                              T.C. Memo. 2012-284



                         UNITED STATES TAX COURT



      ROBERT G. FIELDER AND DEBORAH R. FIELDER, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 23473-11L.                         Filed October 4, 2012.



      Robert Alton West, for petitioners.

      John Chinnapongse and Jessica R. Browde, for respondent.



                           MEMORANDUM OPINION


      LARO, Judge: Petitioners, while residing in California, petitioned the Court

under section 6330(d) to review a determination by respondent’s Office of

Appeals (Appeals) sustaining a proposed levy to collect from petitioners
                                              -2-

[*2] $98,891.37 of unpaid tax liabilities for 2007.1 This collection case is now

before the Court on respondent’s summary judgment motion. See Rule 121.

Despite a Court order to do so, petitioners have failed to file a response to the

motion. We are asked to decide whether respondent is entitled to a summary

adjudication that Appeals did not abuse its discretion in sustaining the proposed

levy. We hold that he is not so entitled because we find there is a genuine dispute

as to material facts with respect to respondent’s assessment of additions to tax

relating to petitioners’ 2007 return.

                                           Background

         Our background statement of this case is derived from the pleadings and

various exhibits submitted in support of the motion for summary judgment.

         On or about July 30, 2009, petitioners filed their 2007 Federal income tax

return (2007 return). Respondent assessed the tax shown on the 2007 return and

additions to tax as follows:

                                                            Additions to tax
                              Date of             Sec.           Sec.            Sec.
  Year        Deficiency     Assessment        6651(a)(1)     6651(a)(2)        6654(a)
 2007        $103,656.81       8/31/2009       $15,380.96     $5,778.81        $1,193.27




         1
       Unless otherwise indicated, section references are to the Internal Revenue
Code, and Rule references are to the Tax Court Rules of Practice and Procedure.
                                          -3-

[*3] In addition, respondent assessed statutory interest of $5,553.24.

      Respondent sent to petitioners by certified mail a Final Notice of Intent to

Levy and Notice of Your Right to a Hearing (CDP notice) dated March 22, 2010.

The CDP notice notified petitioners that respondent proposed to levy on their

property or property rights to collect from them unpaid tax liabilities totaling

$98,891.37. The CDP notice also advised petitioners of their right to a hearing with

Appeals as to the proposed levy. In response to the CDP notice, petitioners mailed

to respondent a Form 12153, Request for a Collection Due Process or Equivalent

Hearing, dated March 27, 2010. On the Form 12153, petitioners requested

respondent to consider an installment agreement as a collection alternative.2

Petitioners did not provide any specific terms for the installment agreement.

Appeals assigned petitioners’ collection due process (CDP) hearing request to

Settlement Officer Robert Baxter (SO Baxter).

      By letter dated September 20, 2010, SO Baxter informed petitioners that he

had scheduled a CDP hearing by telephone for October 28, 2010 (October 28

conference). The letter advised petitioners that SO Baxter could consider


      2
        The Form 12153 indicated the hearing request was also made with respect to
a notice of Federal tax lien filing and reflected petitioners’ desire to have the lien
withdrawn. Respondent represents to the Court that his records do not suggest that
a lien was filed for 2007.
                                         -4-

[*4] alternative collection methods, such as an installment agreement or an offer-in-

compromise, only if petitioners filed within 14 days a completed Form 433-A,

Collection Information Statement for Wage Earners and Self-Employed Individuals

(Form 433-A).

      On October 19, 2010, petitioners submitted to Appeals by facsimile a Form

433-A (first Form 433-A). The first Form 433-A indicated that petitioner Robert

Fielder was a self-employed farmer and petitioner Deborah Fielder was a self-

employed owner of a wireless store. Petitioners further indicated that they had

$2,053.76 in two checking accounts and owned real property described as

“HOME/FARM” in McArthur, California (McArthur property), with a claimed

fair market value of $750,0003 subject to a $400,000 liability. The first Form 433-

A also stated petitioners had equity of $13,000 in two personal vehicles and

various household furnishings with unknown fair market values. Petitioners also

indicated that they received Social Security benefits and child support of $3,365

per month and incurred monthly living expenses of $6,670. The copy of the first

Form 433-A respondent provided as part of the record does not include pages 5




      3
        Petitioners put two question marks next to the fair market value, possibly
indicating that the figure was only an estimate or a conjecture.
                                            -5-

[*5] and 6 on which we would normally expect to find petitioners’ self-employment

income information.

