                          T.C. Memo. 2009-117



                        UNITED STATES TAX COURT



         MICHAEL E. KOHN AND CATHERINE K. KOHN, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16252-06L.                Filed May 26, 2009.



     Michael E. Kohn and Catherine K. Kohn, pro sese.

     Michael W. Bitner, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:     Pursuant to section 6320,1 petitioners seek

review of respondent’s determination that collection action could

proceed with respect to petitioners’ unpaid 2001 Federal income



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

tax liability.   We must decide whether respondent’s Appeals

Office correctly upheld the filing of a notice of Federal tax

lien with respect to petitioners’ 2001 Federal income tax

liability.

                          FINDINGS OF FACT

     Some of the facts have been deemed established for purposes

of this case in accordance with Rule 91(f).2   We incorporate

these facts into our findings by this reference.   Petitioners

resided in Missouri when the petition was filed.

     Michael E. Kohn (Mr. Kohn) was a tax attorney who held an

undergraduate degree in history and business, a law degree, and a

master of business administration degree from St. Louis

University and a master of laws in taxation degree from New York

University.   From 1977 to 1989 Mr. Kohn worked as an associate,

junior partner, and senior tax partner at a St. Louis, Missouri,

law firm.    After leaving the firm, Mr. Kohn practiced law on his

own until he surrendered his license to practice law in 2003.


     2
      On Feb. 13, 2008, respondent filed a motion to show cause
why proposed facts and evidence should not be accepted as
established under Rule 91(f) and attached a proposed stipulation
of facts. Petitioners filed a response to respondent’s motion
accepting the facts and evidence set forth in pars. 1 through 5
of respondent’s proposed stipulation. As a result, on Mar. 25,
2008, we made the order to show cause under Rule 91(f) absolute
and deemed established the facts and evidence set forth in pars.
1 through 5 of respondent’s proposed stipulation of facts. We
also made the order to show cause under Rule 91(f) absolute and
deemed established the facts and evidence set forth in par. 6 of
respondent’s proposed stipulation of facts because petitioners
failed to respond regarding par. 6 as required by Rule 91(f)(3).
                              - 3 -

     In July 2002 Mr. Kohn pleaded guilty to one count of

attempting to interfere with the administration of internal

revenue laws in violation of section 7212.3    From November 2002

to May 2003 Mr. Kohn was incarcerated.

     On October 20, 2004, petitioners jointly filed their 2001

Form 1040, U.S. Individual Income Tax Return (2001 return).

Petitioners reported a tax due (after withholding credits) of

$611,482, but they did not remit a payment.    On November 29,

2004, respondent assessed the reported tax liability, an addition

to tax for failure to pay estimated tax, additions to tax for

late filing and late payment, and interest.4

     In June 2005 respondent filed a notice of Federal tax lien

with respect to petitioners’ 2001 assessed tax liability, and on

June 16, 2005, respondent sent petitioners a Notice of Federal

Tax Lien Filing and Your Right to a Hearing Under IRC 6320.      In

response, petitioners’ representative, Thomas L. Hoops, timely

submitted a Form 12153, Request for a Collection Due Process

Hearing, on petitioners’ behalf.   Petitioners’ case was assigned

to Settlement Officer Alois C. Hoog (Mr. Hoog).




     3
      Mr. Kohn’s criminal conviction was unrelated to
petitioners’ personal tax matters.
     4
      On Mar. 14, 2005, respondent assessed additional interest
and an additional failure to pay addition to tax.
                                - 4 -

     On February 22, 2006, Mr. Hoog held a hearing with Mr. Kohn

and his authorized representative, Michael Fitzgerald.5    At the

hearing Mr. Kohn submitted a collection due process hearing

memorandum in support of abatement of tax lien and abatement of

penalties with attached exhibits.   During the hearing and in the

memorandum Mr. Kohn raised the following issues:   (1) Petitioners

had no unpaid tax liability for 2001 because they had     overpaid

their Federal income tax liability in years before 2001; (2)

additions to tax for failure to file a timely return should have

been abated and interest assessments did not account for payments

petitioners made; and (3) Mrs. Kohn was not liable for the unpaid

tax liability under section 6015.   During the hearing Mr. Kohn

also contended that respondent did not credit to petitioners’ tax

accounts $40,000 in payments they supposedly made in 2004 and

2005 and that respondent credited to their 2000 tax account only

$20,000 of a $25,000 payment.

