                         T.C. Memo. 2008-150



                       UNITED STATES TAX COURT



              PATRICIA M. MIDDLETON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4706-06L.                 Filed June 11, 2008.



     Alvin S. Brown, for petitioner.

     Melinda K. Fisher, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    This case arises from a petition filed in

response to a notice of determination concerning collection
                                - 2 -

action(s) under section 63201 and/or 6330 (notice of

determination).

     The issues for decision are:

     (1) Does petitioner have the underlying tax liability that

respondent determined for her taxable year 2001?   We hold that

she does.

     (2) Did respondent’s Appeals Office abuse its discretion in

determining to sustain the collection action as determined in the

notice of determination?   We hold that it did not.

                       FINDINGS OF FACT2

     All of the facts in this case, which the parties submitted

under Rule 122, have been stipulated by the parties and are so

found except as stated below.

     At all relevant times, including at the time she filed the

petition in this case, petitioner resided in Alice Springs,

Australia (Alice Springs).

     Petitioner was an employee of TRW Overseas, Inc. (TRW), a

United States Government contractor that provided certain ser-

vices at the Joint Defense Space Research Facility/Joint Defense

Space Communication System (joint defense facility).   The joint



     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.
     2
      Unless otherwise indicated, our Findings of Fact and Opin-
ion pertain to 2001, the year at issue.
                                 - 3 -

defense facility is located at the Pine Gap Air Force base (Pine

Gap base) in Pine Gap, Australia.

     The Pine Gap base is approximately 20 miles from Alice

Springs.   As a condition of her employment by TRW, petitioner was

required to, and did, accept certain assigned housing (peti-

tioner’s assigned housing) in Alice Springs, which had a popula-

tion of approximately 28,000.3    However, neither petitioner nor

anyone else conducted any business of TRW or of the joint defense

facility at petitioner’s assigned housing.

     Petitioner’s assigned housing was located on a public street

and was adjacent to houses that were available to the general

public.    Petitioner’s assigned housing was (1) not located within

the physical boundaries of the Pine Gap base, (2) not in a

separately gated community, and (3) not in an area or enclave

segregated for employees of TRW and unavailable to the general

public.

     Residents of Alice Springs included individuals who worked

at the Pine Gap base and individuals who were unaffiliated with

that base.   Certain companies located in Alice Springs provided

trash collection, sewage, utilities, and law enforcement services

for the residents of Alice Springs.      Petitioner did not pay any


     3
      Petitioner’s assigned housing in Alice Springs was subject
to a so-called Joint Defense Facility Pine Gap Housing Handbook
that was prepared in order to “clarify responsibilities of both
the Joint Defence Facility Pine Gap (JDFPG) and the housing
occupants.”
                              - 4 -

rent or utility expenses with respect to petitioner’s assigned

housing.

     As a further condition of her employment by TRW, petitioner

was required to, and did, execute a closing agreement (peti-

tioner’s closing agreement) with the Internal Revenue Service in

which TRW was identified as petitioner’s employer. Pursuant to

petitioner’s closing agreement, petitioner agreed to (1) waive

her right to elect a foreign earned income exclusion under

section 911(a) for her taxable year 2001 with respect to the

services that she performed for TRW at the joint defense facility

and (2) attach a copy of that agreement to her Federal income tax

(tax) return for that year.

     Petitioner and her spouse, Robert J. Middleton (Mr. Middle-

ton),4 filed Form 1040, U.S. Individual Income Tax Return (peti-

tioner’s 2001 return), for their taxable year 2001.   In that

return, petitioner reported on page 1 “Other income” of zero.    In

doing so, petitioner claimed that the Department of the Air Force

furnished to her certain housing (petitioner’s claimed Air Force

housing) valued at $7,154 that was excludable under section 119.

Although petitioner was required by petitioner’s closing agree-

ment to attach a copy of that agreement to petitioner’s 2001

return, she did not do so.



