Retired NFL Player Liable for Failure to File, Pay Penalties

Adalius Thomas
Petitioner
v. 
Commissioner of Internal Revenue
Respondent

ORDER OF SERVICE OF TRANSCRIPT

Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is

ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the trial in this case before the undersigned judge at the Atlanta, Georgia, remote session containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.

In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155.

(Signed) David Gustafson
Judge

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Bench Opinion by Judge David Gustafson

May 21, 2021

THE COURT: The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. All Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code (26 U.S.C.), as amended and in effect at all relevant times. 

This is a "collection due process" ("CDP") case brought under sections 6320 and 6330. By a Notice of Determination dated February 19, 2020, the Office of Appeals ("Appeals") of the Internal Revenue Service ("IRS") sustained the filing of a "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320" against petitioner Adalius Thomas to collect his Federal income tax liability for the 2007 tax year and denied Mr. Thomas's requested collection alternative of an installment agreement on the ground that his equity in personal assets exceeded the amount of the liability. (Ex. 1-J at 41-47 of 651). Mr. Thomas timely filed a petition with this Court to challenge the determination.

Trial of this case was conducted remotely on May 17, 2021, with the parties and the Court attending virtually via zoomgov.com from their respective locations. Vivian D. Hoard represented Mr. Thomas and Jason P. Oppenheim represented the Commissioner.

The issues for decision are as follows: (1) whether Mr. Thomas is liable for the addition to tax imposed by section 6651(a)(1) for failure to timely file his return; (2) whether Mr. Thomas is liable for the addition to tax imposed by section 6651(a)(3) for failure to pay the tax after notice and demand; and (3) whether the IRS Office of Appeals abused its discretion by denying Mr. Thomas's requested collection alternative of an installment agreement. The Court holds that Mr. Thomas is liable for the additions to tax imposed by section 6651(a)(1) and (a)(3), and that the IRS Office of Appeals did not abuse its discretion in denying Mr. Thomas's requested collection alternative of an installment agreement.

On the evidence before us, and using the standard-of-review and burden-of-proof principles explained below, we find the following facts:

FINDINGS OF FACT

Mr. Thomas resided in the State of Georgia at the time he filed his petition in this case. (Stip. 1).

Mr. Thomas's background

Mr. Thomas is a retired NFL football player. While actively playing in the NFL, Mr. Thomas sought professional guidance to invest and manage his earnings in order to provide necessary support over his lifetime.

Timing of the 2007 income tax return

Mr. Thomas received an extension of time to file his 2007 individual income tax return, thereby extending the filing deadline to October 15, 2008. (Stip. 5). Mr. Thomas's IRS account transcript for the 2007 year shows that the IRS received his 2007 income tax return on November 7, 2008. (Ex. 2-J). We find that it was filed on that date.

Green Gas

Gary Stern, an attorney licensed in the State of Illinois, served as a financial and tax advisor to Mr. Thomas. Mr. Stern advised his clients to make capital contributions to a partnership entity in exchange for a partnership interest. He told them that the partnership would allegedly engage in the production of fuel from nonconventional sources (called "FNS") and would then pass the associated federal income tax credits ("FNS credits") through to the partners. (Ex. 1-J at 260-261 of 651).

However, the schemes promoted by Mr. Stern were not eligible for the FNS credits, and eventually Mr. Stern was criminally indicted for his role in organizing the fraudulent investment schemes. He entered a plea of guilty and was sentenced to 3 years in prison. (Ex. 1-J at 344-345 of 651). Mr. Stern was permanently enjoined from giving advice to anyone regarding federal income tax and from preparing federal income tax returns. (Ex. 1-J at 295-300 of 651).

