Enos v. Comm'r of Internal Revenue, No. 11630–01L.

• Decision Date: 27 September 2004
• Docket Number: No. 11630–01L.
• Citation: 123 T.C. No. 17,123 T.C. 284
• Parties: Joseph F. and Caroline ENOS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

123 T.C. 284
123 T.C. No. 17

Joseph F. and Caroline ENOS, Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 11630–01L.

United States Tax Court.

Sept. 27, 2004.

[123 T.C. 284]

R assessed income tax, interest, and civil fraud liabilities for Ps' 1971 tax year. Ps were involved in the scrap metal business and had a substantial account receivable from Ps' customer M. R issued to M a notice of levy on the account receivable. R and M entered into a payment agreement, whereby M would make 200 weekly payments of $1,500 to R. Ps were aware of and participated in the negotiation of the payment agreement between M and R. Ps continued to do business with M and received large payments from M before M was placed in bankruptcy. R filed an original and several amended proofs of claim in M's bankruptcy case, relating to the notice of levy. The bankruptcy court held that R did not have to marshal Ps' assets before seeking M's assets in bankruptcy court. R issued Ps a notice of determination to proceed with collection of Ps' 1971 liabilities for accrued interest on Ps' 1971 tax liabilities pursuant to sec. 6330, I.R.C. R determined that collection should proceed because R never had “dominion and control” over the account receivable because M continued to make payments to Ps after R issued M the notice of levy and Ps participated in the negotiation of the payment agreement with M.

Held: Ps' liability to R was not satisfied when R issued M the notice of levy because it only provided R with legal custody of Ps' account receivable from M. Held, further, R did not have “dominion and control” over the account receivable from M to Ps. Held, further, the notice of determination relates only to Ps' 1971 tax year, and the Court does not have jurisdiction over Ps' 1970 and 1972 tax years. Held, further, res judicata does not apply to the instant case. Held, further, collateral estoppel does not apply to the instant case. Held, further, the Court does not have jurisdiction to determine whether M's bankruptcy trustee is liable for penalties under 31 U.S.C. secs. 191 and 192 (2000) and secs. 6331 and 6332, I.R.C. Held, further, petitioners are not entitled to

[123 T.C. 285]

an abatement of interest because a significant aspect of any error or delay is attributable to petitioners.

Hans A. Stoeckler, for petitioners.

D. Sean McMahon, for respondent.

OPINION WELLS, J.

The petition in the instant case was filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination).¹ In the notice of determination, respondent determined that collection should proceed against petitioners to collect a liability for accrued interest on petitioners' tax liabilities for 1971.

The issues to be decided are as follows:

1. Whether respondent's issuance of a notice of levy on an account receivable due petitioners from a customer satisfied petitioners' original tax liability for 1971 that was assessed in 1977 because respondent exercised “dominion and control” over the account receivable;

2. whether we have jurisdiction over petitioners' 1970 and 1972 tax years;

3. whether res judicata applies to the instant case;

4. whether collateral estoppel applies to the instant case;

5. whether the bankruptcy trustee of petitioners' customer is personally liable to respondent under 31 U.S.C. secs. 191 and 192 (2000) and sections 6331 and 6332 for wrongfully refusing to surrender the customer's property to respondent; and

6. whether petitioners are entitled to an abatement of interest accruing for their 1971 tax year pursuant to section 6404.

Background

The parties submitted the instant case fully stipulated, without trial, pursuant to Rule 122. The parties' stipulations of fact are hereby incorporated by this reference and are found as facts in the instant case. At the time petitioners filed their petition, they resided in Taunton, Massachusetts.

[123 T.C. 286]

During the 1970s, petitioners operated Joseph Enos & Sons (Enos & Sons) and were engaged in the scrap metal business in Massachusetts. Petitioners routinely sold scrap metals to Metropolitan Metals, Inc. (MMI), of Harrisburg, Pennsylvania, from whom petitioners had a significant account receivable for scrap metal purchased by MMI (account receivable).

Petitioners made estimated tax payments of $1,753.51 for their 1971 tax year. Respondent conducted an audit of petitioners' 1971 tax year. On November 14, 1977, respondent assessed $164,886.76 in liabilities for 1971, comprising an income tax liability of $88,156.02, an addition to tax for fraud of $44,078.01 relating to certain cash transactions, and interest of $32,652.73. Petitioners did not dispute the liabilities assessed against them for 1971.

