                    123 T.C. No. 17



                UNITED STATES TAX COURT



     JOSEPH F. AND CAROLINE ENOS, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 11630-01L.       Filed September 27, 2004.



     R assessed income tax, interest, and civil fraud
liabilities for Ps’ 1971 tax year. Ps were involved in
the scrap metal business and had a substantial account
receivable from Ps’ customer M. R issued to M a notice
of levy on the account receivable. R and M entered
into a payment agreement, whereby M would make 200
weekly payments of $1,500 to R. Ps were aware of and
participated in the negotiation of the payment
agreement between M and R. Ps continued to do business
with M and received large payments from M before M was
placed in bankruptcy. R filed an original and several
amended proofs of claim in M’s bankruptcy case,
relating to the notice of levy. The bankruptcy court
held that R did not have to marshal Ps’ assets before
seeking M’s assets in bankruptcy court. R issued Ps a
notice of determination to proceed with collection of
Ps’ 1971 liabilities for accrued interest on Ps’ 1971
tax liabilities pursuant to sec. 6330, I.R.C. R
determined that collection should proceed because R
never had “dominion and control” over the account
                               - 2 -

     receivable because M continued to make payments to Ps
     after R issued M the notice of levy and Ps participated
     in the negotiation of the payment agreement with M.
     Held: Ps’ liability to R was not satisfied when R
     issued M the notice of levy because it only provided R
     with legal custody of Ps’ account receivable from M.
     Held, further, R did not have “dominion and control”
     over the account receivable from M to Ps. Held,
     further, the notice of determination relates only to
     Ps’ 1971 tax year, and the Court does not have
     jurisdiction over Ps’ 1970 and 1972 tax years. Held,
     further, res judicata does not apply to the instant
     case. Held, further, collateral estoppel does not
     apply to the instant case. Held, further, the Court
     does not have jurisdiction to determine whether M’s
     bankruptcy trustee is liable for penalties under 31
     U.S.C. secs. 191 and 192 (2000) and secs. 6331 and
     6332, I.R.C. Held, further, petitioners are not
     entitled to an abatement of interest because a
     significant aspect of any error or delay is
     attributable to petitioners.


     Hans A. Stoeckler, for petitioners.

     D. Sean McMahon, for respondent.



                              OPINION


     WELLS, Judge:   The petition in the instant case was filed in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination).1   In the notice of determination, respondent

determined that collection should proceed against petitioners to




     1
      All section references are to the Internal Revenue Code, as
amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                  - 3 -

collect a liability for accrued interest on petitioners’ tax

liabilities for 1971.

        The issues to be decided are as follows:

        1.   Whether respondent’s issuance of a notice of levy on an

account receivable due petitioners from a customer satisfied

petitioners’ original tax liability for 1971 that was assessed in

1977 because respondent exercised “dominion and control” over the

account receivable;

        2.   whether we have jurisdiction over petitioners’ 1970 and

1972 tax years;

        3.   whether res judicata applies to the instant case;

        4.   whether collateral estoppel applies to the instant case;

     5.      whether the bankruptcy trustee of petitioners’ customer

is personally liable to respondent under 31 U.S.C. secs. 191 and

192 (2000) and sections 6331 and 6332 for wrongfully refusing to

surrender the customer’s property to respondent; and

     6.      whether petitioners are entitled to an abatement of

interest accruing for their 1971 tax year pursuant to section

6404.

                               Background

        The parties submitted the instant case fully stipulated,

without trial, pursuant to Rule 122.        The parties’ stipulations

of fact are hereby incorporated by this reference and are found
                                - 4 -

as facts in the instant case.   At the time petitioners filed

their petition, they resided in Taunton, Massachusetts.

     During the 1970s, petitioners operated Joseph Enos & Sons

(Enos & Sons) and were engaged in the scrap metal business in

Massachusetts.   Petitioners routinely sold scrap metals to

Metropolitan Metals, Inc. (MMI), of Harrisburg, Pennsylvania,

from whom petitioners had a significant account receivable for

scrap metal purchased by MMI (account receivable).

     Petitioners made estimated tax payments of $1,753.51 for

their 1971 tax year.   Respondent conducted an audit of

petitioners’ 1971 tax year.   On November 14, 1977, respondent

assessed $164,886.76 in liabilities for 1971, comprising an

income tax liability of $88,156.02, an addition to tax for fraud

of $44,078.01 relating to certain cash transactions, and interest

of $32,652.73.   Petitioners did not dispute the liabilities

assessed against them for 1971.

     On August 15, 1978, in an attempt to collect payments on

petitioners’ 1970, 1971, and 1972 tax liabilities, respondent

issued MMI a notice of levy (August 15, 1978, notice of levy),

seizing the account receivable.   When respondent issued MMI the

August 15, 1978, notice of levy, MMI was experiencing financial

problems.   The August 15, 1978, notice of levy informed MMI that

it owed respondent $310,333.58, of which $159,476.08 was for

petitioners’ 1971 tax year.   The August 15, 1978, notice of levy
                              - 5 -

also indicated that the amounts due for petitioners’ 1970 and

1972 tax years were $64,167.11 and $86,690.39, respectively.

     On December 15, 1978, MMI’s counsel sent respondent a letter

which stated that MMI would make 200 weekly installment payments

of $1,500 to respondent in satisfaction of the levy served on MMI

(December 15, 1978, payment agreement).   The December 15, 1978,

payment agreement was sent from MMI’s counsel, Bruce D. Forman,

Esq., to respondent’s Revenue Officer Charles J. Hillsdale and

stated the following:

          I am writing to confirm my understanding of our
     conversation of December 13 and to put it in writing
     for purposes of specific explanation to my client.

          Commencing Friday, December 19, 1978, and every
     Friday thereafter, Metropolitan Metals will forward to
     the Internal Revenue Service in self-addressed stamped
     envelopes to be provided by the Internal Revenue
     Service to me, payment in the amount of $1,500.00 for
     your levy on an account due and payable from
     Metropolitan Metals, Inc. to Joseph F. and Carol P.
     Enos, the same having been served on Metropolitan
     Metals August 15, 1978.

          It has been agreed that the outstanding account
     payable is in the amount of $300,000.00 and,
     accordingly, at this rate of payment it would take 200
     weeks to make all of the payments required. Mr.
     Roberts, President of Metropolitan Metals, Inc., has
     agreed to inform me if business profits permit increase
     payments and, at that time I would contact you so that
     we could increase the rate of payment to decrease the
     time during which payment would be made.

          I appreciate the fact that you are cooperating
     with us so that this account can be paid in a manner
     consistent with continuing business and at the same
     time, allowing the government to collect the amount
     due.
                                - 6 -

     MMI sent respondent seven checks for payment pursuant to the

December 15, 1978, payment agreement.   Only six of those checks

were honored.