Mr. Thomas was a victim of this fraudulent scheme. He paid money to Mr. Stern and claimed the improper FNS credits on his 2007 tax return. Mr. Thomas's Federal income tax deficiency for the 2007 tax year arose from adjustments that the IRS subsequently made to his individual income tax return at the conclusion of an IRS examination (and subsequent litigation) under the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") of the 2007 partnership return for Green Gas Delaware Statutory Trust ("Green Gas"), in which Mr. Thomas was a partner. See Green Gas Del. Statutory Tr. v. Commissioner, 147 T.C. 1 (2016); Ex. 18-R. In a Notice of Computational Adjustments dated May 31, 2017, the IRS notified Mr. Thomas that adjustments were made to his 2007 income tax return as a result of the TEFRA examination of Green Gas and that the adjustments resulted in a deficiency of $584,430 in tax, a $769.60 addition to tax under section 6651(a)(1) based on failure to file his return timely, and an accuracy-related penalty of $116,886 under section 6662. (Ex. 18-R at 3-4). The notice also stated: "If you have any affected items subject to deficiency procedures, a separate notice of deficiency will be sent to you." No notice of deficiency appears in our record, and neither party contends that a notice of deficiency was sent to Mr. Thomas regarding the adjustments to his tax liability for 2007. The 2007 tax deficiency was assessed on May 31, 2017. (Stip. 33; Ex. 2-J at 2.)

Attempts to collect the 2007 income tax liability

Starting with the May 31, 2017, assessment and Notice of Computational Adjustment, the IRS sent Mr. Thomas multiple automated notices by mail informing him of his balance owed for the 2007 tax year and demanding payment. (Ex. 1-J, at 81-83 of 651). Mr. Thomas did not pay any of his 2007 liability in response to these notices, and collection of Mr. Thomas's outstanding tax liability for the 2007 tax year was eventually assigned to an IRS Revenue Officer.

The IRS attempted to mail Mr. Thomas a "Notice of Intent to Levy and Notice of Your Rights to a Hearing" (Ex. 44-R) on May 22, 2018; but, as the Commissioner's pretrial memorandum admits, the Notice of Intent to Levy was returned to respondent. (Ex. 4 4-R at 6).

On June 26, 2018, the Revenue Officer mailed Mr. Thomas a "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320" (Ex. 48-R at 4), and that notice advised Mr. Thomas of his right to request a CDP hearing before Appeals by August 2, 2018.

CDP hearing and request for penalty abatement

Mr. Thomas requested a CDP hearing by Form 12153 ("Request for a Collection Due Process or Equivalent Hearing") on August 1, 2018. (Ex. 1-J at 60 of 651). Mr. Thomas had completed a Form 433A, "Collection Information Statement for Individuals", dated July 13, 2018. That form, signed under penalty of perjury, described his income, expenses, assets, and liabilities as they existed at that time. (Ex. 3-J). Mr. Thomas completed the Form 433A by himself and without the assistance of counsel. The Form 433A stated that Mr. Thomas held a 401K account with a value of $628,992, a Morgan Stanley investment account with a net equity value of $1,044,252, a life insurance policy with net cash value (after a loan balance) of $180,727, "various illiquid" investments worth $300,000, a mortgaged house in Massachusetts with no equity, and a Maryland house with equity of $500,000. (Ex. 1-J at 109-112 of 651). Mr. Thomas submitted this Form 433A to Appeals in the CDP process.

(At trial, the Commissioner showed that, during 2017, 2018, and 2019, in addition to the assets disclosed on his Form 433A, Mr. Thomas also held minority ownership interests in multiple closely-held businesses with substantial cash-flow. (See Exs. 26-R to 37-R, showing distributions totaling $62,472 in 2017, $181,406 in 2018, and $189,608 in 2019), and an additional residence in Alabama without a mortgage, where his parents resided). Apparently Appeals did not become aware of these assets.)

