                              T.C. Memo. 2015-136



                        UNITED STATES TAX COURT



                HUSAM A. ABU-DAYEH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 4237-13L.                         Filed July 28, 2015.



      Husam A. Abu-Dayeh, pro se.

      Peter T. McCary and A. Gary Begun, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      NEGA, Judge: This case was commenced in response to a Notice of

Determination Concerning Collection Action(s) under Section 6320 and/or 6330

(notice of determination) upholding collection actions regarding penalties under
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[*2] section 6694(b) of $17,361 and $17,000 for tax years 2003 and 2004,

respectively.1

      The issues for consideration are (1) whether petitioner is entitled to raise his

underlying liability for section 6694(b) penalties for tax years 2003 and 2004 and

(2) whether the Office of Appeals (Appeals) abused its discretion in making its

determination to sustain the Internal Revenue Service’s (IRS) collection actions

and reject petitioner’s offer-in-compromise (OIC).

                               FINDINGS OF FACT

      Some of the facts are stipulated and are so found. We incorporate by

reference the stipulation of facts and the attached exhibits. Petitioner resided in

Florida when he filed his petition.

      During 2004 and 2005 petitioner owned and operated Taxpros Accounting

Service, Inc., a Florida corporation that was in the business of preparing and filing

Federal income tax returns. Petitioner prepared and filed customer Federal income

tax returns for tax years 2003 and 2004 in which he claimed materially false items

so as to obtain significant refunds for his customers.


      1
       Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to
the nearest dollar.
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[*3] On April 15, 2008, the United States indicted petitioner on 39 counts of

violating section 7206(2) and 18 U.S.C. sec. 2. Petitioner entered into a plea

agreement in the U.S. District Court for the Middle District of Florida on October

15, 2008, wherein he pleaded guilty to one count of violating section 7206(2) and

18 U.S.C. sec. 2 by aiding and assisting in the preparation of materially false and

fraudulent tax returns. The remaining 38 counts were dismissed pursuant to

petitioner’s plea agreement. The terms of the plea agreement required petitioner to

serve 5 months in prison, undergo 12 months of supervised release, and pay

restitution to the IRS of $79,070, calculated on the total tax losses due to

petitioner’s conduct. As of July 11, 2009, petitioner had paid all of the court-

ordered restitution. The plea agreement specifically states that it is “limited to the

Office of the United States Attorney for the Middle District of Florida and cannot

bind other federal, state, or local prosecuting authorities”. The plea agreement is a

total of 12 pages, all of which are initialed or signed by petitioner except for page

10. Page 10 contains an explicit statement of petitioner’s guilt in filing materially

false tax returns: “[D]efendant is pleading guilty because defendant is in fact

guilty.”

      Respondent mailed Letters 1125, Preparer Penalty 30-Day Letters, on

September 9, 2010, which proposed assessment of multiple $1,000 penalties
                                         -4-

[*4] pursuant to section 6694(b) for making understatements of tax due to willful

or reckless conduct. In attachments to the Letters 1125, respondent proposed

assessment of 21 penalties for tax year 2003 and 18 penalties for tax year 2004.

Petitioner timely requested a hearing with Appeals, and a conference was held on

March 23, 2011, among petitioner, Appeals Officer (AO) Brian Gilroy, and Peter

Sartes, the attorney who had represented petitioner in his criminal proceeding.

      During the conference, petitioner raised three defenses to the section

6694(b) penalties: (1) he believed he had already paid the penalties as part of his

payment of $79,070 in restitution pursuant to his plea agreement; (2) petitioner

and Mr. Sartes believed the plea agreement covered all issues with respect to

petitioner’s preparation of the 39 fraudulent returns, and consequently, it would be

unfair to assess civil penalties against him; and (3) petitioner’s criminal

proceedings had been handled by a special agent for criminal investigation, and as

a result, the preparer penalties were not independently examined by the IRS.

