure.

Accordingly, SO Duff did not abuse his discretion in relying on the TXMODA

transcripts to verify the assessments of the section 6702 penalties.

      It is clear from our review of the record that SO Duff verified that all

requirements of applicable law and administrative procedure had been met,

considered the issues petitioner raised, and balanced the need for the efficient

collection of taxes with petitioner’s legitimate concern that any collection action




      10
        (...continued)
“personally approved (in writing) by the immediate supervisor of the individual
making * * * [the penalty determination].” See sec. 6751(b)(1). That issue is
therefore deemed conceded. See Rule 331(b)(4) (“Any issue not raised in the
assignments of error shall be deemed to be conceded.”); Triola v. Commissioner,
T.C. Memo. 2014-166; Dinino v. Commissioner, T.C. Memo. 2009-284.
                                       - 15 -

[*15] be no more intrusive than necessary. Finding no abuse of discretion in any

respect, we will sustain the proposed levy and the filing of the NFTL.

      In reaching our holding, we have considered all the parties’ arguments and,

to the extent not addressed herein, we conclude that they are moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                An appropriate order and decision

                                       will be entered.