     On July 18, 2006, respondent’s Appeals Office mailed

petitioners a Notice of Determination Concerning Collection

Action Under Section 6320 sustaining respondent’s filing of the

notice of Federal tax lien.   In the notice of determination the

Appeals Office concluded:   (1) The fact that penalties were

abated in nondetermination years is not a basis for abating



     5
      The record does not show whether Mrs. Kohn attended the
hearing.
                               - 5 -

petitioners’ 2001 tax liability; (2) petitioners did not have

reasonable cause for failing to file a timely 2001 return; (3)

Mrs. Kohn was not entitled to relief under section 6015; and (4)

petitioners did not produce sufficient evidence that they made

the $40,000 in payments or that the $20,000 payment credited to

their 2000 tax account was actually a $25,000 payment.

Petitioners filed a timely petition contesting respondent’s

determination.6

                              OPINION

I.   Collection Hearing Procedure

     Section 6321 imposes a lien in favor of the United States on

all property and property rights of a taxpayer liable for taxes

after a demand for the payment of the taxes has been made and the

taxpayer fails to pay those taxes.     The lien arises when the

assessment is made.   Sec. 6322.   Section 6323(f) generally

requires the Secretary to file a notice of Federal tax lien with

the appropriate State office for the lien to be valid against

certain third parties.   Section 6320(a) requires the Secretary to

notify the taxpayer in writing of the filing of a notice of

Federal tax lien and of the taxpayer’s right to an administrative


     6
      In the petition, petitioners challenged respondent’s
determination that Mrs. Kohn did not qualify for relief under
sec. 6015, but they did not argue this issue at trial or in their
posttrial briefs. Petitioners also failed to produce any
evidence on this issue at trial. We conclude, therefore, that
petitioners have abandoned this issue. See Leahy v.
Commissioner, 87 T.C. 56, 73-74 (1986).
                               - 6 -

hearing on the matter.   Section 6320(b) affords the taxpayer the

right to a fair hearing before an impartial hearing officer.

Section 6320(c) requires that the administrative hearing be

conducted pursuant to section 6330(c), (d) (other than paragraph

(2)(B) thereof), and (e).

     At the hearing a taxpayer may raise any relevant issue,

including appropriate spousal defenses, challenges to the

appropriateness of the collection action, and possible collection

alternatives.   Sec. 6330(c)(2)(A).    A taxpayer is precluded,

however, from contesting the existence or amount of the

underlying tax liability unless the taxpayer failed to receive a

notice of deficiency for the tax liability in question or did not

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, any penalties and additions to tax, and statutory

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

     Following a hearing, the Appeals Office must issue a notice

of determination regarding the validity of the filed Federal tax

lien.   In making the determination the Appeals Office is required

to take into consideration:   (1) Verification presented by the

Secretary 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
                                 - 7 -

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 Appeals Office’s

determination, the taxpayer may seek judicial review by appealing

to this Court.   Sec. 6330(d).   Our jurisdiction to review the

Commissioner’s determination extends to consideration of facts

and issues in years not subject to the notice of determination to

the extent that the tax liability for those years may affect the

appropriateness of the collection action for the determination

year.   Freije v. Commissioner, 125 T.C. 14, 28 (2005).

II.   Standard of Review

      Where the validity of the underlying tax liability is

properly at issue, the Court reviews the determination regarding

the underlying tax liability de novo.       Sego v. Commissioner,

supra at 610; Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

Where the validity of the underlying tax liability is not

properly at issue, the Court reviews the determination of the

Appeals Office for abuse of discretion.       Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 182.

      Respondent argues in his opening brief that in reviewing the

notice of determination we should apply the abuse of discretion

standard of review.   Petitioners inexplicably contend that we

should review the notice of determination under the abuse of
                                 - 8 -

discretion and de novo standards of review.     In response to

petitioners’ contention, respondent states in his reply brief

that the notice of Federal tax lien should be sustained

“regardless of the standard of review used by this Court.”       We

agree with respondent that the standard of review does not affect

our conclusion in this case.     Under either standard, we would

reach the same result on the record in this case, and

consequently, we need not decide which standard of review

applies.7    Cf. Freije v. Commissioner, supra at 24, 29-30

(reviewing de novo whether the Commissioner appropriately applied

a payment to a year not subject to the notice of determination).

