Tax Court Upholds IRS Collection of Frivolous Return Penalty

CLAYTON UTTERBACK,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT
WASHINGTON, DC 20217

ORDER AND DECISION

This matter is before the Court to decide on respondent's motion for summary judgment, filed February 24, 2017, pursuant to Rule 121.¹ Respondent contends that no genuine dispute exists as to any material fact and that the determination of the Internal Revenue Service (IRS) Office of Appeals (Appeals) approving the filed notice of Federal tax lien (NFTL) with respect to petitioner's unpaid civil penalty liability for the 2012 taxable year should be sustained as a matter of law.

By Order dated March 1, 2017, the Court ordered petitioner to file a written response to respondent's motion no later than March 31, 2017. On March 27, 2017, petitioner filed the following documents: (1) "Motion to Dismiss Respondent's Alleged Civil Penalty for 2012 on grounds of equity, agency, failure to state a claim, failure to join, and other good cause", (2) "Motion to Take Judicial Notice of Attached Exhibits and Request for Entry into the Evidence File in Support of Dismissal of Summary Judgment, Counter Claim", and (3) "Counter Claim Bill in Equity".

This case was called from the calendar for the trial session of the Court at Los Angeles, California on May 22, 2017. Petitioner and counsel for respondent appeared and were heard regarding the status of this case, including respondent's motion for summary judgment. The Court took respondent's motion under advisement.

Background

On May 26, 2014, the IRS assessed against petitioner a civil penalty for the submission of a frivolous tax return pursuant to section 6702 for the 2012 taxable year. On April 21, 2015, the IRS sent petitioner a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6230 (lien notice), advising him that a NFTL had been filed in the amount of $15,003 concerning the assessed section 6702 civil penalty. The lien notice also advised petitioner that he had a right to a hearing to appeal the collection action and to discuss payment method options before Appeals.

In response to the lien notice, petitioner timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing (CDP hearing request). As the reason for disagreement with the lien notice, petitioner checked the box on his CDP hearing request for "Offer in Compromise". Additionally, in further support of his disagreement with the lien notice, petitioner stated on his CDP hearing request, "In the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall, subject to subsections (c), (d), and (e) [of section 6402] refund any balance to such person." Petitioner also requested subordination, discharge, or withdrawal of the lien, stating, "50 U.S.C. Appendix §24. Payment of taxes and expenses by Alien Property Custodian. (a) The Alien Property Custodian is authorized to pay all taxes." Petitioner did not challenge the underlying section 6702 civil penalty liability for 2012.²

Petitioner submitted with his CDP hearing request in pertinent part an incomplete Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. The form did not include any personal financial information and only referenced his alleged beneficiary interest in a trust held by the "Secretary of State" for $166 billion.

A representative from Appeals acknowledged receipt of petitioner's CDP hearing request by letter dated October 15, 2015, and the request was assigned to Settlement Officer Brian St. Germain (SO St. Germain). On February 12, 2016, SO St. Germain sent petitioner a letter in which he scheduled a telephonic CDP hearing with petitioner on March 17, 2016. He also outlined the issues he had to consider during the hearing and informed petitioner that in order for him to consider a collection alternative, such as an installment agreement or offer in compromise, he needed to submit certain information to him. In this regard, he stated:

For me to consider alternative collection1nethods such as an installment agreement or offer in compromise, you must provide any items listed below.

The items to be provided are:

• Completed Collection Information Statement Form 433-A for individuals.

• Signed tax return(s) for the following tax periods. Our records indicate they have not been filed:

  Type of Tax: 1040

  Tax Periods: 2011, 2012, 2013, 2014

If you did not file a return because your yearly income was below the amount for which a return is required to be filed, please let me know.

• Proof that estimated tax payments are paid in full for the year to date. Past due estimated tax payments may be included in an installment agreement; however an offer in compromise can't be accepted unless estimated tax payments are paid in full.

• Other: You requested the collection alternative of Offer in Compromise (OIC). You must file Form 656 with applicable fee and payment to the appropriate IRS campus. Submit a copy to this office.

Please send me the items listed above within 14 days from the date of this letter. For tax returns, please send them to me within 21 days from the date of this letter. I cannot consider collection alternatives without the information requested. I am enclosing the necessary forms and a return envelope for your convenience.

