                                T.C. Memo. 2012-151



                          UNITED STATES TAX COURT



                 GUILLERMO GONZALEZ, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20576-10L.                          Filed May 29, 2012.



      Guillermo Gonzalez, pro se.

      Jeffrey D. Heiderscheit, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


      COHEN, Judge: This case was commenced under sections 6320(c) and

6330(d) in response to a notice of determination sustaining the filing of a notice of

Federal tax lien to secure petitioner’s unpaid Federal income tax liabilities for 1996,

1997, and 1999. The issue for decision is whether there was an abuse of discretion
                                         -2-

by the Internal Revenue Service in sustaining the filing of the lien. All section

references are to the Internal Revenue Code.

                                FINDINGS OF FACT

       Some of the facts have been stipulated, and the stipulated facts are

incorporated in our findings by this reference. Petitioner resided in Texas when he

filed his petition.

       During 1996 through 1999 petitioner operated numerous businesses and

owned multiple commercial properties. Petitioner failed to file timely his Federal

income tax returns for 1996, 1997, and 1999. In early 2001 the Internal Revenue

Service commenced an examination of petitioner’s liability for 1998, which

expanded to 1996, 1997, and 1999 when petitioner’s failure to file returns for those

years was discovered. The examination was conducted by Revenue Officer Joel

Resendez. Petitioner was initially aided in relation to the examination by a notary

public, Lorenzo Lopez.

       Lopez sat down on numerous occasions with Resendez, and the two of them

worked diligently in reviewing canceled checks and invoices to determine expenses

properly allocated to various rental properties and businesses. Resendez

reconstructed income using information provided by petitioner and prepared but

unfiled tax returns for 1996 and 1997. Resendez also met with petitioner and
                                             -3-

discussed with him various unsuccessful business ventures, including one involving

a convention center. Resendez told petitioner that because of the inadequate

records it was necessary to reconstruct both income and expenses. Resendez

explained his methodology, his findings, and petitioner’s options if he did not agree

with the findings of the examination. Because petitioner primarily spoke Spanish

and Resendez was fluent in Spanish, the explanations were given to petitioner in

Spanish.

       Before the examination was completed, Lopez left Texas because of personal

problems. Lopez took with him some of petitioner’s documents.

       Resendez prepared Forms 4549, Income Tax Examination Changes, for 1996,

1997, and 1999. Petitioner signed the Form 4549 for 1999 on July 12, 2002, and

the Form 4549 for 1996 and 1997 on September 25, 2002.

       Petitioner did not pay the income tax shown on the Forms 4549. On

September 20, 2005, petitioner submitted an offer-in-compromise for his tax

liabilities and statutory additions to tax for 1995 through 2002. On February 7,

2006, the offer-in-compromise was rejected because a revenue officer determined

that petitioner could pay his liabilities in full.
                                            -4-

      On March 13, 2008, a Notice of Federal Tax Lien Filing And Your Right To

A Hearing Under IRC 6320 was sent to petitioner with respect to 1996, 1997, and

1999. Petitioner filed a Form 12153, Request for a Collection Due Process or

Equivalent Hearing. A hearing was held on October 28, 2009. Petitioner and his

then representative disputed the underlying liabilities and discussed collection

alternatives. Petitioner was told that collection alternatives could not be considered

until he submitted financial information.

      On November 6, 2009, petitioner submitted amended returns on Forms

1040X, Amended U.S. Individual Income Tax Return, for 1996, 1997, and 1999.

The returns were reviewed by the Internal Revenue Service Office of Appeals, but

they were not accepted because of the absence of substantiating documents.

      After reviewing the financial information submitted by petitioner, the Appeals

settlement officer concluded that petitioner had $304,908 in equity and could pay

the $239,191.89 then-outstanding tax liability. In a notice of determination sent

August 19, 2010, the filing of the lien was sustained.

