                               T.C. Memo. 2013-256



                         UNITED STATES TAX COURT



      JOHN FRANCIS BARRETT AND CAROL BARRETT, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 1576-12L.                          Filed November 12, 2013.



      Jeffrey D. Moffatt, for petitioners.

      Fred Edward Green, Jr., for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      COHEN, Judge: This case was commenced in response to a notice of

determination concerning collection action(s) under section 6320 and/or 6330 that

sustained a levy to collect petitioners’ unpaid Federal income tax liabilities for

2002 and 2009. The issue for decision is whether collateral estoppel effect should
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[*2] be given to decisions in earlier cases determining that different taxes for

different years were “currently not collectible” and, if not, whether the

determination was an abuse of discretion. All section references are to the Internal

Revenue Code in effect at all relevant times.

      All of the material facts are contained in the administrative record of the

exchanges between petitioners’ counsel and the Appeals Office. That record has

been stipulated. The stipulated facts are incorporated in this opinion by this

reference. Brief testimony by John Francis Barrett (petitioner) and certain exhibits

were offered at trial and were treated as an offer of proof. Because they were not

brought to the attention of the Appeals Office during the administrative hearing

and petitioners have not suggested any exception to the general rule that such

material may not be considered, respondent’s objections to the proferred testimony

and extraneous exhibits will be sustained. See Giamelli v. Commissioner, 129

T.C. 107, 115 (2007); Magana v. Commissioner, 118 T.C. 488, 493 (2002).

                               FINDINGS OF FACT

      Petitioners resided in California when they filed their petition. Petitioner

was a party to four previous cases in this Court involving his liabilities for unpaid

employment taxes and related penalties. Those cases were docket Nos. 29261-

07L, 22946-08L, 30320-08L, and 30321-08L (employment tax cases). Petitioner
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[*3] Carol Barrett was not a party to the employment tax cases. The petition in

docket No. 29261-07L erroneously referred to a notice of deficiency and income

tax as well as periods for unpaid employment taxes that were not the subject of the

notice of determination upon which that case was based. The erroneous references

were stricken by Court order. None of the employment tax cases was commenced

in response to a notice of determination regarding petitioners’ joint income tax

liabilities. No decision was or could have been rendered in those cases with

respect to petitioners’ joint income tax liabilities.

      After the employment tax cases were set for trial, on the joint motion of the

parties they were remanded to the Appeals Office for further consideration. From

February 16 to November 18, 2010, the parties to the employment tax cases

negotiated a settlement. On December 29, 2010, those cases were resolved by

agreement of the parties, and stipulated decisions were entered providing for

abatement of certain penalties. These decisions stated that “[t]he balance of the

unpaid underlying liabilities for Form 941 employment tax liabilities * * * [for the

quarterly periods in issue] will be placed in a Currently Not Collectible status due

to the petitioner’s financial hardship.” The agreed balances of the unpaid

employment tax liabilities totaled $84,110.
                                          -4-

[*4] On April 21, 2011, the Internal Revenue Service (IRS) sent petitioners a

Final Notice of Intent to Levy and Notice of Your Right to a Hearing (April 21,

2011, notice) with respect to unpaid income tax liabilities for 2002 and 2009. As

of the date of the notice, the assessed account balance for those two years was

$9,845.18.

      On May 3, 2011, petitioners filed Form 12153, Request for a Collection

Due Process or Equivalent Hearing, in response to the April 21, 2011, notice.

Petitioners did not dispute their underlying tax liabilities for 2002 and 2009.

      On September 29, 2011, an Appeals account resolution specialist (AARS)

sent to petitioners a letter scheduling a telephone conference call in response to

their request for a hearing. The letter advised petitioners of their right to a full

hearing but stated: “In order to meet the requirements for a face-to-face

conference, you must be in full compliance of all required tax returns, estimated

tax payments/federal tax deposits and submit financial information.” The letter

proposed “a streamline installment agreement (IA) in the amount of $340.00, due

on the 28th of each month beginning on November 28, 2011” and stated: “If you

are unable to pay this amount please complete and return the enclosed Form 433-A

[Collection Information Statement for Wage Earners and Self-Employed

Individuals]”. Petitioners’ counsel responded to the September 29, 2011, letter
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[*5] with copies of materials from the employment tax cases and requested that the

joint income tax liabilities of petitioners be deemed uncollectible and that

penalties be abated based upon the decisions in the employment tax cases.

      During a telephonic hearing on November 8, 2011, petitioners’ counsel

asserted that the decisions in the employment tax cases included petitioners’

personal income tax liabilities; that res judicata established that the income tax

liabilities were currently not collectible; and that res judicata negated the

requirement to submit updated or additional information regarding the status of

petitioners’ liabilities as currently not collectible. The AARS advised petitioners’

counsel that, pursuant to the Internal Revenue Manual, updated financial

information was required to determine whether petitioners qualified for currently

not collectible status. Petitioners declined the streamline installment agreement

that the AARS proposed, and they declined to provide any updated financial

information. They did not propose an installment agreement or offer-in-

compromise at any time during the administrative process. They did not state with

specificity any facts or grounds adequate to raise an issue of abatement of income

tax penalties.

      Petitioners’ case was transferred to an Appeals settlement officer for

disposition. The settlement officer researched the employment tax cases and
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[*6] determined that petitioners’ income tax liabilities were not included in the

decisions. The settlement officer verified that the requirements of all applicable

laws and administrative procedures had been met. On December 23, 2011, the

Appeals Office issued the notice of determination sustaining the proposed levy.