Mr. Thomas's CDP case was assigned to Settlement Officer Cynthia Collins. (Ex. 1-J at 85-87 of 651). Before Appeals Mr. Thomas requested abatement of the accuracy-related penalty for reasonable cause. (Ex. 1-J at 238-255 of 651). When Appeals notified Mr. Thomas that an addition to tax under section 6651(a)(3) for failure to pay after notice and demand would be asserted, Mr. Thomas amended his written request for penalty abatement to include a request to abate the failure-to-pay addition to tax for reasonable cause. (Ex. 11-P at 1-2 of 129). Respondent stipulated that Mr. Thomas attempted to dispute his liability for the addition to tax imposed by section 6651(a)(3) for failure to pay after notice and demand during the CDP process. (Stip. 26).

In a Notice of Determination dated February 19, 2020 (Ex. 1-J at 41-47), Appeals determined that the accuracy-related penalty could be abated for reasonable cause, but Appeals sustained the filing of the Notice of Federal Tax Lien and denied Mr. Thomas's suggested collection alternatives of an installment agreement or currently not collectible status because Mr. Thomas's reported equity in personal assets was sufficient to fully pay his liability. (Ex. 1-J at 41-47 of 651). Appeals recommended a 60-day extension of time for Mr. Thomas to full pay the balance due. (Ex. 1-J at 47 of 651). Mr. Thomas requested, and Appeals provided, a final payoff figure of $1,053,458.82 as of April 4, 2020, the expiration of the 60-day extension. (Ex. 1-J at 46 of 651).

Continued Non-Payment

In February 2020 Mr. Thomas received approximately $900,000 as settlement of his claims against Mr. Stern regarding the FNS tax credit schemes. Mr. Thomas did not use this settlement to pay his 2007 liability but instead used it to pay various bills and, on the advice of his investment advisor, deposited the remainder into an investment account. The advisor explained to Mr. Thomas that the rate of return he would receive from investing the settlement proceeds would be greater than the interest that would accrue on the 2007 deficiency, so it would therefore be in Mr. Thomas's financial interest not to pay the tax. For paying the taxes, the advisor suggested using anticipated future proceeds of a sale of the Maryland house, which was on the market in February 2020 but needed repairs before it could be sold.

An addition to tax for failure to pay was added to Mr. Thomas's 2007 income tax account pursuant to section 6651(a)(3) and was assessed on June 15, 2020. (Ex. 2-J).

Payment of tax

In August 2020, Mr. Thomas sold his Maryland house. From those proceeds, he paid the IRS $509,366.48 on August 25, 2020. (Stip. 31). This was his first payment toward the 2007 deficiency, and he made it almost 41 months after the IRS issued its notice and demand on March 31, 2017. Mr. Thomas further paid the IRS $210,000 on March 26, 2021. (Ex. 2-J).

OPINION

I. Applicable burdens of production and proof and standards of review

A Burden of production with respect to additions to tax

Under section 7491(c), the Commissioner bears "the burden of production in any court proceeding with respect to the liability of any individual for any . . . addition to tax imposed by this title", such as the additions to tax under section 6651(a)(1) and (a)(3). Once the Commissioner meets his burden of production, the burden of proof shifts to the taxpayer to prove otherwise. See Rule 142(a)(1). The taxpayer bears the burden of proof with regard to the "reasonable cause" exceptions of section 6651(a). Higbee v. Commissioner, 116 T.C. 438, 447 (2001).

To prove reasonable cause under section 6651(a)(1) for failure to file, a taxpayer must show that he "exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time." 26 C.F.R. sec. 301.6651-1(c)(1).

To prove reasonable cause under section 6651(a)(3) for failure to pay after notice and demand, the taxpayer must show that he "exercised ordinary business care and prudence in providing for the payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he paid on the due date." 26 C.F.R. sec. 301.6651-1(c)(1).

B. Standards of review

Where the validity of the underlying liability is properly at issue in the appeal of a collection determination, the Tax Court reviews de novo the determination of the underlying liability. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). A taxpayer's underlying tax liability may be at issue if, before the CDP proceeding, the taxpayer did not receive a notice of deficiency determining the liability or did not otherwise have an opportunity to dispute the tax liability before Appeals. Sec. 6330(c)(2)(B).

