                        T.C. Memo. 2007-162



                      UNITED STATES TAX COURT



        OLIVER W. AND HARRIET S. WILLIAMS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3000-06L.             Filed June 21, 2007.



     Oliver W. Williams, pro se.

     Gerard Mackey, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Petitioners filed a petition with this Court

in response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination) for 1995, 1996, 1997, 1998, 1999, 2000, 2001, and
                                 - 2 -

2002 (years at issue).1    Pursuant to section 6330(d), petitioners

seek review of respondent’s determination.    The issues for

decision are:     (1) Whether petitioners have a right to a judicial

review of respondent’s notice of determination sustaining a

Federal tax lien which covers the same tax year as a previous

Federal tax lien (in which petitioners failed to request an

administrative hearing) but concerns a different type of unpaid

tax for that year; and (2) whether petitioners are entitled to

any relief from respondent’s determination that collection may

proceed.

                           FINDINGS OF FACT

A.   Background

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

The stipulation of facts and exhibits are incorporated herein by

this reference.    Petitioners resided in Ossining, New York, when

they filed this petition.    Petitioners are Oliver W. Williams, an

attorney, and his wife, Harriet S. Williams, a psychologist.

Petitioners failed to pay Federal income tax liabilities shown on

their returns for the years at issue.

B.   Petitioners’ Installment Agreement

     In June 1997, petitioners and respondent entered into an

installment agreement in which petitioners agreed to pay their


     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended. Amounts are rounded to
the nearest dollar.
                                 - 3 -

1995 income tax liability.    Respondent’s certificate of official

record for 1995 (1995 record) indicated petitioners were credited

with making 22 monthly payments of $375 from June 23, 1997,

through March 24, 1999, a $375 payment on June 29, 1999, 6

monthly payments of $340 from June 2, 2000 through November 22,

2000, and a $340 payment on February 20, 2001, pursuant to the

installment agreement.    Petitioners did not fulfill the terms of

the installment agreement, and an income tax liability for 1995

remains unpaid.2

C.   Notice of Federal Tax Lien Filing of May 9, 2003

     On June 19, 2001, petitioners filed with their 1998 income

tax return Form 5329, Additional Taxes Attributable to IRAs,

Other Qualified Retirement Plans, Annuities, Modified Endowment

Contracts, and MSAs.    Petitioners failed to pay the 10-percent

additional tax on the early distribution as required under

section 72(t).     On October 15, 2001, respondent assessed the 10-

percent additional tax liability including penalties and interest

for 1998.3   On May 6, 2003, respondent filed a notice of Federal

tax lien with respect to the 10-percent additional tax liability

and on May 9, 2003, mailed petitioners a Notice of Federal Tax


     2
       The 1995 record also indicated that on May 1, 2000, an
overpayment credit of $175 from 1994 was applied to petitioners’
1995 tax liability.
     3
       Respondent did not explain why the 10-percent additional
tax was assessed separately from the rest of the tax shown on the
return.
                                - 4 -

Lien Filing and Notice of Your Right to a Hearing Under IRC 6320

(first notice of Federal tax lien).     The first notice of Federal

tax lien indicated the “Type of Tax” was Form 5329 and the

balance owing was $6,592.    The U.S. Postal Service returned the

first notice of Federal tax lien to respondent unclaimed.

Petitioners did not submit to respondent a request for an

administrative hearing with respect to the first notice of

Federal tax lien.   Respondent’s certificate of official record

for 1998 (1998 record) indicated that on April 4, 2005, an

overpayment credit of $4,664 from petitioners’ 2004 tax year was

applied to the balance owing in 1998; i.e., the 10-percent

additional tax liability.4   The balance owing as indicated on the

first notice of Federal tax lien was not reduced to reflect the

$4,664 overpayment credit.

D.   Offer-in-Compromise

     On July 26, 2004, respondent received from petitioners a

Form 656, Offer-in-Compromise, offering $2,500 to compromise

their outstanding tax liabilities for the years at issue with a

Form 433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals.   Petitioners failed to provide


     4
       Respondent produced two certificates of official record
for 1998. One record pertains to the Form 5329 10-percent
additional tax liability and the other record pertains to
petitioners’ underpayment of individual income tax for 1998 other
than the 10-percent additional tax. For purposes of this case,
the term “1998 record” refers to the Form 5329 10-percent
additional tax liability.
                                 - 5 -

