                              T.C. Memo. 2015-229



                        UNITED STATES TAX COURT



                 AMBAWALAGE S. SILVA, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 25416-12L.                        Filed November 30, 2015.



      Ambawalage S. Silva, pro se.

      Robert D. Heitmeyer and John D. Davis, for respondent.



                          MEMORANDUM OPINION


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

seeks review pursuant to sections 6320(c) and 6330(d)(1) of the determination of

the Internal Revenue Service (IRS or respondent) to uphold the filing of a notice
                                        -2-

[*2] of Federal tax lien (NFTL).1 This case was submitted fully stipulated under

Rule 122, and the stipulated facts are so found. We incorporate by reference the

parties’ stipulation of facts and accompanying exhibits. Petitioner resided in

Michigan when he filed his petition.

                                    Background

      Petitioner did not file a Federal income tax return for 2002 or 2004. On the

basis of third-party information reports, the IRS prepared for each year a substitute

for return (SFR) that met the requirements of section 6020(b). These reports

showed that petitioner in 2002 and 2004 received employee compensation of

$34,081 and $92,997, respectively, but had zero income tax withheld from his

paychecks. For 2002 he received additional income in excess of $100,000 from

dividends, interest, retirement plan distributions, and gross proceeds from securi-

ties transactions.2



      1
       All statutory references are to the Internal Revenue Code in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all dollar amounts to the nearest dollar.
      2
        The IRS examination file includes a letter informing the exam team that
petitioner “has been identified as a potential participant in an ATAT (Abusive Tax
Avoidance Transaction) marketed by Eddie Kahn, doing business as American
Rights Litigators (ARL).” The letter indicates that ARL markets tax-evasion
schemes under which taxpayers assert that they are not subject to Federal income
tax.
                                         -3-

[*3] On the basis of the SFRs, the IRS prepared a notice of deficiency dated July

17, 2006, determining tax deficiencies and applicable penalties for 2002 and 2004.

This notice was addressed to petitioner at a Livonia, Michigan, address. This was

his last known address as shown in IRS records and is the address at which he in

fact received all correspondence that the IRS sent to him subsequently.

      When petitioner failed to petition this Court within 90 days in response to

the notice of deficiency, the IRS assessed the liabilities set forth in that notice. On

May 23, 2011, in an effort to collect these unpaid liabilities, the IRS sent

petitioner a Final Notice of Federal Tax Lien and Notice of Your Right to a

Hearing. Petitioner timely submitted a Form 12153, Request for a Collection Due

Process or Equivalent Hearing. In his request he stated his intention to dispute his

underlying tax liabilities for 2002 and 2004 because he assertedly had “never had

a chance to challenge [them] before.” He also asked the IRS to consider a

collection alternative in the event “this liability is indeed a proper assessment.”

He demanded a face-to-face hearing to address these matters.

      On October 25, 2011, a settlement officer (SO) from the IRS Appeals Office

wrote petitioner to schedule a telephone CDP hearing for November 29, 2011.

The SO informed him that he would be granted a face-to-face hearing only if he

submitted a completed Form 433-A, Collection Information Statement for Wage
                                         -4-

[*4] Earners and Self-Employed Individuals, and was current in his Federal tax

obligations. Petitioner had failed to file Federal income tax returns, not only for

2002 and 2004, but also for 2005, 2006, 2007, 2008, 2009, and 2010. The SO

informed petitioner that he needed to file tax returns for each of these years in

order for her to consider his request for a collection alternative.

      On November 26, 2011, petitioner replied to the SO’s letter, informing her

that he would not participate in the telephone conference because he had demand-

ed a face-to-face hearing.3 Petitioner also stated: “I did not receive any Notices of

Deficiency for the tax years 2002 or 2004, which would have given me the oppor-

tunity to challenge the liability.” He requested that the SO provide him with

“documentation * * * pertaining to the Notices of Deficiency as well as proof that

I received them.”

      Petitioner did not participate in the CDP hearing scheduled for November

29, 2011. That same day, the SO sent petitioner a letter enclosing a copy of the

notice of deficiency for 2002 and 2004 and reminding him that she had already

furnished him copies of his 2002 and 2004 account transcripts. She gave him an

additional two weeks to submit the requested documentation and informed him

      3
        Petitioner proposed as follows: “I suggest that you pick at least three dates
in the future that you will be available to conduct my FACE-TO-FACE hearing,
and I will let you know which of the three will be more convenient for me.”
                                        -5-

[*5] that, if no documentation was forthcoming, she would make her

determination using information in the IRS administrative file. On December 20,

2011, petitioner wrote the SO repeating his assertion that he had not received the

notice of deficiency but providing none of the documentation she had requested.

