                              T.C. Memo. 2014-234



                         UNITED STATES TAX COURT



              RONALD L. KIRKPATRICK, SR., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 6525-13L.                          Filed November 17, 2014.



      Donald W. Pemberton, for petitioner.

      Beth A. Nunnink, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      COHEN, Judge: This proceeding was commenced in response to a notice of

determination concerning collection action(s) under section 6320 and/or 6330 with

respect to petitioner’s Federal income tax liability for 2010 and unpaid trust fund

recovery penalties under section 6672 for quarters ended September 30 and

December 31, 2006, March 31, 2007, December 31, 2008, March 31 and June 30,
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[*2] 2009 (collectively, quarters in issue), and December 31, 2010. The Court

granted respondent’s motion to dismiss on the ground of mootness and to strike as

to the income tax liability for 2010. Within that motion, however, respondent

stated that “[t]he trust fund recovery penalty liability for the 4th Quarter of 2010

was mistakenly included on the Notice of Determination. No such liability exists,

and no Notice of Intent to Levy for the 4th Quarter of 2010 was issued.” On the

basis of the record, this quarter appears moot; accordingly, this case will be

dismissed sua sponte as to petitioner’s trust fund recovery penalty liability for the

quarter ended December 31, 2010. As to the (remaining) quarters in issue, the

issue for decision is whether the settlement officer abused her discretion in

sustaining the proposed levy. Unless otherwise indicated, all section references

are to the Internal Revenue Code in effect at all relevant times.

                                  FINDINGS OF FACT

      Material facts are contained in the administrative record of the exchanges

between petitioner and the Internal Revenue Service (IRS) Office of Appeals

(Appeals Office). That record has been stipulated. The stipulated facts are

incorporated in this opinion by this reference. Petitioner resided in Tennessee at

the time he filed his petition.
                                        -3-

[*3] Petitioner served as the chairman of the board of directors for Accurate

Communications Corp. (Accurate). For the quarters in issue, Accurate failed to

pay income and employment taxes related to Forms 941, Employer’s Quarterly

Federal Tax Return.

       Petitioner and his wife jointly filed a personal 2010 Federal income tax

return, which showed tax of $19,716. However, he did not pay his 2010 tax

liability by October 15, 2011, the date the return was due. On December 7, 2011,

petitioner entered into an installment agreement with the IRS to pay off his 2010

tax liability.

       By February 15, 2012, Accurate owed Form 941 tax liabilities of

$448,688.50. In Letter 2850, Approval of Request to Pay Taxes in Installments

(Accurate IA letter), dated February 23, 2012, the IRS informed Accurate that its

request to pay its Form 941 tax liabilities through an installment agreement had

been approved. The Accurate IA letter addressed only Accurate and not

petitioner.

       Determining petitioner to be a responsible person of Accurate, the IRS

assessed trust fund recovery penalties against him on March 12, 2012, with respect

to the quarters in issue. Because of these additional assessments, the IRS

terminated petitioner’s installment agreement for his 2010 income tax liability on
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[*4] or around July 28, 2012. On September 17, 2012, the IRS sent to petitioner

Notice CP 90, Final Notice--Notice of Intent to Levy and Notice of Your Right to

a Hearing, informing him that he owed trust fund recovery penalties of over

$160,000 and advising him that the IRS intended to levy to collect these taxes.

      In response, petitioner timely submitted Form 12153, Request for a

Collection Due Process or Equivalent Hearing (section 6330 hearing request). In

the section 6330 hearing request, petitioner indicated, among other things, that he

wanted an installment agreement and that he disagreed with the proposed levy

action because an installment agreement was in place but was “terminated for no

reason” as he was “not in default on the installment agreement”. Petitioner later

expressed to the Appeals Office settlement officer assigned to his case that he

wanted an installment agreement for his 2010 income tax liability but would like

for the collection of the trust fund recovery penalties to be suspended because

Accurate was paying off those liabilities through its own installment agreement.

      The settlement officer sent to petitioner a letter dated November 14, 2012,

scheduling a telephone conference for December 18, 2012. This conference

would be the primary opportunity of the section 6330 hearing for petitioner to

explain why he disagreed with the collection action and to discuss possible

collection alternatives. One paragraph of the November 14, 2012, letter stated:
                                         -5-

      [*5] On your request for a [section 6330] hearing, you indicated your
      installment agreement terminated for no reason. Our records
      indicated your installment agreement was established on December 7,
      2011 and only included your outstanding tax liability for your Form
      1040 for calendar year 2010. One of the terms of an installment
      agreement is that while the installment agreement is in effect, you
      will pay any federal taxes you owe on time. On March 12, 2012, you
      were assessed civil penalties for failing to pay the withheld taxes for
      Accurate Communications * * *. When the civil penalties were not
      paid, you did not meet terms of your installment agreement and your
      installment agreement defaulted.