       On October 28, 2010, SO Baxter called petitioners at the scheduled time, and

Mr. Fielder received the call. Mr. Fielder appeared to be upset about the interest

accrued. Mr. Fiedler also complained to SO Baxter that the additions to tax were

unfair because petitioners had requested and were granted an extension of time to

file the 2007 return until October 15, 2008, and had called the Internal Revenue

Service (IRS) before the due date to inform the IRS that his accountant was no

longer preparing tax returns. Following some back-and-forth, Mr. Fielder stated he

had had the 2007 return prepared as quickly as possible. In addition, Mr. Fielder

explained to SO Baxter that he had sold some property for a reduced amount of

$50,000 and offered to satisfy petitioners’ tax liabilities with the $50,000 because,

as he claimed, that was all the money they had. Mr. Fielder also advised SO Baxter

that he had listed the McArthur property for sale and suggested that respondent use

the proceeds from the sale to satisfy petitioners’ tax liabilities.

       In response, SO Baxter first explained that the interest accrued was not a

result of ministerial error. SO Baxter also inquired about petitioners’ self-

employment income and informed Mr. Fielder that he had not completed the self-

employment portion of the first Form 433-A, to which Mr. Fielder responded that
                                          -6-

[*6] he was unable to get the required information. SO Baxter also noted there was

no record showing petitioners had filed their 2009 Federal income tax return,

although Mr. Fielder replied that he and his wife had filed a return for 2009 and had

a letter stating that there was an overpayment of $4,608. SO Baxter advised

petitioners that they had to file an offer-in-compromise with respondent in order for

respondent to consider their offer to settle the case for $50,000 or for the proceeds

from the sale of the McArthur property if and when the property were in fact sold.

In addition, SO Baxter informed petitioners that he needed to consult with the

Appeals team manager as to whether they could enter into a collateral agreement

with respondent with respect to the McArthur property.

        Following the October 28 conference, SO Baxter transferred petitioners’

hearing request to another Appeals office to consider the collateral agreement that

he had discussed with Mr. Fielder. Consequently, Appeals reassigned the hearing

request to Settlement Officer Vander Linden (SO Vander Linden) on November 5,

2010.

        On December 14, 2010, respondent received from petitioners a signed Form

656, Offer in Compromise, and an unsigned Form 433-A in support of the offer-

in-compromise (second Form 433-A). Petitioners offered to compromise their

unpaid 2007 tax liabilities for a lump-sum payment of $30,000 payable within one
                                         -7-

[*7] month of acceptance. In the section entitled “Explanation of Circumstances”

petitioners explained that Mr. Fielder’s heart condition (and related surgeries) had

prompted his early retirement. Petitioners also explained they would secure the

funds for their offer-in-compromise from their adult children.

      The second Form 433-A was mostly the same as the first Form 433-A with a

few notable exceptions. First, petitioners’ available cash had decreased from

around $2,050 to $1,150. Second, petitioners had begun leveraging themselves with

credit card debt--two cards were quickly approaching their limits. Third, and most

significantly, petitioners claimed the fair market value of the McArthur property was

$400,000 and not $750,000 as reported on the first Form 433-A. The reduced fair

market value left petitioners with zero equity in the McArthur property. Petitioners

did not complete any section reporting that they had earned income.

      In response to petitioners’ offer-in-compromise, SO Vander Linden mailed

them a letter dated February 8, 2011, informing them that they must: (1) complete

the self-employment income portion on the second Form 433-A, (2) provide a

more recent and signed Form 433-A (third Form 433-A), (3) submit financial

documents to support their offer-in-compromise, (4) provide proof that their 2009

return was filed, and (5) submit other documentation and information showing
                                          -8-

[*8] they were in compliance with their Federal tax obligations. SO Vander Linden

noted in the letter that he could not consider any collection alternative unless

petitioners provided all requested information. SO Vander Linden scheduled a

second CDP hearing with petitioners by telephone for February 22, 2011 (February

22 hearing).