Following this conference, AO Gilroy recommended that petitioner be assessed 36

total penalties, 19 for tax year 2003 and 17 for tax year 2004. AO Gilroy based his

recommendation on (1) petitioner’s admission of guilt as to 39 counts in his plea

agreement and (2) the fact that understatements of tax liability existed on only 36

of those counts. AO Gilroy mailed a letter to petitioner on April 4, 2011, with
                                       -5-

[*5] these recommendations. Respondent assessed the recommended section

6694(b) penalties against petitioner in the amounts of $19,000 and $17,000 for tax

years 2003 and 2004, respectively, on May 30, 2011.

      Respondent mailed to petitioner a Letter 1058, Final Notice of Intent to

Levy and Notice of Your Right to a Hearing (NOIL) on October 18, 2011, relating

to the section 6694(b) penalties. Petitioner’s wife signed for the NOIL on October

25, 2011. By letter dated November 18, 2011, 31 days after the NOIL was mailed,

petitioner contacted respondent concerning the amounts proposed in the NOIL.

      On May 1, 2012, respondent mailed to petitioner a Letter 3172, Notice of

Federal Tax Lien Filing and Notice of Your Right to a Hearing Under IRC 6320.

Respondent filed a notice of Federal tax lien (NFTL) against petitioner on May 3,

2012. Petitioner timely requested a collection due process (CDP) hearing. In his

Form 12153, Request for a Collection Due Process or Equivalent Hearing,

petitioner requested a withdrawal of the lien and checked the box for “I Cannot

Pay Balance”.

      Settlement Officer Wilhamina Hayes (SO Hayes) conducted petitioner’s

CDP hearing, which was held by telephone on September 6, 2012. Petitioner

raised his hearing with AO Gilroy during the conference with SO Hayes. SO

Hayes sought guidance from respondent’s Nashville, Tennessee, office, and
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[*6] Associate Area Counsel Nancy Hale (AAC Hale) advised SO Hayes that

petitioner could not raise his underlying liability because he had the opportunity to

do so at his prior meeting with AO Gilroy.

      Petitioner submitted a Form 433-A, Collection Information Statement for

Wage Earners and Self-Employed Individuals, and Form 656, Offer in

Compromise (OIC), to SO Hayes on October 1, 2012. Petitioner did not include

any supporting financial documents with his Form 433-A. Petitioner offered

$5,000 as a compromise, but he did not submit an application fee, any initial

payment for his OIC, or a Form 656-A, Income Certification for Offer in

Compromise. Petitioner explained that he was unable to remit any fees or initial

OIC payment since he submitted his OIC via fax. Petitioner did not check the

“Low-Income Certification” box on his Form 656. SO Hayes submitted

petitioner’s OIC to respondent’s Brookhaven, New York, Centralized Offer in

Compromise (COIC) office for processing. Throughout petitioner’s

communications with SO Hayes and AAC Hale, petitioner repeatedly maintained

that he had already paid any applicable penalties by virtue of having paid

restitution in resolution of his criminal case. Additionally, petitioner expressed his

belief that additional penalties were unfair in light of his payment of restitution,

which he believed constituted a final judgment against him from the IRS.
                                         -7-

[*7] On December 14, 2012, COIC returned petitioner’s OIC as not processable

because of petitioner’s failure to submit the application fee or initial payment.

Petitioner spoke with SO Hayes by telephone on December 18, 2012, at which

time SO Hayes informed petitioner she would be closing his case. Petitioner

asked SO Hayes to delay a determination for 30 to 60 days to allow him to gather

funds for a new OIC, but SO Hayes denied this request and explained that

petitioner could submit a new OIC after the issuance of a notice of determination.

SO Hayes believed petitioner agreed with the closing of his case, and she

subsequently closed petitioner’s case on January 2, 2013.

