                         T.C. Memo. 2004-87



                       UNITED STATES TAX COURT



          GERALD L. AND JESSICA P. FREY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2703-03L.             Filed March 26, 2004.



     Gerald L. and Jessica P. Frey, pro sese.

     Veena Luthra, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Petitioners filed the petition in this case

in response to a notice of determination concerning collection

action(s) under section 6320 and/or 6330 (notice of

determination).

     We must decide whether respondent abused respondent’s

discretion in determining to proceed with the collection action
                               - 2 -

as determined in the notice of determination with respect to

petitioners’ taxable years 1996, 1997, and 1999.    We hold that

respondent did not abuse respondent’s discretion.

                         FINDINGS OF FACT

     Many of the facts have been stipulated and are so found.

     Petitioners resided in Newport News, Virginia, at the time

they filed the petition in this case.

     During 1996, petitioner Gerald L. Frey (Mr. Frey) received

wages of $37,849.88 from Blackhawk Industries, Inc. (Blackhawk

Industries), and petitioner Jessica P. Frey (Ms. Frey) received

wages totaling $20,799.48 from Smithfield Apartments Corp.

(Smithfield Apartments) and Bailey Enterprises, Inc. (Bailey

Enterprises).   During 1997, Mr. Frey received wages of $45,961

from Blackhawk Industries, and Ms. Frey received wages totaling

$21,998 from Smithfield Apartments and Bailey Enterprises.

During 1999, Mr. Frey received wages totaling $35,630.92 from the

Virginia Department of Transportation (Virginia Transportation

Department), Employment Services, Inc. (ESI), and ECPI College of

Technology (ECPI College) and unemployment compensation of

$1,596.

     Although Mr. Frey received wages during the years at issue

as well as unemployment compensation during 1999 and Ms. Frey

received wages during 1996 and 1997, petitioners did not report

such wages and unemployment compensation in any Federal income
                                - 3 -

tax return (return) that they submitted to the Internal Revenue

Service (IRS).

     On or about August 17, 1998, respondent prepared a

substitute for return for petitioners’ taxable year 1996.

     On October 30, 1998, respondent issued a notice of

deficiency to petitioners with respect to their taxable year

1996.    In that notice, respondent determined that for 1996

petitioners had a deficiency of $6,332, an addition to Federal

income tax (tax) under section 6651(a)(1)1 of $729.22, an

addition to tax under section 6651(a)(1) and (2) of $421.33, and

an addition to tax under section 6654 of $156.    Petitioners did

not file a petition in the Court with respect to the notice of

deficiency relating to their taxable year 1996.

     On June 7, 1999, respondent assessed petitioners’ tax of

$6,332, as well as additions to tax under sections 6651(a)(1) and

(2) and 6654 totaling $1,306.55 and interest as provided by law

of $751.08, for their taxable year 1996.    (We shall refer to

those assessed amounts, as well as any interest as provided by

law accrued after June 7, 1999, as petitioners’ unpaid liability

for 1996.)

     On June 7, 1999, respondent issued to petitioners a notice

of balance due with respect to petitioners’ unpaid liability for


     1
      All section references are to the Internal Revenue Code in
effect at all relevant times.
                                - 4 -

1996.

     On November 22, 1999, respondent received from petitioners

Form 1040, U.S. Individual Income Tax Return, for their taxable

year 1996 (1996 Form 1040).    The 1996 Form 1040 that petitioners

submitted to the IRS did not contain petitioners’ original

signatures but contained copies of petitioners’ signatures dated

November 1, 1999.   In their 1996 Form 1040, petitioners reported

total income of $0, total tax of $0, and claimed a refund of

$3,839.28 of tax withheld.    Petitioners attached to their 1996

Form 1040 respective Forms W-2, Wage and Tax Statements (Forms W-

2), issued by Blackhawk Industries, Smithfield Apartments, and

Bailey Enterprises showing wages, tips, and other compensation

totaling $58,649.36.   Petitioners also attached to their 1996

Form 1040 a document (petitioners’ attachment to their 1996 Form

1040), which stated in pertinent part:

     I, Gerald L and Jessica P Frey, am submitting this as
     part of my 1996 income tax return, even though I know
     that no section of the Internal Revenue Code:

     1)   Establishes an income tax “liability” as, for
          example, Code Sections 4401, 5005, and 5703 due
          with respect to wagering, alcohol, and tobacco
          taxes;

     2)   Provides that income taxes “have to be paid on the
          basis of a return” - as, for example, Code
          Sections 4374, 4401(c), 5061(a) and 5703(b) do
          with respect to other taxes; I am filing anyway
          because I know the government has prosecuted
          others for failing to file income tax returns by
          (erroneously) invoking Code Sections 7201 and
          7203. Therefore, this return is not being filed
          voluntarily but is being filed out of fear that if
                         - 5 -

     I did not file this return I could also be
     (illegally) prosecuted for failure to file an
     income return for the year 1996.

3)   In addition to the above, I am filing even though
     the “Privacy Act Notice” as contained in a 1040
     booklet clearly informs me that I am not required
     to file. It does so in at least two places.

     a)   In one place, it states that I need only file
          a return for “any tax” I may be “liable” for.
          Since no Code Section makes me “liable” for
          income taxes, this provision notifies me that
          I do not have to file an income tax return.

     b)   In another place, it directs me to Code
          Section 6001. This section provides, in
          relevant part, that “Whenever in the judgment
          of the Secretary it is necessary, he may
          require any person by notice served on such
          person; or by regulations, to make such
          returns, render such statements, or keep such
          records, as the Secretary deems sufficient to
          show whether or not such person is liable for
          the tax under this title.” Since the
          Secretary of the Treasury did not “serve” me
          with any such “notice” and since no
          legislative regulation exists requiring
          anyone to file an income tax return, I am
          again informed by the “Privacy Act Notice”
          that I am not required to file an income tax
          return.

4)   With respect to the information I included in my
     return, I wish to point out that the courts have
     ruled that: “A (1040) form with ‘zeros’ inserted
     in the space provided...qualified as a return.”
     See U.S. v. Long, 618 F 2d 74 (9th Cir. 1980),
     U.S. v. Kimball, 896 F.2d 1218 (9th Cir. 1990)
     U.S. v. Moore, 627 F.2d 830 (7th Cir. 1980), and a
     Las Vegas bankruptcy court held that “Zeroes
     entered on a Form 1040 constitutes a return.”
     Cross v. U.S., 91-2 USTC p. 50,318, Banker. L. Rep
     p. 7404.

5)   Please note that my 1996 return also constitutes a
     claim for refund pursuant to Code Section 6402.
                             - 6 -

6)       It should also be noted that I had “zero” income
         according to the Supreme Court’s definition of
         income (See Note #1) * * * since I had no earnings
         in 1996, that would have been taxable as “income”
         under the Corporation Excise Tax Act of 1909, I
         can only swear to having “zero” income in 1996.
         Obviously, since I know the legal definition of
         “income”, if I were to swear to having received
         any other amount of “income,” I would be
         committing perjury under both 18 U.S.C. 1621 and
         U.S.C. 7206. Therefore, not wishing to commit
         perjury under either statute, I can only swear to
         have “zero” income for 1996.

7)       I am also putting the IRS on notice that my 1996
         tax return and claim for refund can not be
         considered “frivolous” on any basis - pursuant to
         Code Section 6702. For one thing, there is no
         statute that requires me to make a “self-
         assessment.” Therefore, how can I be charged with
         a penalty for not doing something - allegedly
         incorrectly - that no statute requires me do at
         all? * * *

     *         *       *       *       *       *       *

11)      Should the Service disagree with the figures and
         amounts shown on my tax return and claim for
         refund, then I demand an office or field audit to
         discuss these differences * * *. In addition, if
         any “determination” is made that changes in my
         return are warranted, I demand to be notified as
         to where and when I may “inspect” the “text of any
         written determination and any background file
         documents relating to such a determination” as
         provided by 26 USC 6110.

