                        T.C. Memo. 2010-59



                      UNITED STATES TAX COURT



                   JAMES J. KAY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12545-07L.                Filed March 29, 2010.



     James J. Kay, pro se.

     Heather D. Horton, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GALE, Judge:   Pursuant to section 6330(d),1 petitioner seeks

review of respondent’s determination to sustain a notice of

Federal tax lien with respect to petitioner’s unpaid Federal



     1
      Unless otherwise noted, all section references are to the
Internal Revenue Code of 1986, as amended. All dollar amounts
have been rounded to the nearest dollar.
                                - 2 -

income taxes for 1998 through 2002 and frivolous return penalty

for 1998.    The issues for decision are:    (1) Whether petitioner

is precluded from challenging his underlying tax liabilities for

those years; (2) whether respondent abused his discretion in

upholding the notice of Federal tax lien; and (3) whether the

Court should impose a penalty under section 6673(a)(1).     At the

time the petition was filed, petitioner resided in Arizona.

                          FINDINGS OF FACT

I.   Petitioner’s Unpaid Federal Income Tax Liabilities

     Petitioner timely submitted to respondent a Form 1040, U.S.

Individual Income Tax Return, for taxable year 1998.     The return

reported wages of $26,062 on line 7 but treated this amount as

adding up to zero for “total income” on line 22, resulting in

“adjusted gross income” of zero on line 33.     Similarly, zeros

were entered on all lines for computing petitioner’s tax

liability.    The jurat contained an asterisk referencing two pages

attached to the return which, inter alia, advised respondent that

petitioner’s compensation for his labor was not taxable and if

respondent believed otherwise it was respondent’s “duty to

provide me with the sections of the Internal Revenue Code * * *

which make me subject to the Internal Revenue income tax.”

     Respondent subsequently examined the return and on March 3,

2000, issued a notice of deficiency to petitioner which

determined that the reported wages were taxable income, resulting
                               - 3 -

in a deficiency of $2,869, and that petitioner was liable for a

negligence penalty under section 6662(a) and (b)(1) of $499.

Petitioner did not petition the Court for a redetermination with

respect to this notice.   On August 7, 2000, respondent assessed

the deficiency and penalty for 1998, together with statutory

interest, and sent petitioner a statutory notice of balance due.

On September 4, 2000, respondent assessed a frivolous return

penalty under section 6702 with respect to petitioner’s 1998

return.

     On January 10, 2003, petitioner filed untimely income tax

returns for taxable years 1999, 2000, and 2001, which reported

taxes due of $2,891, $2,869, and $2,569, respectively.

Petitioner failed to pay the taxes reported as due.     On various

dates in February 2003 respondent assessed the reported taxes as

well as additions to tax under section 6651(a)(1) and (2) for

failure to file and pay timely for these years, together with

statutory interest, and sent petitioner statutory notices of

balance due.

     Petitioner did not file a timely tax return for taxable year

2002.   On June 2, 2004, respondent prepared a substitute for

return under section 6020(b) for 2002.   Respondent issued a

notice of deficiency to petitioner dated July 20, 2004, which

determined a deficiency for 2002 of $2,351, together with an

addition to tax under section 6651(a)(1) of $682.     Petitioner did
                                - 4 -

not petition the Court for a redetermination with respect to this

notice.   On December 13, 2004, respondent assessed the deficiency

and addition for 2002, together with statutory interest, and sent

petitioner a statutory notice of balance due.

      As of December 20, 2007, petitioner had not filed Federal

income tax returns for 2003, 2004, or 2005.

II.   Respondent’s Collection Actions

      Respondent issued petitioner a Notice of Intent to Levy and

Notice of Your Right to a Hearing (2002 notice of levy) on

October 10, 2002, with respect to the unpaid tax and section 6662

penalty for 1998.    Respondent’s Form 4340, Certificate of

Assessments, Payments, and Other Specified Matters, concerning

the deficiency and section 6662 penalty for 1998 indicates that

on November 26, 2002, respondent received a signed return receipt

with respect to the 2002 notice of levy.    Petitioner did not

request a hearing with respect to the 2002 notice of levy.

      On January 10, 2003, petitioner entered into an installment

agreement with respect to his tax liabilities for 1998 and 2002.