     4
      Mr. Middleton is not a petitioner in the instant case.
Hereinafter, we shall refer only to petitioner.
                                - 5 -

     On April 23, 2004, respondent issued to petitioner a notice

of deficiency with respect to, inter alia, her taxable year 2001

(2001 notice of deficiency), in which respondent determined a

$2,016 deficiency in tax for that year (2001 deficiency).5    In

making that deficiency determination, respondent determined that

the $7,154 of petitioner’s claimed Air Force housing is not

excludable under section 119.

     On November 15, 2004, respondent assessed tax of $2,016 and

interest as provided by law of $275.93 for petitioner’s taxable

year 2001.   (We shall refer to any unpaid assessed amounts with

respect to petitioner’s taxable year 2001, as well as interest as

provided by law after November 15, 2004, as petitioner’s unpaid

2001 liability.)

     On July 2, 2005, respondent issued to petitioner a final

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

(notice of intent to levy) with respect to petitioner’s unpaid

2001 liability.6

     On July 20, 2005, respondent received from petitioner Form

12153, Request for a Collection Due Process Hearing (petitioner’s



     5
      The 2001 notice of deficiency also pertained to peti-
tioner’s taxable year 2000. That year is not at issue here.
     6
      The parties stipulated that respondent issued to petitioner
the notice of intent to levy to collect “an unpaid balance” of
$2,291.93 for her taxable year 2001, which was the total of the
tax and interest for that year that respondent assessed on Nov.
15, 2004.
                               - 6 -

Form 12153), with respect to the notice of intent to levy.     In

that form, petitioner indicated her disagreement with the notice

of intent to levy and requested a hearing with respondent’s

Appeals Office (Appeals Office).7   In support of her disagreement

with the notice of intent to levy, petitioner gave the following

explanation:

     1.   Collection alternatives are available.
     2.   Levy creates financial hardship.
     3.   offer in compromise based on no liability has been
          sent to service center.[8] [Reproduced literally.]

     By letter to petitioner dated October 4, 2005, the Appeals

Office acknowledged receipt of petitioner’s Form 12153 and

notified her that a settlement officer with the Appeals Office

(settlement officer) would be contacting her in the near future.

The Appeals Office sent a copy of that letter to petitioner’s

representative, Alvin S. Brown (Mr. Brown).




     7
      In petitioner’s Form 12153, petitioner requested a hearing
with the Appeals Office with respect to her taxable years 2000
through 2005. However, the notice of intent to levy did not
pertain to her taxable years 2000 and 2002 through 2005, and
those years are not at issue here. In fact, as of July 20, 2005,
the date on which respondent received petitioner’s Form 12153,
respondent had not issued to petitioner a notice of Federal tax
lien filing and your right to a hearing or a notice of intent to
levy with respect to her taxable years 2000 and 2002 through
2005.
     8
      Petitioner attached Form 656, Offer in Compromise (peti-
tioner’s Form 656), dated Feb. 22, 2005, to petitioner’s Form
12153. Petitioner’s Form 656 did not pertain to petitioner’s
taxable year 2001; it pertained only to petitioner’s taxable
years 2000 and 2002.
                                  - 7 -

     The settlement officer sent Mr. Brown a letter dated October

17, 2005 (October 17, 2005 letter).       That letter stated in

pertinent part:

     Appeals received your request on behalf of Patricia M.
     Middleton for a Collection Due Process (CDP) Hearing.
     I have scheduled a telephone conference call for you on
     November 2, 2005 at 9am. This call will be the tax-
     payer’s CDP hearing.

        *         *        *       *         *       *        *

     Your CDP hearing request regarding proposed levy action
     on the following tax period was timely: Form 1040, for
     tax period December 31, 2001. During your hearing, and
     until any appeals become final for these tax and peri-
     ods, the legal collection period is suspended and no
     levy action may be taken.

     During the hearing, I must consider:

            •   Whether the IRS met all the requirements of any
                applicable law or administrative procedure

            •   Any relevant issues you wish to discuss.    These
                can include:

                  1.   Collection alternatives to levy such as
                       full payment of the liability,
                       installment agreement, offer in
                       compromise or temporary delay of
                       collection action. * * *

                  2.   Challenges to the appropriateness of
                       collection action. * * *

                  3.   Spousal defenses, when applicable.

            •   We may also consider whether you owe the amount
                due, but only if you have not otherwise had an
                opportunity to dispute it with Appeals or did
                not receive a statutory notice of deficiency.
                                   - 8 -

            •   We will balance the IRS’ need for efficient tax
                collection and your legitimate concern that the
                collection action be no more intrusive than
                necessary.

