                          T.C. Memo. 2007-35



                       UNITED STATES TAX COURT



              ARTHUR W. & RITA C. MILLER, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.    24308-05L.                Filed February 8, 2007.




     Arthur W. and Rita C. Miller, pro sese.

     Nancy C. Carver, for respondent.



                          MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on respon-

dent’s motion for summary judgment (respondent’s motion).       We

shall grant respondent’s motion.

                                Background

     The record establishes and/or the parties do not dispute the

following.
                                   - 2 -

       Petitioners resided in Catonsville, Maryland, at the time

they filed the petition in this case.

       On or about April 15, 2001, petitioners jointly filed a

Federal income tax (tax) return (tax return) for their taxable

year 2000 (2000 return).       Petitioners’ 2000 return showed tax of

$289,989, withholding credits of $18,634, estimated tax payments

of $96,780, and tax due of $174,575.       When petitioners filed

their 2000 return, they paid only $1,000 of the tax due shown in

that return.

       On June 11, 2001, respondent assessed the tax of $289,989

shown in petitioners’ 2000 return, an addition to tax under

section 6651(a)(2)1 of $1,735.75, and interest as provided by

law.       On August 27, 2001, respondent made another assessment of

an addition to tax under section 6651(a)(2) of $2,734.02 and

interest as provided by law with respect to petitioners’ taxable

year 2000.

       On or about March 25, 2002, petitioners filed an amended tax

return for their taxable year 2000 (petitioners’ amended 2000

return).       On May 6, 2002, respondent processed petitioners’

amended 2000 return and abated tax for petitioners’ taxable year

2000 in the amount of $47,764.       (We shall refer to any unpaid

assessed amounts with respect to petitioners’ taxable year 2000,



       1
      All section references are to the Internal Revenue Code in
effect at all relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

as well as interest as provided by law accrued after August 27,

2001, as petitioners’ unpaid 2000 liability.)

     Respondent issued to petitioners the notice and demand for

payment required by section 6303(a) with respect to petitioners’

unpaid 2000 liability.

     On or about August 13, 2002, petitioners jointly filed a tax

return for their taxable year 2001 (2001 return).   Petitioners’

2001 return showed tax of $84,001, withholding credits of

$23,223, and tax due of $60,778.   When petitioners filed their

2001 return, they did not pay the tax due shown in that return.

     On September 9, 2002, respondent assessed the tax of $84,001

shown in petitioners’ 2001 return, additions to tax under sec-

tions 6651(a)(2) and 6654 of $2,303.19 and $1,519.45, respec-

tively, and interest as provided by law.   (We shall refer to any

unpaid assessed amounts with respect to petitioners’ taxable year

2001, as well as interest as provided by law accrued after

September 9, 2002, as petitioners’ unpaid 2001 liability.)

     Respondent issued to petitioners the notice and demand for

payment required by section 6303(a) with respect to petitioners’

unpaid 2001 liability.

     On August 7, 2004, respondent sent to each petitioner a

final notice of intent to levy and notice of your right to a

hearing (notice of intent to levy) with respect to petitioners’

taxable year 2000.   On the same date, respondent sent to each
                               - 4 -

petitioner a notice of intent to levy with respect to petition-

ers’ taxable year 2001.

     Respondent received a signed receipt from each petitioner

indicating that each petitioner received the notice of intent to

levy with respect to petitioners’ taxable year 2000 and the

notice of intent to levy with respect to petitioners’ taxable

year 2001.

     On September 14, 2004, in response to the respective notices

of intent to levy with respect to petitioners’ taxable years 2000

and 2001, petitioners filed an offer-in-compromise with respon-

dent.   Petitioners did not file Form 12153, Request for a Collec-

tion Due Process Hearing (Form 12153), with respondent in re-

sponse to those respective notices.    Nor did petitioners submit

any other documents to respondent that could be construed as a

request for a hearing with respondent’s Appeals Office (Appeals

Office) with respect to the respective notices of intent to levy

relating to petitioners’ taxable years 2000 and 2001.