     On March 29, 1979, MMI’s creditors filed an involuntary

bankruptcy petition against MMI in the U.S. Bankruptcy Court for

the Middle District of Pennsylvania.    MMI’s bankruptcy petition

was filed under chapter 11 of the Bankruptcy Act of 1898

(Bankruptcy Act), as amended.   MMI’s case was later converted to

a chapter 7 case.

     On April 25, 1979, Charles J. DeHart III, Esq., was

appointed receiver of MMI.

     On May 21, 1980, respondent issued Mr. DeHart a notice of

levy (1980 notice of levy).   The 1980 notice of levy indicated a

total liability of $246,789.26, composed of a liability for 1971

of $153,002.11, and a liability for 1972 of $93,787.15.

     On June 10, 1981, respondent filed an amended proof of

claim, claim 134 (amended proof of claim), pursuant to a priority

claim under section 64a(5),2 based on the August 15, 1978, notice

of levy and the December 15, 1978, payment agreement, in the

amount of $232,427.35.   The amended proof of claim stated that

interest would accrue at a rate of $45.55 per day.




     2
      MMI’s bankruptcy case was filed under the Bankruptcy Act of
1898. However, the amended proof of claim does not indicate
whether sec. 64a(5) relates to the Bankruptcy Act of 1898.
                               - 7 -

     On June 24, 1981, the U.S. Bankruptcy Court for the Middle

District of Pennsylvania issued an order of adjudication,

ordering MMI’s case to proceed under the provisions of the

Bankruptcy Act, appointing Mr. DeHart to the position of trustee

for MMI (bankruptcy trustee), and setting the amount of the bond

of the bankruptcy trustee at $100,000.

     On May 12, 1982, respondent filed a second amended proof of

claim for internal revenue taxes, claim 173 (1982 proof of claim)

in the U.S. Bankruptcy Court for the Middle District of

Pennsylvania.   Respondent’s 1982 proof of claim stated that

respondent had a priority claim under section 64a(5) based on the

August 15, 1978, notice of levy and the December 15, 1978,

payment agreement.   The 1982 proof of claim also stated that

interest would accrue on the $248,710.95 due under the 1982 proof

of claim from MMI at a rate of $72.77 per day.

     On April 5, 1989, respondent filed another amended proof of

claim with the U.S. Bankruptcy Court for the Middle District of

Pennsylvania, claim 175, claiming an amount due from MMI in the

amount of $149,321.40.

     On January 24, 1990, petitioners filed a complaint against

respondent in the U.S. District Court for the District of

Massachusetts, Civil Action No. 90-10178-WAG.    Petitioners sought

to have respondent remove certain tax liens on their property,

relating to the tax liabilities from their 1971 and 1972 tax
                                - 8 -

years.    Petitioners also sought $10 million in damages from

respondent.

     On November 22 and 27, 1991, a deposition (deposition) was

given by petitioner Joseph F. Enos (Mr. Enos), relating to the

lawsuit petitioners filed in the U.S. District Court for the

District of Massachusetts, Civil Action No. 90-10178-WAG.      During

the deposition, George Eliopoulos, Esq., of the U.S. Department

of Justice, Tax Division, represented the United States, and

David Shaughnessy, Esq., represented Mr. Enos.

     During the deposition, Mr. Enos discussed certain events

surrounding the August 15, 1978, notice of levy that was issued

to MMI.    Mr. Enos also discussed the nature of petitioners’

business relationship with MMI.

     Mr. Enos indicated that petitioners’ business had sales in

the millions of dollars during the 1970s.    Mr. Enos also stated

that MMI was petitioners’ largest purchaser of scrap metal,

accounting for over 50 percent of their business during the

period in issue.    Mr. Enos stated that petitioners kept an

“Accounts Receivable Ledger” for their business (petitioners’

business ledger), which reflected, in part, certain transactions

with MMI, from August 1977 until February 1979.

     A letter from James S. Newell, C.P.A., Mr. Enos’s

accountant, dated February 15, 1978, to Mr. Hillsdale states:

“Enclosed herewith please find the personal and business
                                 - 9 -

financial statements for Joseph and Caroline Enos, 18 Marvel

Street, Taunton.   In addition I have enclosed a power of attorney

signed by both individuals.”

     The February 15, 1978, letter from Mr. Newell to Mr.

Hillsdale referred to a financial statement accompanying the

February 15, 1978, letter.    Petitioners’ balance sheet for their

business shows that petitioners had accounts receivable of

$496,410, and that petitioners subtracted an uncollectible amount

of $393,466, for a total value of $102,944.   A note to the

balance sheet states:

     NOTE--THE ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
     REPRESENTS THE AMOUNT DUE FROM METROPOLITAN METALS,
     INC. OF HARRISBURG, PENNSYLVANIA. THE OWNER OF THE
     BUSINESS SUPPOSEDLY HAS BEEN THROUGH SEVERAL
     BANKRUPTCIES. THE BALANCE REPRESENTS AMOUNTS DUE FOR A
     PERIOD LONGER THAN 6 MONTHS, AND THE COMPANY HAS SHOWN
     A CONTINUED POLICY OF ISSUING CHECKS WHICH SUBSEQUENTLY
     ARE RETURNED BY HIS BANK AS “INSUFFICIENT FUNDS”.
     PROSPECTS OF COLLECTING THIS [sic] APPEAR SLIM.

     Petitioners’ Statement of Financial Condition and Other

Information, dated June 20, 1978, under the heading “Accounts

Receivable”, states:

     Account Receivable      Book Value   Liquidation Value

     Trade, at 12/31/77      $496,410          $102,944*

*One Customer owes $393,466, Collection Appears Slim.

     Mr. Enos signed the financial statements for the purpose of

settling petitioners’ tax liability with respondent.
                               - 10 -

     Mr. Enos knew MMI had agreed to make payments to respondent

for the satisfaction of petitioners’ tax liability to respondent.

Mr. Enos believed that the account receivable had a value

different from the $300,000 that was agreed to in the December

15, 1978, payment agreement.

     Petitioners received money from MMI after the August 15,

1978, notice of levy was issued to MMI for the part of the

account receivable that exceeded the amount of the August 15,

1978, notice of levy.

     In respondent’s record of petitioners’ account, a Form 2-27,

TDA3 (Taxpayer Delinquent Account) History Record form for the

period from January 1, 1978, to July 2, 1981, the October 23,

1978, entry states that petitioners’ counsel advised respondent

that petitioners were meeting with representatives of MMI in

Harrisburg, Pennsylvania, to resolve the amount owed by MMI to

petitioners.   Respondent’s October 31, 1978, TDA entry states

that petitioners informed respondent that petitioners and MMI did

not agree as to the amount of MMI’s liability to petitioners.

