                         T.C. Memo. 2005-222



                       UNITED STATES TAX COURT



             THOMAS J. & GISELLA SABATH, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 378-04L.            Filed September 26, 2005.



     Gregory A. Stout, for petitioners.

     Stephen J. Neubeck, for respondent.



                         MEMORANDUM OPINION


     LARO, Judge:    Petitioners petitioned the Court under section

6330(d) to review a determination made by the Commissioner‘s

Office of Appeals (Appeals) as to their 1986 and 1990 through

1997 Federal income tax liability.1   While petitioners alleged in


     1
         Unless otherwise indicated, section references are to the
                                                     (continued...)
                                -2-

their petition that their underlying tax liability for those

years was different from that shown as due in respondent’s

records, respondent alleged in his answer that this Court was

without jurisdiction to determine petitioners’ underlying tax

liability for any of those years because petitioners had the

opportunity to dispute the liability in their previous bankruptcy

case.

     Subsequent to the filing of the petition, Gisella Sabath

(decedent) died.   Thereafter, Thomas J. Sabath (petitioner in the

singular) and respondent moved the Court to dismiss this case,

insofar as it pertains to decedent, for lack of prosecution.2

Petitioner and respondent also filed with the Court a stipulation

asking that we enter a decision that includes a statement as to

the amount of petitioner’s unpaid income tax for each of the

subject years.   We ordered petitioner and respondent to show

cause why the Court may enter a decision against petitioner that

includes a finding of his underlying tax liability.   We referred

them to Kendricks v. Commissioner, 124 T.C. 69 (2005), where we



     1
      (...continued)
applicable versions of the Internal Revenue Code.
     2
       In this motion, petitioner and respondent have represented
to the Court that no one is currently authorized to act on behalf
of decedent’s estate, that decedent had three “heirs at law”, and
that the names and addresses of those heirs were as stated in the
motion. Pursuant to Nordstrom v. Commissioner, 50 T.C. 30
(1968), we shall notify those heirs of this action before
deciding the motion to dismiss as to decedent.
                                -3-

recently held that a submission by the Internal Revenue Service

(IRS) in the taxpayer’s bankruptcy proceeding of a proof of claim

for unpaid Federal income taxes meant that the taxpayers had the

opportunity to dispute that liability for purposes of section

6330(c)(2)(B) and, accordingly, deprived us of the ability to

decide that liability.   We directed petitioner and respondent to

discuss whether petitioner had a previous opportunity during

petitioners’ bankruptcy proceeding to dispute the underlying tax

liability for any or all of the subject years.   Petitioner and

respondent argue in response to our order that Washington v.

Commissioner, 120 T.C. 114 (2003), allows the Court to determine

the amount of Federal income tax owing after a bankruptcy

proceeding.

     We decide whether we may enter a decision as to petitioner

that reflects a determination of his underlying tax liability.

We hold we may not.

                             Background

     We draw the following recitations from the pleadings and

other parts of the record.   We set forth these recitations solely

for the purpose of this Memorandum Opinion.   Petitioners resided

in Cincinnati, Ohio, when their petition was filed with the

Court.

     Petitioners operated a landscaping business for nearly 30

years and failed to make estimated tax payments on their
                                 -4-

self-employment income.    In 1991 and 1992, respondent assessed

petitioners’ Federal income tax liabilities for 1986 and 1991,

respectively.

     On June 25, 1993, petitioners filed for bankruptcy under

chapter 13 of the Bankruptcy Code in the Southern District of

Ohio, Western Division.    The IRS filed a proof of claim in the

case on or about September 8, 1993, and an amended proof of claim

approximately 3 months later.    Petitioners raised no objection to

the IRS’s claims.    On separate occasions between 1994 and 1998,

respondent assessed petitioners’ Federal income tax liability for

1992 through 1997.

