                                 T.C. Memo. 2012-37



                        UNITED STATES TAX COURT



                  JERRY JOHN KOBS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11476-08L.                     Filed February 6, 2012.



      Jerry John Kobs, pro se.

      Lisa Kathryn Hunter, for respondent.



                          MEMORANDUM OPINION


      PARIS, Judge: On April 10, 2008, respondent mailed to petitioner a Notice

of Determination Concerning Collection Action(s) Under Section 6320 and/or
                                          -2-

63301(notice of determination) in which respondent determined to proceed with

collection by levy of deficiencies in petitioner’s income tax, additions to tax, and

interest for the tax years 2000 and 2001. In response, petitioner timely petitioned

this Court for review of the notice of determination. After filing his petition,

petitioner paid in full his 2000 income tax liability, and by order dated April 15,

2009, this case was dismissed as to the tax year 2000. What remains at issue is

whether respondent abused his discretion in determining to proceed with the levy to

collect the tax deficiency, additions to tax and interest petitioner owes for the tax

year 2001.

                                      Background

      Petitioner formerly owned and operated a trucking company known as Jerry

J. Kobs, Inc. Petitioner lived in the State of Iowa when he filed the petition. He did

not timely file an income tax return for the tax year 2001.

The Notice of Deficiency

      Pursuant to section 6020(b), respondent prepared a substitute for return (SFR)

in the light of petitioner’s failure to file a 2001 Federal income tax return.

Respondent included in the gross income of petitioner on the SFR as nonemployee


      1
        Section references are to the Internal Revenue Code of 1986, as amended,
and all Rule references are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
                                           -3-

compensation settlement payments of $122,000 on the basis of a Form 1099-S,

Proceeds From Real Estate Transactions, Swanville Logistics issued for the tax year

2001. The SFR also included in the gross income of petitioner rent of $35,840,

interest of $637, and a State income tax refund from the prior year of $128.

       On June 18, 2004, respondent mailed a statutory notice of deficiency to

petitioner, determining a deficiency of $52,527 in his income tax for 2001 and

additions to tax of $11,818.58 and $2,078.65 under sections 6651(a)(1) and 6654,

respectively. The adjustments to his income in the notice of deficiency were the

same as in the SFR. Petitioner received the notice of deficiency but did not timely

file a petition with this Court to challenge it.

       Instead, on July 16, 2004, petitioner signed and sent to the IRS a completed

Form 1040X, Amended U.S. Individual Income Tax Return, for the tax year 2001.

On his amended return, petitioner reported $122,000 of nonemployee compensation

on a Schedule C, Profit or Loss From Business, which indicated that the principal

business was known as “CORPORATION SETTLEME,” and deducted $122,000

as “Settlement on Corporation” under the category of “Other Expense”. Petitioner

also reported the interest income of $637 and rental income of $35,840.

Respondent sent to petitioner an undated letter acknowledging the
                                          -4-

receipt of petitioner’s amended return sent on July 17, 2004, and requesting

petitioner to substantiate his amended return. The record does not indicate that

petitioner complied with that request.

Collection Due Process Hearing and the Notice of Determination

      On April 9, 2007, respondent issued a Final Notice--Notice of Intent to Levy

and Notice of Your Right to a Hearing to petitioner with respect to his 2001 income

tax liability. Petitioner timely filed Form 12153, Request for a Collection Due

Process Hearing, contending that the settlement payments were made to Jerry J.

Kobs, Inc., as opposed to petitioner.

      On February 25, 2008, Settlement Officer Lydia Noyola from Respondent’s

Office of Appeals conducted a telephone conference during which petitioner

attempted to raise the issue of the underlying liability, stating again that the

settlement payments were made to Jerry J. Kobs, Inc. SO Noyola informed

petitioner that he could not raise the issue of the underlying liability because he had

received a notice of deficiency. Petitioner did not make an offer-in-compromise of

his 2001 tax liability and indicated that he would send the requested financial

information.

      SO Noyola stated that on the basis of his financial information provided

during the telephone conference, petitioner was not eligible for an offer-in-
                                         -5-

compromise. At the time of the administrative hearing, petitioner had $94,000 of

present equity and had $50,000 of potential future equity in his trucking company.

SO Noyola further instructed petitioner to complete Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed Individuals, for the

purpose of determining whether he would qualify for an installment agreement.

