T.C. Memo. 2019-107



                         UNITED STATES TAX COURT



                    TARYN L. DODD, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7316-17L.                          Filed August 22, 2019.



      Taryn L. Dodd, pro se.

      Rachel L. Rollins, Jeffrey E. Gold, Deborah Aloof, and Jacob Russin, for

respondent.



                           MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

seeks review of a determination by the Internal Revenue Service (IRS or respond-

ent) to uphold collection action. The IRS has moved for summary judgment under

Rule 121, contending that there are no disputed issues of material fact and that its
                                        -2-

[*2] determination to sustain the collection action was proper as a matter of law.1

We will deny the motion and direct respondent to show cause why this case should

not be remanded to the IRS Appeals Office for a supplemental CDP hearing.

                                    Background

      For 2013 petitioner timely filed an individual income tax return reporting a

tax liability of $183,976 and withholding credits of $14,245. The return was not

accompanied by a payment. On August 18, 2014, respondent assessed the tax

shown as due, additions to tax of $4,394, and interest of $1,753. Petitioner did not

pay these liabilities on notice and demand. As of September 2016 her assessed

liability for 2013 exceeded $207,000.

      On September 5, 2016, the IRS issued to petitioner a Notice CP92, Seizure

of Your State Tax Refund and Your Right to a Hearing. Petitioner timely request-

ed a CDP hearing, contending that she was not responsible for the underlying lia-

bility and could not pay the tax. She explained that most of the liability arose from

a $1,073,312 gain on the sale of real estate owned by an LLC of which she was a

member. She alleged that she had received none of the sale proceeds, all of which

had been wired to a bank to pay off a line of credit of the law firm for which she

      1
       All statutory 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. We round all dollar amounts to the nearest dollar.
                                         -3-

[*3] worked. She stated that she had erroneously reported this gain on her 2013

return and wished to resolve this issue at the CDP hearing.2

A.    Initial CDP Hearing

      A settlement officer (SO) at the Appeals Office in Memphis, Tennessee,

was assigned petitioner’s case. On January 12, 2017, the SO sent petitioner a let-

ter scheduling a telephone conference for February 28, 2017. The letter informed

petitioner of the paperwork she needed to complete in order for the SO to consider

collection alternatives. The letter did not address petitioner’s contention that she

did not owe the tax liability and did not invite petitioner to file an amended return.

      The hearing was held as scheduled. The SO informed petitioner that no col-

lection alternatives could be considered because she had supplied no financial in-

formation as of that date. The SO did not offer petitioner any additional time to

supply this information and did not address her challenge to her underlying tax lia-

bility. Three days after the hearing, the IRS issued petitioner a notice of determi-

nation sustaining the levy. This notice incorrectly asserted that “[y]ou did not

raise a challenge to the existence or amount of the underlying liability.”




      2
       Petitioner also requested withdrawal of a tax lien, but the IRS had not filed
a notice of Federal tax lien for 2013.
                                         -4-

[*4] Petitioner timely petitioned for review of the IRS’ action. On May 17,

2018, respondent moved to remand the case to the Appeals Office for a supple-

mental CDP hearing. Respondent agreed that petitioner was entitled to challenge

her underlying tax liability for 2013 and conceded that the SO “never properly

considered petitioner’s challenge to her underlying tax liability.” Noting that the

SO had closed the case immediately after the telephone conference, respondent

conceded that petitioner “should have been provided additional time to submit

* * * [an amended return for 2013] or other information to dispute * * * [her]

liability.”

       Respondent conceded that the SO had abused her discretion and requested

that we remand the case to the Appeals Office. On May 21, 2018, we granted that

motion and directed the Appeals Office to conduct a supplemental hearing at

which petitioner would be allowed “to provide an amended return” and “support-

ing documentation to dispute her underlying liability.” We further directed that

petitioner be given the opportunity “to submit additional information necessary for

Appeals to consider * * * [her] request for currently not collectible status.”