      At this point the SO decided that the case should be closed. Her case acti-

vity report indicates that she was willing to consider petitioner’s underlying tax

liabilities for 2002 and 2004 in view of his assertion that he had not received the

notice of deficiency. However, because petitioner had presented no evidence con-

cerning those liabilities and had refused to execute tax returns, the SO declined to

address that issue further. She determined that petitioner was not eligible for a

collection alternative because he had put no specific proposal on the table and had

repeatedly failed to submit the required financial information. Consistently with

the SO’s determinations, the IRS on February 27, 2012, issued petitioner a Notice

of Determination Concerning Collection Action sustaining the NFTL filing.

      On March 29, 2012, petitioner filed a letter with this Court stating, in part,

as follows:

      Dear Tax Court Judge,

      I recently requested for a Collection Due Process Hearing, and I
      strongly believe that my request was ignored. I received a Notice of
      Determination from the Internal Revenue Service for the year 2002,
                                         -6-

      [*6] 2004. The letter states that I should file a petition with the
      United States Tax Court if I believe that the Internal Revenue Service
      has made a wrong determination. I do believe that they have made
      the wrong determination, and I’m not sure which route to take after
      this. The IRS claims that I owe them some amount of funds and I still
      have been unsuccessful in obtaining any kind of proof as to how they
      support their claims.

This document did not conform to Rule 331, which lists the requirements for a

petition in a CDP case. The Court initially did not treat this letter as a petition and

accordingly did not ask petitioner to file an amended petition complying with Rule

331(b). Petitioner took no action for six months.

      On September 24, 2012, petitioner received an IRS notice of levy with

regard to his unpaid tax liabilities for 2001, 2002, and 2004. (The levy notice is

not at issue in this case.) On October 9, 2012, petitioner filed an amended petition

purporting to address IRS collection actions for all three tax years. The Court

thereupon assigned a docket number to this case. See Rule 35.

      The only issue petitioner raised in his amended petition was a demand “that

the Court grant an immediate injunction against Respondent * * * from levying

and/or seizing Petitioner’s property.” Shortly after filing the amended petition he

filed a motion to restrain collection under section 6330(e)(1). This motion alleged

that the levy violated section 6330(e) because it was initiated after petitioner had

commenced Tax Court proceedings for 2002 and 2004 by sending his March 29,
                                         -7-

[*7] 2012, letter to the Court and after he had commenced Tax Court proceedings

for 2001 by sending the Court a substantially similar letter dated December 15,

2006, regarding a separate notice of determination for that year.

      On November 6, 2012, respondent moved to dismiss this case for lack of

jurisdiction. Petitioner objected, contending that his March 29, 2012, letter was an

imperfect petition in response to the notice of determination for 2002 and 2004

and that his December 15, 2006, letter was an imperfect petition in response to the

notice of determination for 2001. He included with his objection copies of certi-

fied mail receipts for both letters.

      On March 13, 2013, we denied respondent’s motion to dismiss as to 2002

and 2004, concluding that petitioner’s letter dated March 29, 2012, would be treat-

ed as a timely petition. However, we granted respondent’s motion to dismiss for

lack of jurisdiction as to 2001, concluding: “The 5-year delay between December

15, 2006, and petitioner’s filing the petition in this case on October 15, 2012, be-

lies petitioner’s claim that the December 15, 2006, letter was intended by him as a

petition.” Petitioner filed a motion to vacate the Court’s order in the latter respect,

and we denied that motion on April 26, 2013. Upon receiving confirmation from

respondent that no active collection activities were being pursued against petition-

er, we also denied petitioner’s motion to restrain collection.
                                        -8-

[*8] On February 3, 2015, the parties filed a joint motion for leave to submit this

case for decision without trial under Rule 122. We granted that motion and or-

dered respondent to file a seriatim opening brief on or before April 6, 2015, and

petitioner to file a seriatim answering brief on or before May 19, 2015. Both

briefs were timely filed. Respondent asserts that the SO did not abuse her discre-

tion by refusing to allow petitioner a face-to-face conference or by sustaining the

filing of the NFTL. We agree for the reasons stated below.