     On September 24, 2004, respondent rejected the offer-in-

compromise filed by petitioners with respect to petitioners’

taxable years 2000 and 2001.

     On October 28, 2004, respondent filed a notice of Federal

tax lien with respect to petitioners’ taxable years 2000 and

2001.

     On November 4, 2004, respondent issued to petitioners a
                               - 5 -

notice of Federal tax lien filing and your right to a hearing

under IRC 6320 (notice of tax lien) with respect to petitioners’

taxable years 2000 and 2001.

     On December 2, 2004, in response to the notice of tax lien,

petitioners filed Form 12153 (petitioners’ Form 12153) and

requested a hearing with the Appeals Office.   In petitioners’

Form 12153, petitioners indicated that they did not agree with

the notice of tax lien that respondent had filed with respect to

petitioners’ taxable years 2000 and 2001.   Petitioners attached a

document to petitioners’ Form 12153.   That attachment stated in

pertinent part:

     The debt, which is represented herein, is unfair and
     inequitable. Extenuating circumstances exist. There
     is an equal amount owed to us by the IRS in the form of
     a credit that could satisfy this debt in full. This
     credit in actuality represents an over assessment of
     taxes.

     Requiring payment up front in lieu of applying the
     credit against the debt creates a situation that would
     prevent us from ever recovering the credit (overpay-
     ment). Also, since Mr. Miller is currently unemployed
     this lien seriously damages his credit and his ability
     to obtain suitable employment. [Reproduced literally.]

     On May 24, 2005, the settlement officer with the Appeals

Office (settlement officer) assigned to consider petitioners’

Form 12153 with respect to the notice of tax lien relating to

petitioners’ taxable years 2000 and 2001 held a telephonic

conference (May 24, 2005 telephonic conference) with petitioners.

During that telephonic conference, petitioners and the settlement
                                - 6 -

officer discussed the exercise by petitioners of certain incen-

tive stock options (ISO) and the effect of the alternative

minimum tax (AMT) on the tax consequences with respect to such

exercise.    During the May 24, 2005 conference, petitioners agreed

that they owe the tax due shown in (1) petitioners’ 2000 return

as amended by petitioners’ amended 2000 return and (2) their 2001

return.    However, petitioners claimed at that conference that the

AMT is unfair and that they are entitled to certain carryforward

credits.    During the May 24, 2005 telephonic conference, the

settlement officer discussed collection alternatives with peti-

tioners and concluded that they had the ability to pay in full

from retirement and other assets petitioners’ unpaid 2000 liabil-

ity and petitioners’ unpaid 2001 liability.    During that confer-

ence, petitioners advised the settlement officer that they did

not wish to submit another offer-in-compromise since respondent

had rejected the one that they had previously submitted in

response to the respective notices of intent to levy that they

received with respect to their taxable years 2000 and 2001.

Petitioners further indicated to the settlement officer during

the May 24, 2005 telephonic conference that they did not wish to

propose an installment agreement.    The settlement officer told

petitioners during that conference that she intended to research

recent court cases addressing petitioners’ claim that the AMT is

unfair and that they are entitled to certain carryforward cred-
                                 - 7 -

its.

       After the May 24, 2005 telephonic conference, the settlement

officer considered petitioners’ claim to certain carryforward

credits.    As part of that consideration, the settlement officer

learned that Congress was considering proposed legislation to

address the ISO/AMT situation but had not enacted any law to deal

with that situation.    As part of the settlement officer’s consid-

eration of petitioners’ claim to carryforward credits to their

taxable years 2000 and 2001, she also reviewed the Court’s

opinion in Speltz v. Commissioner, 124 T.C. 165 (2005), affd. 454

F.3d 782 (8th Cir. 2006).

