                        T.C. Memo. 2011-240



                      UNITED STATES TAX COURT



             DANIEL & MAGDELENA DELGADO, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13864-10L.              Filed October 3, 2011.



     Lorenzo W. Tijerina, for petitioners.

     Brock E. Whalen, for respondent.



                        MEMORANDUM OPINION


     COHEN, Judge:   This case was commenced in response to

notices of determination concerning collection action with

respect to petitioners’ Federal income tax liabilities for 2004

and 2006.   The issue for decision is whether the Internal Revenue

Service (IRS) Appeals Office abused its discretion by sustaining

the filing of a notice of Federal tax lien.     Unless otherwise
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indicated, all section references are to the Internal Revenue

Code, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

                             Background

     This case was submitted fully stipulated under Rule 122, and

the stipulated facts are incorporated as our findings by this

reference.   Petitioners resided in Texas at the time their

petition was filed.

     Petitioners filed joint Federal income tax returns for 2004

and 2006.    The 2004 tax liability was assessed on May 30, 2005.

Petitioners entered into an installment agreement with the IRS to

pay the tax reported due for 2004 and made monthly payments from

July 2005 through September 2008.    No notice of deficiency was

sent to petitioners with respect to their outstanding 2004 tax

liability.

     The IRS examined petitioners’ 2006 tax return, determined a

tax deficiency, and sent a notice of deficiency to them at their

last known address on March 31, 2008.     Petitioners failed to

respond to three U.S. Postal Service notices of attempted

delivery, and the notice of deficiency was returned to the IRS

marked “Unclaimed”.    The outstanding tax liability for 2006 was

assessed on September 1, 2008.
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     The outstanding tax liabilities for 2004 and 2006 remained

unpaid and, on August 27, 2009, the IRS sent petitioners a notice

of Federal tax lien filing informing them of their right

to a hearing under section 6320.    In the notice, the IRS informed

petitioners that a Notice of Federal Tax Lien was being filed

that same day.

     Petitioners responded to the Federal tax lien filing by

submitting a completed Form 12153, Request for a Collection Due

Process or Equivalent Hearing.    Petitioners noted their reason

for disagreeing with the filing of the lien as follows:    “Upon

review by the taxpayer it appears that the tax preparer did not

prepare the tax returns at issue correctly and the taxpayer is

willing to enter into an installment agreement or an offer in

compromise.”

     The Appeals Office responded by letter dated March 23, 2010,

acknowledging receipt of petitioners’ request for a collection

due process (CDP) hearing.   The letter addressed petitioners’

statement that the 2004 and 2006 tax returns had been prepared

incorrectly by informing them that for alternative collection

methods such as an installment agreement or an offer-in-

compromise to be considered they would need to submit corrected

and signed tax returns for 2004 and 2006 within 14 days.    A

telephone hearing was scheduled for April 20, 2010.    Petitioners
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did not submit the information requested by the Appeals Office

before the hearing.

     On April 20, 2010, an IRS settlement officer conducted a CDP

hearing with petitioners’ representative.   No collection

alternative was offered for 2004 or 2006, and no challenge was

raised with respect to the appropriateness of the IRS’ collection

action.   During the telephone hearing, petitioners’

representative did not dispute the compensation that resulted in

the tax liabilities but stated that IRS transcripts that he had

for petitioners showed no balance due for 2004.   The settlement

officer informed petitioners’ representative that there remained

a balance due and requested that he forward a copy of the

described transcript.   Upon receipt of the transcript, the

settlement officer determined that it actually reflected a

balance due for 2004, contrary to the claim by petitioners’

representative.

     The Appeals Office verified that the requirements of

applicable law and administrative procedure had been met and

determined that the filing of the lien was appropriate to protect

the Government’s interest.   On May 13, 2010, notices of

determination sustaining the lien were sent to petitioners.

                             Discussion

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

all property and property rights of a taxpayer liable for taxes
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after a demand for the payment of the taxes has been made and the

taxpayer fails to pay.    The lien arises when the assessment is

made.   See sec. 6322.   The IRS files a notice of Federal tax lien

to preserve priority and put other creditors on notice.      See sec.

6323.   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.

     The hearing generally shall be conducted consistent with

procedures set forth in section 6330(c), (d), (e), and (g).      See

sec. 6320(c).   Under section 6330(c)(2)(A) a taxpayer may raise

any relevant issue at a CDP hearing, including “challenges to the

appropriateness of collection actions”, and may make “offers of

collection alternatives, which may include the posting of a bond,

the substitution of other assets, an installment agreement, or an

offer-in-compromise.”    A taxpayer is expected to provide all

relevant information requested by the Appeals Office for its

consideration of the facts and issues involved in the hearing.

See secs. 301.6320-1(e)(1), 301.6330-1(e)(1), Proced. & Admin.

Regs.

