Kindred v. Commissioner of Internal Revenue
| Citation | 454 F.3d 688 |
| Decision Date | 20 July 2006 |
| Docket Number | No. 05-1424.,No. 05-1435.,05-1424.,05-1435. |
| Parties | David and Lynette KINDRED, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Robert A. Jones (argued), Las Vegas, NV, for Petitioner-Appellant.
Sara Ann Ketchum (argued), Deborah K. Snyder, Andrea Tebbets, Department of Justice Tax Division, Appellate Section, Washington, DC, for Respondent-Appellee.
Before COFFEY, MANION, and KANNE, Circuit Judges.
After their income tax return was reviewed, taxpayers David and Lynette Kindred (collectively the "taxpayers") were determined by the Internal Revenue Service ("IRS" or "the Service") to be deficient in their payments for the tax year 1999. The taxpayers were informed of this when they were sent a statutory notice of deficiency, which provided them the opportunity to challenge the IRS' determination in the United States Tax Court ("Tax Court"). They failed to do so, and the tax was assessed as due in owing on December 16, 2002. Shortly thereafter, the Kindreds were sent a demand for payment via certified mail and informed that, if they failed to satisfy the tax obligation, a lien in favor of the United States government would attach to all of their real and personal property. See IRC § 6321.1 The assessment went unpaid, and in an effort to prevent a lien from attaching, the Kindreds promptly notified the IRS that they wished to exercise their right to request a hearing pursuant to IRC § 6330, challenging inter alia their underlying tax liability. The IRS sustained the lien holding that the Kindreds' claims were barred by statute, see § 6330(c)(2)(B), and the Kindreds filed a petition with the Tax Court. After the close of the pleadings, the IRS moved for summary judgment pursuant to Rule 121(b) of the United States Tax Court Rules of Practice and Procedure and the Tax Court granted the motion. We affirm.
On July 15, 1999, David and Lynette Kindred filed a joint income tax return, Form 1040, for the tax year 1998. Suspecting that the Kindreds had under-reported their taxable income by approximately $628,000, the IRS flagged the return for examination, more commonly referred to as an audit. See generally IRC § 7602; Treas. Reg. §§ 301.7602-1 et seq. According to the record, the Kindreds failed to communicate with the IRS concerning their return and refused to take part in the examination process.2 The IRS thereafter determined, without the Kindreds participation, that the couple had attempted to avoid paying taxes on their income by placing their assets into various trusts; something the Service has characterized in the past as an "abusive tax trust scheme." See, e.g., Muhich v. Commissioner, 238 F.3d 860, 863 (7th Cir.2001).
Accordingly, on May 9, 20023 the IRS sent the Kindreds a statutory "notice of deficiency" informing them that they owed $991,096.43 in tax, penalties and interest. See IRC §§ 6211(a), 6212(a), 7522(a), 6601(a), 6662(a); Treas. Reg. §§ 301.6211-1 et seq. Included in the notice of deficiency was information advising them of their statutory right to challenge the proposed assessment of tax deficiency by filing a petition with the Tax Court within 90 days. See IRC § 6503(a); Treas. Reg. § 301.6503(a)-1.4
The Kindreds failed to contest the IRS' determination, and on December 16, 2002, the tax was statutorily assessed as due in owing. See IRC §§ 6201 et seq.; Treas. Reg. § 301.6203-1. The same day, the Kindreds were sent a notice of payment, stating that, in order to avoid further collection efforts by the Service, they should immediately remit $991,096.43, the amount in arrears. See IRC § 6303(a). Similar notices were sent on January 19, 2003, June 8, 2003 and July 6, 2003, advising the Kindreds that if they failed to pay the outstanding tax balance immediately, the IRS would seek a federal tax lien against their assets.
The Kindreds once again refused to either remit payment or to acknowledge the IRS' collection efforts in any manner. At that point, the IRS assigned a revenue officer5 to the Kindreds' case in order to ensure payment of the tax and oversee any future collection activities. See Treas. Reg. 301.7430-1(g), Example 8. On September 9, 2003, the designated revenue officer paid a visit to the Kindreds' home in order to discuss their tax liability and to inquire as to how they would like to proceed. The revenue officer found the Kindreds to be unavailable at their residence and they did not attempt to get in contact with him after the visit.6
With the tax liability unliquidated and no other options available, the IRS sent the Kindreds a notice entitled: "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC § 6320." See IRC §§ 6320, 6321. This notice informed the Kindreds of the amount owed as well as their right to challenge the lien, within 30 days, by requesting an administrative proceeding known as a "Collection Due Process" ("CDP") hearing. See IRC §§ 6320, 6330.
