                     T.C. Summary Opinion 2010-20



                       UNITED STATES TAX COURT



          WALTER L. AND CAROL L. SELPH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25700-07S.                Filed March 1, 2010.



     Walter L. and Carol L. Selph, pro sese.

     John R. Bampfield, for respondent.



     GOEKE, Judge:    This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect at the time the petition was filed.     Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
     Unless otherwise indicated, all section references
are to the Internal Revenue Code, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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other court, and this opinion shall not be treated as precedent

for any other case.

       Respondent issued to petitioners a notice of Federal tax

lien (NFTL) and a notice of intent to levy (levy notice) to

collect outstanding income tax liabilities and additions to tax

under section 6651(a)(1) and (2) for the tax periods December

1999, December 2000, and December 2001.    The issues for decision

are:    (1) Whether petitioners are entitled to challenge their

underlying tax liabilities for the years at issue, and if so (2)

whether petitioners are liable for additions to tax under section

6651(a)(1) and (2).    For the reasons stated herein, we find that

petitioners are entitled to challenge their underlying tax

liabilities and are liable for the section 6651 additions to tax

for 1999, but not for 2000 and 2001.

                             Background

       The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioners resided in Florida

at the time of filing their petition.

       In January 2000 petitioner wife was employed by the New York

Times; petitioner husband was employed by Publix Supermarket.

During 2000 petitioner wife suffered from a variety of health

problems such as sleep deprivation.     As a result, petitioner wife

filed for short-term disability benefits.    Later in 2000

petitioner wife started seeing a psychiatrist.    In November 2000
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petitioner wife lost consciousness and was taken to a local

hospital.   In January 2001 petitioner wife suffered a rash that

caused another visit to the hospital.    Later, petitioner wife

filed for Social Security disability benefits due to continuous

health issues which required her to visit doctors frequently.

     Petitioners did not timely file income tax returns for 1999,

2000, and 2001.    However, tax was withheld from their pay.

Respondent did not prepare substitutes for returns for

petitioners pursuant to section 6020(b).    On February 20, 2006,

petitioners filed their income tax returns for 1999, 2000, and

2001 showing their tax liabilities.     For each of these 3 years,

petitioners’ withholding was less than the amount of tax

reported.   Thus, petitioners’ untimely filed returns reported

balances due.

     On March 2, 2007, respondent issued petitioners an NFTL for

the balances due and additions to tax.    In the NFTL respondent

listed petitioners’ unpaid tax liabilities for tax years 1999

through 2001 as $946.08, $3,074.62, and $1,514.84, respectively.

On March 16, 2007, a notice of intent to levy was issued to

petitioners.    In response to both notices, on April 5, 2007,

petitioners requested a collection due process (CDP) hearing.

Sometime in April 2007, petitioners contacted the Taxpayer

Advocate Service (TAS) for assistance in dealing with the

Internal Revenue Service (IRS).
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     Petitioners informed the TAS that they had reasonable cause

for not paying their balances and had since paid all of their

delinquent taxes including interest.    Petitioners’ transcripts do

not show full payment of their delinquent taxes.    However,

respondent did not contest petitioners’ claim of having paid the

balances.

     On July 2, 2007, the Appeals Office transferred petitioners’

CDP hearing to a settlement officer.    On July 3, 2007, the

settlement officer recorded in her administrative case file that

petitioners were seeking financial relief from their taxes.      On

September 5, 2007, respondent sent by facsimile to petitioners a

letter informing them of an opportunity to indicate collection

alternatives.    Petitioners did not offer any collection

alternatives.    On September 6, 2007, respondent faxed petitioners

a letter informing them that their case was being transferred

from the Appeals Office to a settlement officer.    In addition,

respondent informed petitioners that the deadline to submit any

additional information was September 21, 2007.

     On September 17, 2007, petitioners faxed a request to

respondent asking for an extension of their deadline because of a

tropical depression affecting their region.    Two days later and

without a response from respondent, petitioners faxed a document

to the TAS requesting additional time to submit the additional

information.    Respondent eventually responded to petitioners
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after the September 21, 2007, deadline but did not address their

previous request for additional time.

      On October 5, 2007, respondent mailed to petitioners notices

of determination upholding the collection actions.     Petitioners

filed a petition for redetermination on November 7, 2007, and an

amended petition on December 26, 2007.     A trial was held on

February 25, 2009, in Tampa, Florida.

