                        T.C. Memo. 2009-267



                      UNITED STATES TAX COURT



                    L.S. VINES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2617-04L.              Filed November 24, 2009.



     Robert E. McKenzie, Kathleen M. Lach, and Adam S. Fayne, for

petitioner.

     Gregory J. Stull and Angela B. Friedman, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Pursuant to section 6330(d), petitioner

seeks review of respondent’s determination sustaining a proposed

levy with respect to his 1999 Federal income tax liability.1


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

                          FINDINGS OF FACT

     The parties have stipulated some facts, which are so found.

When he filed his petition, petitioner resided in Alabama.

     Petitioner is an attorney who has practiced personal injury

law in Birmingham, Alabama, since 1966.      In 1999 he settled a

large class action suit, generating a fee of approximately $25

million.   He received about half of the fee in 1999 and the

balance in early 2000.

     Petitioner decided to wind down his law practice and begin a

new career as a securities trader.      In early 2000 he invested $25

million in the stock market.   He traded mainly in large cap

stocks and on the maximum allowable margin.      Initially he was

very successful--by March 15, 2000, the value of his stock

account had grown from $25 million to about $32 million.      In the

latter part of March 2000, however, the value of his investments

dropped sharply.   He began receiving periodic margin calls.

Initially he met them by selling stocks.      By April 13 or 14,

2000, however, he was no longer able to meet the continuing

margin calls.   On or about April 15, 2000, his brokerage account

was liquidated.    Of his original $25 million investment, he was

left with about $2 million.




     1
      (...continued)
Internal Revenue Code, and Rule references are to the Tax Court
Rules of Practice and Procedure.
                                - 3 -

     The question arose as to how he would pay his 1999 taxes,

which were then due.    On the advice of his longtime personal

accountant, Wray Pearce, petitioner had previously made $4,000

total quarterly estimated tax payments with respect to his 1999

Federal income tax.    In March 2000 Mr. Pearce advised him that

his actual 1999 tax liability would be approximately $7 million.

     On April 17, 2000, petitioner applied for an automatic

extension of time until August 15, 2000, to file his 1999 income

tax return.2   He included no payment of his 1999 income tax with

his application.   On or about August 15, 2000, he applied for an

extension of time until October 15, 2000, to file his 1999

return.

     In the meantime, petitioner’s internist had advised him of a

provision of the tax law that might allow him to deduct his stock

market losses.   In May or June of 2000 petitioner discussed this

matter with another certified public accountant, Charles Sellers,

who advised him to get legal advice.    In June of 2000 petitioner

engaged the Washington, D.C., law firm of Caplin & Drysdale.

Petitioner was advised that if he could make an election pursuant

to section 475(f), he would be able to apply and carry back his

     2
      The parties have stipulated that petitioner filed his
application for extension of time to file his 1999 return “On or
about April 15, 2000”. Apr. 15, 2000, was a Saturday. In Vines
v. Commissioner, 126 T.C. 279, 282 (2006), the Court found as a
fact that petitioner filed his application for extension on Apr.
17, 2000. For the sake of consistency and convenience, in this
report we adhere to that finding, which is not inconsistent with
the parties’ stipulation.
                               - 4 -

losses from his securities trading business to offset ordinary

income he had received as compensation for settling the class

action lawsuit.   The problem was that under generally applicable

procedures, petitioner would have been required to have made the

section 475(f) election by April 17, 2000, which he had not

done.3   Caplin & Drysdale advised petitioner that pursuant to

section 301.9100-3, Proced. & Admin. Regs., he should qualify for

an extension of time to make the section 475(f) election (section

9100 relief).   In July 2000 Caplin & Drysdale, on petitioner’s

behalf, submitted to respondent a section 475(f) election along

with a request for section 9100 relief.     Respondent ultimately

rejected this request.

     On October 15, 2000, petitioner filed his 1999 Form 1040,

U.S. Individual Income Tax Return.     On this return petitioner

reported tax liability of $7,080,007 and a balance due, after

application of his $4,000 estimated tax payments, of $7,076,007.

Petitioner submitted no payment with his return.

     On or about November 13, 2000, respondent assessed the

$7,080,007 tax liability reported on petitioner’s 1999 return, as

well as a $247,660 addition to tax for failure to timely pay,

computed on the basis of 7 months of late payment from the

original due date of April 17, 2000 (the FTP addition).


