                  T.C. Summary Opinion 2010-58



                      UNITED STATES TAX COURT



   KEVIN PATRICK MCKENNA AND ANANDA L. MCKENNA, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13440-08S.              Filed May 4, 2010.



     Shervon M. Small, for petitioners.

     Zachary Sharpe, for respondent.



     GOLDBERG, Special Trial Judge:    This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code), and
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all Rule references are to the Tax Court Rules of Practice and

Procedure.

     Petitioners challenge the outcome of a March 12, 2008,

Internal Revenue Service (IRS) Appeals collection hearing

determination concerning a final notice of intent to levy for

petitioners’ unpaid Federal income tax liability for 2005.

Respondent issued a notice of determination sustaining the levy

action and denying petitioners’ request for abatement of the

additions to tax for 2005 for failure to file, failure to pay the

tax shown on the return, and failure to pay estimated tax

assessed under sections 6651(a)(1) and (2) and 6654(a),

respectively.   The issues for decision are whether petitioners

are liable for the additions to tax for 2005 and whether

respondent abused his discretion in denying petitioners’ request

for abatement of the additions to tax and in upholding the levy

action.

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

New York when they filed their petition.

     Petitioners married in 1983.   They have one daughter who

resides with them.   In 2005 Ms. McKenna worked full time as an

independent contractor for Doctor Leonard’s Healthcare Catalogs
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(Dr. Leonard’s), a mail order and online health products

business.   Dr. Leonard’s reported Ms. McKenna’s 2005 earnings on

a Form 1099-MISC, Miscellaneous Income.    At the time of trial she

worked for Dr. Leonard’s only 1 day a week.

     Mr. McKenna is college educated, with a degree in

engineering.   He completed course work but not the thesis for an

M.B.A. in finance.   He held jobs in operations management,

industrial engineering, and finance until 2000.    From 2000

through the date of trial, Mr. McKenna remained unemployed except

for 6 months during 2005-2006 when a temporary employment agency

placed him with the Hongkong and Shanghai Banking Corp., USA.

The bank fired Mr. McKenna because he could not control his

anger.

     Mr. McKenna has a long history of mental health issues and

alcohol and substance abuse.    Although he believes he has

suffered from mental health problems since childhood, Mr. McKenna

did not begin attending therapy sessions and taking medication

until after the death of a close friend in the mid-1990s.      As of

trial, he was taking medication to alleviate the effects of his

mental and physical health problems.    Mr. McKenna is not alone in

his struggles.   Both Ms. McKenna and their daughter suffer from

mental health issues as well.

     Mr. McKenna is in charge of the household finances,

including paying bills such as rent and utilities.    Although he
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pays some household bills late, Mr. McKenna does ultimately pay

them.

     On December 11, 2006, after Ms. McKenna learned that the IRS

had levied upon the couple’s joint bank account to satisfy unpaid

income tax liabilities, Mr. McKenna filed the couple’s 2001-2005

Federal income tax returns.    He did not include payments for the

balances due on the returns.   Ms. McKenna had assumed that Mr.

McKenna had timely filed the returns and paid the balances

because he had done so in the past.     Mr. McKenna hid

correspondence from the IRS under a couch.     Whenever Ms. McKenna

asked Mr. McKenna about their tax returns, he told her that they

were “being taken care of.”

     Petitioners received a final notice of intent to levy dated

June 2, 2007, for years 2001-2004.      They received another final

notice of intent to levy dated October 9, 2007, for years 2001-

2005.   As of the October date, petitioners’ unpaid Federal income

tax liability for 2005 totaled $8,001, consisting of petitioners’

self-assessed balance due of Federal income tax of $5,143,

interest of $855, and additions to tax of $1,157 for late filing,

$643 for late payment, and $203 for failure to pay estimated tax.

     On November 5, 2007, petitioners filed Form 12153, Request

for a Collection Due Process or Equivalent Hearing, for 2001-

2005.   The IRS informed petitioners that because their request

for a hearing for years 2001-2004 was made more than 30 days past
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the June 2, 2007, notice, their request was too late to warrant a

collection hearing.   Instead, the IRS provided an equivalent

hearing for those years.    In their petition, petitioners asked

the Court to include 2001-2004 in the Court’s review.    However,

the Court granted respondent’s motion to dismiss for lack of

jurisdiction for 2001-2004 because the Court lacks jurisdiction

over equivalent hearings.    See sec. 6330(d); Rule 330(b).