                             Discussion

I.   Petitioners’ Underlying Liabilities

      Sections 6320 (pertaining to liens) and 6330 (pertaining to

levies) were enacted as part of the Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401,

112 Stat. 746, in order to afford taxpayers new procedural

protections with regard to collection matters.     Section 6320(a)

and (b) generally provide that the Secretary cannot proceed with

collection of taxes by way of a lien on a taxpayer’s property

until the taxpayer has been notified in writing and provided

within a 30-day period an opportunity for an administrative

hearing before an impartial officer of the Commissioner’s Appeals

Office.    Generally, hearings under section 6320 are conducted in

accordance with the procedural requirements set forth in section

6330(c).   Sec. 6320(c).   At the hearing, the Appeals officer

shall obtain verification that the requirements of any applicable

laws and administrative procedures have been met.     Sec.
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6330(c)(1).   A taxpayer may raise at the hearing any relevant

issue with regard to the Commissioner’s collection activities,

such as appropriate spousal defenses, challenges to the

appropriateness of the intended collection action, and offers of

alternative means of collection, including offers-in-compromise.

Sec. 6330(c)(2)(A).   In certain circumstances, a taxpayer may

also challenge his underlying tax liability at the hearing if the

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

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

     Section 6331(a) authorizes the Secretary to levy upon

property and property rights of any taxpayer liable for taxes who

fails to pay those taxes after notice and demand for payment is

made.   Section 6331(d) provides that the levy authorized by

section 6331(a) may be made with respect to any unpaid tax only

if the Secretary has given written notice to the taxpayer 30 days

before the levy.   Section 6330(a) further requires that the

notice advise the taxpayer of the amount of the unpaid tax and of

the taxpayer’s right to a hearing.

     If a hearing is requested, the hearing is to be conducted by

an officer or employee of the Commissioner’s Appeals Office with

no prior involvement with respect to the unpaid tax at issue.

Sec. 6330(b)(1), (3).   The Appeals officer shall at the hearing

obtain verification that the requirements of any applicable law

or administrative procedure have been met.   Sec. 6330(c)(1).    The
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taxpayer may raise at the hearing “any relevant issue relating to

the unpaid tax or the proposed levy”.   Sec. 6330(c)(2)(A).   The

taxpayer may also raise challenges to the existence or amount of

the underlying tax liability at the hearing if the taxpayer did

not receive a statutory notice of deficiency with respect to the

underlying tax liability or did not otherwise have an opportunity

to dispute that liability.   Sec. 6330(c)(2)(B).   Amounts reported

as due on the taxpayer’s original return may also be challenged.

Montgomery v. Commissioner, 122 T.C. 1, 9-10 (2004).

     At the conclusion of the hearing the Appeals officer must

determine whether and how to proceed with collection and shall

take into account:   (1) The verification that the requirements of

any applicable law or administrative procedure have been met; (2)

the relevant issues raised by the taxpayer; (3) challenges to the

underlying tax liability by the taxpayer, where permitted; and

(4) whether any proposed collection action balances the need for

the efficient collection of taxes with the legitimate concern of

the taxpayer that the collection action be no more intrusive than

necessary.   Sec. 6330(c)(3).

     Pursuant to the Pension Protection Act of 2006, Pub. L. 109-

280, sec. 855, 120 Stat. 1019, this Court has exclusive

jurisdiction to review notices of determination issued pursuant

to sections 6320 and 6330, effective for determinations made

after October 16, 2006.   Generally, as described under section
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6330(c)(2), failure of the taxpayer to raise an issue during the

section 6330 hearing will preclude our consideration of that

issue.   Giamelli v. Commissioner, 129 T.C. 107, 112-113 (2007);

Magana v. Commissioner, 118 T.C. 488, 493 (2002).     However, the

Appeals officer’s mandated verification under section 6330(c)(1)

that the requirements of any applicable law or administrative

procedure have been met is subject to review without regard to a

challenge by the taxpayer at the hearing.    Hoyle v. Commissioner,

131 T.C. ___, ___ (2008) (slip op. at 11).

     Where the underlying tax liability is properly at issue, the

Court will review the matter de novo.   Where the underlying tax

is not properly at issue, however, the Court will review the

Commissioner’s determination for abuse of discretion.    See, e.g.,

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

     Respondent argued at trial that petitioners had an

opportunity to dispute their underlying tax liabilities with the

Appeals officer and failed to do so.    Thus, pursuant to the

Court’s decision in Giamelli v. Commissioner, supra, petitioners

cannot raise it here.   Petitioners argued that they did dispute

their underlying tax liabilities.   At trial, the Court ruled that

petitioners did properly challenge the underlying liabilities

regarding the additions to tax during communications with the

Appeals officer and thus could raise it before the Court.
                               - 9 -

Therefore, the additions to tax for 1999 through 2001 are

properly at issue and we review them de novo.

II.   Section 6651 Addition to Tax

      Respondent determined that petitioners are liable for

additions to tax under section 6651(a)(1) and (2) for 1999, 2000,

and 2001.   Petitioners did not challenge the amounts of their tax

liabilities but claimed at trial that they had paid balances due.

