Meyer v. Commissioner of Internal Revenue, 112513 FEDTAX, 25013-06L
|Opinion Judge:||HOLMES, Judge:|
|Party Name:||WILLIAM B. MEYER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||William B. Meyer, pro se. Paul C. Feinberg and Wesley J. Wong, for respondent.|
|Case Date:||November 25, 2013|
|Court:||United States Tax Court|
William Meyer failed to file a return or pay his 2000 taxes. The Commissioner figured out how much he owed and wants to collect by levying on his property. Meyer got a collection due process (CDP) hearing, but the Appeals officer upheld the Commissioner's decision to levy. Meyer argues that the Appeals officer abused his discretion by not properly verifying that the Commissioner followed applicable law or administrative procedure. The heart of Meyer's case is that the Commissioner either never created a notice of deficiency or never mailed it. If Meyer is right, the Commissioner has no right to collect the unpaid tax.
Meyer has a history of run-ins with the Commissioner owing to his reluctance to follow the Internal Revenue Code when it comes time to file his annual return. See Meyer v. Commissioner, T.C. Memo. 2005-82, 2005 WL 826815, at *3 ($15, 000 penalty for filing a 1996 return showing zero income), aff'd, 200 Fed.Appx. 676 (9th Cir. 2006); Meyer v. Commissioner, T.C. Memo. 2005-81, 2005 WL 826676, at *4 ($15, 000 penalty for filing a 1997 return showing zero income). But for his 2000 tax year, Meyer decided not to file a return at all. Meyer told us at trial that he would not file a 2000 tax return unless he had a notice of deficiency and accompanying papers "to work from, " because his records were "chaotic at best." The Commissioner believes Meyer earned more than more than $1 million in taxable income for 2000. The Commissioner prepared a substitute for return (SFR) under section 60201 and determined Meyer owed more than $450, 000, plus interest and penalties.
This is common enough--preparing an SFR often prompts delinquent taxpayers to file a return on their own. An SFR is not a comprehensive return; the Commissioner uses only one of two filing statuses--single or married filing separately--and he allows only one personal exemption and no business expenses or itemized deductions. See Internal Revenue Manual (IRM) pt. 188.8.131.52.4.5.1(3) (Apr. 19, 2001). Because an SFR is usually stingy with deductions, a taxpayer who gets the resulting notice of deficiency will often respond by filing a petition with us and then preparing a return that reflects the much more complete information he has about himself--especially about greater deductions he is entitled to claim, the willingness of his wife to accept married-filing-jointly status, and whether he has children or other dependents.
This case may have wandered off the usual path right after the IRS prepared the SFR. What the IRS usually does next is draft a notice of deficiency for the unreported taxes and then mail that notice (which usually includes the SFR) to the taxpayer. The Commissioner generally has to do this before he can begin trying to collect. And, in this case, that's what the Commissioner says he did--he claims that he sent Meyer a notice of deficiency, but Meyer never responded. That would have allowed the Commissioner to record the liability--"assessing the deficiency" to use tax jargon--and to begin to collect the unpaid bill from Meyer.
I. The CDP Hearing
The Commissioner did send Meyer a final notice of his intent to levy. This notice told Meyer that he had the right to a hearing, which Meyer promptly demanded.
Even before that hearing, the Appeals officer requested a Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, to verify that the Commissioner had properly assessed the tax. The Form 4340 had an entry which indicated that a $465, 390 tax had been "assessed by examination" and that there was an "audit deficiency per default of 90 day letter." Although that form apparently satisfied the Appeals Officer that a notice of deficiency existed, he was unable to find a copy of the notice before the CDP hearing.
During the CDP hearing, the Appeals officer asked Meyer to point out any irregularities in the making of the assessment for 2000. Meyer's primary contention was that he had not received a notice of deficiency.2 Meyer indicated that he had repeatedly asked the IRS for a copy of the notice of deficiency, even filing a request under the Freedom of Information Act, but all to no avail. Because the Appeals officer still had not found the notice at the time of the hearing, he allowed Meyer to dispute his underlying tax liability.3
The CDP hearing, however, didn't resolve the notice-of-deficiency issue. The Appeals officer was clearly aware that if he did not get verification that the Commissioner properly mailed a notice of deficiency to Meyer's last known address, the assessment would be invalid; he wrote in his case activity record, "it is potentially possible that account will have to be abated & a new SNOD issued." To obtain this verification, the Appeals officer requested a copy of the certified mailing list (U.S. Postal Service Form 3877).
