Juanita v. Comm'r of Internal Revenue

• Decision Date: 09 March 2005
• Docket Number: No. 3430–03L.,3430–03L.
• Citation: 124 T.C. 69,124 T.C. No. 6
• Parties: Juanita and Emmanuel KENDRICKS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

124 T.C. 69

124 T.C. No. 6

Juanita and Emmanuel KENDRICKS, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 3430–03L.

United States Tax Court.

March 9, 2005.

At the conclusion of a collection due process hearing (hearing), R's Appeals Office (Appeals) determined to proceed by levy to collect unpaid assessments of tax. Ps ask us to review that determination. Among other errors, Ps claim that Appeals erred in not allowing them to raise at the hearing the tax liabilities underlying the unpaid assessments because they had not had the opportunity to dispute those liabilities in a bankruptcy proceeding instituted by them.

1. Held: The bankruptcy proceeding instituted by petitioners afforded them the opportunity to dispute the underlying liabilities within the meaning of sec. 6330(c)(2)(B), I.R.C., and, as a result, Ps were precluded from raising those liabilities during the hearing.

2. Held, further, because Ps neither raised collection alternatives during the hearing nor properly made an offer in compromise, Appeals did not err in determining to proceed by levy to collect the unpaid assessments of tax.

Neal Weinberg, for petitioners.

Brianna Basaraba Taylor, for respondent.

OPINION

HALPERN, J.

This case is before the Court to review determinations made by respondent's Appeals Office (Appeals) that respondent may proceed to collect by levy amounts assessed but unpaid with respect to petitioner Juanita Kendricks's 1982 through 1984 taxable (calendar) years and petitioners Juanita and Emmanuel Kendricks' 1985 taxable (calendar) year (collectively, the unpaid assessments).¹ We review the determinations pursuant to section 6330(d)(1).² Petitioners (individually, Mr. or Mrs. Kendricks) assign error to the determinations on the grounds that (1) they did not receive notices of deficiency for the years in issue in time to file a petition in the Tax Court, and, therefore, Appeals should not have denied them the opportunity to dispute the underlying tax liabilities for those years; (2) Appeals abused its discretion in determining that collection by levy was the most appropriate course of action when petitioners wished to submit collection alternatives and an offer in compromise was pending; and (3) Appeals would not, in connection with petitioners' claims, consider the claims of two nominee corporations (nominees of Mrs. Kendricks), Foxy Investments, Inc., and J & K Trucking Co., Inc. (the nominee corporations). By order dated March 17, 2004, we, in effect, disposed of petitioners' third ground, by granting respondent's motion to dismiss for lack of jurisdiction (and to obtain certain other relief) with respect to the nominee corporations.³ With respect to petitioners' remaining two grounds, respondent moves for summary judgment in his favor (the motion). Petitioners object.

Rule 121 provides for summary judgment. Summary judgment may be granted with respect to all or any part of the legal issues in controversy “if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.” Rule 121(a) and (b). When a motion for summary judgment is made and properly supported, the adverse party may not rest on mere allegations or denials of the pleadings but must set forth specific facts showing that there is a genuine issue for trial. Rule 121(d).

We are satisfied that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. For the reasons that follow, we shall grant the motion.

Background

Introduction

We draw the following facts from the pleadings and the declaration of respondent's counsel, Brianna Basaraba Taylor, as to (1) the documents contained in respondent's administrative files concerning the hearing accorded petitioners pursuant to section 6330, (2) the documents in respondent's possession concerning petitioners' bankruptcy proceeding, and (3) additional documents in respondent's files relating to petitioners' case. We believe the following facts to be undisputed and so find for purposes of disposing of the motion.⁴

Residence

At the time the petition was filed, petitioners resided in Albany, Ga.

Respondent's Determinations of Deficiencies and Assessments

On March 24, 1995, respondent mailed to petitioners statutory notices of deficiency (notices) determining the deficiencies in, and additions to, tax that underlie the unpaid assessments. Petitioners failed to petition the Tax Court in response to the notices, and, as a result, respondent assessed the deficiencies and additions to tax that he had determined.

