Conway v. COMMISSIONER OF INTERNAL REVENUE, s. 23833-08L

• Decision Date: 19 December 2011
• Docket Number: Nos. 23833-08L, 24600-08L,s. 23833-08L
• Citation: 137 T.C. No. 16
• Parties: MICHAEL J. CONWAY, Petitioner,<BR>v.<BR>COMMISSIONER OF INTERNAL REVENUE, Respondent.<BR>RAYMOND T. NAKANO, Petitioner,<BR>v.<BR>COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

137 T.C. No. 16

MICHAEL J. CONWAY, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RAYMOND T. NAKANO, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 23833-08L

24600-08L

12-19-2011

[137 T.C. No. 2]

Tim A. Tarter, for petitioners.

Chris J. Sheldon, for respondent.

OPINION

PARIS, Judge.

Petitioner Michael J. Conway (Conway) and petitioner Raymond T. Nakano (Nakano) petitioned the Court to challenge the Internal Revenue Service Office of Appeals' (IRS Appeals) determinations to sustain: (1) The filing of a notice of Federal tax lien (NFTL) against Conway and (2) a proposed levy against Nakano. See secs. 6321, 6330(c)(3), 6331(a).^[1] Respondent filed the NFTL and proposed the levy to collect trust fund recovery penalties (TFRPs) assessed against petitioners for the taxable quarters ending September 30, 2000, September 30, 2001, and December 31, 2001 (the tax periods at issue). See sec. 6672(a). The Court has jurisdiction to review IRS Appeals

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determinations. Sec. 6330(d). On March 15, 2010, the parties filed a joint motion to consolidate for trial, briefing, and opinion, which the Court granted. These consolidated cases present one issue for decision: whether IRS Appeals abused its discretion in sustaining the NFTL filing and proposed levy.

Background

The parties submitted this case for decision fully stipulated. See Rule 122(a). The stipulation of facts filed March 18, 2010, and the attached exhibits are incorporated herein by this reference. When the petitions were filed, Conway resided in Texas, and Nakano resided in Arizona.

I. Transportation Excise Taxes for National Airlines, Inc.

Conway founded and operated National Airlines, Inc. (National), which was based in Las Vegas, Nevada. Conway was National's chief executive officer (CEO), its president, and chairman of its board of directors during the tax periods at issue. Nakano was National's chief financial officer during the tax periods at issue. National began flying passengers in 1999, but by December 2000 it was under bankruptcy protection. National ceased operations at the end of 2001. When National stopped doing business, it had reported but unpaid transportation

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excise taxes^[2] for the tax periods at issue of $1,832,501.01, $3,497,448.32, and $4,803,626.85, respectively.

II. Trust Fund Recovery Penalties

Respondent determined that petitioners were responsible for National's failure to pay the excise taxes. On March 14, 2003, respondent notified petitioners that he proposed to assess TFRPs against them. On May 9, 2003, petitioners filed protests of the proposed TFRP assessments with IRS Appeals. Almost 3 years later, on March 23, 2006, IRS Appeals notified petitioners that it had rejected their protests. Five days later, on March 28, 2006, TFRPs were assessed against petitioners. The notice of tax due, although dated March 28, 2006, was not issued until June 6, 2006.^[3]

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III. The Proposed Levy on Nakano's Property

On May 22, 2006, respondent sent Nakano a Form 1058, Final Notice—Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). The levy notice reflected respondent's intent to levy on Nakano's property and rights to property to collect the TFRPs assessed against him. The levy notice listed the type and amount of tax owed for each of the tax periods at issue. The levy notice also stated: "To prevent collection

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action, please send your full payment today." The levy notice informed Nakano of his right to a collection due process hearing (CDP hearing) with IRS Appeals before respondent carried out the levy. Fifteen days later, on June 6, 2006, respondent issued Nakano a Form 3552, Notice of Tax Due on Federal Tax Return, for each of the tax periods at issue (collectively, Nakano's Forms 3552).^[4]

IV. The Federal Tax Lien Against Conway

On May 18, 2006, respondent sent Conway a Letter 3164B. The letter stated that "We are attempting to collect unpaid taxes from you", but it did not state the amounts, types, or periods of the unpaid taxes.

On May 26, 2006, respondent filed an NFTL with the Clark County Recorder's Office in Nevada. The NFTL stated:

As provided by section 6321, 6322, and 6323 of the Internal Revenue Code, we are giving a notice that taxes (including interest and penalties) have been assessed against the following-named taxpayer. We have made a demand for payment of this liability, but it remains unpaid. Therefore, there is a lien in favor of the United States on all property and rights to property belonging to this taxpayer for the amount of these taxes, and additional penalties, interest, and costs that may accrue.