       On August 23, 2005, the settlement officer held a face-to-

face Appeals Office hearing with petitioners (August 23, 2005

hearing).    At that hearing, petitioners and respondent discussed

the proposed legislation pending in Congress that addressed the

ISO/AMT situation.     They exchanged views as to whether petition-

ers would be able to submit an offer-in-compromise to respondent

in which they would claim certain carryforward credits as set

forth in that proposed legislation and would request abatement

for public policy reasons of the remainder of petitioners’ unpaid

2000 liability and petitioners’ unpaid 2001 liability.    Petition-

ers also requested at the August 23, 2005 hearing that respondent

abate the additions to tax and interest that respondent assessed

with respect to their taxable years 2000 and 2001.    The settle-
                                 - 8 -

ment officer informed petitioners that respondent was charged

with enforcing the law as it was written, and not as it was set

forth in proposed legislation.

     On or about October 20, 2005, the settlement officer who had

been assigned to handle petitioners’ taxable years 2000 and 2001

was transferred to a managerial position.   As a result, another

settlement officer with the Appeals Office (second settlement

officer) was assigned to consider that matter.

     The second settlement officer reviewed the administrative

file relating to petitioners’ taxable years 2000 and 2001 and

sent petitioners a letter dated October 26, 2005 (second settle-

ment officer’s October 26, 2005 letter).    The second settlement

officer’s October 26, 2005 letter stated in pertinent part:

     I have been reassigned your Collection Due Process
     (CDP) request regarding the filing of the Notice of
     Federal Tax Lien for the above referenced tax periods
     [2000 and 2001] * * *.

     I have thoroughly reviewed your file including all
     previous correspondences and administrative history
     records. I am well versed in the AMT/ISO issue as this
     is a widely debated issue now before Congress. I am
     also personally familiar with Mr. Timothy Carlson, his
     Coalition for Tax Fairness (CTF), and their proposed
     legislation before Congress (H.R. 3385) to enact retro-
     active changes to the application of AMT for the thou-
     sands of individuals in your current situation.

     However, as you have been previously advised, the IRS
     has taken the position that we will not consider or
     accept an Offer in Compromise under the provisions of
     Effective Tax Administration-Public Policy when the
     basis for the Offer is that the imposition of the tax
     law, specifically the AMT, is in and of itself unjust
     and inequitable. Our position has recently been upheld
                         - 9 -

in the widely publicized Speltz v. Commissioner case
(of which Mr. Carlson and CTF were integrally in-
volved); where the court determined that the IRS did
not abuse its discretion in not accepting the Speltz’s
Offer in Compromise, further stating that it is not the
IRS’ purview to override tax laws when they appear
inequitable. The ability to modify, alter or eliminate
tax laws rests solely with Congress.

By your own admission, you have sufficient resources to
pay these outstanding liabilities, but feel that you
should not be required to do so. The IRS will not
accept any Offer from you under these circumstances.
The Offer program was established to provide relief to
those taxpayers who could not fully pay their tax
obligations. It was also designed to provide relief to
those taxpayers who could fully pay their taxes, but
doing so would cause significant economic hardship.
Neither of these situations has been demonstrated in
your case.

Ms. Colbert has previously advised you that the Notice
of Federal Tax Lien filing will be sustained, and I
agree with that decision. The tax was legally due and
owing at the time the Lien was filed. As all legal and
procedural requirements were met, I believe that this
action was proper.

Although Ms. Colbert indicated that she would consider
possible abatements of penalties on your account, I do
not agree with this. You have been assessed the Fail-
ure to Pay penalty on both 2000 and 2001. Because you
have the ability to pay, but are refusing to do so at
this time, I do not believe that you meet the criteria
for relief of this penalty under Reasonable Cause.

For 2001, you have also been assessed the Estimated Tax
Penalty. You did not make any estimated tax payments
as required by law due to your insufficient federal
income tax withholding for the year. You have provided
no documentation to illustrate why you were unable to
make the estimated payments, therefore I again do not
believe that you meet the criteria for relief of this
penalty under the Reasonable Cause provisions.

At this point, I believe that we are at an impasse with
your account. Appeals believes that you have the
ability to fully pay your tax liabilities, but you have
                               - 10 -

     expressed that you do not want to fulfill this obliga-
     tion. Because you have provided no other alternatives
     on this account, our only action at this time is to
     close your CDP request, sustaining the Lien filing, and
     issuing the required Notice of Determination.