B.     Supplemental CDP Hearing

       On remand the case was assigned to the same SO who had conducted peti-

tioner’s original hearing. On June 13, 2018, the SO sent petitioner a letter sched-
                                        -5-

[*5] uling a telephone conference for July 10, 2018. That letter consisted of three

pages of single-spaced text and closely resembled the letter scheduling the original

hearing. But the June 13, 2018, letter included an additional bullet point stating:

“Your 2013 tax liability was determined based on the documents you submitted

and the return that was filed by you. If any figures were in error, please submit a

Form 1040X Amended return by 07/03/2018 for my review.” The letter did not

request documentation supporting the entries appearing on any amended return

petitioner might submit, and it did not warn petitioner of any negative consequen-

ces if she did not submit the amended return before the hearing.

      Petitioner did not submit an amended 2013 return or any financial informa-

tion before the hearing. On July 10, 2018, the telephone conference was held as

scheduled. According to the SO’s case activity record, the gist of the supplemen-

tal hearing consisted of the following colloquy:

      I asked the taxpayer if she mailed/faxed signed Form 433A and all
      current supporting documents along with signed Form 1040X as re-
      quested * * * . She stated that she had been busy and forgot that she
      had a deadline date of 07/10/2018 to get the information to our office
      prior to the conference. * * * I informed the taxpayer if she was dis-
      puting the liability, she needed to have submitted the signed amended
      return Form 1040X by the conference date. * * * I informed the tax-
      payer that the levy action is sustained * * * [and that,] once she get[s]
      the requested information completed, she needs to send the informa-
      tion directly to the Service Center.
                                         -6-

[*6] The SO closed the case the very next day. On July 19, 2018, nine days after

the hearing, the IRS issued a supplemental notice of determination sustaining the

levy.

        The case was returned to this Court for further proceedings. On February

14, 2019, respondent filed a motion for summary judgment. Respondent contends

that petitioner is precluded from challenging her underlying tax liability in this

Court because she failed to submit an amended 2013 return to the SO before the

supplemental hearing.

        Petitioner filed a timely response to respondent’s motion. She alleges that

she did not receive and could not possibly have received $1 million from a real

estate transaction in 2013 because “the only income she had was her salary work-

ing as a legal secretary in a law firm.” She states that she needed to get advice on

the procedures for completing an amended return and did not have time to secure

such advice before the supplemental hearing. She also states that she had ques-

tions about the implications of filing an amended return for other taxpayers in-

volved in the LLC transaction (apparently including the law firm for which she

worked).
                                         -7-

[*7]                                  Discussion

A.     Summary Judgment Standard

       The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 

, 681 (1988). The Court may grant summary judgment when there is no

genuine dispute as to any material fact and a decision may be rendered as a matter

of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 

, 520 (1992),

aff’d, 

(7th Cir. 1994). In deciding whether to grant summary judg-

ment, we construe factual materials and inferences drawn from them in the light

most favorable to the nonmoving party. Sundstrand Corp., 

. Upon

careful review of the parties’ filings to date, and viewing the facts and the infer-

ences drawn from them in the light most favorable to petitioner as the nonmoving

party, we conclude that there are genuine disputes of material fact that preclude

the granting of summary judgment.

B.     Standard of Review

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

should apply in reviewing an IRS administrative determination in a CDP case.

But our case law tells us what standard to adopt. Where the validity of the taxpay-

er’s underlying tax liability is properly at issue, we review the IRS’ determination
                                         -8-

[*8] de novo. Goza v. Commissioner, 

, 181-182 (2000). Where the

taxpayer’s underlying liability is not before us, we review the IRS determination

for abuse of discretion only. See 

      A taxpayer may challenge the existence or amount of her underlying liabili-

ty in a CDP proceeding only “if the person did not receive any statutory notice of

deficiency for such tax liability or did not otherwise have an opportunity to dispute

* * * [it].” Sec. 6330(c)(2)(B). Respondent concedes (and we agree) that petition-

er was entitled to dispute at the CDP hearing her underlying liability for 2013 be-

cause she had had no prior opportunity to do so. See ibid.; Montgomery v. Com-

missioner, 

, 8-9 (2004). However, a taxpayer must properly present an

underlying liability challenge at the CDP hearing in order to preserve that chal-

lenge for judicial review. See Giamelli v. Commissioner, 

, 113

(2007); sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs. In prior cases

we have ruled that taxpayers did not properly present such a challenge when they

failed to submit during a CDP hearing an amended return stating what they be-

lieved their correct tax liability to be. See, e.g., Millen v. Commissioner, T.C.

