                       T.C. Memo. 2005-237



                     UNITED STATES TAX COURT



                 JEROME J. NORRIS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20763-04L.             Filed October 11, 2005.


     Jerome J. Norris, pro se.

     Cleve Lisecki, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GERBER, Chief Judge:    Petitioner, pursuant to section

6330(d),1 seeks review of respondent’s determination to proceed




     1
      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.
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with collection by levy of petitioner’s 2002 tax liability.    We

decide whether respondent may proceed with the proposed levy.

                          FINDINGS OF FACT

     Petitioner resided in Potomac, Maryland, at the time his

petition was filed in this case.   He has practiced intellectual

property law for approximately 35 years.     On or about April 15,

2003, petitioner, along with his spouse, timely filed a joint

income tax return for the 2002 taxable year reflecting a balance

due of $51,349.00.   Petitioner paid $26,305.00 with the return,

leaving an unpaid balance of $25,044.00.     Thereafter, petitioner

entered into a payment arrangement with respondent to pay the

2002 income tax liability (including penalties and interest)

according to the following schedule:

            Due Date                         Payment

          June 16, 2003                    $13,348.24
          Oct. 17, 2003                     13,348.24
            Total                           26,696.48

Petitioner, rounding the agreed payments to the nearest dollar,

made electronic payments to respondent in accord with the agreed

schedule, as follows:

     Approximate Payment Date                Payment

          June 16, 2003                    $13,348.00
          Oct. 17, 2003                     13,348.00
            Total                           26,696.00
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     On March 22, 2004, respondent sent petitioner a notification

for petitioner’s 2002 tax period, reflecting that petitioner had

a balance of income tax due for 2002 of 48 cents.      In addition,

respondent advised that petitioner was liable for a $175.44 late

payment penalty and $264.08 in additional interest.      Accordingly,

respondent’s notice reflected a total balance due of $440.00 for

2002, as follows:

            Income tax                         $.48
            Late payment penalty             175.44
            Interest                         264.08
              Total                          440.00

     On April 6, 2004, petitioner filed a Form 12153, Request for

a Collection Due Process Hearing.      Petitioner explained to

respondent that his payments discharged his liability in full and

that the notification sent by respondent represented “a colossal

blunder”.    On September 2, 2004, petitioner and an Appeals

officer discussed these matters by telephone.

     On September 29, 2004, respondent sent petitioner a Notice

of Determination Concerning Collection Action(s) Under Section

6320 and/or 6330, sustaining the proposed levy.       In that notice,

respondent indicated:    “If taxpayers are on an installment

agreement, they are charged a late payment penalty and interest

on the unpaid balance until they pay the amount they owe in

full.”   In response, petitioner timely filed a petition with this

Court challenging the proposed levy.
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                               OPINION

     This case presents a controversy over de minimis amounts in

which litigants persist in order to maintain principles they hold

firmly.    In large part, the controversy concerns the tax effect

that petitioner’s rounding of 48 cents on his agreed payment

schedule had on the 2002 tax liability.     The total amount in

dispute is $440.00 out of a total $53,001.00, or less than 1

percent of the liability reported on petitioner’s 2002 return.

We must decide this dispute even though the cost of the parties’

pursuit of their principles will far exceed the amount in

dispute.

     Respondent, relying on what appears to be an abbreviated

statement of petitioner’s 2002 tax account, contends that he

should be allowed to pursue collection.     Petitioner contends that

he met his agreed payment obligations and that there is no

outstanding collectible balance for his 2002 tax year.

     Section 6331(a) authorizes the Commissioner to levy on

property and property rights if a taxpayer fails to pay a tax

liability after notice and demand.      Sections 6331(d) and 6330(a),

however, require the Secretary to send written notice to the

taxpayer of the intent to levy and of the taxpayer’s right to a

hearing before collection.   Section 6330(c)(2)(A) provides that

the taxpayer may raise at the hearing “any relevant issue

relating to the unpaid tax or the proposed levy” including
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spousal defenses, challenges to the appropriateness of collection

actions, and alternatives to collection.    Section 6330(c)(1)

requires that the Appeals officer obtain verification that the

requirements of any applicable law or administrative procedure

have been met.

     When an Appeals officer issues a determination regarding a

disputed collection action, a taxpayer may seek judicial review

with the Tax Court if the Tax Court has jurisdiction over the

underlying tax liability.   Sec. 6330(d); see Davis v.

Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner, 114

T.C. 176, 179 (2000).   The underlying tax liability may include

the tax deficiency, additions to tax, and statutory interest.

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

     The underlying tax liability may be questioned if the

taxpayer “did not receive any statutory notice of deficiency for

such tax liability or did not otherwise have an opportunity to

dispute such tax liability.”   Sec. 6330(c)(2)(B).   Where the

validity of the underlying tax liability is properly at issue,

the Court will review the matter de novo.    Sego v. Commissioner,

114 T.C. 604, 610 (2000).   Where the validity of the underlying

tax is not at issue, the Court will review the Commissioner’s

administrative determination for an abuse of discretion.     Id.;

Goza v. Commissioner, supra at 181-182.
                                - 6 -

     Because petitioner was not issued a notice of deficiency and

he did not previously have the opportunity to dispute the

underlying tax liability, he may question the validity of the

underlying tax liability, and we review respondent’s

determination de novo.   See Montgomery v. Commissioner, 122 T.C.

1, 9 (2004).

      Petitioner contends that he had a payment arrangement under

which two payments totaling $26,696.48 by the dates stated would

completely satisfy his 2002 tax liability, including interest and

penalties that accrued to the date of the last payment.

Petitioner further contends that he made timely payments of the

required amounts (less 24 cents each rounded down in conformity

with respondent’s conventions) and that his 2002 tax liability is

therefore satisfied.   Petitioner believes that the $439.52 in

interest and penalties arose from a “phantom” 48 cents that

petitioner contends did not remain unpaid because of a permitted

rounding method.

     In response, respondent contends that the $439.52 of

interest and penalties would have accrued irrespective of whether

petitioner paid the 48 cents.   To support this contention,

respondent attempted to show that interest and penalties would

have accrued on the $25,044 that remained unpaid at the time

petitioner filed his return.
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     Generally, petitioner bears the burden of proof.     See Rule

142(a).   Section 7491 may shift the burden to the Commissioner in

certain circumstances, but petitioner does not contend, and has

not shown, that he has satisfied the prerequisites of section

7491.   Accordingly, the burden remains with petitioner regarding

any determination of a tax liability.

     The Commissioner bears the burden of production with respect

to any penalty or addition to tax.     Sec. 7491(c).   To meet this

burden, the Commissioner must come forward with sufficient

evidence indicating that it is appropriate to impose the relevant

penalty or addition to tax.   Higbee v. Commissioner, 116 T.C.

438, 446 (2001).

     With respect to both petitioner’s tax liability and the

additions thereon, the only evidence presented shows that

petitioner’s liability has been satisfied.     Petitioner credibly

testified that he made timely payments of tax, penalties, and

interest in conformity with the payment arrangement to which he

had agreed.   In addition, respondent’s records indicate that

petitioner was placed on an installment agreement on June 16,

2003, when he made his first payment, and respondent admitted at

trial that there was an agreement to extend the period in which

petitioner had to pay the tax liability.
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     Respondent, on the other hand, presented no evidence

concerning the calculation or timing of the disputed penalties

and interest.    The only evidence respondent offered was an

abbreviated statement that had been sent to petitioner that

reflected an amount of interest and penalties without any

specific underlying assessment data.    This document is not a

statement of account and appears to be an unofficial document.

Although respondent is correct that interest and penalties would

normally accrue on petitioner’s $25,044 unpaid tax liability,

petitioner’s agreed payments were set at a total of $26,696,

indicating that the agreed payments did include penalties and/or

interest.   Respondent presented no evidence showing that

penalties and interest accrued in excess of the amount petitioner

paid.

     Petitioner’s credible testimony coupled with respondent’s

own records concerning the agreed payment arrangement thus

constitutes sufficient evidence to challenge respondent’s

determination.    Respondent, however, has not presented any

evidence to refute petitioner’s testimony or to support the

amounts in dispute.    Petitioner has thus met his burden of

showing that the disputed amounts are in error, and respondent

has not met his burden of showing that it was appropriate to

impose the penalties in dispute.    Accordingly, we hold that it

was an abuse of discretion to proceed with collection activities.
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To reflect the foregoing,


                                    Decision will be entered

                            for petitioner.