     *        *       *       *       *       *       *

*Note #1: The word “income is not defined in the
          Internal Revenue Code. U.S. v. Ballard, 535
          F.2d 400, 404. But, as stated above, it can
          only be a derivative of corporate activity.
          The Supreme Court has held this numerous
          times. * * * [Reproduced literally.]

Respondent did not process and file petitioners’ 1996 Form
                                 - 7 -

1040 as a tax return.   That was because respondent determined

that that document was frivolous.

     On or about November 13, 2000, respondent prepared a

substitute for return for petitioners’ taxable year 1997.

     On a date not disclosed by the record, respondent issued a

notice of deficiency to petitioners with respect to their taxable

year 1997.   Petitioners did not file a petition in the Court with

respect to that notice.

     On June 5, 2001, respondent received from petitioners Form

1040A, U.S. Individual Income Tax Return, for their taxable year

1997 (1997 Form 1040A).   The 1997 Form 1040A that petitioners

submitted to the IRS contained petitioners’ original signatures

dated May 30, 2001, and copies of petitioners’ signatures dated

November 1, 1999.   In their 1997 Form 1040A, petitioners reported

total income of $0, total tax of $0, and claimed a refund of

$5,122.83 of tax withheld.    Petitioners did not attach to their

1997 Form 1040A any Forms W-2.    Petitioners attached to their

1997 Form 1040A a document (petitioners’ attachment to their 1997

Form 1040A), which was identical to petitioners’ attachment to

their 1996 Form 1040 except that petitioners’ attachment to their

1997 Form 1040A made references to their taxable year 1997 while

petitioners’ attachment to their 1996 Form 1040 made references

to their taxable year 1996.

     Respondent did not process and file petitioners’ 1997 Form
                               - 8 -

1040A as a tax return.   That was because respondent determined

that that document was frivolous.

     On August 13, 2001, respondent assessed petitioners’ tax of

$8,035, as well as additions to tax under sections 6651(a)(1) and

(2) and 6654 totaling $1,509.43 and interest as provided by law

of $1,117.83, for their taxable year 1997.   (We shall refer to

those assessed amounts, as well as any interest as provided by

law accrued after August 13, 2001, as petitioners’ unpaid

liability for 1997.)

     On August 13, 2001, respondent issued to petitioners a

notice of balance due with respect to petitioners’ unpaid

liability for 1997.

     On or about April 15, 2000, respondent received from

petitioners Form 1040 for their taxable year 1999 (1999 Form

1040).   In their 1999 Form 1040, petitioners reported total

income of $0 and total tax of $0.   Petitioners attached to their

1999 Form 1040 (1) respective Forms W-2 issued by the Virginia

Transportation Department, ESI, and ECPI College showing wages,

tips, and other compensation paid to Mr. Frey totaling $35,630.92

and (2) Form 1099-G, Statement for Recipients of Certain

Government Payments, showing unemployment compensation paid to

him of $1,596.   Respondent processed and filed petitioners’ 1999

Form 1040 as a tax return.

     On June 15, 2001, respondent issued a notice of deficiency
                                   - 9 -

to petitioners with respect to their taxable year 1999.        In that

notice, respondent determined that for 1999 petitioners had a

deficiency of $3,356.       Petitioners did not file a petition in the

Court with respect to the notice of deficiency relating to their

taxable year 1999.

     Instead, on September 1, 2001, in response to that notice,

petitioners sent a letter to Gwen A. Krauss, Director, IRS

Service Center.       That letter stated in pertinent part:

              Your Deficiency Notice dated 6/15/01

     According to your “Deficiency Notice” of above date
     (Attachment 1), there is an alleged deficiency with
     respect to my 1999 income tax of $3,356.00, and if I
     wanted to “contest this deficiency before making
     payment,” I must “file a petition with the United
     States Tax Court.” Before I file, pay, or do anything
     with respect to your “Notice,” I must first establish
     whether or not it was sent pursuant to law, whether or
     not it has the “force and effect of law,” and whether
     you had any authority to send me the notice in the
     first place.

        *         *         *        *       *       *        *

     Let me further point out that IR Code Sections 6001 and
     6011 (as identified in the 1040 Privacy Act) notify me
     that I need only “comply with regulations.” Nothing in
     the Privacy Act Notice or in the above statutes informs
     me that I have to “comply” with, or pay attention to,
     letters and/or alleged “determinations” sent to me by
     various and sundry employees of the IRS.

     Please note that Section 6212 states that “If the
     Secretary determines that there is a deficiency in
     respect of any tax...he is authorized to send notice of
     such deficiency, etc., etc., etc.” However, the
     “Notice” I received was not sent by the Secretary, but
     by Gwen A Krauss, who is identified as being the
     Director of the IRS Service Center in Chamblee,
     Georgia, and I have no way of knowing whether she has
                              - 10 -

     been delegated by the Secretary to send out such
     notices on the Secretary’s behalf. So before I do
     anything at all with respect to your “Notice,” I would
     have to see a Delegation Order from the Secretary of
     the Treasury delegating to Gwen A Krauss the authority
     to send out Deficiency Notices.

     In addition, I would also like you to send me (or
     identify for me) the legislative regulations that you
     claim implement Code Sections 6212 and 6213. I have
     also attached an excerpt from the IRS Procedures Manual
     (MT 1218-196, and page P-6-40), which points out that
     the IRS is required to “make available to all taxpayers
     comprehensive, accurate, and timely information on the
     requirements of tax law and regulations.” So, pursuant
     to this provision from your Procedures Manual, I am
     asking that you identify (“make available”) for me the
     legislative regulations that you claim implement both
     Code Sections 6212 and 6213, since I have not been able
     to locate them.

     Without your furnishing me with these documents and
     information, I will be unable to “ascertain” (pursuant
     to the Federal Crop decision) whether the individual
     who sent me the Deficiency Notice was authorized to do
     so, and whether I am legally required to take any
     notice of it. I am obviously unwilling to “take the
     risk” referred to by the Supreme Court in the above
     cited case. [Reproduced literally.]

     On February 4, 2002, respondent assessed petitioners’ tax of

$3,356, as well as interest as provided by law of $520.25, for

their taxable year 1999.   (We shall refer to those assessed

amounts, as well as interest as provided by law accrued after

February 4, 2002, as petitioners’ unpaid liability for 1999.)

     On February 4, 2002, respondent issued to petitioners a

notice of balance due with respect to petitioners’ unpaid

liability for 1999.

     On June 21, 2002, respondent issued to petitioners a final
                              - 11 -

notice of intent to levy and notice of your right to a hearing

(notice of intent to levy) with respect to their taxable year

1996 and a separate notice of intent to levy with respect to

their taxable years 1997 and 1999.

