                              T.C. Memo. 2018-150



                        UNITED STATES TAX COURT



      CHAD HENDERSON AND SHARON HENDERSON, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14187-16L.                        Filed September 11, 2018.



      Chad Henderson and Sharon Henderson, pro sese.

      Emerald G. Smith and Bryant W. Smith, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      PUGH, Judge: This case was commenced in response to a Notice of

Determination Concerning Collection Action(s) under Section 6320 and/or 6330,1


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code of 1986, as amended and in effect at all relevant times. All
                                                                      (continued...)
                                        -2-

[*2] sustaining respondent’s Notice of Federal Tax Lien Filing to collect

petitioners’ unpaid Federal income tax liabilities for 2009 and 2010.

                               FINDINGS OF FACT

      Respondent sent by certified mail a notice of deficiency for tax years 2009

and 2010 to petitioners’ address in Anaheim, California (Anaheim address), on

May 12, 2014 (one copy to each petitioner and one copy to petitioners’

representative). At that time, and when petitioners timely filed their petition, both

petitioners lived at that address. Mrs. Henderson continued to live at that address

at the time of trial whereas Mr. Henderson received mail at that address and

claimed to be a resident of California, but he also received mail in Utah where he

lived temporarily. A certified mailing list bearing a U.S. Postal Service (USPS)

stamp dated May 12, 2014, states: “STATUTORY NOTICES OF DEFICIENCY

FOR THE TAX YEAR(S) INDICATED HAVE BEEN SENT TO THE

FOLLOWING TAXPAYERS” and lists two pieces of mail received by the USPS

on May 12, 2014, one addressed to Chad Henderson and the other addressed to

Sharon Henderson, at their Anaheim address, for tax years 2009 and 2010.




      1
      (...continued)
monetary amounts are rounded to the nearest dollar.
                                        -3-

[*3] The notice determined deficiencies of $47,268 and $22,708 for 2009 and

2010, respectively. It also determined penalties for 2009 and 2010 under section

6662(a) of $9,140 and $4,542, respectively. Before the notice was issued

respondent sent a letter dated April 10, 2014, to the Anaheim address that advised

petitioners of these proposed deficiencies and penalties. The letter advised

petitioners that if they did not return certain forms by April 21, 2014, respondent

would issue a notice of deficiency. The letter gave the option of review by the

Internal Revenue Service (IRS) Appeals Office.

      Petitioners did not petition the Court within 90 days of the notice of

deficiency being mailed, and respondent assessed the deficiencies with interest.

The IRS filed a Notice of Federal Tax Lien (NFTL) and sent petitioners a Notice

of Federal Tax Lien Filing on August 11, 2015. Petitioners submitted a timely

Form 12153, Request for a Collection Due Process or Equivalent Hearing,

checking the box labeled “Withdrawal” as the reason they disagreed with the filing

of the NFTL. They added the following explanation: “The filing of the NFTL

was done prematurely. We sent certified Form 911 over 90 Days ago and we are

awaiting on a response from the TASA. The reconsideration is due [sic] IRS

Agent Tax & Accounting errors for those tax years.” They did not propose any

collection alternatives. Settlement Officer Dallam (SO Dallam) contacted
                                        -4-

[*4] petitioners and their representative holding a power of attorney to schedule a

telephonic hearing for December 16, 2015, and request any documentation

showing financial hardship. Neither petitioners nor their representative contacted

SO Dallam at the scheduled time. SO Dallam contacted petitioners’ representative

on December 23, 2015, and, at petitioners’ representative’s request, rescheduled

the hearing for February 19, 2016.

      At the hearing on February 19, 2016, petitioners disputed only the

underlying liabilities and did not request collection alternatives. Petitioners’ 2014

tax return was delinquent at the time of the hearing. Respondent’s Case Activity

Record includes the following notation by SO Dallam from the hearing on

February 19, 2016:

      SO held conference with * * * [representative] and TP, SO advised
      them of the role of appeals, the purpose of the hearing and the ability
      to petition tax court. SO addressed appeal request. TP received NOD
      and petitioned to the taxpayer advocate. TP has been corresponding
      with them trying to get his income adjusted. TP stated the revenue
      agent added income from the corporate return that was already
      accounted for there. * * * [Representative] asked that appeals review
      this. SO explained that managerial approval is needed because of the
      prior opportunities. TP to send all information on or before 3/4/2016.
      SO will present this to the ATM for consideration once received.