Petitioner did not submit any of the requested information to SO St. Germain before the March 17, 2016, telephonic CDP hearing. Nevertheless, the telephonic CDP hearing took place as scheduled. During the hearing, SO St. Germain advised petitioner that he could not consider his request for an offer in compromise because he had not submitted Form 656 and a completed Form 433-A and was not in filing compliance. Petitioner acknowledged this and asked SO St. Germain whether he had received a FOIA request he sent to him. SO St. Germain responded that he had and that he had forwarded it to the IRS disclosure office in Washington, D.C. They also discussed petitioner's request for subordination, discharge, or withdrawal of the lien. Petitioner stated that he had property being held by the United States Department of Treasury and that he was requesting lien withdrawal because his credit score was low and prohibited him from gaining credit. SO St. Germain explained to petitioner that these reasons did not meet the criteria for lien withdrawal. Petitioner then asserted that he did not receive the lien notice. In response, SO St. Germain asked petitioner how he knew to prepare and timely submit his CDP hearing request, to which petitioner provided no reply. Nevertheless, SO St. Germain told petitioner that he would send him a copy of the lien notice, as well as copies of the letters the IRS sent him regarding the section 6702 civil penalty assessment.

Petitioner never submitted Form 656 or any financial information to SO St. Germain after the telephonic CDP hearing. Consequently, SO St. Germain determined that the filed NFTL should be sustained, and on June 3, 2016, Appeals sent petitioner Letter 3193, Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination), to that effect. A summary detailing the matters considered by Appeals and its conclusions was attached to the notice of determination and included the following explanations:

LEGAL AND ADMINISTRATIVE REVIEW

I, Brian St. Germain, verified the requirements of any applicable law or administrative procedure were met.

* * * * * * *

ISSUES YOU RAISED

Collection Alternatives Requested

You requested the collection alternative of Offer in Compromise (OIC). You did not submit an Offer Form 656 with fee and applicable payment as requested. You are not in filing compliance. As a result, an GIC could not be evaluated in this case.

Lien Discharge

You checked the box of the Form 12153. You did not list a property for which the discharge is requested. You may file Form 14135, Application for Certificate of Discharge From Federal Tax Lien. Basis for discharge is as follows:

* * * * * * *

Lien Subordination

You checked the box for Lien Subordination on your Form 12153. You may file Form 14134, Application for Certificate of Subordination of Federal Tax Lien. Basis for consideration of subordination are [sic] as follows:

* * * * * * *

Lien Withdrawal

IRC Section 6323(j) allows the withdrawal of a filed notice of lien without full payment and without prejudice under the following conditions:

* * * * * * *

There is nothing in the Collection administrative file and you have offered no evidence that indicates withdrawal of the filed lien should be considered[.]

Challenges to the Liability

You did not dispute your liability.

You raised no other issues.

BALANCING ANALYSIS

Appeals balance [sic] the competing interests in finding the filed NFTL appropriate. As stated, your requested collection alternative is not viable. The Notice of Federal Tax Lien balances the need for efficient collection with your legitimate concern that no collection action be more intrusive than necessary.

On June 27, 2016, petitioner, while residing in California, timely filed his petition with this Court. In his petition, he makes numerous arguments that are frivolous in nature. His primary argument appears to be that he is a trustee and/or beneficiary to billions of dollars via the Troubled Asset Relief Program (TARP) and that the "Alien Property Custodian" is authorized to pay taxes on his behalf. He argues that SO St. Germain did not address his power to "control beneficial enjoyment."

Discussion

The purpose of summary judgment is to expedite litigation and avoid unnecessary and expensive trials. Fla Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted where the moving party shows through "the pleadings * * * and any other acceptable materials, together with the affidavits or declarations, if any, * * * that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). The burden is on the moving party to demonstrate that there is no genuine issue as to any material fact; consequently, factual inferences will be viewed in a light most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner, 79. T.C. 340, 344 (1982). The nonmoving party may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial. Rule 121(d); Sundstrand Corp. v. Commissioner, 98 T.C. at 520. Petitioner has failed to demonstrate that there is a dispute as to any material fact. Consequently, we may render a decision as a matter of law.