Mr. Thomas did not receive a notice of deficiency regarding his liability for the additions to tax under sections 6651(a)(1) and (a)(3), nor did he otherwise have a prior opportunity to dispute these additions (such as an opportunity for a prior hearing before Appeals).

Mr. Thomas' liability for the failure to pay addition to tax under section 6651(a)(3) had not been asserted at the time he requested his CDP hearing (and was not actually assessed until after Appeals issued its notice of determination), so he had not had a prior opportunity to challenge it. The Commissioner acknowledges that Mr. Thomas did raise the section 6651(a)(3) addition to tax at the CDP hearing, and we find it is properly at issue. We therefore review de novo whether Mr. Thomas is liable for the section 6651(a)(1) and (a)(3) additions to tax, see E. J. Harrison & Sons, Inc, v. Commissioner, 2011 T.C. Memo. 2011-157, at *7, though the outcome of our decision on these issues would be the same under the abuse-of-discretion standard.

As to collection-related issues other than the underlying liability, we review Appeals' determination for abuse of discretion. Downing v. Commissioner, 118 T.C. 22, 30-31 (2002). Thus, we review for abuse of discretion Appeals' determination to sustain the collection action and deny collection alternatives. Applying that abuse-of-discretion standard, we decide whether Appeals' determination was arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006).

II. Section 6651(a)(1) addition to tax

A. The nature of the addition to tax

Section 6651(a)(1) imposes an addition to tax for failure to file a timely return, unless the taxpayer proves that such failure was due to reasonable cause and was not due to willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985). The addition consists of "5 percent of the amount of such tax" for each month of delinquency, "not exceeding 25 percent in the aggregate", sec. 6651(a)(1); that is, the addition stops accruing after five months. Reasonable cause may exist if a taxpayer exercised ordinary business care and prudence and was nonetheless unable to file a return within the time prescribed by law. See 26 C.F.R. sec. 301.6651-1(c)(1). Willful neglect connotes "a conscious, intentional failure or reckless indifference" with respect to timely filing. United States v. Boyle, 469 U.S. 241, 245 (1985).

B. Analysis

1. The 2007 income tax return was not timely filed.

To satisfy his burden of production that Mr. Thomas filed his 2007 income tax return late, the Commissioner produced Mr. Thomas's IRS account transcript for the 2007 year showing that the IRS received Mr. Thomas's 2007 income tax return on November 7, 2008, more than three weeks after the extended deadline of October 15, 2008. The burden of proof therefore shifted to Mr. Thomas to prove that his 2007 income tax return was in fact timely filed.

The IRS transcript shows that Mr. Thomas's 2007 income tax return was filed, and that transcript is the only documentary evidence of that filing, since Mr. Thomas did not offer into evidence any copy of his 2007 income tax return. Rather, he offered the testimony of Edward Rappaport, the professional who prepared his return. Mr. Rappaport testified that it was his standard business practice to file extensions for his clients and to file all tax returns on or before October 15. Mr. Rappaport testified that he believes he would have done so for Mr. Thomas in 2007; but he did not profess actual recall of the filing of that return, and he could not produce any tangible evidence to support his belief that he filed Mr. Thomas's 2007 income tax return on or before October 15, 2008. Without actual evidence to contradict the Commissioner's records — such as testimony based on actual personal knowledge, a certified mail receipt, or even a copy of Mr. Thomas's 2007 income tax return showing the date of signature — we credit the Commissioner's records of Mr. Thomas's 2007 income tax account. We therefore find that Mr. Thomas's 2007 income tax return was filed late, and he is liable for the 6651(a)(1) addition to tax unless he could prove reasonable cause for his late filing.