The Form 3877 in this case reads "statutory notices of deficiency for the year(s) indicated have been sent to the following taxpayers, " and lists Meyer's name and address, followed by an article number and the phrase "postage fees paid by IRS 2000."4 The address listed on the Form 3877 was (and remains) Meyer's correct address. At the bottom right of the Form 3877, there are two separate items that contemplate completion of additional information: One is a space for the USPS receiving employee to sign his name and the date; another is a space labeled "notices listed hereon were issued by:". The only mark near those two items is a rectangular stamp which reads "IRS OGDEN UT USPS 84201" at the top, shows an illegible signature at the bottom, and the date April 2, 2003 in the middle.5 Additionally, although the Form 3877 indicates that the IRS was sending 12 pieces of certified mail, the space in which the USPS should have marked the number of pieces it received is blank. After reviewing the Form 3877, the Appeals officer was apparently confident that he now had verified that a notice of deficiency existed and had been properly sent to Meyer; he wrote in his case activity record that the form "show[ed] the * * * [statutory notice of deficiency] went out on 4/2/03 to correct last known address." Even after the hearing, however, the Appeals officer never received a copy of the notice of deficiency. So far as the record shows, nobody at the IRS has ever found it.
II. Notice of Determination
With the notice of deficiency issue seemingly resolved, the Appeals officer issued a notice of determination. He determined that "[t]he Secretary has provided sufficient verification that the requirements of all applicable laws and administrative procedures have been met." He noted that he "reviewed computer transcripts" to "verify the assessments." And he specifically determined that the "assessment for the tax period of 2000 [was] valid"--because he found that the IRS had properly issued the deficiency notice and sent it to Meyer, "as shown on the United States Postal Service Form 3877, certified mail list, stamped by the United States Postal Service." Because the requirements of all applicable laws or administrative procedures had been met--and because of Meyer's lack of cooperation6--the Appeals officer determined that the levy balanced "the need for efficient collection with the taxpayer's concern that any collection action be no more intrusive than necessary."
Meyer, a resident of Nevada when he filed his petition, argues that this determination was an abuse of discretion, because the Appeals officer did not meet his obligation to verify that the IRS properly issued and mailed a notice of deficiency to him.
I. Liabilities, Deficiencies, and Assessments
We begin with some vocabulary: liability, deficiency, and assessment.
A tax liability is the tax imposed by the Code for a tax year. Sec. 26(b)(1). For an individual who correctly reports his taxes, the tax liability is the amount of tax shown on his return. For Meyer, who did not file a return, the liability is the amount that would have been shown on a correctly completed tax return. Individuals must pay their tax liability regardless of whether the Commissioner requests payment. Sec. 6151(a). A deficiency is generally the difference between the amount of a taxpayer's liability and the amount shown on his return--and when the Commissioner determines a deficiency, it means that he thinks a taxpayer owes more than was reported on the return. Sec. 6211. Section 6212 authorizes the Commissioner to send a notice of deficiency alerting a taxpayer that the Commissioner believes he owes more than he has reported. A taxpayer has 90 days from the date that notice was mailed to file a petition with this Court. Sec. 6213(a). Subject to exceptions not relevant here, the Commissioner may not assess, levy, or take other collection activity until 90 days after the notice of deficiency is mailed; if the taxpayer files a Tax Court petition, the Commissioner may not take action until our decision becomes final. Id.
An assessment is the recording of a tax liability in the Commissioner's books. Sec. 6203. Though nowadays it's just a computer entry, the act of assessment is immensely important because once a liability is assessed, the IRS can begin trying to collect it by means not usually available to ordinary creditors--such as seizing a taxpayer's property without first going to court. See Bull v. United States, 295 U.S. 247, 260 (1935).
Within 60 days after making an assessment, the Commissioner must send a...
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