Where the validity of a taxpayer's underlying tax liability is properly at issue, the Court reviews any determination regarding the underlying liability de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Where the taxpayer's liability is not properly at issue, we review Appeals' determination for abuse of discretion only. Hoyle v. Commissioner, 131 T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. at 182. A determination is an abuse of discretion if it is arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 308, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006).

Petitioner does not appear to challenge the existence or amount of his underlying liability (i.e., the civil penalty liability) for 2012. Thus, because his underlying liability is not properly before this Court, we will review Appeals' determination for abuse of discretion only.³

If an administrative hearing is requested in a lien case, the hearing is to be conducted by Appeals. Sec. 6320(b)(1). At the hearing, the Appeals officer conducting it must obtain verification that the requirements of applicable law and administrative procedure have been met. Secs. 6320(c), 6330(c)(1). The taxpayer may raise at the hearing any relevant issue relating to the unpaid liability or the notice of lien filing, including, as relevant here, offers of collection alternatives, such as an offer in compromise. Secs. 6320(c), 6330(c)(2)(A). Following the hearing, the Appeals officer must determine among other things whether the collection action is appropriate. In reaching the determination, the Appeals officer must take into consideration: (1) whether the requirements of applicable law and administrative procedure have been met; (2) all relevant issues raised by the taxpayer, including offers of collection alternatives, such as an offer in compromise; and (3) whether the 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. Secs. 6320(c), 6330(c)(3); see also Lunsford v. Commissioner, 117 T.C. 183, 184 (2001). Our review of the record establishes that SO St. Germain properly considered all of these factors when making his determination to approve the filed NFTL against petitioner. Indeed, petitioner does not contend otherwise and that thus the approval of the filed NFTL against him was arbitrary, capricious, or without a sound basis in fact or law.

Besides, it is not an abuse of discretion for an Appeals officer to sustain a collection action and not consider collection alternatives when the taxpayer has proposed none. Kendricks v. Commissioner, 124 T.C. 69, 79 (2005); O'Neil v. Commissioner, T.C. Memo. 2009-183 (taxpayer discussed an offer in compromise with the Appeals officer on multiple occasions but failed to submit one in writing); see also sec. 301.7122-1(d)(1), Proced. & Admin. Regs. (offer must be made in writing and must contain all the information requested by the IRS). Similarly, this Court has held on numerous occasions that it is not an abuse of discretion for Appeals to reject collection alternatives and sustain the collection action due to the taxpayer's failure to submit requested financial information. See, e.g., Wright v. Commissioner, T.C. Memo. 2012-24; Ranuio v. Commissioner, T.C. Memo. 2010-178; Dinino v. Commissioner, T.C. Memo. 2009-284; Huntress v. Commissioner, T.C. Memo. 2009-161; Chandler v. Commissioner, T.C. Memo. 2005-99; Roman v. Commissioner, T.C. Memo. 2004-20. Finally, this Court has held that it is not an abuse of discretion for an Appeals officer to not consider (or to reject) a collection alternative where the taxpayer has not filed all required tax returns or is otherwise not in compliance with the tax laws. See, e.g., Giamelli v. Commissioner, 129 T.C. 107, 111-112 (2007); Boulware v. Commissioner, T.C. Memo. 2014-80, aff'd, 816 F.3d 133 (D.C. Cir. 2016); Friedman v. Commissioner, T.C. Memo. 2013-44; Starkman v. Commissioner, T.C. Memo. 2012-236; Balsamo v. Commissioner, T.C. Memo. 2012-109; Huntress v. Commissioner, T.C. Memo. 2009-161; Cavazos v. Commissioner, T.C. Memo. 2008-257; see also sec. 301.6330-1(d)(2), Q&A-D8, Proced. & Admin. Regs.

On his CDP hearing request, petitioner checked the box indicating he desired an offer in compromise. Petitioner, however, never made a written offer or provided any of the financial information requested by SO St. Germain. Instead, he espoused irrational arguments (which he has continued to do in his Tax Court filings) regarding TARP and how an alien property custodian is authorized to pay taxes on his behalf. Petitioner also was not in filing compliance as of the time SO St. Germain made his determination. Given these failures, it cannot be said that an abuse of discretion was committed regarding the issue of a collection alternative here.

