                        T.C. Memo. 2010-150


                      UNITED STATES TAX COURT



               WILLIAM R. TINNERMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21270-08L.               Filed July 13, 2010.



     Donald W. Wallis and Steven L. Zakrocki, for petitioner.

     Randall L. Eager, for respondent.



                        MEMORANDUM OPINION


     COHEN, Judge:   This case was commenced in response to

notices of determination concerning collection action sustaining

the filing of a Federal tax lien and a notice of intent to levy

with respect to civil penalties, additions to tax, and income tax

deficiencies due from petitioner for periods from 1996 to 2002.

Each of the amounts in dispute was the subject of prior
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litigation and decisions against petitioner.    The issues for

decision are whether the notices of determination were an abuse

of discretion and whether a penalty under section 6673 should be

imposed against petitioner.    All section references are to the

Internal Revenue Code, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                              Background

     All of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Florida at the time that he filed his

petition.

     The Internal Revenue Service (IRS) assessed frivolous return

penalties against petitioner under section 6702 for 1996, 1997,

and 1998.   A final notice of intent to levy with respect to those

penalties was sent to petitioner on December 19, 2003.

Petitioner requested a collection due process (CDP) hearing under

section 6330, and a notice of determination sustaining the

proposed collection action was ultimately sent to petitioner.

Petitioner filed a petition in this Court at docket No. 10187-04L

challenging the notice of determination, but that case was

dismissed for lack of jurisdiction on September 14, 2004.

     On October 12, 2004, petitioner filed an appeal of the

notice of determination regarding the section 6702 penalties with

the U.S. District Court for the Middle District of Florida.      On
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May 11, 2005, the District Court case was dismissed with

prejudice.   On November 4, 2005, the District Court judgment was

affirmed by the Court of Appeals for the Eleventh Circuit.    Among

other things, the Court of Appeals, in its unpublished per curiam

opinion, explained that petitioner

     has not presented a single meritorious argument * * *.
     In fact, he only claimed he had not participated in any
     activity that would bring out tax liability, the
     Internal Revenue Code and Regulations did not apply to
     him, and he was not yet considered a taxpayer. He also
     refused to participate in the telephonic CDP hearing
     offered to him and failed to use the faxed
     correspondence with the appeals officer as an
     opportunity to raise meritorious challenges to his tax
     liability. He was provided an opportunity to be heard
     but did not take advantage of it. * * * [Tinnerman v.
     IRS, 156 Fed. Appx. 111, 112-113 (11th Cir. 2005).]

The Court of Appeals held that the District Court did not err in

granting the IRS’ motion for judgment on the pleadings.

      Petitioner failed to file timely tax returns for 1999,

2000, 2001, and 2002.   The IRS prepared a substitute for return

under section 6020(b) for each year and determined in two

statutory notices of deficiency (one for 1999, 2000, and 2001,

and a separate one for 2002) deficiencies and additions to tax

for petitioner’s failure to file, failure to pay, and failure to

pay estimated taxes for each year.     Petitioner filed petitions in

this Court in response to both notices of deficiency.    The cases

(the deficiency cases) were consolidated for trial and resulted

in the opinion filed November 14, 2006, as Tinnerman v.

Commissioner, T.C. Memo. 2006-250.     As set forth in that opinion,
                               - 4 -

the Court concluded that petitioner received income passed

through from his solely owned S corporation and was required to

file returns for the years in issue, that his failures to file

were fraudulent, that the additions to tax were appropriate, and

that his frivolous arguments justified a penalty of $10,000 under

section 6673.   Decisions were entered in each case on November

21, 2006, and were not appealed.   The income taxes, additions to

tax, and penalties were assessed for 1999 through 2002.

     On October 23, 2007, the IRS issued a Final Notice of Intent

to Levy and Notice of Your Right to a Hearing with respect to the

amounts assessed for 1999 through 2002 pursuant to the decisions

entered November 21, 2006.   On November 6, 2007, the IRS issued a

Notice of Federal Tax Lien Filing and Your Right to a Hearing

under IRC 6320 with respect to the income tax liabilities for

1999 through 2002, the section 6673 penalties imposed by this

Court, and the section 6702 penalties for 1996 through 1998.

