Bussell v. Comm'r of Internal Revenue

• Decision Date: 29 May 2008
• Docket Number: No. 5766–04L.,5766–04L.
• Citation: 130 T.C. No. 13,130 T.C. 222
• Parties: Letantia BUSSELL and Estate of John Bussell, Deceased, Letantia Bussell, Surviving Spouse, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

130 T.C. 222

130 T.C. No. 13

Letantia BUSSELL and Estate of John Bussell, Deceased, Letantia Bussell, Surviving Spouse, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 5766–04L.

United States Tax Court.

May 29, 2008.

R assessed income tax deficiencies, additions to tax, penalties, and interest against PW and her husband (H) for 1983, 1984, 1986, and 1987 (Ps' unpaid tax liabilities). In 1994 R filed notices of Federal tax lien in California and Utah with regard to Ps' unpaid tax liabilities. In early 1995 PW and H filed a bankruptcy petition under ch. 7 of the Bankruptcy Code. The bankruptcy court issued a discharge order in the bankruptcy case later that year.

In 2000 PW and H were indicted and charged with various violations associated with bankruptcy fraud. In February 2002 H died, and no verdict was returned as to him. PW was convicted of, among other crimes, attempted evasion of payment of Ps' unpaid tax liabilities in violation of sec. 7201, I.R.C.

In April 2002 R determined that (1) Ps' unpaid tax liabilities were excepted from discharge in bankruptcy because PW was convicted of attempted evasion of payment of Ps' unpaid tax liabilities, and (2) collection of Ps' unpaid tax liabilities would be jeopardized by delay. R served jeopardy levies and collected amounts that were applied to Ps' unpaid tax liabilities. R subsequently issued to Ps a notice of the jeopardy levies pursuant to secs. 6330 and 7429, I.R .C. Ps requested and received an Appeals Office hearing under sec. 6330, I.R.C. In March 2004 R sent Ps a notice of determination upholding the decision to proceed with the jeopardy levies. Ps timely petitioned this Court to review R's determination.

Held: R did not abuse his discretion in determining that (1) Ps' unpaid tax liabilities were excepted from discharge in bankruptcy by reason of PW's conviction for attempted evasion of payment of Ps' unpaid tax liabilities and that (2) it was appropriate to proceed with collection by serving the jeopardy levies in dispute.

Held, further, although Ps received a discharge and were relieved of personal (in personam) liability for the penalties and related interest that R assessed for the years in issue, the liens that R filed before Ps filed for bankruptcy attached to certain of Ps' assets, survived the bankruptcy proceeding, and enabled R to collect the penalties and interest by an action against Ps in rem.

Held, further, R complied with sec. 6331(a), I.R.C., by providing Ps with notice and demand for payment of their unpaid tax liabilities for the years in issue before proceeding with collection by serving the jeopardy levies in dispute.

Letantia Bussell, pro se.

Ronald S. Chun, for respondent.

MARVEL, Judge.

Petitioners ¹ invoked the Court's jurisdiction pursuant to section 6330(d) ² to review respondent's determination that it was appropriate to collect petitioners' unpaid tax liabilities for 1983, 1984, 1986, and 1987 (sometimes referred to as the years in issue) by serving jeopardy levies. As explained in detail below, we shall sustain respondent's determination.

FINDINGS OF FACT

Some of the facts have been stipulated. We incorporate the stipulated facts into our findings by this reference. Petitioner Letantia Bussell (petitioner) resided in California when the petition was filed.

Petitioner was married to John Bussell (Mr. Bussell) (collectively the Bussells) from 1972 until his death in 2002.

Petitioner is a licensed physician with a specialty in dermatology. Since 1979 she has maintained a dermatology practice in Beverly Hills, California. From 1981 through approximately 1995 petitioner conducted her medical practice through various corporations including Letantia Bussell MD Inc. Mr. Bussell was a licensed physician specializing in anesthesiology until he became disabled in September 1992.

I. Assessments for 1983, 1984, 1986, and 1987

The Bussells filed joint Forms 1040, U.S. Individual Income Tax Return, for 1983, 1984, 1986, and 1987. Respondent subsequently examined those tax returns and, pursuant to deficiency procedures and other means, entered substantial assessments of Federal income tax, additions to tax, penalties, and interest for each year. The validity of these assessments is not in issue.³

II. Notices of Balance Due and Notices of Intent To Levy

Between November 1992 and October 1993 respondent sent the Bussells multiple notices of balance due for each of the years in issue to correspond with the assessments mentioned above.

Between May and November 1993 respondent sent the Bussells a separate notice of intent to levy for each of the years in issue.