     3
      For more detailed discussion of these provisions and their
application to petitioner’s circumstances, see Vines v.
Commissioner, supra at 287-289.
                                - 5 -

     On November 13, 2000, December 18, 2000, and January 22,

2001, respectively, respondent issued first, second, and third

notices and demands for payment of petitioner’s 1999 tax.4    On

October 2, 2002, respondent sent petitioner a Final Notice of

Intent to Levy and Notice of Your Right to a Hearing (the notice

of intent to levy) in connection with his unpaid income tax

liability for 1999.   Petitioner timely submitted Form 12153,

Request for a Collection Due Process Hearing.   The only issue

raised in this hearing request was a challenge “to the existence

or amount of the Taxpayer’s underlying tax liability for taxable

year ending December 31, 1999, based on a net operating loss

(NOL) carryback from taxable year 2001, arising out of Taxpayer’s

securities trading business.”

     During a face-to-face hearing on or about March 20, 2003,

petitioner requested abatement of the FTP addition.   Petitioner

provided the Appeals officer copies of his financial statements

but did not submit any Form 656, Offer in Compromise.

     By Notice of Determination Concerning Collection Action(s)

Under Section 6320 and/or 6330 (the notice of determination),

dated January 15, 2004, respondent’s Appeals Office disallowed

any abatement of the underlying income tax liability, including

     4
      On or about Nov. 26, 2001, respondent recorded a $4,030,143
abatement of petitioner’s 1999 income tax liability on the basis
of a tentative net operating loss (NOL) carryback from his 2000
taxable year. On or about Feb. 10, 2003, respondent recorded a
$2,544,847 abatement of petitioner’s 1999 income tax liability on
the basis of a tentative NOL carryback from 2001.
                               - 6 -

the FTP addition, for 1999.5   In the notice of determination the

Appeals officer concluded that petitioner lacked reasonable cause

for failing to pay the tax shown on his 1999 return.     The notice

of determination states that the Appeals officer had determined,

on the basis of a review of petitioner’s bank accounts, that

around the time his 1999 income tax was due in April 2000

petitioner had liquid assets of about $2.7 million and real

property valued at about $4.8 million.   The notice of

determination further notes that according to financial

information furnished by petitioner’s representative, at the time

of the Appeals Office hearing petitioner had net assets valued at

$5,025,887.   The notice of determination states:

     Your representative stated that you didn’t want to
     discuss collection alternatives at this time. He
     stated that you can pay the net balance due if the
     failure to pay penalty is abated in full. The Appeals
     Officer cannot recommend abatement of the entire
     failure to pay penalty.

In the notice of determination respondent sustained the proposed

collection action.

     The petition disputes petitioner’s 1999 underlying liability

by asserting entitlement to NOL carrybacks and by challenging the




     5
      The notice of determination noted that respondent had
assessed $247,660 as an addition to tax pursuant to sec.
6651(a)(2) and that another $602,924 of the addition to tax had
been accrued but not assessed.
                                 - 7 -

FTP addition.6   The petition does not assign error to any failure

by the Appeals officer to consider collection alternatives.

     On or about July 9, 2004, respondent mailed to petitioner a

notice of deficiency for taxable years 1999 and 2000 in

connection with petitioner’s request for section 9100 relief and

his claim for carryback losses.     On July 19, 2004, petitioner

petitioned this Court, disputing the deficiencies.     The parties

agreed that the deficiency case should proceed before this

collection case.   In Vines v. Commissioner, 126 T.C. 279 (2006)

(the deficiency case), this Court held that petitioner was

entitled to section 9100 relief enabling him to claim the

benefits of section 475(f) for taxable year 2000 as if he had

timely filed the election.     This decision resulted in an NOL

carryback to petitioner’s 1999 taxable year, which diminished but

did not fully satisfy his outstanding 1999 tax liability.7

                               OPINION

A.   Legal Framework

     Section 6330 requires the Secretary to furnish a person

notice and opportunity for a hearing before making a levy on the

person’s property.     At the hearing, the person may raise any


     6
      The petition also asserts a claim for abatement of
interest. The parties have stipulated that petitioner is not
entitled to abatement of interest for taxable year 1999.
     7
      After the deficiency case was decided, petitioner made
additional payments further reducing but not eliminating his
outstanding 1999 liability.
                                - 8 -

relevant issue relating to the unpaid tax or proposed levy,

including spousal defenses, challenges to the appropriateness of

the collection action, and offers of collection alternatives.

The person may challenge the existence or amount of the

underlying tax liability for any period only if the person did

not receive a notice of deficiency or did not otherwise have an

opportunity to dispute the liability.   Sec. 6330(c)(2)(B); Sego

v. Commissioner, 114 T.C. 604, 609 (2000).    Once the

Commissioner’s Appeals Office issues a notice of determination,

the person may seek judicial review in this Court.    Sec.

