                                               JOHN J. MCLAINE, PETITIONER v. COMMISSIONER                                     OF
                                                       INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 15932–07L.                    Filed March 13, 2012.

                                                  In 1999 P exercised nonqualified stock options (NQOs) pre-
                                                viously issued to him by E, his recent employer, and simulta-
                                                neously sold the option stock, receiving from E the sale pro-
                                                ceeds, less the exercise price, undiminished by withheld
                                                income taxes. P reported the gain but did not pay the balance
                                                shown as due on his return. R issued a notice of intent to levy
                                                to collect the balance, interest, and additions to tax for fail-
                                                ures to pay tax and estimated tax. P had a collection due
                                                process hearing, and R’s Appeals Office determined to proceed
                                                with collection. P challenges the determination primarily on

                                      228




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                                                the ground that he is entitled to a credit under I.R.C. sec. 31
                                                for payment by a successor to E in a later year of the tax due
                                                on his 1999 option gain.
                                                   1. Held: P is not entitled to a credit under I.R.C. sec. 31 for
                                                any payment after 1999 by E or a successor of E of the taxes
                                                associated with P’s 1999 NQO exercise because no payment
                                                was made by E or a successor to E of the nonwithheld taxes
                                                related to the 1999 exercise.
                                                   2. Held, further, the Appeals officer did not abuse his discre-
                                                tion by refusing to consider collection alternatives.
                                                   3. Held, further, P is not entitled to any abatement of
                                                interest.
                                                   4. Held, further, P is liable for the additions to tax assessed
                                                under I.R.C. secs. 6651(a)(2) and 6654.
                                                   5. Held, further, Appeals’ determination to proceed with
                                                collection of the assessments against P for 1999 is sustained.

                                         James R. Walker and Christopher D. Freeman, for peti-
                                      tioner.
                                         Frederick Lockhart and Sarah Barkley, for respondent.

                                        COLVIN, Chief Judge: This case is before us to review a
                                      Notice of Determination Concerning Collection Action(s)
                                      under Section 6320 and/or 6330 (notice) issued by respond-
                                      ent’s Appeals Office. The notice concerns petitioner’s 1999
                                      Federal income tax, and it sustains an Appeals officer’s
                                      determination that respondent may proceed by levy to collect
                                      that tax. We review the notice pursuant to section
                                      6330(d)(1). 1
                                        The events giving rise to the notice begin with petitioner’s
                                      exercise in 1999 of nonqualified stock options (NQOs) awarded
                                      to him by a previous employer. Petitioner realized gross
                                      income on the exercise of the NQOs, which he and his then
                                      wife reported on their 1999 joint Federal income tax return
                                      (1999 return). On that return petitioner reported no Federal
                                      income tax withheld and a substantial amount of unpaid tax
                                      due, which, along with additions to tax and interest,
                                      respondent now seeks to collect.


                                        1 Unless otherwise indicated, all 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. We
                                      round all dollar amounts to the nearest dollar.




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                                         The issues for decision are:
                                         (1) whether respondent’s Appeals Office erred in not giving
                                      petitioner credit for a third-party payment of his 1999
                                      income tax liability. We hold that respondent did not err;
                                         (2) whether respondent’s refusal to provide collection alter-
                                      natives as described in section 6330(c)(2)(A)(iii) was an abuse
                                      of discretion. We hold that it was not;
                                         (3) whether petitioner is entitled to partial abatement of
                                      assessed interest. We hold that he is not;
                                         (4) whether petitioner is liable for the additions to tax for
                                      failure to pay tax under section 6651(a)(2) and for failure to
                                      pay estimated taxes under section 6654. We hold that he is;
                                      and
                                         (5) whether Appeals’ determination to proceed with collec-
                                      tion of the assessments against P for 1999 is sustained. We
                                      hold that it is.

                                                                          FINDINGS OF FACT

                                      Introduction
                                        Some of the facts have been stipulated and are so found.
                                      Petitioner resided in Colorado when he filed the petition.
                                      Judge Halpern, who was the trial Judge in this case, fully
                                      agrees with these findings of fact.
                                      Personal History
                                        Petitioner was born in 1949. He has a bachelor’s degree in
                                      business from the University of Scranton and a master’s
                                      degree in business administration from DePaul University.
                                      He married Tammy McLaine in 1997, and they were divorced
                                      in 2004. We refer to her herein as petitioner’s former spouse.
                                      Employment by Excel
                                        During the early to mid-1990s, Excel Communications, Inc.
                                      (Excel), was a privately held company in the business of
                                      selling and reselling telephone services. Initially, petitioner
                                      worked as a consultant to Excel. In 1994 he was hired as an
                                      employee by Excel and became a senior vice president and its
                                      chief financial officer (CFO).
                                        After it hired petitioner, Excel experienced rapid growth.
                                      Its sales grew from $1.5 million in 1993 to more than $1 bil-