                                     Discussion

A.    Standard of Review and Burden of Proof

      Section 6320(b) affords the taxpayer the right to a fair hearing before an im-

partial hearing officer in a CDP case. Section 6320(c) requires that the administra-

tive hearing be conducted pursuant to section 6330(c) and (d). Section 6330(d)(1)

does not prescribe the standard of review that this Court should 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 under-

lying tax liability is at issue, the Court reviews the Commissioner’s determination

de novo. Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). Where the tax-

payer’s underlying tax liability is not at issue, the Court reviews the IRS decision

for abuse of discretion. Id. at 182. Abuse of discretion exists when a determina-
                                         -9-

[*9] tion is arbitrary, capricious, or without sound basis in fact or law. See

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.

2006).

       A taxpayer may dispute his underlying tax liability in a CDP case only if he

did not receive a notice of deficiency or otherwise have a prior opportunity to con-

test that liability. Sec. 6330(c)(2)(B). In view of petitioner’s assertion that he did

not receive the notice of deficiency, the SO was willing to let him challenge his

underlying tax liabilities for 2002 and 2004. But he advanced no such challenge.

He refused to participate in the CDP hearing; he submitted no evidence concern-

ing his underlying tax liabilities; he articulated no argument tending to show that

the liabilities determined in the notice of deficiency were incorrect; and he refused

to submit tax returns that would show what he believed his correct 2002 and 2004

tax liabilities to be.

       Under these circumstances, petitioner did not properly raise his underlying

tax liabilities during the CDP process. See, e.g., Pough v. Commissioner, 135

T.C. 344, 349 (2010); Lunnon v. Commissioner, T.C. Memo. 2015-156, at *15

(“The taxpayer does not properly raise an issue, including the underlying liability,

during the hearing if he ‘fails to present to Appeals any evidence with respect to

that issue after being given a reasonable opportunity to present such evidence.’”
                                        - 10 -

[*10] (quoting section 301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.)). He

is accordingly precluded from raising them here. See Thompson v. Commissioner,

140 T.C. 173, 178 (2013) (“A taxpayer is precluded from disputing the underlying

liability if it was not properly raised in the CDP hearing.”); Giamelli v. Commis-

sioner, 129 T.C. 107, 112-113 (2007). We accordingly review the SO’s actions

with respect to 2002 and 2004 for abuse of discretion only.

       The submission of this case fully stipulated changes neither the burden of

proof nor the effect of a failure of proof. See Rule 122(b); Okerson v. Commis-

sioner, 123 T.C. 258, 263 (2004). Petitioner bears the burden of proving that the

SO abused her discretion. See Woodral v. Commissioner, 112 T.C. 19, 23 (1999);

Gibbs v. Commissioner, T.C. Memo. 2006-149, 92 T.C.M. (CCH) 29, 30.

B.    Analysis

      In deciding whether the settlement officer abused her discretion in sus-

taining the NFTL, we consider whether she: (1) properly verified that the require-

ments of any applicable law or administrative procedure have been met; (2) con-

sidered any relevant issues petitioner raised; and (3) determined whether “any

proposed collection action balances the need for the efficient collection of taxes

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

more intrusive than necessary.” Sec. 6330(c)(3).
                                         - 11 -

[*11] 1.     Demand for Face-to-Face CDP Hearing

       Petitioner’s principal argument during the CDP process was that the SO had

improperly denied him a face-to-face CDP hearing. Although petitioner did not

explicitly advance this argument in his amended petition, respondent thoroughly

addressed this issue in his pretrial memorandum and in his posttrial brief. We

accordingly regard the issue as having been tried by agreement of the parties. See

Rule 41(b) (“When issues not raised by the pleadings are tried by express or im-

plied consent of the parties, they shall be treated in all respects as if they had been

raised in the pleadings.”).

       We have held on numerous occasions that a CDP hearing is not a formal

adjudication and that a face-to-face hearing therefore is not mandatory. See Katz

v. Commissioner, 115 T.C. 329, 337 (2000); Davis v. Commissioner, 115 T.C. 35,

41 (2000); Bean v. Commissioner, T.C. Memo. 2006-88. A CDP hearing may

take the form of a face-to-face meeting, a telephone conference, or written com-

munications between the taxpayer and the Appeals Office. Sec. 301.6320-1(d)(2),

Q&A-D6, Proced. & Admin. Regs.; see Katz v. Commissioner, 115 T.C. at 337-

338.

       The SO advised petitioner on two occasions that she would grant his request

for a face-to-face hearing if he submitted specified documents, including a Form
                                        - 12 -

[*12] 433-A and signed tax returns for 2002 and 2004. Both sets of documents

were essential if petitioner was going to make a serious proposal for a collection

alternative or a nonfrivolous challenge to his underlying tax liabilities. Petitioner

repeatedly refused to submit documentation of any kind. Under these circum-

stances, he was not entitled to a face-to-face hearing and the SO did not abuse her

discretion in denying his request. See, e.g., Rivas v. Commissioner, T.C. Memo.