6330(d)(1).   If the validity of the underlying tax liability is

properly at issue, we review that issue de novo.     Sego v.

Commissioner, supra at 609-610.    Other issues we review for abuse

of discretion.    Id.

B.   Petitioner’s Challenge to the FTP Addition

     In this collection proceeding, the parties no longer dispute

petitioner’s underlying liability, except for the FTP addition.

We review de novo whether petitioner is liable for the FTP

addition.   See Downing v. Commissioner, 118 T.C. 22, 29 (2002).

     1.     Whether Petitioner’s Liability for the FTP Addition Is
            Res Judicata

     Respondent contends that in the wake of the decision in the

deficiency case petitioner is precluded by the doctrine of res

judicata from challenging the FTP addition.   Neither party raised

the issue of the FTP addition in the deficiency proceeding, which
                               - 9 -

is unsurprising given that the FTP addition was not addressed in

the notice of deficiency.   Respondent asserts, however, that

petitioner could have raised this issue in the deficiency

proceeding and is therefore barred from raising it in this

collection proceeding.   We disagree.

     Under the general rule of res judicata:

     when a court of competent jurisdiction has entered a
     final judgment on the merits of a cause of action, the
     parties to the suit and their privies are thereafter
     bound “not only as to every matter which was offered
     and received to sustain or defeat the claim or demand,
     but as to any other admissible matter which might have
     been offered for that purpose.” * * * [Commissioner v.
     Sunnen, 333 U.S. 591, 597 (1948) (quoting Cromwell v.
     County of Sac, 94 U.S. 351, 352 (1877)).]

     When petitioner filed his petition in the deficiency case,

the Tax Court acquired jurisdiction “in respect of the deficiency

that is the subject of such petition.”    Sec. 6213(a).   As

respondent acknowledges on brief:    “The only FTP addition at

issue in this CDP case is the nondeficiency FTP addition for 1999

that was assessed based on the petitioner’s self-reported tax

liability on his original return.”     Pursuant to section 6665(b),

respondent’s summary assessment of the section 6651(a)(2)

addition to tax, computed by reference to the tax petitioner

showed on his 1999 return, was not attributable to a deficiency

as defined in section 6211 and was not subject to the deficiency

procedures.   See Meyer v. Commissioner, 97 T.C. 555, 559-560

(1991).   Consequently, in the deficiency case this Court never
                               - 10 -

acquired jurisdiction over the FTP addition.    See id.; see also

Estate of Forgey v. Commissioner, 115 T.C. 142, 146-147 (2000);

Estate of Scarangella v. Commissioner, 60 T.C. 184 (1973);

Newby’s Plastering, Inc. v. Commissioner, T.C. Memo. 1998-320;

Robertson v. Commissioner, T.C. Memo. 1983-32.    Because the FTP

addition was not raised and could not have been raised in the

deficiency case, the doctrine of res judicata does not preclude

petitioner from raising the issue in this collection case.

     2.     Whether Petitioner Has Shown Reasonable Cause for
            Failure To Pay

      Pursuant to section 6651(a)(2), an addition to tax is

imposed for failure to pay the amount shown as tax on the

taxpayer’s return on or before the date prescribed for payment of

the tax (determined with regard to any extension of time for

payment).   The addition is calculated as 0.5 percent of the

amount shown as tax on the tax return but not paid, with an

additional 0.5 percent for each month or fraction thereof during

which the failure to pay continues, up to a maximum of 25

percent. Id.

     Petitioner’s 1999 return, filed October 15, 2000, showed a

tax liability of $7,080,007 and a balance due of $7,076,007,

which he failed to pay.    Petitioner’s extensions of time to file

his 1999 return did not operate to extend the April 17, 2000,
                                   - 11 -

deadline for paying the tax.8       See sec. 1.6081-4(b), Income Tax

Regs.    Consequently, the tax was due on April 17, 2000, and the

FTP addition runs from that date with respect to petitioner’s

then-unpaid balance of $7,076,007.          On the basis of the tax shown

on petitioner’s 1999 return, on or about November 13, 2000,

respondent assessed the FTP addition for 7 months of late

payment.9

     The addition to tax for failure to pay does not apply if the

taxpayer shows that the failure was due to reasonable cause and

not due to willful neglect.     Sec. 6651(a)(2); see Higbee v.