      Petitioner became upset and requested that this case be transferred to the

local office for the purpose of a face-to-face hearing. SO Noyola and her manager

orally denied petitioner’s request because he had already received a telephone

hearing. SO Noyola sent the financial forms to petitioner, but petitioner never

returned any completed forms. On April 10, 2008, the Appeals Office mailed to

petitioner the notice of determination, apprising petitioner that respondent had

determined to proceed with the levy to collect the outstanding tax liability for tax

year 2001.

                                      Discussion

      Under section 6331(a), if a person liable for a tax fails to pay it after demand,

the Secretary may collect the unpaid amount, including any interest and additions to

tax, by way of a levy “upon all property and rights to property * * * belonging to

such person or on which there is a lien provided in this chapter for the payment of

such tax.” Section 6330(a) provides that no levy may be made on
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any property or right to property unless a taxpayer has been given notice of, and the

opportunity for, an administrative review of the matter. If dissatisfied with the

outcome of such review, that taxpayer may seek judicial review in the Tax Court

during which review the suspension of the levy continues.

      The sole material issue petitioner raised at trial concerns the underlying

liability he owed for the tax year 2001. Petitioner contends that the income was

received by Jerry J. Kobs, Inc., as opposed to petitioner as an individual and that

respondent is barred from collecting the entire settlement payment since he received

only some of the settlement payments in the tax year 2001 as the payments were

received monthly beginning in 1996. Petitioner’s latter claim that the time to assess

his tax has expired constitutes a challenge to the underlying tax liability. See

Hoffman v. Commissioner, 119 T.C. 140, 145 (2002); Rodriguez v. Commissioner,

T.C. Memo. 2003-153; MacElvain v. Commissioner, T.C. Memo. 2000-320.

Where a taxpayer has received a statutory notice of deficiency or otherwise has an

opportunity to dispute the underlying tax liability, that taxpayer cannot raise at the

hearing challenges to the existence or amount of the underlying tax liability. Sec.

6330(c)(2)(B). Therefore, petitioner cannot now raise such claims because he

already received a statutory notice of deficiency for that tax year.
                                         -7-

      Where a taxpayer cannot challenge the underlying liability, as is the case

here, the Court reviews respondent’s determination for abuse of discretion. See

Lunsford v. Commissioner, 117 T.C. 183, 185 (2001) (citing Nicklaus v.

Commissioner, 117 T.C. 117, 120 (2001)). The Court has described the abuse of

discretion standard as meaning “‘arbitrary, capricious, or without sound basis in fact

or law.’” Giamelli v. Commissioner, 129 T.C. 107, 111 (2007) (quoting Woodral v.

Commissioner, 112 T.C. 19, 23 (1999)). On the basis of that standard, the Court

finds that SO Noyola did not abuse her discretion in sustaining the levy to collect

the underlying 2001 tax liability. Petitioner merely disputes the underlying 2001 tax

liability under section 6330(c)(2)(B). Furthermore, petitioner did not make an

official offer upon which respondent can consider as a compromise in lieu of the

2001 tax liability, nor did he provide a Form 433-A upon which respondent can

assess whether other collection alternatives could be available in his case.

Therefore, respondent properly used the available methods under the Internal

Revenue Code to protect the United States’ claim against subsequent creditors.2




      2
       On December 7, 2009, the following abatements were made: tax of
$43,423; additions to tax under sec. 6651(a)(1) of $7,704 and sec. 6654 of $1,715;
and interest of $3,957. The abatements reduced petitioner’s assessed balance from
$85,861 to $19,292.
                                           -8-

                                       Conclusion

       On the record, the Court holds that petitioner cannot raise his underlying tax

liability for the tax year 2001 because he had previously received a notice of

deficiency and did not timely file a petition with the Tax Court to challenge that

notice. Petitioner’s filing of an amended return did not preserve his right to raise the

underlying liability issue. The Court further holds that the Appeals Office did not

abuse its discretion in sustaining the notice of determination to proceed with the levy

to collect the tax liability for the tax year 2001.

       In reaching the conclusions herein, the Court has considered all arguments

made and, to the extent they are not mentioned above, finds them moot, irrelevant,

or without merit.

       To reflect the foregoing,


                                                        Decision will be entered

                                                 for respondent.