      On April 6, 2016, SO Dallam advised Mr. Henderson that Appeals would

not consider the underlying liabilities and asked whether he wished to be
                                         -5-

[*5] considered for a collection alternative. On April 11, 2016, SO Dallam

recorded a conversation with petitioners’ representative: “TP is disputing liability,

cannot within CDP.” In that conversation their representative expressed interest in

an installment agreement and stated that petitioners would file their 2014 tax

return so that they would be eligible for one. But petitioners did not file their

2014 tax return. Respondent then issued a notice of determination on June 3,

2016.

        Petitioners timely petitioned the Court challenging the notice of

determination on June 20, 2016. In the petition they stated: “IRS audited the

2009 and 2010 F1040 individual income tax return and taxpayer’s liability was

increased and we disagreed with the additional assessment. We are seeking to

stop collection process until the correct additional tax, if any, is determined.” We

remanded the case for a supplemental hearing on whether the procedural

requirements of section 6751(b) had been met, pursuant to our Opinion in Graev v.

Commissioner, 147 T.C. 460 (2016), supplemented and overruled in part, 149 T.C.

__ (Dec. 20, 2017).

        On remand, the case was assigned to SO Hansen. SO Hansen and

petitioners scheduled a supplemental hearing for July 6, 2017. SO Hansen

explained the scope of the supplemental hearing and requested delinquent returns
                                         -6-

[*6] and any financial documents. SO Hansen held a face-to-face hearing with

petitioners’ new representative on July 6, 2017. Petitioners’ representative

brought documents relating to petitioners’ challenge to their underlying liabilities

--including the notice of deficiency--but did not bring any delinquent tax returns

or financial documents. SO Hansen set a July 14, 2017, deadline for petitioners to

file their delinquent returns for tax years 2014 and 2015 and then extended the

deadline to August 1, 2017, at their request. Petitioners failed to file their

delinquent returns by the August 1, 2017, deadline.

      Petitioners submitted Form 433-A, Collection Information Statement for

Wage Earners and Self-Employed Individuals, on August 1, 2017. That form

showed that petitioners had equity in their Anaheim home of $138,370, which

exceeded their total outstanding tax liability for 2009 and 2010 of $69,976.

Petitioners reported monthly living expenses of $9,762. Petitioners also reported a

retirement account with $31,367 and two cars, one purchased in 2015 with a

$1,052 monthly payment and the other an unencumbered 2006 vehicle. Petitioners

did not attach any supporting documentation for their financial accounts, income,

or living expenses. SO Hansen also confirmed that the Anaheim address was

petitioners’ last known address listed in the IRS’ records at that time.
                                         -7-

[*7] On August 29, 2017, SO Hansen issued the Supplemental Notice of

Determination, again sustaining the collection action as to the deficiencies on the

grounds that petitioners were not in compliance with their tax filing obligations

and had sufficient equity to pay the outstanding liabilities, including the retirement

account and the equity in their home, and noted that petitioners had indicated that

they had moved or were moving to Utah. SO Hansen abated the liabilities for the

section 6662 penalties because he was unable to find documentation of written

supervisory approval, as required by section 6751(b).

      We denied respondent’s subsequent motion for summary judgment,

concluding that a material fact was in dispute--namely, whether petitioners had

had a prior opportunity to challenge their underlying liabilities--on the basis of

petitioners’ claim that they had not received the notice of deficiency.

                                     OPINION

      Where the validity of the underlying tax liability is in issue, the Court

reviews the Commissioner’s determination de novo. Goza v. Commissioner, 114

T.C. 176, 181-182 (2000). Where the validity of the underlying tax liability is not

properly in issue, the Court will review the settlement officer’s administrative

determination for abuse of discretion. Sego v. Commissioner, 114 T.C. 604, 610

(2000). The settlement officer must verify that the requirements of any applicable
                                         -8-

[*8] law or administrative procedure have been met, consider issues properly

raised by the taxpayer, and consider whether the collection action balances the

need for the efficient collection of taxes with the taxpayer’s legitimate concern

that any collection action be no more intrusive than necessary. Secs. 6320(b) and

(c), 6330(b), (c)(3).