That entry also states that MMI provided petitioners with their

records so that MMI and petitioners could agree on a figure for

the account receivable.   Respondent’s November 3, 1978, TDA entry

states that MMI’s attorney, Mr. Forman, was contacted by



     3
      Coggin v. Commissioner, T.C. Memo. 1993-209, affd. 71 F.3d
855 (11th Cir. 1996), describes the function of TDAs.
                                - 11 -

respondent on November 3, 1978, and indicated that MMI and

petitioners were still discussing the amount of the account

receivable.

     Respondent’s December 12, 1978, TDA entry states that MMI’s

counsel indicated that MMI could pay respondent $1,500 weekly on

the August 15, 1978, notice of levy.     Respondent’s December 12,

1978, TDA entry also states that MMI and petitioners agreed that

the amount MMI owed petitioners was $300,000.     Additionally,

respondent’s December 12, 1978, TDA entry states that petitioners

informed respondent that they were going to try to have MMI pay

$3,000 weekly to satisfy the August 15, 1978, notice of levy.

     A letter dated September 26, 1991, from Mr. Enos’s attorney,

Mr. Shaughnessy, to Edward Rothman, Esq., who represented MMI,

states:   “Enclosed please find the documents discussed in our

last telephone conversation.”    Attached to the September 26,

1991, letter is MMI’s incomplete ledger of petitioners’ account

with MMI (MMI business ledger).    Entries on   MMI’s business

ledger state:   “2 accounts for Joe Enos 1500 ea week” and “Joseph

Enos 2A P.O. Box 949 Taunton, Mass. 02780".     One page of MMI’s

business ledger indicates that MMI debited petitioners’ account

by $10,500, and all the debits were in the amount of $1,500.      One

of the $1,500 payments was entered as a credit on MMI’s business

ledger.   Four of the entries state “J. Enos & Sons (IRS)”.      Mr.

Enos also stated that “He put my name on his and vice versa”,
                               - 12 -

which describes both petitioners’ business ledger reflecting an

account receivable with MMI and MMI’s business ledger reflecting

an account with petitioners.

     In addition to the first account in MMI’s business ledger

that recorded MMI’s payments to respondent, MMI’s business ledger

describes certain business transactions with petitioners.    MMI’s

business ledger covers a period from November 1978 to February

1979, and during that period, MMI debited petitioners’ account by

approximately $340,000 and credited their account by

approximately $420,000.

     Petitioners’ business ledger reflects MMI’s account with

petitioners.    Mr. Enos identified credit entries on petitioners’

business ledger that corresponded to the MMI payment invoices

presented to him by the United States during the deposition.     The

following table describes when MMI picked up the materials from

petitioners, the MMI invoice number for each shipment referred to

on MMI’s payment invoices, the check number for the check MMI

used to pay for the shipment, the amount paid to petitioners, and

the payment date.

Delivery date                                           Payment date
    1977         Invoice No.     Check No.1   Payment       1978

    2/23            306            517        $2,500      8/18
    2/23            306            519         2,500      8/18
    2/23            306            565         2,500      8/22
    2/23            306            607         2,500      8/23
    4/14            419            752         2,500      9/1
    4/14            419            750         2,500      9/1
    4/14            419            728         5,000      8/31
                               - 13 -

    4/14            419            714        2,500       8/30
    4/14            419            672        2,500       8/28
    4/14            419            648        2,500       8/25
    7/19             47            940        3,000       9/15
    7/19             47            942        3,000       9/15
    7/19             47            988        2,500       9/19
    9/19             47           1022        2,500       9/21
    6/29             37            780        2,000       9/5
    6/24             37            824        2,500       9/7
    6/29             37            842        2,500       9/8
    6/29             37            844        2,500       9/8
    6/29             37            902        2,500       9/13
     1
      The check number on each check corresponds to an
inscription in petitioners’ business ledger, under the “detail”
section of that record.

     Moreover, petitioners’ business ledger indicates that there

were a number of payments from MMI to petitioners that were made

on or after August 15, 1978.   Petitioners’ business ledger

indicates that petitioners credited MMI’s account with over

$800,000 after the August 15, 1978, notice of levy was served on

MMI, of which approximately $210,000 was purportedly paid to

petitioners on or after December 15, 1978.   Along with the

numerous credits on MMI’s account, there appear to be numerous

debits on MMI’s account in petitioners’ business ledger

indicating that petitioners debited over $870,000 from MMI’s

account.

     Respondent’s April 30, 1979, TDA entry states that

petitioners knew that as of April 30, 1979, MMI was no longer

making payments to respondent on the August 15, 1978, notice of

levy.    Moreover, respondent’s April 30, 1979, TDA entry indicates

that respondent was also seeking to satisfy petitioners’ tax
                               - 14 -

liability with assets other than the MMI account receivable.

Respondent’s May 10, 1979, TDA entry indicates that petitioners

were going to sell several parcels of real estate to pay part of

their tax liability.    Respondent’s July 10, 1979, TDA entry

indicates that petitioners’ account at Bay Bank was levied upon.

     On June 13, 1994, respondent issued notices of levy to a

number of institutions in an effort to collect $730,729.67 in

total liabilities from petitioners, $327,772.29 for 1971 and

$402,957.38 for 1972.   Of the $327,772.29 liability for 1971,

$35,705.42 was for unpaid tax liability and $292,066.87 was for

accrued interest and penalties.    The levies were placed on

petitioners’ accounts at Bridgewater Credit Union, in

Bridgewater, Massachusetts; Prudential Ins. Co. of America in

Newark, New Jersey; Shawmut Bank. N.A. in Boston, Massachusetts;

Baybank South in Westwood, Massachusetts; John Hancock Mutual in

Boston, Massachusetts; Bristol County Savings Bank in Taunton,

Massachusetts; Kidder Peabody Premium Acct. Fund in New York, New

York; and Kidder Peabody & Co., Inc., in New York, New York.

Respondent collected $87 from Shawmut Bank.

     On September 15, 1994, respondent issued petitioners a

notice of seizure of real estate located at 19 Dana Street in

Taunton, Massachusetts, for a liability of $703,918.30.    Also on

September 15, 1994, respondent issued petitioners a notice of

seizure for five additional parcels of real estate located on
                               - 15 -

Dana Street in Taunton, Massachusetts.   On September 29, 1994,

respondent issued petitioners a notice of seizure for real estate

located on Beach Street in Wareham, Massachusetts.

     On September 26, 1994, the U.S. District Court for the

District of Massachusetts dismissed petitioners’ claims in Civil

Action No. 90-10178-WAG by granting the Government’s motion to

dismiss for failure to state a claim on which relief can be

granted and, alternatively, motion for summary judgment for

petitioners’ failure to present sufficient evidence for actual

direct economic damages.

