                        T.C. Memo. 2009-242



                      UNITED STATES TAX COURT



                PETER M. COMENSOLI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 24712-07L, 3859-08L.   Filed October 26, 2009.



     Matthew S. DePerno, for petitioner.

     Alexandra E. Nicholaides, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   The issue for decision is whether respondent

may proceed to collect from petitioner the unpaid taxes of

Paradym Group, LLC (Paradym).   For the reasons stated herein, we

find that respondent may proceed by lien and levy.
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                         FINDINGS OF FACT

     The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Michigan at the time he filed his petition.    Petitioner is a

college graduate with a degree in accounting and worked as a

revenue agent for the Internal Revenue Service (IRS) for

approximately 5 years.

     Petitioner and A. Adonu Idahosa (Mr. Idahosa) formed a joint

venture in 1988 called Symphony Financial Services (Symphony).

Petitioner and Mr. Idahosa shared clients, and income and

expenses from Symphony were divided between them.    Petitioner

reported his share of income from Symphony on a Schedule C,

Profit or Loss From Business, attached to his Form 1040, U.S.

Individual Income Tax Return.

     TCF Leasing, Inc. (TCF Leasing), was incorporated in

Michigan on May 21, 1992.   TCF Leasing’s original shareholders

were petitioner, his wife, and two children.    Petitioner

repeatedly changed TCF Leasing’s name over the next 10 years.     In

January 2000 petitioner filed a certificate of amendment for TCF

Leasing, changing the corporate name to Symphony Financial

Services, Inc.   On April 12, 2007, petitioner filed another

certificate of amendment, changing the corporate name and form to

Back Porch Workout, LLC (Back Porch Workout).
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     Petitioner formed Paradym in December 2004 to operate a

temporary and contract employment agency.    Paradym was organized

under the laws of the State of Michigan, and petitioner signed

the Paradym articles of organization as “organizer”.    Petitioner

filed subsequent annual statements for 2006 and 2007, labeling

himself the “managing member” and “owner” respectively.

Petitioner did not file a Form 8832, Entity Classification

Election, for Paradym.

     Paradym filed a Form 941, Employer’s Quarterly Federal Tax

Return, for the fourth quarter ending December 31, 2005, but did

not pay the tax due.   Respondent assessed the amount shown on the

Form 941.

Levy Notice

     On April 25, 2007, respondent sent petitioner a Final

Notice, Notice of Intent to Levy and Notice of Your Right to a

Hearing (levy notice) for Paradym’s unpaid tax.    Respondent

issued the levy notice to petitioner on the grounds that because

petitioner was the only member of Paradym, Paradym was

disregarded for Federal income tax purposes and petitioner was

therefore liable for Paradym’s unpaid tax.

     On May 29, 2007, petitioner filed a Form 12153, Request for

a Collection Due Process or Equivalent Hearing.    Petitioner

argued that the collection action was improper because petitioner

was not the sole member of Paradym.    Therefore respondent was
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required to comply with the requirements of section 66721 before

he could collect the unpaid tax from petitioner.2

     On September 18, 2007, respondent issued a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 upholding respondent’s levy.

Lien Notice

     On June 28, 2007, respondent issued to petitioner a Notice

of Federal Tax Lien Filing and Your Right to a Hearing Under IRC

6320 (lien notice).   The lien notice was for the same tax as the

levy notice:   Paradym’s Form 941 2005 fourth quarter taxes.

     On July 23, 2007, petitioner submitted a request for a

collection due process (CDP) hearing in response to the lien

notice.   Petitioner’s request in response to the lien notice

raised the same argument he had raised in his request in response

to the levy notice.   Petitioner argued that the collection action

was improper because he was not the sole member of Paradym.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code.
     2
      Sec. 6672(a) provides that a person required to collect,
account for, and pay over taxes who willfully fails to do so or
who willfully attempts to evade or defeat any such tax shall be
liable for a penalty equal to the total amount of tax evaded, not
collected, or not accounted for and paid over. Sec. 6672(b)(1)
and (2) provides: (1) That no penalty may be imposed unless the
Secretary notifies the taxpayer in person or in writing by mail
to an address as determined under sec. 6212(b) that the taxpayer
shall be subject to assessment for such penalty; and (2) that in-
person delivery or mailing of the notice must precede any notice
and demand for payment of the sec. 6672 penalty by at least 60
days.
                                - 5 -

Therefore respondent was required to comply with the requirements

of section 6672 before he could collect the unpaid tax from

petitioner.