documentation verifying the monthly expenses claimed on Form 433-

A.   Pursuant to petitioners’ requests, respondent, on several

occasions, extended the time to submit the substantiating

documentation.     On April 20, 2005, respondent notified

petitioners that if they failed to provide the requested

documentation by April 30, 2005, the offer-in-compromise would be

rejected.     Petitioners failed to provide the documentation by

April 30, 2005, and respondent returned petitioners’ offer-in-

compromise for failure to provide verification of claimed

expenses.5

E.    Notice of Federal Tax Lien Filing of May 13, 2005

      Petitioners failed to pay their income tax liabilities for

the years at issue after respondent gave notice and demanded

payment.     On May 12, 2005, respondent filed a notice of Federal

tax lien with respect to the years at issue and on May 13, 2005,

mailed petitioners a Notice of Federal Tax Lien Filing and Notice

of Your Right to a Hearing Under IRC 6320 (second notice of

Federal tax lien).6     The second notice of Federal tax lien

indicated the “Type of Tax” owing was Form 1040, U.S. Individual

Income Tax Return, and listed unpaid balances of $5,713, $15,082,

$19,024, $37,485, $21,294, $13,124, $16,990, and $12,580, for



      5
          The Form 656 was returned on May 25, 2005.
      6
       Though the second notice in point of time, it was the
first notice as to all years except 1998.
                                 - 6 -

1995, 1996, 1997, 1998,7 1999, 2000, 2001, and 2002,

respectively.

F.   Administrative Hearing

     On May 23, 2005, petitioners submitted Form 12153, Request

for a Collection Due Process Hearing, in which they claimed the

second notice of Federal tax lien should not have been filed

because of representations made by respondent’s revenue officer

that a lien would not be filed while they were negotiating an

offer-in-compromise.

     On June 24, 2005, petitioners mailed a letter to respondent,

in which they asserted that the tax liability indicated in the

second notice of Federal tax lien failed to reflect the $4,664

overpayment credit from 2004.8    On July 21, 2003, respondent’s

Appeals Office mailed petitioners a letter acknowledging receipt

of petitioners’ request for an administrative hearing.

     On October 27, 2005, a face-to-face conference was held

between Settlement Officer Thomas Knauss and Oliver W. Williams

(petitioner).   During the hearing, petitioner asserted that the

offer-in-compromise should not have been returned because he

provided all requested documentation, the second notice of


     7
       The unpaid balance for 1998 as indicated on the second
notice of Federal tax lien did not include the balance owing in
the first notice of Federal tax lien.
     8
       The $4,664 overpayment credit was applied to the 1998 Form
5329 10-percent additional tax liability reflected in the first
notice of Federal tax lien.
                              - 7 -

Federal tax lien was prematurely filed because petitioners were

negotiating an offer-in-compromise, and the second notice of

Federal tax lien did not reflect that the 2004 overpayment credit

of $4,664 was applied to reduce the balance owing.

     In response, Mr. Knauss informed petitioner that he could

not reinstate a returned offer-in-compromise, an offer-in-

compromise does not prohibit the filing of a notice of Federal

tax lien, and the amount shown on a notice of Federal tax lien is

not reduced when a taxpayer makes a subsequent payment.

     At the hearing, petitioner proposed an offer-in-compromise

or an installment agreement as a collection alternative.   Mr.

Knauss and petitioner agreed that petitioners would provide a

completed Form 433-A to Mr. Knauss by November 28, 2005, so that

Mr. Knauss could determine which collection alternative would

suit petitioners’ financial situation.

     On November 23, 2005, petitioners faxed a letter to Mr.

Knauss requesting an extension until December 15, 2005, to

provide the completed Form 433-A.   Petitioners failed to provide

the Form 433-A by December 15, 2005, or anytime thereafter.

     On January 12, 2006, respondent’s Appeals Office issued

petitioners a notice of determination sustaining the filing of

the second notice of Federal tax lien and finding:

     The taxpayers have been given multiple opportunities to
     resolve these liabilities via less intrusive means but
     have failed to do so in a timely manner. The filing of
     the NFTL is the only means of securing the government’s
                                 - 8 -

     interest in the taxpayers’ property and potentially
     collecting the unpaid liability.

     In response to the notice of determination, petitioners

timely filed their petition with this Court on February 9, 2006.

                                OPINION

I.   Notices of Federal Tax Lien

     The record indicates there were two separate notices of

Federal tax lien filed with respect to income tax liabilities in

1998.   The first notice of Federal tax lien was filed with

respect to the 1998 Form 5329 10-percent additional tax

liability, and the second notice of Federal tax lien was filed

with respect to the income tax liability for 1998 other than the

10-percent additional tax.   The second notice of Federal tax lien

did not include the 1998 Form 5329 10-percent additional income

tax liability.

     Petitioners concede this Court lacks jurisdiction over the

unpaid 1998 10-percent additional tax liability because they did

not timely submit a request for an administrative hearing with

respect to the first notice of Federal tax lien.   See sec.

6320(b)(1); Orum v. Commissioner, 123 T.C. 1, 7-8 (2004), affd.

412 F.2d 819 (7th Cir. 2005).

     Petitioners timely submitted a request for an administrative

hearing with respect to the second notice of Federal tax lien.

See sec. 6320(b)(1).   Although the first and second notices of

Federal tax lien include a 1998 income tax liability, they cover
                                - 9 -

different types of unpaid taxes.   See sec. 6320(b)(2); sec.