      A taxpayer may raise the underlying liability at a hearing if he did not

receive any statutory notice of deficiency or otherwise have an opportunity to

dispute his tax liability. Sec. 6330(c)(2)(B). If a notice of deficiency is properly

mailed to the taxpayer at the taxpayer’s last known address, the notice is valid

even if the taxpayer did not receive it. See, e.g., United States v. Zolla, 724 F.2d

808, 810 (9th Cir. 1984). So as part of the settlement officer’s determination, he

must verify that a valid notice of deficiency was issued to the taxpayer at the

taxpayer’s last known address. Sec. 6330(c)(1); Jordan v. Commissioner, 134

T.C. 1, 12 (2010); Hoyle v. Commissioner, 131 T.C. 197, 200 (2008). But even if

the notice was properly mailed, the taxpayer may be able to challenge the

underlying liability if the taxpayer can establish that no notice was received.

Hoyle v. Commissioner, 131 T.C. at 199; Sego v. Commissioner, 114 T.C. at 609;

Snodgrass v. Commissioner, T.C. Memo. 2016-235, at *14.
                                         -9-

[*9] Petitioners argue that they should be allowed to challenge their underlying

liabilities because they did not have a prior opportunity to do so. Therefore we

first must determine whether petitioners received the notice of deficiency, as

respondent alleges.

      Petitioners argue that the notice of deficiency was not properly mailed to

them because the certified mailing list is missing a second part that shows what

happened to the items on the list and because the copies of the notice of deficiency

in the record do not bear the certified mail item numbers. We reject these

arguments. First, petitioners did not explain what the missing second part was.

We surmise that they may be referring to USPS Form 3849-A (used for initial

delivery of a certified article to alert the recipient to its arrival) or USPS Form

3849-B (used as a delivery reminder when an item is not claimed within five days

of initial delivery). See Coleman v. Commissioner, 94 T.C. 82, 85 (1990). But we

have not required respondent to produce copies of those USPS forms to establish

strict compliance with the procedures for a USPS Form 3877; rather we have

allowed respondent to use those forms (among other evidence) to support a

defective USPS Form 3877. See id. at 91-92. And other certified mailing lists

that we have found to comply with the requirements for proper mailing also lacked

these additional USPS forms. Fleming v. Commissioner, T.C. Memo. 2017-155,
                                        - 10 -

[*10] at *8-*9; Garrett v. Commissioner, T.C. Memo. 2015-228, at *6-*7. Nor

have we previously viewed the lack of a certified mailing list number on the notice

of deficiency itself to negate a presumption of proper mailing. Internal Revenue

Manual pt. 4.8.9.11.3 (July 9, 2013) does not require that the certified mailing list

number be written on the notice itself; rather the number must be on the Form

3877 and the envelope containing the notice. We therefore hold that the notice

was properly mailed.

      We now turn to the real dispute between the parties--whether petitioners

received the notice. Mr. Henderson vigorously denied receipt at trial. When

confronted with SO Dallam’s summary in the Case Activity Report stating that

petitioners had received the “NOD”, Mr. Henderson explained that the “NOD” to

which he referred was the notice of determination at issue before us and argued

that respondent uses “NOD” to mean both notice of deficiency and notice of

determination. He also acknowledged receiving the April 10, 2014, letter advising

petitioners that if they did not return certain forms a notice of deficiency would be

issued, but he argued that they did respond timely, and respondent did not wait the

7-11 days promised in the letter for that response but instead sent the notice of

deficiency. But the notice of deficiency was not issued until May 12, 2014,

contradicting petitioners’ argument.
                                         - 11 -

[*11] Respondent also points out that petitioners consistently insisted that they

did not owe the liabilities in both their hearing request and their submissions to the

SOs; they did not claim that they did not receive a notice of deficiency or that they

did not have a prior opportunity to challenge until now. Mr. Henderson countered

that he was not a tax professional and asserted that this is what he meant--that is,

he argues now that he meant that he had no prior opportunity to challenge when he

claimed earlier that he did not owe the liabilities.

      Petitioners’ Form 12153 and petition are consistent with the conversations

recorded by SO Dallam in which petitioners indicated they wanted another chance

to challenge the liabilities, not that they never had a chance before that hearing.

And Mr. Henderson’s uncorroborated testimony does not convince us that

petitioners never had that chance (because they did not receive the notice of

deficiency). Simply put, we do not believe him.

