                        T.C. Memo. 2004-88



                      UNITED STATES TAX COURT



     DENNIS BURBRIDGE AND ROSEMARY BURBRIDGE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8415-02L.           Filed March 26, 2004.



     Dennis Burbridge, pro se.

     Robert Mopsick, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   Petitioners seek review of respondent’s

notice of determination sustaining a notice of intent to levy

relating to petitioners’ 1993 Federal income tax liability.

     All section references are to the Internal Revenue Code in

effect for the year in issue.
                               - 2 -
     Unless otherwise specified, references to petitioner in the

singular are to petitioner Dennis Burbridge.


                          FINDINGS OF FACT

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

     At the time the petition was filed, petitioners resided in

Cranford, New Jersey.

     Prior to her death on May 27, 1993, petitioner’s mother

maintained with AIG Life Insurance Co. (AIG) a nonqualified

single premium annuity.   Petitioner was the beneficiary of the

annuity.

     In 1993, after the death of petitioner’s mother, AIG

distributed to petitioner the total $109,737 payable under the

annuity.   AIG reflected the total $109,737 distribution on a Form

1099-R, Distributions From Pensions, Annuities, Retirement or

Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which Form

1099-R was mailed by AIG to petitioner and to respondent.   On the

Form 1099-R, $44,741 of the total distribution was shown as

taxable income.

     As of July 1995, respondent’s records indicated that

petitioner had not yet filed a Federal income tax return for

1993, and on July 5, 1995, respondent prepared for petitioner a

substitute 1993 individual Federal income tax return (substitute
                              - 3 -
return),1 on which respondent treated the above $44,741 shown on

the Form 1099-R as taxable income to petitioner.    On July 13,

1995, respondent mailed to petitioner a 30-day letter, Proposed

Individual Income Tax Assessment, treating the $44,741 as taxable

income to petitioner.

     On July 27, 1995, in response to the above 30-day letter,

petitioners untimely filed with respondent a Form 1040, U.S.

Individual Income Tax Return, which petitioners purported to be

their 1993 joint Federal income tax return.    On such Form 1040,

petitioners reflected petitioner’s receipt of the total $109,737

annuity distribution, but petitioners also treated the total

$109,737 as nontaxable income to petitioner.   Also on the Form

1040, petitioners showed no tax due and claimed a refund of

$377.2

     On September 17, 1996, respondent mailed to petitioner a

notice of deficiency for 1993, on which respondent determined an

income tax deficiency against petitioner of $9,285 based on the

taxability to petitioner of the $44,741 shown as taxable on the




     1
       We make no finding as to whether the substitute return
meets the requirements of sec. 6020(b). See McCarthy v.
Commissioner, T.C. Memo. 1989-479 (citing Roat v. Commissioner,
847 F.2d 1379, 1381-1382 (9th Cir. 1988), affg. an Order of this
Court).
     2
       Petitioners’ Form 1040 for 1993 has not been accepted by
respondent as a valid tax return because, contrary to the Form
1099-R, it reflected no portion of the $109,737 annuity
distribution as taxable income to petitioner.
                                - 4 -
Form 1099-R.   Respondent’s notice of deficiency was mailed only

to, and received only by, petitioner.

     Petitioner did not file a petition in this Court with regard

to the above notice of deficiency.      On February 24, 1997,

respondent assessed the $9,285 income tax deficiency set forth in

the notice of deficiency against both petitioners.

     On June 16, 2000, respondent mailed to both petitioners a

notice of intent to levy relating to the above 1993 tax

assessment.    On July 14, 2000, petitioner submitted to respondent

a request for a section 6330 hearing.

     On January 24, 2002, respondent’s Appeals officer mailed to

petitioners a letter notifying petitioners that respondent had

received petitioners’ request for a hearing.      On January 29,

2002, petitioner contacted the Appeals officer and scheduled a

hearing.   On February 5, 2002, petitioner and the Appeals officer

discussed the notice of intent to levy over the telephone

(telephone conference).3

     During the telephone conference, petitioner attempted to

challenge the underlying tax liability by claiming that the total

$109,737 annuity distribution had been included on his deceased



     3
       Originally, the Appeals Office hearing was scheduled to be
held in respondent’s office on Feb. 5, 2002, but, on the morning
of Feb. 5, petitioner called the Appeals officer and stated that
he could not attend the hearing at respondent’s office. The
Appeals officer suggested that they could discuss the notice of
intent to levy over the telephone, to which petitioner agreed and
which they proceeded to do.
                               - 5 -
mother’s Federal estate tax return that had been filed with

respondent.   During the telephone conference, respondent’s

Appeals officer informed petitioner that petitioner’s underlying

tax liability could not be challenged at the hearing because

petitioner had received a notice of deficiency with regard

thereto.   In connection with the hearing, the Appeals officer

also informed petitioner that respondent had no record indicating

that a Federal estate tax return had been filed on behalf of

petitioner’s deceased mother, and petitioner failed to provide to

the Appeals officer any proof that such a return had been filed.