On various dates in February 2003 petitioner entered into

installment agreements with respect to his tax liabilities for

1999, 2000, and 2001.    Between August 2004 and January 2005

petitioner made sporadic payments on his 1998 tax liability

before defaulting.
                                 - 5 -

     On June 9, 2005, respondent issued petitioner a Notice of

Intent to Levy and Notice of Your Right to a Hearing (2005 notice

of levy) with respect to his unpaid taxes for 1999 through 2002

and the section 6702 penalty for 1998.     Respondent’s Forms 4340

concerning the unpaid taxes for 1999 through 2002 and the section

6702 penalty for 1998 indicate that on July 7, 2005, respondent

received a signed return receipt with respect to the 2005 notice

of levy.    Petitioner did not request a hearing with respect to

the 2005 notice of levy.

     Respondent filed the notice of Federal tax lien at issue on

November 2, 2006.    Respondent sent petitioner a Notice of Federal

Tax Lien Filing and Your Right to a Hearing Under Section 6320

(CDP notice) on November 8, 2006.    The CDP notice advised

petitioner that respondent filed the notice of Federal tax lien

because of his unpaid income taxes for 1998 through 2002 and

section 6702 penalty for 1998.     Respondent enclosed a Form 12153,

Request for a Collection Due Process Hearing, with the CDP

notice.    Petitioner completed the Form 12153, supplying the

following explanation of his disagreement with the lien:      “I

dispute that the taxpayer status has created or represents an

actual tax liability for me.”    On December 11, 2006, petitioner

hand-carried the form to respondent’s local office in Tucson,

Arizona, which accepted the form and stamped it received by that

office on the same date.    The form also bears a stamp indicating
                                - 6 -

that it was received by respondent’s Appeals Office on December

28, 2006.

     Respondent’s Appeals Office assigned petitioner’s case to a

settlement officer.   The settlement officer took the position, on

the basis of the date petitioner’s Form 12153 was received by the

Appeals Office, that the Form 12153 was untimely filed.

Accordingly, the settlement officer determined that petitioner

was entitled to an equivalent hearing and on March 9, 2007, sent

petitioner a letter scheduling the hearing by telephone for April

6, 2007.    In the letter the settlement officer advised petitioner

that the issues raised in his hearing request were frivolous and

that she would consider:   (1) Whether respondent met the

requirements of any applicable law or administrative procedure;

(2) any nonfrivolous issues petitioner wished to discuss; and (3)

whether petitioner owed the amount asserted as due, but only if

petitioner had no prior opportunity to dispute it with the

Appeals Office or did not receive a statutory notice of

deficiency.   In the letter the settlement officer also advised

petitioner that if he wanted her to consider collection

alternatives he should submit a completed Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, submit a statement indicating what account

resolution he was proposing, and file Federal income tax returns

due for 2003, 2004, and 2005.   She also warned petitioner that
                               - 7 -

the Tax Court was empowered to impose sanctions of up to $25,000

for instituting or maintaining a case primarily for delay or for

taking a position that is frivolous or groundless.

     Petitioner mailed the settlement officer a letter dated

April 1, 2007, in which he advanced various frivolous arguments,

including disputing his status as a U.S. citizen and taxpayer.

     On April 6, 2007, the settlement officer conducted an

equivalent hearing with petitioner.    According to the settlement

officer’s case activity report, during the hearing petitioner

advanced only frivolous arguments and did not want to discuss a

resolution.

     On April 26, 2007, the Appeals Office sent petitioner a

Decision Letter Concerning Equivalent Hearing Under Section 6320

and/or 6330 sustaining the notice of Federal tax lien.      The

decision letter stated that petitioner had failed to raise any

nonfrivolous issues, offer a reasonable collection alternative,

submit the requested Form 433-A, or file delinquent tax returns.

Accordingly, the Appeals Office upheld the filing of the notice

of Federal tax lien.

     Petitioner filed a timely petition contesting the decision

letter.   In his petition petitioner stated:   “I seek an

understanding of what the IRS bases * * * [its] claim upon going

back to the very jurisdiction to tax an individual, if, indeed,

an individual is actually liable here.   If the taxpayer is
                               - 8 -

liable, what is the nexus, if any, between me and the taxpayer

* * *?”

