                               T.C. Memo. 2016-83



                        UNITED STATES TAX COURT



          ADITYA KRISHNAN AND SHAKTI SINGH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 29769-14L.                         Filed April 28, 2016.



      Aditya Krishnan and Shakti Singh, pro sese.

      Brenn C. Bouwhuis, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: The petition in this case was filed in response to a

Notice of Determination Concerning Collection Action(s) under Section 6320

and/or 6330 of the Internal Revenue Code dated November 14, 2014, upholding a

proposed collection action for tax years 2009, 2010, 2011, and 2013. Petitioners

do not dispute tax year 2013, and their petition addresses only tax years 2009-11
                                          -2-

[*2] (tax years at issue). We must consider whether respondent’s determination to

proceed with the collection action regarding petitioner’s unpaid income tax

liabilities for the tax years at issue was proper.1

      Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect at all relevant times, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                                FINDINGS OF FACT

      Petitioners were married and resided in California when they timely filed

the petition. Petitioner husband is a patent attorney.

      Petitioners originally filed separate income tax returns for each of the tax

years at issue. On the original returns filed for 2009 and 2010, petitioners each

claimed the filing status of “Single”. On the original return filed for 2011,

petitioners each claimed the filing status of “Married Filing Separately”.

      On or around August 14, 2012, and while petitioners’ returns were under

examination by respondent, petitioners submitted joint income tax returns for the

tax years at issue. On September 10, 2012, respondent assessed the tax petitioners




      1
      Respondent conceded the accuracy-related penalties pursuant to sec.
6662(a) as initially included in the collection action for the tax years at issue.
                                         -3-

[*3] reported as due on the submitted joint returns.2 Petitioners had not remitted

payment for these amounts.

      Shortly after the joint income tax returns were submitted, respondent

examined them and determined deficiencies in income tax. On November 6, 2012,

respondent issued petitioners a notice of deficiency for the tax years at issue. On

December 27, 2012, petitioners filed a petition and were assigned docket No.

31100-12. Docket No. 31100-12 was called for trial in San Francisco, California,

on January 27, 2014, and set for re-call later that day. During the re-call the

parties submitted a stipulated decision that was a full concession by petitioners for

the amounts of the deficiencies and penalties determined in the notice of

deficiency. The stipulated decision stated as follows:

      Pursuant to the agreement of the parties in this case, it is

      ORDERED and DECIDED: That there are deficiencies in income tax
      due from the petitioners for the taxable years 2009, 2010, and 2011 in
      the amounts of $34,602.00, $89,158.00, and $68,097.00 respectively;
      and

      That there are penalties due from the petitioners for the taxable years
      2009, 2010, and 2011 under the provisions of I.R.C. §6662(a) in
      amounts of $6,920.00, $17,831.00, and $13,619.00, respectively.




      2
        The amounts assessed did not include amounts previously assessed on
petitioner husband’s previously filed returns for the tax years at issue.
                                          -4-

[*4] A faxed copy of the stipulated decision was lodged with the Court. On

February 13, 2014, respondent mailed petitioners a letter attaching a clean copy of

the previously lodged stipulated decision and requested that petitioners return the

signed stipulated decision so that it could be filed with the Court. On March 10,

2014, the Court entered a fully executed stipulated decision in the case at docket

No. 31100-12. In accordance with the stipulated decision the deficiencies and

penalties were assessed for the tax years at issue. In July 2014 petitioners made

payments totaling the amounts of tax deficiencies and penalties agreed to in the

stipulated decision.

      On July 22, 2014, respondent sent petitioners a Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under IRC 6320 informing petitioners that

respondent had filed a notice of Federal tax lien (NFTL) regarding petitioners’

income tax liabilities for the 2009, 2010, 2011, and 2013 tax years. Petitioners

timely requested a collection due process hearing (CDP hearing).