     Also in connection with the hearing, the Appeals officer

reviewed petitioner’s case file and verified that all applicable

collection laws and administrative procedures were satisfied.

     On April 2, 2002, respondent issued to petitioners the

notice of determination sustaining the proposed levy.4


                              OPINION

     In the context of a section 6330 hearing, a challenge to the

taxpayer’s underlying tax liability will be considered only if

the taxpayer did not receive a notice of deficiency or otherwise

have a prior opportunity to dispute the underlying tax liability.




     4
       Respondent concedes that the assessment, the notice of
intent to levy, and the notice of determination mailed to
petitioners erroneously included petitioner Rosemary Burbridge.
                                 - 6 -
Sec. 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609

(2000); Goza v. Commissioner, 114 T.C. 176, 180-181 (2000).

     If the underlying tax liability is not at issue, we review

respondent’s notice of determination under an abuse of discretion

standard.     Sec. 6330(d)(1); Magana v. Commissioner, 118 T.C. 488,

493 (2002); Lunsford v. Commissioner, 117 T.C. 183, 185 (2001);

Sego v. Commissioner, supra at 609-610; Goza v. Commissioner,

supra at 181-182 (citing H. Conf. Rept. 105-599, at 266 (1998),

1998-3 C.B. 755, 1020).

     An abuse of discretion by respondent may be defined as an

action that is unreasonable, arbitrary, or capricious, clearly

unlawful, or lacking sound basis in law, taking into account all

the facts and circumstances.    See, e.g., Thor Power Tool Co. v.

Commissioner, 439 U.S. 522, 532-533 (1979); Ewing v.

Commissioner, 122 T.C. 32, 39-40 (2004); Swanson v. Commissioner,

121 T.C. 111, 119 (2003).

     In a section 6330 hearing, respondent is required to verify

whether the requirements of all applicable laws and

administrative procedures have been met, to consider issues

raised by a taxpayer, and to determine whether the proposed

collection action is more intrusive than necessary.    Sec.

6330(c)(3).
                               - 7 -
     Petitioner primarily argues that respondent erred by not

allowing petitioner to challenge the merits of the underlying tax

liability and by not conducting a face-to-face hearing.

     As stated, however, because petitioner received a notice of

deficiency, we do not have jurisdiction herein to consider

petitioner’s underlying tax liability.5   Sec. 6330(d)(1).

     The February 5, 2002, telephone conference between

petitioner and respondent’s Appeals officer was agreed to by

petitioner and constituted an appropriate hearing for purposes of

section 6330(b)(1).   See Day v. Commissioner, T.C. Memo. 2004-30;

Leineweber v. Commissioner, T.C. Memo. 2004-17; Dorra v.

Commissioner, T.C. Memo. 2004-16; sec. 301.6330-1(d)(2), Q&A-D6,

Proced. & Admin. Regs.

     During the hearing, petitioner failed to suggest any

collection alternatives or to raise any other valid concerns

regarding the notice of intent to levy.

     Respondent properly verified that the requirements of

applicable law and administrative procedures were met, and



     5
       Petitioner argues that, if the $109,737 annuity
distribution was properly included on petitioner’s deceased
mother’s Federal estate tax return under sec. 2039(a), no portion
of the annuity distribution would be taxable to petitioner as the
beneficiary of the annuity. We note that the validity of this
argument depends on a number of facts not in evidence, nor
relevant, for purposes of the issue in this collection case. If
petitioner believes that he can produce evidence that establishes
that the $109,737 annuity distribution was taxable to the estate
of petitioner’s deceased mother, petitioner’s remedy, if any,
would seem to lie in a claim for refund after full payment.
                                 - 8 -
respondent balanced the need for efficient collection of taxes

with the legitimate concern of petitioner that the collection

action be no more intrusive than necessary.

     Petitioner makes various other arguments, equally without

merit.

     Respondent did not abuse his discretion in sustaining the

notice of intent to levy as to petitioner.

     To reflect the foregoing,

                                         An order dismissing

                                   petitioner Rosemary Burbridge

                                   will be issued, and decision

                                   will be entered for respondent

                                   as to petitioner Dennis

                                   Burbridge.
