                         T.C. Memo. 2006-7



                      UNITED STATES TAX COURT



          CLAUDE E. AND DANA L. SALAZAR, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2203-05L.            Filed January 18, 2006.


     Jeremy H. Speich and Vincent L. Valenza, for petitioners.

     Diana P. Hinton, for respondent.



                        MEMORANDUM OPINION


     MARVEL, Judge:   This matter is before the Court on

respondent’s motion to dismiss for lack of jurisdiction and to

strike as to Mr. Salazar’s employment tax liabilities for the

quarters ended December 1998 through June 2001 on the grounds

that (1) respondent never issued a notice of determination
                               - 2 -

concerning a collection action under section 63301 with respect

to the employment tax liabilities, and (2) the Tax Court does not

have jurisdiction over Mr. Salazar’s employment tax liabilities.

                            Background

     Petitioners resided in Nassau, New York, when their petition

was filed.

     From April 1995 until at least sometime in 2001, petitioners

operated a sole proprietorship, Artistic Nature.2   In January

2001, petitioners filed a chapter 7 bankruptcy petition.     On July

25, 2002, the U.S. Bankruptcy Court discharged petitioners from

all dischargeable debts.   However, at the time of the hearing in

the instant case on respondent’s motion to dismiss, petitioners

had not yet received a final accounting and distribution3 from

the U.S. Trustee.

     On a date that does not appear in the record, petitioners

received a Notice of Intent To Levy and Notice of Your Right to a




     1
      All section references are to the Internal Revenue Code in
effect at the time the petition was filed.
     2
      Although both petitioners operated the business, the
employment tax liabilities appear in Mr. Salazar’s name only, and
we address them as such here.
     3
      Petitioners anticipate receiving a distribution of
approximately $20,000 from the U.S. Trustee after fees and
expenses.
                               - 3 -

Hearing from respondent.4   On December 16, 2003, petitioners

filed a Form 12153, Request for a Collection Due Process Hearing,

with respect to their unpaid employment and income tax

liabilities for the years 1997 through 2001.   On their Form

12153, petitioners requested additional time to enable the U.S.

Trustee to complete the final accounting regarding the bankruptcy

estate and to make final distribution in the bankruptcy case.

Petitioners intend to apply any distribution they receive to

their outstanding tax liabilities.

     On or about May 10, 2004, petitioners sent a completed Form

656, Offer in Compromise, to respondent, offering to compromise

specified Federal tax liabilities for $9,024.25.    The offer-in-

compromise covered petitioners’ income tax liabilities for 1997,

1998, and 1999 and Mr. Salazar’s employment tax liabilities for

the quarters ending December 31, 1998, through September 30,

1999, and March 31, 2000, through June 30, 2001.5

     By letter dated May 14, 2004, respondent scheduled

petitioners’ Appeals Office hearing for June 3, 2004.    According




     4
      The record does not indicate for which of petitioners’ tax
liabilities the notice of intent to levy was sent.
     5
      Petitioners contend that they offered to compromise Mr.
Salazar’s unpaid employment tax liabilities for all quarters
ending Dec. 31, 1998, through June 30, 2001. However,
petitioners did not include the quarter ended Dec. 31, 1999, on
the Form 656, Offer in Compromise, they submitted.
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to the letter, only petitioners’ 1997-99 income tax liabilities

were at issue.

     The record does not indicate whether the parties met on June

3, 2004.   From June 16 through December 3, 2004, however,

petitioners’ counsel and respondent’s counsel exchanged several

letters and extensive documentation relating to petitioners’

offer-in-compromise.   By letter dated November 8, 2004,

respondent informed petitioners’ counsel that petitioners must

increase their offer-in-compromise by the amount of the

prospective bankruptcy distribution in order to protect

respondent’s interest in the distribution proceeds.   By letter

dated November 22, 2004, petitioners’ counsel objected to an

increase in the offer-in-compromise and instead offered to

execute an agreement assigning petitioners’ future rights to the

prospective distribution to respondent.

     On January 4, 2005, respondent rejected petitioners’ offer-

in-compromise and issued a Notice of Determination Concerning

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

determination) sustaining the proposed levy action with respect

to petitioners’ 1997, 1998, and 1999 income tax liabilities.6     On



     6
      Attached to the notice of determination in the record are
two rejection letters from respondent. One letter rejects the
offer-in-compromise for the years 1997, 1998, and 1999. The
other rejects the offer for the quarters ending December 1998
through June 2001. However, the notice of determination covers
only the income tax liabilities for years 1997, 1998, and 1999.
                                 - 5 -

February 3, 2005, the petition in this case was filed.     In the

petition, petitioners contended that respondent’s rejection of

their offer to compromise both their delinquent income tax

liabilities and Mr. Salazar’s employment tax liabilities was an

abuse of discretion.

                              Discussion

     Section 6330(a) provides that no levy may be made on any

property or right to property of any person unless the Secretary

has notified such person in writing of the right to a hearing

before the levy is made.     If the person makes a timely request

for a hearing, a hearing shall be held by the Internal Revenue

Service Office of Appeals (Appeals Office).     Sec. 6330(b)(1).

