                              T.C. Memo. 2015-196



                        UNITED STATES TAX COURT



    RICHARD BRIAN FRIEDMAN AND SANDRA MADOW FRIEDMAN,
    Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7694-13L.                         Filed October 6, 2015.



      Richard Brian Friedman and Sandra Madow Friedman, pro sese.

      Jane J. Kim, for respondent.



                          MEMORANDUM OPINION


      WELLS, Judge: Petitioners seek review, pursuant to sections 6330 and

6320, of respondent’s determination to proceed with collection of petitioners’
                                          -2-

[*2] unpaid income tax liabilities for 2009 and 2010.1 We have been asked to

decide whether the Appeals Office abused its discretion in refusing to consider

petitioners’ collection alternative and sustaining respondent’s collection action.

      The matter is before the Court on respondent’s motion for summary

judgment, filed pursuant to Rule 121. Petitioners object to respondent’s motion.

Summary judgment serves to “expedite litigation and avoid unnecessary and

expensive trials.” Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988).

The Court will grant summary judgment only if it finds that “there is no genuine

dispute as to any material fact and that a decision may be rendered as a matter of

law.” Rule 121(b). Respondent, as the moving party, bears the burden of showing

that summary adjudication is warranted. See FPL Grp., Inc. v. Commissioner, 115

T.C. 554, 559 (2000). We conclude that there is no genuine dispute as to any

material fact and that respondent is entitled to judgment as a matter of law

sustaining the notice of determination.




      1
       Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended and as in effect at all relevant times, and Rule
references are to the Tax Court Rules of Practice and Procedure.
                                        -3-

[*3]                               Background

       We set forth the facts taken from the parties’ moving papers. Petitioner

husband suffered a physical injury in 2008 followed by a significant diminution in

income and employment changes. Consequently, petitioners filed their 2008,

2009, and 2010 income tax returns with unpaid balances. Petitioners’ 2008

liability was litigated in Friedman v. Commissioner (Friedman I), T.C. Memo.

2013-44.2 The instant case involves petitioners’ liabilities reported on their 2009

and 2010 income tax returns, filed timely on October 12, 2010, and late on

October 26, 2011, respectively.

       On February 22, 2012, respondent issued petitioners a Final Notice of Intent

to Levy and Notice of Your Right to a Hearing. On March 2 and 9, 2012,

respondent filed notices of Federal tax lien and on March 8, 2012, issued to

petitioners a Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a

Hearing Under IRC 6320. On March 19, 2012, petitioner husband called

respondent and stated he would send a written request for a hearing to be held in

Manhattan. Respondent received petitioners’ written request for a hearing on

March 21, 2012.


       2
      The decision was issued after petitioners’ face-to-face hearing for the 2009
and 2010 tax liabilities.
                                        -4-

[*4] On April 24, 2012, petitioners’ matter was assigned to Settlement Officer

Charlette Jacobi (SO Jacobi) of the Hartford Appeals Office. SO Jacobi noted that

on their written hearing request petitioners had checked the boxes for “installment

agreement” and “lien subordination”. She also noted that petitioners had made a

substantial payment on January 18, 2012, which was applied against their 2008

liability. On April 25, 2012, SO Jacobi issued two letters to petitioners

acknowledging receipt of their request for a hearing, scheduling a telephone

hearing for May 17, 2012, and requesting that they complete a Form 433-A,

Collection Information Statement for Wage Earners and Self-Employed

Individuals, and provide proof of estimated tax payments for 2011 and 2012.

      On May 11, 2012, petitioner husband called SO Jacobi and reiterated his

request for a face-to-face hearing to be held in Manhattan. SO Jacobi told him that

before she could transfer the case to the Manhattan Appeals Office petitioners had

to submit a completed Form 433-A and proof of estimated tax payments.

Petitioner husband stated he would fax the Form 433-A the following week. On

May 16, 2012, SO Jacobi received a first copy of petitioners’ handwritten Form

433-A, backup information she described as “lengthy” and totaling 80 pages, and a

second copy of petitioners’ Form 433-A with edits handwritten over the first

copy’s figures.
                                       -5-

[*5] Petitioners’ hearing was reassigned to Settlement Officer Seth D. Rose (SO

Rose) of the Manhattan Appeals Office on June 26, 2012. SO Rose noted that the

“CIS 433-A was included in the case file with no supporting documents but was

unclear”. Despite having no supporting documents, SO Rose noted that petitioner

husband’s paystub showed no taxes withheld during 2012.

      SO Rose sent a letter to petitioners scheduling a face-to-face hearing for

July 31, 2012, and requesting the following: (1) proof of estimated tax payments

for 2012; (2) a “neat” page 4 of the Form 433-A; (3) a completed Form 433-A;

(4) substantiation for all income and expense items listed on Form 433-A; and

(5) the last three months of records for bank statements, mortgage statements, auto

payments, investment statements, and rental income. The items submitted to SO

Jacobi the month before had included much of the information requested in items

3, 4, and 5.