Petitioner requested a hearing by a letter dated November 19,

2007, in which he denied that he was a taxpayer, denied that he

was required to file any return, and denied that he was involved

in any taxable activities (i.e., the same arguments characterized

as meritless by the Court of Appeals in its November 4, 2005,

opinion).   Attached to his letter was a stack of documents,

approximately 2-1/2 inches high, expounding on his frivolous

contentions.
                               - 5 -

     Petitioner’s request for a hearing was acknowledged

by the IRS Appeals team manager, and, on February 26, 2008, an

Appeals settlement officer (the settlement officer) sent a letter

to petitioner proposing to schedule a conference.   On March 1,

2008, petitioner sent the settlement officer 177 pages of

documents that he titled “The Federal Judiciary & Internal

‘indirect’ Federal Taxation” in which he expounded on his view,

among other things, that income taxes did not apply to him, that

he was not required to file tax returns, that this Court’s

jurisdiction did not apply to him, and that IRS procedures had

not been followed with respect to assessment of the tax

liabilities in issue.   In several subsequent letters, petitioner

declined either a face-to-face or telephone conference with the

settlement officer, denied that there was any requirement to file

a return or pay a tax, and asserted that the IRS records

contained unspecified and unidentifiable “irregularities”.   Among

other things, petitioner argued that despite the limitation on

arguments concerning the underlying tax liabilities when a

taxpayer has received a notice of deficiency under section

6330(c)(2)(B), he was entitled to challenge:   “the character of

the liability assessed”; the validity of the notice of

deficiency; and the method of assessment of the taxes in dispute.

Petitioner failed to offer any collection alternatives or to

present any financial information upon which collection
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alternatives could be considered.   During the exchange of

correspondence, and as the parties have stipulated, petitioner

raised no legitimate issues.

     On July 31, 2008, two Notices of Determination Concerning

Collection Actions(s) Under Section 6320 and/or 6330 were sent to

petitioner sustaining the lien filing and the proposed levy.     The

notices set out a determination that the requirements of law and

administrative procedure had been met and explained that the need

for efficient collection justified the intrusiveness of the

collection action.   The notices further explained that petitioner

had declined a telephone hearing and chosen a correspondence

hearing; petitioner had presented only frivolous or groundless

issues; petitioner had not complied with his filing obligations;

and petitioner had failed to provide financial information or

collection alternatives.

     In the petition, petitioner asserted “Procedural Due Process

Violations involving nonfiled returns”, including failure to

specify certain forms used in assessment and in recording of the

lien.   He stated the facts upon which he relied as follows:

    (c) When no return is filed, without IRM reporting
    requirements consistent with IRM provisions in 3.21.3.2
    thru 2.9 (01-01-2008) and subsequent SB/SE
    “instructions” to prepare a Substitute for Return (SFR)
    applicable to the property distribution at issue, no
    jurisdiction over the “presumed” underlying tax
    liability exists. Statutory and constitutional
    provisions prohibit it.
                                - 7 -

     Although petitioner initially requested Birmingham, Alabama,

as the place of trial, he moved to change the place of trial to

Columbia, South Carolina, asserting that counsel in Greenville,

South Carolina, had agreed to represent him but only if the place

of trial was Columbia.   Thereafter, however, counsel located in

St. Augustine, Florida, entered their appearances.   The case was

set for trial in Columbia on March 1, 2010.   On February 18,

2010, respondent filed a motion for summary judgment and to

impose a penalty under section 6673 and a motion to permit levy.

The parties thereafter executed the stipulation and agreed to

submit the case fully stipulated.   The motion for summary

judgment and the motion to permit levy were denied as untimely

because the case would not be resolved any sooner than it would

be if decided on the stipulation.   Insofar as respondent’s motion

seeks a penalty under section 6673, it remains pending.   After

the briefs were filed, respondent filed a motion seeking a

penalty against petitioner’s counsel under section 6673(a)(2).

                             Discussion

     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.   The lien arises when the assessment is

made.   Sec. 6322.   The IRS files a notice of Federal tax lien to

preserve priority and put other creditors on notice.   See sec.
                                 - 8 -

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).     Sec.

6320(c).   Similarly, before proceeding with a levy, the IRS must

issue a final notice of intent to levy and notify the taxpayer of

the right to an administrative hearing.    Sec. 6330(a) and (b)(1).

At the hearing a taxpayer may raise any relevant issue, including

challenges to the appropriateness of the collection action and

possible collection alternatives.    Sec. 6330(c)(2)(A).   Following

the hearing the Appeals Office must make a determination whether

the lien filing was appropriate and is required to consider:     (1)

Whether the Secretary has met the requirements of applicable law

and administrative procedure; (2) the relevant issues raised by

the taxpayer; and (3) whether the proposed collection action

appropriately balances the need for efficient collection of taxes

with the taxpayer’s concerns that the collection action be no

more intrusive than necessary.    Sec. 6330(c)(3).