     On or about July 20, 2002, in response to the notice of

intent to levy with respect to their taxable year 1996,

petitioners filed Form 12153, Request for a Collection Due

Process Hearing (Form 12153), and requested a hearing with

respondent’s Appeals Office (Appeals Office).    On the same date,

in response to the notice of intent to levy with respect to their

taxable years 1997 and 1999, petitioners filed Form 12153 and

requested a hearing with the Appeals Office.    Petitioners

attached, inter alia, a document to their Form 12153 with respect

to their taxable year 1996 (petitioners’ attachment to their 1996

Form 12153) and a document to their Form 12153 with respect to

their taxable years 1997 and 1999 (petitioners’ attachment to

their 1997 and 1999 Form 12153).   Petitioners’ attachment to

their 1996 Form 12153 and petitioners’ attachment to their 1997

and 1999 Form 12153 were identical and set forth, inter alia, the

same types of statements, contentions, arguments, requests, and

questions that petitioners set forth in petitioners’ attachment

to their 1996 Form 1040 and petitioners’ attachment to their 1997

Form 1040A.   In addition, petitioners’ attachment to their 1996

Form 12153 and petitioners’ attachment to their 1997 and 1999
                                  - 12 -

Form 12153 stated in pertinent part:

            1)        * * * at my CDP hearing I demand that
                      the appeals officer have at the hearing
                      the delegation order from the Secretary
                      of the Treasury delegating to the
                      Operations Manager, Automated Collection
                      System the authority to notify me to my
                      right for a CDP hearing * * *.

        *        *       *          *      *       *       *

                 b)   * * * I am requesting that you have at
                      the CDP hearing * * * a “delegation”
                      order, emitting directly from the
                      Secretary, authorizing the IRS employee
                      who signed for him (them), the authority
                      to impose and file such notices of liens
                      against us.

                 c)   In lieu of having such a “delegation
                      order,” I am requesting that you have
                      the job description of IRS employee(s)
                      and the individual who signed the notice
                      at issue for him to see if any such
                      authority is included in their job
                      description.

        *        *       *          *      *       *       *

            2)        The document also says that “We have
                      made a demand for payment of this
                      liability.” (Emphasis added)

                 a)   Please note (as explained in paragraph 4
                      herein), we claim we never received such
                      a “demand” for payment.

                             1)   If you claim otherwise, than I
                                  demand that you have at the
                                  CDP hearing the Form Number of
                                  the document that you claim
                                  was sent to us as constituting
                                  the “demand” referred to in
                                  paragraph 2) above.

                             2)   Since the Code Section
                                  establishing the “liability”
                       - 13 -

                        referred to above is also not
                        identified, I am requesting
                        that you specifically identify
                        the Code Section establishing
                        * * *

    3)        VERIFICATION FROM THE SECRETARY
         I also expect you to have at the CDP hearing
    “verification from the Secretary that the
    requirements of any applicable law or
    administrative procedure have been met.” That is
    the specific statement from the Secretary (or his
    delegate) that THE LAW requires you to have.
    PLEASE BE ADVISED THAT SECTION 6330(c)(3)(A)
    REQUIRES THAT THIS VERIFICATION BE “PRESENTED” TO
    US. Please don’t tell us at the CDP hearing that
    in lieu of having that specific document from the
    Secretary as required by law to be “presented” to
    us, that you have some unsigned, IRS transcript.
    * * * I will not accept any claim of yours that
    “the courts have held that an unsigned, computer
    printout satisfies the legal requirements of Code
    Sections 6320 & 6330,” in lieu of “presenting” us
    with “verification (from the Secretary)...that the
    requirements of any applicable law or
    administrative procedure have been met,” stated in
    the law. * * *

    4)   Also, pursuant to Code Section 6201(1),
         before I can owe any income taxes there has
         to be an assessment based on a “return or
         list.” I filed a return showing no taxes
         due. Therefore, I don’t see how the IRS
         could have made a lawful assessment from a
         return showing no income taxes due and owing,
         unless the IRS prepared another 1040 showing
         a different amount due. Therefore, at my CDP
         hearing, I am demanding that the following
         items be produced and made available to us:

         a)   Proof of assessment.
              * * * Please have a form 4340 at my CDP
              hearing certifying that such an
              assessment has been made.

*        *       *        *       *       *       *

    6)        We claim there is no underlying,
                  - 14 -

         statutory liability in connection with
         the income taxes at issue.

    a)   In addition, we are challenging the
         “existence” of the underlying tax
         liability as the law (Sec.
         6330(c)(2)(B)) and regulation (301.6330-
         1T-(e)) specifically permit us to do.
         If the appeals officer believes
         otherwise, he need only identify for us
         the Code Section that establishes such a
         liability * * *. The * * * IR Code * *
         * that we will bring to the CDP hearing
         lists some 40 taxes under the caption
         “Liability for tax”; however, I cannot
         find an entry for “income taxes.” * * *

*   *       *       *       *       *       *

    b)   The issue of the “existence” of the
         “underlying tax liability” is certainly
         relevant as to whether or not we owe the
         income taxes at issue. Since the legal
         “existence” of an income tax liability
         is such an easy thing to establish * * *
         why wouldn’t the appeals officer simply
         identify such a Code section if it
         exists? The only possible reason for
         him not doing so, is if that no such
         Code section does exist.

    c)   One (nonsensical) excuse the appeals
         officer might offer * * * is to claim
         that he is not going to get into this
         issue because we allegedly got a notice
         of deficiency and so we had an
         “opportunity to dispute such a tax
         liability” as mentioned in Section
         6330(c)(2)(B). However, we never had
         such an opportunity. Attached, as
         Exhibit D, is a copy of the “deficiency
         notice” [1999] we received. It was
         prepared and sent out by Gwen Krauss who
         is identified as Director of the
         Customer Service Center, Chamblee
         Georgia. However, Code Section 6212
         provides that it is “the Secretary” who
         “determines that there is a deficiency”
                         - 15 -

                and that “he is authorized to send such
                notice.” * * * Therefore, after
                receiving those Deficiency Notices from
                Gwen Krauss * * * we wrote her * * *
                asking her to supply us with her
                delegation of authority from the
                Secretary to send out such Notices
                (pursuant to Code Sections 7701(11)(B) &
                7701(12)(A)(i)), and she never answered
                our letter. We have since received
                proof that Gwen Krauss has no such
                delegation of authority. Therefore, the
                Deficiency Notices we received from her
                were invalid - and we are barred from
                petitioning Tax Court from invalid
                Deficiency Notices. Beside, we are not
                challenging the “amount” of the alleged
                “deficiency”: we are challenging its
                “existence,” as a matter of law.
                However, since Tax Court is not a court
                of law (See Freytag v. C.I.R., 11 S. Ct.
                2631 * * * the Tax Court would have no
                jurisdiction to consider the legal
                question of whether or not the Internal
                Revenue Code establishes an income tax
                “liability” as a matter of law.

   *        *      *       *       *       *       *

       7)       We claim there is no statute requiring
                us “to pay” the income taxes at issue.

     Another relevant issue is “Whether or not there is
a statute requiring us ‘to pay’ the income taxes at
issue?” Code Section 6321 provides that only when one
fails “to pay any tax” can there be “a lien in favor of
the United States.” Therefore, before there can be a
“lien in favor of the United States” there must be a
statutory requirement “to pay” the income taxes at
issue. The Index of the Code we will bring to our CDP
hearing contains a Section entitled “Payment of tax.”
(Attached as Exhibit H) It contains over 60 entries.
* * * however, there is no entry we can find for
“income taxes.” It is therefore our belief that there
is no law requiring us “to pay” income taxes, and this
certainly is a “relevant issue” that is appropriately
raised at a CDP hearing - since, if the appeals officer
can not identify any statute that requires us “to pay”
                               - 16 -

     income taxes, how can he approve an IRS lien on our
     property in connection with a tax the payment for which
     he can not find shown in any law?

        *        *       *       *       *       *       *

            8)   We maintain that there is no law that
                 authorizes the IRS to claim that we owe more
                 in income taxes * * * than the “zeros” we
                 reported on our income tax returns for those
                 years [1996, 1997, and 1999].