      The CDP hearing was held over the telephone on November 5, 2014. At the

CDP hearing petitioners did not request any collection alternatives. On November

14, 2014, respondent issued petitioners a notice of determination sustaining the

collection action for the tax years at issue.
                                        -5-

[*5]                                 OPINION

       Section 6320(a)(1) requires the Secretary to provide written notice to a

taxpayer when the Secretary has filed an NFTL against the taxpayer’s property and

property rights. See secs. 6321, 6323. Additionally, the Secretary must notify the

taxpayer of his or her right to a CDP hearing. Sec. 6320(a)(3).

       The Federal Government obtains a tax lien against the property and rights to

property, whether real or personal, of a taxpayer with an outstanding tax liability

whenever a demand for payment has been made and the taxpayer neglects or

refuses to pay. Sec. 6321; Iannone v. Commissioner, 122 T.C. 287, 293 (2004).

       If the taxpayer requests a CDP hearing, the hearing is conducted before an

impartial officer or employee of the Appeals Office. Secs. 6320(b)(1), (3),

6330(b)(1), (3). At the hearing the taxpayer may raise any relevant issue relating

to the unpaid tax or the proposed collection action, including spousal defenses,

challenges to the appropriateness of the collection action, and offers of collection

alternatives. Secs. 6320(c), 6330(c)(2)(A).

       Following a CDP hearing the settlement officer must determine whether to

sustain the filing of the NFTL. In making that determination, the settlement

officer is required by section 6330(c)(3) to consider: (1) whether the requirements

of any applicable law or administrative procedure have been met; (2) any issues
                                        -6-

[*6] appropriately raised by the taxpayer; and (3) whether the collection action

balances 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.

Lunsford v. Commissioner, 117 T.C. 183, 184 (2001); Diamond v. Commissioner,

T.C. Memo. 2012-90, slip op. at 6-7; see also sec. 6320(c).

I.    Standard of Review

      Once the Commissioner issues a notice of determination, the taxpayer may

seek review in this Court. Sec. 6330(d)(1). Where the validity of the underlying

tax liability is properly in issue, we review that matter de novo. Sego v.

Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,

181-182 (2000). A taxpayer may challenge the underlying tax liability during a

CDP hearing if he or she did not receive a statutory notice of deficiency for such

liability or did not otherwise have the opportunity to dispute such liability. Sec.

6330(c)(2)(B); see also Montgomery v. Commissioner, 122 T.C. 1, 9-10 (2004).

      The Court reviews administrative determinations by the Appeals Office

regarding nonliability issues for abuse of discretion. Hoyle v. Commissioner, 131

T.C. 197, 200 (2008); Goza v. Commissioner, 114 T.C. at 182. In determining

abuse of discretion, we consider whether the determination was arbitrary,

capricious, or without sound basis in fact or law. See, e.g., Murphy v.
                                        -7-

[*7] Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006);

Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

      We have held that “it is reasonable to interpret the term ‘underlying tax

liability’ as a reference to the amounts that the Commissioner assessed for a

particular tax period.” Montgomery v. Commissioner, 122 T.C. at 7. Thus,

“ ‘underlying tax liability’ may encompass an amount assessed following the

issuance of a notice of deficiency under section 6213(a), an amount ‘self-assessed’

under section 6201(a), or a combination of such amounts.” Id. at 7-8.

      The plain language of section 6330(c)(2)(B) bars a taxpayer who has

received a notice of deficiency from challenging his or her underlying tax liability

for that year (whether the liability was determined by the taxpayer or the

Commissioner) in a collection review proceeding inasmuch as the person was

afforded a prior opportunity to challenge such liability under the deficiency

procedures. See id. at 8.

      Petitioners submitted joint returns for the tax years at issue, and these

returns show taxes due to be paid. Petitioners made no payment with respect to

these returns. Respondent examined these returns and issued a notice of

deficiency. After receiving the notice of deficiency petitioners filed a petition, and

the case was concluded with a stipulated decision.
                                          -8-

[*8] At the Appeals Office hearing and at trial, petitioners argued only that the

stipulated decision covered the total tax liability for the tax years at issue.

Petitioners could have challenged the tax liabilities they reported for the tax years

at issue when they filed their petition in the deficiency case. It would therefore

appear that petitioners had a prior opportunity to contest the underlying liabilities

and are precluded from challenging them here by section 6330(c)(2)(B).