Commissioner, 116 T.C. 438, 447 (2001).          Because petitioner did

not pay on April 17, 2000, at least 90 percent of the tax shown

on his 1999 income tax return, the automatic extension of time

for filing did not give rise to reasonable cause for his failure

to pay.     See sec. 301.6651-1(c)(3), Proced. & Admin. Regs.

Moreover, for the reasons discussed below, petitioner has not

otherwise shown that he had reasonable cause for failing to pay

his 1999 tax by the April 17, 2000, due date.

        The regulations provide:

        A failure to pay will be considered to be due to
        reasonable cause to the extent that the taxpayer has
        made a satisfactory showing that he exercised ordinary


     8
      Insofar as the record shows, petitioner neither applied for
nor was granted any extension for paying the tax.
     9
      The record does not indicate that respondent has ever
assessed any additional amount of the sec. 6651(a)(2) addition to
tax with respect to petitioner’s 1999 tax.
                              - 12 -

     business care and prudence in providing for payment of
     his tax liability and was nevertheless either unable to
     pay the tax or would suffer an undue hardship (as
     described in § 1.6161-1(b) of this chapter) if he paid
     on the due date. In determining whether the taxpayer
     was unable to pay the tax in spite of the exercise of
     ordinary business care and prudence in providing for
     payment of his tax liability, consideration will be
     given to all the facts and circumstances of the
     taxpayer’s financial situation * * * Further, a
     taxpayer who invests funds in speculative or illiquid
     assets has not exercised ordinary business care and
     prudence in providing for the payment of his tax
     liability unless, at the time of the investment, the
     remainder of the taxpayer’s assets and estimated income
     will be sufficient to pay his tax or it can be
     reasonably foreseen that the speculative or illiquid
     investment made by the taxpayer can be utilized (by
     sale or as security for a loan) to realize sufficient
     funds to satisfy the tax liability. A taxpayer will be
     considered to have exercised ordinary business care and
     prudence if he made reasonable efforts to conserve
     sufficient assets in marketable form to satisfy his tax
     liability and nevertheless was unable to pay all or a
     portion of the tax when it became due. [Sec. 301.6651-
     1(c)(1), Proced. & Admin. Regs.]

     Although he is not a tax specialist, petitioner is a very

intelligent, sophisticated, and successful attorney and

businessman.   He knew or should have known that he would owe

significant income tax on the millions he received for settling

the class action suit.   Having consciously chosen to make minimal

estimated tax payments of $1,000 per quarter, he was undoubtedly

aware that no later than April 17, 2000, he would need to have

available significant funds to pay his 1999 income tax.   By March

2000 at the latest, he had been advised that his 1999 Federal

income tax would be about $7 million.   At that time he could have
                               - 13 -

easily covered this tax liability with his existing assets, which

included about $32 million in his margin account.

     Petitioner’s margin account investments had proven highly

volatile, with a rapid runup in value within the space of a few

weeks.    Within a few more weeks they would prove even more

volatile with a meteoric drop in value.    The record does not

reveal with specificity the characteristics of petitioner’s

margin account investments that might account for their extreme

volatility.10   In the light of this demonstrated volatility,

however, it appears to us that these investments were inherently

speculative.    On this record, we are unable to conclude that

petitioner exercised reasonable business care and prudence to

conserve sufficient assets to pay his 1999 Federal income tax.

     Petitioner contends that he meets the standard for

reasonable cause under the regulations because he exercised

ordinary business care and prudence by following the advice of

highly qualified lawyers and accountants.    In particular, he

contends that his attorneys advised him “to wait until the final

amount of the liability was determined, and then to plan to

address the liabilities with his then available resources.”



     10
      Petitioner’s testimony suggests that the fluctuations in
his margin account were attributable partly to market conditions
but more directly to characteristics of the margin account. He
testified: “Sometimes my market would be up and I still would
get one of those margin calls and I didn’t know why, but it was
not because there wasn’t money, it was because I didn’t have a
proper balance.”
                              - 14 -

According to his testimony, however, petitioner received this

advice in conversations with his attorneys that took place in the

“fall of 2000 and on over into 2001.”   Such advice cannot

constitute reasonable cause for petitioner’s failure to pay his

1999 tax on the April 17, 2000, due date.   Moreover, any such

advice is of doubtful relevance to petitioner’s ongoing failure

to pay his 1999 tax, especially considering that the FTP addition

at issue in this collection proceeding represents assessed

amounts accrued for only 7 months after April 17, 2000.