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                                      lion in 1996, and its workforce grew from 20 to over 6,000
                                      employees.
                                         In 1996 petitioner was part of the management team that
                                      took Excel public.
                                         In 1997 Excel acquired Telco, a Virginia-based long-dis-
                                      tance telecommunications company. Also in 1997, after the
                                      Telco acquisition, petitioner was promoted to president and
                                      chief operating officer of Excel, but he continued as its CFO.
                                      In April 1998, on account of a disagreement as to the future
                                      of Excel, petitioner left its employment.
                                         Throughout his employment by Excel, petitioner’s ever-
                                      increasing roles and responsibilities, coupled with his lack of
                                      personal time, resulted in his operating in a highly stressful
                                      and volatile business environment.
                                      Exercise of NQOs
                                         During the time petitioner was employed by Excel, it
                                      awarded him NQOs pursuant to its stock option plan (plan).
                                      Petitioner became entitled to exercise those options when he
                                      left Excel. The plan required that an optionee who exercises
                                      an option ‘‘shall, upon notification of the amount due * * *
                                      pay to the Company * * * amounts necessary to satisfy
                                      applicable federal, state and local tax withholding require-
                                      ments.’’
                                         Teleglobe, Inc. (Teleglobe), a subsidiary of Bell Canada
                                      Enterprises (BCE), acquired Excel in 1998. As a result, peti-
                                      tioner’s Excel NQOs became exercisable in Teleglobe stock.
                                      Petitioner exercised some of those options in December 1998
                                      and the balance in January 1999. With respect to the options
                                      exercised in 1999 (together, 1999 exercise), petitioner elected
                                      an alternative under the plan that required Excel/Teleglobe
                                      to immediately sell the option shares and remit to him the
                                      excess of the proceeds of sale over the exercise price (option
                                      proceeds or spread amount). Petitioner received $8,367,951
                                      as a result of the 1999 exercise and that election.
                                         Paine Webber, the brokerage firm appointed to administer
                                      the plan, facilitated the 1999 exercise. Petitioner received
                                      from Paine Webber Forms 1099–B, Proceeds From Broker
                                      and Barter Exchange Transactions, listing the gross proceeds
                                      from the 1999 exercise. Those forms were the source for the
                                      amounts petitioner and his former spouse reported on the




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                                      1999 return. Excel/Teleglobe mailed a Form 1099–MISC, Mis-
                                      cellaneous Income, to petitioner at a post office box in Colo-
                                      rado, reporting $8,384,044 of miscellaneous income. Peti-
                                      tioner did not receive that form.
                                         When petitioner received the option proceeds, he knew that
                                      no taxes had been withheld. Petitioner received no notifica-
                                      tion from Excel/Teleglobe of any tax amounts due to it from
                                      him as a result of the 1999 exercise, nor has he reimbursed
                                      it any amount for taxes it paid with respect to that exercise.
                                      Disposition of the Option Proceeds
                                        Petitioner returned most of the proceeds from the 1999
                                      exercise and stock sales to Paine Webber for investment in
                                      high technology stocks, including WorldCom. He invested the
                                      remainder in limited liability companies, including a home
                                      construction company, an online auction house, and a ven-
                                      ture capital firm. All of those investments either failed or
                                      resulted in substantial losses with the result that petitioner
                                      was left with only a small fraction of his option proceeds by
                                      October 20, 2000, the filing date of his 1999 return. Between
                                      April 15 and October 20, 2002, he tried to raise funds suffi-
                                      cient to pay his 1999 tax liability by attempting, unsuccess-
                                      fully, to borrow against or to sell his Colorado and Florida
                                      homes.
                                      The 1999 Return
                                         Petitioner reported the option proceeds on Schedule D,
                                      Capital Gains and Losses, of the 1999 return.
                                         Petitioner and his former spouse reported total taxable
                                      income of $8,347,585, tax due of $3,276,333, no amount of
                                      income tax withholding, total payments (with the request for
                                      extension of time to file) of $1,600,000, and an amount owed
                                      of $1,676,333, which was not remitted with the return. They
                                      had obtained an automatic four-month extension of time to
                                      file and an additional two-month extension, to October 15,
                                      2000. They filed the 1999 return on October 20, 2000.
                                         At the time petitioner and his former spouse filed the 1999
                                      return, neither Excel nor Teleglobe had remitted any tax to
                                      the Internal Revenue Service (IRS) on petitioner’s behalf for
                                      1999. Petitioner was uncertain, at that time, whether that
                                      was the case.




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                                      Respondent’s Assessments for 1999
                                         Respondent’s account transcript, Form 4340, Certificate of
                                      Assessments, Payments and Other Specified Matters, for
                                      petitioner’s 1999 taxable year shows petitioner’s $1,600,000
                                      tax payment to have been made, in part, on July 17, 2001
                                      ($1,500,000), and in part on October 22, 2001 (the balance of
                                      $100,000, as an application of an overpayment for 2000),
                                      rather than on April 15, 2000, with the request for extension
                                      of the return filing date.
                                         On the basis of information provided in the 1999 return
                                      and the nonpayment of the reported amount due, on
                                      December 18, 2000, respondent assessed the $3,276,333
                                      reported income tax liability and additions to tax of (1)
                                      $101,872 for failure to pay estimated taxes and (2) $147,435
                                      for failure to pay tax timely. On November 21, 2005,
                                      respondent assessed an additional failure-to-pay addition to
                                      tax of $442,648.
                                      Relief From Joint Liability for Petitioner’s Former Spouse
                                         Petitioner and his former spouse were divorced in 2004.
                                      Thereafter, she requested and received relief from joint
                                      liability with respect to the 1999 return. As a result, on
                                      March 10, 2008, respondent reversed the assessed debit bal-
                                      ance of $2,084,961 in petitioner’s and her joint account with
                                      respondent and transferred it to petitioner’s separate account
                                      with respondent.
                                      The Collection Due Process Hearing
                                        On June 26, 2006, respondent sent petitioner a Letter
                                      1058A, Final Notice of Intent To Levy and Notice of Your
                                      Right to a Hearing, with respect to petitioner’s 1999 Federal
                                      income tax, seeking $2,265,589 as the ‘‘Unpaid Amount from
                                      Prior Notices’’ and $924,141 in additional interest, for a total
                                      of $3,189,730. In response, petitioner submitted a Form
                                      12153, Request for a Collection Due Process Hearing,
                                      requesting consideration of collection alternatives, including
                                      an offer-in-compromise and a partial payment installment
                                      agreement.
                                        In March 2007 Appeals Officer Michael Jeka conducted a
                                      face-to-face hearing with petitioner’s counsel, followed by
                                      additional phone conferences and correspondence. Petitioner