     Where a taxpayer’s underlying tax liability is not in

dispute, the Court reviews the IRS’ determination for abuse of

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

Goza v. Commissioner, 114 T.C. 176, 182 (2000).      To establish an

abuse of discretion, the taxpayer must show that the decision
                               - 9 -

complained of is arbitrary, capricious, or without sound basis in

fact or law.   Giamelli v. Commissioner, 129 T.C. 107, 111 (2007)

(citing Woodral v. Commissioner, 112 T.C. 19, 23 (1999)); see

Keller v. Commissioner, T.C. Memo. 2006-166, affd. 568 F.3d 710

(9th Cir. 2009).   In reviewing for abuse of discretion, we

generally consider only the arguments, issues, and other matters

that were raised at the CDP hearing or otherwise brought to the

attention of the IRS Appeals Office.   Giamelli v. Commissioner,

supra at 115; Magana v. Commissioner, 118 T.C. 488, 493 (2002).

     In his pretrial memorandum, petitioner described the “issues

on the merits” as follows:

          1. Whether this Court should impose a penalty
     under I.R.C. section 6673.

          2. Whether the Appeals Settlement Officer in the
     Hearing below abused his discretion by failing to
     follow the requirement imposed by I.R.C. section
     6330(c)(3)(B) that he consider all of the relevant
     issues relating to the unpaid tax or the proposed levy
     that were raised by Petitioner at the Hearing below.

          3. The validity -- not the existence, not the
     amount, but rather the validity -- of the underlying
     tax liability, which is at issue as a result of
     Respondent’s failure to follow, in his endeavor to
     assess that liability, all material, relevant and
     applicable rules and regulations that govern the
     assessment process.

We agree that the first item is an issue here.   With respect to

the second, we can find no abuse of discretion in the settlement

officer’s not addressing petitioner’s arguments when the parties

have stipulated that petitioner raised no legitimate issues
                              - 10 -

during the hearing.   Even without that stipulation, we would

reach the same conclusion.

     The third item identified in petitioner’s pretrial

memorandum and subsequently briefed at great length by petitioner

is merely a rephrasing of an argument made by petitioner during

his correspondence hearing.   Thus, it is also an argument

described in the stipulation as not legitimate.   The argument is

obviously intended to avoid the provision in section

6330(c)(2)(B) that a taxpayer may raise at the hearing

“challenges to the existence or amount of the underlying tax

liability * * * if the person did not receive any statutory

notice of deficiency for such tax liability or did not otherwise

have an opportunity to dispute such tax liability.”    On analysis,

however, petitioner’s arguments are no more than recycled

versions of his contentions that he is not a taxpayer and has no

liability to file Federal income tax returns.

     By way of example, petitioner’s brief sets out his premises

as follows:

          The case stems from I.R.C. section 1368(b)
     distributions to Petitioner of earnings and profits for
     which Petitioner did not file an individual income tax
     return. Pursuant to I.R.C. section 1363(b) and (c),
     the distributing corporation determined that the I.R.C.
     section 1366(a) and (b) character and source of the
     separately stated Form 8825 property was neither
     “national” (federal) nor “alien” (foreign) income.
     Based on that determination and on Petitioner’s non-
     excise, individual circumstance (i.e. Petitioner
     acquired citizenship without legislative act, and
     Petitioner was domiciled within one of the 50 United
                              - 11 -

     States), the corporation classified the distribution
     for federal income tax purposes as items of exempt
     income subject to the expense provisions of I.R.C.
     section 1.265-1. Pursuant to I.R.C. section 6037(a)
     and (c)(4), the corporation issued to Petitioner a Form
     K-1 identifying the distribution as just described.
     Respondent never has challenged the corporation’s
     statutory requirement to make a corporate level
     determination of the distribution’s exempt status, nor
     has Respondent ever challenged the accuracy of the
     information that the corporation reported on the Form
     K-1.

          An examiner in Respondent’s SB/SE Division
     notified Petitioner that an information return had
     reported a distribution to Petitioner for the periods
     at issue and that Petitioner was required to file a
     return that reported Petitioner’s receipt of the
     distribution. Petitioner disagreed on the grounds that
     the distribution was not subject to reporting, and he
     refused to execute the I.R.C. section 6020(a)
     Substitute for Return (“SER”) that was prepared by
     SB/SE for each period. SB/SE determined a deficiency
     in tax, and, by its apparent authority under I.R.C.
     section 6212, it notified Petitioner of the same.
     Respondent then issued a Notice of Deficiency.