                                      OPINION

      Section 6321 imposes a lien in favor of the United States on all property and

property rights of a taxpayer liable for taxes after a demand for the payment of the

taxes has been made and the taxpayer fails to pay. The lien arises when the
                                          -5-

assessment is made. See sec. 6322. The IRS files a notice of Federal tax lien to

preserve priority and put other creditors on notice. See sec. 6323. Section 6320(a)

requires the Secretary to send written notice to the taxpayer of the filing of a notice

of lien and of the taxpayer’s right to an administrative collection due process (CDP)

hearing on the matter. The hearing generally shall be conducted consistent with

procedures set forth in section 6330(c), (d), (e), and (g). See sec. 6320(c).

      Under section 6330(c)(2)(A) a taxpayer may raise any relevant issue at a

CDP hearing, including “challenges to the appropriateness of collection actions”,

and may make “offers of collection alternatives, which may include the posting of a

bond, the substitution of other assets, an installment agreement, or an offer-in-

compromise.” A taxpayer is expected to provide all relevant information requested

by the Appeals Office for its consideration of the facts and issues involved in the

hearing. See secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin. Regs.

      Challenges to the underlying tax liability may be raised during the CDP

hearing only where the taxpayer did not receive a notice of deficiency or otherwise

have an opportunity to dispute such liability. See sec. 6330(c)(2)(B). To dispute

the underlying liability, a taxpayer must properly raise the merits of the underlying
                                         -6-

liability as an issue during the CDP hearing. See Giamelli v. Commissioner, 129

T.C. 107, 112-116 (2007); sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin.

Regs. The merits are not properly raised if the taxpayer challenges the underlying

tax liability but fails to present the Appeals Office with any evidence with respect to

that liability after being given reasonable opportunity to present such evidence. See

sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.

      For purposes of section 6330(c)(2)(B), a taxpayer who has waived the right to

challenge the proposed assessments by signing Form 4549 is deemed to have had

the opportunity to dispute the underlying tax liability and is precluded by that waiver

from challenging the underlying tax liability in the CDP hearing or before this Court.

Aguirre v. Commissioner, 117 T.C. 324, 327 (2001); see also Lance v.

Commissioner, T.C. Memo. 2009-129.

      Petitioner contended during the administrative proceedings and in the petition

in this case that he should not be bound by the Forms 4549 that he signed because

he did not understand English, did not know his rights, and was pressured to sign

the forms. The Appeals settlement officer considered that claim and learned that the

examiner, Resendez, had communicated with petitioner in Spanish. Nonetheless,

she also considered the amended returns but did not accept them because of the

absence of substantiating documents.
                                          -7-

      Petitioner testified at trial through an interpreter, but he did not contend that

he could not understand explanations that Resendez gave him. His testimony

repeated claims of losses that had been considered by Resendez and by the Appeals

settlement officer but were disallowed to the extent that they were not substantiated.

Petitioner claims various losses in general terms, but he admits that he lacks any

documentation not previously provided to Resendez or to the Appeals settlement

officer. Even if petitioner were entitled to dispute the underlying liabilities, his

testimony would be insufficient to overturn the results of the examination as

reflected in the Forms 4549 that he signed.

      Resendez testified that he had conversations with petitioner in Spanish

throughout the course of the examination, that he explained his findings and how

they were derived, and that he explained petitioner’s alternatives to signing the

Forms 4549. Petitioner did not contradict Resendez’s testimony.

      Where the underlying liabilities are neither properly in issue nor successfully

challenged, we review the determination of the Office of Appeals for abuse of

discretion, to wit, we decide whether the determination was arbitrary, capricious, or

without sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C.

301, 313, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999). Petitioner has not shown that the
                                          -8-

determination of his ability to pay is erroneous or that sustaining the lien filing was

arbitrary, capricious, without sound basis in fact or law, or otherwise an abuse of

discretion. To the contrary, this is a case where the lien appears necessary to secure

the interests of the Government.

      For the foregoing reasons, the notice of determination will be sustained and


                                                   Decision will be entered for

                                            respondent.