Bankruptcy Case

On September 13, 1996, petitioners filed a voluntary petition in bankruptcy under Chapter 13 of the Bankruptcy Code, 11 U.S.C. ch. 13 (“Adjustment of Debts of an Individual with Regular Income”), in the United States Bankruptcy Court for the Middle District of Georgia (the bankruptcy case and the bankruptcy court, respectively). On October 21, 1996, petitioners filed with the bankruptcy court both a Chapter 13 plan and a statement of financial affairs, which listed the Internal Revenue Service (IRS) as a secured creditor with a total claim of $338,571, of which $206,073 was listed as secured. On October 22, 1996, the IRS filed a claim against petitioners (called a “proof of claim” in bankruptcy parlance) for $428,780, on the basis of unpaid taxes for 1982 through 1985, all of which amount was listed as secured. On November 14, 1996, petitioners filed an objection to the IRS's proof of claim on the basis “that the claim is not owed”, and, on November 15, 1996, petitioners filed a motion to determine the secured status of the IRS's claim. On December 16, 1996, the bankruptcy court granted petitioners' motion to convert the bankruptcy case from a case under Chapter 13 of the Bankruptcy Code to a case under Chapter 11 of the Bankruptcy Code, 11 U.S.C. ch. 11 (“Reorganization”). Between December 1996 and November 1997, petitioners and the IRS (the bankruptcy parties) engaged in discovery regarding petitioners' objection to the IRS's proof of claim, and, on November 10, 1997, the bankruptcy court entered an order setting petitioners' objection for trial on February 11, 1998. On February 3, 1998, the bankruptcy court entered an order continuing the trial until April 13, 1998. On March 31, 1998, the bankruptcy parties filed a stipulation of dismissal, dismissing without prejudice both petitioners' objection to the IRS's proof of claim and petitioners' motion to determine secured status. On June 5, 2000, the bankruptcy case was dismissed upon motion of the IRS when petitioners did not object.

Notices of Intent To Levy and Right to Hearing

By letter dated October 24, 2001, respondent sent Mrs. Kendricks a notice of intent to levy and a notice of her right to a hearing under section 6330 (a collection due process hearing) with respect to her 1982, 1983, and 1984 tax years, claiming unpaid taxes, penalties, and interest for those years totaling $530,908.

Also by letter dated October 24, 2001, respondent sent petitioners a notice of intent to levy and a notice of their right to a collection due process hearing with respect to their 1985 tax year, claiming unpaid tax, penalties, and interest for that year of $110,676.

Collection Due Process Hearing

On November 20, 2001, respondent received timely requests for collection due process hearings from Mrs. Kendricks for her 1982, 1983, 1984, and 1985 tax years and from petitioners for their 1985 tax year. In attachments to the requests, petitioners state that they dispute the liabilities underlying the unpaid assessments (sometimes, the underlying liabilities) and have not yet had an opportunity to contest those liabilities. They also claim that any levy would cause them hardship.

In response to the requests, on September 18, 2002, petitioners and their counsel were afforded a 2–hour, face-to-face conference with Appeals Officer Allen D. Powell. At the conference, petitioners admitted that they had received the notices but, nevertheless, wished to dispute the underlying liabilities. Appeals Officer Powell informed petitioners that the Internal Revenue Code prohibited them from raising the underlying liabilities when they had received a notice of deficiency or otherwise had an opportunity to dispute the tax liability. Appeals Officer Powell then asked whether petitioners wished to submit collection alternatives, and petitioners stated that they did not.

On or about September 19, 2002, petitioners submitted an Offer in compromise (offer) to the IRS's centralized offer in compromise unit in New York. The offer related to the unpaid assessments, and the basis of the offer was “doubt as to liability”. Petitioners did not provide a copy of the offer to Appeals Officer Powell. By letter dated January 15, 2003, the offer was returned to petitioners by the IRS because it could not be processed in the form submitted. A second offer was submitted by petitioners' counsel to the IRS by facsimile transmission on January 30, 2003.

On January 29, 2003, Appeals sent Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 to petitioners' counsel (the notices of determination). The summary of determinations section of each of those notices of determination states:

During Appeals consideration of your case, you were informed that you could not raise the issue of your tax liability because you had an opportunity to dispute the issue and failed to do so. No collection alternatives were explored because you chose not to submit financial information to evaluate the collection alternatives.

The section concludes:

Appeals has obtained verification from the Secretary [of the Treasury] that the requirements of any applicable law or administrative procedure have been met, considered any relevant issues...