                              T.C. Memo. 2012-342



                        UNITED STATES TAX COURT



           BUSINESS INTEGRATION SERVICES, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 8811-11L.                         Filed December 10, 2012.



      Phong Van Nguyen (an officer), for petitioner.

      Christina L. Cook, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: The petition in this case was filed in response to a

Notice of Determination Concerning Collection Action(s) under Section 6320

and/or 6330 (notice of determination) dated March 10, 2011, upholding a

proposed levy collection action for tax years 2003, 2005, 2006, 2007, and 2008.
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[*2] We must consider whether respondent’s determination to proceed with the

collection action regarding petitioner’s unpaid income tax liabilities for tax years

2005, 2006, 2007, and 2008 was proper.

       Unless otherwise indicated, all section 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.

                                FINDINGS OF FACT

       Petitioner, a corporation, had its principal place of business in Minnesota

when it filed its petition.

       Petitioner filed its Forms 1120, U.S. Corporation Income Tax Return, for tax

years 2003, 2005, 2006, 2007, and 2008 but failed to pay the amount of tax due for

any of the tax years. Respondent assessed the unpaid tax, plus penalties, additions

to tax, and interest for each year in issue. Respondent did not audit petitioner’s

returns, and petitioner did not receive a notice of deficiency.

       On August 6, 2009, respondent sent petitioner a Notice of Federal Tax Lien

Filing and Your Right to a Hearing Under IRC 6320 for tax year 2007. The

deadline to request a hearing was September 14, 2009. On April 8, 2010,

respondent sent petitioner a Notice of Federal Tax Lien Filing and Your Right to a

Hearing Under IRC 6320 for tax year 2008. The deadline to request a hearing was
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[*3] May 17, 2010. On August 20, 2010, respondent sent petitioner a notice of

intent to levy for tax years 2003, 2005, 2006, 2007, and 2008.

      On September 20, 2010, petitioner submitted a Form 12153, Request for a

Collection Due Process or Equivalent Hearing, with respect to the proposed levy

collection action for tax years 2003, 2005, 2006, 2007, and 2008 and the two

notices of Federal tax lien for tax years 2007 and 2008. Under “Basis for Hearing

Request” petitioner checked “Filed Notice of Federal Tax Lien” and “Proposed

Levy or Actual Levy”. Petitioner requested that it receive an equivalent hearing to a

collection due process (CDP) hearing in case its request for a CDP hearing was

untimely. On Form 12153 petitioner requested a collection alternative, either an

installment agreement or an offer-in-compromise, and a lien subordination.

Petitioner also wrote that it “would like the IRS to consider * * * [its] amended

return”. Petitioner has never submitted amended returns for the years in issue.

      On December 1, 2010, respondent’s settlement officer sent petitioner a letter

scheduling a telephone CDP hearing regarding the proposed levy collection action

for tax years 2003, 2005, 2006, 2007, and 2008. The letter explains that petitioner

did not make a timely request for a CDP hearing regarding the notices of Federal tax

lien and that petitioner would be offered an equivalent hearing regarding the

liens. The letter states that “we will issue a decision letter for the periods for
                                          -4-

[*4] which your CDP request was determined not to be timely.” The letter also

requests that petitioner submit a Form 433-B, Collection Information Statement for

Businesses, and provide proof of Federal tax deposits. Petitioner did not submit a

Form 433-B or provide proof of Federal tax deposits.

      On February 10, 2011, the settlement officer held a hearing with petitioner’s

chief executive officer, Phong Nguyen. During the hearing Mr. Nguyen did not

raise any issues regarding the underlying tax liability. Mr. Nguyen and the

settlement officer discussed the lien subordination process and how the Government

may allow a junior creditor to take priority over a lien if the proceeds are used to

pay the tax. Mr. Nguyen stated that petitioner would look into the process further,

but petitioner did not address this issue again. Mr. Nguyen and the settlement

officer discussed potential collection alternatives, but petitioner did not submit any.

The settlement officer advised Mr. Nguyen that petitioner’s financial statements

would be key to determining its ability to pay. Mr. Nguyen agreed to provide the

settlement officer with a Form 433-B, profit and loss statements, accounts

receivable journals, loan verification, and bank statements by February 2, 2011.

Petitioner failed to provide the promised documents.