        *         *       *         *      *       *       *

     For me to consider alternative collection methods such
     as an installment agreement or offer in compromise, you
     must provide any items listed below. In addition, you
     must have filed all federal tax returns due.

            •   A completed Collection Information Statement
                (Form 433-A for individuals and/or Form 433-B
                for businesses.)

            •   Proposal to pay.

            •   The hearing request indicates that an offer in
                compromise may be filed. There is no record
                that an offer is currently under investigation.

     Please send me the items prior to the hearing date. I
     cannot consider collection alternatives in your hearing
     without the information requested above.

        *         *       *         *      *       *       *

     If you do not participate in the conference or respond
     to this letter, the determination and/or decision
     letter that we issue will be based on your CDP request,
     any information you previously provided to this office
     about the applicable tax periods, and the Service’s
     administrative file and records.

        *         *       *         *      *       *       *

     Please contact me with any questions or concerns you
     have regarding this letter or the CDP procedures. * * *

     Neither petitioner nor Mr. Brown contacted the settlement

officer on November 2, 2005, with respect to the settlement

officer’s October 17, 2005 letter, and no telephonic conference

was held.
                               - 9 -

     The settlement officer sent Mr. Brown a letter dated Novem-

ber 2, 2005.   In that letter, the settlement officer informed Mr.

Brown that, if petitioner wanted to present any additional

information and/or arguments with respect to the notice of intent

to levy, he should contact the settlement officer by November 17,

2005.

     On November 4, 2005, Mr. Brown telephoned the settlement

officer.   During that telephonic discussion, Mr. Brown argued

that the 2001 deficiency was wrong because the $7,154 of peti-

tioner’s claimed Air Force housing is excludable from peti-

tioner’s income for her taxable year 2001.   In advancing that

argument, Mr. Brown pointed out to the settlement officer that in

certain cases pending in the Court (pending Tax Court cases)

certain residents of Alice Springs were making the same arguments

that petitioner was making with respect to the taxation of

employer-furnished housing.

     By letter dated November 4, 2005, the settlement officer

informed Mr. Brown that petitioner was not entitled to challenge

the underlying tax liability for her taxable year 2001.   In that

letter, the settlement officer requested Mr. Brown to present to

the Appeals Office by November 17, 2005, a proposal for resolving

petitioner’s unpaid 2001 liability.

     On November 14, 2005, Mr. Brown telephoned the settlement

officer and informed him (1) that he intended to provide respon-
                              - 10 -

dent with additional information by November 21, 2005, and

(2) that the Court had scheduled the pending Tax Court cases for

trial on November 23, 2005.

     On December 15, 2005, the date on which the settlement

officer had begun drafting a notice of determination with respect

to petitioner’s taxable year 2001, Mr. Brown telephoned the

settlement officer.   Mr. Brown informed the settlement officer

that the Court had not yet decided the pending Tax Court cases

and that he wanted to raise certain treaty issues in support of

petitioner’s position with respect to the underlying tax liabil-

ity for her taxable year 2001.   Out of consideration for peti-

tioner’s arguments regarding the pending Tax Court cases, the

settlement officer delayed for six weeks the completion of the

notice of determination with respect to that year.9

     As of January 31, 2006, the date on which the settlement

officer completed drafting the notice of determination with

respect to petitioner’s taxable year 2001, the Court had not yet




     9
      The parties stipulated that, out of consideration for
petitioner’s argument regarding the pending Tax Court cases, the
settlement officer delayed for six weeks the completion of the
“Notice of Deficiency”. That stipulation is clearly contrary to
the facts that we have found are established by the record, and
we shall disregard it. See Cal-Maine Foods, Inc. v. Commis-
sioner, 93 T.C. 181, 195 (1989). The record establishes, and we
have found, that, out of consideration for petitioner’s arguments
regarding the pending Tax Court cases, the settlement officer
delayed for six weeks the completion of the notice of determina-
tion with respect to petitioner’s taxable year 2001.
                              - 11 -

