                              T.C. Memo. 2013-291



                        UNITED STATES TAX COURT



                CHRISTOPHER V. POHL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 23061-12L.                      Filed December 23, 2013.



      Christopher V. Pohl, pro se.

      Kathleen K. Raup, for respondent.



                          MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

seeks review pursuant to section 6330(d)(1) of the determination by the Internal
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[*2] Revenue Service (IRS or respondent) to uphold a notice of intent to levy.1

After concessions, the sole issue for decision is whether the IRS erred in

sustaining the notice of intent to levy and determining to proceed with collection

of frivolous return penalties, in the aggregate amount of $30,000, assessed against

petitioner for tax years 2005-10.2 The IRS has moved for summary judgment

under Rule 121, contending that there are no disputed issues of material fact and

that its action in sustaining the levy was proper as a matter of law. We agree and

accordingly will grant the motion.

                                     Background

      Petitioner earned wages and other compensation from various business

activities during 2005-10. He worked for several businesses and ran his own

window washing company, but his primary source of income was from his

employment at Borgata Hotel Casino & Spa in Atlantic City, New Jersey. His

income from Borgata began in 2005, grew in 2006, and averaged about $50,000 in

tax years 2007-10, when it became his main source of income. For all six tax


      1
        All statutory references are to the Internal Revenue Code (Code) in effect at
all relevant times, and all Rule references are to the Tax Court Rules of Practice
and Procedure.
      2
       Respondent has conceded an erroneous assessment of $2,529 in tax and
penalty for 2004 and duplicate assessments of frivolous return penalties for 2005-
10. All of those assessments are in the process of being abated.
                                         -3-

[*3] years at issue, petitioner and the IRS received third-party information returns

--i.e., Forms W-2, Wage and Tax Statement, and Forms 1099-MISC,

Miscellaneous Income--reporting the wages and nonemployee compensation that

petitioner received. The Forms W-2 showed a small amount of Federal income tax

withholding for two of the years at issue and no Federal income tax withholding

for the other years. The Forms W-2 reflected withholding of some employment

tax for each year.

      Petitioner did not file Federal income tax returns for any of the years at

issue. After commencing an examination in September 2010, respondent learned

through the summons process that petitioner had asserted to at least one employer

that he was “tax exempt.” This appeared to explain why petitioner’s employers

had withheld very little tax from his paychecks.

      On April 7, 2011, an IRS revenue agent (RA) had a face-to-face meeting

with petitioner at respondent’s May’s Landing, N.J., office. At the meeting

petitioner hand delivered purported “tax returns” for 2005-10, each prepared on

Form 1040EZ, Income Tax Return for Single and Joint Filers With No

Dependents. On each of these documents petitioner listed his occupation as “non-

federal worker”; reported his income from wages as zero; sought refund of all

taxes (including employment taxes) withheld during each year; and attached
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[*4] allegedly “corrected” Forms 1099-MISC. On these forms petitioner covered

the wages reported by his employers with correction fluid and replaced those

amounts with zero.

      On April 11, 2011, the RA sent petitioner copies of relevant Code provi-

sions and judicial opinions addressing frivolous tax returns. On May 13, 2011,

the RA forwarded petitioner’s purported “tax returns” for 2005-10 to the IRS

Frivolous Return Program (FRP) in Ogden, Utah. On August 10, 2011, an FRP

staff member mailed petitioner a letter warning him of the potential consequences

of taking frivolous return positions. The letter clearly outlined respondent’s

conclusion that petitioner had taken frivolous positions on his 2005-10 “returns”

and warned petitioner that the IRS would assess a $5,000 penalty for each year for

which he filed a frivolous return. The letter alerted petitioner to his statutory right

to withdraw his “returns” and file nonfrivolous returns within 30 days. If he did

so, petitioner would avoid the $5,000 penalty imposed by section 6702 upon any

person who files “what purports to be a return of tax” but “does not contain

information on which the substantial correctness of the self-assessment may be

judged” and is “based on a position which the Secretary has identified as

frivolous.”
                                         -5-

[*5] On September 14, 2011, petitioner replied by reiterating his position that he

is exempt from taxation because, as a private sector worker, he is not an

“employee” under section 3401 and therefore cannot receive “wages.” He again

demanded a refund of withheld taxes and attached copies of the purported “tax

returns” that the IRS had already determined to be frivolous.