Memo. 2019-60; Burnett v. Commissioner, T.C. Memo. 2018-204.

      We remanded this case after respondent conceded that the SO had abused

her discretion by failing to consider petitioner’s challenge to her underlying liabil-
                                        -9-

[*9] ity and by failing to give petitioner enough time to submit information

relevant to her request for a collection alternative. Given these concessions by

IRS counsel and the terms of our remand order, one might have expected the

Appeals Office to take all steps reasonably necessary to accomplish the purpose of

our remand. Unfortunately, this is not what happened.

      As a small part of a lengthy letter, the SO invited petitioner to submit an

amended return. In many cases, submission of an amended return may be critical

in ascertaining the taxpayer’s position. But petitioner had clearly explained to the

SO her position--namely, that she did not receive any of the LLC’s real estate pro-

ceeds because 100% of the proceeds had been wired to her law firm’s bank to pay

off her law firm’s line of credit. Petitioner even told the SO the name of the bank

in question. That being so, submission of an amended return omitting $1 million

of sale proceeds would not have added much to the SO’s sum of knowledge.3

      To get to the bottom of the “underlying liability” issue, the SO needed in-

formation supporting the facts that petitioner alleged. But the SO’s June 13, 2018,


      3
        If petitioner was a member of an LLC that realized gains, she would be lia-
ble for her distributive share of those gains regardless of whether she received an
actual distribution. See secs. 702, 704; United States v. Bayse, 

, 454
(1973). Whether the LLC of which she was a member realized gain and (if so)
what her proper distributive share of that gain was are both pertinent questions in
determining her correct tax liability for 2013.
                                       - 10 -

[*10] letter did not request factual information that would support petitioner’s

position. That letter simply asked petitioner to “submit a Form 1040X Amended

return by 07/03/2018 for my review.” And the letter did not indicate that

petitioner’s failure to submit an amended return by that deadline would preclude

her from challenging her underlying liability.

      Petitioner appears to have come to the supplemental hearing with questions

about the procedures for (and consequences of) filing an amended return. But

rather than address those questions or provide petitioner with additional time to

supply the information that was needed, the SO closed the case the very next day.

We think this action was unreasonable, particularly in light of respondent’s ac-

knowledgment that the SO pulled the trigger too quickly the first time around.

      An SO is not required to wait indefinitely for the taxpayer to submit re-

quested documentation. See, e.g., McMurtry v. Commissioner, T.C. Memo. 2019-

22; Samaniego v. Commissioner, T.C. Memo. 2019-7. But as respondent agreed

when moving to remand this case, an abuse of discretion may be found where the

taxpayer was not afforded a reasonable amount of time to comply with document

requests and deadlines. See, e.g., Szekely v. Commissioner, T.C. Memo. 2013-

227; Judge v. Commissioner, T.C. Memo. 2009-135; see also Indus. Inv’rs v.

Commissioner, T.C. Memo. 2007-93. Here, the SO was fully aware of petitioner’s
                                        - 11 -

[*11] position concerning her underlying tax liability for 2013. But the SO did

not advise her, either in the letter scheduling the supplemental hearing or during

the hearing itself, of the factual information that was needed to resolve that

challenge. And rather than give petitioner a reasonable extension of time to

supply that information, the SO closed the case the very next day.

      On the record before us, we find that there exists (at the very least) a ques-

tion of material fact as to whether the SO abused her discretion in handling this

case on remand. We will accordingly deny respondent’s motion for summary

judgment. We will also direct respondent to show cause why this case should not

be remanded once again for the conduct of a supplemental hearing--ideally, before

a different SO--that is genuinely designed to get to the right answer concerning

petitioner’s underlying tax liability for 2013 and (if her underlying liability

challenge is rejected) concerning her request for a collection alternative.

      To implement the foregoing,


                                                 An appropriate order will be issued.