decided the pending Tax Court cases.10   Nor had petitioner pro-

vided the settlement officer with a proposal of a collection

alternative for petitioner’s unpaid 2001 liability.   As of Janu-

ary 31, 2006, the only argument that Mr. Brown had presented to

the settlement officer with respect to the notice of intent to

levy was that respondent was wrong in determining in the 2001

notice of deficiency that the $7,154 of petitioner’s claimed Air

Force housing is not excludable from petitioner’s income for her

taxable year 2001.

     On February 6, 2006, the Appeals Office issued to petitioner

a notice of determination with respect to her taxable year 2001.

That notice stated in pertinent part:

     Prior to issuing the Intent To Levy, all statutory
     administrative and procedural requirements were met by
     the Internal Revenue Service. No viable alternatives
     to such action were established during Appeals consid-
     eration; accordingly, such action is not considered to
     be overly intrusive at this time. The determination of
     the Appeals Office is to sustain the issuance of the
     Intent to Levy.

The notice of determination included an attachment that stated in

pertinent part:

                     SUMMARY AND BACKGROUND

     The taxpayer submitted a timely request for a Collec-
     tion Due Process Hearing in response to the issuance of
     an Intent to Levy. The enforcement actions were taken


     10
      It was not until Aug. 8, 2006, that the Court issued
Hargrove v. Commissioner, T.C. Memo. 2006-159, in the pending Tax
Court cases, which the Court had consolidated for purposes of
briefing and opinion.
                        - 12 -

by the Automated Collection System of the IRS. The
collection action was taken after notice and demand was
issued and the accounts remained unpaid. A levy source
was identified.

   *       *       *       *       *       *       *

By letter dated October 17, 2005 a telephone Collection
Due Process hearing was scheduled for November 2, 2005.
The taxpayer was asked to forward a collection informa-
tion statement and proposal to pay prior to the hear-
ing. No response was received.

By letter dated November 2, 2005 the Settlement Officer
requested that any additional information to be consid-
ered be forwarded by November 17, 2005.

A hearing was held via telephone on November 4, 2005
with the taxpayer’s power of attorney, Alvin S. Brown.

By letter dated November 4, 2005 the taxpayer was ad-
vised to provide a proposal to pay the liability by
November 17, 2005. The taxpayer was advised that a
determination letter would be issued after this date.
The taxpayer made no proposal and did not submit a
collection information statement.

The determination of the Appeals Office is to sustain
the Intent to Levy.

Applicable Law and Administrative Procedures

With the best information available, the requirements
of various applicable law or administrative procedures
have been met.

Internal Revenue Code (IRC) section 6331(d) requires
that the Internal Revenue Service (IRS) notify a tax-
payer at least 30 days before a Notice of Levy can be
issued. Our case history shows that this notice was
mailed to the taxpayer.

IRC section 6330(a) provides that no levy may be made
unless the IRS notifies a taxpayer of the opportunity
for a hearing with the IRS Office of Appeals. A FINAL
NOTICE - NOTICE OF INTENTION TO LEVY AND YOUR RIGHT TO
A HEARING was sent by certified mail.
                        - 13 -

Under I.R.C. 6330 an individual may challenge the cor-
rectness of the liability through a collection due
process hearing unless the individual received a statu-
tory notice of deficiency or other administrative ap-
peal rights. IRS records show that a statutory notice
of deficiency was issued and appealed by the taxpayer.
The decision of the Appeals Office was to sustain the
proposed assessment. There is no record that the tax-
payer timely petitioned the tax court.

The taxpayer was given the opportunity to raise any
relevant issue relating to the unpaid tax or the pro-
posed levy at the hearing in accordance with IRC
6330(c).

   *       *       *       *       *        *      *

Relevant Issues Presented by the Taxpayer

The request for a hearing indicates that the taxpayer
wants consideration of collection alternatives such as
installment agreement and offer in compromise.