2012-20, 103 T.C.M. (CCH) 1131; Zastrow v. Commissioner, T.C. Memo. 2010-

215; Williams v. Commissioner, T.C. Memo. 2008-173.

      2.     Verification Requirement

      Petitioner asserted to the SO that he had not received the notice of defici-

ency for 2002 and 2004 and asked that she provide him with documentation re-

lating to the notice and proof he received it. The SO thereafter confirmed that the

administrative file included a notice of deficiency for 2002 and 2004 dated July

17, 2006; confirmed that it was addressed to petitioner at his last known address;

sent him a copy of the notice; and verified that the tax for 2002 and 2004 was

properly assessed after petitioner failed to petition this Court. Petitioner contends
                                        - 13 -

[*13] that these steps were insufficient to constitute compliance with the

verification requirement.4

      In his Tax Court pleadings, petitioner raised no challenge to the notice of

deficiency or to the SO’s satisfaction of the verification requirement. However,

petitioner asserts for the first time in his seriatim answering brief that the SO

“failed to verify that a notice of deficiency for the tax years in question was crea-

ted and properly mailed to petitioner at his last known address.”

      The purpose of the pleadings is “to give the parties and the Court fair notice

of the matters in controversy.” Rule 31(a). Our Rules governing the content of


      4
        Although petitioner in his communications with the SO disputed only his
receipt of the notice of deficiency, not its timely mailing, he arguably alleged an
“irregularity” in the administrative procedure. See Meyer v. Commissioner, T.C.
Memo. 2013-268, at *15-*16 & n.10. The SO therefore had “to do more than
consult the computerized records” and was “required ‘to examine underlying
documents in addition to the tax transcripts, such as the taxpayer’s return, a copy
of the notice of deficiency, and the certified mailing list.’” Hoyle v. Commis-
sioner, 131 T.C. 197, 205 n.7 (2008) (quoting IRS Chief Counsel Notice CC-
2006-19 (Aug. 18, 2006)). Upon hearing petitioner’s claim that he had not re-
ceived the notice of deficiency, the SO offered him an opportunity to dispute his
underlying tax liabilities. See Tatum v. Commissioner, T.C. Memo. 2003-115.
After he refused to present any plausible challenge to those liabilities, the SO con-
firmed the existence of the notice of deficiency, verified that it was addressed to
petitioner at his last known address, and verified that the tax was properly as-
sessed. Although the SO’s actions appear to have been reasonable under the
circumstances, we need not decide whether she fully satisfied the verification
requirement because petitioner did not timely present that question to this Court
for review.
                                        - 14 -

[*14] the petition in a CDP case explicitly provide that “[a]ny issue not raised in

the assignments of error shall be deemed to be conceded.” Rule 331(b)(4). As a

rule, therefore, the taxpayer must adequately raise the verification issue in his

petition in order for this Court to consider it. See Triola v. Commissioner, T.C.

Memo. 2014-166, at *9 (noting that petition did not allege that assessment was

improper and deeming the issue conceded); Dinino v. Commissioner, T.C. Memo.

2009-284, 98 T.C.M. (CCH) 559, 564 (noting that verification issue must be

“adequately raised” in petition, citing Rule 331(b)(4)); cf. Hoyle v. Commissioner,

131 T.C. at 200 n.3 (considering verification issue where it was tried by consent

even though not raised in petition).

      Whether an issue not raised in the pleadings will nonetheless be considered

is a matter for the Court’s discretion, taking into account the risk of prejudice to

the opposing party. As we explained in Ware v. Commissioner, 92 T.C. 1267,

1268 (1989), aff’d, 906 F.2d 62 (2d Cir. 1990): “The rule that a party may not

raise a new issue on brief is not absolute. Rather, it is founded upon the exercise

of judicial discretion in determining whether considerations of surprise and

prejudice require that a party be protected from having to face a belated

confrontation which precludes or limits that party’s opportunity to present

pertinent evidence.” Accord Toyota Town, Inc. v. Commissioner, T.C. Memo.
                                        - 15 -

[*15] 2000-40, 79 T.C.M. (CCH) 1457, 1461 (declining to consider issue not

raised in petition).

      At no time before filing his seriatim answering brief did petitioner provide

any notice to respondent or this Court that he intended to dispute the proper

mailing of the notice of deficiency. In his March 29, 2012, letter to the Court,

petitioner raised no issue about the notice of deficiency, asserting vaguely that

“[t]he IRS claims that I owe them some amount of funds and I still have been

unsuccessful in obtaining any kind of proof as to how they support their claims.”