          * * * Section 6201(a)(2)(A) further provides that
     with respect to taxes “payable by stamp,” the Secretary
     is authorized “to estimate the amount of tax which has
     been omitted to be paid” by stamp. However, we cannot
     find any provision in Code Section 6201 or any other
     Code Section that authorizes the Secretary (let alone
     the IRS) to similarly “estimate the amount of tax”
     which we allegedly omitted from our 1996[, 1997, and
     1999] tax returns. Therefore it is our contention that
     no law authorizes the Secretary (let alone any IRS
     agent) to determine that we owe more in income taxes
     than the “zeros” we reported on our 1996[, 1997, and
     1999] income tax returns. * * *

        *        *       *       *       *       *       *

          This is also to remind you that I will be tape
     recording the CDP hearing and I will have a court
     reporter present. I will also have a witness present.
     [Reproduced literally; fn. refs. omitted.]

     On October 21, 2002, the settlement officer sent a letter to

petitioners with respect to their taxable years 1996, 1997, and

1999.   That letter stated in pertinent part:

     Your Collection Due process appeal request has been
     assigned to me for consideration.

     I will contact you as soon as I am able to review your
     file and determine if we can resolve your case by
     correspondence or phone in lieu of a personal
     conference. If a personal conference is needed, I will
     schedule a meeting with you or your representative.
                                 - 17 -

          *        *       *       *       *       *       *

     In order for your appeal to be considered, you must be
     in [sic] current in filing tax returns. If you have
     not done so, please file the delinquent return(s)
     immediately. * * *

     On October 23, 2002, the settlement officer sent a letter to

petitioners with respect to their taxable years 1996, 1997, and

1999.     That letter stated in pertinent part:

     HEARING IN PERSON OR BY TELEPHONE

               •   IN PERSON should you prefer to discuss the
                   case in person, I have scheduled a conference
                   for November 6, 2002 at 10:00 AM * * *

               •   TELEPHONE HEARING If you prefer a telephone
                   hearing, please call me at * * *

               •   CONFIRM WITHIN 7 DAYS please call me within
                   7 days of the date of this letter to confirm
                   whether you will appear. If the date is not
                   convenient, I will be happy to reschedule the
                   hearing.

           *       *       *       *       *       *       *

        Please see the tax transcripts and important
        information enclosed concerning your hearing.

        On October 31, 2002, the settlement officer sent a letter to

petitioners with respect to their taxable years 1996, 1997, and

1999.     That letter stated in pertinent part:

        This letter is to confirm that your hearing date is
        changed to November 20 at 10:00 AM. per your request.

             * * * Our records also indicate that you have not
        filed your 1998 and 2001 income tax returns. If you
        have filed them, please provide your copy of the
        returns.

        On November 13, 2002, petitioners sent the settlement
                              - 18 -

officer a letter.   That letter stated in pertinent part:

          We have requested a Collection Due Process Hearing
     as provided for in Code sections 6320 & 6330 * * *,
     which is scheduled for November 20, 2002. We are
     writing to make clear our position as relates to the
     harassment, threats of seizures and liens by the IRS.

          Based on these omissions we are contacting the
     Taxpayer Advocate for resolution of these options.

          Further, we are requesting an impartial officer,
     for the up coming Due Process Hearing. This request in
     based on the partiality of the current officer in
     indicating that we must be current in filing tax
     returns for our appeal to be considered. This is
     blatantly false. * * *

          We intend to record the hearing and have a witness
     in attendance.

        *       *       *       *       *       *       *

          It is clear that before any appeals officer can
     recommend the seizure of any property pursuant to Code
     Section 6331 certain elements have to be present. For
     one thing (pursuant to that statute) that person has to
     be statutorily “liable to pay” the taxes at issue, and
     only after he “neglects or refuses to pay the same
     within 10 days after notice and demand,” can his
     property be subject to seizure. Therefore, apart from
     the appeals officer having to identify the statute that
     makes me “liable to pay” the taxes at issue, he needs
     to have a copy of the statutory “notice and demand”
     which I “neglected” and “refused” to pay. In addition,
     we can’t be “liable” to pay an income tax, if the tax
     in question has never been assessed against me as
     required by Code Sections 6201 and 6203. So we will
     need to see a copy of the record of our assessments.
     And since (as provided by Code Section 6201(a)(1) and
     IRS Transaction Code 150) all assessments have to be
     based on filed returns, I will have to see a copy of
     the return from which any claimed assessment is based.
     In lieu of producing these specific documents
     “verification from the Secretary (of the Treasury) that
     the requirements of any applicable law or
     administrative procedure have been met,” will be
     acceptable. But the appeals officer better have either
                        - 19 -

the specific documents as identified above, or
“verification from the Secretary.” If the appeals
officer cannot produce neither document, than no Due
Process Hearing should be scheduled until he has those
documents in hand. If the appeals officer recommends
“enforcement of collection action including levy,”
without having produced these specific documents, then
it will be obvious that the appeals officer is simply
attempting to thwart and circumvent the Code Section
6330 in order to enable the IRS to continue its
practice of making the illegal seizures uncovered by
the Senate Finance Committee * * * which THE “DUE
PROCESS HEARING” was designed to eliminate.

     Summarizing: We requested a “Due Process Hearing”
as outlined in Form 12153. We are “challenging the
appropriateness of (the) collection action” as
specified in 6330(c)(2)(A)(ii) since the IRS denied all
of our requests for the initial “examinations” and
“interviews” as provided for in Publications 1 & 5. In
addition, no lien for taxes pursuant to Code Sections
6321 and 6322 is possible because no valid, underlying
assessment was ever made. In addition, we never
received the statutory “notice and demand” for payment
of the taxes at issue as required by Code Sections
6203, 6321, and 6331. If the appeals officer is going
to claim that a particular document sent to me by the
IRS was a “Notice and Demand” for payment, then I am
requesting that he also provide me with a T.D. or
Treas. Reg. which identifies that specific document as
being the official, statutory “Notice and Demand” for
payment.

     In addition, we are “challenging the existence of
the underlying tax liability” as we are authorized to
do in Code Section 6330(c)(2)(B). In addition, we did
not receive a (valid) notice of deficiency in
connection with any of the years at issue. We are also
requesting that the appeals officer have at the “Due
Process Hearing” a copy of the “Summary Record of
Assessment” (Form 22 C) together with the “pertinent
parts of the assessment which set forth the name of the
taxpayer, the date of the assessment, the character of
the liability assessed, the taxable period, and the
amount assessed” as provided for in Treas. Reg.
301.6203-1.

     Also you are reminded that the Section 6330(c)(1)
                             - 20 -

     REQUIRES you to have “verification from the Secretary
     (or someone with delegated authority from him) that the
     requirements of any applicable law or administrative
     procedures have been met.” So unless you have, at the
     very least, that document, you should not even schedule
     a Due Process Hearing. * * * [Reproduced literally;
     fn. ref. omitted.]

     On November 16, 2002, petitioners sent a letter to “Internal

Revenue Service Appeals Office Supervisor”.   In that letter,

petitioners stated in pertinent part:

     This is to indicate irregularities in our requested Due
     Process Hearing. According to title 26 sections 6320
     and 6330 only a single year is at issue for each
     hearing/appeal. Yet we are confronted with a partial
     (prejudiced) appeals officer for the following reasons:

          1.   Multiple years of [sic] combined into a
               single session, we are only allotted one
               hearing/appeal per year in question.

          2.   The hearing/appeals officer is making demands
               outside of sections 6320 and 6330 regarding
               “filings must be current”. Which is
               blatantly incorrect and harassing.

     On November 20, 2002, respondent’s settlement officer held

an Appeals Office hearing with petitioners regarding the

respective notices of intent to levy with respect to their

taxable year 1996 and their taxable years 1997 and 1999.    James

Cain accompanied petitioners to the Appeals Office hearing.     The

settlement officer did not allow petitioners to make an audio

recording of the Appeals Office hearing.