     On October 4, 1994, respondent sent petitioners a notice of

release of levy relating to six parcels of land on Dana Street in

Taunton, Massachusetts, and one parcel of land on Beach Street in

Wareham, Massachusetts.

     On December 1, 1999, the U.S. Bankruptcy Court for the

Middle District of Pennsylvania issued an order for final

distribution for MMI’s bankruptcy estate.

     On February 7, 2000, respondent issued petitioners a Final

Notice--Notice of Intent to Levy and Notice of Your Right to A

Hearing for petitioners’ 1971 tax year, which indicated that

petitioners owed $34,382.77 of the original liability and

$447,022.46 in interest for a total liability of $481,405.23.

     On March 2, 2000, petitioners sent respondent a request for

a section 6330 hearing.    In their section 6330 hearing request,
                               - 16 -

petitioners asserted:    “All tax liability was paid on August 15,

1978 by means of levy against Metropolitan Metals, Inc. and an

Agreement to pay levy.    Claim for total tax liability was made in

Bankruptcy Case 79-318, Middle District of Pennsylvania in 1981.”

     On March 8, 2000, the bankruptcy trustee sent respondent a

check for $149,312.40 for claims 134 and 175.   The check was

endorsed “For deposit only” by the U.S. Department of Justice and

paid on March 21, 2000.

     On March 17, 2000, respondent received payment of

$149,312.40 for petitioners’ 1971 tax liability; $34,382.77 of

the payment was used to satisfy the remaining 1971 tax liability,

and the additional $114,929.63 was used to pay part of the

accrued interest.

     On August 14, 2001, respondent issued petitioners the notice

of determination for their 1971 tax year.   The Appeals Officer

determined:

     It is determined that the liability was the result of
     an examination of your personal income tax returns for
     the period. You executed an agreement at the
     Examination level agreeing to the liability. Under
     Section 6330 of the Internal Revenue Code the
     underlying liability may be challenged only if you did
     not receive a Statutory Notice of Deficiency or had no
     other opportunity to Appeal the liability. As part of
     the examination process, you were explained your appeal
     rights. You chose to execute an agreement with the
     Examination Division. Accordingly, the underlying
     liability may not be argued at the Collection Due
     Process Hearing.

     * * * The facts indicate that after the Service levied
     the receivable with MMI you continued to negotiate with
                               - 17 -

     MMI regarding its payment to the Internal Revenue
     Service. It is noted that there are documents in the
     file indicating that you received payment on the
     account receivable of MMI subsequent to the levy.
     Accordingly, it is my determination that you have not
     proven that the service exercised “dominion and
     control” over the MMI receivable.

                            Discussion

     Petitioners, relying on United States v. Eiland, 223 F.2d

118 (4th Cir. 1955), contend that the August 15, 1978, notice of

levy issued to MMI before MMI’s involuntary bankruptcy had the

effect of an immediate seizure by the United States of the

account receivable.   Petitioners contend that, under Eiland,

respondent’s notice of levy on the account receivable, an

intangible asset, had the effect of transferring to respondent

the amount necessary to pay petitioners’ tax liability.

Moreover, petitioners contend that the August 15, 1978, notice of

levy provided respondent with possession of the account

receivable, which satisfied petitioners’ tax liability in whole.

Petitioners rely on Phelps v. United States, 421 U.S. 330 (1975);

In re Pittsburgh Penguins Partners, 598 F.2d 1299 (3d Cir. 1979);

In re Cherry Valley Homes, Inc., 255 F.2d 706 (3d Cir. 1958); and

United States v. Eiland, supra, arguing that, because these cases

arose under the Bankruptcy Act of 1898, they should be

controlling.   Additionally, petitioners contend that the August

15, 1978, notice of levy transferred ownership under section 6331
                              - 18 -

and that petitioners had no recourse against MMI because section

6332(d) precluded petitioners from seeking recourse against MMI.

     Respondent contends that the seizure of intangible property

by levy does not constitute a transfer of ownership, relying on

United States v. Whiting Pools, Inc., 462 U.S. 198 (1983), and

Murphy v. United States, 45 F.3d 520 (1st Cir. 1995).4   Respondent

contends that the tax liability is not paid until the account

receivable is either collected or sold, relying on Whiting Pools,

Inc. and Cash v. United States, 961 F.2d 562 (5th Cir. 1992).

Respondent contends that the levy on MMI had the effect of making

respondent an involuntary assignee of petitioners, relying on In

re Quakertown Shopping Ctr., Inc., 366 F.2d 95 (3d Cir. 1966).

     Accounts receivable are subject to levy.   See sec. 301.6331-

1(a)(1), Proced. & Admin. Regs.   A levy is effective when the

notice of levy is served on a third party.   See id.   Section

301.6331-1(a)(1), Proced. & Admin. Regs., provides that “a levy

extends only to property possessed and obligations which exist at

the time of the levy.”

     In Phelps v. United States, supra at 336-337, the Supreme

Court decided that the bankruptcy court below lacked summary

jurisdiction under the Bankruptcy Act over an account receivable


     4
      In the instant case, respondent is not seeking to collect
petitioners’ 1971 tax liability that was assessed in 1977 and
finally satisfied by the distribution from MMI’s bankruptcy
trustee in March 2000. Rather, respondent is seeking to collect
the interest that accrued on that tax liability after it was
assessed in 1977.
                                - 19 -

of a third party, upon which the Commissioner had levied to

satisfy a tax liability of the taxpayer before the taxpayer

sought bankruptcy protection.    In Phelps v. United States, supra

at 377, the Supreme Court stated in dictum5 that “The levy,

therefore, gave the United States full legal right to the $38,000

levied upon as against the claim of the petitioner receiver.”

In In re Pittsburgh Penguins Partners, supra at 1302, the Court

of Appeals for the Third Circuit, applying Phelps, held that a

levy deprived the bankruptcy court of summary jurisdiction over a

bank account and observed that the Court of Appeals did not need

to decide whether the levy transferred full title to the bank

account to the Commissioner.

     We disagree with petitioners’ contention that Phelps v.

United States, supra, controls the outcome of the instant case.

In Phelps, the Supreme Court decided whether the bankruptcy court

had summary jurisdiction over an intangible, not whether the levy

satisfied the liability to the Commissioner.