     With respect to 2005, the IRS provided petitioners with a

collection hearing because petitioners’ request for a hearing for

2005 was made within 30 days of the IRS notice dated October 9,

2007.   The parties conducted the hearing by telephone conference

on March 12, 2008, with solely Mr. McKenna participating for

petitioners.   Mr. McKenna requested that the IRS abate the

additions to tax for all years 2001-2005 because he had

reasonable cause to file and pay late; namely, his substance

abuse and mental health issues.    The settlement officer informed

Mr. McKenna that unless Mr. McKenna provided more documentation,

petitioners would not have substantiated reasonable cause to

abate the additions to tax.

     Nonetheless, trying to resolve the case “in the interest of

taxpayer relations”, the settlement officer proposed abating the

additions to tax for 2002, totaling $4,800, and crediting the

$4,800 toward the unpaid Federal income tax liability for 2005.

By early 2009 petitioners had paid the outstanding balances for
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2001-2004.   In consideration, the settlement officer requested

that petitioners provide more substantiation regarding Mr.

McKenna’s physical and mental problems and that petitioners

complete a Form 433-D, Installment Agreement, providing

information to arrange a monthly installment plan to pay the

balance of the unpaid Federal income tax liability for 2005.

      At no time during the hearing did Mr. McKenna dispute that

petitioners owed the tax reported on the 2005 return, challenge

the appropriateness of the collection action, or offer collection

alternatives for payment of the Federal income tax due.

      Petitioners did not provide the information that the

settlement officer had requested.   IRS Appeals issued a notice of

determination dated April 30, 2008, sustaining the collection

action for 2005.   Petitioners timely petitioned this Court,

contending in main part that IRS Appeals abused its discretion

by:   (1) Pressuring petitioners into a telephone conference even

though Mr. McKenna had stressed that the issues were too complex

for him to properly explain by telephone and therefore the IRS

should have provided a face-to-face collection hearing; and (2)

denying abatement of the additions to tax for 2001-2005 despite

the severity of Mr. McKenna’s mental health and substance abuse

issues.
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                              Discussion

I.   Judicial Review of Collection Hearing Determinations

      The Secretary may levy upon property and property rights of

any taxpayer who fails to pay taxes after the Secretary makes a

notice and demand for payment.     Sec. 6331(a).   The Secretary may

levy with respect to any unpaid tax but only if the Secretary

gives written notice to the taxpayer 30 days before executing the

levy.   Sec. 6331(d).    The notice must advise the taxpayer of the

amount of the unpaid tax and of the taxpayer’s right to a

hearing.   Sec. 6330(a).

      If the taxpayer requests a hearing, an officer or employee

of the Commissioner’s Appeals Office with no prior involvement

with respect to the unpaid tax at issue conducts the hearing.

Sec. 6330(b)(1), (3).     The Appeals officer verifies that the

requirements of any applicable law or administrative procedure

have been met.    Sec. 6330(c)(1).   The taxpayer may raise at the

hearing “any relevant issue relating to the unpaid tax or the

proposed levy”.    Sec. 6330(c)(2)(A).     The taxpayer may also raise

challenges to the existence or amount of the underlying tax

liability at the hearing if the taxpayer did not receive a notice

of deficiency with respect to the underlying tax liability or did

not otherwise have an opportunity to dispute that liability.

Sec. 6330(c)(2)(B).     The phrase “underlying tax liability”

includes the tax deficiency, additions to tax, and statutory
                                 - 8 -

interest.    Katz v. Commissioner, 115 T.C. 329, 339 (2000).    A

taxpayer may also challenge amounts the taxpayer reported as due

on the original return.    Montgomery v. Commissioner, 122 T.C. 1,

9-10 (2004).