From that point, petitioner’s argument is that the section 6020

provisions do not apply to his income as he characterizes it and

that procedures set out in the Internal Revenue Manual were not

followed.   He then argues that because the notices of deficiency

were invalid, his petitions in the deficiency cases were invalid,

and the Court lacked jurisdiction to enter the decisions

sustaining the deficiencies, additions to tax, and penalties.   In

addition to seeking removal of the lien, he concludes:

          Furthermore, the Court must withdraw and vacate
     all Opinions, Orders and Decisions previously issued by
     this Court against Petitioner for all periods at issue,
     including I.R.C. section 6702 penalties for periods
     1996-1998 involving identical circumstances. None of
                             - 12 -

     the filed Form 1040X amended returns for those years
     can be “frivolous” since there is no requirement that a
     return be filed at all. Therefore, Respondent should
     be ordered to refund the amounts shown due on those
     returns.

He ignores the fact that the section 6702 penalties were

sustained by the District Court and the Court of Appeals for the

Eleventh Circuit, after this Court ruled that it lacked

jurisdiction over them.

     Petitioner misstates the substance of this Court’s opinion

in the deficiency cases, which concluded that petitioner had

taxable income passed through from his solely owned corporation

and was required to file returns for the years in issue.     His

central premise is that the distributions from the corporation

were not properly the subject of substitutes for returns.

Neither a return nor a substitute for return is a prerequisite to

a notice of deficiency, however.   See Schiff v. United States,

919 F.2d 830, 832-833 (2d Cir. 1990); Roat v. Commissioner, 847

F.2d 1379, 1381-1382 (9th Cir. 1988); Hartman v. Commissioner, 65

T.C. 542, 546 (1975); see also Brenner v. Commissioner, T.C.

Memo. 2004-202, affd. 164 Fed. Appx. 848, 850 (11th Cir. 2006);

McDonald v. Commissioner, T.C. Memo. 1992-586; McCarthy v.

Commissioner, T.C. Memo. 1989-479.    The existence or absence of a

substitute for return under section 6020 is thus irrelevant to

the validity of the statutory notice.    (It is only relevant to

additions to tax under section 6651(a)(2), as discussed in
                               - 13 -

Tinnerman v. Commissioner, T.C. Memo. 2006-250 (citing Cabirac v.

Commissioner, 120 T.C. 163, 170 (2003)).    See Wheeler v.

Commissioner, 127 T.C. 200, 209-210 (2006), affd. 521 F.3d 1289

(10th Cir. 2008).)    To the extent that all of petitioner’s

arguments depend on the claimed invalidity of substitutes for

returns prepared under section 6020(b), they all fail to affect

the propriety of the lien or the proposed levy.

     Whether or not petitioner’s current untenable arguments were

made or addressed in the prior case, they relate to the existence

of the underlying liabilities, and his current attempt to

recharacterize them as relating to the “validity” of the

liabilities is fallacious.    His repetitious claims were not

issues that could be raised during the section 6330 hearing.      See

sec. 6330(c)(2)(B).    The settlement officer was correct in his

response and did not abuse his discretion in refusing to address

petitioner’s arguments.    We decline to address them further here.

See Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984).       To do

so would be to indulge petitioner’s dilatory tactics.    As

discussed below, persisting in frivolous arguments for purposes

of delay is a basis for sanctions against a party and/or counsel

to a party.

     The settlement officer satisfied his obligation under

section 6330 with respect to verification that the requirements

of any applicable law or administrative procedure have been met.
                              - 14 -

See Hoyle v. Commissioner, 131 T.C. 197, 202-203 (2008).     That

obligation does not involve providing any particular form to the

taxpayer and is generally satisfied by reliance on a Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters, absent a showing of irregularity in the assessment.

Roberts v. Commissioner, 118 T.C. 365, 371 (2002), affd. 329 F.3d

1224 (11th Cir. 2003).

     Although petitioner claims that the Forms 4340 in this case

contained irregularities, his arguments are simply a refrain of

the claim that all of the actions taken by the IRS are invalid

because he had no obligation to file tax returns.   The parties

have stipulated to transcripts reflecting assessments of the

underlying liabilities, and petitioner has not identified any

credible irregularity or deficiency in the assessment procedures

or in the lien or levy procedures.