     5
      See United States v. Whiting Pools, Inc., 462 U.S. 198, 210
n.18 (1983).
                             - 20 -

      In United States v. Whiting Pools, Inc., supra,6 a

bankruptcy case brought under the Bankruptcy Code of 1978

(Bankruptcy Code), the Supreme Court addressed the question of

whether the issuance of a notice of levy to a third party

satisfies a taxpayer’s liability.   The Supreme Court stated:

          Under the old Bankruptcy Act, a bankruptcy court’s
     summary jurisdiction over a debtor’s property was limited to
     property in the debtor’s possession when the liquidation was
     filed. Phelps v. United States, 421 U.S. 330, 335-336
     (1975); Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426,
     432-434 (1924). Phelps, which involved a liquidation
     petition under the prior Bankruptcy Act, held that a
     bankruptcy court lacked jurisdiction to direct the Service
     to turn over property which had been levied on and which, at
     time of the commencement of bankruptcy proceedings, was in
     the possession of an assignee of the debtor’s creditors.

         Phelps does not control this case. First, the new
    Bankruptcy Code abolished the distinction between summary
    and plenary jurisdiction, thus expanding the jurisdiction of
    bankruptcy courts beyond the possession limitation. H.R.
    Rep. No. 95-595, pp. 48-40 (1977); see Northern Pipeline
    Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 54
    (1982)(plurality opinion). Moreover, Phelps was a
    liquidation situation, and is inapplicable to reorganization
    proceedings such as we consider here. [Id. at 206 n.13.]




     6
      The property in issue in United States v. Whiting Pools,
Inc., supra, was tangible property. The property in issue in
Phelps v. United States, 421 U.S. 330 (1975), was intangible
property. The Supreme Court granted certiorari in United States
v. Whiting Pools, Inc., supra at 202, to resolve a split in the
circuits, between United States v. Whiting Pools, Inc., 674 F.2d
144 (2d Cir. 1982) (tangible property), and Cross Elec. Co. v.
United States, 664 F.2d 1218 (4th Cir. 1981) (intangible
property). Accordingly, we reject petitioners’ contention that,
with respect to the issue under consideration, a distinction
should be drawn between tangible property and intangible
property. See also Meehan v. Wallace, 102 F.3d 1209 (11th Cir.
1997); In re Challenge Air Intl., Inc., 952 F.2d 384 (11th Cir.
1992).
                              - 21 -

     In United States v. Natl. Bank of Commerce, 472 U.S. 713

(1985), a nonbankruptcy case, the Supreme Court observed that an

“administrative levy, unlike a judicial lien-foreclosure action,

does not determine the ownership rights to the property.”   Id. at

731 (citing United States v. Rodgers, 461 U.S. 677, 696 (1983)).

Moreover, in Natl. Bank of Commerce, the Supreme Court held that

“The Court, in other words, recognized what we now make explicit:

that § 6331[7] is a provisional remedy, which does not determine


     7
      Sec. 6331 provides:

     SEC. 6331.   LEVY AND DISTRAINT.

          (a) Authority of Secretary.–If any person liable to
     pay any tax neglects or refuses to pay the same within 10
     days after notice and demand, it shall be lawful for the
     Secretary to collect such tax (and such further sum as shall
     be sufficient to cover the expenses of the levy) by levy
     upon all property and rights to property (except such
     property as is exempt under section 6334) belonging to such
     person or on which there is a lien provided in this chapter
     for the payment of such tax. Levy may be made upon the
     accrued salary or wages of any officer, employee, or elected
     official, of the United States, the District of Columbia, or
     any agency or instrumentality of the United States or the
     District of Columbia, by serving a notice of levy on the
     employer (as defined in section 3401(d)) of such officer,
     employee, or elected official. If the Secretary makes a
     finding that the collection of such tax is in jeopardy,
     notice and demand for immediate payment of such tax may be
     made by the Secretary and, upon failure or refusal to pay
     such tax, collection thereof by levy shall be lawful without
     regard to the 10-day period provided in this section.

          (b) Seizure and Sale of Property.–The term “levy” as
     used in this title includes the power of distraint and
     seizure by any means. Except as otherwise provided in
     subsection (e), a levy shall extend only to property
     possessed and obligations existing at the time thereof. In
     any case in which the Secretary may levy upon property or
                                                   (continued...)
                              - 22 -

the rights of third parties until after the levy is made, in

postseizure administrative or judicial hearings.”   Id. (examining

United States v. Rodgers, supra at 696); see also United States

v. Whiting Pools, Inc., supra at 211.8   Thus, the effect of the

levy in the instant case is to bring the account receivable into

respondent’s legal custody.   See United States v. Natl. Bank of

Commerce, supra at 721 (“property comes into the constructive



(...continued)
      rights to property, he may seize and sell such property or
      rights to property (whether real or personal, tangible or
      intangible). [Emphasis added.]
     8
      In Whiting Pools, Inc. v. United States, supra at 210-211,
the Supreme Court stated:

          The Service’s interest in seized property is its lien
     on that property. The Internal Revenue Code’s levy and
     seizure provisions, § 6331 and 6332, are special procedural
     devices available to the IRS to protect and satisfy its
     liens, United States v. Sullivan, 333 F.2d 100, 116 (CA 3
     1964), and are analogous to the remedies available to
     private secured creditors. See Uniform Commercial Code § 9-
     503, 3A U.L.A. 211-212 (1981); n.14, supra. They are
     provisional remedies that do not determine the Service’s
     rights to the seized property, but merely bring the property
     into the Service’s legal custody. See 4 B. Bittker, Federal
     Taxation of Income, Estates and Gifts ¶ 111.5.5, p. 111-108
     (1981). See generally Plumb, Federal Tax Collection and
     Lien Problems (First Installment), 13 Tax L. Rev. 247, 272
     (1958). * * * The IRS is obligated to return to the debtor
     any surplus from a sale. § 6342(b). Ownership of the
     property is transferred only when the property is sold to a
     bona fide purchaser at a tax sale. See Bennett v. Hunter, 9
     Wall. 326, 336 (1870); § 6339(a)(2); Plumb, 13 Tax L. Rev.,
     at 274-275.   In fact, the tax sale provision itself refers
     to the debtor as the owner of the property after the seizure
     but prior to the sale. Until such a sale takes place, the
     property remains the debtor’s and thus is subject to the
     turnover requirement of sec. 542(a). [Fn. ref. omitted.]
                                - 23 -

possession of the Government”); United States v. Whiting Pools,

Inc., supra at 211.     In United States v. Natl. Bank of Commerce,

supra at 731 n.15, the Supreme Court stated that a “levy does not

purport to determine any rights to the property.     It merely

protects the Government’s interests so that rights to the

property may be determined in a postseizure proceeding.”

     The liability created by a levy on a third party is

discharged when the third party honors the levy.     See id. at 721.

Cash v. United States, 961 F.2d at 567, states that “when the

levied upon property is a debt owed to the taxpayer, such as an

account receivable, the levy may be satisfied by paying over to

the Government the money owed to the taxpayer.”     See also sec.