      Before the February 22 hearing petitioners sent to Appeals a package of

financial information which Appeals received on February 17, 2011. An

enclosure letter stated petitioners’ belief that they had included (1) a completed

and signed third Form 433-A, (2) all requested financial documents, (3) a copy of

their 2009 return, and (4) various explanations as to the amount of petitioners’

income. The package included the third Form 433-A signed by Mr. Fielder but

not Mrs. Fielder and a copy of petitioners’ efiled 2009 Federal income tax return

signed by both petitioners.4 The third Form 433-A reported that Mrs. Fielder’s

business earned zero monthly income and incurred monthly expenses of more than

$2,400. The third Form 433-A did not include detailed information about

petitioners’ monthly income and living expenses, though they included various


      4
        Respondent contends only Mr. Fielder executed the 2009 Federal tax return.
However, included as part of the 2009 Federal tax return was Form 8879, IRS e-file
Signature Authorization, which clearly shows both petitioners signed and dated the
e-filed return.
                                         -9-

[*9] financial information, such as bank statements, proof of vehicle and real

property insurance premiums, proof of health insurance premiums, proof of

mortgage payments, credit card statements, and utilities statements. The third Form

433-A, like the second Form 433-A, reported that the claimed fair market value of

the McArthur property was $400,000.

      During the February 22 hearing SO Vander Linden reviewed with Mr.

Fielder the CDP hearing process and Appeals’ criteria for accepting petitioners’

offer-in-compromise. SO Vander Linden noted that he had not concluded which

collection alternative was the most appropriate and would be able to do so only if

he had “a complete picture of the taxpayers’ financial circumstances.” SO Vander

Linden asked Mr. Fielder whether there were any remaining investments, section

401k plans, or retirement accounts. In addition, SO Vander Linden pointed out

several compliance issues that needed to be resolved before he could consider

petitioners’ offer-in-compromise, including employment taxes relating to the cell

phone business and any unfiled Federal income tax returns relating to a veterinary

business petitioners previously owned. On the issue of valuing the McArthur

property, SO Vander Linden suggested that Mr. Fielder obtain from petitioners’

realtor a “realistic” market appraisal and from the county assessor the assessed

value of the McArthur property for property tax purposes. Finally, SO Vander
                                        -10-

[*10] Linden requested that petitioners provide a current income statement for 2010

for the cell phone business.

      Mr. Fielder responded that petitioners had income from Social Security

benefits that he and his daughter received monthly. He also acknowledged that Mrs.

Fielder regularly received supplemental Social Security benefits for her chronic back

pain. Mr. Fielder pointed out that these benefit payments were petitioners’ only

consistent source of income. Mr. Fielder noted that the farming business income

was small and sporadic and that the cell phone business reported losses in 2009 and

might have also suffered a loss in 2010. Mr. Fielder also stated that they had no

investment or retirement accounts. At the end, Mr. Fielder agreed to provide an

appraisal for the McArthur property from his realtor and obtain assessor information

from the county. Mr. Fielder also agreed to work with SO Vander Linden to resolve

the compliance issues and provide a 2010 income statement for the cell phone

business.

      After the February 22 hearing, petitioners submitted to the Appeals office a

“comparable market analysis” (analysis) prepared by Coldwell Banker and dated

March 3, 2011. The analysis stated that the appraiser had reviewed active

properties for sale that were most comparable to the McArthur property and

properties that had been sold in the previous two years in the same market as the
                                         -11-

[*11] McArthur property. After adjusting values of the comparable properties,

Coldwell Banker concluded that “if Mr. and Mrs. Fielder had to close escrow on

their property in the next 30 - 60 days in this very poor market, they would have to

consider marketing the property at ‘fire sale’ pricing within the range of $480,000 -

$525,000.” The analysis also noted that any sale would likely be a cash sale

because financing would be difficult.

      SO Vander Linden followed up with telephone calls to petitioners on March

29 and 30, 2011. During these calls SO Vander Linden requested a 2010 income

statement or a draft of the 2010 Federal income tax return for the cell phone

business. SO Vander Linden asked petitioners to submit the requested information

within the week. In the interim SO Vander Linden collected information showing

that the McArthur property was assessed for property tax purposes at around

$750,000.

      For reasons not clear from the record, the next communication between

petitioners and SO Vander Linden occurred almost five months later. On August

26, 2011, SO Vander Linden held a final telephone conference with Mr. Fielder.

SO Vander Linden had requested from petitioners a draft of the 2010 Federal tax

return and a year-to-date income statement for the cell phone business, but Mr.

Fielder indicated he would not be able to provide this information because his
                                         -12-

[*12] accountant was still working on resolving some issues in the prior years’

returns and would not be able to file the 2010 return until those issues were

resolved. Mr. Fielder asserted the cell phone business was operating at a loss.