Petitioners are challenging only their liability for the section

6651(a)(1) and (2) additions to tax.

      Pursuant to section 7491(c), the Commissioner’s initial

burden of production is to introduce evidence that the returns

were filed late.   Higbee v. Commissioner, 116 T.C. 438, 446

(2001).   The Commissioner, however, is not obligated to introduce

evidence regarding reasonable cause or substantial authority.

Id. at 446-447. Once the Commissioner meets his burden of

production, a taxpayer bears the burden of proving that the late

filing was due to reasonable cause and not willful neglect and

must provide evidence sufficient to persuade the Court that the

Commissioner’s determination is incorrect.   Id.

      Section 6651(a)(1) imposes an addition to tax for failure to

timely file a Federal income tax return by its due date, with

extensions.   The section 6651(a)(1) addition to tax is equal to 5

percent of the amount of tax required to be shown on the return

if the failure is not for more than 1 month, with an additional 5
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percent for each month or partial month during which the failure

to file continues, not to exceed 25 percent in the aggregate.

The addition to tax does not apply if it can be established that

such failure was due to reasonable cause and not willful neglect.

Id.   Willful neglect means a conscious, intentional failure or

reckless indifference.   United States v. Boyle, 469 U.S. 241, 245

(1985).   Section 301.6651-1(c)(1), Proced. & Admin. Regs.,

provides that if a taxpayer exercises ordinary business care and

prudence in providing for payment of his tax liability and is

nevertheless unable to file on time, then the delay is due to

reasonable cause.

      Because petitioners concede that they failed to timely file

Federal income tax returns for the years at issue, respondent has

met his burden of production with respect to the additions to

tax. Petitioners, however, claim they had reasonable cause on

account of numerous health issues.     Petitioners presented

evidence indicating that their failure to file was due to severe

medical issues that plagued petitioner wife during 1999, 2000,

and 2001.

      Petitioner wife filed for both short- and long-term

disability benefits between 2000 and 2001 as a result of hospital

visits and doctor’s appointments for mental and physical health

issues.   Though petitioner wife did file for short-term

disability and visited psychiatrists before petitioners’ 2000 tax
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return filing date, she admitted to the Court that a contributing

factor to not filing their 1999 tax return was a major project at

work.   In addition, petitioner husband was still employed and

working throughout 1999 and 2000.   It was not until November of

2000 when petitioner wife was taken to the hospital because she

had lost consciousness that she missed work because of her health

problems.   Petitioner wife filed for long-term disability

benefits in 2001.   Thereafter, petitioner husband decided to cut

back on work so he could take care of their children as

petitioner wife was unable to care for them by herself.

     Petitioners had reasonable cause for not filing their income

tax returns for 2000 and 2001 on account of petitioner wife’s

serious health problems.   However, petitioners have failed to

explain how these issues prevented them from exercising ordinary,

reasonable care and prudence in filing their 1999 tax return on

April 15, 2000.   Petitioners worked during 1999 and up to

November of 2000, 5 months after the 1999 return was due.    Even

taking into account petitioner wife’s seeing a psychiatrist in

early 2000, there is insufficient basis to find that the failure

to timely file the 1999 return was reasonable.   Accordingly, we

sustain respondent’s imposition of the addition to tax under

section 6651(a)(1) for 1999 but not 2000 and 2001.

     Respondent imposed a section 6651(a)(2) addition to tax for

1999, 2000, and 2001.   Section 6651(a)(2) imposes an addition to
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tax for failure to pay the amount shown on the return on or

before the date prescribed for payment of the tax.     The amount of

the addition is equal to 0.5 percent per month (up to a maximum

of 25 percent) for failure to make timely payment of the tax

shown on a return.     The addition to tax applies only when an

amount of tax is shown on a return.      See Cabirac v. Commissioner,

120 T.C. 163, 170 (2003).    Section 6651(a)(2) provides for an

addition to tax where payment of the amount reported as tax on a

return is not timely “unless it is shown that such failure is due

to reasonable cause and not due to willful neglect”.     Petitioners

claim that petitioner wife’s medical issues were responsible for

their not paying their balance due.      We agree with petitioners.

For the reasons stated above, we sustain respondent’s imposition

of the addition to tax under section 6651(a)(2) for 1999 but not

for 2000 or 2001.

     In conclusion, petitioners have demonstrated that there was

reasonable cause for not timely filing their 2000 and 2001 tax

returns.   Therefore, we sustain respondent’s imposition of the

addition to tax under section 6651(a)(1) and (2) only for 1999.

At trial, petitioners claimed that they had paid their entire

outstanding balance.    Respondent did not address this statement.

Because of the uncertainty of a balance due, we will order

respondent to prepare a Rule 155 computation to determine whether
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petitioners have any outstanding balance and the amounts of the

additions to tax.

     To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