     On January 11, 2008, respondent issued a notice of

determination upholding the filing of the tax lien.    The notice

of determination indicates that respondent did not consider the

arguments petitioner raised in his request for a CDP hearing

because he had raised them in his earlier hearing in response to

the levy notice.   Respondent, although petitioner did not request

it, considered whether there were grounds to withdraw the tax

lien.   Finding no grounds for withdrawal, respondent upheld the

filing of the lien.

     Petitioner filed his petition in docket No. 24712-07L on

October 29, 2007, in response to the notice of determination

upholding respondent’s levy.   Petitioner filed his petition in

docket No. 3859-08L on February 13, 2008, in response to the

notice of determination upholding respondent’s lien.   A trial was

held on February 3, 2009, during a special session of the Court

in Detroit, Michigan.

                               OPINION

Collection Procedures

     Section 6320(a)(1) provides that the Secretary must provide

written notice to a taxpayer upon the filing of a lien under

section 6323.   Section 6320(a)(3)(B) provides that a taxpayer may
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request a hearing with the IRS, and section 6320(c) provides that

section 6330(c), (d) (other than paragraph (2)(B) thereof), and

(e) shall apply to such hearing.

     Section 6330(a) provides that no levy may be made on any

property or right to property of any person unless the Secretary

has notified such person in writing of the right to a hearing

before the levy is made.   Section 6330(b)(1) and (3) provides

that if a person requests a hearing, that hearing shall be held

before an impartial officer or employee of the IRS.    At the

hearing a taxpayer may raise any relevant issue, including

appropriate spousal defenses, challenges to the appropriateness

of the collection action, and collection alternatives, including

offers-in-compromise.   Sec. 6330(c)(2)(A).   A taxpayer is

precluded from contesting the existence or amount of the

underlying tax liability at the hearing unless the taxpayer did

not receive a notice of deficiency for the tax in question or did

not otherwise have an opportunity to dispute the tax liability.

Sec. 6330(c)(2)(B); see also Sego v. Commissioner, 114 T.C. 604,

609 (2000).

     Following a hearing the Appeals Office must make a

determination whether the proposed lien or levy action may

proceed.   The Appeals Office is required to take into

consideration:   (1) The verification presented by the Secretary

that the requirements of applicable law and administrative
                                - 7 -

procedure have been met; (2) the relevant issues raised by the

taxpayer; and (3) whether the proposed levy action appropriately

balances the need for efficient collection of taxes with the

taxpayer’s concerns that the levy action be no more intrusive

than is necessary.    Sec. 6330(c)(3).

     Section 6330(d) grants the Court jurisdiction to review the

Appeals Office’s determination to proceed with collection action

via levy after the hearing.    Where the validity of the underlying

tax liability is at issue in a collection review proceeding, the

Court will review the matter de novo.     Davis v. Commissioner, 115

T.C. 35, 39 (2000).    Where the underlying tax liability is not at

issue, however, the Court will review the determination of the

Appeals Office for abuse of discretion.    Goza v. Commissioner,

114 T.C. 176, 182 (2000).

     Petitioner argued at both the lien and levy hearings that he

was not the sole member of Paradym and that respondent was

required to comply with section 6672.    Respondent concedes that

petitioner had a right to challenge his liability for the tax in

his first CDP hearing in response to the levy notice and concedes

that we should apply a de novo standard for our review of the

notice of determination upholding the levy.    We agree.   Further,

respondent does not oppose a de novo standard for our review of

the notice of determination upholding the lien.    Because the
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standard of review does not affect the outcome, we will review

both notices of determination de novo.

Check-the-Box Regulations

     Sections 301.7701-1 through 301.7701-3, Proced. & Admin.

Regs. (check-the-box regulations), provide rules for the

classification of business entities for Federal tax purposes.

The check-the-box regulations provide rules and procedures for

taxpayers to choose the tax treatment of their business entity.

     A business entity, such as a limited liability company, with

two or more members can be classified as either a partnership or

a corporation.   Upon formation an entity with two or more members

is treated as a partnership unless it elects to be treated as a

corporation.   Sec. 301.7701-3(b)(1)(I), Proced. & Admin. Regs.