On August 15, 1978, in an attempt to collect payments on petitioners' 1970, 1971, and 1972 tax liabilities, respondent issued MMI a notice of levy (August 15, 1978, notice of levy), seizing the account receivable. When respondent issued MMI the August 15, 1978, notice of levy, MMI was experiencing financial problems. The August 15, 1978, notice of levy informed MMI that it owed respondent $310,333.58, of which $159,476.08 was for petitioners' 1971 tax year. The August 15, 1978, notice of levy also indicated that the amounts due for petitioners' 1970 and 1972 tax years were $64,167.11 and $86,690.39, respectively.

On December 15, 1978, MMI's counsel sent respondent a letter which stated that MMI would make 200 weekly installment payments of $1,500 to respondent in satisfaction of the levy served on MMI (December 15, 1978, payment agreement). The December 15, 1978, payment agreement was sent from MMI's counsel, Bruce D. Forman, Esq., to respondent's Revenue Officer Charles J. Hillsdale and stated the following:

I am writing to confirm my understanding of our conversation of December 13 and to put it in writing for purposes of specific explanation to my client.

Commencing Friday, December 19, 1978, and every Friday thereafter, Metropolitan Metals will forward to the Internal Revenue Service in self-addressed stamped envelopes to be provided by the Internal Revenue Service to me, payment in the amount of $1,500.00 for your levy on an account due and payable from Metropolitan Metals, Inc. to Joseph F. and Carol P.

[123 T.C. 287]

Enos, the same having been served on Metropolitan Metals August 15, 1978.

It has been agreed that the outstanding account payable is in the amount of $300,000.00 and, accordingly, at this rate of payment it would take 200 weeks to make all of the payments required. Mr. Roberts, President of Metropolitan Metals, Inc., has agreed to inform me if business profits permit increase payments and, at that time I would contact you so that we could increase the rate of payment to decrease the time during which payment would be made.

I appreciate the fact that you are cooperating with us so that this account can be paid in a manner consistent with continuing business and at the same time, allowing the government to collect the amount due.

MMI sent respondent seven checks for payment pursuant to the December 15, 1978, payment agreement. Only six of those checks were honored.

On March 29, 1979, MMI's creditors filed an involuntary bankruptcy petition against MMI in the U.S. Bankruptcy Court for the Middle District of Pennsylvania. MMI's bankruptcy petition was filed under chapter 11 of the Bankruptcy Act of 1898 (Bankruptcy Act), as amended. MMI's case was later converted to a chapter 7 case.

On April 25, 1979, Charles J. DeHart III, Esq., was appointed receiver of MMI.

On May 21, 1980, respondent issued Mr. DeHart a notice of levy (1980 notice of levy). The 1980 notice of levy indicated a total liability of $246,789.26, composed of a liability for 1971 of $153,002.11, and a liability for 1972 of $93,787.15.

On June 10, 1981, respondent filed an amended proof of claim, claim 134 (amended proof of claim), pursuant to a priority claim under section 64a(5), ² based on the August 15, 1978, notice of levy and the December 15, 1978, payment agreement, in the amount of $232,427.35. The amended proof of claim stated that interest would accrue at a rate of $45.55 per day.

On June 24, 1981, the U.S. Bankruptcy Court for the Middle District of Pennsylvania issued an order of adjudication, ordering MMI's case to proceed under the provisions of the Bankruptcy Act, appointing Mr. DeHart to the position of trustee for MMI (bankruptcy trustee), and setting the amount of the bond of the bankruptcy trustee at $100,000.

[123 T.C. 288]

On May 12, 1982, respondent filed a second amended proof of claim for internal revenue taxes, claim 173 (1982 proof of claim) in the U .S. Bankruptcy Court for the Middle District of Pennsylvania. Respondent's 1982 proof of claim stated that respondent had a priority claim under section 64a(5) based on the August 15, 1978, notice of levy and the December 15, 1978, payment agreement. The 1982 proof of claim also stated that interest would accrue on the $248,710.95 due under the 1982 proof of claim from MMI at a rate of $72.77 per day.

On April 5, 1989, respondent filed another amended proof of claim with the U.S. Bankruptcy Court for the Middle District of Pennsylvania, claim 175, claiming an amount due from MMI in the amount of $149,321.40.

On January 24, 1990, petitioners filed a complaint against respondent in the U.S. District Court for the District of Massachusetts, Civil Action No. 90–10178–WAG. Petitioners sought to have respondent remove certain tax liens on their property, relating to the tax liabilities from their 1971 and 1972 tax years. Petitioners also sought $10 million in damages from respondent.

On November 22 and 27, 1991, a deposition (deposition) was given by petitioner Joseph F. Enos (Mr. Enos), relating to the lawsuit petitioners filed in the U.S. District Court for the District of Massachusetts, Civil Action No. 90–10178–WAG. During the deposition, George Eliopoulos, Esq., of the U.S. Department of Justice, Tax...