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                                      argued at the hearing and in subsequent correspondence
                                      with Mr. Jeka that his 1999 tax liability had been assessed
                                      against and paid by Excel or Teleglobe and that he was enti-
                                      tled to a credit for that third-party payment (or for with-
                                      holding without payment) of his 1999 tax liability. Mr. Jeka
                                      and petitioner’s counsel also discussed (1) the possibility of
                                      respondent’s accepting an offer-in-compromise from peti-
                                      tioner or the execution of an installment agreement to the
                                      extent of petitioner’s tax liability and (2) petitioner’s defense,
                                      based on alcoholism, against the imposition of additions to
                                      tax.
                                         Mr. Jeka was unable to confirm from respondent’s com-
                                      puter records that Excel had withheld taxes from the pay-
                                      ments associated with the 1999 exercise or that either Excel
                                      or Teleglobe had subsequently paid those taxes. Mr. Jeka
                                      declined to consider any collection alternatives (an offer-in-
                                      compromise or an installment agreement) because petitioner
                                      had not submitted either an offer-in-compromise or sup-
                                      porting financial information after obtaining repeated exten-
                                      sions of time to do so, and he rejected petitioner’s alcoholism
                                      defense to the assessed additions to tax on the basis of his
                                      reading of applicable caselaw.
                                         Subsequently, in June 2007 respondent mailed to peti-
                                      tioner the notice sustaining the proposed collection action.
                                      Petitioner’s Alcoholism
                                        Petitioner has had a problem with excessive consumption
                                      of alcohol at times. Petitioner stopped drinking in 1993 but
                                      resumed in 1997.
                                        Petitioner’s drinking gradually increased after he left
                                      Excel’s employment in 1998, and, in particular, from 1999 to
                                      2001 when his investments turned sour. By 2000 he recog-
                                      nized that he had a drinking problem. Nevertheless, his
                                      drinking continued to increase so that by mid-2001 he was
                                      drinking throughout the day, including during breaks at
                                      business meetings and late at night, or throughout the night,
                                      by himself. As a result, he began to have trouble managing
                                      his personal affairs such as timely payment of bills and mort-
                                      gage obligations. Despite those problems he was asked to and
                                      did take over the management of a venture capital firm in
                                      September 2001.




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                                        Subsequently, petitioner tried to stop drinking for a time
                                      with intermittent success. Petitioner checked himself into the
                                      Betty Ford Center (Center) in Rancho Mirage, California, in
                                      the summer of 2002. He was admitted with a diagnosis of
                                      alcohol dependence. Notes from his physical examination
                                      indicate his general appearance as: ‘‘Bright and alert male in
                                      no distress’’. His mental status is noted: ‘‘Affect is normal.
                                      Orientation is normal. Memory is normal.’’ He was dis-
                                      charged in October 2002, and he no longer drinks alcohol.
                                      The Excel Employment Tax Audit and Appeal
                                         Respondent conducted an employment tax audit of Excel
                                      and its subsidiaries (without distinction, Excel or, sometimes,
                                      Excel group) for 1998 and 1999. In relevant part, the exam-
                                      ining agent’s proposed adjustments concerned Excel’s treat-
                                      ment of the option proceeds and the proceeds from NQOs
                                      exercised by two other Excel executives (NQO exercise issue).
                                      The agent took the position that all three individuals should
                                      have been treated as employees receiving wages as a result
                                      of their exercises of their respective NQOs, with the
                                      result that a member of the Excel group was liable for
                                      income, Federal Insurance Contributions Act (FICA), and Fed-
                                      eral Unemployment Tax Act tax withholding payments that
                                      it had not made in connection with the NQO exercises. The
                                      agent’s report for an Excel subsidiary, Excel Management
                                      Service, Inc. (Excel Management Service), for 1999, reflected
                                      a proposed adjustment for additional FICA taxes of $463,193
                                      and additional income tax withholding of $4,211,453. The
                                      basis for those proposed adjustments was the agent’s re-
                                      characterization—from      nonemployee      compensation     to
                                      employee wages—of all of the option proceeds received by the
                                      three executives.
                                         Subsequently, Excel, represented by Ernst & Young L.L.P.,
                                      protested to the IRS Appeals Office the agent’s proposed
                                      adjustments. The Appeals officer stated his findings and rec-
                                      ommendations in his Appeals Transmittal and Case Memo,
                                      plus attachments, dated September 1, 2005. They were to
                                      reduce the agent’s proposed imposition of employment taxes
                                      so as to impose only the Medicare portion of the FICA taxes
                                      on the option proceeds received by the three executives. With




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                                      respect to those proceeds, the Appeals officer stated as fol-
                                      lows:
                                      The payments to the * * * three workers were in the nature of stock
                                      options * * * [The issue] is * * * whether the exercise of nonqualified
                                      stock options caused these executives to have compensation subject to
                                      employment taxes. Each of the workers changed their status into inde-
                                      pendent contractors; the taxpayer claims that at the time the options were
                                      exercised they were not corporate officers but independent contractors.
                                      Robinson and Hamrick filed returns and paid all the related income taxes.
                                      McClaine [sic McLaine] was the Chief Financial Officer and filed for both
                                      years but he has an outstanding balance for 1999.
                                      I propose government concede backup withholding and FICA but leave the
                                      medical [sic] wages [i.e., the proposed adjustment for failure to withhold
                                      and pay Medicare taxes] in-place.

