Nield v. Comm'r of Internal Revenue

• Decision Date: 22 January 2004
• Docket Number: No. 16864–02L.,16864–02L.
• Citation: 122 T.C. 1,122 T.C. No. 1
• Parties: Nield and Linda MONTGOMERY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

122 T.C. 1

122 T.C. No. 1

Nield and Linda MONTGOMERY, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 16864–02L.

United States Tax Court.

Jan. 22, 2004.

Duncan C. Turner and Brian G. Isaacson, for petitioners.

Glenn P. Thomas and Julie L. Payne, for respondent.

OPINION

DAWSON, J.

Ps filed a joint Federal income tax return for the taxable year 2000 reporting total tax of $2,831,360 and tax due of $196,006. Ps failed to remit the latter amount with their tax return. R accepted Ps' tax return as filed and assessed the tax reported therein. Sec. 6201(a)(1), I.R.C. R issued to Ps a final notice of intent to levy, and Ps filed with R a request for a collection due process hearing under sec. 6330, I.R.C. In a subsequent telephone conversation between Ps' counsel and R's Appeals officer, Ps asserted that they had overstated the total tax on their original return for 2000 and indicated that they intended to submit an amended return showing that they were due a refund for that year. R issued to Ps a final notice of determination in which he determined that Ps were not entitled to challenge the amount of their tax liability in the administrative proceeding, citing sec. 6330(c)(2)(B), I.R.C. Ps filed with the Court a timely petition for review of R's determination. R filed a Motion for Summary Judgment. Ps opposed R's motion.

Held: R's Motion for Summary Judgment will be denied. Sec. 6330(c)(2)(B), I.R.C., permits Ps to challenge the existence or amount of the tax liability reported on their original tax return because Ps have not received a notice of deficiency and have not otherwise had an opportunity to dispute the tax liability in question.

This case was assigned to Chief Special Trial Judge Peter J. Panuthos, pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 182. ¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief J.

This matter is before the Court on respondent's Motion for Summary Judgment, filed pursuant to Rule 121. As explained in detail below, we shall deny respondent's motion.

Background

On or about October 18, 2001, petitioners filed a timely joint Federal income tax return for the taxable year 2000 on which they reported total tax of $2,831,360, total payments of $2,636,723, and tax due of $194,637 plus an estimated tax penalty of $1,369, interest due on the unpaid balance of $9,704, and a penalty for failure to pay of $7,785, for a total amount due of $213,495. Petitioners failed to remit the amount due with their tax return. Respondent accepted the tax return as filed and assessed the amount reported therein. Respondent did not audit petitioners' tax return for 2000 and did not send petitioners a notice of deficiency for 2000.

On March 19, 2002, respondent issued to petitioners a Final Notice—Notice of Intent to Levy and Notice of Your Right to a Hearing with regard to their unpaid tax for 2000. The notice stated that petitioners owed tax, penalties, and interest totaling $222,315 .34.

On April 18, 2002, petitioners submitted to respondent a Form 12153, Request for a Collection Due Process Hearing. Petitioners' request for an administrative hearing stated in pertinent part:

The taxpayer has a good track record of paying his taxes timely in appropriate amounts, as evidenced by the 1997–1999 tax returns * * *. However, in tax year 2000, the taxpayer had an extraordinary tax liability ($2,831,360) due to his exercise of several incentive and nonqualified stock options and the application of the AMT rates. The taxpayer was able to pay $2,636,723 of the tax liability, but, unfortunately, the value of the stock received plummeted before year-end 2000 and is now essentially worthless. Thus, the remaining tax liability is currently thousands of times higher that the value of the asset received. The taxpayer is working diligently and in good faith with various professional advisors to evaluate the situation and remedy the outstanding tax liability.

Petitioners also stated that (1) they intended to prepare and submit an amended income tax return for 2000 that would reflect that they were entitled to a refund for that year; and (2) in any event, the parties should explore alternatives to the proposed levy including an installment agreement, an offer in compromise, posting a bond, or substitution of other assets.