III. Petitioners’ Challenges to the Notice of Determination

     A.      Application of Payments

     Petitioners argue that respondent did not credit to their

tax accounts $40,000 in payments they supposedly made in 2004 and

2005.     They also contend that they made a $25,000 payment but

that respondent credited only $20,000 of that payment to their

2000 tax account.

     During the collection hearing Mr. Hoog asked petitioners for

evidence of the $40,000 in payments and the $25,000 payment.

Petitioners showed Mr. Hoog copies of the fronts of checks but



     7
      Although the parties introduced into evidence petitioners’
memorandum in support of abatement of tax lien and abatement of
penalties with attachments as part of the administrative record,
the parties did not introduce the entire administrative record.
                                 - 9 -

were unable to provide copies of the backs of the checks.    Mr.

Hoog concluded that the evidence petitioners presented was

insufficient to substantiate the payments and requested further

proof of payment.   Petitioners did not provide proof of payment

as requested before the notice of determination was issued.8

     At trial petitioners did not introduce into evidence copies

of the checks representing the $40,000 in payments or the $25,000

payment.   Consequently, the record contains no evidence on which

we can conclude that petitioners paid $40,000 that respondent did

not properly apply to their unpaid tax liabilities or that a

$25,000 payment was improperly credited as a $20,000 payment to

petitioners’ 2000 tax account.

     In addition, petitioners argued at trial that respondent

misapplied several payments made after 2002 to years before 2001

and that the misapplication of those payments distorted

petitioners’ 2001 unpaid tax liability.    Specifically, Mr. Kohn

argued that respondent should have applied the payments to the

oldest liability first.9   We disagree.   Rev. Proc. 2002-


     8
      Although petitioners claim that they presented the checks
to Mr. Hoog during the collection hearing, petitioners’
memorandum in support of abatement of tax lien that attaches
documents they presented during the collection hearing does not
include copies of the checks.
     9
      At trial Mr. Kohn indicated that he had reached an
agreement with a collection officer that petitioners would make
periodic payments to be applied first to the oldest unpaid tax
liability. However, the record does not contain any such
                                                   (continued...)
                                - 10 -

26, sec. 3.02, 2002-1 C.B. 746, 746 provides that unless the

taxpayer provides specific written directions as to the

application of a payment, the Internal Revenue Service will apply

the payment in a manner that “will serve its best interest.”      Mr.

Kohn conceded at trial that the checks did not make a

designation; and without specific written directions, respondent

may apply the payments in accordance with respondent’s best

interest.    Therefore, we cannot conclude on the basis of the

record that respondent misapplied any of the payments that were

applied to years before 2001.

     B.     Abatement of Penalties and Interest in Years Before
            2001

     Petitioners argue that respondent abated certain penalties10

and interest in some but not all prior years and that if

respondent had consistently abated the additions to tax in all

prior years, petitioners would have an overpayment credit that

would offset their 2001 tax liability.    In the attachment to the

notice of determination, respondent determined that respondent’s

decision to abate additions to tax in years not subject to the


     9
      (...continued)
agreement, nor did the collection officer testify at trial.      We
therefore cannot conclude that petitioners had a binding
agreement with respondent regarding the application of the
periodic payments.
     10
      References to penalties in the record and in petitioners’
briefs are to the addition to tax under sec. 6651(a)(1) for
failure to file a timely return or under sec. 6651(a)(2) for
failure to pay the amount of tax shown on petitioners’ return.
                                - 11 -

notice of determination was not a basis for abatement of the

additions to tax included in the 2001 tax liability.       We agree.

Each taxable year stands alone, and any abatement of additions to

tax in some years does not establish petitioners’ entitlement to

an abatement of additions to tax in other years.       See Rose v.

Commissioner, 55 T.C. 28, 31-32 (1970); Elder v. Commissioner,

T.C. Memo. 2007-281.     Moreover, the record does not contain any

credible evidence to support a conclusion that the additions to

tax in the prior years should be abated.       We thus sustain Mr.

