                              T.C. Memo. 2013-130



                       UNITED STATES TAX COURT



             JOEL I. BEELER, Petitioner v. COMMISSIONER OF
                     INTERNAL REVENUE, Respondent*



      Docket No. 20892-07L.                     Filed May 22, 2013.



      Richard Stephen Kestenbaum and Bernard Mark, for petitioner.

      Marc L. Caine, for respondent.



                SUPPLEMENTAL MEMORANDUM OPINION


      GOEKE, Judge: This is a collection due process case on remand from the

Court of Appeals for the Second Circuit. Given the mandate from the Court of



      *
       This opinion supplements Beeler v. Commissioner, T.C. Memo. 2009-266,
vacated and remanded, 434 Fed. Appx. 41 (2d Cir. 2011).
                                         -2-

[*2] Appeals as explained herein, we sustain respondent’s proposed collection

action for a reduced amount.

                                     Background

      In Beeler v. Commissioner, T.C. Memo. 2009-266, vacated and remanded,

434 Fed. Appx. 41 (2d Cir. 2011), we addressed the only argument which we

perceived Beeler had raised and ruled that argument was legally flawed. He had

argued that respondent’s filing of Form 688(Z), Certificate of Release of Federal

Tax Lien, for a related tax lien operated to satisfy his trust fund obligations as a

responsible officer under section 6672.1 This position is simply incorrect, as

Beeler conceded in the Court Of Appeals and the Court of Appeals acknowledged

in its summary order. Beeler v. Commissioner, 434 Fed. Appx. 41. However, on

appeal, Beeler argued that the trust fund obligation which had been reduced to a

judgment in 1995 had in fact been previously satisfied by payment. In our earlier

opinion we found that Beeler himself had not paid the judgment, and he presently

does not argue that he actually paid it. Nevertheless, the Court of Appeals

determined that we had not adequately explained why the judgment was not

satisfied. The Court of Appeals stated as follows:

      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.
                                         -3-

[*3]           Because of the lack of clarity in Beeler’s Tax Court briefs, the
       Tax Court understandably only considered whether the filing of a
       Certificate of Release itself extinguishes a tax liability and did not
       state any reasons for determining that Beeler had not satisfied his
       TFRP [trust fund recovery penalty] obligation. Instead, the Tax Court
       merely ruled on the legal issue and concluded--without any analysis--
       that Beeler remained liable. Thus although our review is for clear
       error, we conclude that the Tax Court has not sufficiently presented
       the factual basis for its finding, such as we may review it. We
       therefore vacate the judgment of the Tax Court and remand this case
       for clarification of the factual basis for its finding that Beeler’s TFRP
       liability was not satisfied. [Id. at 42.]

       The Court of Appeals also added a concern with the IRS’ conduct in this

case in a lengthy footnote which reads as follows:

       Although we resolve this appeal in the manner discussed above, we
       express concern over the Internal Revenue Service’s conduct,
       including: (1) its admittedly erroneous filing of the Certificate of
       Release of Federal Tax Lien; (2) its use of language in the Certificates
       of Release of Federal Tax Lien, “certify[ing] that [Beeler] * * *
       satisfied the taxes listed below and all statutory additions”; (3) its
       subsequent notice to Beeler of its intent to levy his property five years
       after releasing the liens; (4) adopting a policy in the since-removed
       Section 5.17.2.3.6 of the Internal Revenue Manual (“I.R.M.”), which
       facially contradicts I.R.C. § 6325(f)(2); (5) the general failure at
       maintaining accurate records concerning what taxes were owed and
       what payments were made by Beeler--at least as presented in the
       appellate record; (6) erroneously making entries in the account
       transcripts of Equidyne’s other officers, Stuart Ross and Robert
       Liebmann, that indicated that the statute of limitations on collection
       of judgments against them had expired. We do not address whether
       this conduct has any legal impact on Beeler’s underlying tax liability
       and write only to express our concern over the IRS’s handling of this
       matter. [Id. at 43 n.2.]
                                        -4-

[*4] We construe the Court of Appeals’ mandate to be that we determine not

simply whether Beeler paid the judgment but whether either of the other two

parties held to be responsible persons for the trust fund obligation might have

satisfied the judgment, thus relieving Beeler of his obligation to pay in the posture

of the case presented on appeal. A second trial was conducted and additional

evidence was admitted. This opinion explains why we find on the present record

that a portion of the obligation should be deemed paid.