On July 2, 2002, Appeals Officer Jerry L. Johnson wrote to petitioners to inform them that he had scheduled their Appeals Office hearing for July 25, 2002. Appeals Officer Johnson's letter stated in pertinent part:

As explained in the above mentioned code sections and related documents, a taxpayer may dispute the underlying liability in a collection due process hearing only when a notice of deficiency was not provided to the last known address of the taxpayer, or where the taxpayer did not otherwise have an opportunity to dispute the tax. Since that is the case here, you will have the opportunity to discuss the liability at the hearing. In that regard, if you plan to present or discuss new material, please send me copies at least five days before our meeting.

On July 22, 2002, Appeals Officer Johnson had a telephone conversation with petitioners' representative. During the conversation, petitioners' representative stated that, through the misapplication of complex statutory provisions, petitioners had overstated their tax liability for 2000 on their original return and that they intended to submit an amended income tax return for 2000. Although the parties agreed that petitioners would be permitted to submit an amended return, the parties did not set a deadline for the submission of such amended return.

On September 26, 2002, without any further communication between the parties, the Appeals Office issued to petitioners a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The notice of determination, signed by Appeals Team Manager Debra M. Brush, stated in pertinent part: “The Taxpayer has indicated he would file amended returns to mitigate the liability, but such has not been done in a reasonable time, and the mere filing of such claim does not guarantee that the claim should be paid. Therefore, the levy should be allowed to proceed.” As of September 26, 2002, petitioners had not submitted to respondent an amended income tax return for 2000. However, on October 11, 2002, petitioners submitted to respondent an amended income tax return for 2000 which reflects that petitioners are due a refund of $519,087.

On October 28, 2002, petitioners filed with the Court a Petition for Lien or Levy Action Under Section 6320 and/or 6330.² The sole issue raised in the petition is a challenge to the amount of petitioners' underlying tax liability for 2000.

After filing an answer to the petition, respondent filed a Motion for Summary Judgment. Respondent maintains that there is no dispute as to a material fact and the Court should enter judgment as a matter of law sustaining the notice of determination dated September 26, 2002. Respondent argues that petitioners are barred from challenging the existence or amount of their underlying tax liability for 2000 in this collection review proceeding on the ground that the tax liability in question was “self-assessed” on petitioners' original tax return pursuant to section 6201(a)(1). Petitioners filed an Objection to respondent's motion.

This matter was called for hearing at the Court's motions session held in Washington, D.C. Counsel for both parties appeared at the hearing and made oral argument.

Discussion

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. See Florida Peach Corp. v. Commissioner, 90 T.C. 678, 681, 1988 WL 31439 (1988). 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(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520, 1992 WL 88529 (1992), affd. 17 F.3d 965 (7th Cir.1994); Zaentz v. Commissioner, 90 T.C. 753, 754, 1988 WL 34876 (1988); Naftel v. Commissioner, 85 T.C. 527, 529, 1985 WL 15396 (1985). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences will be read in a manner most favorable to the party opposing summary judgment. See Dahlstrom v. Commissioner, 85 T.C. 812, 821, 1985 WL 15413 (1985); Jacklin v. Commissioner, 79 T.C. 340, 344, 1982 WL 11139 (1982).

We are satisfied from our review of the record that there is no genuine issue as to any material fact. However, we conclude, contrary to respondent's position, that petitioners may challenge the amount of their underlying tax liability in this proceeding. Consequently, we shall deny respondent's motion.

Section 6331(a) provides that if any person liable to pay any tax neglects or refuses to pay such tax within 10 days after notice and demand for payment, the Secretary is authorized to collect such tax by levy on the person's property. Section 6331(d) provides that at least 30 days before enforcing collection by levy on the person's property, the Secretary is obliged to provide the person with a final notice of intent to levy, including notice of the administrative appeals available to the person.

Section 6330 generally provides that the Commissioner cannot proceed with collection by levy until the person has been given notice and the opportunity for an administrative review of the matter (in the form of an Appeals Office hearing) and, if dissatisfied, with judicial review of the administrative determination. See Davis v. Commissioner, 115 T.C. 35, 37, 2000 WL 1048515 (2000); Goza v....