     On November 26, 2002, the settlement officer sent a letter

to petitioners (settlement officer’s November 26, 2002 letter)

with respect to their taxable years 1996, 1997, and 1999.    That
                             - 21 -

letter stated in pertinent part:

     This letter is pertaining to your letter dated 11-13-
     2002 and the hearing on 11-20-2002. I will attempt
     here to address the points raised in your appeals
     request and also discuss those matters that can be
     considered under this process.

     Section 601.106(b) of the Regulations and Internal
     Revenue Manual Section 8122.5 provide that the Appeals
     Division of the Internal Revenue Service cannot
     consider arguments based on moral, religious,
     political, constitutional, conscientious or similar
     grounds. Formal appeal procedures do not extend to
     these types of arguments.

     On the issue of impartiality, the statute defines
     impartiality as “prior involvement with respect to the
     same unpaid tax.” You have not alledged [sic], and I,
     the Settlement Officer have had no such prior
     involvement with your unpaid tax liability. With
     regards to your request of the delegation authority of
     an IRS official, please see the attachment listing
     court cases showing the courts presume that the IRS
     official(s) have properly discharged their official
     duties if there is no clear evidence to the contrary.
     The burden of proof is upon you to prove that I am not
     an impartial officer.

     Your 1996 and 1997 taxes have not been discharged by
     the Bankruptcy Court. You can contact your bankruptcy
     attorney for more information.

     Your request for appeal on form 12153 is a Collection
     Due Process (CDP) Appeals. The three key points that
     Appeals can consider in a CDP hearing involve items
     such as those listed below:

          1.   Applicable administrative procedures

          2.   Relevant issues such as innocent spouse,
               collection alternatives and underlying
               liability.

          3.   Efficient collection measures versus
               intrusiveness.

     Based upon a review of your case file, I find no error
                               - 22 -

     in the part of the Service in sending you the proper
     notices of an outstanding liability. The records
     indicated that notices were issued for all of the years
     reflecting a balance due and asking you either pay in
     full or call the IRS to discuss payment arrangements.
     To date, no agreement has been instituted.

     The underlying liability appears to be correct. The
     assessments were based on your income and withholdings.
     You have not pointed to any errors and you have been
     unwilling to discuss collection alternatives which
     include full payment, monthly payment, offer in
     compromise etc.

     Please respond within 2 weeks of the date of this
     letter if you have valid issues or want to propose a
     payment resolution. If I do not receive a timely
     response, I will proceed with the issuance of a
     decision letter that will sustain the levy action.

     On November 27, 2002, the IRS Team Manager for Area 2,

General Appeals, wrote a letter to petitioners.    That letter

stated in pertinent part:

     This is in response to your letter dated November 16,
     2002 that was addressed to this office. I apologize
     for not responding earlier but I have been away from
     the office.

     In your letter you are   concerned about the fact that
     the Settlement Officer   who met with you considered more
     than one year (return)   at the meeting and that she
     asked about subsequent   filings of Federal tax returns.
     You also ask that this   matter be reassigned. There is
     nothing wrong with the   Settlement Officer’s handling of
     either of these items.    I, therefore, will not reassign
     this matter to another   Appeals or Settlement Officer.

     There is nothing wrong with the Settlement Officer
     considering all of the tax periods before Appeals at
     one hearing. In addition, taxpayers must be current in
     the filing of their Federal tax returns before we can
     offer collection alternatives to help them. Thus, the
     Settlement Officer was merely asking about subsequent
     filings to see if she could offer collection
     alternatives to you for the amounts owed in the periods
                          - 23 -

under our jurisdiction.   Both actions are appropriate.

In addition, I would urge you to “step back and look at
the course of action” you are taking. The returns you
have filed showing nothing but zeros, and the arguments
you have made, have no merit whatsoever. The arguments
you are making are frivolous and make no sense. In
fact, if you pursue these arguments in the courts, the
Court will, in all probability, and should, assert it’s
own penalty for filing a frivolous lawsuit. The court
cases clearly support the Service’s position on the
issues you raise and indicate that the courts are tired
of these types of illogical issues.

I strongly urge you to move away from the destructive
path you are following, file proper tax returns as
required by law, and make arrangements to pay the taxes
you owe for the schools you attend, the roads you ride
on, the military that defends you, the courts that
protect your legitimate rights, and the freedoms you
enjoy. Please look at the arguments you are making and
ask yourself if they make any sense. Read the court
cases cited by the Settlement Officer in the attachment
(copy attached) to her letter to you dated November 26,
2002 and evaluate the merits of the arguments you are
making. If you do not take steps to correct the
situation, it will become more and more burdensome with
larger, unpaid liabilities increased by interest and
penalties.

I cannot recommend that you seek the advice of an
expert. However, if you go to any reputable Attorney
or Certified Public Accountant in your area, I am
confident that they will tell you that your arguments
are not correct and they will recommend that you
quickly take corrective action. Neither the IRS, nor
the Courts, nor the Congress, nor any reputable
professional will support the arguments you are making.

My comments are not intended to offend you in any way.
They are made out of my concern for individuals and
intended to provide you with assistance. I hope this
addresses the concerns contained in your letter dated
November 16, 2002.

Finally, I have enclosed a copy of a relatively new
court case (Steven R. Smith, United States District
Court of Nevada, 2002 TNT 223-17) in which the taxpayer
                                - 24 -

     makes arguments similar to those you have made about
     Delegation Orders, etc. As you can see, the Court
     decides the case in favor of the Government.

     On December 10, 2002, in response to the settlement

officer’s November 26, 2002 letter to petitioners, petitioners

sent a letter to the settlement officer (petitioners’ December

10, 2002 letter).    Petitioners’ December 10, 2002 letter stated

in pertinent part:

     In response to your letter of November 26, 2002, and
     based upon your invitation to do so, we raise these
     valid issues in regard to your statements and exhibits:

          1.   We did not raise any arguments based on
               moral, religious, political, constitutional,
               conscientious or similar grounds, so we will
               not help you to pretend that we did.

          2.   On the issue of impartiality, your letter of
               November 26th proves that you are NOT
               impartial to the proposed collection action:

                      a.)   We did not raise any arguments
                            whatsoever. We asked for the
                            documents that the laws describe,
                            which must be present before a
                            determination can be made by you to
                            proceed with collection by
                            distraint.

               We cite as a valid issue: The Statute, IR
          Code 6330(c)(3) entitled “Basis for the
          determination. The determination by an appeals
          officer under this subsection shall take into
          consideration-A.) the verification presented under
          paragraph (1),; B.) the issues raised under
          paragraph (2), which is “any relevant issue
          relating to the unpaid tax or proposed levy”...

                      b.)   You state * * * “Based upon a
                            review of your case file, I find no
                            error in the part of the Service in
                            sending you the proper notices of
          - 25 -

      an outstanding liability”, yet, you
      do not name by what Statute we are
      made liable and you do not present
      for us the documents which support
      the assessments with the authority
      of the Service employees that were
      involved in making such
      assessments. You state that
      notices of balance due were
      issued... Well, IR Code Section
      6331 cannot apply to us until we
      have neglected or refused to pay 10
      days following the Notice and
      Demand for Payment. Seven Statutes
      and various IRS Publications refer
      to the requirement for the Notice
      and demand for payment. We find no
      authority referring to a “notice of
      balance due”. We did not receive a
      statutory Notice and Demand for
      payment.