     On January 5, 1999, the bankruptcy court entered an order

granting a requested modification of the plan concerning the

IRS’s claims.   The modification stated that any tax liability not

fully paid under the plan would survive discharge.    The

bankruptcy court issued petitioners a discharge on February 25,

1999, and closed the case on March 5, 1999.    Afterwards,

respondent proposed a levy to collect the subject years’

surviving tax liabilities, and petitioners challenged the amounts

that respondent asserted were due.

     On May 9, 2001, respondent sent petitioners a Letter 1058,

Notice of Intent to Levy and Your Right to a Due Process Hearing,

as to the subject years.    Petitioners requested the referenced
                                 -5-

hearing, and Appeals held the hearing with petitioners on May 23,

2002.   Petitioners subsequently submitted an offer in compromise.

     On December 10, 2003, Appeals issued to petitioners a notice

of determination stating that the proposed levy was appropriate.

The notice stated that petitioners had raised two issues as to

the levy:    (1) Whether the liability sought by respondent was

correct, and (2) whether respondent should have accepted their

offer in compromise.    As to the first issue, Appeals determined

that respondent had correctly determined the amount of the

liability.    As to the second issue, Appeals determined that

petitioners did not qualify for an offer in compromise because

they had not filed Form 943, Employer’s Annual Tax Return for

Agricultural Employees, and Form 1040, U.S. Individual Income Tax

Return, as required for 2002.

     In their petition to this Court, petitioners challenged the

amount of tax remaining unpaid as a result of the bankruptcy case

and requested that the Court review their payment history and

respondent’s assessments of interest and penalties.    Petitioners

alleged that the amount of tax set forth in the notice of

determination was based on the following errors:    (1) Respondent

incorrectly assessed penalties and interest during the pendency

of petitioners’ bankruptcy proceeding; (2) respondent misapplied

payments made during the proceeding to interests and penalties

rather than to principal; and (3) respondent failed to consider
                                -6-

petitioners’ offer in compromise based on the incorrect

assumption that they did not file the referenced tax returns for

2002.

     In answer, respondent alleged that petitioners were

precluded by section 6330(c)(2)(B) from litigating in this

proceeding the amount or existence of their underlying tax

liability.   According to respondent, the amount of taxes owed by

petitioners, the amount of their payments, the application of

those payments, the rates and accrual of interest, and all other

relevant matters alleged by petitioners in their petition to be

improper had been within the scope and jurisdiction of the

bankruptcy court, and petitioners had the full opportunity in

their bankruptcy proceeding to challenge the amounts and

existence of any taxes under the jurisdiction of the bankruptcy

court.

     On March 14, 2005, approximately 3 weeks after respondent’s

answer was filed, petitioner and respondent filed with the Court

a stipulation of settlement asking the Court to enter a decision

against petitioner fixing an agreed-upon amount of unpaid income

taxes (inclusive of additions to tax, penalties, and interest) as

of March 15, 2005.

                            Discussion

     Respondent and petitioner ask the Court to enter a decision

fixing an agreed-upon amount of petitioner’s unpaid Federal
                                  -7-

income taxes (inclusive of additions to tax, penalties, and

interest) as of March 15, 2005.    We must decide whether we are

authorized to do so.   When the Court lacks the authority to

consider an issue, the Court does not have the power to decide

it.   Cf. Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxite de

Guinee, 456 U.S. 694, 702 (1982); Brown v. Commissioner, 78 T.C.

215, 217-218 (1982).   While neither party challenges our

authority to render this decision, the parties cannot confer such

authority upon us by their conduct or consent.    Cf. California v.

LaRue, 409 U.S. 109, 112 n.3 (1972); Mitchell v. Maurer, 293 U.S.

237, 243 (1934).

       Where issues related to the taxpayer’s underlying tax

liability were properly raised in a section 6330 proceeding, we

may review the determination of that liability.    See sec.