                                         Later in his writeup of the NQO exercise issue, the Appeals
                                      officer made the following additional comments:
                                      Dan Robinson has filed his 1998 and 1999 returns reporting the income
                                      as something other than wages. John McClaine [sic] has filed his 1998 and
                                      1999 returns but has an unpaid balance for 1999. Jerry Hamrick has filed
                                      his 1998 return reporting the income as something other than wages.
                                      All three earned wages in each of the years in excess of the FICA limits
                                      and two paid the income taxes corresponding to the option income. The
                                      taxpayer proposed that the option wages be applied to the Hospital Insur-
                                      ance portion of the employment taxes[.]
                                      The taxes as proposed by Compliance with respect to McClaine [sic] will
                                      be left unchanged.

                                        Previously, on May 12, 2005, the CFO of Excel Management
                                      Service executed, on behalf of that corporation, a Form 2504,
                                      Agreement to Assessment and Collection of Additional Tax
                                      and Acceptance of Overassessment (Excise or Employment
                                      Tax), in which the corporation agreed to the immediate
                                      assessment and collection of only the 1999 Medicare taxes,
                                      totaling $282,024 ($70,506 per quarter), attributable to the
                                      option proceeds received by the three executives.
                                        On September 23, 2005, respondent made four assessments
                                      of $70,506, one for each quarter of calendar year 1999. No
                                      other tax assessments appear on the 1999 employment tax
                                      transcripts (Forms 4340) for Excel Management Service.
                                      Those transcripts also indicate that the four assessments,
                                      plus the assessed interest thereon, remained unpaid as of
                                      May 12, 2009.




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                                      Teleglobe and VarTec Bankruptcies and Arbitration
                                        In April 2002 Teleglobe sold Excel and certain other
                                      subsidiaries to VarTec Telecom, Inc. (VarTec).
                                        In December 2003, VarTec filed claims against Teleglobe
                                      (which had previously filed for bankruptcy) for obligations of
                                      the Excel group (allegedly arising before VarTec’s acquisition
                                      of the Excel group), including a claim for the Excel group’s
                                      potential liability for employment taxes occasioned by the
                                      1999 exercise. At the time of the trial in this case, VarTec’s
                                      legal representatives did not know whether anyone had paid
                                      those taxes to the Commissioner.
                                        In December 2002 VarTec had sued BCE (Teleglobe’s
                                      parent) concerning claims against Teleglobe, which included
                                      VarTec’s potential liability for Excel’s failure to withhold
                                      taxes occasioned by the 1999 exercise. That suit ultimately
                                      resulted in either an arbitration award or a mediation award
                                      to VarTec. The arbitrator rendered his decision in October
                                      2004. Subsequently, the parties settled their dispute
                                      (although the terms of the settlement are not clear from the
                                      record).
                                        In November 2004 VarTec and its subsidiaries, including
                                      the Excel group, filed for bankruptcy protection in the U.S.
                                      Bankruptcy Court for the Northern District of Texas (VarTec
                                      bankruptcy).
                                      The Commissioner’s Proofs of Claim
                                         In the Teleglobe bankruptcy the Commissioner filed a proof
                                      of claim in June 2004 in the amount of $17,374,212 against
                                      one of the Teleglobe entities. The Commissioner’s proof of
                                      claim included two ‘‘WT–FICA’’ claims for 1999 of $1,742,070
                                      and $7,030,569, both listed as ‘‘pending assessment’’.
                                         In the VarTec bankruptcy, the Commissioner also filed
                                      three proofs of claim against Excel Management Service, in
                                      November 2004 and in August and October 2005, respec-
                                      tively. The first, in the amount of $14,187,441, included a
                                      ‘‘WT–FICA’’ claim for 1999 of $7,030,569, listed as an
                                      ‘‘unassessed liability’’. The second, in the amount of
                                      $622,448, amended the first claim and included ‘‘WT–FICA’’
                                      claims of $70,506 for each quarter of 1999 ($282,024, in total,
                                      for 1999). Those amounts were agreed upon at the conclusion
                                      of Excel’s appeal of its employment tax audit; they were




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                                      assessed on September 23, 2005, but were listed in the
                                      second proof of claim as ‘‘unassessed’’ liabilities. The third
                                      proof of claim, stating a claim of $622,449, included ‘‘WT–
                                      FICA’’ claims of $35,253 for each quarter of 1999, which were
                                      also listed as ‘‘unassessed’’ liabilities.
                                        The $17,374,212 proof of claim filed in the Teleglobe bank-
                                      ruptcy was ‘‘disallowed and expunged’’ by the Delaware
                                      Bankruptcy Court in June 2005.