      On March 10, 2011, the settlement officer issued the notice of determination

for tax years 2003, 2005, 2006, 2007, and 2008. In the notice of determination the
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[*5] settlement officer verified that all requirements of applicable law and

administrative procedure had been met. The settlement officer also determined that

the collection action was an appropriate action that balanced the need for the

efficient collection of unpaid taxes with the legitimate concern that such actions be

no more intrusive than necessary. The notice of determination sustained the

proposed levy collection action for tax years 2003, 2005, 2006, 2007, and 2008.

The attachment to the notice of determination addressed the notices of Federal tax

lien and stated that “there is nothing in the Collection administrative file that

indicates withdrawal of the filed lien should be considered.”

       On April 13, 2011, petitioner filed a petition with this Court. Petitioner

contends that (1) respondent erroneously calculated the interest and penalties for the

years in issue; (2) respondent never explained respondent’s method for applying

payments to a particular year; and (3) petitioner intends to report a loss for tax year

2010 that it would carry back to tax year 2008.

       Starting in June 2007 petitioner had made a series of payments to respondent.

Respondent applied the payments for tax year 2003. By October 2011, after the

petition was filed, petitioner had fully paid its outstanding tax liability for tax year

2003. Tax year 2003 is no longer in issue.
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[*6]                                  OPINION

       Section 6331(a) authorizes the Secretary to levy upon the property and

property rights of a taxpayer who fails to pay a tax within 10 days after a notice and

demand. Before the Secretary may levy upon the taxpayer’s property, the Secretary

must notify the taxpayer of the Secretary’s intention to make the levy. Sec.

6331(d)(1). The Secretary must also notify the taxpayer of his or her right to a CDP

hearing. Sec. 6330(a)(1).

       The Federal Government obtains a Federal tax lien against the property and

rights to property, whether real or personal, of a taxpayer with an outstanding tax

liability whenever a demand for payment has been made and the taxpayer neglects

or refuses to pay. Sec. 6321; Iannone v. Commissioner, 122 T.C. 287, 293 (2004).

Section 6320(a)(1) requires the Secretary to provide written notice to a taxpayer

when the Secretary has filed a notice of Federal tax lien against the taxpayer’s

property and property rights. See also sec. 6321. The Secretary must also notify

the taxpayer of his or her right to a CDP hearing. Sec. 6320(a)(3).

       A taxpayer who fails to make a timely request for a CDP hearing is not

entitled to a CDP hearing. Sec. 301.6320-1(b)(1), Proced. & Admin. Regs. Such a

taxpayer may nevertheless request an equivalent hearing. Id. Petitioner did not

timely request a CDP hearing for the notices of Federal tax lien. See sec.
                                          -7-

[*7] 301.6320-1(b)(2), Q&A-B1, Proced. & Admin. Regs. (“[I]f the taxpayer does

not timely request a CDP hearing with respect to the first filing of a NFTL * * * the

taxpayer forgoes the right to a CDP hearing with Appeals and judicial review of the

Appeals determination with respect to the NFTL.”). The notice of determination

constitutes a notice of determination only with respect to the proposed levy and

does not confer jurisdiction on the Court for the notices of Federal tax lien. See

Orum v. Commissioner, 123 T.C. 1, 10-12 (2004), aff’d, 412 F.3d 819 (7th Cir.

2005). Therefore, we discuss only the proposed levy.

      If the taxpayer requests a CDP hearing, the hearing is conducted by the

Appeals Office. Sec. 6330(b)(1). At the hearing the taxpayer may raise any

relevant issue relating to the unpaid tax or the proposed levy. Sec. 6330(c)(2)(A).

Issues the taxpayer may raise include any collection alternatives or spousal

defenses. Id.

      A taxpayer may not challenge an underlying tax liability during a CDP

hearing unless the taxpayer did not receive a statutory notice of deficiency for the

liability or did not otherwise have the opportunity to dispute the liability. Sec.

6330(c)(2)(B); see also Montgomery v. Commissioner, 122 T.C. 1, 9 (2004).