     I will hold you account open for 10 days from the date
     of this letter if you want to discuss any alternatives.
     If I do not hear from you, and/or viable alternatives
     are not presented for review, I will proceed with the
     formal closure of your account. [Reproduced liter-
     ally.]

     On November 5, 2005, petitioners sent a letter (November 5,

2005 letter) in response to the second settlement officer’s

October 26, 2005 letter.    Petitioners’ November 5, 2005 letter

stated in pertinent part:

     We are seeking a settlement in good faith. We would
     like to clarify a few statements that were contained in
     the letter dated 26 October 2005. You noted, “By your
     own admission, you have sufficient resources to pay
     these outstanding liabilities, but feel that you should
     not be required to do so”. We honestly stated up
     front, that the only assets we had, and still only
     have, is the home we live in, and our retirement ac-
     count. We don’t have any bank accounts or stock or
     hidden treasures. We paid the IRS every available
     dollar. We liquidated everything except the house and
     retirement to pay what we have so far.

     The point that we are trying to convey is that it
     wouldn’t be fair to force us to take an irretrievable
     action (selling our home) to pay tax on a phantom
     liability. You state that we did not demonstrate that
     it would cause significant economic hardship. We
     believe that forcing us to sell the roof over our head
     is an economic hardship.

     We were assessed taxes on profits we didn’t realize.
     We were taxed on what you thought we would make in
     profit when we sold the stock. That never happened.
     We paid taxes on income we didn’t receive.

     Nowhere in your letter do you mention our $124,000
                             - 11 -

     credit that the IRS owes us. The only way anyone can
     generate credits is if you overpay taxes. It’s like we
     are giving the government a tax-free loan. The govern-
     ment gets to keep the full overpayment, we’re forced to
     sell our home then we will be given back $3,000 per
     year. My husband is 60 years old and I am 58 we will
     never in our lifetime get back all the overpaid taxes.

     * * * We addressed our situation from day one with
     payments until we both lost our jobs. We have been
     trying to work things out reasonably. As subsequent
     tax years were filed a credit was generated. Meaning
     that we overpaid our taxes.

     We are not asking you to modify, alter or eliminate tax
     laws. We are respectfully asking that realize that we
     have paid sufficient tax to cover our liability. The
     only way to pay these phantom taxes is to sell our
     home. If you ask us to sell our home and pay the taxes
     we will be overpaying our tax obligation. We don’t
     believe that Congress intended for this to happen.
     This is really an accounting issue. The credit gener-
     ated should offset the tax liability. [Reproduced
     literally.]

     At no time during the consideration by the Appeals Office of

petitioners’ Form 12153 with respect to the notice of tax lien

relating to their taxable years 2000 and 2001 did petitioners

provide Form 433-A, Collection Information Statement for Individ-

uals, or any other documentary evidence relating to their finan-

cial status or their financial situation at and after the respec-

tive times their 2000 return and 2001 return were filed.    Al-

though collection alternatives were discussed at the Appeals

Office’s consideration of petitioners’ Form 12153 with respect to

the notice of tax lien relating to their taxable years 2000 and

2001, at no time during the Appeals Office consideration of that

matter did petitioners submit an offer-in-compromise, installment
                                  - 12 -

agreement, or other collection alternative.

     On November 28, 2005, the Appeals officer issued to peti-

tioners a notice of determination concerning collection action(s)

under section 6320 and/or 6330 (notice of determination).              The

notice of determination stated in pertinent part:            “The filing of

the Notice of Federal Tax Lien is sustained by the Appeals office

at this time.”    An attachment to the notice of determination

stated in pertinent part:


    Type of Tax           Period           CDP Notice Date   CDP Received
       1040       12/31/2000, 12/31/2001     11/04/2004        12/2/2004


                      SUMMARY AND RECOMMENDATION

     Appeals has verified, or received verification, that
     applicable laws and administrative procedures have been
     met, has considered all issues raised, and has balanced
     the proposed collection action with the legitimate
     concern that such action be no more intrusive than
     necessary as required by IRC §6330(c)(3).