     At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection, taking into

account:    (1) The verification that the requirements of any

applicable law or administrative procedure have been met; (2) the

relevant issues raised by the taxpayer; (3) challenges to the

underlying tax liability by the taxpayer, where permitted; and

(4) whether any proposed collection action balances the need for

the efficient collection of taxes with the legitimate concern of

the taxpayer that the collection action be no more intrusive than

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

     We have jurisdiction to review determinations by the

Commissioner’s Office of Appeals upholding levy actions.    Sec.

6330(d)(1).    Generally, we consider only those issues that the

taxpayer raised during the section 6330 hearing.    Giamelli v.

Commissioner, 129 T.C. 107, 112-113 (2007); Magana v.

Commissioner, 118 T.C. 488, 493 (2002).    However, without regard

to a challenge by the taxpayer, the Court has jurisdiction to

review the Appeals officer’s mandated verification under section

6330(c)(1) that the Commissioner has met the requirements of any
                                - 9 -

applicable law or administrative procedure.    Hoyle v.

Commissioner, 131 T.C. 197, 202-203 (2008).

      Where the underlying tax liability is properly at issue, the

Court reviews the Commissioner’s determination de novo.    Sego v.

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

T.C. 176, 181-182 (2000).    The Court reviews determinations

regarding proposed collection actions for abuse of discretion.

Sego v. Commissioner, supra at 610; Goza v. Commissioner, supra

at 182.   An abuse of discretion occurs when the Commissioner

exercises discretion without sound basis in fact or law.       Murphy

v. Commissioner, 125 T.C. 301, 308 (2005), affd. 469 F.3d 27 (1st

Cir. 2006).

      Respondent does not contest the fact that petitioners did

not receive a notice of deficiency or otherwise have an

opportunity to dispute their liability for 2005.    Therefore, the

underlying tax liability for 2005 is properly at issue and we

review it de novo.   See Montgomery v. Commissioner, supra.

II.   Telephone Conference

      Nothing in the record indicates that petitioners requested a

face-to-face collection hearing.    Mr. McKenna did not raise the

issue during the telephone conference.    Petitioners’ first

mention of the issue is in their petition.

      The Court considers only arguments, issues, and other

matters raised at the collection hearing or otherwise brought to
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the attention of IRS Appeals.      Magana v. Commissioner, supra;

sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.      Even if

petitioners had requested a face-to-face hearing, the law is well

settled that the Commissioner is not required to provide a face-

to-face meeting.    Katz v. Commissioner, supra at 336-338.      That

is because the Commissioner has finite resources and because

hearings conducted under section 6330 are informal proceedings,

not formal adjudications.    Id.    Thus, while taxpayers are

generally entitled to a face-to-face hearing, the law does not

invariably require a face-to-face meeting, and the Commissioner

may conduct the hearing by telephone or by correspondence.        Id.

at 337-338; sec. 301.6330-1(d)(2), Q&A-D6 and D7, Proced. &

Admin. Regs.

III.    Challenge to the Underlying Tax Liability

       A taxpayer bears the burden of proving that the underlying

tax liabilities are incorrect.     Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).    However, the Commissioner bears the

burden of production with respect to the additions to tax.       Sec.

7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001).       To

meet that burden, the Commissioner must offer sufficient evidence

to indicate that it is appropriate to impose the relevant

addition.    Higbee v. Commissioner, supra at 446.    Once the

Commissioner meets his burden of production, the taxpayer bears

the burden of proving error in the determination, including
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providing evidence of reasonable cause or other exculpatory

factors.   Id. at 446-447.

     A.    Failure To File Under Section 6651(a)(1)

     A taxpayer who fails to file a return is subject to an

addition to tax in the amount of 5 percent of the tax for each

month or fraction of a month during which the failure continues,

not to exceed 25 percent in the aggregate.    Sec. 6651(a)(1).

Respondent met the burden of production by producing Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters, showing that petitioners filed their 2005 Federal income

tax return on December 11, 2006.    See Davis v. Commissioner, 115

T.C. 35 (2000) (Form 4340 provides presumptive evidence that a

tax has been validly assessed).

     A taxpayer will not be liable for an addition to tax under

section 6651(a)(1) if the taxpayer can show that the failure to

file was due to reasonable cause and not due to willful neglect.