      SO Vander Linden and petitioners also discussed the discrepancy between

the appraised value and the assessed value of the McArthur property. Mr. Fielder

indicated petitioners had appealed the assessment and were awaiting the result.

Without current income information and a more definitive valuation of the McArthur

property, SO Vander Linden explained, he could offer only to place the collection

case on currently not collectible (CNC) status until petitioners could provide

updated income statements and a more definitive determination of the McArthur

property’s value. Mr. Fielder declined SO Vander Linden’s offer and insisted SO

Vander Linden take petitioners’ settlement offer as is. The conferences ended there.

      On September 9, 2011, SO Vander Linden sent to petitioners a Notice of

Determination Concerning Collection Action(s) Under Section 6320 and/or 6330,

sustaining the levy action. In the notice of determination, Appeals rejected

petitioners’ offer-in-compromise for two reasons. First, Appeals stated it was not

able to determine the correct fair market value of the McArthur property. Second,
                                         -13-

[*13] petitioners did not submit to Appeals the requested income statements for the

farming and the cell phone businesses.

      Petitioners timely petitioned the Court to challenge the notice of

determination. In the petition, petitioners claim Appeals erred in not deferring

respondent’s levy action and in rejecting petitioners’ offer-in-compromise.

Petitioners also claim they are not liable for any additions to tax respondent

determined.

                                      Discussion

      Summary judgment may be granted with respect to all or any part of the

legal issues in controversy where the record establishes “that there is no genuine

dispute as to any material fact and that a decision may be rendered as a matter of

law.” Rule 121(a) and (b); Craig v. Commissioner, 119 T.C. 252, 259-262 (2002).

As the moving party, respondent bears the burden of proving that there is no

genuine dispute of material fact, and factual inferences are viewed in the light

most favorable to petitioners as the nonmoving party. See Craig v. Commissioner,

119 T.C. at 260. Respondent supports his motion with the pleadings, a declaration

from SO Vander Linden, and various exhibits. Petitioners did not file a response

to respondent’s motion. Nonetheless, the Court finds that respondent has failed to

meet his burden to show there is no genuine dispute of material fact with respect
                                          -14-

[*14] to whether petitioners are liable for the additions to tax. Accordingly,

summary judgment is not appropriate and the motion must be denied.

      Respondent asserts he is entitled to judgment as a matter of law for two

reasons. First, respondent contends that petitioners may not dispute the additions to

tax because they did not properly raise this issue at the CDP hearing. Second,

respondent asserts that Appeals did not abuse its discretion in rejecting petitioners’

offer-in-compromise.5 We disagree with respondent that there are not material facts

at issue because, as we find, the record supports a finding that petitioners asserted

during the CDP hearing that they are not liable for the additions to tax.

      Section 6330(c)(2)(B) permits taxpayers to challenge at a CDP hearing the

existence or amount of the underlying tax liability to which a collection action

relates only if the taxpayers did not receive a notice of deficiency for the liability or

did not otherwise have an opportunity to dispute the liability. In addition, upon

petition to the Court under section 6330(d)(1) to review Appeals’ determinations,

taxpayers may dispute the underlying tax liability only if they raised the issue at the

CDP hearing under section 6330(c)(2)(B). See Giamelli v. Commissioner, 129

T.C. 107, 112-114 (2007). Requiring taxpayers to raise liability issues first with

      5
      For purposes of discussing respondent’s entitlement to summary judgment,
we consider only petitioners’ $30,000 offer-in-compromise, the only offer submitted
on Form 656.
                                          -15-

[*15] the Appeals Office preserves the Appeals officer’s role in the administrative

review process and ensures any judicial consideration of such issues would not

frustrate Congress’ intent to streamline this review process. See id. at 114-115.

      Respondent takes the position in his motion that petitioners did not properly

assert they are not liable for the additions to tax because they did not raise the

dispute in their Form 12153 hearing request. As respondent sees it, the record

supports his assertion that petitioners were merely confirming the accuracy of the

information given to them by the IRS and were not substantively disputing the

existence or amount of the liability.