The letter requested that petitioner complete and return, within 21 days, Form

433-A, Collection Information Statement for Wage Earners and Self-Employed

Individuals, and Form 433-B, Collection Information Statement for Businesses.

      Petitioner timely provided Form 433-A but did not include any of the

required financial documentation. However, he later provided a revised Form

433-A and included three months of bank records and other documents prior to the

telephone conference, which had been rescheduled for January 15, 2013.

Petitioner also provided the first page of the Accurate IA letter for the settlement

officer’s consideration.

      On January 15, 2013, the telephone conference took place between the

settlement officer and petitioner’s representative. The representative indicated

that petitioner was not challenging the underlying tax liabilities and agreed to the

civil penalties assessment. The settlement officer explained that petitioner’s
                                        -6-

[*6] financial information was incomplete due to, in part, omissions of property

seemingly owned by petitioner and missing bank records from an apparent

additional account. She also questioned petitioner’s claim that he had monthly

income of $7,688, because the three months of bank records showed average

monthly deposits of $12,163.38. These concerns prevented her from making a

determination regarding the appropriateness of an installment agreement.

      From her review of the provided financial information, the settlement

officer projected that petitioner had the ability to make monthly payments of at

least $4,063. Petitioner’s representative indicated that petitioner could not pay

that much. The settlement officer concluded the conference by requesting that

additional financial information be supplied by January 29, 2013. Otherwise, the

settlement officer would make a determination based upon the provided

documentation, which would result in her sustaining the proposed levy action.

      On January 16, 2013, petitioner’s representative called the settlement officer

and indicated that petitioner wanted to pay in full the balance of his 2010 income

tax liability in order to suspend collection of the trust fund recovery penalties. The

settlement officer explained that even if the 2010 income tax liability was

resolved, collection of the trust fund recovery penalties against petitioner would

not be suspended simply because Accurate was paying off those liabilities
                                        -7-

[*7] pursuant to its own installment agreement. Petitioner’s representative alleged

that some other tax account--similarly situated to petitioner’s circumstances--had

been placed in suspense. The settlement officer replied that petitioner would need

to provide an Internal Revenue Manual (IRM) or Internal Revenue Code section

addressing how his account should be resolved; otherwise, she would not make a

recommendation to suspend collection.

      The deadline for getting the additional financial information submitted to

the settlement officer was extended to February 13, 2013. By the day of the

deadline, however, petitioner had failed to provide any of the requested additional

financial information. Instead, petitioner’s representative notified the settlement

officer that he was sending funds to fully pay the 2010 income tax liability. He

also wanted the settlement officer to provide her determination of the section 6330

hearing so that petitioner would be able to petition the Court. The settlement

officer received petitioner’s check for the full amount of the 2010 income tax

liability on February 14, 2013.

      Before making her determination, the settlement officer verified that the

requirements of all applicable laws and administrative procedures had been met.

In reviewing the provided financial documentation, the settlement officer

determined that petitioner had the ability to pay his outstanding liabilities through
                                        -8-

[*8] a collection alternative, but he would not agree to do so. On February 27,

2013, the Appeals Office sent to petitioner a notice of determination concerning

collection actions(s) under section 6320 and/or 6330 sustaining the proposed levy

action.

                                     OPINION

      Section 6330 generally provides that the Commissioner cannot proceed with

levy on a taxpayer’s property until the taxpayer has been given notice of and the

opportunity for a section 6330 hearing and, if dissatisfied, an opportunity for

judicial review of the administrative determination. At a section 6330 hearing, a

taxpayer may raise any relevant issue relating to the collection action, including

challenges to the appropriateness of the collection actions and possible collection

alternatives. Sec. 6330(c)(2)(A). A taxpayer may contest the validity of the

underlying tax liability, but only if the taxpayer did not otherwise have a prior

opportunity to dispute the tax liability. Sec. 6330(c)(2)(B); see Hoyle v.

Commissioner, 131 T.C. 197, 199 (2008).

      The underlying liabilities in this case were assessed under section 6672,

which imposes penalties for failure to collect, account for, and pay over income

and employment taxes of employees--commonly referred to as trust fund recovery

penalties. Petitioner does not dispute these underlying tax liabilities. Where there
                                         -9-

[*9] is no dispute as to the underlying liabilities, we review the actions of the

Appeals Office for abuse of discretion. See Swanson v. Commissioner, 121 T.C.

111, 119 (2003); Sego v. Commissioner, 114 T.C. 604, 610 (2000). Abuse of

discretion may be found if an action is arbitrary, capricious, or without sound basis

in fact or law. Giamelli v. Commissioner, 129 T.C. 107, 111 (2007); Woodral v.