United States v. Boyle, 469 U.S. 241, 245-246 (1985).     Reasonable

cause exists when a taxpayer exercises ordinary business care and

prudence and is nonetheless unable to file his return by the date

prescribed by law.    Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

Willful neglect is defined as a “conscious, intentional failure

or reckless indifference.”    United States v. Boyle, supra at 245.

     Petitioners contend that Mr. McKenna’s substance abuse and

mental health issues constitute reasonable cause.     This Court has
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held that drug and alcohol abuse and mental incapacity are not

necessarily reasonable cause to relieve the taxpayer of liability

for the failure to file addition to tax.   Hazel v. Commissioner,

T.C. Memo. 2008-134; Tamberella v. Commissioner, T.C. Memo.

2004-47, affd. 139 Fed. Appx. 319, 321 (2d Cir. 2005).    In Hazel

and Tamberella, the Court looked to testimony from witnesses,

besides the self-serving testimony of the taxpayer, to determine

the degree of the taxpayer’s mental incapacity.   The Court also

sought to decide whether the taxpayer was capable of continuing

or managing his personal business and affairs and whether the

taxpayer provided any documents buttressing the taxpayer’s

position.

     Mr. McKenna testified credibly regarding his substance abuse

and mental health issues, stating these issues caused his

employment problems.   However, at no time did he assert he was

unable to carry on responsibilities related to the household

finances, including preparing and filing Federal income tax

returns and paying the balances shown on the returns.

     Ms. McKenna, in her testimony, mentioned her daughter’s and

her own mental health issues, but she did not expound on this

statement or corroborate Mr. McKenna’s mental incapacity.

     Mr. McKenna was in charge of his family’s finances during

2005.   He paid the rent and the other household bills.   These
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actions indicate Mr. McKenna’s ability to sufficiently manage the

family’s household finances.

     This Court has held that time spent in a drug and alcohol

treatment center that overlaps with the statutory deadline for

filing a tax return is reasonable cause for failure to file such

a return.   Harbour v. Commissioner, T.C. Memo. 1991-532.

Petitioners offered no testimony or documentary evidence

indicating that Mr. McKenna was hospitalized for his mental

health or substance abuse problems at the time petitioners’ 2005

Federal income tax return was due.       It is important to note that

the taxpayer in Harbour was found to have proven reasonable

cause, not because he was mentally incapacitated, but because he

was physically incapacitated by his stay in the treatment center.

     Mr. McKenna did provide one other piece of evidence

concerning his mental state, a letter from David L. Speights,

Ph.D.   The letter describes Mr. McKenna’s inability to

participate appropriately in social or occupational settings

where interaction with coworkers is necessary.      Dr. Speights also

stated that Mr. McKenna has superior intelligence and can perform

highly technical tasks, as long as they require “little

interaction with colleagues.”

     The act of timely filing one’s Federal income tax returns

fits into neither a social nor an occupational context, which is

where Dr. Speights explains that Mr. McKenna has the most
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difficulty.   Mr. McKenna’s social awkwardness does not diminish

his intellectual capacity, as Dr. Speights noted in his letter.

The letter does not support petitioners’ premise that Mr. McKenna

could not timely file the couple’s Federal income tax return.

     Additionally, Ms. McKenna herself could have but did not

timely file petitioners’ joint 2005 tax return.   She testified

that she was working full time in 2005 and that Mr. McKenna took

care of the couple’s income tax return responsibilities.    The

incapacity of one taxpayer is not an excuse for the other

taxpayer on a joint return not to timely file the return.

Fambrough v. Commissioner, T.C. Memo. 1990-104 (taxpayer could

not rely on tending to his wife’s and brother’s illnesses as

reasonable cause for failure to file his Federal income tax

returns because he was not personally incapacitated).