301.6320-1(b)(1), Proced. & Admin. Regs.    Therefore, this Court

has jurisdiction to review respondent’s notice of determination

with respect to 1998 unpaid tax (and the other years at issue) in

the second notice of Federal tax lien.

II.   Standard of Review

      Where the validity of the underlying tax liability is

properly at issue, the Court will review the matter de novo.

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

Commissioner, 114 T.C. 176, 181 (2000).9    The underlying tax

liability is properly at issue if the taxpayer did not receive a

statutory notice of deficiency or otherwise have an opportunity

to dispute the tax liability.   Sec. 6330(c)(2)(B); see Behling v.

Commissioner, 118 T.C. 572, 576-577 (2002).

      Where the validity of the underlying tax liability is not

properly at issue, the Court will review the Commissioner’s

determination for abuse of discretion.     Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 181.    The abuse of

discretion standard requires the Court to decide whether the

Commissioner’s determination was arbitrary, capricious, or

without sound basis in fact or law.     Woodral v. Commissioner, 112


      9
       The term “underlying tax liability” under sec.
6330(c)(2)(B) includes amounts self-assessed under sec. 6201(a),
together with penalties and interest. Sec. 6201(a)(1);
Montgomery v. Commissioner, 122 T.C. 1, 9 (2004); sec.
301.6201-1, Proced. & Admin. Regs.
                               - 10 -

T.C. 19, 23 (1999); Keller v. Commissioner, T.C. Memo. 2006-166;

Fowler v. Commissioner, T.C. Memo. 2004-163.

III. Payments

      Petitioners contend the tax liabilities listed in the second

notice of Federal tax lien did not reflect the installment

agreement payments and the 2004 overpayment credit.10   Because

the validity of the underlying tax liabilities is properly at

issue, the Court reviews respondent’s determinations de novo.

See Landry v. Commissioner, 116 T.C. 60, 62 (2001).

      The 1995 record indicated petitioners were credited with

making 23 payments of $375 and 7 payments of $340 pursuant to

their installment agreement.   The 1995 record reflected all

payments received by respondent for petitioners’ income tax

liability.   The balance that remained is consistent with the

amounts respondent is attempting to collect as stated in the

second notice of Federal tax lien for 1995.    Therefore, the Court

finds that the second notice of Federal tax lien properly

reflected the installment agreement payments.

IV.   Withdrawal of Notice of Federal Tax Lien

      Petitioners also contend that respondent abused his

discretion in sustaining the second notice of Federal tax lien



      10
       The 1998 record indicated that the 2004 overpayment
credit of $4,664 was applied to the Form 5329 10-percent
additional tax liability recorded in the first notice of Federal
tax lien.
                               - 11 -

because they were negotiating an offer-in-compromise when the

lien was filed.

       The Federal Government obtains a lien against “all property

and rights to property, whether real or personal” of any person

liable for Federal taxes upon demand for payment and failure to

pay.    Sec. 6321; Iannone v. Commissioner, 122 T.C. 287, 293

(2004).    The lien arises automatically on the date of assessment

and continues until the tax liability is satisfied or the statute

of limitations bars enforcement.    Sec. 6322; Iannone v.

Commissioner, supra at 293.    The notice of Federal tax lien is

filed with the appropriate State office or other government

office in order to validate the lien against any purchaser,

holder of a security interest, mechanic’s lienor, or judgment

lien creditor.    See sec. 6323(a); Lindsay v. Commissioner, T.C.

Memo. 2001-285, affd. 56 Fed. Appx. 800 (9th Cir. 2003).

       The notice of Federal tax lien was not filed prematurely.

Petitioners self-assessed income tax liabilities for the years at

issue.    Petitioners were given notice and demand for payment for

each year at issue.    The second notice of Federal tax lien was

filed on May 12 and mailed to petitioners on May 13, 2005.

Filing of the Federal tax lien took place after assessment and

notice and demand for payment, and at each step petitioners were

properly notified.    The record also indicated that petitioners’

offer-in-compromise was returned before the second notice of
                               - 12 -

Federal tax lien was issued.   Consequently, petitioners were not

negotiating an offer at the time the lien was filed.

     The Commissioner “may” withdraw a Federal tax lien pursuant

to section 6323(j)(1), but respondent’s failure to do so in this

case is not an abuse of discretion.     See Crisan v. Commissioner,

T.C. Memo. 2007-67; Ramirez v. Commissioner, T.C. Memo. 2005-179;

Stein v. Commissioner, T.C. Memo. 2004-124.

     For the foregoing reasons, this Court finds respondent did

not abuse his discretion in sustaining the filing of the second

notice of Federal tax lien, and respondent may proceed with

collections.

     In reaching these holdings, the Court has considered all

arguments made and, to the extent not mentioned, concludes that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                                Decision will be

                                           entered for respondent.