A collection due process hearing was held by telephone
on November 4, 2005 and through correspondence with the
taxpayer’s power of attorney.

The main concern raised at the hearing involves the
correctness of the liability. The taxpayer believes
that she is entitled to exclude from gross income the
value of lodging furnished by her employer. The power
of attorney noted that there were related taxpayers
currently in court contesting this same issue. As a
statutory notice of deficiency was received, the tax-
payer may not challenge the liability through this
hearing. The taxpayer did not petition the court, the
assessment was made and collection actions were not
suspended. To challenge the liability the taxpayer may
full pay the account; file a timely claim for refund;
and timely petition the appropriate court. The related
court cases have not been closed.

As the taxpayer did not submit requested financial
information, collection alternatives may not be consid-
ered at this time.

The taxpayer raised no other issues and provided no
other alternatives to the proposed collection action.
                                - 14 -

                               OPINION

       The parties submitted this case fully stipulated under Rule

122.    That the parties submitted this case under that Rule does

not affect who has the burden of proof or the effect of a failure

of proof.    Rule 122(b); Borchers v. Commissioner, 95 T.C. 82, 91

(1990), affd. 943 F.2d 22 (8th Cir. 1991).

       The parties disagree over whether the burden of proof in

this case shifts to respondent under section 7491(a).    We need

not, and we shall not, address that disagreement.    That is be-

cause resolution of the issues presented here does not depend on

who has the burden of proof.

       Respondent concedes that petitioner is entitled to dispute

the underlying tax liability for her taxable year 2001.11   Where

the validity of the underlying tax liability is properly placed

at issue, the Court will review the determination of the Commis-

sioner of Internal Revenue on a de novo basis.    Sego v. Commis-

sioner, 114 T.C. 604, 610 (2000).

       It is petitioner’s position that she does not have the

underlying tax liability that respondent determined for her

taxable year 2001.    In support of that position, petitioner

argues that she is entitled to exclude from gross income

(1) under section 119(a) the $7,154 of petitioner’s claimed Air


       11
      Respondent makes that concession “Because respondent
cannot show that petitioner actually received the notice of
deficiency regarding her 2001 tax year”. See sec. 6330(c)(2)(B).
                               - 15 -

Force housing and (2) under section 912 certain cost-of-living

allowances that petitioner claims she received (petitioner’s

claimed cost-of-living allowances).12   In advancing those argu-

ments, petitioner concedes that the facts in this case are simi-

lar to the facts in Hargrove v. Commissioner, T.C. Memo. 2006-

159,13 a case involving the taxation under sections 119 and 912,

respectively, of employer-furnished housing and claimed living

allowances.14   We find that the facts in this case are not materi-

ally distinguishable from the facts in Hargrove.



     12
      The only allowances that petitioner maintains   she is
entitled to exclude under sec. 912 are petitioner’s   claimed cost-
of-living allowances. See sec. 912(2). Petitioner     does not
maintain that she is entitled to exclude under sec.   912 any
allowances described in sec. 912(1) or (3).

     With respect to petitioner’s argument that she is entitled
to exclude from gross income under sec. 912 petitioner’s claimed
cost-of-living allowances, respondent points out that petitioner
did not allege in the petition that she was entitled to exclude
any amount from gross income under that section. According to
respondent, petitioner has therefore conceded that issue under
Rule 331(b)(4). Petitioner did not expressly allege in the
petition that she is entitled to exclude from gross income under
sec. 912 the cost-of-living allowances that she claims she
received. However, pleadings are to be construed as to do
substantial justice. Rule 31(d). Moreover, we find no prejudice
to respondent. In fact, as discussed below, we reject peti-
tioner’s argument under sec. 912.
     13
      We note that Mr. Brown, petitioner’s counsel of record in
the instant case, was a counsel of record for the taxpayers in
Hargrove v. Commissioner, T.C. Memo. 2006-159.
     14
      The Court in Hargrove also considered whether to sustain
respondent’s determinations under sec. 6662(a). In the 2001
notice of deficiency issued to petitioner, respondent did not
make a determination under sec. 6662(a).
                               - 16 -