      On July 6, 2012, petitioner husband called SO Rose to reschedule the

hearing. Because of petitioner husband’s and SO Rose’s schedules, the earliest

the hearing could be scheduled was October 24, 2012. On October 9, 2012,

petitioner husband called SO Rose, who reiterated that petitioners should send an

updated financial statement and proof that estimated taxes were paid for 2012 and

file the 2011 return by October 15, 2012.
                                        -6-

[*6] On October 24, 2012, SO Rose and petitioner husband attended the hearing.

Petitioner husband provided no new financial statements or proof of estimated tax

payments. At that time, SO Rose informed petitioner husband that if petitioners

wanted to have the lien subordinated, they had to submit a Form 14134,

Application for Certificate of Subordination of Federal Tax Lien. Additionally,

SO Rose informed petitioner husband that if petitioners wanted penalties abated

for 2009 and 2010, they had to provide an explanation of reasonable cause with

respect to their 2009 and 2010 tax liabilities. SO Rose set a November 16, 2012,

deadline for petitioners to submit the missing information.

      Because of Hurricane Sandy, on November 20, 2012, SO Rose granted

petitioners an extension of time to provide the documents but did not set a specific

deadline. On February 4, 2013, SO Rose confirmed that petitioners had still not

made any estimated tax payments and sent them a final warning letter requesting

the missing information within 14 days. It was during this period, on February 11,

2013, that the Court issued its opinion in Friedman I, upholding respondent’s

notice of determination to proceed with a levy for petitioners’ 2008 balance.

      Petitioners failed to provide any information regarding their 2009 and 2010

tax liabilities. SO Rose issued the notice of determination on March 6, 2013. In

the relevant portions, SO Rose wrote:
                                        -7-

       [*7] You requested a potential penalty abatement and Lien
       subordination, but you never sent in any basis or reason
       documentation to consider these options * * * The Notice of Intent to
       Levy is sustained because you did not propose a viable collection
       alternative or provide complete financial information. Moreover, lack
       of compliance with estimated tax payment requirements renders you
       ineligible for most collection alternatives, other than full payment.

       Petitioners were residents of Connecticut when they timely filed a petition

on April 4, 2013. In the petition, petitioners contend that they provided a clear

and complete financial statement. Petitioners also contend they had made an

estimated tax payment for 2013 but were “unable to pay * * * [their] full tax

liability for the years in question and any other years as to which * * * [they] owe

taxes” and so intended to rely on wages to make payments toward an offer-in-

compromise. Petitioners did not raise the lien subordination or penalty abatement

issues in their petition.

                                     Discussion

       Section 6331(a) authorizes the Secretary3 to levy upon property and

property rights of a taxpayer liable for taxes who fails to pay those taxes within 10

days after a notice and demand for payment is made. Section 6331(d) provides

that the levy authorized in section 6331(a) may be made with respect to unpaid tax


      3
       The term "Secretary" means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
                                         -8-

[*8] only if the Secretary has given written notice to the taxpayer no less than 30

days before the levy. Section 6330(a) requires that the written notice include, inter

alia, information about the taxpayer’s right to an administrative hearing.

Similarly, the Secretary must notify taxpayers of their right to request a hearing

within five business days of filing a tax lien. Secs. 6323(a), 6320(a)(1), (3)(B). If

the taxpayer requests an administrative hearing, then the hearing is to be

conducted by the Appeals Office. Secs. 6330(b)(1), 6320(b)(1).

      Section 6330(d)(1) grants this Court jurisdiction to review the

administrative determination made by the Appeals Office. If the taxpayer’s

underlying tax liability is properly in dispute, then the Court will review the

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

Where the underlying tax liability is not in issue, we review the determination for

abuse of discretion. Id. at 182; see also Sego v. Commissioner, 114 T.C. 604,

609-610 (2000).

      For the reasons discussed below, the underlying liabilities are not in issue in

this case. We therefore review the Appeals Office’s determination for abuse of

discretion. We will reject the determination of the Appeals Office only if the

determination was arbitrary, capricious, or without sound basis in fact or law.

Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir.
                                         -9-

[*9] 2006); Goza v. Commissioner, 114 T.C. at 181-182; Woodral v.

Commissioner, 112 T.C. 19, 23 (1999). We do not conduct an independent review

and substitute our judgment for that of the Appeals Office. See, e.g., Murphy v.

Commissioner, 125 T.C. at 320; Woodral v. Commissioner, 112 T.C. at 23.

Instead, we consider whether, in the course of making its determination, the

Appeals Office complied with the legal requirements of an administrative hearing.