c.)   You state in your letter * * * “The
      underlying liability appears to be
      correct. The assessments were
      based on your income and
      withholdings.” The underlying
      liability is based upon what
      statute? Where did you find a
      liability for the income tax in the
      Internal Revenue Code? * * * we are
      contesting not only the existence
      and the amount of the underlying
      liability for the taxes and
      penalties at issue, but, also the
      authority of the Revenue Officers
      who changed our returns and who
      sent out the Final Notice giving
      rise to our opportunity to a
      Collection Due Process Hearing -
      our right to a fair and impartial
      hearing conducted by an impartial
      appeals officer who has fulfilled
      the requirement of the
      investigation as provided for in IR
      Code Section 6330(c)(1). If you
      did indeed conduct that impartial
      investigation, you should be able
                    - 26 -

                to provide us with the documents
                you inspected to verify the
                validity and accuracy of the
                assessments. * * * We have
                requested the documentation that
                the law provides that we may see.

          d.)   Further, the exhibits attached to
                your letter are totally irrelevant
                to our case. They, too, point to
                your bias toward the government.
                First of all, the definition of
                Gross Income does not make one
                liable for the tax. The issue of
                the Sixteenth Amendment of the
                Constitution is not a relevant
                issue to be raised when all we are
                asking for is proof that the
                verification from the Secretary
                requirement has been fulfilled;
                that the Notice and Demand for
                payment requirement as been met;
                that the assessments are valid and
                accurately determined and recorded
                pursuant to some statute by
                authorized Internal Revenue Service
                personnel; and, that you have
                personally acquired verification
                from somebody other than yourself
                that all of the administrative
                procedures and applicable laws have
                been met. Verification means, a
                formal written statement. * * * We
                are in the dark as to what happened
                on our case, as all of the notices
                came without reference to any
                delegation orders or other legal
                basis for their issuance. Many of
                them were not even signed! Why
                wouldn’t you want us to see the
                authority for these notices if
                indeed they are “Statutory”, as you
                claim them to be?

3.   Finally, you stated   in your letter that we
     have not pointed to   any errors and that we
     have been unwilling   to discuss collection
     alternatives...and,   then you threatened to
                              - 27 -

               proceed with an issuance of a letter that
               will sustain the levy action. We cannot
               fathom what premise you found to base those
               statements on. It is absurd! You have not
               provided one document required of you by the
               law, and, until you do, you have nothing more
               than a wish for our property. Here are the
               errors you have ignored thus far that we have
               clearly outlined in previous correspondences
               and at our “Collection Due Process Hearing”:

               A.)   The FINAL NOTICE we received was not
                     sent out by the Secretary or his
                     delegate. * * *

               B.)   We did not receive the Statutory Notice
                     and demand for the unpaid tax from the
                     Secretary or his delegate. * * *

               C.)   The assessments were not made by
                     authorized IRS personnel. We know this
                     because no where in the Code is there
                     any mention of IRS agents having the
                     authority to make a return for income
                     taxes, and no where in the Internal
                     Revenue Manual does it speak of the
                     authority of IRS agents to make 1040
                     Forms or to do anything with respect to
                     returns of income tax. * * *

               D.)   Another very relevant issue we have
                     raised and that goes to prove the fact
                     that you have not been impartial to the
                     proceedings thus far is that we have
                     asked for you to cite the Statute in the
                     Internal Revenue Code that provides for
                     the payment of the income tax. Now,
                     whether or not there is a law that
                     requires the payment of the income tax
                     cannot be deemed frivolous or merit
                     less. * * * [Reproduced literally.]

     On November 5, 2002, John W. Raymond (Mr. Raymond), an

attorney, sent a letter (Mr. Raymond’s November 5, 2002 letter)

to the settlement officer with respect to petitioners’ chapter 7
                               - 28 -

bankruptcy case.   That letter stated in pertinent part:

          Reference the attached letter dated October 21,
     2002 which you sent to Gerald and Jessica Frey. Be
     advised that Gerald and Jessica Frey filed a Chapter 7
     Bankruptcy, Case No. 02-51961-DHA, in the United States
     Bankruptcy Court, Eastern District of Virginia, Newport
     News Division, on July 3, 2002. Internal Revenue
     Service was a listed creditor and was sent Notice of
     the bankruptcy filing by the bankruptcy court.

          Debtors received their bankruptcy Discharge on
     October 10 [sic], 2002. (copy of Order attached)
     Their liability for tax debts for calendar year 1996
     and 1997 were discharged in the bankruptcy.

The “bankruptcy discharge” referred to in Mr. Raymond’s November

5, 2002 letter is an order dated October 12, 2002 (U.S.

Bankruptcy Court’s October 12, 2002 order) of the United States

Bankruptcy Court, Eastern District of Virginia (U.S. Bankruptcy

Court).   That order stated as follows:

          It appearing that the debtor(s) is/are entitled to
     a discharge,

          IT IS ORDERED:

          The debtor(s) is/are granted a discharge under
     section 727 of title 11, United States Code * * *.

The U.S. Bankruptcy Court’s October 12, 2002 order further

stated:   “SEE BACK SIDE OF THIS ORDER FOR IMPORTANT INFORMATION”.

The back side of that order stated in pertinent part:

     Debts that are Not Discharged

          Some of the common types of debts which are not
     discharged in a chapter 7 bankruptcy case are:

           a.   Debts for most taxes;

     On December 9, 2002, Mr. Raymond sent a letter to an IRS
                               - 29 -

bankruptcy specialist (Mr. Raymond’s December 9, 2002 letter).

That letter stated in pertinent part:

          You and I discussed the above matter on November
     19, 2002. You informed me that the 1996 and 1997 taxes
     had not been discharged in the Freys’ bankruptcy as a
     substitute return had been filed by the IRS for the
     Freys and the Freys did not file the returns until
     November 13, 2000. The Freys state that they filed the
     returns prior to November 2000.

          The Freys inform me that they received the 09-20-
     1999 Notice Number CP 504 on September 30, 1999. The
     Notice had been mailed to a prior address so the Freys
     did not get it for ten days. Mr. Frey called Mrs. Lee
     (as noted on page two of exhibit A) of the IRS and was
     informed by Mrs. Lee that the IRS had no returns for
     1996 and 1997. Mrs. Lee advised the Freys to mail the
     returns to IRS, Attn: ASFR, Philadelphia, PA 19255.

          The Freys had previously filed the returns but
     complied with Mrs. Lee’s directions. The returns were
     still packed with their household goods because of the
     Freys’ move. The Freys found the returns (copies
     attached) dated them 11-1-99 and mailed the returns to
     the ASFR address given by Mrs. Lee.

          The Freys received nothing further from the IRS
     until 2001 when the Freys were advised that the IRS had
     not received the 1997 return. The Freys dated the 1997
     returns 5-30-01 and mailed them to the IRS.

           It appears to me that the taxes should have been
     discharged in the bankruptcy based on the 1999 filing
     date.

     On January 14, 2003, the IRS bankruptcy specialist to whom

Mr. Raymond had sent Mr. Raymond’s December 9, 2002 letter sent a

letter to Mr. Raymond.    That letter stated in pertinent part:

          This is in   regards to correspondence we received
     on December 11,   2002. In your correspondence you
     provided copies   of tax returns for years 1996 and 1997.
     I have reviewed   the information you have provided and
     have made these   determinations base[d] on the
                                - 30 -

     information. Tax year 1996 will be processed as the
     original filed return and if excepted [sic] as filed,
     there will not be any balance due. The tax return 1996
     that you provided shows and [sic] overpayment of
     $3,839.28. The Refund Expiration Date for 1996 is
     April 15, 2000, therefore, the above-mentioned debtor’s
     will not receive the overpayment. The information
     provided for tax year 1997, I could find no evidence
     that the return was filed or received prior to the date
     that Internal Revenue Service made the assessment of
     August 13, 2001. Tax year 1997 still remains to be
     nondischargeable as we had determined at discharge.