6332(a), (d);9 sec. 301.6332-1(a)(1), Proced. & Admin. Regs.10


     9
      Sec. 6332(a) provides:

     SEC. 6332.     SURRENDER OF PROPERTY SUBJECT TO LEVY

          (a) Requirement.-–Except as otherwise provided in
     this section, any person in possession of (or obligated
     with respect to) property or rights to property subject
     to levy upon which a levy has been made shall, upon
     demand of the Secretary, surrender such property or
     rights (or discharge such obligation) to the Secretary,
     except such part of the property or rights as is, at
     the time of such demand, subject to an attachment or
     execution under any judicial process.
     10
          Sec. 301.6332-1(a)(1), Proced. & Admin. Regs., provides:

     Surrender of Property Subject to Levy.--(a) Requirement.-–
     (1) In general.–Except as otherwise provided in § 301.6332-2,
     relating to levy in the case of life insurance and endowment
     contracts, and in § 301.6332-3, relating to property held by
     banks, any person in possession of (or obligated with respect
                                                   (continued...)
                                - 24 -

United States v. Natl. Bank of Commerce, supra, held that “If the

custodian honors the levy, he is ‘discharged from any obligation

or liability to the delinquent taxpayer with respect to such

property or rights to property arising from such surrender or

payment.’”     Id. at 721 (quoting section 6332(d)).   The liability

can also be satisfied by the sale of the property levied upon by

the Commissioner.    See United States v. Whiting Pools, Inc., 421

U.S. at 211.    In the instant case, MMI’s bankruptcy trustee paid

the remaining portion of the originally assessed liability in

2000.

     Petitioners contend that when respondent entered into the

December 15, 1978, payment agreement with MMI, which required MMI

to make 200 weekly payments of $1,500 to respondent to satisfy

petitioners’ tax liability, respondent exercised “dominion and

control” over petitioners’ account receivable, satisfying

petitioners’ tax liability.    In support of their contention,

petitioners cite United States v. Barlow’s, Inc., 767 F.2d 1098




     10
         (...continued)
        to) property or rights to property subject to levy and upon
        which a levy has been made shall, upon demand of the district
        director, surrender the property or rights (or discharge the
        obligation) to the district director, except that part of the
        property or rights (or obligation) which, at the time of the
        demand, is actually or constructively under the jurisdiction
        of a court because of an attachment or execution under any
        judicial process.
                             - 25 -

(4th Cir. 1985), affg. 53 Bankr. 986 (E.D. Va. 1984), affg. 36

Bankr. 826 (Bankr. E.D. Va. 1984).

     In United States v. Barlow’s, Inc., supra at 1099-1100, the

Commissioner and a third-party debtor of the taxpayer entered

into an installment payment agreement for an account receivable,

which was due the taxpayer, without the taxpayer’s participation.

The Commissioner failed to sell the taxpayer’s account receivable

pursuant to section 6335, and the Commissioner failed to take any

action against the third-party debtor after the third-party

debtor defaulted on the installment payment agreement.     Id.11   The

District Court, 53 Bankr. at 988, decided that the Commissioner

had taken dominion and control over the account receivable, and

by so doing “precluded Barlows [sic] from proceeding against the

account itself in an effort to defray its tax liabilities.

Section 6332(d) of the Internal Revenue Code divests the




     11
      The District Court below placed weight on two factors in
deciding that the Commissioner had “dominion and control” over
the levied-upon property in issue: The Commissioner’s failure to
sell the property under sec. 6335, and the payment agreement
between the Commissioner and the third-party debtor that was made
without the taxpayer’s participation. See United States v.
Barlow’s, Inc., 36 Bankr. 826 (E.D. Va. 1984). On appeal, the
Court of Appeals for the Fourth Circuit decided that the District
Court should be affirmed because the Commissioner exercised
“dominion and control” over the property and the Commissioner
failed to sell the property pursuant to sec. 6335. United States
v. Barlow’s, Inc., 767 F.2d 1098, 1100 (4th Cir. 1985). Thus,
the Court of Appeals did not include the sec. 6335 analysis in
determining whether the Commissioner had exercised “dominion and
control” over the property. Petitioners failed to address sec.
6335 in their moving papers.
                               - 26 -

delinquent taxpayer of any right against the possessor of

property levied upon by the IRS.”

     The facts in the instant case are distinguishable from those

in Barlow’s, Inc. and do not warrant a similar conclusion here.

In the instant case, MMI and respondent entered into the December

15, 1978, payment agreement for 200 weekly payments of $1,500 to

satisfy the August 15, 1978, notice of levy.   MMI made only six

payments under this agreement.   Shortly after entering into the

payment agreement with respondent, however, MMI went into

bankruptcy, in contrast to Barlow’s, Inc., where the third-party

debtor defaulted on the payment obligation and the Commissioner

failed to enforce the payment agreement, instead seeking payment

from the taxpayer.

     Unlike the taxpayers in Barlow’s, Inc., who did not know

that the Commissioner and the third-party debtor had negotiated

an installment payment agreement for the satisfaction of the

taxpayer’s liability, petitioners were actively engaged in the

negotiations between MMI and respondent regarding the December

15, 1978, payment agreement.

     After the August 15, 1978, notice of levy was issued to MMI,

petitioners participated in the negotiations between MMI and

respondent as to both the amount of the account receivable and

the payment agreement.   Respondent’s records reflect that Mr.

Enos informed respondent that he was going to travel from
                              - 27 -

Massachusetts to Pennsylvania to negotiate with MMI over the

amount of the account receivable, and that petitioners and MMI

did not agree about the amount.   Petitioners and MMI later agreed

that the account receivable had a purported value of $300,000.

Petitioners indicated that they believed that MMI could pay the

$300,000 liability off in 100 weekly payments of $3,000 to

respondent.   Petitioners were aware of the December 15, 1978,

payment agreement between MMI and respondent and that respondent

would receive 200 weekly payments of $1,500 to satisfy

petitioners’ tax liability.   Petitioners were aware that MMI sent

respondent several $1,500 checks during 1978 and 1979, and, as of

April 30, 1979, Mr. Enos knew that MMI was no longer sending

respondent money to satisfy the levy.

     The most significant factual distinction between the instant

case and Barlow’s, Inc. is that petitioners continued to receive

large amounts of money from MMI after the August 15, 1978, notice

of levy and also after the December 15, 1978, payment agreement

between MMI and respondent, while at the same time knowing that

MMI and respondent were negotiating and did negotiate a payment

agreement for the satisfaction of petitioners’ tax liability.

     Petitioners’ business records reflect that after the August

15, 1978, notice of levy, petitioners were purportedly doing

business with MMI, despite petitioners’ prior alleged inability

to collect on MMI’s large debt to them, and despite the fact that
                              - 28 -

petitioners alleged that a number of MMI’s checks to them were

not honored by MMI’s banks.   Petitioners’ records reflect that

petitioners received over $800,000 from MMI after respondent

issued MMI the August 15, 1978, notice of levy, of which

approximately $210,000 was received on or after December 15,

1978.   Petitioners contend that these payments were “partial

advance payments to petitioners for assurance of future shipments

of scrap metal.”