                                                                                  OPINION

                                      I. The Parties’ Arguments
                                           A. Constructive Withholding
                                         Petitioner contends that VarTec paid the taxes associated
                                      with the 1999 exercise in 2004 or 2005. He offers as proof
                                      that the Commissioner voluntarily reduced his proof of claim
                                      in the VarTec bankruptcy. He points out that, by way of the
                                      August 2005 amended proof of claim against Excel Manage-
                                      ment Service, the Commissioner reduced the claim in his
                                      original November 2004 proof of claim from $14,187,441,
                                      including a ‘‘WT–FICA’’ claim for 1999 of $7,030,569, to a
                                      claim of $622,448, including only $282,024 of ‘‘WT–FICA’’
                                      claims for 1999. Petitioner argues: ‘‘The IRS’ voluntary reduc-
                                      tions in its proofs of claim against Excel is corroborative of
                                      Petitioner’s assertion that his 1999 income tax liability was
                                      ultimately paid, subsequent to the VarTec/Teleglobe arbitra-
                                      tion, but also pursuant to the IRS audit of Excel.’’
                                         Petitioner supports that argument by arguing that the
                                      Appeals officer who handled Excel’s appeal in connection
                                      with the NQO exercise issue sustained the agent’s audit
                                      adjustment with respect to petitioner. He bases that argu-
                                      ment on the Appeals officer’s statement that the agent’s pro-
                                      posed adjustment ‘‘with respect to * * * [petitioner] will be
                                      left unchanged.’’ Presumably, the thrust of that argument is
                                      to demonstrate that respondent never intended to waive his
                                      claim against Excel and its successor corporations for the
                                      taxes associated with the option proceeds.
                                         Necessarily conceding that any payment by VarTec of an
                                      amount that should have been (but admittedly was not) with-
                                      held from the option proceeds could not constitute an actual
                                      withholding from those proceeds, petitioner argues that,




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                                      nonetheless, he is entitled to a section 31 credit ‘‘for income
                                      tax constructively withheld.’’ He further argues that, as a
                                      result, ‘‘no penalties or additions to tax are applicable to
                                      * * * [him].’’ Petitioner bases his theory of constructive with-
                                      holding on our report in Whalen v. Commissioner, T.C.
                                      Memo. 2009–37.
                                        As to whether VarTec did, in fact, pay the taxes associated
                                      with the 1999 exercise, respondent argues:
                                         Rather than evidencing payment of an employer income tax withholding
                                      liability attributable to petitioner’s stock options exercise, * * * [the
                                      VarTec] proofs of claim and amended proofs of claim corroborate the
                                      Appeals Office settlement of the proposed adjustments to Excel’s 1999-year
                                      employment tax liability, which settlement included a concession of the
                                      income tax withholding liability previously proposed by the Service’s exam-
                                      ination function. The settlement was for an additional employment tax
                                      liability in the amount of $70,506.00 for each calendar quarter of 1999, or
                                      $282,024.00 total, for the year. The executed agreement to assessment of
                                      additional employment tax reflects precisely this, as do the assessments
                                      shown on the Form 941 transcripts for Excel Management.

                                           B. Scope and Standard of Review
                                         The parties dispute the scope and standard of review
                                      applicable in this case. 2 However, we decline to resolve the
                                      scope and standard of review issues they raise because we
                                      find that no payment was made by Excel or a successor cor-
                                      poration, in 2004 or 2005, of the nonwithheld taxes related
                                      to the 1999 exercise. In addition, we find that there is
                                      insufficient evidence to establish that any such payment
                                      occurred, whether or not we apply the de novo standard
                                      adopted by this Court in Robinette v. Commissioner, 123 T.C.
                                      85 (2004), rev’d, 439 F.3d 455 (8th Cir. 2006). Under these
                                      circumstances, we need not resolve the parties’ dispute as to
                                      the scope and standard of review. See Kohn v. Commissioner,
                                      T.C. Memo. 2009–117, aff’d, 377 Fed. Appx. 578 (8th Cir.
                                      2010).




                                        2 The Form 4340 also shows subsequent credits for 1996, 1997, and 2006 overpayments total-

                                      ing $364,761 and a 2006 payment of $123,788. The parties agree that the additions to tax issues
                                      are subject to a de novo scope and standard of review.




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                                      II. Respondent’s Right To Collect Petitioner’s 1999 Unpaid
                                          Tax Liability
                                           A. The Payment Issue
                                           1. Burden of Proof
                                         Even though petitioner has argued for de novo review of
                                      the factual issue of whether a third party, in effect, paid his
                                      underlying 1999 tax liability (payment issue), he has not
                                      invoked section 7491(a) to argue that respondent bears the
                                      burden of proof with respect to that issue. We will assume,
                                      without deciding, that de novo review is proper and base our
                                      resolution of the payment issue upon a preponderance of all
                                      of the evidence in the record. Therefore, assignment of the
                                      burden of proof is unnecessary. See, e.g., Estate of Bongard
                                      v. Commissioner, 124 T.C. 95, 111 (2005).
                                           2. Discussion
                                         As noted supra, petitioner’s argument that VarTec paid the
                                      withholding taxes associated with the 1999 exercise is essen-
                                      tially premised on the fact that the $7,030,569 ‘‘WT–FICA’’
                                      claim for 1999 against Excel Management Service that was
                                      included in the Commissioner’s November 2004 proof of
                                      claim filed in the VarTec bankruptcy was reduced to a
                                      $282,024 claim in his August 2005 amended proof of claim
                                      filed in that bankruptcy. We agree, however, with respondent
                                      that the reduction in the proof of claim amount is more likely
                                      corroborative of a decision by the Commissioner to adopt the
                                      Appeals officer’s settlement of the Excel audit as reflected on
                                      the Form 2504 (wherein the Commissioner sought only the
                                      Medicare taxes associated with all of the 1999 option exer-
                                      cises) than it is of VarTec’s payment of the taxes that Excel
                                      should have withheld from petitioner in connection with the
                                      1999 exercise.
                                         We also dispute petitioner’s characterization of the Appeals
                                      officer’s statement in his recommended settlement of the
                                      Excel audit that the taxes proposed by the agent with respect
                                      to petitioner ‘‘will be left unchanged’’. As noted above, peti-
                                      tioner apparently reads into that statement an intent to con-
                                      tinue to pursue Excel (and its successor corporations) for the
                                      taxes associated with the 1999 exercise. Whatever the
                                      Appeals officer’s intent when he included that statement in