Conway was the named taxpayer on the NFTL. On June 1, 2006, respondent issued Conway a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320. Five

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days later, on June 6, 2006, respondent issued Conway a Form 3552 for each tax period at issue (collectively, Conway's Forms 3552).^[5]

V. The Collection Due Process Hearing

Nakano and Conway timely requested CDP hearings on June 16 and July 3, 2006, respectively, to contest the proposed levy and NFTL filing. At the request of petitioners' counsel, they received a joint CDP hearing. In their CDP hearing requests, petitioners claimed the following: (1) The TFRP assessments were invalid and (2) respondent failed to issue notice and demand for payment within 60 days of the assessments, thus precluding him from collecting the TFRP assessments via lien and levy.^[6]

Petitioners' CDP hearing was originally assigned to Settlement Officer David Villaverde (SO Villaverde), who held a face-to-face hearing with petitioners' counsel. On the results

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of the CDP hearing, SO Villaverde determined that "some errors were found to have been made by the Service * * * [but] there were no fatal errors made." Specifically, SO Villaverde agreed that respondent did not issue notice and demand to petitioners within 60 days of the TFRP assessments. However, he believed that this failure did not prevent respondent from collecting the TFRP assessments via lien and levy. Rather, SO Villaverde determined that "the Service does have the collection tools available 10 days after the untimely notice was sent on June 6, 2006, which would be on or after June 16, 2006." On the basis of this determination, SO Villaverde thought withdrawing the NFTL filing and rescinding the levy notice were appropriate courses of action given that the NFTL was filed and the levy notice was issued before June 16, 2006.

Before SO Villaverde made final determinations in petitioners' CDP hearing, he was promoted to Appeals team manager. Petitioners' case was reassigned to Settlement Officer Veronica Hernandez (SO Hernandez). After reviewing the record and meeting with petitioners' counsel, SO Hernandez concluded that, while the untimely issuance of notice and demand did not invalidate the TFRP assessments, respondent should withdraw the NFTL filing and rescind the levy notice. The Appeals team manager, however, disagreed with SO Hernandez's conclusions and

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ultimately overruled her.^[7] Thus, IRS Appeals ultimately determined that: (1) The TFRP assessments were valid and (2) failure to issue timely notice and demand did not invalidate the NFTL filing or the proposed levy. Petitioners timely petitioned the Court for review of the determinations. See sec. 6330(d).

Discussion

I. Applicable Law

A. Trust Fund Recovery Penalty

Section 6672(a) provides that any person required to withhold and pay over any tax who willfully fails to do so is liable for a TFRP. The Commissioner is authorized to impose a TFRP on any "officer or employee of a corporation, or a member or employee of a partnership who as such officer, employee, or member is under a duty to perform" the duties referred to in section 6672. Sec. 6671(b). The Commissioner must give the person on whom he intends to impose the TFRP notice of his intent before assessing the TFRP. Sec. 6672(b)(1). If the person timely protests the proposed assessment, the period for assessing the TFRP does not expire before "the date 30 days after the Secretary makes a final administrative determination with respect to such protest." Sec. 6672(b)(3)(B). If the person fails to protest or, after a timely protest, the Secretary makes a final

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determination, the Commissioner may assess the TFRP. A TFRP is assessed and collected in the same manner as tax. Sec. 6671(a).

B. Notice and Demand for Payment

Once the Commissioner assesses a TFRP against a person, he must give that person notice and demand for payment. Sec. 6303(a). The Commissioner must leave the notice at the person's dwelling or usual place of business or mail it to the person's last known address. Id. The statute requires that the Commissioner give the notice within 60 days of assessment. Id. The regulations under that section, however, provide that "the failure to give notice within 60 days does not invalidate the notice." See sec. 301.6303-1(a), Proced. & Admin. Regs.

C. NFTL Filing

If a person liable for a tax, including a TFRP, fails to pay it after demand, the unpaid amount, including any interest and additions to tax, becomes a lien in favor of the United States upon that person's property and rights to property. Sec. 6321. The Commissioner may then file an NFTL to protect the validity and priority of the lien against certain third parties. Sec. 6323. Once the Commissioner files an NFTL, he must notify the person of the filing and of the person's right to a CDP hearing to appeal the filing. Secs. 6320(a) and (b), 6330(a).

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D. Notice of Intent To Levy

If a person liable to pay a tax, including a TFRP, does not pay it within 10 days after notice and demand, it becomes lawful for the Commissioner to levy on that person's property and rights to property to collect the unpaid...