Upchurch v. Commissioner
| Decision Date | 09 July 2007 |
| Docket Number | Dkt. No. 19730-04L. |
| Citation | 94 T.C.M. 40 |
| Parties | Jack A. Upchurch v. Commissioner. |
| Court | U.S. Tax Court |
Bradley S. Waterman, for petitioner.
Karen Lynne Baker, for respondent.
This case arises from a petition for judicial review filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination). The issues for decision are (1) Whether the notice of deficiency petitioner received was valid for 1996 gift tax although it made repeated references to 1995; and (2) if so, whether there was an abuse of discretion in sustaining the proposed collection action.
Unless otherwise indicated, all section references are to sections of the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
This matter is before the Court on the parties' cross-motions for summary judgment pursuant to Rule 121. Rule 121(a) provides that either party may move for summary judgment upon all or any part of the legal issues in controversy. Full or partial summary judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact, and a decision may be entered as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner [Dec. 48,191], 98 T.C. 518, 520 (1992), affd. [94-1 USTC ¶ 50,092] 17 F.3d 965 (7th Cir. 1994).
We conclude that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.
Some of the facts have been stipulated and are so found. The stipulation of facts and related exhibits are incorporated herein by this reference.
At the time he filed the petition, petitioner resided in Maryland.
During 1996, petitioner owned an interest in a partnership known as the Upchurch Family Limited Partnership. This partnership was to contribute a parcel of real estate to another partnership, which would then use that parcel and an adjacent parcel for a large scale mixed-use development project. On December 26, 1996, petitioner made gifts to his daughter, Jill, of a 29-percent interest in the Upchurch Family Limited Partnership and $10,000 cash. On the same date, petitioner also made gifts of a 31-percent interest in the Upchurch Family Limited Partnership to his son, Jack, and a 31-percent interest in the Upchurch Family Limited Partnership to his son, Barc. Petitioner reported these gifts on a timely filed 1996 Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return (gift tax return). This gift tax return reflected the total value of the gifts as $641,267. After application of the annual exclusions and the unified credit available under the Federal gift tax regime, the return showed a gift tax liability in the amount of $4,169, which petitioner timely paid.
Respondent reviewed petitioner's 1996 gift tax return, requesting additional information on the transferred partnership interests. Petitioner responded with a valuation report indicating that in valuing the transferred interests in the Upchurch Family Limited Partnership, petitioner applied a total of 62.5 percent in discounts (20 percent for lack of control, 20 percent for lack of marketability/liquidity, 15 percent for developmental risks, and 7.5 percent for rights of first refusal). Respondent's examiner disagreed with the valuation, and on May 4, 1999, respondent sent to petitioner a so-called 30-day letter proposing a $367,623 increase in petitioner's gift tax liability for the calendar year 1996 (30-day letter). Attached to the 30-day letter was the examiner's report showing the corrected total value of the gifts as $1,549,538 (allowing no cost of sale deduction for partnership assets and applying only a 15-percent discount to the transferred partnership interests). After application of the annual exclusions and unified credit, these adjustments resulted in a total proposed 1996 gift tax liability of $371,792. Petitioner filed a written protest to the proposed changes, acknowledging that they pertained to his gift tax liability for 1996.
Because further correspondence failed to yield any agreement between petitioner and respondent on the valuation issues, on March 20, 2000, respondent mailed to petitioner at his last known address a statutory notice of deficiency. The deficiency notice indicated that it was for tax year ending December 31, 1995, and asserted a gift tax deficiency for 1995 in the amount of $367,623, the same amount stated in the 30-day letter for 1996 that was previously sent to petitioner. Petitioner received the deficiency notice on March 22, 2000. Attached to the cover page of the deficiency notice was a Form 4089-c, Notice of Deficiency—Waiver, a Form 3615-A, Explanation of Tax Changes, and an additional schedule detailing the revisions to the values of the transferred partnership interests. The Form 4089-c and the Form 3615-A both referred to a tax year ending December 31, 1995. The Form 3615-A contained figures corresponding to the 1996 gift tax return filed by petitioner as well as the examiner's report for 1996 gift tax. The additional schedule contained no reference to the taxable period, but it detailed the gift transactions made by petitioner on December 26, 1996, and reported by petitioner on his 1996 gift tax return. As in the examiner's report, this schedule revalued the gifts based on disallowance of the cost of sale deduction for the value of partnership assets and a reduction in the fractional partnership interest discount from 62.5 percent to 15 percent. Even though the deficiency notice informed petitioner of his entitlement to file a petition for redetermination of the deficiency with this Court, he did not do so.
On July 31, 2000, respondent assessed the gift tax deficiency of $367,623 and interest in the amount of $115,948 with respect to calendar year 1996. Notice and demand for payment was sent to petitioner.
On April 25, 2002, respondent sent to petitioner a Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing. On April 25, 2002, respondent also sent to petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.
Petitioner timely requested a hearing by submitting a Form 12153, Request for a Collection Due Process Hearing. In his request, petitioner explained in detail his contentions that the deficiency notice issued on March 20, 2000, pertained to 1995, that a deficiency notice was never issued for 1996, and that therefore the assessment should be abated. A conference was scheduled, and petitioner's representative sent respondent's Appeals officer a written statement of petitioner's position before the scheduled conference. On July 24, 2002, respondent's Appeals officer and petitioner's representative met for the conference.
On September 16, 2004, respondent sent petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The notice of determination stated that respondent had determined that the notice of deficiency regarding petitioner's 1996 gift tax return was valid. Since the validity of the notice of deficiency was the only issue raised at his hearing and petitioner did not suggest any collection alternatives, respondent determined that the lien and levy actions "[balanced] the need for the efficient collection action to be no more intrusive than necessary."
On October 15, 2004, petitioner timely filed a petition appealing respondent's determination. In his petition, the only issue petitioner raised with respect to the notice of determination was that respondent's Appeals officer erred in determining that the notice of deficiency was valid for 1996.
Petitioner's claim is essentially that the proposed collection action was based on an invalid assessment because petitioner was not afforded the requisite notice of deficiency. In petitioner's view, the notice of deficiency he received on March 22, 2000, was invalid because it referenced tax year 1995 and not 1996, the tax year for which he had any gift tax liability. Respondent, on the other hand, maintains that the notice of deficiency was valid for tax year 1996 despite the error.
Before a levy may be made on any property or right to property, a taxpayer is entitled to notice of the Commissioner's intent to levy and notice of the right to a fair hearing before an impartial officer of the Internal Revenue Service (IRS) Appeals Office. Secs. 6330(a) and (b), 6331(d). Section 6320 provides that after the filing of a Federal tax lien under section 6323, the Secretary shall furnish written notice. This notice must advise the taxpayer of the opportunity for administrative review in the form of a hearing, which is generally conducted consistent with the procedures set forth in section 6330(c), (d), and (e). Sec. 6320(c).
At the hearing, taxpayers may raise challenges to "the appropriateness of collection actions" and may make "offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise." Sec. 6330(c)(2)(A). The Appeals officer must consider those issues, verify that the requirements of applicable law and administrative procedures have been met, and consider "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person [involved] that any collection action be no more intrusive than necessary." Sec. 6330(c)(3)(C).
After the IRS Appeals hearing process, section 6330 gives us jurisdiction to review the Appeals officer's determination. In an appeal to this Court pursuant to section 6330(d), a taxpayer may raise in his petition any issues that he raised at the Appeals hearing. See sec. 301.6330-1(f)(2), Q&A-F5, Proced. & Admin. Regs. Where the underlying tax liability is properly at...
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