      Respondent mailed the notice of determination to petitioner on January 18,

2013. The notice (1) sustained the NFTL against petitioner, (2) determined that

petitioner could not raise his underlying liability because he had a prior

opportunity to do so, (3) noted the rejection of petitioner’s OIC for failure to

submit the required payments, and (4) determined that petitioner had not provided

any other collection alternatives.
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[*8]                                  OPINION

I.     Relevant Law

       Section 6320(a) and (b) provides that a taxpayer shall be notified in writing

by the Commissioner of the filing of a notice of Federal tax lien and provided an

opportunity for an administrative hearing. If an administrative hearing is

requested, the hearing is to be conducted by Appeals. Secs. 6320(b)(1),

6330(c)(1). The Appeals officer conducting the hearing must verify that the

requirements of any applicable law or administrative procedure have been met,

and the taxpayer may raise any relevant issue with regard to the Commissioner’s

intended collection activities, including spousal defenses, challenges to the

appropriateness of collection actions, and collection alternatives. Secs. 6320(c),

6330(c)(1), (2)(A).

       Section 6330(c)(2)(B) permits challenges to the validity of the underlying

liability in collection proceedings only where the taxpayer did not receive a notice

of deficiency or otherwise have an opportunity to challenge the liability. If the

validity of the underlying liability is not properly at issue, we will review the

Commissioner’s administrative determination for abuse of discretion. Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000). An abuse of discretion occurs if

Appeals’ determination is arbitrary, capricious, or without sound basis in fact or
                                         -9-

[*9] law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d

27 (1st Cir. 2006); Freije v. Commissioner, 125 T.C. 14, 23 (2005). However, if

the validity of the underlying liability is properly at issue, we review the matter on

a de novo basis. Sego v. Commissioner, 114 T.C. 604, 610 (2000).

II.    Underlying Liability

       Petitioner had a prior opportunity to contest his underlying liability during

his conference with AO Gilroy. Accordingly, petitioner is not permitted to raise

his underlying liability in this proceeding, and we review the Commissioner’s

determination for abuse of discretion.

III.   Review for Abuse of Discretion

       In considering whether SO Hayes abused her discretion, we consider

whether she: (1) considered any relevant issues raised at the hearing and (2)

determined whether any proposed collection action balanced the need for the

efficient collection of taxes with petitioner’s legitimate concern that any collection

action be no more intrusive than necessary. Secs. 6320(c)(1), 6330(c)(2) and

(3)(A), (B), and (C). The Court will not consider whether SO Hayes verified that

the requirements of any applicable law or administrative procedure had been met

because petitioner failed to raise the issue in his petition. See sec. 6330(c)(1);

Rule 331(b)(4); Hoyle v. Commissioner, 131 T.C. 197, 202-203 (2008); Dinino v.
                                        - 10 -

[*10] Commissioner, T.C. Memo. 2009-284. Section 7122(a) authorizes the

Commissioner to compromise any civil or criminal case arising under the internal

revenue laws. Section 7122(c) provides certain guidelines for acceptance of an

OIC. As relevant to this case, section 7122(c)(1) and (2)(B) requires that the

taxpayer submit a partial payment and an application fee with the OIC. Section

301.7122-1(d)(1), Proced. & Admin. Regs., provides that “[a]n offer to

compromise a tax liability pursuant to section 7122 must be submitted according

to the procedures, and in the form and manner, prescribed by the Secretary.”

      Petitioner failed to remit either a partial payment of his proposed $5,000

compromise or the relevant application fee, and he also failed to submit supporting

financial documents. Petitioner also did not certify low-income status on his Form

656. These omissions meant that COIC could not process petitioner’s OIC.

Submission of an OIC must meet the requirements in section 7122; and because

petitioner did not conform his OIC to these requirements or offer any other

collection alternatives, SO Hayes did not abuse her discretion in determining that

he was ineligible for collection alternatives. While we understand petitioner’s

frustration at having been assessed penalties after he paid restitution to the IRS,

SO Hayes followed the requirements of section 6330(c), and her decision to

uphold the NFTL was not an abuse of discretion.
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[*11] In reaching our holding, we have considered all arguments made, and, to the

extent not mentioned above, we conclude they are moot, irrelevant, or without

merit.

         To reflect the foregoing,


                                               Decision will be entered

                                     for respondent.