      We will not reiterate all the findings from our earlier opinion but rather will

focus primarily on the record regarding the possible payment of the responsible

person penalty.

      The liability at issue is the trust fund recovery penalty (TFRP) for the

taxable period ending March 31, 1982. A judgment based upon this liability was

entered against Beeler and two other officers of Equidyne Management, Inc.

(Equidyne), Stuart Ross (Ross) and Robert Liebmann (Liebmann), 13 years after

the corporation failed to pay the employment taxes for quarters in 1982. The

opinion related to this judgment is reported at Beeler v. United States, 894 F.

Supp. 761 (S.D.N.Y. 1995). The judgments against the three individuals were not

in the same amounts. The judgment was against Beeler for $154,032.05, against

Ross for $117,483.72, and against Liebmann for $153, 984.92. At the second
                                          -5-

[*5] trial, it was not contended that Liebmann made any significant payment on

the judgment against him, and Beeler did not argue that he himself paid any

portion of the judgment against him. The factual dispute remaining is whether in

bankruptcy proceedings the judgment against Ross was collected. Given the fact

that the judgment against Ross was less than the judgment against Beeler, it would

appear the judgment against Beeler could not have been satisfied in full through

payments in Ross’ bankruptcy proceedings; but as the Court of Appeals has

observed, Beeler was informed on several occasions by the Internal Revenue

Service (IRS) that his liability had been satisfied.

       Until the judgments against the three responsible officers in 1995, there are

no apparent irregularities in the efforts to collect the unpaid trust fund liabilities;

and Beeler’s participation in Equidyne’s failure to meet its trust fund obligations is

explained in detail in the District Court’s opinion. He does not come to the

current case free of blame for the fact the TFRP remained unsatisfied from 1982

through 1995.

      Ross filed a petition for bankruptcy on December 8, 1983. Related to this

complex bankruptcy proceeding, $80,860.20 was paid to the IRS on behalf of

Ross pursuant to a global settlement among the IRS, the trustee of American

Leisure Industries, the trustee of Ross’ bankruptcy, and others on October 10,
                                       -6-

[*6] 1995. Ross owed various liabilities to the IRS, and it is uncertain whether

this payment satisfied a portion of the judgment against Ross arising from the

TFRP. The record in the present case does not reflect any payments to the IRS for

the TFRP in the Ross bankruptcy proceedings.

      The TFRP was assessed on March 25, 1985. After the assessment the IRS

filed notices of Federal tax lien in New York County, New York and Sarasota,

Florida.

       In November 1986 Beeler commenced the action in the District Court for

the Southern District of New York which led to the judgments against him, Ross,

and Liebmann. He sought the refund of $124. 28 paid toward the assessed

amount. The United States filed a counterclaim against Beeler and third-party

actions against the other two which resulted in the judgments in September 1995.

      Despite the judgments and the IRS transcripts of account which do not show

any significant payments by Beeler, Ross, or Liebmann, the IRS filed certificates

of release of Federal tax lien in both New York County and Sarasota in February

2000. Why this happened is one of the principal factual issues in this case.

Beeler’s account with the IRS contained a code, TC 520 CC80, which indicates

pending litigation. This code was appropriate while the District Court case was

pending but should have been removed in 1995. It was not removed until 2005.
                                         -7-

[*7] The IRS employee who discovered the code in 2005 had no prior history in

this matter, no knowledge of any collection activities, and no involvement in Ross’

bankruptcy. The inexplicable failure by IRS employees to realize the District

Court had entered a judgment against Beeler resulted in the IRS’ incorrectly

computing the period of limitations, incorrectly failing to list the TFRP as a

liability in correspondence sent to Beeler in 1997, and incorrectly releasing the tax

lien in 2001.

                                     Discussion

I. Burden of Proof

      Under Rule 142(a)(1), the burden of proof is generally upon the taxpayer

except as otherwise provided by statute or determined by the Court. At the outset

of the second trial in this case, the Court determined that because of the unique

factual circumstances and the mandate of the Court of Appeals, the burden of

proof regarding any third-party payments of the TFRP should be on respondent.