III. Balances Due for the Years in Issue

Petitioners failed to pay their taxes for the years in issue. Respondent's records, as of May 29, 2002, reflected that petitioners' unpaid balances for 1983, 1984, 1986, and 1987 totaled $44,556.55, $61,422.27, $600,789.65, and $309,085.73, respectively. These amounts do not include substantial amounts of accrued but unassessed interest for the years in issue inasmuch as respondent's Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters, indicate that respondent last assessed interest for the taxable years 1983, 1984, 1986, and 1987 between June and September 1993.

IV. Notices of Federal Tax Lien for 1983, 1984, 1986, and 1987

On March 10, 1994, respondent filed a notice of Federal tax lien with the Los Angeles County Recorder's Office with respect to petitioners' unpaid tax liabilities for the years in issue. On September 6, 1994, respondent filed a notice of Federal tax lien in Coalville, Utah, with respect to petitioners' unpaid tax liabilities for the years in issue.

V. The Bussells' Bankruptcy Proceeding

On March 7, 1995, the Bussells filed a petition under chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Central District of California. The Bussells also filed with the bankruptcy court a list of assets which included a condominium unit in Utah and separate term life insurance policies issued by Connecticut Mutual Life Insurance Co. (Connecticut Mutual) ⁴ and John Hancock Mutual Life Insurance Co. (John Hancock). The Connecticut Mutual and John Hancock life insurance policies were issued to Mr. Bussell as the insured in September 1987 and April 1990, respectively, and petitioner was named as the beneficiary under the Connecticut Mutual policy. ⁵ Neither life insurance policy had a cash surrender value on the date the Bussells' bankruptcy petition was filed. However, under the terms of each policy, Mr. Bussell had a right to renew the policy without evidence of insurability.

The Bussells also disclosed in their list of assets that (1) Mr. Bussell was receiving monthly disability payments totaling $45,650 on four different disability insurance policies, and (2) Mr. Bussell had a pending lawsuit for a claim for unpaid disability benefits against a fifth insurance company.

The Bussells failed to include various assets in the list of assets they submitted to the bankruptcy court. One such asset was a pension plan account that petitioner maintained at Washington Mutual Bank under the name L.B. Bussell Medical Corp. As of December 31, 1994, shortly before the Bussells filed their bankruptcy petition, there was a balance of $284,040 in the pension plan account.

On April 14, 1995, the bankruptcy trustee filed a so-called no asset report with the bankruptcy court. On August 22, 1995, the bankruptcy court entered an order of discharge in the Bussells' bankruptcy case which stated in pertinent part: “The above-named debtor is released from all dischargeable debts”.

VI. Criminal Proceedings

On July 5, 2000, the Federal grand jury for the Central District of California returned a 17–count indictment against the Bussells and one of their attorneys. United States v. Bussell, case No. SA CR 01–56(A)–AHS. On January 31, 2002, a superseding indictment was filed against the Bussells and their attorney.

On February 6, 2002, at the close of the criminal trial, Mr. Bussell died. Although no verdict was returned as to Mr. Bussell, petitioner was convicted of one count of violating 18 U.S.C. section 371 (conspiracy to commit an offense against or defraud the United States), two counts of violating 18 U.S.C. section 152(1) (concealment of assets in bankruptcy), two counts of violating 18 U.S.C. section 152(3) (false declaration and statement in bankruptcy), and one count of violating section 7201 (attempted evasion of payment of tax). With regard to this last count, the superseding indictment stated that beginning in June 1992 and continuing until at least August 1995 the Bussells willfully attempted to evade and defeat the payment of a total of $353,394 of the income tax they owed for 1983, 1984, 1986, and 1987 by fraudulently causing the bankruptcy court to discharge their tax debts.

Petitioner was sentenced to a term of incarceration and was initially ordered to pay restitution to various creditors, exclusive of special assessments and interest, totaling $2,393,527. Pursuant to this order, petitioner was directed to pay $1,067,621.90 to the Internal Revenue Service (IRS). Petitioner was further ordered to pay the costs of prosecution totaling $62,214.37, pursuant to section 7201.

Petitioner appealed to the Court of Appeals for the Ninth Circuit, which issued an opinion affirming petitioner's convictions and remanding the case for further proceedings. See United States v. Bussell, 414 F.3d 1048 (9th Cir.2005). Following the remand, the Court of Appeals issued a second opinion affirming both petitioner's sentence and an order directing petitioner to pay restitution of $2,284,172.87 and prosecution costs of $55,626.09. See United States v. Bussell, 504 F.3d 956, 963–968 (9th Cir.2007).

VII. Jeopardy Levies

On or about April 30, 2002, respondent's area director for Los Angeles, California, made a determination that collection of petitioners' unpaid income tax liabilities for 1983, 1984, 1986, and...