      The relevant procedures for the administrative hearing are set forth in

section 6330(c). The Appeals officer must obtain verification from the Secretary

that the requirements of any applicable law or administrative procedure have been

met. Sec. 6330(c)(1). SO Rose reviewed the law and procedures and determined

that the applicable requirements were met.

      The Appeals officer must also address any issue raised by the taxpayer at

the hearing which is relevant to the unpaid tax or the proposed collection action.

Sec. 6330(c)(2)(A). The notice of determination addresses the three issues that

petitioners raised in their hearing: (1) a penalty abatement; (2) a lien

subordination; and (3) a collection alternative to levy. Respondent alleges and

petitioners do not deny that they never submitted any information with respect to a

penalty abatement or a lien subordination for their 2009 and 2010 tax liabilities.

Additionally, petitioners failed to raise the issues in their petition. Accordingly,
                                        - 10 -

[*10] the penalties and lien subordination are not properly before this Court. See

Friedman I, at *6-*7.

        As to the collection alternative, SO Rose upheld the levy because petitioners

“did not propose a viable collection alternative or provide complete financial

information” and, in any case, were ineligible because of a “lack of compliance

with estimated tax payment requirements”. Petitioners allege that they did provide

complete financial information and that they made an estimated tax payment for

2013.

        We first address the lack of compliance with estimated tax payment

requirements. The decision to reject a collection alternative for taxpayers who are

delinquent with their estimated tax payments is not an abuse of discretion. Orum

v. Commissioner, 412 F.3d 819, 821 (7th Cir. 2005), aff’g 123 T.C. 1 (2004); see

also sec. 6159(b)(4)(B) (providing that the Secretary may alter, modify or

terminate an installment agreement if the taxpayer fails “to pay any other tax

liability at the time such liability is due”). As explained in Orum, it does no good

for taxpayers to use money owed for one year to pay another year’s tax liability.

Elimination of all of a taxpayer’s debts can be accomplished only “if current taxes

are paid while old tax debts are retired.” Orum v. Commissioner, 412 F.3d at 821;

see also Cox v. Commissioner, 126 T.C. 237, 258 (2006), rev’d on other grounds,
                                        - 11 -

[*11] 514 F.3d 1119 (10th Cir. 2008). Petitioners used funds in 2012 to pay the

tax liability incurred for 2008 and did not make estimated tax payments for 2012.

Their circumstance precisely illustrates the reasoning behind requiring current

compliance before granting collection alternatives.

      Petitioners allege that they made an estimated tax payment for their 2013

tax liability but do not specify when this payment was made. They do not allege

that any estimated tax payment was made for 2012. Petitioners filed their hearing

request during March 2012 and first discussed the need to make estimated tax

payments with the Appeals Office in May 2012. Over the next few months, SO

Jacobi and SO Rose repeated the need for estimated tax payments in numerous

telephone conversations, correspondence, and the face-to-face hearing. There is

no evidence that petitioners at any time made an estimated tax payment for 2012.

Petitioners did not discuss the payment of their 2012 tax liability with the

settlement officers, e.g., whether the 2012 tax liability should be included in a

collection alternative.

      Petitioners’ final deadline to provide proof of estimated tax payments was

February 2013, and the notice of determination was issued March 6, 2013. Even if

petitioners’ 2013 estimated tax payment was made before their February deadline,

petitioners did not inform SO Rose of the 2013 estimated tax payment and did not
                                         - 12 -

[*12] discuss how their 2012 tax liability fit into their collection alternative. It

was therefore not an abuse of discretion for SO Rose to reject petitioners’

collection alternative because of their noncompliance with estimated tax payment

requirements. Because that is a sufficient basis for upholding the Appeals Office’s

determination, we need not decide whether the Appeals Office abused its

discretion in failing to consider the financial information petitioners submitted

during May 2012.

      Finally, in making the determination, the Appeals officer must balance the

need for the efficient collection of taxes with the concern that collection action be

no more intrusive than necessary. Sec. 6330(c)(3). SO Rose was required to

balance the need for efficient collection of taxes against the intrusiveness of the

levy and the lien without the benefit of a full explanation presented by petitioners.

It is also well established that rejecting a collection alternative because of

noncompliance with estimated tax payment requirements does not violate the

proper balancing requirement. See, e.g., Orum v. Commissioner, 412 F.3d 819;

Schwartz v. Commissioner, T.C. Memo. 2007-155.

      Consequently, we hold that the Appeals Office did not abuse its discretion

when it issued a notice of determination upholding all of the proposed collection

actions. In reaching these holdings, we have considered all the parties’ arguments,
                                      - 13 -

[*13] and to the extent not addressed herein, we conclude that they are moot,

irrelevant, or without merit.

      To reflect the foregoing,


                                               An appropriate order and decision

                                        will be entered for respondent.