     Several payment invoices from MMI to petitioners for invoice

Nos. 37, 47, 306, and 419 refer to payments for deliveries that

occurred between February and July 1977.    According to

petitioners’ business ledger, which begins in August 1977, the

first payments on invoice Nos. 37, 47, 306, and 419 began only

after the August 15, 1978, notice of levy was issued to MMI.     The

payment invoices also provide check numbers for the payments made

to petitioners, and those numbers are reported in the “detail”

column of petitioners’ business ledger.    We note that, after

August 15, 1978, many payments to petitioners reflected in the

accounts receivable ledger bear no check numbers.

     Petitioners have not provided us with any other business

records or invoices, such as payment slips showing that the

payments from MMI were from post-levy dealings with MMI, which

might have substantiated their claim that the payments were for

“partial advance payments”, and that those “partial advance
                                 - 29 -

payments” do not relate to payments on pre-levy liabilities MMI

owed petitioners.      Petitioners’ business ledger shows when

certain payments were made and when certain amounts were debited

from the balance owed by MMI, but the business ledger does not

indicate when the underlying transaction occurred.

     Moreover, the notice of determination raised the issue that

petitioners received a large amount of money from MMI after the

August 15, 1978, notice of levy, and petitioners have failed to

rebut that claim or substantiate with credible evidence their

claim that the payments petitioners received from MMI after

August 15, 1978, were for “partial advance payments”.

Accordingly, petitioners have failed to carry the burden of proof

on the issue.      See Rule 142(a).

     Petitioners’ contention that payments made after August 15,

1978, were “partial advance payments” is contrary to the record

in the instant case, and contrary to Mr. Enos’s explanation

during his 1991 deposition that the payments from MMI to

petitioners represented amounts that were “over and above the

levy”.12      We are especially doubtful of petitioners’ claims in


      12
           During the deposition, Mr. Enos stated:

              A. To make it in its simplest form, if we’re owed, say,
              $400,000, and you levied $300,000, that account was
              over there to pay you off $300,000 and the other
              hundred thousand was over here. The account was levied
              on for whatever the amount was there.

              Q. So what you are saying; that when the IRS levied on
                                                       (continued...)
                              - 30 -

light of the large number of payments made by MMI to petitioners

after the December 15, 1978, payment agreement between MMI and

respondent, and, significantly, where many of those payments by

MMI to petitioners, reflected on petitioners’ business ledger, do

not appear to have been made by check or other negotiable

instrument.   We find petitioners’ contentions on brief that these

payments represent “partial advance payments” to be incredible,

especially in light of the following facts:   After the December

15, 1978, payment agreement, respondent received less than

$10,000 from MMI, while, at the same time, petitioners’ business

ledger reflects that they received over $210,000; petitioners

knew that MMI was having significant financial troubles; and

petitioners participated in the negotiations between respondent

and MMI.




     12
       (...continued)
           your tax liability back then was around $310,000 as
           indicated in the levy?

           A. Right.

           Q. And they served a levy on Metals to collect that,
           all properties in their possession up to $310,000?

           A. Right.

           Q. Are you saying they paid you money after the levy
           was served which was attributable to money owed by
           Metals to you before the levy was served?

           A. Before the levy was served for amounts over and
           above the levy. Once the levy was served, that locked
           in the 310.
                               - 31 -

     MMI’s business ledger corroborates the fact that petitioners

continued to receive funds from MMI after respondent issued MMI

the August 15, 1978, notice of levy.    MMI kept two accounts, and

MMI’s incomplete ledger, attached to the September 22, 1991,

letter between petitioners’ attorney David Shaughnessy and MMI’s

attorney Edward Rothman, indicates that one account is for the

$1,500 payments to respondent and the other account is for

payments to petitioners.   MMI’s business ledger covers a period

from November 1978 to February 1979.    MMI debited approximately

$340,000 on petitioners’ account after the August 15, 1978,

notice of levy.   MMI also credited petitioners’ account with

approximately $420,000 for the same period.

     In United States v. Barlow’s, Inc., 767 F.2d 1098 (4th Cir.

1985), the court found that the Commissioner’s failure to take

action against the third-party debtor after it defaulted on its

liability to the Commissioner weighed against the Commissioner.

In Cash v. United States, 961 F.2d at 567, the court held that

the Commissioner was not required to sell an account receivable

and could seek to collect the account receivable on his own,

which is what respondent sought to do in the instant case.    See

also secs. 6332(a), 6335(f).   Petitioners concede that respondent

did not abandon the collection of the account receivable.

Respondent was not able to reach MMI’s funds from the start of

MMI’s bankruptcy in March 1979 until the bankruptcy court ordered
                               - 32 -

a final distribution of funds in December 1999.    Respondent filed

several proofs of claim with the bankruptcy court to protect

respondent’s rights in that bankruptcy action and also pursued

petitioners’ other assets to satisfy their tax liability.

     Accordingly, we hold that the instant case is

distinguishable on its facts from Barlow’s, Inc., and that

respondent did not exercise dominion and control over the account

receivable.

     Petitioners contend that we have jurisdiction over their

1970 and 1971 Federal income tax years.    The notice of

determination was issued for petitioners’ 1971 tax year.     Since

petitioners’ notice of determination relates only to 1971, we may

consider only that year and not 1970 and 1972.    See Moorhous v.

Commissioner, 116 T.C. 263, 270-271 (2001).

     Petitioners contend that the central issue in the instant

case, whether the August 15, 1978, notice of levy issued to MMI

satisfied petitioners’ liability, was decided by the bankruptcy

court in DeHart v. United States, 50 Bankr. 685 (Bankr. M.D. Pa.

1985), and that the principles of res judicata bind us to the

decision in that case.

     Res judicata applies to prevent the “repetitious suits

involving the same cause of action.”    Commissioner v. Sunnen, 333

U.S. 591, 597 (1948).    The elements of res judicata are:

Identity of the parties, prior judgment by a court of competent
                                - 33 -

jurisdiction, final judgment on the merits, and the same cause of

action.   See Hambrick v. Commissioner, 118 T.C. 348, 351 (2002);13

see also Commissioner v. Sunnen, supra at 597 (quoting Cromwell

v. County of Sac, 94 U.S. 351, 352 (1877)).