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                                      his recommendations for resolving the NQO exercise issue for
                                      1998 and 1999, the Form 2504 executed by the parties and
                                      later reflected in the actual assessments against the Excel
                                      group reflect the Commissioner’s decision not to pursue
                                      Excel (or any successor corporation) for failure to withhold
                                      income taxes on the 1999 exercise.
                                         We find no merit in (1) petitioner’s reliance on respondent’s
                                      Form 4340 for petitioner and his former wife jointly, which
                                      shows a March 10, 2008, reversal of the existing $2,084,961
                                      debit balance, as proof that ‘‘[p]etitioner has no outstanding
                                      tax liability for * * * 1999’’ and (2) his rejection, as
                                      improper, of respondent’s transfer of that debit balance to
                                      petitioner, individually. As noted supra, respondent made
                                      that reversal and transfer incident to granting petitioner’s
                                      former wife relief from the outstanding 1999 joint tax
                                      liability arising from the 1999 exercise. We agree with
                                      respondent that the reversal and transfer of the outstanding
                                      assessed balance from petitioner and his former wife jointly
                                      to petitioner individually was in accordance with IRS proce-
                                      dures, see Internal Revenue Manual pts. 3.17.243.13.2 (Jan.
                                      1, 2008), 8.20.2.5 (Oct. 16, 2007), and did not indicate that
                                      petitioner has no outstanding liability for 1999.
                                         The Forms 4340 for both petitioner’s and the Excel group’s
                                      1999 taxable year reflect no assessment or payment of with-
                                      holding taxes attributable to petitioner’s income from the
                                      1999 exercise. Petitioner cites a 2007 Treasury Inspector
                                      General for Tax Administration report, which, he states,
                                      ‘‘describes the IRS’s difficulty in ‘cross posting’ tax payments
                                      to all affected ‘payee’ accounts’’. Notwithstanding the exist-
                                      ence of that report, it is well established that a Form 4340
                                      or a computer printout of a taxpayer’s transcript of account,
                                      absent a showing of irregularity, provides sufficient
                                      verification of the taxpayer’s outstanding liability to satisfy
                                      the requirements of section 6330(c)(1) (requirement that the
                                      Appeals officer conducting a collection due process (CDP)
                                      hearing obtain verification ‘‘that the requirements of any
                                      applicable law or administrative procedure had been met’’).
                                      See, e.g., Davis v. Commissioner, 115 T.C. 35, 40–41 (2000);
                                      Roberts v. Commissioner, T.C. Memo. 2004–100; Tornichio v.
                                      Commissioner, T.C. Memo. 2002–291. Petitioner has not
                                      demonstrated any irregularity in the preparation of the fore-
                                      going transcripts, and we see no reason to depart from that




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                                      principle in this case. See Davis v. Commissioner, 115 T.C.
                                      at 41; Tornichio v. Commissioner, T.C. Memo. 2002–291.
                                           3. Conclusion
                                       No third-party payment of the nonwithheld taxes was
                                      made related to the 1999 exercise.
                                           B. Section 31 Credit Issue
                                         On the assumption that VarTec paid the nonwithheld
                                      taxes in 2004 or 2005, petitioner contends (and respondent
                                      disagrees) that he is entitled to a credit under section 31 and
                                      section 1.31–1(a), Income Tax Regs. The parties also dispute
                                      the effect of Whalen v. Commissioner, T.C. Memo. 2009–37,
                                      where, in dicta, we suggested that an employer’s actual pay-
                                      ment to the IRS of the tax that the employer should have
                                      withheld ‘‘could plausibly be characterized as withholding tax
                                      under chapter 24 with a corresponding section 31 credit
                                      being allowed to a proper recipient for an appropriate year.’’
                                      (Emphasis added.) Whalen was a deficiency case, not a collec-
                                      tion case. Ms. Whalen contended that she was entitled to a
                                      credit against a deficiency for 2004 of taxes that should have
                                      been withheld in 2001 but were not paid until 2004. She lost
                                      that argument.
                                         Petitioner is not entitled to a credit under section 31
                                      because, as we have found above, no third-party payment
                                      was made. We may one day be presented with a case in
                                      which the IRS proposes to collect a party’s liability that has
                                      been paid by another person. For now, however, the better
                                      course is ‘‘to observe the wise limitations on our function and
                                      to confine ourselves to deciding only what is necessary to the
                                      disposition of the immediate case.’’ Whitehouse v. Ill. Cent.
                                      R.R., 349 U.S. 366, 372–373 (1955); accord Ashwander v.
                                      TVA, 297 U.S. 288, 345–346 (1936) (Brandeis, J., concurring);
                                      Liverpool, N.Y. & Phila. S.S. Co. v. Emigration Comm’rs, 113
                                      U.S. 33, 39 (1885). Our silence on the issue should not be
                                      construed as our agreement with either party’s argument.
                                           C. The Appeals Officer’s Refusal To Consider Collection
                                              Alternatives
                                        In the cover letter to his Form 12153 requesting a CDP
                                      hearing, petitioner asked respondent to consider collection