      On November 21, 2011, respondent assessed a $5,000 frivolous return

penalty under section 6702 for each of the six tax years at issue and sent petitioner

a notice of balance due for 2005-10. Having received no payment, respondent on

April 2, 2012, issued petitioner a Final Notice of Intent to Levy and Notice of

Your Right to a Hearing under Section 6330. By letter dated May 1, 2012,

petitioner requested a CDP hearing. By letter dated June 1, 2012, a settlement

officer (SO) from respondent’s Appeals Office acknowledged petitioner’s hearing

request and scheduled a telephone CDP hearing for July 5, 2012, to discuss any

nonfrivolous issues that petitioner wished to raise. In addition, the SO noted in

her case activity record for petitioner on June 1 her verification that respondent

had made valid assessments of the frivolous return penalties.

      By letter dated June 29, 2012, petitioner sent the SO more copies of the

“returns” he had submitted previously. He reiterated his contentions that he is

exempt from tax and that the IRS cannot rely upon Forms W-2 and Forms 1099-
                                         -6-

[*6] MISC to establish the wages and nonemployee income that he received.

Petitioner alternatively argued that he is not a “person” within the meaning of

section 6041(a) and hence that Form 1099-MISC reporting does not apply to him.

      During the CDP hearing on July 5, 2013, petitioner did not supply any new

information or seek a collection alternative. Respondent described the substance

of the call in the notice of determination: “After 45 minutes of going around in

circles with the taxpayer asking to define words * * * , the Settlement Officer told

the taxpayer that after a review of the information * * * a determination letter will

be issued.” On August 9, 2012, the IRS issued a notice of determination

sustaining the proposed levy. Petitioner timely sought review in this Court.

                                     Discussion

A. Summary Judgment

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). We may grant summary judgment when there is no genuine

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

Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d,

17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we
                                         -7-

[*7] construe factual materials and inferences drawn from them in the light most

favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520. However,

the nonmoving party “may not rest upon mere allegations or denials” but instead

“must set forth specific facts showing there is a genuine dispute.” Rule 121(d);

see Sundstrand Corp., 98 T.C. at 520. We conclude that there are no material facts

in dispute and that this case is appropriate for summary adjudication.

B. Standard of Review

      Section 6330(d)(1) does not prescribe the standard of review that this Court

shall apply in reviewing an IRS administrative determination in a CDP case. The

general parameters for such review are marked out by our precedents. Where the

validity of the underlying tax liability is at issue, the Court will review the Com-

missioner’s determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-

182 (2000). Where there is no dispute concerning the underlying tax liability, the

Court reviews the IRS decision for abuse of discretion. Id. at 182.

      The section 6702 frivolous return penalty, as an assessable penalty, is not

subject to the deficiency procedures outlined in sections 6211-6216. See sec.

6703(b). Because a taxpayer will not have received a notice of deficiency before

assessment of this penalty, he can dispute his liability for the penalty at a CDP

hearing and on review of the CDP determination in this Court, in the absence of
                                           -8-

[*8] any other opportunity to contest it. See Callahan v. Commissioner, 130 T.C.

44, 49-50 (2008). In this setting, the frivolous return penalty is the “underlying

tax liability,” and the taxpayer is entitled to de novo review of this liability if he

has raised a meaningful challenge to the penalty at his CDP hearing. See id.; Goza

v. Commisioner, 114 T.C. at 182.

      However, de novo review of frivolous return penalties is not automatic. To

receive de novo review, the taxpayer at the CDP hearing must make a meaningful

challenge to the penalty itself--e.g., by plausibly contending that his return con-

tains sufficient “information on which the substantial correctness of the self-

assessment may be judged,” sec. 6702(a)(1)(A), or that his position is not one

“which the Secretary has identified as frivolous,” sec. 6702(a)(2)(A). If the tax-

payer at his CDP hearing advances no rational argument about why the penalty

does not apply but instead insists on maintaining frivolous arguments that his

wages are not “income,” he has not made a meaningful challenge to his liability

for the penalty. See Buckardt v. Commissioner, T.C. Memo. 2012-170, 103

T.C.M. (CCH) 1909, 1912. The regulations explicitly provide that an issue is not

properly raised before this Court if a taxpayer fails to present the IRS Appeals

Office with any evidence relating to the issue after being afforded an opportunity

to do so. Sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.
                                         -9-