However, respondent conceded that petitioners were entitled to challenge their

underlying liabilities pertaining to the amounts of tax they reported on the joint

income tax returns for the years at issue. We do not decide whether to accept

respondent’s concession regarding underlying liability because petitioners are not

successful even if underlying liability is at issue. Provided below is a brief

analysis regarding why petitioners would not be successful even if the underlying

liabilities were reviewed de novo.

      Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that those

determinations are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933). The taxpayer likewise bears the burden of proving his entitlement to

deductions allowed by the Code and of substantiating the amounts of items

underlying claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
                                        -9-

[*9] 84 (1992); sec. 1.6001-1(a), Income Tax Regs. Under section 7491(a), in

certain circumstances the burden of proof may shift from the taxpayer to the

Commissioner. Petitioners have not claimed or shown that they meet the

requirements of section 7491(a) to shift the burden of proof to respondent as to

any relevant factual issue. The burden of proof remains with petitioners.

      Section 162(a) allows a deduction for ordinary and necessary expenses that

a taxpayer pays in connection with the operation of a trade or business. If a

taxpayer establishes that an expense is deductible, but is unable to substantiate the

precise amount, the Court may estimate the amount, bearing heavily against the

taxpayer whose inexactitude is of his own making. See Cohan v. Commissioner,

39 F.2d 540, 543-544 (2d Cir. 1930). The taxpayer must present sufficient

evidence for the Court to form an estimate because without such a basis, any

allowance would amount to unguided largesse. Williams v. United States, 245

F.2d 559, 560-561 (5th Cir. 1957).

      Petitioners did not specifically identify which amounts reported as income

or expenses on the joint returns they intended to challenge. Additionally, they did

not produce any substantiating documents or other evidence to support reducing

the income reported or to substantiate additional deductions. Petitioners did not

demonstrate that the assessments resulting from the amounts of tax they reported
                                        - 10 -

[*10] on the joint returns should be reduced or abated for any of the tax years at

issue. Accordingly, even under de novo review petitioners do not prevail.

Therefore, the standard of review is abuse of discretion. See Goza v.

Commissioner, 114 T.C. at 182.

II.   Abuse of Discretion

      We note that the settlement officer properly based her determination on the

required factors. The settlement officer (1) verified that all legal and procedural

requirements had been met, (2) considered the issues petitioner raised, and (3)

determined that the collection action appropriately balanced the need for the

efficient collection of taxes with the legitimate concern of petitioner that the

collection action be no more intrusive than necessary.

      Petitioners have not advanced arguments or presented evidence allowing us

to conclude that the determination to sustain the collection action was arbitrary,

capricious, or without sound basis in fact or otherwise an abuse of discretion. See

Giamelli v. Commissioner, 129 T.C. 107, 112 (2007). Petitioners also did not

provide any collection alternatives. We conclude that there was no abuse of

discretion.
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[*11] III.       Settlement Argument

       Petitioners contend that the stipulated decision in docket No. 31100-12 was

a global settlement for all of their tax liabilities for the tax years at issue, including

the amounts they reported. Respondent contends that the stipulated decision was

only for deficiencies and penalties and that their original reported return amounts

are still due.

       Reviewing the stipulated decision document and the record from the case at

docket No. 31100-12, it is clear that the stipulated decision did not relieve

petitioners of their liability for the amounts reported on their returns and that those

amounts are still due. See sec. 6211(a). The stipulated decision is a judgment on

the merits for purposes of res judicata, and petitioners are precluded from

relitigating those amounts in this proceeding. See Commissioner v. Sunnen, 333

U.S. 591 (1948); Baker v. IRS, 74 F.3d 906, 910 (9th Cir. 1996); Goodman v.

Commissioner, T.C. Memo. 2006-220. Furthermore, liability for the reported

amounts could have been raised during the prior proceeding. Res judicata also

applies to other admissible matters which might have been offered. See

Commissioner v. Sunnen, 333 U.S. at 597.
                                       - 12 -

[*12]         Any contentions we have not addressed are irrelevant, moot, or

meritless.

        To reflect the foregoing,


                                                An appropriate decision will be

                                       entered.