     The outstanding tax liabilities of the Miller’s are the
     result of self-assessed returns in which credits from
     withholding and estimated tax payments were insuffi-
     cient to cover the amount of Income Tax and Alternative
     Minimum Tax on each return. They are in full compli-
     ance for filing through tax year 2004, and have no
     other outstanding liabilities than the ones at issue
     under this Due Process request.

     The administrative file indicates that the Miller’s
     have previously submitted several Offers in Compromise,
     all of which have been denied, citing that they have
     the ability to pay their taxes in full via equity in
     assets and future income potentials. They have also
     been given the option of entering into an Installment
     Agreement to resolve these liabilities, but have chosen
     not to do so.
                        - 13 -

At the Appeals level, the Miller’s participated in
several teleconferences and a face-to-face conference,
as well as exchanged numerous correspondences with this
office. At no time during Appeals consideration of
this account did the Miller’s present a viable alterna-
tive to resolve their outstanding taxes. The issues
raised by the Miller’s were as follows:

     1.   They requested relief from penalties and
          interest. A review of the account tran-
          scripts indicates that they were assessed the
          Failure to Pay penalty for both years and the
          Estimated Tax Penalty for tax year 2001.
          They did not however, provide any documenta-
          tion to illustrate why they were unable to
          make sufficient estimated tax payments for
          2001, or why they were now unable to satisfy
          these liabilities. They simply requested to
          have the penalties and associated interest
          removed from their account because they felt
          that they should not have to pay them, as
          required by law. They were advised that they
          did not meet the reasonable cause criteria to
          abate the penalties, and that there were no
          current IRS initiatives to waive penalty and
          interest assessments on those individuals
          owing AMT taxes.

     2.   They requested to have their future AMT cred-
          its offset to pay the current outstanding
          liabilities. They were advised that this is
          not legal under current tax law legislation,
          and that neither the office of Appeals, nor
          any other operating division within the IRS
          could negotiate such a settlement.

The Miller’s raised no other pertinent issues other
than to state that the application of the AMT was
unfair and inequitable, and they should not be forced
to pay taxes on this “phantom income”.

The Miller’s have never provided financial information
to Appeals as requested. By their own admission, they
have the resources to pay these taxes, but feel that it
would be unfair to make them use their equity in as-
sets, primarily their residence and a retirement ac-
count, to satisfy these debts.
                              - 14 -

     As no viable options have been presented for consider-
     ation, further Appeals consideration of this account is
     not warranted.

     The filing of the Notice of Federal Tax Lien is sus-
     tained by the Appeals office at this time. [Reproduced
     literally.]

     In the petition that petitioners filed commencing the

instant case, petitioners alleged:

     We respectfully request the release of the lien applied
     against us and the abatement of the associated penalty
     and interest. Sufficient taxes have been paid to cover
     our tax debt which is evidenced by the AMT credit due
     us for $120,868 that the IRS currently holds.

                            Discussion

     The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law.   Rule 121(b); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).

     Petitioners filed a response (petitioners’ response) to

respondent’s motion in which they oppose the granting of that

motion.   According to petitioners,

     The significant issue of material fact which is not
     conceded is that the Collection Due Process hearing
     should have considered the penalty assessment. * * *
     the penalty waiver is justified because the estimated
     tax penalties and failure to pay penalties were gener-
     ated as a result of faulty tax advice.

          * * * Petitioners raised the issue of propriety of
     assessment of the penalties at the CDP hearing. It was
     an abuse of discretion for the CDP officer to decline
     to consider the penalty waiver request. The case of
     Bell, 126 T.C. No. 18 (2006) cited by Respondent is
     applicable because it references challenge to the
     entire tax liability. A penalty abatement request may
                             - 15 -

     be processed by the Service at any time and is in that
     respect materially different from a challenge to the
     underlying tax liability

          * * * the burden of proof for purpose of challeng-
     ing the penalty in the CDP hearing is not merely abuse
     of discretion. The CDP officer should have developed
     the penalty waiver request.

          * * * the penalty may be waived in a situation
     where a taxpayer fails to properly report and pay the
     alternative minimum tax if the taxpayer relied on
     professionals, as was the case here. Montgomery, 127
     T.C. No. 3 (2006).