      SO Baxter’s case activity record shows that Mr. Fielder challenged the

additions to tax during the October 28 conference.6 Mr. Fielder told SO Baxter

that he “thought that the penalty assessment was unfair.” Then, Mr. Fielder

continued to explain that he was not able to file the 2007 return timely because his

accountant had stopped preparing tax returns for petitioners and that was “as fast as

he could get it done.” Moreover, the case activity record shows SO Baxter

considered Mr. Fielder’s assertions and attempted to explain why the imposition of

the additions to tax was correct. Thus, we decline to find on the record before us


      6
        The record indicates petitioners never received a notice of deficiency for the
year at issue.
                                          -16-

[*16] that Mr. Fielder’s statements were not a challenge to the underlying tax

liabilities. Construing the facts in the light most favorable to petitioners, we believe

it is quite possible that Mr. Fielder was making the case during the CDP hearing that

they should not be liable for the additions to tax.7

      Nor do we accept respondent’s position that petitioners were precluded from

challenging the additions to tax because they did not raise the issue in their Form

12153 hearing request. Neither the statute nor our caselaw requires a taxpayer to

raise the liability issue in the request for a CDP hearing for it to be considered

properly at issue. The statute provides only that a taxpayer may raise the issue of

underlying tax liability at the CDP hearing if the taxpayer did not receive a notice

of deficiency or did not otherwise have an opportunity to dispute such tax liability,

and the determination by an Appeals officer is subject to judicial review under

section 6330(d). See sec. 6330(c)(2)(B), (d); Giamelli v. Commissioner, 129 T.C.

at 112-113. The statute does not speak to the timing for raising the issue. The




      7
        We find other errors in the notice of determination which raise doubt as to
respondent’s entitlement to summary adjudication. Specifically, respondent states
that Mrs. Fielder did not sign and date the 2009 Federal return which petitioners
provided before the February 22 hearing. The record is clear, however, that both
petitioners signed and dated the efiled return. See supra note 4. Further, the notice
of determination does not show that SO Vander Linden considered the additions to
tax issue raised by petitioners as he was required to do under sec. 6330(c)(3)(B).
                                          -17-

[*17] issue of underlying liability will be considered properly raised if a taxpayer

raises it at any time during a CDP hearing. See Collier v. Commissioner, T.C.

Memo. 2004-171, 88 T.C.M. (CCH) 38, 40 (2004) (reviewing issue of underlying

liability for abuse of discretion because “[n]othing in the record indicates that

petitioner has at any time throughout the administrative * * * proceedings * * *

attempted to challenge his underlying tax liability”); cf. Schwartz v. Commissioner,

T.C. Memo. 2008-117, 95 T.C.M. (CCH) 1427, 1430 n.9 (noting liability is not at

issue because, while taxpayer raised it in their requests for a CDP hearing, taxpayer

did not pursue the claim at the hearing), aff’d, 348 Fed. Appx. 806 (3d Cir. 2009).

      Respondent further claims petitioners may not raise the issue relating to the

additions to tax in their judicial proceeding because they did not “dispute that they

failed to timely file and pay” and were not substantively disputing the existence or

amount of the liability. Appeals’ case activity record appears to contradict

respondent’s factual assertion because the record tends to show petitioners raised

their affirmative defenses under section 6651. Thus, the issue was properly raised

in the petition. See Giamelli v. Commissioner, 129 T.C. at 115.

      Finally, we note that respondent’s reliance on Zapara v. Commissioner, 124

T.C. 223 (2005), aff’d, 652 F.3d 1042 (9th Cir. 2011), is misplaced. Respondent
                                          -18-

[*18] argues that petitioners have abandoned the issue of their liability for the

additions to tax because they failed to raise it in hearings after the October 28th

conference. Zapara is inapposite at this early stage of the proceeding. In Zapara,

the Court found the taxpayers abandoned an argument made in the pretrial

memorandum and at trial because they did not advance their argument on brief.

Here, petitioners have not yet been ordered to file a brief on the issues raised at the

CDP hearing. As long as petitioners raised the issue at the hearing to provide the

settlement officers an opportunity to consider the issue and petitioners’ arguments

and evidence relating to it, the Court is satisfied that the issue was properly raised at

the hearing. See Giamelli v. Commissioner, 129 T.C. at 114-115; 301.6330-1(f),

Q&A-F3, Proced. & Admin. Regs. Whether petitioners can establish that their

failures to file and to pay were due to reasonable cause and not to willful neglect is

an issue best decided following trial.

      To reflect the foregoing,


                                            An appropriate order will be issued

                                     denying respondent’s motion.