     Although the Court is sympathetic to petitioners’ mental

health issues, petitioners have failed to establish that they had

reasonable cause for their failure to timely file their joint

Federal income tax return for 2005.    See Higbee v. Commissioner,

116 T.C. at 446-447; Hazel v. Commissioner, supra.    Therefore,

petitioners are liable for the addition to tax for failure to

file, and respondent did not abuse his discretion in declining to

abate the addition to tax for late filing of the 2005 Federal

income tax return.
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     B.   Failure To Pay Income Tax Under Section 6651(a)(2)

     A taxpayer is liable for an addition to tax if he fails to

pay the amount shown as tax on any return specified in section

6651(a)(1).   Sec. 6651(a)(2); Cabirac v. Commissioner, 120 T.C.

163, 170 (2003).   The amount added to the tax is 0.5 percent for

each month or fraction of a month during which the failure

continues, not to exceed 25 percent of the tax in the aggregate.

Sec. 6651(a)(2).   If the taxpayer can show that the failure to

pay the tax was due to reasonable cause and not wilful neglect,

no amount will be added to the tax shown on his return.      Id.

     Form 4340 shows that petitioners filed their 2005 Federal

income tax return on December 11, 2006, the IRS assessed the

balance due of $5,143, and petitioners did not pay the tax.

Therefore, respondent met his burden of production pertaining to

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

a Federal income tax return.

     The test for reasonable cause for failure to pay is the same

as the test for reasonable cause for failure to file.   As

discussed above, petitioners have not established that they had

reasonable cause for filing their 2005 Federal income tax return

late or for paying their 2005 balance late.   Therefore,

petitioners are liable for the addition to tax for failure to pay

the tax shown on the 2005 return, and respondent did not abuse

his discretion in not abating this addition to tax.
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     C.    Failure To Pay Estimated Tax Under Section 6654

     A taxpayer who is either self-employed or an independent

contractor is liable for an addition to tax for failure to pay

estimated income tax.     Sec. 6654(a).   The Code requires a

taxpayer with adjusted gross income of less than $150,000 to make

estimated payments in the lesser of 90 percent of the tax due for

the current year or 100 percent of the tax shown on the return

for the preceding year.     Sec. 6654(d)(1)(B).   Petitioners are

subject to section 6654 because of Ms. McKenna’s income from

working as an independent contractor for Dr. Leonard’s.      She

testified that Dr. Leonard’s did not withhold taxes and that it

was her responsibility to do so.

     Respondent established that petitioners made no estimated

tax payments for 2005 and that petitioners had a balance due of

$5,143.     Respondent also provided a Form 4340 showing that

petitioners had a Federal income tax liability of $13,602 for

2004.     Therefore, respondent met his burden of production for the

addition to tax for failure to pay estimated income tax.        See

Wheeler v. Commissioner, 127 T.C. 200, 211 (2006), affd. 521 F.3d

1289 (10th Cir. 2008).

     Reasonable cause is not a defense for an underpayment of

estimated tax.     Sec. 1.6654-1(a)(1), Income Tax Regs.

Nonetheless, section 6654(e) sets forth three exceptions where

the addition to tax will not be imposed:      (1) Where the tax due
                              - 17 -

is less than $1,000; (2) where no liability existed for the prior

year; or (3) where the Secretary determines that imposition of

the tax would be against equity and good conscience due to

unusual circumstances or for taxpayers who are disabled or are at

least age 62 and newly retired.

      The record indicates that in 2005 petitioners were younger

than age 62.   Petitioners testified as to their physical and

mental health issues but did not provide corroborating evidence

showing that the severity of their difficulties warranted

respondent’s refraining under section 6654(e) from imposing the

addition.   Moreover, petitioners provided no information

regarding the mental health issues of Ms. McKenna, whose work as

an independent contractor generated the estimated tax liability.

She worked full time, indicating that she had the mental capacity

to ensure that her estimated taxes were paid.

      Thus, for the foregoing reasons, petitioners are liable for

the addition to tax for failure to pay estimated tax, and

respondent did not abuse his discretion in imposing the addition

to tax for failure to pay estimated tax.

IV.   Conclusion

      Reviewing the record as a whole, we find that petitioners

are liable for the three additions to tax for 2005 under sections

6651(a)(1) and (2) and 6654(a) and that respondent did not abuse
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his discretion in denying petitioners’ request for abatement of

the additions to tax or in upholding the levy action.

     The Court has considered all arguments made in reaching our

decision, and to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent.