     Although the facts here are materially the same as the facts

in Hargrove, it is petitioner’s position that the Court erred in

holding in Hargrove that the taxpayers there involved were not

entitled to exclude (1) under section 119 the value of employer-

furnished housing and (2) under section 912 certain claimed

living allowances.15   In support of that position, petitioner

advances the same arguments under sections 119 and 912 that the

taxpayers advanced in Hargrove,16 including the arguments under

those sections based on the treaty under which the joint defense

facility was established, see Agreement Relating to the Estab-

lishment of a Joint Defence Space Research Facility, U.S.-Austl.,




     15
      Hargrove involved several consolidated cases. All of the
taxpayers there involved argued that they were entitled to
exclude from gross income under sec. 119 the value of employer-
furnished housing. Hargrove v. Commissioner, supra. Certain of
those taxpayers also argued that they were entitled to exclude
from gross income under sec. 912 certain claimed living allow-
ances. Id. As was true with respect to those taxpayers in
Hargrove who advanced that argument under sec. 912, the record
here does not establish that petitioner received the cost-of-
living allowances that she claims she received.
     16
      Petitioner’s arguments on brief here are the same as the
taxpayers’ arguments on brief in Hargrove, of which the Court
takes judicial notice.
                               - 17 -

Dec. 9, 1966, 17 U.S.T. 2235 (Treaty).17   In effect, petitioner is

asking the Court to overrule Hargrove.

     The Court in Hargrove carefully considered and rejected all

of the arguments under sections 119 and 912 that the taxpayers

advanced, including the arguments under those sections based on

the Treaty.   We have carefully reviewed and considered Hargrove.

We decline petitioner’s request to overrule it.

     On the record before us, we hold that petitioner is not

entitled to exclude from gross income under section 119(a) the

$7,154 of petitioner’s claimed Air Force housing.    See id.   On

that record, we further hold that petitioner is not entitled to

exclude from gross income under section 912 petitioner’s claimed

cost-of-living allowances.18   See id.   On the record before us, we



     17
      The Treaty, which authorized the joint defense facility,
became effective on Dec. 9, 1966. Agreement Relating to the
Establishment of a Joint Defence Space Research Facility, U.S.-
Austl., Dec. 9, 1966, 17 U.S.T. 2235. Since 1966, the Treaty has
been amended and extended. Agreement Amending and Extending the
Agreement of Dec. 9, 1966, U.S.-Austl., Oct. 19, 1977, 29 U.S.T.
2759; Agreement Amending and Extending the Agreement of Dec. 9,
1966, As Amended and Extended, U.S.-Austl., Nov. 16, 1988,
T.I.A.S. 12266; Agreement Extending the Agreement of Dec. 9,
1966, As Amended and Extended, Relating to the Establishment of a
Joint Defence Facility at Pine Gap, U.S.-Austl., June 4, 1998,
Temp. State Dept. No. 00-102.
     18
      As was true with respect to the taxpayers in Hargrove who
argued that they were entitled to exclude from gross income under
sec. 912 certain claimed living allowances, assuming arguendo
that the record here had established that petitioner received
petitioner’s claimed cost-of-living allowances, see supra note
15, such allowances would not be excludable under sec. 912. See
Hargrove v. Commissioner, supra.
                             - 18 -

hold that petitioner has the underlying tax liability that re-

spondent determined for her taxable year 2001.

     We turn now to whether the Appeals Office abused its discre-

tion in determining to sustain the collection action as deter-

mined in the notice of determination.     Although the Appeals

Office erred in determining in that notice that petitioner was

not entitled to challenge the underlying tax liability for her

taxable year 2001, that error was harmless.    We have found that

petitioner has the underlying tax liability that respondent

determined for her taxable year 2001.     On the record before us,

we hold that the Appeals Office did not abuse its discretion in

determining to sustain the collection action as determined in the

notice of determination.

     We have considered all of the contentions and arguments of

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

without merit, irrelevant, and/or moot.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent.