                              OPINION

I.    Jurisdiction

      Respondent now concedes, and we agree for purposes of our

jurisdiction, that petitioner’s hand-carried request for a

hearing was timely.   See sec. 301.6091-1(b)(1), (c), Proced. &

Admin. Regs.   Consequently, the decision letter he received is

treated as a notice of determination.    See Craig v. Commissioner,

119 T.C. 252, 259 (2002).   As the decision letter was issued

after October 16, 2006, we likewise have jurisdiction to review

respondent’s collection action with respect to the section 6702

penalty.2

II.   Collection Hearing Procedure

      Section 6320(a) requires the Secretary to send written

notice to the taxpayer of the filing of a notice of lien and of

the taxpayer’s right to an administrative hearing on the matter.

At the hearing a taxpayer may raise any relevant issue, including

challenges to the appropriateness of the collection action and

possible collection alternatives.    Sec. 6330(c)(2)(A).   A


      2
      Sec. 6330(d)(1) was amended by the Pension Protection Act
of 2006 (PPA), Pub. L. 109-280, sec. 855, 120 Stat. 1019, to
confer exclusive jurisdiction on this Court to review all
collection actions, regardless of the tax involved, effective for
determinations made 60 days after the date of enactment of the
PPA (Aug. 17, 2006), or Oct. 16, 2006. Id. sec. 855(b), 120
Stat. 1019; see also Callahan v. Commissioner, 130 T.C. 44, 48
n.4 (2008).
                                 - 9 -

taxpayer may challenge the existence or amount of the underlying

tax liability, but only if the taxpayer did not receive a notice

of deficiency or otherwise have an opportunity to dispute the tax

liability.   See sec. 6330(c)(2)(B); Sego v. Commissioner, 114

T.C. 604, 609 (2000).    The phrase “underlying tax liability”

includes the tax deficiency, additions to tax, penalties, and

statutory interest.     Katz v. Commissioner, 115 T.C. 329, 339

(2000).

     Following the hearing the Appeals Office must issue a notice

of determination concerning the proposed collection action.       In

making the determination the Appeals officer is required to take

into consideration:   (1) His verification that the requirements

of applicable law and administrative procedure have been met; (2)

relevant issues raised by the taxpayer; and (3) whether the

proposed collection action appropriately balances the need for

efficient collection of taxes with a taxpayer’s concerns

regarding the intrusiveness of the proposed collection action.

Sec. 6330(c)(3).   If the taxpayer disagrees with the

determination, the taxpayer may seek judicial review by

petitioning this Court.    Sec. 6330(d).

III. Whether Petitioner May Challenge the Underlying Tax
     Liabilities

     Respondent contends that section 6330(c)(2)(B) precludes

petitioner from challenging the existence or amount of his

underlying tax liabilities for 1998 through 2002 because
                                - 10 -

petitioner had a prior opportunity to dispute them.    The 2002 and

2005 notices of levy covered petitioner’s unpaid taxes and

penalties for all years at issue, including the frivolous return

penalty for 1998.    The Forms 4340 in evidence record that signed

return receipts for the notices of levy were received by

respondent, and petitioner has not disputed that he received the

notices of levy.    Therefore, petitioner previously had an

opportunity to dispute the underlying liabilities and is

precluded from doing so now under section 6330(c)(2)(B).      See

Bell v. Commissioner, 126 T.C. 356, 358 (2006) (“This statutory

preclusion is triggered by the opportunity to contest the

underlying liability, even if the opportunity is not pursued.”

(Emphasis added.)).

IV.   Review of the Determination for Abuse of Discretion

      Because the validity of the underlying tax liability is not

properly at issue, we review the determination for abuse of

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

Commissioner, 114 T.C. 176, 182 (2000).     In reviewing for abuse

of discretion under section 6330(d)(1), generally we consider

only arguments, issues, and other matters that were raised at the

section 6330 hearing or otherwise brought to the attention of the

Appeals Office.     Giamelli v. Commissioner, 129 T.C. 107, 115

(2007); see also sec. 301.6320-1(f)(2), Q&A-F3, Proced. & Admin.