          * * * The tax and interest assessments are not at
     issue in this case. [Reproduced literally.]

     We conclude that there are no genuine issues of material

fact regarding the questions raised in respondent’s motion.    In

that motion and the declaration and the exhibits attached

thereto, respondent has represented facts relating to the resolu-

tion of respondent’s motion, none of which petitioners dispute,

including the facts surrounding the mailing and the receipt by

each petitioner of a final notice of intent to levy with respect

to each of petitioners’ taxable years 2000 and 2001.   Petitioners

do not dispute that respondent mailed such notices, that peti-

tioners received such notices, and that petitioners failed to

request an Appeals Office hearing in response to such notices.

Petitioners had an opportunity to challenge the respective

underlying tax liabilities for their taxable years 2000 and 2001

when each petitioner received a notice of intent to levy with
                              - 16 -

respect to each of those years.2   In response to such notices,

petitioners declined to request an Appeals Office hearing.

Instead, they decided to file an offer-in-compromise with respon-

dent.

     Nonetheless, during the consideration by the Appeals Office

of petitioners’ notice of tax lien with respect to petitioners’

taxable years 2000 and 2001, the settlement officer and the

second settlement officer, although not required to do so,

considered whether to abate the additions to tax under sections

6651(a)(2) and 6654 that respondent assessed with respect to

petitioners’ taxable year 2000 and/or their taxable year 2001.

As reflected in the attachment to the notice of determination

upon which this case is based, the second settlement officer

concluded that petitioners had failed to establish reasonable

cause to abate such additions to tax.

     An Appeals officer may, within such officer’s sole discre-

tion, consider issues that are precluded from consideration under

section 6330(c)(2)(B).   However, consideration of any such


        2
      We reject petitioners’ position that “A penalty abatement
request * * * is in that respect materially different from a
challenge to the underlying tax liability.” The Court has held
that the phrase “underlying tax liability” in sec. 6330(c)(2)(B)
is “a reference to the amounts that the Commissioner assessed for
a particular tax period.” Montgomery v. Commissioner, 122 T.C.
1, 7 (2004). What the Court concluded in Montgomery applies in
the instant case: “petitioners’ underlying tax liability con-
sists of the amount that petitioners reported due on their tax
return along with statutory interest and penalties.” Id. at 8.
                              - 17 -

precluded issues does not allow the Court to consider such issues

in a case filed in response to a notice of determination.

Behling v. Commissioner, 118 T.C. 572, 578 (2002); sec. 301.6320-

1(e)(3), Q&A-E11, Proced. & Admin. Regs.

     A taxpayer may raise challenges to the existence or the

amount of the taxpayer’s underlying tax liability if the taxpayer

did not receive a notice of deficiency or did not otherwise have

an opportunity to dispute the tax liability, sec. 6330(c)(2)(B),

including the tax liability reported in the return that such

taxpayer filed, Montgomery v. Commissioner, 122 T.C. 1 (2004).

In the instant case, although petitioners did not receive a

notice of deficiency, they had the opportunity after they re-

ceived the notices of intent to levy to dispute the additions to

tax under sections 6651(a)(2) and 6654 that respondent assessed.

They failed to do so.   On the instant record, we find that

petitioners may not challenge the existence or the amount of the

underlying tax liability for each of their taxable years 2000 and

2001, including any additions to tax, that respondent assessed.

     Where the validity of the underlying tax liability is not

properly placed at issue, the Court will review the determina-

tions of the Commissioner of the Internal Revenue for abuse of

discretion.   Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza

v. Commissioner, 114 T.C. 176, 181-182 (2000).
                             - 18 -

     Based upon our examination of the record before us, we find

that respondent did not abuse respondent’s discretion in making

the determinations in the notice of determination with respect to

petitioners’ taxable years 2000 and 2001.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     On the record before us, we shall grant respondent’s motion.

     To reflect the foregoing,


                                      An order granting respondent’s

                                 motion and decision for respondent

                                 will be entered.