Commissioner, 112 T.C. 19, 23 (1999).

      Petitioner does not argue that he was wrongfully denied a collection

alternative or that his prior installment agreement was wrongfully terminated.

Instead, petitioner’s position is that he was originally covered under the

installment agreement entered into by Accurate for the trust fund recovery

penalties, and, now that he is in compliance with his 2010 income tax obligation,

he should be “recovered” under Accurate’s installment agreement. Petitioner

appears to have raised this concern during his section 6330 hearing. He did not,

however, produce the Accurate installment agreement or any documentary

corroboration of this position. Cf. Freeman v. Commissioner, T.C. Memo. 2011-

38, slip op. at 6-7 (distinguishing the taxpayer’s section 6672 liability from the

employer’s tax withholding liability and holding that an employer’s installment

agreement covers only its own tax liability and does not justify the release of a

collection action against the taxpayer for his trust fund recovery penalties).
                                        - 10 -

[*10] Petitioner instead attempts to support his position by arguing that the

settlement officer failed to consider relevant parts of IRM pt. 5.14.7.4.1. He

asserts that this IRM part “clearly” states that the collection of trust fund recovery

penalties “from responsible persons should be suspended so long as the primary

business entity has an Installment Agreement and is current.” The relevant parts

of IRM pt. 5.14.7.4.1 (March 11, 2011), relied upon by petitioner, are as follows:

      6. In general, do not request assessment of Trust Fund Recovery
      Penalties (TFRPs) if business taxpayers meet the terms of installment
      agreements. However, TFRPs must be considered on the potentially
      responsible persons of the business entity based on the following
      procedures.

      7. If the agreement will not fully pay all balances due at least a year
      before the earliest Assessment Statute Expiration Date (ASED), then:

             A. Assemble all documentation for completion of the penalty
      to the point of proposing assessment;

             B. Complete interviews for all potentially responsible persons,
      and any other interviews necessary to determine responsibility and
      willfulness;

            C. Secure 433A (Collection Information Statement) from all
      potentially responsible persons. Conduct financial analysis to
      determine whether the penalty, if assessed would be collectible;

            D. Request signature of Form 2750, “Waiver Extending
      Statutory Period for Assessment of Trust Fund Recovery Penalty”
      from all potentially responsible officers. See IRM 5.14.7.4.1(1)
      through (4); and
                                        - 11 -

      [*11] E. If a potentially responsible officer refuses to extend the
      ASED, and the trust fund recovery penalty is determined collectible,
      complete and recommend assessment of the TFRP for that
      responsible person.

      Petitioner neither explains how he arrives at his interpretation of the IRM

part nor provides any authority that supports his interpretation. However, even a

liberal reading of IRM pt. 5.14.7.4.1(6) and (7) does not suggest that collection

should be “suspended” on previously assessed trust fund recovery penalties of a

responsible person. As respondent points out, IRM pt. 5.14.7.4.1 is procedural

guidance for initiating a business taxpayer, trust fund-related installment

agreement. IRM pt. 5.14.7.4.1(6) addresses a general rule of nonassessment of

trust fund recovery penalties when commencing such an installment agreement.

But see IRM pt. 5.14.7.4.1(7) and (8) (providing circumstances when assessment

of trust fund recovery penalties should be advanced against responsible persons

related to “in-business” trust fund installment agreements). It does not address

suspension of collection after assessment with respect to an already established

installment agreement.

      Section 6330 provides due process protections for taxpayers in tax

collection matters. See Sego v. Commissioner, 114 T.C. at 608. IRM pt.

5.14.7.4.1(6) and (7) pertains only to assessment of trust fund recovery penalties.
                                        - 12 -

[*12] As petitioner did not challenge his underlying tax liabilities, there is no

reason the settlement officer would need to consider the IRM with regard to

assessment.

      Moreover, the settlement officer acknowledged and considered petitioner’s

argument. While petitioner does not appear to have raised specifically IRM pt.

5.14.7.4.1(6) and (7) during the section 6330 hearing, the settlement officer

nonetheless looked at relevant IRM parts in reviewing petitioner’s case. In view

of the record, we cannot conclude that her determination was arbitrary, capricious,

or without sound basis in fact or law, which is the test to be applied. Whether or

not other resolutions could have been reached by the settlement officer or by the

Court is not the applicable test. The settlement officer did not abuse her discretion

in sustaining the proposed levy.

      We have considered the other arguments of the parties, but they are

irrelevant, unsupported by the record or by authority, or otherwise without merit.

      To reflect the foregoing,


                                                  An appropriate order will be

                                           issued, and decision will be entered

                                           for respondent.