6330(d)(1); see also sec. 6330(c)(2)(B).    Section 6330(c)(2)(B),

dealing with notice and opportunity for hearing before levy,

provides that in the case of any hearing conducted under section

6330, a person may raise “challenges to the existence or amount

of the underlying tax liability for any tax period if the person

did not receive any statutory notice of deficiency for such tax

liability or did not otherwise have an opportunity to dispute

such tax liability.”   Because petitioners did not receive a

notice of deficiency regarding any of the subject years, they

were permitted to challenge the existence or amount of their
                                -8-

underlying tax liability at issue if they did not “otherwise have

an opportunity to dispute such tax liability.”   Id.   The mere

fact that Appeals in petitioners’ section 6330 hearing considered

a claim as to the existence or amount of their underlying tax

liability does not necessarily mean that this Court may do

likewise.   See Behling v. Commissioner, 118 T.C. 572 (2002).

Section 301.6330-1(e)(3), Q&A-E11, Proced. & Admin. Regs.,

provides the following illustrative question and answer:

          Q-E11. If an Appeals officer considers the merits of a
     taxpayer’s liability in a [collection due process (CDP)]
     hearing when the taxpayer had previously received a
     statutory notice of deficiency or otherwise had an
     opportunity to dispute the liability prior to the issuance
     of a notice of intention to levy, will the Appeals officer’s
     determination regarding those liability issues be considered
     part of the Notice of Determination?

          A-E11. No. An Appeals officer may consider the
     existence and amount of the underlying tax liability as a
     part of the CDP hearing only if the taxpayer did not receive
     a statutory notice of deficiency for the tax liability in
     question or otherwise have a prior opportunity to dispute
     the tax liability. * * *    In the Appeals officer’s sole
     discretion, however, the Appeals officer may consider the
     existence or amount of the underlying tax liability, or such
     other precluded issues, at the same time as the CDP hearing.
     Any determination, however, made by the Appeals officer with
     respect to such a precluded issue shall not be treated as
     part of the Notice of Determination issued by the Appeals
     officer and will not be subject to any judicial review.
     * * * Even if a decision concerning such precluded issues
     is referred to in the Notice of Determination, it is not
     reviewable by a district court or the Tax Court because the
     precluded issue is not properly part of the CDP hearing.

     This Court recently held that when the IRS submits a proof

of claim for an unpaid Federal tax liability in a taxpayer’s

bankruptcy action, the taxpayer had the opportunity to dispute
                                -9-

the liability for purposes of section 6330(c)(2)(B).    See

Kendricks v. Commissioner, 124 T.C. 69 (2005).    We noted that 11

U.S.C. sec. 505(a) (2000) empowers a bankruptcy court in a

bankruptcy proceeding to determine “the amount or legality of any

tax, any fine or penalty relating to a tax, or any addition to

tax, whether or not previously assessed, whether or not paid, and

whether or not contested before and adjudicated by a judicial or

administrative tribunal of competent jurisdiction.”    In that

respondent in this case filed a proof of claim in petitioners’

previous bankruptcy case, we conclude on the basis of Kendricks

that petitioner had the opportunity to dispute his underlying tax

liability before commencing this lawsuit and thus may not do so

in this proceeding.

     Respondent and petitioner rely upon Washington v.

Commissioner, 120 T.C. 114 (2003).    We conclude that this

reliance is misplaced.   In Washington, the taxpayers challenged

the appropriateness of respondent’s proposed collection action

because, they stated, a bankruptcy court had discharged them from

the unpaid tax liabilities underlying the proposed action.       Id.

at 120 n.9.   Section 6330(c)(2)(A)(ii) specifically provides that

a person may challenge the appropriateness of a collection action

at a hearing conducted under section 6330.   Here, by contrast,

petitioner makes no assertion that the bankruptcy court

discharged him from any of the liabilities now sought by
                                -10-

respondent.   Instead, petitioner specifically challenges the

amount of the liability.   The fact that the amount of his unpaid

tax liability is no longer in dispute on account of his

settlement is of no consequence to us.   Our ability to decide

petitioner’s underlying tax liability “‘depends on the state of

things at the time of the action brought,’”    Keene Corp. v.

United States, 508 U.S. 200, 208 (1993) (quoting Mollan v.

Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824)), and not on the

state of things when we enter our decision in the action.

     Accordingly,
                                An appropriate order will be

                           issued.