      First, his story has holes. His explanation for his failure to follow up

regarding the status of the IRS audit after receiving the April 2014 letter is not

plausible, especially as he was involved in a number of later audits and therefore

had occasion to ask the IRS agent what happened to his response to that April

2014 letter. His argument that the “NOD” in SO Dallam’s February 19, 2016,

hearing notes referred to the notice of determination at issue before us overlooks
                                        - 12 -

[*12] the fact that the notice of determination was not issued until June 3, 2016.

He testified that he had no other audits before the audit for the years at issue so he

could not have been confused about another notice of determination--the only

“NOD” that appears to be outstanding at the time of petitioners’ February 19,

2016, hearing is the notice of deficiency issued on May 12, 2014. Second,

petitioners had representatives with them in the administrative hearing, making

Mr. Henderson’s arguments regarding failure to use the correct terms implausible.

Finally, further tipping the scale for us was his use of the terminology “90-day

letter” as a synonym for notice of deficiency. Given his fluidity with terms, we

simply cannot accept his claims of ignorance and confusion. Because we find that

petitioners received the notice of deficiency dated May 12, 2014, we conclude that

they may not challenge their underlying liabilities.2

      When the case was called for trial, the parties still had not received

documents that respondent had subpoenaed from petitioners’ bank. We therefore

held a partial trial on the mailing issue and directed the parties to work together to

review the documents and ordered further status reports from the parties regarding

development of any additional evidence regarding petitioners’ underlying

      2
         Because Mrs. Henderson did not appear, technically she is in default. We
will give her the same result as her husband and for the purposes of our findings of
fact attribute his statements to her as well.
                                        - 13 -

[*13] liabilities. Because we hold that petitioners may not challenge their

underlying liabilities, that evidence is not relevant; and we will discharge as moot

our pending order for further status reports.

      We now consider whether the settlement officers abused their discretion in

sustaining the collection action. For this purpose we consider respondent’s

position to be the position taken in the supplemental determination. See Kelby v.

Commissioner, 130 T.C. 79, 86-87 (2008). The administrative record indicates

that petitioners had multiple opportunities to present their position. First,

petitioners and their representative had a telephonic hearing on February 19, 2016,

that SO Dallam rescheduled after neither petitioners nor their representative called

at the originally appointed time. Administrative hearings are informal and may

consist of one or more oral or written communications. Katz v. Commissioner,

115 T.C. 329, 337-338 (2000) (holding that a face-to-face hearing is not a

requirement); sec. 301.6320-1(d)(2), Q&A-D6, Proced. & Admin. Regs.

Moreover, a face-to-face hearing will not be granted if the taxpayer has failed to

file required returns. Schlegel v. Commissioner, T.C. Memo. 2016-90, at *12; sec.

301.6330-1(d)(2), Q&A-D8, Proced. & Admin. Regs. Petitioners were not then in

compliance with their tax filing obligations and thus it was reasonable for SO

Dallam to proceed with a telephonic hearing. See Schlegel v. Commissioner, at
                                        - 14 -

[*14] *13 (holding that it is not an abuse of discretion to deny a face-to-face

hearing when the taxpayer failed to provide the requested financial documentation

and failed to comply with income tax obligations). Finally on remand SO Hansen

did hold a face-to-face hearing with petitioners’ representative.

      Whether to approve a proposed collection alternative is within the

settlement officer’s discretion. See Giamelli v. Commissioner, 129 T.C. 107, 111-

112 (2007). Respondent’s rejection of a proposed installment plan was reasonable

and not an abuse of discretion because petitioners never filed their delinquent

2014 and 2015 tax returns, even after multiple invitations to do so. See Cavazos

v. Commissioner, T.C. Memo. 2008-257. We likewise cannot conclude that SO

Hansen abused his discretion when he concluded that petitioners’ Form 433-A

showed sufficient equity in their house because they indicated that they had moved

and were attempting to sell it or when he concluded that the Form 433-A showed

costs that exceeded national averages because petitioners attached no supporting

documentation.

      Finally, petitioners have not alleged that respondent otherwise failed to

comply with the requirements set forth in section 6330; nor did we find anything

in the record indicating a failure.
                                         - 15 -

[*15]                                 Conclusion

        We therefore hold that petitioners are not entitled to challenge their

underlying liabilities, and we sustain the collection action at issue.

        To reflect the foregoing,


                                                  An appropriate decision will be

                                         entered.