     When the Appeals Office issues a notice of determination to

a taxpayer following a section 6330 hearing, the taxpayer has 30

days following the issuance of the notice to file a petition for

review of the determination with the Tax Court or, if the Tax

Court lacks jurisdiction over the underlying tax liability, with

a Federal District Court.     Sec. 6330(d).   If a court determines

that the taxpayer appealed to an incorrect court, the taxpayer

will have 30 days after such determination to file an appeal with

the correct court.     Id.

     This Court is a court of limited jurisdiction, and it may

exercise its jurisdiction only to the extent authorized by

Congress.   Sec. 7442; Moore v. Commissioner, 114 T.C. 171, 175
                               - 6 -

(2000); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).     This

Court generally has deficiency jurisdiction over income, gift,

and estate tax cases.   See secs. 6211(a), 6213(a), 6214(a);

Downing v. Commissioner, 118 T.C. 22, 27 (2002); Van Es v.

Commissioner, 115 T.C. 324, 328 (2000).   For purposes of section

6330(d), this Court may have jurisdiction over an underlying

liability for income, estate, or gift tax even when no deficiency

has been determined.    Montgomery v. Commissioner, 122 T.C. 1, 7-8

(2004); Downing v. Commissioner, supra at 27-28; Landry v.

Commissioner, 116 T.C. 60, 62 (2001).   However, the Court’s

jurisdiction over collection matters under section 6330(d)(1) is

limited to the types of tax over which it normally has

jurisdiction.   See Van Es v. Commissioner, supra at 328-329;

Moore v. Commissioner, supra at 175.

     Section 7436(a) confers jurisdiction over employment tax

liabilities on this Court, but the Court’s jurisdiction is

limited to controversies involving a worker’s employment status.7

See Charlotte’s Office Boutique v. Commissioner, 121 T.C. 89,

102-103 (2003), supplemented by T.C. Memo. 2004-43, affd. 425

F.3d 1203 (9th Cir. 2005); Ewens & Miller, Inc. v. Commissioner,

117 T.C. 263, 267 (2001).   Respondent argues that this Court

lacks jurisdiction over Mr. Salazar’s employment tax liabilities


     7
      Sec. 7436(a) was amended by the Consolidated Appropriations
Act of 2001, Pub. L. 106-554, sec. 314(f), 114 Stat. 2763A-643,
to confer such jurisdiction.
                               - 7 -

because respondent did not issue a notice of determination

regarding the unpaid employment tax liabilities and because there

is no dispute over employment status.    Respondent also argues

that he did not make a determination concerning employment

status.   We agree with respondent.

     It is undisputed that petitioners did not receive a formal

notice of determination from respondent with respect to Mr.

Salazar’s employment tax liabilities.    Petitioners argue,

however, that respondent’s January 4, 2005, rejection letter

addressing petitioners’ offer-in-compromise for the employment

tax periods, which was sent in the same envelope as the notice of

determination for the income tax liabilities, is sufficient to

constitute a determination with respect to the employment tax

liabilities for purposes of section 6330.    Alternatively,

petitioners contend that respondent should be compelled to issue

a notice of determination with respect to Mr. Salazar’s

employment tax liabilities because petitioners included those

liabilities in their request for a section 6330 hearing.

     Under section 6330(c)(2)(A), a taxpayer may raise at a

section 6330 hearing any relevant issue relating to the unpaid

tax or the proposed levy, including appropriate spousal defenses,

challenges to the appropriateness of collection action, and

offers of collection alternatives.     Under some circumstances, a

taxpayer may also challenge the existence or amount of the
                               - 8 -

underlying tax liability.   Sec. 6330(c)(2)(B).   After the

hearing, the Appeals officer who presided over the hearing is

required to issue a notice of determination that must set forth

the officer’s findings and decisions, including the following:

     [The Notice of Determination] will state whether the
     IRS met the requirements of any applicable law or
     administrative procedure; it will resolve any issues
     appropriately raised by the taxpayer relating to the
     unpaid tax; it will include a decision on any
     appropriate spousal defenses raised by the taxpayer; it
     will include a decision on any challenges made by the
     taxpayer to the appropriateness of the collection
     action; it will respond to any offers by the taxpayer
     for collection alternatives; and it will address
     whether the proposed collection action represents a
     balance between the need for the efficient collection
     of taxes and the legitimate concern of the taxpayer
     that any collection action be no more intrusive than
     necessary. The Notice of Determination will also set
     forth any agreements that Appeals reached with the
     taxpayer, any relief given the taxpayer, and any
     actions the taxpayer or the IRS are required to take.
     Lastly, the Notice of Determination will advise the
     taxpayer of the taxpayer’s right to seek judicial
     review within 30 days of the date of the Notice of
     Determination.