Hoog’s determination with respect to the abatement of additions

to tax in years before 2001.

     C.   Additions to Tax Under Section 6651(a)(1) and (2)

     Section 6651(a)(1) imposes an addition to tax for failure to

file a timely Federal income tax return unless the taxpayer can

demonstrate that such failure is due to reasonable cause and not

due to willful neglect.    Reasonable cause for the failure to file

a timely return exists if the taxpayer exercised ordinary

business care and prudence but was unable to file the return

within the time prescribed by law.       Sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.

     Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount of tax shown on the taxpayer’s Federal income tax

return on or before the payment due date, unless such failure is

due to reasonable cause and not due to willful neglect.       A
                              - 12 -

failure to pay will be considered due to reasonable cause if the

taxpayer makes a satisfactory showing that he exercised ordinary

business care and prudence in providing for payment of his tax

liability and was nevertheless either unable to pay the tax or

would suffer undue hardship if he paid on the due date.    Sec.

301.6651-1(c)(1), Proced. & Admin. Regs.

     Respondent determined that petitioners were liable for

additions to tax under section 6651(a)(1) and (2) for 2001.    The

record shows that petitioners filed their 2001 return on

October 20, 2004, over 2 years after its due date.11   When they

filed the 2001 return, petitioners reported a tax due of $611,482

but did not submit any payment with the return.12   We thus

conclude that respondent met his burden of producing evidence to

demonstrate that the additions to tax under section 6651(a)(1)

and (2) are appropriate.   See Wheeler v. Commissioner, 127 T.C.

200, 210 (2006), affd. 521 F.3d 1289 (10th Cir. 2008); Higbee v.

Commissioner, 116 T.C. 438, 447 (2001).

     Petitioners argue that they are not liable for the additions

to tax because they had reasonable cause for failing to file a




     11
      The due date of petitioners’ 2001 return was Apr. 15,
2002, as they filed no request for an extension.
     12
      Petitioners had a withholding tax credit ($2,765) that was
applied against their 2001 tax liability as of Apr. 15, 2002.
After they filed the 2001 return, petitioners made several
payments that were applied to their unpaid 2001 tax liability.
                                - 13 -

timely return and to pay the tax shown on the return.13

Petitioners contend that they were unable to prepare and file a

timely 2001 return because of the criminal investigation14 and

incarceration of Mr. Kohn.    We have previously held that

incarceration alone does not constitute reasonable cause for

purposes of the addition to tax for failure to file.    See, e.g.,

Thrower v. Commissioner, T.C. Memo. 2003-139; Krause v.

Commissioner, T.C. Memo. 1991-13.     Mr. Kohn is a well-educated

and experienced tax attorney who is very familiar with the filing

deadlines and payment obligations imposed by the Internal Revenue

Code.     Petitioners did not file timely returns for any of the 10

years before 2001, and petitioners have not credibly explained

why the criminal investigation and incarceration prevented them

from filing their 2001 return and paying their 2001 tax

liability.     Petitioners’ argument that the criminal investigation

and incarceration of Mr. Kohn constituted reasonable cause for

their failure to file a timely 2001 return and to pay the tax

shown on the return is unconvincing.



     13
      Respondent’s transcript of petitioners’ tax account shows
that respondent also assessed an addition to tax under sec.
6654(a) for failure to pay estimated taxes. Petitioners do not
challenge their liability for the sec. 6654(a) addition to tax,
and they have not shown that they qualify for any exception under
sec. 6654.
     14
      The record does not establish the dates of the
investigation. We infer only that the investigation commenced
sometime before Mr. Kohn pled guilty in July 2002.
                              - 14 -

     We cannot conclude on this record that petitioners exercised

ordinary business care and prudence with respect to filing their

2001 return and paying their 2001 tax liability.   Because

petitioners have not established they had reasonable cause for

failing to file a timely 2001 return and to pay the amount shown

on the 2001 return, we sustain respondent’s determination not to

abate the additions to tax.

     We have considered all arguments raised by either party, and

to the extent not discussed, we find them to be irrelevant, moot,

or without merit.

     To reflect the foregoing,


                                        Decision will be entered

                                   for respondent.