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                                      alternatives, including an offer-in-compromise based upon
                                      doubt as to collectibility and an installment agreement.
                                      Moreover, he and Mr. Jeka addressed those matters during
                                      and after the CDP hearing. Petitioner failed, however, to
                                      submit the financial information that Mr. Jeka requested;
                                      nor did he submit an offer-in-compromise before the expira-
                                      tion of repeated deadlines that Mr. Jeka extended to him for
                                      doing both. As a result, petitioner and Mr. Jeka agreed to
                                      neither an offer-in-compromise nor an installment agree-
                                      ment.
                                         In his petition, petitioner claims that Mr. Jeka’s failure to
                                      provide collection alternatives was an abuse of discretion. He
                                      does not, however, raise the issue in his briefs. Therefore, we
                                      consider petitioner to have abandoned that claim. E.g.,
                                      Money v. Commissioner, 89 T.C. 46, 48 (1987); see Rule
                                      151(e)(4) and (5) (requiring that a party’s brief state the
                                      points and arguments on which he relies). Moreover, even if
                                      petitioner had raised the collection alternatives issue in his
                                      briefs, his failure to submit an offer-in-compromise or
                                      requested financial information to Mr. Jeka would cause us
                                      to sustain Mr. Jeka’s determination not to offer collection
                                      alternatives. Under the circumstances, Mr. Jeka’s action did
                                      not represent an abuse of discretion. See Kendricks v.
                                      Commissioner, 124 T.C. 69, 79 (2005); Orum v. Commis-
                                      sioner, 123 T.C. 1, 13 (2004), aff’d, 412 F.3d 819 (7th Cir.
                                      2005).
                                           D. Conclusion
                                         Mr. Jeka properly sustained collection with respect to peti-
                                      tioner’s 1999 unpaid tax liability.
                                      III. Petitioner’s Entitlement to an Abatement of Assessed
                                           Interest
                                           A. Introduction
                                        Petitioner asks for the abatement of interest both on
                                      account of Mr. Jeka’s conduct and because the IRS did not
                                      timely credit his $1,600,000 payment.
                                           B. Application of Section 6404(e)(1)(B)
                                        Petitioner argues for the first time in his opening brief that
                                      assessed interest from June 13, 2007 (the date on which the




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                                      Appeals Office issued the notice of determination), 3 must be
                                      abated pursuant to section 6404(e)(1)(B) (abatement of
                                      interest attributable to an ‘‘erroneous or dilatory’’ perform-
                                      ance of ‘‘a ministerial or managerial act’’ by an IRS officer or
                                      employee).
                                         We conclude that petitioner is precluded from raising an
                                      issue under section 6404(e)(1)(B) because he did not raise it
                                      in his petition, at his hearing before Mr. Jeka, in his pretrial
                                      memorandum, or at trial. See Rule 331(b)(4); Behling v.
                                      Commissioner, 118 T.C. 572, 579 (2002); Brecht v. Commis-
                                      sioner, T.C. Memo. 2008–213. Further, the evidence does not
                                      support petitioner’s allegations that Mr. Jeka was erroneous
                                      or dilatory in his actions or that Mr. Jeka ‘‘showed institu-
                                      tional bias at every turn’’. Therefore, petitioner is not enti-
                                      tled to an abatement of interest pursuant to section
                                      6404(e)(1)(B).
                                           C. Whether Respondent Timely Credited Petitioner’s Tax
                                              Payments for 1999
                                           1. Discussion
                                         Petitioner argues that he paid $1,600,000 in discharge of
                                      his 1999 income tax liability on April 15, 2000, with the
                                      filing of his request for an extension of time to file the 1999
                                      return. Respondent’s Form 4340 for petitioner for
                                      1999 reflects a $1,500,000 payment on July 17, 2001, and a
                                      $100,000 payment on October 22, 2001. Petitioner seeks an
                                      abatement of the interest on (1) $1,500,000, attributable to
                                      the period from April 15, 2000, to July 17, 2001, and (2)
                                      $100,000, attributable to the period from April 15, 2000, to
                                      October 22, 2001.
                                         It is a longstanding position of this Court that a Form
                                      4340 or a computer printout of a taxpayer’s transcript of
                                      account, absent a showing of irregularity, provides sufficient
                                      verification of the taxpayer’s outstanding liability to satisfy
                                      the requirement of section 6330(c)(1) that the Appeals officer
                                      conducting a CDP hearing obtain verification ‘‘that the
                                      requirements of any applicable law or administrative proce-
                                      dure had been met.’’ See, e.g., Davis v. Commissioner, 115
                                      T.C. at 35–36; Roberts v. Commissioner, T.C. Memo. 2004–
                                        3 It is not clear why petitioner selected that date as the date from which no additional interest

                                      should run.