     In DeHart v. United States, supra, the issue was whether the

United States was required to pursue petitioners’ assets to

satisfy the tax liability underlying the Commissioner’s claim,

which arose from the August 15, 1978, notice of levy, before

pursuing the bankruptcy estate’s assets to satisfy petitioners’

tax liability.   The bankruptcy court decided that the

Commissioner did not have to pursue petitioners’ assets before

seeking the assets of the bankruptcy estate to satisfy

petitioners’ tax liability.14   The causes of action in DeHart and


     13
      In Hambrick v. Commissioner, 118 T.C. 348, 351 (2002), we
observed:

     The general principle of res judicata is that once a court
     of competent jurisdiction has entered a final judgment on
     the merits of a cause of action, the parties to the suit and
     their privies are bound to each matter that sustained or
     defeated the claim, and as to any other matter that could
     have been offered for that purpose. * * *
     14
      In DeHart v. United States, 50 Bankr. 685, 688 (Bankr.
M.D. Pa. 1985), the bankruptcy court held:

     For these reasons we find that the doctrine of the
     marshalling of assets simply cannot be applied to the
     facts of this case. While we do not agree that there
     is a lack of equity in affording the Government a
     priority status in this case, we nonetheless realize
     that the estate, and more particularly the general
     creditors, do suffer a detriment by the IRS levy. We
     have determined that the plaintiff’s alternative
                                                   (continued...)
                              - 34 -

in the instant case are different and, accordingly, the

principles of res judicata do not apply in the instant case.    See

Hambrick v. Commissioner, supra at 351.

     Respondent contends that two cases have already addressed

the central issue in the instant case; i.e., whether the August

15, 1978, notice of deficiency satisfied petitioners’ 1971 tax

liability:   Enos v. DeHart, 217 Bankr. 457 (Bankr. M.D. Pa.

1997),15 and Enos v. United States, Civil Action No. 90-10178-WAG


     14
       (...continued)
      argument that the debtor should be subrogated to the
      position the IRS has, vis a vis, Enos should be
      afforded the debtor. We, therefore, determine that the
      facts of this case present a situation in which the
      debtor should be subrogated to the position held by the
      IRS pursuant to the levy. * * *
      15
      Enos v. DeHart, 217 Bankr. 457, 465 (Bankr. M.D. Pa.
1997), states:

           As was observed earlier, the Enoses are ultimately
      liable for the tax and the entire amount of unpaid
      interest on tax. Notwithstanding that conclusion, I
      recognize the Enoses may argue that by agreeing to
      payment terms with Metropolitan, the Internal Revenue
      Service exercised such control and dominion over the
      account receivable owing the Enoses by Metropolitan
      that the Internal Revenue Service may be required to
      credit the taxpayer for the full amount of the value of
      the receivable levied upon. Barlow’s, Inc. v. United
      States, 36 Bankr. 826, 829 (Bank. E.D. Va.), affd. 53
      Bankr. 986 (E.D. Va. 1984), affd. 767 F.2d 1098 (4th
      Cir. 1985). The impact of such a conclusion on the
      Enoses’ future liability would be pivotal.
      Nevertheless, in recognizing the Enoses’ overall
      liability to pay their taxes, including interest, I
      will take no position as to whether they would have any
      defenses to such claim. A finding as to the ultimate
      availability of various defenses by the Enoses to the
      Internal Revenue Service does not appear to be
                                                     (continued...)
                                - 35 -

(D. Mass. Sept. 26, 1994).    Respondent contends that the

principles of collateral estoppel require us to follow the

decisions in those cases.     Respondent first raised the issue of

collateral estoppel in respondent’s opening brief.    Rule 39

requires respondent to affirmatively plead collateral estoppel in

respondent’s answer to the petition.16    Respondent’s failure to

specifically plead the collateral estoppel issue in his answer or

in an amended or amendment to his answer constitutes a waiver of

the issue, and accordingly, we will not address the issue.      See

Rules 39, 41; see also Bonaire Dev. Co. v. Commissioner, 76 T.C.

789, 802-803 (1981), affd. 679 F.2d 159 (9th Cir. 1982);

Jefferson v. Commissioner, 50 T.C. 963, 966-967 (1968).

     Petitioners contend that they are entitled to an abatement

of interest that has accrued since 1977 on their 1971 tax

liability.     Petitioners failed to pay the taxes reported on their

1971 income tax return, and those taxes were only satisfied when



     15
       (...continued)
      necessary for the enforcement of the provisions of the
      Act, § 21a(15). 11 U.S.C. § 11(a)(15).
      16
          Rule 39 provides:

      Rule 39. Pleading Special Matters

           A party shall set forth in the party’s pleading any
      matter constituting an avoidance or affirmative defense,
      including res judicata, collateral estoppel, estoppel,
      waiver, duress, fraud, and the statute of limitations. A
      mere denial in a responsive pleading will not be sufficient
      to raise any such issue.
                               - 36 -

the bankruptcy trustee paid respondent in March 2000.

Accordingly, petitioners are not permitted to have the interest

on their unpaid income tax liability abated under section 6404.

See H. Conf. Rept. 99-841 (Vol. II), at II-811 (1986), 1986-3

C.B. (Vol. 4) 1, 811; see also sec. 6404(e); Downing v.

Commissioner, 118 T.C. 22, 30-31 (2002); Parikh v. Commissioner,

T.C. Memo. 2003-341.    Moreover, for the interest that accrued

after the payment from the bankruptcy trustee, there is no

evidence that the accrual of that interest was attributable to

respondent’s error or delay in performing a ministerial duty.

See sec. 6404(e); Katz v. Commissioner, 115 T.C. 329, 341 (2000);

Parikh v. Commissioner, supra.

     Petitioners contend that we have jurisdiction to hold MMI’s

bankruptcy trustee personally liable for wrongfully refusing to

surrender petitioners’ property during the pendency of the MMI

bankruptcy, pursuant to 31 U.S.C. secs. 191 and 192 and sections

6331 and 6332.   Respondent did not send MMI’s bankruptcy trustee

a notice of deficiency or any other type of determination over

which this Court has jurisdiction, and MMI’s bankruptcy trustee

is not a party to this case.    Accordingly, we lack jurisdiction

to decide this issue.    See generally Estate of Siegel v.

Commissioner, 67 T.C. 1033, 1040 (1977); Cincinnati Transit, Inc.

v. Commissioner, 55 T.C. 879, 882-883 (1971), affd. 455 F.2d 220

(6th Cir. 1972).
                              - 37 -

     We have considered all of the parties’ arguments and

contentions that are not discussed herein, and we conclude they

are without merit and/or irrelevant.17

     To reflect the foregoing,

                                      Decision will be entered for

                                 respondent.




     17
      The parties raise the issue of the applicable standard of
review. We need not decide the issue. See Washington v.
Commissioner, 120 T.C. 114 (2003). Moreover, we reject the
contention that we may rely only on evidence contained in
respondent’s administrative record in deciding the instant case.
See Robinette v. Commissioner, 123 T.C. 85 (2004).