                                      OPINION

      Section 6330 provides for notice and an opportunity for a hearing before a

levy proposed by the IRS to collect unpaid taxes may proceed. Under section

6330(c)(2)(A), a taxpayer may raise any relevant issue at a 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 sec.

301.6330-1(e)(1), Proced. & Admin. Regs. Such information is especially

necessary when the proposed collection alternative is to have collection suspended

on the ground that the liabilities are “currently not collectible”. See Pitts v.

Commissioner, T.C. Memo. 2010-101, slip op. at 18. Where there is no dispute as

to the underlying liabilities, we review the actions of the Appeals Office, including

that Office’s interpretation of law, for abuse of discretion. See Weber v.
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[*7] Commissioner, 138 T.C. 348, 355 (2012); Swanson v. Commissioner, 121

T.C. 111, 119 (2003).

      Petitioners have not disputed their underlying liabilities or that the Appeals

Office performed the necessary verification under section 6330(c)(1). Throughout

the administrative process and during this case, petitioners have relied solely on

their view of res judicata, even though neither the parties nor the liabilities in the

employment tax cases were the same as those in this case and relevant facts would

have changed with the passage of time. Currently not collectible is by definition a

status subject to reevaluation. Petitioners refused to provide the information

required for reevaluation of their ability to pay, by installments or otherwise, the

liabilities for income tax for 2002 and 2009 that were a fraction (less than 12%) of

petitioner’s unpaid employment tax liabilities. Meanwhile, a year passed between

the settlement of the employment tax cases and the issuance of the notice of

determination in this case.

      Moreover, petitioners do not recognize the distinction between res judicata

and collateral estoppel. As this Court recently explained in Koprowski v.

Commissioner, 138 T.C. 54, 59-62 (2012) (citing, among other cases, Allen v.

McCurry, 449 U.S. 90, 94 (1980)), res judicata applies to a final judgment on the

merits of an action and precludes relitigation of issues that were or could have
                                         -8-

[*8] been raised in that action. Petitioners’ joint income tax liabilities for 2002

and 2009 were not and could not have been raised in cases involving petitioner’s

employment tax liabilities for various quarterly periods. Res judicata does not

apply to the circumstances here.

      Under the doctrine of collateral estoppel, once a court has decided an issue

of fact or law necessary to its judgment, that decision may preclude relitigation of

the same issue in a suit on a different cause of action. Collateral estoppel

precludes relitigation not only in connection with the cause of action previously

litigated but even in connection with different claims or causes of action. Id. at

61.

      For collateral estoppel to apply to an issue, among other things the issue to

be decided in the second case must be identical to the issue decided in the first

case; the parties must have actually litigated the issue and the resolution of the

issue must have been essential to the prior decision; and the controlling facts and

legal principles must remain unchanged. Hi-Q Pers., Inc. v. Commissioner, 132

T.C. 279, 289 (2009); Monahan v. Commissioner, 109 T.C. 235, 240 (1997).

Unlike res judicata, which binds the parties as to any matter that might have been

offered, collateral estoppel applies only to issues that were actually litigated in the

first case. Koprowski v. Commissioner, 138 T.C. at 61. “The rule of collateral
                                         -9-

[*9] estoppel provides that ‘[w]hen an issue of fact or law is actually litigated and

determined by a valid and final judgment, and the determination is essential to the

judgment, the determination is conclusive in a subsequent action between the

parties, whether on the same or a different claim.’” Id. at 61-62 (emphasis added

in Koprowski) (quoting 1 Restatement, Judgments 2d, sec. 27 (1982)).

      Collateral estoppel does not apply to the circumstances here. A well-

established principle is that the Commissioner may challenge in a succeeding year

what was accepted in a previous year. See Auto Club of Mich. v. Commissioner,

353 U.S. 180, 183-184 (1957); Demirjian v. Commissioner, 457 F.2d 1, 6-7 (3d

Cir. 1972), aff’g 54 T.C. 1691 (1970). Petitioner’s employment tax cases were not

actually litigated; they were settled. In United States v. Int’l Bldg. Co., 345 U.S.

502 (1953), the Supreme Court held that the Government was not collaterally

estopped from rearguing a position it had conceded in a previous year, even if the

concession was the basis of a court decision. The Supreme Court concluded that

the Government’s position had not been fully litigated in the earlier proceeding

and that the prior decision of this Court based on the Government’s concession

was “only a pro forma acceptance by the Tax Court of an agreement between the

parties to settle their controversy for reasons undisclosed.” Id. at 505. The

Supreme Court’s rationale and holding apply equally to this case. See also Sawyer
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[*10] Trust of May 1992 v. Commissioner, 133 T.C. 60, 79-81 (2009); Massaglia

v. Commissioner, 33 T.C. 379, 386 (1959), aff’d, 286 F.2d 258 (10th Cir. 1961);

Rodkey v. Commissioner, T.C. Memo. 2009-238.

      Petitioners’ reliance on the doctrines of res judicata and collateral estoppel,

during the administrative proceedings and in this case, has no support in the facts

or the law, and the Appeals Office representatives were correct in rejecting it.

Petitioners refused to provide updated financial information that was appropriately

requested, rejected the installment agreement offered by the Appeals Office, and

offered no other collection alternative. Under these circumstances, there was no

abuse of discretion in the determination to sustain the proposed collection action.

See Kendricks v. Commissioner, 124 T.C. 69, 79 (2005); Wright v. Commissioner,

T.C. Memo. 2012-24; Schmerman v. Commissioner, T.C. Memo. 2010-135; Pitts

v. Commissioner, T.C. Memo. 2010-101.

      To reflect the foregoing,


                                                       Decision will be entered

                                                 for respondent.