     Moreover, the record suggests that as of April 17, 2000,

notwithstanding his market losses, petitioner still had assets

that he could have used to pay at least a significant part of his

1999 tax.   For instance, according to his own testimony he still

had about $2 million of his original market investment.   The

record also strongly suggests that he owned significant real

estate, as the Appeals officer found.   Petitioner has not

explained convincingly why he failed to use these assets to pay

at least part of his 1999 tax and has not otherwise established

with specificity the extent to which he was unable on April 17,

2000, to pay his 1999 tax.

     In sum, petitioner has failed to show reasonable cause for

failing to pay his 1999 tax by the April 17, 2000, due date.
                                - 15 -

C.   Penalty Computation

     Alternatively, petitioner contends that the FTP addition

should have been computed on the basis of his 1999 Federal income

tax liability after taking into account the NOL carrybacks from

2000 and 2001.   We disagree.

     The addition to tax for failure to pay is generally

calculated by reference to the “amount shown as tax” on the

return.   Sec. 6651(a)(2).   The amount of tax shown on

petitioner’s 1999 tax return, filed October 15, 2000, did not

reflect any NOL carryback.

     Pursuant to section 6651(c)(2), if the amount required to be

shown as tax on the return is less than the amount actually shown

on the return, the addition to tax is calculated by reference to

the lesser amount.   This provision provides petitioner no relief,

because the NOL carrybacks that petitioner claimed after filing

his 1999 return did not affect the tax required to be shown on

his 1999 return.   See sec. 1.172-1(d), Income Tax Regs.

(providing that an NOL carryback that is not ascertainable when

the return is due does not affect the tax required to be shown on

the return but instead may give rise to a claim for credit or

refund of overpayment); see also Willingham v. United States, 289

F.2d 283, 287 (5th Cir. 1961) (stating that a net operating loss

carryback may “operate retrospectively to reduce or extinguish a

tax previously due” but “‘does not relieve the taxpayer of the
                               - 16 -

obligation to pay the tax in full when it falls due, and can not

be interpreted as deferring taxpayer’s duty to pay the tax

promptly’” (quoting Simon v. Commissioner, 248 F.2d 869, 877 (8th

Cir. 1957), revg. U.S. Packing Co. v. Commissioner, T.C. Memo.

1955-194)); Rictor v. Commissioner, 26 T.C. 913, 914-915 (1956);

C.V.L. Corp. v. Commissioner, 17 T.C. 812 (1951); Blanton Coal

Co., Inc. v. Commissioner, T.C. Memo. 1984-397.

     Pursuant to section 6651(b)(2), for purposes of computing

the addition to tax for failure to pay for any month, the amount

of tax shown on the return is reduced by the amount of any part

of the tax paid before the beginning of the month and by the

amount of any credit against the tax which may be claimed on the

return.   This provision also provides petitioner no relief.

Although petitioner made certain payments on his 1999 tax after

filing his 1999 return and respondent made certain abatements of

petitioner’s 1999 tax on the basis of tentative NOL carrybacks

from petitioner’s 2000 and 2001 taxable years, these payments and

abatements occurred long after November 2000, which is the last

month for which the assessed FTP addition at issue in this

proceeding was accrued.   Petitioner has failed to show any error

in respondent’s computation of the FTP addition.

D.   Collection Alternatives

     Petitioner argues for the first time on brief that the

Appeals officer abused her discretion in failing to provide any
                               - 17 -

collection alternative.   The record does not show that petitioner

ever proposed any collection alternative to the Appeals officer.

Nor does petitioner expressly dispute the statement in the notice

of determination that “you didn’t want to discuss collection

alternatives” during the Appeals Office hearing.     Instead,

petitioner suggests that he was in no position to offer a

collection alternative to the Appeals officer because the extent

of his “actual liability” had not yet been conclusively

established.

     Petitioner did not raise these issues in the assignments of

error in his petition.    Pursuant to Rule 331(b)(4), these issues

are deemed conceded.   In any event, petitioner’s belated

assignments of error in this regard are without merit.     Section

6330 contemplates that the taxpayer should raise at the

collection hearing relevant issues, including collection

alternatives, for the Appeals officer’s consideration; it does

not require the Appeals officer to engage in continuous

negotiation.   Chandler v. Commissioner, T.C. Memo. 2004-7; see

also Bruce v. Commissioner, T.C. Memo. 2007-161; Crisan v.

Commissioner, T.C. Memo. 2003-318.      The Appeals officer did not

abuse her discretion by not considering collection alternatives

that petitioner had not raised and did not wish to discuss.
                        - 18 -

To reflect the foregoing,


                                  Decision will be entered

                             for respondent.