     On January 23, 2003, the Appeals Office issued to

petitioners a notice of determination with respect to their

taxable years 1996, 1997, and 1999.      That notice of determination

stated in pertinent part:

     Summary of Determination

     The determination of the Appeals Office is to sustain
     the decision to issue the Final Notice of Intent To
     Levy/Seizure. The assessment is valid and the actions
     were appropriate.

     You did not respond to this office’s request for
     information and made no proposals to resolve the
     delinquent liability. The case is being returned to
     the Compliance Office for appropriate collection
     actions.

An attachment to the notice of determination stated in pertinent

part:

     Summary of the issues and brief back ground:

     * * * You filed a timely request for a hearing with
     Appeals under the provisions of IRC 6630 concerning the
     appropriateness of propsong a levy action to secure
     payment for the above listed tax liabilities [with
     respect to petitioners’ taxable years 1996, 1997, and
     1999]. You claimed your gross income was not taxable
     and your tax assessments were illegal and not valid. A
     hearing was held with you on 11-20-2002. The hearing
                          - 31 -

was   terminated when you claimed the Settlement Officer
had   no authority to conduct the hearing. The issues
you   raised were later responded by correspondence from
the   Settlement Officer and the Appeals Team Manager

Verification of Applicable Law and Administrative
Procedures

With the best information available, the requirements
of various applicable law or administrative procedures
have been met.

Internal Revenue Code (IRC) Section 6331(d) requires
that the Internal Revenue Service (IRS) notify a
taxpayer at least 30 days before a Notice of Levy can
be issued. The tax transcript shows that this notice
was mailed to you * * *

      *      *       *       *       *       *       *

You were given the opportunity to raise any relevant
issue related to the unpaid tax of the proposed levy at
the hearing * * *

This Settlement Officer has had no prior involvement
with respect to this tax liability.

Relevant Issues Presented by the Taxpayer

Records show you filed the 1996, 1997 and 1999 tax
returns claiming zero income even though you attached
forms W-2 with the returns showing your gross income *
* *. The tax assessments were made based on these
incomes. The Final Notice pertaining to the unpaid
balance of these tax periods was sent to you on 06-20-
2002. You were also advised by the Settlement Officer
that the 1996 and 1997 tax liabilities were not
discharged by the bankruptcy court. You made frivolous
claims such as the IRS agents had no authority to make
income tax assessments, the gross income were not
taxable and the assessments were illegal.

You were provided with the tax transcripts
demonstrating the fact of assessment. The transcripts
show the same essential information found on a Form
4340, Certificate of Assessments and Payments. * * *

      *      *       *       *       *       *       *
                              - 32 -

     Under Section 6330(c)(2)(B), neither the existence nor
     the amount of the underlying tax liability can be
     contested at an Appeals Office hearing unless the
     taxpayer did not receive a notice of deficiency for the
     tax in question or did not otherwise have an earlier
     opportunity to dispute such tax liability. Records
     indicated the notices of deficiency were mailed to you
     * * *. You received a notice of deficiency, but yet
     failed to file a petition for redetermination with the
     Court. Therefore, your issue of the underlying tax
     liability cannot be considered by the Appeals Office
     under the CDP appeal.

     Balancing Efficient Tax Collection with Concern
     Regarding Intrusiveness

     Appeals has verified, or received verification, that
     applicable laws and administrative procedures have been
     met; has considered the issues raised; and has balanced
     the proposed collection with legitimate concern that
     such action be no more intrusive than necessary by IRC
     Section 6330(c)(3).

     Collection alternatives include full payment,
     installment agreement, offer in compromise and
     currently uncollectible due to financial hardship. At
     the hearing and subsequent correspondence, you did not
     raise a spousal defense or challenge the Compliance’s
     proposed levy action by offering a less instrusive
     collection alternative. As of this date, you have not
     provided the information for us to determine your
     ability to pay and submitted no resolution to your tax
     liability.

     The Appeals Office believes that the Compliance
     Office’s decision to issue the Final Notice was
     appropriate and sustains the action in full. The case
     is being returned to Compliance for appropriate
     collection actions. [Reproduced literally.]

     On February 20, 2003, petitioners filed with the Court a

petition for review of the notice of determination with respect

to their taxable years 1996, 1997, and 1999 and attached to the

petition certain exhibits.   The petition and most of those
                               - 33 -

exhibits contained the same types of statements, contentions,

arguments, and questions that petitioners set forth in

petitioners’ attachment to their 1996 Form 1040, petitioners’

attachment to their 1997 Form 1040A, petitioners’ attachment to

their 1996 Form 12153, petitioners’ attachment to their 1997 and

1999 Form 12153, and the various letters described above that

petitioners sent to the IRS with respect to their taxable years

1996, 1997, and 1999.

     On May 29, 2003, the Court issued an Order (Court’s May 29,

2003 Order) in which, inter alia, the Court indicated that it had

reviewed the petition and the exhibits attached thereto and found

the petition and certain of those exhibits to contain statements,

contentions, arguments, and questions that the Court found to be

frivolous and/or groundless.   In that Order, the Court reminded

petitioners about section 6673(a)(1).

                               OPINION

     A taxpayer may raise challenges to the existence or the

amount of a taxpayer’s underlying tax liability if the taxpayer

did not receive a notice of deficiency or did not otherwise have

an opportunity to dispute the tax liability.   Sec. 6330(c)(2)(B).

Where the validity of the underlying tax liability is properly

placed at issue, the Court will review the matter on a de novo

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

Commissioner, 114 T.C. 176, 181-182 (2000).
                             - 34 -

     The record establishes that respondent issued to petitioners

respective notices of deficiency relating to their taxable years

1996, 1997, and 19992 and that they did not file a petition with

the Court with respect to any of such notices.   On the instant



     2
      With respect to petitioners’ taxable year 1996, the
transcripts of account that a representative of respondent
prepared relating to that year reflected that respondent issued a
notice of deficiency to petitioners with respect to their taxable
year 1996. With respect to petitioners’ taxable year 1997, the
transcripts of account that a representative of respondent
prepared relating to that year did not reflect that respondent
issued a notice of deficiency to petitioners with respect to
their taxable year 1997. However, the revenue agent who
testified on behalf of respondent at the trial in this case
indicated that transcripts of account do not necessarily reflect
such information. Indeed, although the record in the instant
case contains a copy of the notice of deficiency that respondent
issued with respect to petitioners’ taxable year 1999, the
transcripts of account that a representative of respondent
prepared relating to that year did not reflect that respondent
issued such a notice to petitioners. The notice of determination
with respect to petitioners’ taxable years 1996, 1997, and 1999,
as well as the settlement officer’s history sheet or case
activity records relating to those years, reflected that
respondent issued respective notices of deficiency with respect
to those years. In this connection, it is noteworthy that, in
petitioners’ attachment to petitioners’ 1996 Form 12153 and
petitioners’ attachment to petitioners’ 1997 and 1999 Form 12153,
as well as in various letters described above that petitioners
sent to the IRS with respect to their taxable years 1996, 1997,
and 1999, petitioners did not complain that they did not receive
notices of deficiency with respect to 1996, 1997, and 1999.
Instead, they argued in those documents that they did not receive
valid notices of deficiency for any of those years because the
notices of deficiency that they received were not signed by the
Commissioner of Internal Revenue (Commissioner) or a properly
authorized delegate of the Commissioner. Finally, we note that
we did not find credible Mr. Frey’s testimony that he did not
receive notices of deficiency with respect to 1996, 1997, and
1999. Such testimony is inconsistent with other testimony of Mr.
Frey that he may have received such notices and is contrary to
other evidence in the record.
                              - 35 -

record, we find that petitioners may not challenge the existence

or the amount of petitioners’ unpaid liability for 1996,

petitioners’ unpaid liability for 1997, and petitioners’ unpaid

liability for 1999.   See sec. 6330(c)(2)(B); Sego v.