[*9] The record before us clearly shows that petitioner made no meaningful chal-

lenge to the frivolous return penalties at his CDP hearing. The only discernible

argument he advanced at the hearing was that his wages are exempt from tax

because he is a non-Federal worker, an argument identified as frivolous by the

Secretary in Notice 2007-30, 2007-1 C.B. 883. Because we find that petitioner did

not meaningfully challenge his underlying liability for the penalty at the CDP

hearing, we will apply an abuse of discretion standard to our review of the SO’s

determination.

C. Analysis

       Because petitioner’s underlying liability is not at issue, the only question

we consider is whether respondent properly sustained a levy to collect this

liability. We review the record to determine whether the Appeals officer (1)

verified that the requirements of applicable law and administrative procedure have

been met; (2) considered whether the issues petitioner raised have merit; and (3)

considered whether “any proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the person that any

collection action be no more intrusive than necessary.” Sec. 6330(c)(3). At the

CDP hearing, the taxpayer may raise any relevant issue relating to the unpaid tax
                                         -10-

[*10] or levy, including “challenges to the appropriateness of collection actions”

and “offers of collection alternatives.” Sec. 6330(c)(2)(A)(ii) and (iii).

      Petitioner at the CDP hearing raised no colorable issues about the penalties

or the levy, and he offered no collection alternative. Rather, his assertions at both

the administrative and litigation stages of this case have consisted entirely of

frivolous arguments. A sampling of his arguments includes the assertions that he

has no “wages” because he is not an employee of the Federal Government; that

Forms 1099-MISC and W-2 may not be used for private sector workers; the IRS

may not rely on information returns received from third parties; and that the IRS

lacks authority to levy on the property of private sector workers.3

      It is clear from our review of the record that the Appeals officer verified that

the requirements of any applicable law and administrative procedure were

followed; that petitioner’s claims lack merit; and that in sustaining the levy the

Appeals officer properly balanced “the need for the efficient collection of taxes

with the legitimate concern of * * * [petitioner] that any collection action be no


      3
        Among the many frivolous arguments petitioner advances is the assertion
that he is entitled to a refund of all Federal tax withheld for the years at issue.
This Court is a court of limited jurisdiction; in our review of this CDP case, we
cannot consider a claim for refund. See Greene-Thapedi v. Commissioner, 126
T.C. 1 (2006).
                                        -11-

[*11] more intrusive than necessary.” Sec. 6330(c)(3). Petitioner contends that

the IRS did not make a “lawful assessment” of the frivolous return penalties

because it assertedly failed to satisfy the procedural requirements of section

6751(b). We reject this contention. Section 6330(c)(1) requires the Appeals

officer to “obtain verification from the Secretary that the requirements of any

applicable law or administrative procedure have been met.” A determination of

lawful assessment is a component of this verification requirement. See Ron

Lykins, Inc. v. Commissioner, 133 T.C. 87, 96-97 (2009). The administrative

record includes multiple entries by the SO confirming that she verified that valid

assessments of the frivolous return penalties had been made. Finding no abuse of

discretion in any of these respects, we will grant summary judgment for

respondent and affirm the proposed collection action.

D. Sanctions

      This Court now considers sua sponte whether to impose sanctions on

petitioner under section 6673(a)(1). This section authorizes the imposition of a

penalty not in excess of $25,000 when a taxpayer has instituted or maintained Tax

Court proceedings primarily for delay or has taken a frivolous or groundless

position in this Court.
                                         -12-

[*12] The positions petitioner maintains are unquestionably frivolous, and this

Court would therefore be justified in imposing additional sanctions. However,

because this appears to be petitioner’s first foray into this Court, we instead offer a

word of caution. Petitioner is admonished to refrain from advancing frivolous

arguments in any future filings he may make in this Court, because the Court next

time is unlikely to show leniency. Failure to heed this warning may lead to the

imposition of a substantial monetary penalty under section 6673(a)(1).


                                                An appropriate order and decision

                                        will be entered.