     Petitioner has concocted multiple theories, based in part on

the Internal Revenue Manual, to support his premise that the

determination of tax liability on his income has not been and

cannot be accomplished.   In other words, he would draw a

“conjurer’s circle” around his tax liability.   See United States

v. Sullivan, 274 U.S. 259, 264 (1927).   The Internal Revenue

Manual, however, does not have the force of law and is not

binding against respondent in litigation; it does not confer any

rights on the taxpayer.   See, e.g., Fargo v. Commissioner, 447
                               - 15 -

F.3d 706, 713 (9th Cir. 2006), affg. T.C. Memo. 2004-13; Carlson

v. United States, 126 F.3d 915, 922 (7th Cir. 1997); Tavano v.

Commissioner, 986 F.2d 1389, 1390 (11th Cir. 1993), affg. T.C.

Memo. 1991-237; Barnes v. Commissioner, 130 T.C. 248, 255-256

(2008).

     Moreover, petitioner’s arguments take items out of context

and assert that use of a particular form for one purpose means

that it can be used only for that purpose, to the exclusion of

others.    Such interpretative arguments have been consistently

rejected and referred to by terms such as “inane” and

“preposterous”.    United States v. Latham, 754 F.2d 747, 750 (7th

Cir. 1985); see also United States v. Morse, 532 F.3d 1130, 1132-

1133 (11th Cir. 2008); United States v. Ward, 833 F.2d 1538, 1539

(11th Cir. 1987) (per curiam) (interpreting “include” as a term

of limitation is “utterly without merit”); United States v. Rice,

659 F.2d 524, 528 (5th Cir. 1981) (describing the defendant’s

argument as a “frivolous non-sequitur”).

     Challenges to the authority of the IRS to enforce the tax

laws have been consistently rejected for decades, and frivolous

arguments have been the basis for sanctions by all courts that

have reviewed them.   See, e.g., United States v. Morse, supra at

1132-1133; Madison v. United States, 758 F.2d 573, 574 (11th Cir.

1985).    Petitioner’s contentions are merely stale and recycled

versions of unsuccessful arguments that he has made since 1996.
                              - 16 -

As the Court of Appeals for the Tenth Circuit described the

situation in Lonsdale v. United States, 919 F.2d 1440, 1448 (10th

Cir. 1990), “We are confronted here with taxpayers who simply

refuse to accept the judgments of the courts.”    In this

collection context, there is an unavoidable inference that his

purpose was primarily for delay.   See Roberts v. Commissioner,

329 F.3d at 1229.   His conduct is precisely the type to which

section 6673 applies.   A penalty will be awarded to the United

States in the amount of $25,000.

     The attention of petitioner’s counsel is directed to Rule

3.1 of the Model Rules of Professional Conduct of the American

Bar Association (Model Rule 3.1), applicable here under Rule

201(a), and to section 6673(a)(2).     See Takaba v. Commissioner,

119 T.C. 285, 296-305 (2002); Nis Family Trust v. Commissioner,

115 T.C. 523, 547-553 (2000); see also Powell v. Commissioner,

T.C. Memo. 2009-174; Edwards v. Commissioner, T.C. Memo. 2003-

149, affd. 119 Fed. Appx. 293 (D.C. Cir. 2005).    We recognize

that counsel cooperated in presenting this case on the

stipulation, but the filings in responses to motions and in

briefs demonstrate reckless disregard of the facts and the

settled law and contentions so lacking in merit as to be

frivolous, dilatory, and subject to sanctions.    See, e.g, United

States v. Patridge, 507 F.3d 1092, 1095-1097 (7th Cir. 2007)

(counsel was sanctioned in part for arguing that a collection
                              - 17 -

hearing could be used to contest previously determined

substantive liabilities); Johnson v. Commissioner, 116 T.C. 111

(2001), affd. 289 F.3d 452, 456-457 (7th Cir. 2002); see also

United States v. Collins, 920 F.2d 619, 624-628 (10th Cir. 1990);

United States v. Nelson (In re Becraft), 885 F.2d 547, 548 (9th

Cir. 1989) (sanctions were imposed on counsel in criminal cases,

notwithstanding greater leeway generally allowed under Model Rule

3.1); Charczuk v. Commissioner, 771 F.2d 471 (10th Cir. 1985),

affg. T.C. Memo. 1983-433.   We will deny respondent’s motion for

a penalty against counsel under section 6673(a)(2).   However, we

issue this warning for the future to present counsel and to those

similarly situated.

     For the reasons explained above,


                                         A decision sustaining the

                                    notices of determination will

                                    be entered.