2. Mr. Thomas did not have reasonable cause for his late filing.

Mr. Thomas bears the burden to show that his late filing in 2007 was due to reasonable cause and not due to willful neglect. See sec. 6651(a)(1). Mr. Thomas makes two primary arguments in support of his general claim for reasonable cause. First, he argues that being a victim of the fraudulent FNS credit scheme promoted by Mr. Stern constituted circumstances beyond his control. Second, he argues that he relied on Mr. Stern's advice as his professional tax advisor. These are the same arguments that Mr. Thomas used in successfully arguing that the accuracy-related penalty for 2007 should be abated. However, facts supporting reasonable cause must excuse the particular lapse at issue, and the facts regarding Mr. Stern's fraudulent FNS credit scheme, which explain the position Mr. Thomas reported on his return and provide reasonable cause for that erroneous reporting, do not explain why he filed that return late and therefore do not provide reasonable cause under section 6651(a)(1). Mr. Stern did not prepare Mr. Thomas's 2007 income tax return, and Mr. Thomas offered no further evidence to explain why his 2007 income tax return was filed late. In the absence of such facts articulating a reasonable cause for the late filing, we hold that Mr. Thomas is liable for the 6651(a)(1) addition to tax.

III. Section 6651(a)(3) addition to tax

A. The nature of the section 6651(a)(3) addition to tax

Chapter 68 of the Internal Revenue Code (sections 6651-6751) is entitled "Additions to the Tax, Additional Amounts, and Assessable Penalties". As that title indicates, it provides for some liabilities that are called "additions to the tax" and other liabilities that are called "penalties". Subchapter A (sections 6651-6665) is entitled "Additions to the Tax and Additional Amounts" and consists of three parts: Part I is "General Provisions" (sections 6651-6658); part II is "Accuracy-related and fraud penalties" (sections 6662-6664); and part III is "Applicable Rules" (section 6665). Subchapter B is "Assessable Penalties" (sections 6671 through 6725). Thus, some "penalties" are included in subchapter A, part II (i.e., the "Accuracy-related and fraud penalties") and other penalties are included in subchapter B (i.e., the "Assessable Penalties"). However, part I of subchapter A includes not "penalties" but rather "Additions to the Tax and Additional Amounts".

Within that portion of the Code — i.e., within chapter 68, subchapter A, part I — is the liability at issue here. Section 6651(a)(3) imposes an "addition to the tax" that the IRS proposes to collect from Mr. Thomas.

It provides as follows:

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.

(a) Addition to the Tax. — In case of failure —

* * * * * * *

(3) to pay any amount in respect of any tax required to be shown on a return specified in paragraph (1) which is not so shown * * * within 21 calendar days from the date of notice and demand therefor * * * unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount of tax stated in such notice and demand 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate. [Emphasis added.]

The stated rate of 0.5 percent will, pursuant to section 6651(d)(2)(A), be increased to 1 percent for each month beginning after "the day 10 days after the date of which notice is given under section 6331(d)". Section 6331(d) provides for the Secretary of the Treasury (acting through the IRS) to give "Notice Before Levy" — i.e., notice "of his intention to make such levy" — and the Commissioner contends that the "Notice of Intent to Levy and Notice of Your Rights to a Hearing" (Ex. 44-R) that he mailed to Mr. Thomas on May 22, 2018, increased the addition to 1% per month. It appears that the IRS did assume the 1% rate in computing against Mr. Thomas the maximum possible addition of 25%. However, since the Commissioner admits that this levy notice was returned to the IRS without being delivered to Mr. Thomas, we hold that the Secretary did not give Mr. Thomas notice for purposes of section 6651(d)(2)(A), so that the applicable rate remains 0.5 percent per month.

The "notice and demand" referred to in section 6651(a)(3) is provided for in section 6303:

SEC. 6303. NOTICE AND DEMAND FOR TAX.

(a) General Rule. — Where it is not otherwise provided by this title, the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address. [Emphasis added.]