Regs.   However, we review whether the Appeals officer verified
                                - 11 -

compliance with applicable law under section 6330(c)(1) without

regard to whether the taxpayer raised it as an issue at the

Appeals hearing.     Hoyle v. Commissioner, 131 T.C. 197, 202-203

(2008).   The Appeals Office abuses its discretion if its

“discretion has been exercised arbitrarily, capriciously, or

without sound basis in fact.”     Mailman v. Commissioner, 91 T.C.

1079, 1084 (1988).

     Petitioner has not advanced any argument or presented any

evidence that would allow us to conclude that the determination

to sustain the lien was arbitrary, capricious, or without

foundation in fact, or otherwise an abuse of discretion.    See,

e.g., Giamelli v. Commissioner, supra at 112, 115.

The record indicates that the only issues petitioner raised

throughout the section 6330 administrative process, in his

petition, and at trial were frivolous tax-protester arguments.3

We do not address petitioner’s frivolous arguments with somber

reasoning and copious citations of precedent, as to do so might

suggest that these arguments possess some degree of colorable

merit.    See Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir.

1984).




     3
      For example, at trial petitioner testified that he was born
an American citizen but “was not born a [U.S.] taxpayer”. He
also testified that “the United States is a corporation” to which
he holds no “allegiance”, and that therefore the United States
may not tax him.
                              - 12 -

     Petitioner has not submitted Form 433-A or offered a

collection alternative.   Given his failure to file returns for

2003, 2004, and 2005, he would in any event not be eligible to

have one considered.   See Orum v. Commissioner, 412 F.3d 819, 821

(7th Cir. 2005), affg. 123 T.C. 1 (2004); Nelson v. Commissioner,

T.C. Memo. 2009-108; Pavlica v. Commissioner, T.C. Memo. 2007-

163; Rodriguez v. Commissioner, T.C. Memo. 2003-153; Londono v.

Commissioner, T.C. Memo. 2003-99; McCorkle v. Commissioner, T.C.

Memo. 2003-34.   According to respondent’s decision letter, the

settlement officer verified through transcript analysis that

valid assessments of the underlying tax liabilities were made for

all years, including the frivolous return penalty for 1998.

Petitioner has not disputed the foregoing.   Certified transcripts

of account for each year are in the record, and they demonstrate

compliance with assessment procedures.   We accordingly find that

the settlement officer verified that all requirements of

applicable law and administrative procedure were met.4   Further,

the settlement officer concluded that the filing of the notice of

Federal tax lien balanced the need for efficient collection of

taxes with concerns that the collection action be no more


     4
      Given that the underlying tax liability for 1998 is not
subject to challenge in this proceeding, we have no occasion to
consider whether petitioner is liable for a negligence penalty
under sec. 6662(b)(1) for 1998 when respondent determined that
the return he filed for that year was a frivolous return within
the meaning of sec. 6702. See Williams v. Commissioner, 114 T.C.
136, 143 (2000).
                              - 13 -

intrusive than necessary.   On the basis of the foregoing, we

conclude that respondent did not abuse his discretion in

sustaining the notice of Federal tax lien.

V.   Section 6673 Penalty

     Respondent filed a motion to impose a penalty under section

6673.   Section 6673(a)(1) authorizes the Court to require a

taxpayer to pay to the United States a penalty in an amount not

to exceed $25,000 whenever the taxpayer’s position is frivolous

or groundless or the taxpayer has instituted or pursued the

proceeding primarily for delay.   In Pierson v. Commissioner, 115

T.C. 576, 581 (2000), we issued an unequivocal warning to

taxpayers concerning the imposition of a penalty under section

6673(a) on those taxpayers who abuse the protections afforded by

sections 6320 and 6330 by instituting or maintaining actions

under those sections primarily for delay or by taking frivolous

or groundless positions in such actions.   In respondent’s March

9, 2007, letter, respondent warned petitioner of the possibility

of sanctions for making frivolous arguments.   The Court issued a

pretrial order on December 14, 2007, that advised petitioner

about section 6673(a)(1) and likewise warned of the possibility

of penalties if petitioner continued to advance frivolous

arguments.

     Nonetheless, petitioner asserted patently frivolous

arguments in his petition, in response to the Court’s December
                             - 14 -

14, 2007, order, and at trial.    We accordingly shall impose a

penalty of $500 on petitioner pursuant to section 6673(a)(1).

     To reflect the foregoing,


                                      An appropriate order and

                                 decision will be entered.