Commissioner, supra; Goza v. Commissioner, supra.

     Where, as is the case here, the validity of the underlying

tax liability for each of the years 1996, 1997, and 1999 is not

properly placed at issue, the Court will review the determination

of the Commissioner for abuse of discretion.   Sego v.

Commissioner, supra; Goza v. Commissioner, supra.

     We turn to the issues that petitioners raised in

petitioners’ attachment to their 1996 Form 12153, in petitioners’

attachment to their 1997 and 1999 Form 12153, in the letters that

petitioners sent to the IRS with respect to their taxable years

1996, 1997, and 1999, at their Appeals Office hearing, and in the

petition and the exhibits attached to the petition, which we

shall review for abuse of discretion.   We find petitioners’

attachment to their 1996 Form 12153, petitioners’ attachment to

their 1997 and 1999 Form 12153, the various letters that

petitioners sent to the IRS with respect to their taxable years

1996, 1997, and 1999, and the matters that petitioners raised at

their Appeals Office hearing to be frivolous and/or groundless.3


     3
      We also find petitioners’ attachment to their 1996 Form
1040 and petitioners’ attachment to their 1997 Form 1040A to be
                                                   (continued...)
                               - 36 -

In the Court’s May 29, 2003 Order, we found that petitioners’

petition and certain exhibits attached thereto contained

statements, contentions, arguments, and questions that were

frivolous and/or groundless.   We conclude that the following

allegations in petitioners’ petition raise valid issues that we

shall address:   Petitioners’ allegation that the Appeals Office

improperly refused to allow them to make an audio recording of

their Appeals Office hearing, as required by section 7521(a)(1),

and petitioners’ allegation that petitioners’ unpaid liability

for 1996 and petitioners’ unpaid liability for 1997 were

discharged in petitioners’ bankruptcy proceeding.

     We consider first petitioners’ position that the refusal by

the Appeals Office to permit them to make an audio recording of

the Appeals Office hearing held on November 20, 2002, was

improper under section 7521(a)(1).      Throughout the period

commencing with petitioners’ sending to the IRS their 1996 Form

1040 reporting total income of $0 and total tax of $0 and ending

with their filing briefs with the Court, petitioners have made

statements, contentions, arguments, and requests and raised

questions that the Court finds to be frivolous and/or groundless.

Consequently, even though we held in Keene v. Commissioner, 121

T.C. 8 (2003), that section 7521(a)(1) requires the Appeals



     3
      (...continued)
frivolous and/or groundless.
                                - 37 -

Office to allow a taxpayer to make an audio recording of an

Appeals Office hearing held pursuant to section 6330(b), we

conclude that (1) it is not necessary and will not be productive

to remand this case to the Appeals Office for another hearing

under section 6330(b) in order to allow petitioners to make such

an audio recording, see Lunsford v. Commissioner, 117 T.C. 183,

189 (2001), and (2) it is not necessary or appropriate to reject

respondent’s determination to proceed with the collection action

as determined in the notice of determination with respect to

petitioners’ taxable years 1996, 1997, and 1999, see id.4

     We next consider petitioners’ position that the U.S.

Bankruptcy Court discharged petitioners’ unpaid liability for

1996 and petitioners’ unpaid liability for 1997.5     An individual

debtor is not to be discharged in a bankruptcy proceeding from

certain specified categories of debt.     11 U.S.C. sec. 523(a)

(2000).     The first such category is described in pertinent part

in 11 U.S.C. sec. 523(a)(1) as follows:

     § 523.     Exceptions to discharge

          (a) A discharge under section 727, 1141, 1228(a),
     1228(b), or 1328(b) of this title [title 11] does not
     discharge an individual debtor from any debt--

                  (1) for a tax * * *--


     4
         See Kemper v. Commissioner, T.C. Memo. 2003-195.
     5
      Petitioners did not argue at their Appeals Office hearing
that the U.S. Bankruptcy Court discharged petitioners’ unpaid
liability for 1999.
                                 - 38 -

         *       *       *         *       *       *          *

                     (B) with respect to which a return, if
                required--

                             (i) was not filed; * * *

     In the instant case, respondent did not process and file as

tax returns the 1996 Form 1040 and the 1997 Form 1040A which

respondent received from petitioners and in which petitioners

reported total income of $0 and total tax of $0.        That was

because respondent determined that those documents were

frivolous.6   An individual debtor is not discharged in a

bankruptcy proceeding from a debt for tax with respect to which a

return is not filed.   11 U.S.C. sec. 523(a)(1)(B)(i).       On the

record before us, we find that pursuant to 11 U.S.C. sec.

523(a)(1)(B)(i) the U.S. Bankruptcy Court did not discharge

petitioners from their unpaid liability for 1996 and petitioners’

unpaid liability for 1997.

     Based upon our examination of the entire record before us,

we find that respondent did not abuse respondent’s discretion in

determining to proceed with the collection action as determined

in the notice of determination with respect to petitioners’

taxable years 1996, 1997, and 1999.

     Although respondent does not ask the Court to impose a


     6
      We have recently observed: “The majority of courts,
including this Court, have held that, generally, a return that
contains only zeros is not a valid return.” Cabirac v.
Commissioner, 120 T.C. 163, 169 (2003).
                              - 39 -

penalty on petitioners under section 6673(a)(1), the Court will

sua sponte determine whether to impose such a penalty.   Section

6673(a)(1) authorizes the Court to require a taxpayer to pay to

the United States a penalty in an amount not to exceed $25,000

whenever it appears to the Court, inter alia, that a proceeding

before it was instituted or maintained primarily for delay, sec.

6673(a)(1)(A), or that the taxpayers’ position in such a

proceeding is frivolous or groundless, sec. 6673(a)(1)(B).

     In Pierson v. Commissioner, 115 T.C. 576, 581 (2000), we

issued an unequivocal warning to taxpayers concerning the

imposition of a penalty under section 6673(a)(1) on those

taxpayers who abuse the protections afforded by sections 6320 and

6330 by instituting or maintaining actions under those sections

primarily for delay or by taking frivolous or groundless

positions in such actions.   The Court’s May 29, 2003 Order

reminded petitioners about section 6673(a)(1).   Before the trial

in this case began, the Court again reminded petitioners about

section 6673(a)(1) and indicated that if petitioners advanced

frivolous and/or groundless arguments at trial, the Court would

impose a penalty on them under that section.   During the trial,

upon questioning by the Court, Mr. Frey indicated that

petitioners continue to adhere to the statements, contentions,

arguments, requests, and questions set forth in petitioners’

attachment to petitioners’ 1996 Form 1040 and petitioners
                              - 40 -

attachment to petitioners’ 1997 Form 1040A.

     On the record before us, we find that petitioners have

advanced, we believe primarily for delay, frivolous and/or

groundless statements, contentions, arguments, requests, and

questions with respect to their taxable years 1996, 1997, and

1999, thereby causing the Court to waste its limited resources in

addressing such matters.   As a result of petitioners’ position

and actions in the instant case with respect to those taxable

years, we shall impose a penalty on them pursuant to section

6673(a)(1) in the amount of $4,000.

     We have considered all of petitioners’ statements,

contentions, arguments, requests, and questions that are not

discussed herein, and we find them to be without merit and/or

irrelevant.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent.