     Challenges to the underlying tax liability may be raised

during the CDP hearing only where the taxpayer did not receive a

notice of deficiency or otherwise have an opportunity to dispute

such liability.   See sec. 6330(c)(2)(B).   To dispute the

underlying liability, a taxpayer must properly raise the merits
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of the underlying liability as an issue during the CDP hearing.

See Giamelli v. Commissioner, 129 T.C. 107, 112-116 (2007); sec.

301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.    The merits are

not properly raised if the taxpayer challenges the underlying tax

liability but fails to present the Appeals Office with any

evidence with respect to that liability after being given

reasonable opportunity to present such evidence.    See sec.

301.6320-1(f)(2), Q&A-F3, Proced. & Admin. Regs.

     The IRS sent a notice of deficiency to petitioners for 2006

that was returned to the IRS marked “Unclaimed”.    The

Commissioner has generally prevailed in foreclosing challenges to

the underlying liability under section 6330(c)(2)(B) where he

establishes that a notice of deficiency was mailed to the

taxpayer’s last known address and no factors are present that

rebut the presumption of official regularity and of delivery.

See, e.g., Sego v. Commissioner, 114 T.C. 604, 609-610 (2000);

Clark v. Commissioner, T.C. Memo. 2008-155.    However, we do not

address whether the notice of deficiency for 2006 foreclosed

challenges to the underlying liability for that year because

petitioners were given the opportunity to provide amended tax

returns for 2004 and 2006 to address disputes they had with the

underlying liabilities.    Petitioners did not file an amended

return for 2004 or 2006.
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     At the hearing petitioners’ representative notified the

settlement officer that he had copies of IRS transcripts for

petitioners that reflected no balance due for 2004.     Upon review

of these documents, the settlement officer informed petitioners’

representative the transcripts did in fact show a balance due for

2004.

     Where the issue is “the amount of tax owed that remains

unpaid”, we review the determination of the Appeals Office de

novo as this is a challenge to the validity of the underlying tax

liability when it is properly raised.   Boyd v. Commissioner, 117

T.C. 127, 131 (2001).   However, petitioners’ incorrect claim that

the IRS transcripts reflected no balance due for 2004 was

insufficient on its own to challenge the underlying tax

liability.

     Therefore, petitioners may not contest the underlying

liabilities and must establish that the issuance of the notices

of determination sustaining the lien filing was an abuse of

discretion.   See Sego v. Commissioner, supra at 609-610.    An

abuse of discretion is shown only if the action of the Appeals

officer was arbitrary, capricious, or without sound basis in fact

or law.   See Giamelli v. Commissioner, supra at 111.

     Petitioners contend that it was an abuse of discretion for

the IRS to uphold the filing of the Federal tax lien because they

were not given sufficient time to submit amended tax returns for
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2004 and 2006.   As we stated in Roman v. Commissioner, T.C. Memo.

2004-20:

     No statutory or regulatory provision requires that
     taxpayers be afforded an unlimited opportunity to
     supplement the administrative record. * * * The
     statute only requires that a taxpayer be given a
     reasonable chance to be heard prior to the issuance of
     a notice of determination. * * *

Further, the Appeals Office shall “attempt to conduct a CDP

hearing and issue a Notice of Determination as expeditiously as

possible under the circumstances.”     Sec. 301.6330-1(e)(3), Q&A-

E9, Proced. & Admin. Regs.; see also Murphy v. Commissioner, 125

T.C. 301, 322 (2005) (citing Clawson v. Commissioner, T.C. Memo.

2004-106), affd. 469 F.3d 27 (1st Cir. 2006).

     The settlement officer informed petitioners by letter dated

March 23, 2010, that corrected tax returns for 2004 and 2006 had

to be submitted before the hearing for collection alternatives to

be considered.   Petitioners’ representative agreed to have the

hearing on April 20, 2010.   During the hearing, petitioners’

representative did not challenge the validity of the IRS’

collection action and offered no collection alternatives on

petitioners’ behalf.   Petitioners did not supply amended returns

and did not request an extension of the original deadline of 14

days before the notices of determination were sent on May 13,

2010.   Through submission of this case in February 2011,

petitioners have not provided any proof that the assessed amounts

for 2004 and/or 2006 are not correct.
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       After verifying that the requirements of applicable law and

administrative procedure had been met, the Appeals Office

concluded that the filing of the notice of Federal tax lien

balanced the need for efficient collection of taxes with

petitioners’ concern that the collection be no more intrusive

than necessary.    See sec. 6330(c)(3).    Respondent used the

available methods under the Internal Revenue Code for protecting

the United States’ claims against subsequent creditors by filing

the Federal tax lien, and the record shows that the decision of

the Appeals Office to sustain the filing of the Federal tax lien

was not arbitrary, capricious, or without sound basis in fact or

law.

       We have considered all arguments made, and to the extent not

mentioned or addressed, we conclude that they are without merit

or irrelevant.    To reflect the foregoing,


                                             Decision will be entered

                                        for respondent.