     A business entity with only one member can be classified as

either a corporation or a disregarded entity.   A single-member

entity must make an affirmative election on a Form 8832 in order

to be treated as a corporation separate from its owner.    If no

election is made, the single-member entity is disregarded and is

treated in the same manner as a sole proprietorship, branch, or

division of its owner.   Sec. 301.7701-3(b)(1)(ii), Proced. &

Admin. Regs.   Paradym did not timely file Form 8832 electing to

be treated as a corporation.

     The parties’ dispute focuses on Paradym’s ownership.

Petitioner does not dispute that Paradym is liable for the taxes
                                - 9 -

at issue or contend that the taxes have been paid.   Instead,

petitioner argues that Back Porch Workout owned Paradym; thus,

respondent cannot collect from petitioner and must attempt to

collect from Back Porch Workout.

     Respondent argues that petitioner is the sole member of

Paradym and that Back Porch Workout does not own any interest in

Paradym.   Respondent contends that because Paradym never filed an

election to be treated as a corporation and is therefore

disregarded, it is proper for respondent to collect the unpaid

tax directly from petitioner.   Respondent points to Paradym’s

articles of organization and various State regulatory filings in

which petitioner referred to himself as the organizer or managing

member of Paradym.

     Petitioner does not challenge the validity of the check-the-

box regulations.   In any event, this Court has previously held

those regulations to be valid in this context.   See Med. Practice

Solutions, LLC v. Commissioner, 132 T.C. ___ (2009); cf. Pierre

v. Commissioner, 133 T.C. ___, ___ n.11 (2009) (slip op. at 15-

16) (refusing to apply check-the-box regulations to disregard an

LLC for estate and gift tax purposes).   The check-the-box

regulations, as applied in this context, have also been upheld by

the Court of Appeals for the Sixth Circuit, the venue for appeal

in this case.   See Littriello v. United States, 484 F.3d 372, 378

(6th Cir. 2007).   For employment taxes related to wages paid on
                                - 10 -

or after January 1, 2009, a disregarded entity is treated as a

corporation for purposes of employment tax reporting and

liability.    Sec. 301.7701-2(c)(2)(iv), (e)(5), Proced. & Admin.

Regs.; see Med. Practice Solutions, LLC v. Commissioner, supra at

___ (slip op. at 7).    This amendment does not apply to the

instant case.

     We agree with respondent that petitioner was the sole member

of Paradym.    Because Paradym did not elect to be treated as a

corporation, it is treated as a sole proprietorship.    See sec.

301.7701-2(a), Proced. & Admin. Regs.

     Petitioner’s argument that Back Porch Workout owned Paradym

is not credible.    Petitioner formed Paradym, and he has not

offered any evidence to indicate that he transferred any of his

membership units in Paradym since it was formed.    Since its

inception, petitioner has held himself out as owner of Paradym.

     Although petitioner offered a Form 1065, U.S. Return of

Partnership Income, for Paradym for tax year 2005, that document

is not credible.    Attached to the Form 1065 were two Schedules K-

1, Partner’s Share of Income, Deductions, Credits, etc.    The

first Schedule K-1 was issued to Back Porch Workout and indicated

that Back Porch Workout owned a 100-percent ownership interest in

Paradym.     The second Schedule K-1 was issued to “Anyone” with an

address listed as “None” in Kalamazoo, Michigan.    The purported

Schedule K-1 showed a zero-percent ownership interest in Paradym.
                             - 11 -

Not only was the Form 1065 created in 2007 after respondent had

begun collection proceedings, but petitioner testified that the

second Schedule K-1 was fabricated because it was the only way to

process a partnership return for Paradym using petitioner’s and

Mr. Idahosa’s tax return preparation software.

     Petitioner formed Paradym in 2004 and never elected to have

it treated as a corporation for Federal tax purposes.

Accordingly, Paradym is disregarded pursuant to section 301.7701-

3(b)(1)(ii), Proced. & Admin. Regs.    Respondent is authorized to

collect Paradym’s unpaid tax from petitioner by means of the lien

and levy.

     To reflect the foregoing,


                                           Appropriate orders and

                                      decisions will be entered.