After receiving the required statutory notice of the filing of a levy, the Kindreds timely exercised their statutory right to request a CDP hearing pursuant to IRC § 6330. When they completed the required CDP hearing request form, IRS Form 12153, the Kindreds were asked to explain why they did not agree with the IRS' filing of a federal tax lien. In response, they stated: "We disagree with the determination of the taxes and additions owed and the calculation of the amounts, if any." The IRS responded by assigning an appeals officer to the case and scheduling a hearing for January 15, 2004.7
In the documents that the Kindreds submitted to the appeals officer prior to the hearing, they maintained their objection to the accuracy of the taxes, penalties and interest which had been assessed by the IRS. In addition, they argued that instead of being subject to a levy, they should be entitled to pursue collection alternatives pursuant to IRC § 6330(c)(2), such as "the posting of bond, the substitution of other assets, or an offer in compromise." In particular, the Kindreds sought to submit an offer in compromise which, if accepted, could have reduced the amount determined to be owed to the IRS. See generally Young v. United States, 535 U.S. 43, 53, 122 S.Ct. 1036, 152 L.Ed.2d 79 (2002). In response, the appeals officer requested additional financial information and documentation from the Kindreds in order to ascertain whether it would be in the IRS' interests to pursue collection alternatives. See Treas. Reg. 301.6330-1(e)(1); IRC § 7122. However, the Kindreds failed to submit a formal written offer in compromise or the financial information required for an appeals officer to entertain collection alternatives.8 Indeed, the Kindreds refused to submit any financial information at all.
As such, the appeals officer refused to consider collection alternatives and was left with only the question of whether the Kindreds could challenge the Service's mathematical calculation and/or the accuracy of the taxes, penalties and interest assessed. The appeals officer concluded that the Kindreds were precluded from doing so because such an argument could be properly classified as a challenge to the underlying liability, which is barred in a CDP hearing by IRC § 6330(c)(2)(B). Accordingly, the levies were sustained.
Unhappy with this determination, David and Lynette Kindred individually filed petitions in the United States Tax Court,9 arguing that the appeals officer had abused his discretion by refusing to entertain their arguments challenging the mathematical accuracy of the IRS' assessments and by failing to entertain any collection alternatives, such as an offer in compromise or "innocent spouse" relief.10 See IRC § 6015(b)(1). Also, they averred that, in addition to being inaccurate, the assessments made by the Service were untimely pursuant to the three-year limitations period set forth in IRC § 6501.11 At the close of pleadings, the IRS moved for summary judgment pursuant to Rule 121(a) of the Tax Court Rules of Practice and Procedure. The Tax Court granted the IRS' motion, finding that the IRS appeals officer had not abused his discretion in sustaining the respective levies, that the petitioners had failed to present a question of material fact and that entry of judgment in favor of the IRS was proper as a matter of law. See Kindred v. Commissioner, No. 5658-04L (Nov. 5, 2004); Kindred v. Commissioner, No. 5860-04L (Nov. 5, 2004). The court concluded that: (a) the petitioners were barred from challenging their underlying tax liability during the CDP hearing pursuant to IRC § 6330(c)(2)(B); (b) although no offer in compromise was ever proposed or formally submitted by the Kindreds, they were precluded from proffering one "under [the] guise of an offer in compromise based on doubt as to liability"; (c) failure to raise an "innocent spouse" defense during the administrative process precluded them from doing so for the first time in a petition to the Tax Court;12 and (d) the petitioners' arguments that the IRS' assessment of tax was outside the three-year limitations period of § 6501 were entirely without merit. The Kindreds appealed pursuant to the jurisdiction conferred on this court under IRC § 7482(a).13
On appeal, the Kindreds challenge the Tax Court's grant of summary judgment in favor of the IRS based on three perceived errors. Initially, they contend that, contrary to the Tax Court's determination, the IRS appeals officer abused his discretion when he failed to allow them to introduce proposed "collection alternatives" such as an offer in compromise during the CDP proceedings. IRC § 6330(c)(2)(A)(iii). They also maintain that they should have been allowed to introduce evidence during the CDP proceedings which, they argue, would have entitled them to an "innocent spouse" defense. See Grossman, 182 F.3d at 278; IRC §§ 6330(c)(2)(A)(i), 60...
To continue reading
Request your trial
-
Our Country Home Enters., Inc. v. Comm'r of Internal Revenue
...112 Stat. 685, designed to provide taxpayers with additional procedural safeguards to oppose IRS collection efforts. Kindred v. Comm'r , 454 F.3d 688, 695 (7th Cir. 2006). Specifically, Congress enacted §§ 6320 and 6330, which grant a taxpayer the right to a CDP hearing after the IRS issues......
-
Gyorgy v. Comm'r
...of correspondence, telephone conversations, or in-person meetings. Treas. Reg. § 301.6330–1(d)(2), Q & A–D6; Kindred v. Comm'r, 454 F.3d 688, 691 n. 7, 695 n. 19 (7th Cir.2006). In general, the taxpayer may raise any relevant issue. I.R.C. § 6330(c)(2)(A). That includes a challenge to his u......
-
Gyorgy v. Comm'r
...of correspondence, telephone conversations, or in-person meetings. Treas. Reg. § 301.6330–1(d)(2), Q & A–D6; Kindred v. Comm'r, 454 F.3d 688, 691 n. 7, 695 n. 19 (7th Cir.2006). In general, the taxpayer may raise any relevant issue. I.R.C. § 6330(c)(2)(A). That includes a challenge to his u......
-
Golden v. C.I.R.
...that the timeliness of the assessment goes to the underlying tax liability for purposes of § 6330(c)(2)(B), see, e.g., Kindred v. Comm'r, 454 F.3d 688, 699 (7th Cir.2006); Olender v. Comm'r, 96 T.C.M. (CCH) 125 (2008), the Commissioner's brief states that the IRS has now taken a contrary po......