"Notice and demand" thus follows the making of an assessment. Where the assessment is of an income tax deficiency determined by the IRS, that assessment is deferred by the deficiency process: The IRS issues a notice of deficiency pursuant to section 6212, and section 6213 gives the taxpayer 90 days to file a petition with the Tax Court. Section 6213(a) provides that "no assessment of a deficiency in respect of" the income tax "shall be made * * * until the expiration of such 90-day * * * period * * * nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final." (Emphasis added.)

The section 6651(a)(3) addition itself is not subject to the deficiency procedures applicable to tax. By its nature, the addition is not fixed but increases in amount (up to a total of 25 percent of the tax) as time passes and the tax remains unpaid. The IRS may assess the accrued addition from time to time, but it is not required to do so, and it may collect the addition without assessment. See Reese v. Commissioner, T.C. Memo. 2006-21, aff'd, 201 Fed. Appx. 961 (4th Cir. 2006). Section 6665(b) provides explicitly that the deficiency procedures "shall not apply to any addition to tax under section 6651"; and the exception to that rule for "an addition * * * which is attributable to a deficiency in tax", sec. 6665(b)(1) (emphasis added), does not apply to the section 6651(a)(3) addition, which by its nature is attributable not to a tax "deficiency" but rather to a failure to pay tax that has been assessed.

The result of these interlocking provisions in a circumstance like the one at issue in this case is as follows: The failure-to-pay addition does not begin to accrue until notice and demand for payment of the tax, sec. 6651(a)(3); notice and demand for payment of the tax cannot be made until assessment, sec. 6303. Consequently, the order of events is: (1) assessment of tax, (2) notice and demand, and — only thereafter — (3) accrual of the failure-to-pay addition of section 6651(a)(3), with or without assessment.

B. Analysis

1. Failure to pay after notice and demand

The Green Gas adjustments resulted in a tax deficiency of $584,430, which was assessed on May 31, 2017, and Mr. Thomas does not dispute the propriety of that assessment. The original notice and demand for payment of that tax deficiency, which notice and demand triggered the 6651(a)(3) addition to tax, was the Notice of Computational Adjustment also dated May 31, 2017, the date of the tax assessment. (Stip. 33.). The tax thereafter went unpaid for 41 months until August 25, 2020.

The Commissioner's assertion in the CDP context of the 6651(a)(3) addition to tax for failure to pay after notice and demand was proper. (Mr. Thomas's pretrial memorandum asserted that the section 6651(a)(3) addition is barred by the statute of limitations, but at trial his counsel "waived" that contention, and we do not address it further.) Mr. Thomas is therefore liable for 41 months' worth of the 6651(a)(3) addition to tax unless he can prove that his failure to pay was due to reasonable cause and not willful neglect.

2. Lack of reasonable cause

Mr. Thomas bears the burden to show that his failure to pay the 2007 deficiency after notice and demand was due to reasonable cause and not due to willful neglect. See sec. 6651(a)(3). Mr. Thomas makes the same two arguments in support of his general claim for reasonable cause relief from all penalties and additions to tax applicable to his 2007 taxes owed, namely that Mr. Stern's fraudulent FNS credit scheme constituted circumstances beyond his control and that Mr. Thomas relied on Mr. Stern's advice as his professional tax advisor. However, the facts and circumstances offered by Mr. Thomas as a basis for reasonable cause for his reporting position on his 2007 return do not relate to his ability to pay the deficiency after notice and demand in 2017. Furthermore, Mr. Thomas's continued failure to pay after notice and demand in February 2020 appears to be due to willful neglect.