Sec. 301.6330-1(e)(3), Q&A-E8, Proced. & Admin. Regs.    In

deciding whether we have jurisdiction over a proceeding filed

pursuant to section 6330, we have held that a notice of

determination includes a “written notice that embodies a

determination to proceed with the collection of the taxes in

issue.”   Sapp v. Commissioner, T.C. Memo. 2003-207 (citing

Lunsford v. Commissioner, 117 T.C. 159, 164 (2001)); see also

Craig v. Commissioner, 119 T.C. 252, 259 (2002).
                              - 9 -



     Respondent’s rejection letter addressing Mr. Salazar’s

employment tax liabilities does not include the information that

a notice of determination is required to include.    See sec.

301.6330-1(e)(3), Q&A-E8, Proced. & Admin. Regs.    For example,

the letter does not address the requirements of applicable law or

administrative procedure, the balance between the efficient

collection of taxes and the intrusiveness of the proposed levy,

or any appellate procedure available to petitioners.    The

rejection letter also fails to state that respondent intends to

proceed with the collection of taxes in issue.   The letter simply

rejects petitioners’ offer-in-compromise and requests that

petitioners voluntarily pay their account in full.    We conclude,

therefore, that the rejection letter is not a notice of

determination for purposes of section 6330 and that we lack

jurisdiction over petitioners’ claim regarding Mr. Salazar’s

employment tax liabilities under section 6330.

     Section 7436(a), which gives us limited jurisdiction over

employment tax disputes regarding a worker’s employment status,

does not solve the jurisdictional problem that petitioners

present, nor does it serve as an independent basis for asserting

jurisdiction over Mr. Salazar’s employment tax liabilities.     The

issue raised in the petition does not involve any dispute

regarding employment status, and respondent has not made a
                              - 10 -

determination concerning employment status.    Consequently, we do

not have jurisdiction under section 7436(a).

     Petitioners argue that we nevertheless should assert

jurisdiction over Mr. Salazar’s collection dispute involving his

employment tax liabilities because we did so in another case

involving an offer-in-compromise for employment tax liabilities.

In Collier v. Commissioner, T.C. Memo. 2004-171, the taxpayer

wanted to submit an offer-in-compromise for unpaid income tax

liabilities for several years in issue.   However, the

Commissioner concluded that the taxpayer was precluded from

pursuing an offer because the taxpayer was noncompliant in filing

his employment tax returns and in paying his employment tax

liabilities as required by the Internal Revenue Manual.     Id.

Consistent with other cases addressing similar facts, we held

that the Commissioner’s decision not to process an offer-in-

compromise because the taxpayer had not filed all required tax

returns is not an abuse of discretion.    Id.; see also Rodriguez

v. Commissioner, T.C. Memo. 2003-153; Londono v. Commissioner,

T.C. Memo. 2003-99.

     Petitioners’ reliance on Collier is misplaced because the

facts are distinguishable.   The taxpayer in Collier wanted to

compromise only his unpaid income tax liabilities; he was not

trying to compromise any employment tax liabilities.     Collier v.

Commissioner, supra.   The Appeals officer in Collier refused to
                               - 11 -

consider any compromise of the taxpayer’s income tax liabilities

because the taxpayer had not filed all of his returns as required

by the Internal Revenue Manual.8   We upheld the Appeals officer’s

determination.   Id.   In this case, petitioners’ offer-in-

compromise included all of petitioners’ unpaid Federal tax

liabilities, including Mr. Salazar’s employment tax liabilities,

and there is no suggestion in the record that petitioners had

failed to file required returns when the Appeals officer

considered the offer and rejected it on its merits.

     Although petitioners are unable to cite a statute that

confers jurisdiction on this Court over Mr. Salazar’s employment

tax liabilities, they nevertheless argue that we should hear

their case as a matter of convenience and equity because,

otherwise, they must litigate their case in two different forums.

Although petitioners raise a legitimate concern,9 we do not



     8
      In fact, the taxpayer in Collier v. Commissioner, T.C.
Memo. 2004-171, did not actually submit an offer-in-compromise.
     9
      Ironically, if petitioners had submitted an offer-in-
compromise covering only their income tax liabilities, the offer
very likely would have been summarily rejected under the
Service’s existing procedures because an offer-in-compromise must
include all unpaid Federal tax liabilities for it to be
processed. See Rev. Proc. 2003-71, 2003-2 C.B. 517; 1
Administration, Internal Revenue Manual (CCH), sec. 5.8.1.7, at
16,256 (Sept. 1, 2005). Ideally, a taxpayer’s exercise of his
rights under sec. 6330 should not subject him to multiple
judicial proceedings in order to obtain a complete review of the
Service’s decision to reject the taxpayer’s offer-in-compromise.
However, this is what must happen under current law in cases like
the one before us.
                              - 12 -

acquire jurisdiction based on convenience to the parties or

judicial economy.   See Trost v. Commissioner, 95 T.C. 560, 565

(1990); Judge v. Commissioner, 88 T.C. 1175, 1180-1181 (1987).

Accordingly, we shall grant respondent’s motion to dismiss for

lack of jurisdiction and to strike with respect to Mr. Salazar’s

employment tax liabilities for quarters ended December 31, 1998,

through June 30, 2001.

     To reflect the foregoing,


                                              An appropriate order

                                         will be issued.