In his amended petition he made only one assignment of error: that the IRS levy

violated section 6330(e)(1) and should therefore be enjoined.

      The standing pretrial order mailed to the parties on September 21, 2014,

instructed them to file a pretrial memorandum listing (among other things) the

issues presented by this case. Respondent timely filed a pretrial memorandum

setting forth his understanding of the issues presented, which did not include the

proper mailing of the notice of deficiency. Petitioner did not file a pretrial

memorandum, and he did not otherwise dispute the statement in respondent’s

pretrial memorandum that “the notice [of deficiency] was mailed to [petitioner’s]

mailing address on July 17, 2006.”
                                         - 16 -

[*16] The parties agreed to submit this case under Rule 122 for decision without

trial and filed a stipulation of facts including 18 exhibits. Respondent filed his

opening brief in which he addressed petitioner’s demand for a face-to-face hear-

ing, petitioner’s entitlement to contest his underlying tax liabilities, and peti-

tioner’s failure to submit documentation requisite to consideration of a collection

alternative. Petitioner then filed an answering brief in which he ignored all of

these issues and argued, for the first time and at length, that the SO “failed to veri-

fy that a notice of deficiency for the tax years in question was created and properly

mailed to petitioner at his last known address.”

      We conclude that respondent has been prejudiced by petitioner’s delay and

will therefore exercise our discretion not to consider petitioner’s untimely argu-

ment. “Of key importance in evaluating the existence of prejudice is the amount

of surprise and the need for additional evidence on behalf of the party opposed to

the new position.” Sundstrand Corp. & Subs. v. Commissioner, 96 T.C. 226, 347

(1991) (quoting Pagel, Inc. v. Commissioner, 91 T.C. 200, 211-212 (1988), aff’d,

905 F.2d 1190 (8th Cir. 1990)). Because the parties agreed to submit this case

under Rule 122, respondent made his decision about what evidence to include in

the record on the basis of the pleadings and other pretrial submissions. Had peti-

tioner raised the verification issue before the record was closed, respondent could
                                        - 17 -

[*17] have included additional evidence in the stipulation or (alternatively) taken

the case to trial for the production of testimony verifying that the notice of

deficiency was timely mailed. See, e.g., Rivas v. Commissioner, 103 T.C.M.

(CCH) at 1134 (finding that testimony from a USPS employee was evidence of the

“actual mailing [of the notice of deficiency] equivalent to a USPS Form 3877”). It

is clear to us that petitioner was “lying behind the log” on this issue and that

respondent has been prejudiced by these tactics.5

      We conclude that the SO did not abuse her discretion in concluding that

petitioner was not entitled to a collection alternative and in sustaining the NFTL

filing. Petitioner declined to participate in the CDP hearing; he refused to submit

Form 433-A and the financial information requisite to consideration of a collection

      5
        We generally construe claims in a petition liberally “as to do substantial
justice,” especially where the petitioner is pro se. See Rule 31(d); Gray v. Com-
missioner, 138 T.C. 295, 298 (2012). But petitioner’s letter and amended petition,
even when liberally construed, fail to raise any issue concerning the mailing of the
notice of deficiency. Moreover, our review of the record convinces us that peti-
tioner has exploited the collection review procedures for the principal purpose of
delaying collection of his Federal tax liabilities. He refused to participate in the
CDP hearing that the IRS offered him and provided the SO with no evidence of
any sort. He appears to have intentionally filed imperfect petitions, in the form of
letters dated December 15, 2006, and March 29, 2012, in order to lay the predicate
for a subsequent motion to enjoin IRS collection activity as violative of an on-
going Tax Court proceeding. And his briefing tactics reveal a deliberate effort to
sandbag respondent. Construing petitioner’s claims so liberally as to include a
challenge to the timeliness of the notice of deficiency would reward these tactics
and would not accomplish substantial justice.
                                        - 18 -

[*18] alternative; he placed no specific proposal for a collection alternative on the

table; and he has not complied with his ongoing Federal tax obligations. A

settlement officer does not abuse her discretion by declining to consider a collec-

tion alternative under these circumstances. See, e.g., Thompson v. Commissioner,

T.C. Memo. 2012-87; Winters v. Commissioner, T.C. Memo. 2012-85; Huntress v.

Commissioner, T.C. Memo. 2009-161.

      Finding no abuse of discretion in any respect, we will affirm the proposed

collection action. To reflect the foregoing,


                                                 Decision will be entered for

                                       respondent.