At trial, Mr. Thomas testified that he received approximately $900,000 in settlement of his claims against Mr. Stern in February 2020, and that he was awaiting a final payoff figure from the IRS at that time. Mr. Thomas further testified that his financial advisor suggested investing the settlement proceeds, rather than using them to pay the 2007 taxes, because the rate of return Mr. Thomas would receive investing the settlement proceeds would be greater than the interest accruing on the 2007 deficiency and would therefore be in Mr. Thomas's best financial interest. For paying the taxes, the advisor suggested using anticipated future proceeds of a sale of the Maryland home, which was on the market in February 2020 but needed repairs before it could be sold. Mr. Thomas testified that the Maryland house was repaired and later sold in August 2020, with the entirety of the proceeds being paid then towards the 2007 deficiency. We conclude that this deliberate non-payment of the tax when he had money in hand constituted willful neglect.

But long before this extreme instance of nonpayment in 2020, Mr. Thomas had the ability to pay the $584,430 in tax. He owned three substantial residences — one vacant, and two with no mortgage. He had interests in entities whose Schedules K-1 showed substantial cash flow. He had a brokerage account of publicly traded securities in which, by his own account, his equity was more than $1 million. He did not convince us that paying the tax debt would have caused him undue hardship.

We hold that Mr. Thomas has not shown reasonable cause for his failure to pay the 2007 deficiency after notice and demand.

IV. Appeals did not abuse its discretion.

In compliance with section 6330(c)(1), the appeals officer verified that the IRS met the requirements of applicable law and administrative procedure in assessing and demanding payment for Mr. Thomas's 2007 liability, issuing the notices of federal tax lien, and providing him with the CDP hearing. In compliance with section 6330(c)(2)(A), the appeals officer considered the issues Mr. Thomas raised but was unable to consider any collection alternative because Mr. Thomas showed sufficient equity in personal assets to satisfy the 2007 deficiency in full. In compliance with section 6330(c)(2)(B), the appeals officer considered Mr. Thomas's challenge to the section 6662 accuracy-related penalty and considered his abatement request. The appeals officer determined that Mr. Thomas qualified for abatement of the accuracy-related penalty. Finally, the appeals officer determined that the filing of a notice of federal tax lien was appropriate and granted Mr. Thomas a 60-day extension to pay his 2007 liability in full.

We conclude that, with one exception discussed below, the IRS Office of Appeals did not abuse its discretion in sustaining the filing of a notice of federal tax lien. We further hold that the appeals officer's denial of Mr. Thomas's suggested collection alternative of an installment agreement or currently not collectible status where Mr. Thomas reported sufficient equity in personal assets to satisfy his 2007 liability in full was not an abuse of discretion. Mr. Thomas had the opportunity to put forth evidence at trial that he had incorrectly reported his financial condition on his Form 433A and to show a lower reasonable collection potential. The only such evidence he offered was his uncorroborated testimony, and it was not convincing. On the record before us, Mr. Thomas was shown to hold substantial equity in personal brokerage holdings, multiple parcels of real estate, minority interests in multiple closely-held businesses, life insurance policies, and the proceeds of his settlement with Mr. Stern. The Court therefore concludes, as the IRS Office of Appeals did, that Mr. Thomas held sufficient assets to satisfy his 2007 liability, and to deny a collection alternative such as an installment agreement where a taxpayer shows the ability to pay his liability in full is not an abuse of discretion.

Appeals did abuse its discretion in sustaining the maximum 25% addition to tax, apparently on the assumption that the notice of intent to levy that was mailed in May 2017 warranted the increased monthly rate of 1% under section 6651(d)(2)(A). However, before trial the Commissioner admitted that the May 2017 notice had not been delivered to Mr. Thomas. That being so, the rate was only 0.5% per month, and the 25% maximum would have require 50 months to accrue. But $509,366.48 of the deficiency (i.e., about 87% of the deficiency) was paid after 41 months on August 25, 2020; and the remainder was paid on March 26, 2021, 48 months after the March 2017 notice and demand. The amount of the addition to tax under section 6651(a)(3) must therefore be recomputed, and decision will be entered under Rule 155.

This concludes the Court's oral Findings of Fact and Opinion in this case.

(Whereupon, at 3:40 p.m., the above-entitled matter was concluded.)