Moreover, the Court considers an underlying tax liability on review only if the

taxpayer properly raised the issue during the CDP hearing. Sec. 301.6330-1(f),
                                          -8-

[*8] Q&A-F3, Proced. & Admin. Regs.; see also Giamelli v. Commissioner, 129

T.C. 107, 115 (2007) (holding that the Court does not have jurisdiction to consider

section 6330(c)(2) issues that were not raised before the Appeals Office). A

taxpayer did not “properly raise” an underlying tax liability if the taxpayer failed to

present the settlement officer with any evidence regarding the liability after being

given a reasonable amount of time. Sec. 301.6330-1(f), Q&A-F3, Proced. &

Admin. Regs.

      Once the settlement officer makes a determination, the taxpayer may appeal

the determination to this Court. Sec. 6330(d)(1). The Court has jurisdiction to

review the Commissioner’s administrative determinations. Id. Where the validity

of the underlying tax liability is properly at issue, we review the determination de

novo. Sego v. Commissioner, 114 T.C. 604, 609-610 (2000); Goza v.

Commissioner, 114 T.C. 176, 181-182 (2000).

      Petitioner disputes its underlying tax liabilities, contending that respondent

erroneously calculated the interest and penalties for the years in issue. Petitioner

bears the burden of proving that its underlying tax liabilities are properly at issue.

See Rule 142(a)(1).

      Although petitioner did not receive a notice of deficiency for its liabilities, it

failed to provide any documentation during its CDP hearing to show that its
                                            -9-

[*9] self-reported liabilities were incorrect. Petitioner did not file amended returns

or provide the requested information to the settlement officer. Therefore, petitioner

did not meaningfully challenge the underlying tax liabilities during its CDP hearing.

Consequently, petitioner’s underlying tax liabilities are not properly before the

Court.

         Petitioner contends that it intends to report a loss for tax year 2010 that it

would carry back to 2008. Petitioner did not raise this contention during its CDP

hearing. As discussed, the Court considers only section 6330(c)(2) issues that a

taxpayer properly raised during the taxpayer’s CDP hearing. Sec. 301.6330-1(f),

Q&A-F3, Proced. & Admin. Regs. Therefore, the Court will not consider this issue.

         Petitioner also contends that respondent did not explain to petitioner how

respondent applied petitioner’s payments to its unpaid liabilities. When petitioner

started making payments, petitioner was unaware that it could designate the

payments to be applied to an outstanding liability for a particular year. Most of

petitioner’s payments were undesignated payments, and respondent applied them for

the oldest year, tax year 2003. At trial Mr. Nguyen argued that the interest and

penalties should be lowered because petitioner had been unaware in the beginning
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[*10] that it could designate payments. Petitioner does not contend that respondent

failed to properly verify that applicable payment procedures were followed.

      Petitioner did not raise the issue of the interest and penalties during its CDP

hearing. As discussed, the Court considers only section 6330(c)(2) issues that a

taxpayer properly raised during the taxpayer’s CDP hearing. Id. Therefore, the

Court will not consider this issue.

       Where the validity of the underlying tax liability is not properly at issue, we

review the determination for abuse of discretion. Hoyle v. Commissioner, 131 T.C.

197, 200 (2008); Goza v. Commissioner, 114 T.C. at 182. The Court looks for a

“clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the

IRS.” Gillum v. Commissioner, 676 F.3d 633, 644 (8th Cir. 2012), aff’g T.C.

Memo. 2010-280.

      Section 6330(c)(3) requires the settlement officer to consider the following

during a CDP hearing: (1) whether the requirements of any applicable law or

administrative procedure have been met; (2) any issues appropriately raised by the

taxpayer, and (3) whether the proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the taxpayer that any
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[*11] collection action be no more intrusive than necessary. See also Lunsford v.

Commissioner, 117 T.C. 183, 184 (2001).

      We note that the settlement officer properly based his determination on the

required factors. The settlement officer (1) verified that all legal and procedural

requirements had been met, (2) considered the issues petitioner raised, and (3)

determined that the proposed collection action appropriately balanced the need for

the efficient collection of taxes with the legitimate concern of petitioner that the

collection action be no more intrusive than necessary.

      Consequently, we hold that the determination to proceed with collection was

not an abuse of the settlement officer’s discretion. We sustain respondent’s notice

of determination regarding the proposed levy collection action regarding petitioner’s

unpaid income tax liabilities for tax years 2005, 2006, 2007, and 2008.

      To reflect the foregoing,


                                                  Decision will be entered for

                                         respondent.