Respondent continues to object to this ruling, and we will begin with an

explanation.

      Generally, IRS records of a taxpayer’s account are presumed accurate and

can be relied upon such that it is logical to require the taxpayer to provide the

evidence to support any challenge those records. In the present case, the first trial
                                         -8-

[*8] record shows as does the supplemental record in the second trial that the IRS’

records reflect no payment made regarding Beeler’s TFRP account. Obviously,

this evidence was not deemed compelling by the Court of Appeals; and given the

IRS’ admitted errors in the transcripts of account, it is not difficult to understand

why. Because it is reasonable to expect Beeler to know what he has paid, even

after all these years, we would not shift the burden of proof regarding his own

payments; but it is not disputed that he made none.

      After the IRS errors noted by the Court of Appeals and the lapse of time, we

do believe this case requires respondent to prove by a preponderance of the

evidence that neither Liebmann nor Ross paid the TFRP in whole or in part so as

to relieve Beeler of his liability. There were admitted irregularities in the IRS’

records in this case, and those errors are largely responsible for the current

controversy. Accordingly, respondent must now bear the burden of proof.

II. Other Potential Payers

      A. Liebmann

      The parties have stipulated Liebmann’s declaration in which he states

definitively that he did not pay any significant amount in satisfaction of the TFRP.

Beeler does not maintain that Liebmann paid the liability.
                                        -9-

[*9] B. Equidyne

      Equidyne no longer existed as a corporate entity at the time of the TFRP

judgments against Beeler, Liebmann, and Ross. By a preponderance of the

evidence we find that Equidyne made no payments in satisfaction of the TFRP.

      C. Ross

      Two witnesses testified about their analysis of the incomplete records

regarding payments made by the trustee of the bankruptcy of Ross and the trustee

of American Leisure Industries. Neither witness had contemporaneous knowledge

of the bankruptcy proceedings. One of these witnesses was Beeler, who

propounded his theory that two separate payments flowed through the trustees to

the IRS to pay the TFRP. One of these payments, of $64,000, was actually a

transfer between the trustees, and there is no evidence to support the assertion the

amount was paid to the IRS. Beeler’s representatives do not assert on brief that

the $64,000 amount was ever actually paid to the IRS. However, in the

subsequent global settlement by both trustees and various creditors, $80,860.20

was paid to the IRS. For what specific liabilities of Ross or American Leisure

Industries this payment was made is unknown as the IRS’ records regarding the

bankruptcy payments have long been destroyed. The other witness on this topic

was an IRS bankruptcy specialist who credibly testified on the basis of the
                                        - 10 -

[*10] bankruptcy documents in the record that the only payments specifically

made for Ross’ liabilities from Ross’ personal bankruptcy were paid for income

tax liabilities, not the TFRP. The same witness admitted that he could not specify

what liabilities were satisfied by the $80,860.20 payment. Because Ross went

into bankruptcy long before the judgment against him, the bankruptcy trustee

payments would be the only source that could have satisfied the TFRP judgment

against him. We previously noted that the judgment against him was less than the

judgment against Beeler by roughly $40,000. Accordingly, the preponderance of

the evidence would not support the theory that the trustees totally satisfied the

judgment against Beeler. In addition, the nature of the global Ross bankruptcy

settlement in the fall of 1995 makes it unlikely a separate payment of $64,000

preceded the $80,860.20 payment. However for the reasons explained earlier, we

will hold the uncertainty as to what was satisfied by the $80,860.20 against

respondent and find that this payment should be offset against Beeler’s TFRP

judgment.

      There is an anomaly in the IRS’ records of Ross which show $60,773.19

credited with a code of 231 in 1994 . We are satisfied, upon a preponderance of

the evidence, that this was not a payment, but rather that the entry was to offset a

previous error. In any event, we have credited Beeler’s liability for an amount in
                                       - 11 -

[*11] excess of this entry on the basis of the subsequent global settlement in the

Ross-related bankruptcies.

      In conclusion, we hold by a preponderance of the evidence that the only

amount which could have satisfied the TFRP was $80,860.21 and that respondent

has failed to show this amount should not be credited to offset Beeler’s liability. A

computation will be required to fix the current liability which should be subject to

collection.


                                                     Decision will be entered

                                                under Rule 155.