Likewise, there was no abuse of discretion regarding the rejection in essence of petitioner's request as indicated on his CDP hearing request for subordination, discharge, or withdrawal of the lien. The IRS may withdraw a NFTL if it is determined that (1) the filing was premature or otherwise not in accordance with administrative procedures; (2) the taxpayer has entered into an installment agreement, unless such agreement provides otherwise; (3) withdrawal will facilitate collection; or (4) with the consent of the taxpayer or the National Taxpayer Advocate, withdrawal would be in the best interests of the taxpayer and the United States. Sec. 6323(j); Hillsman v. Commissioner, T.C. Memo. 2008-240, at *8. The IRS may subordinate a lien on specific property by issuing a certificate of subordination. Sec. 6325(d). The IRS may also issue a certificate of discharge of any part of a property subject to a lien and without full payment being required. Sec. 6325(b); Green v. Commissioner, T.C. Memo. 2014-180. All of these measures are permissive; consequently, the IRS is not generally required to subordinate, discharge, or withdraw a lien even if the conditions of a particular measure are fully met. Green v. Commissioner, at *7.

Petitioner's only evidence for lien subordination, discharge, or withdrawal is the assertions he made on his CDP hearing request and to SO St. Germain during the telephonic CDP hearing. The assertion in his CDP hearing request (i.e., regarding an alien property custodian) is unintelligible. During the telephonic CDP hearing, he stated to SO St. Germain that he had a low credit score and that the NFTL prohibited him from gaining credit. This bare assertion, however, is insufficient to establish that lien subordination, discharge, or withdrawal is warranted. This Court generally has no authority to grant relief based on a taxpayer's vague and unsupported claim that a lien adversely affected his credit rating. See Bergdale v. Commissioner, T.C. Memo. 2014-152, at *17-*18 (taxpayer "neither averred credible evidence beyond his bare allegations nor advanced any detailed argument" that "the NFTL has damaged his personal credit report, resulted in the closure of his bank accounts and credit card accounts, resulted in a loss of his business' relationships with clients, * * * caused foreclosure proceedings on his coop apartment[, and] * * * hindered his ability to generate financing to satisfy his employment tax liabilities."); Berkery v. Commissioner, T.C. Memo. 2011-57, slip op. at 12 ("there is no evidence in the record to suggest that the NFTL is impairing petitioner's ability to pay his outstanding tax liabilities."); see also Hughes v. Commissioner, T.C. Memo. 2011-294, slip op. at 7 ("Every NFTL filed by the Commissioner damages the taxpayer's credit. By itself, that fact does not show that the NFTL impairs the taxpayer's ability to satisfy the tax liability.").

In the light of the above, the Court finds that SO St. Germain did not abuse his discretion in sustaining the filed NFTL. The administrative record shows that he: (1) verified that all legal and procedural requirements were met, (2) considered all issues petitioner raised, and (3) determined that the collection action appropriately balances the need for the efficient collection of taxes with the legitimate concern of petitioner that the collection action be no more intrusive than necessary.

Petitioner has not given a sufficient basis to deny summary adjudication in respondent's favor pursuant to Rule 121. Respondent having shown that there is no genuine issue of material fact and that he is entitled to judgment as a matter of law, we will grant his motion for summary judgment. Petitioner is of course free to continue to negotiate with the IRS (in earnest though) concerning his unpaid civil penalty liability for 2012 but he is entitled to only one CDP hearing and Tax Court proceeding with respect to the NFTL. See Perrin v. Commissioner, T.C. Memo. 2012-22, slip op. at 8.

Premises considered, it is hereby

ORDERED that respondent's motion for summary judgment, filed February 24, 2017, is granted. It is further

ORDERED that petitioner's motions titled "Motion to Dismiss Respondent's Alleged Civil Penalty for 2012 on grounds of equity, agency, failure to state a claim, failure to join, and other good cause" and "Motion to Take Judicial Notice of Attached Exhibits and Request for Entry into the Evidence File in Support of Dismissal of Summary Judgment, Counter Claim", filed March 27, 2017, are denied as moot. It is further

ORDERED AND DECIDED that respondent may)proceed with the collection action with respect to petitioner's unpaid civil penalty liability for the 2012 taxable year, as described in the Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, dated June 3, 2016, upon which this case is based.

(Signed) Tamara W. Ashford
Judge

ENTERED: AUG 3 2018