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                                      100; Tornichio v. Commissioner, T.C. Memo. 2002–291. In
                                      the light of petitioner’s failure to demonstrate any irregu-
                                      larity in the preparation of the foregoing transcripts, we see
                                      no reason to depart from that principle in this case. See
                                      Davis v. Commissioner, 115 T.C. at 41; Tornichio v. Commis-
                                      sioner, T.C. Memo. 2002–291. Petitioner offers only the 1999
                                      return as evidence of his April 15, 2000, payment of
                                      $1,600,000. That is insufficient to overcome the contrary evi-
                                      dence provided by the Form 4340 for 1999. A tax return
                                      signed under penalty of perjury does not establish the truth
                                      of the facts stated therein. E.g., Wilkinson v. Commissioner,
                                      71 T.C. 633, 639 (1979).
                                           2. Conclusion
                                        Petitioner is not entitled to any interest abatement based
                                      upon payment of $1,600,000 of his 1999 tax liability on April
                                      15, 2000.
                                           D. Conclusion
                                        Petitioner is not entitled to any interest abatement for
                                      1999.
                                      IV. The Additions to Tax
                                           A. Section 6651(a)(2) Addition to Tax for Failure To Make
                                              Timely Payment of Tax Due
                                           1. Introduction
                                        Respondent assessed $147,435 and $442,648, on December
                                      18, 2000, and November 21, 2005, respectively, as additions
                                      to tax under section 6651(a)(2) for petitioner’s failure to
                                      timely pay his 1999 income tax liability. Respondent bears
                                      the burden of production with respect to those additions. See
                                      sec. 7491(c). In order to carry that burden, respondent must
                                      produce sufficient evidence to establish that it is appropriate
                                      to impose the additions. See Higbee v. Commissioner, 116
                                      T.C. 438, 446–447 (2001). Once respondent has done so, the
                                      burden of proof is on petitioner to show that the additions
                                      are improper. See id. at 447. As discussed supra in section
                                      III.C.1. of this report, the Form 4340 for petitioner’s 1999
                                      taxable year supports a finding that petitioner made no pay-
                                      ments of income tax owed for 1999 until July 17 and October




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                                      22, 2001, and that those payments, totaling $1,600,000, were
                                      his only payments in discharge of his total, reported, 1999
                                      income tax liability of $3,276,333. Therefore, respondent has
                                      satisfied his burden of production under section 7491(c).
                                         Section 6651(a)(2) imposes an addition to tax of up to 25%
                                      of the tax shown on a return for failure to make timely pay-
                                      ment thereof, unless it is shown that such failure is due to
                                      reasonable cause and not due to willful neglect. Petitioner
                                      argues that there was reasonable cause for his failure to
                                      timely pay his 1999 tax liability: (1) undue financial hard-
                                      ship, (2) his alcoholism, and (3) retroactive application of sec-
                                      tion 31(a) credits. We have already decided that petitioner is
                                      not entitled to any section 31(a) credits as an offset to his
                                      income tax underpayment for 1999. Therefore, we will con-
                                      sider only the first two grounds for petitioner’s claim of
                                      reasonable cause.
                                           2. Undue Hardship
                                         Petitioner alleges undue hardship on the ground that he
                                      (1) ‘‘lacked the ability to ascertain the amount, or existence
                                      of his outstanding 1999 income tax liability, despite his good
                                      faith attempts to do so’’, and (2) ‘‘paid as much of the 1999
                                      income tax liability as he could, attempting to satisfy his
                                      obligations, despite the fact that this payment placed him in
                                      a very difficult financial situation.’’ Neither of those alleged
                                      circumstances supports petitioner’s claim of reasonable cause
                                      for the late payment, in part, and nonpayment, in part, of his
                                      1999 income tax liability.
                                         Before the April 15, 2000, due date of his return, petitioner
                                      knew that he had received the option proceeds unreduced by
                                      any tax payments, either withheld by Excel or remitted by
                                      him. The plan required Excel to notify the optionee of the
                                      ‘‘amount due’’ on exercise, including ‘‘amounts necessary to
                                      satisfy applicable * * * tax withholding requirements.’’
                                      Excel’s alleged failure to fulfill that requirement does not
                                      excuse petitioner’s failure to pay all of the income tax that
                                      he knew was due with respect to his 1999 taxable income,
                                      which included the spread amount that petitioner reported
                                      as short-term capital gain. See McWhorter v. Commissioner,
                                      T.C. Memo. 2008–263 (employer’s failure to withhold taxes
                                      that should have been withheld does not excuse an




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                                      employee’s failure to file a return or pay taxes nor relieve
                                      him of the additions to tax under section 6651(a)). Nor does
                                      petitioner’s ‘‘very difficult financial situation’’ constitute
                                      reasonable cause for his failure to timely pay his 1999
                                      income tax liability. Petitioner argues that he feared the
                                      necessity of twice paying that liability, once to respondent
                                      and once, as reimbursement, to Excel. But, as discussed
                                      supra, by obtaining proof of payment from petitioner, Excel,
                                      pursuant to section 3402(d), either could have avoided
                                      liability for the same tax or, if it had in fact paid it, obtained
                                      a refund thereof. Moreover, petitioner’s illiquidity as of April
                                      15, 2000, was a problem of his own making. After his exer-
                                      cise of the 1999 NQOs, petitioner had the funds necessary to
                                      pay the taxes associated with his income from the 1999 exer-
                                      cise. The fact that he lost most of those funds by investing
                                      them in high technology stocks and ventures that ultimately
                                      failed (and did not retain sufficient funds to pay his 1999
                                      tax) does not provide a basis for his claim of reasonable cause
                                      for his nonpayment or late payment of tax. See section
                                      301.6651–1(c)(1), Proced. & Admin. Regs., which, in relevant
                                      part, provides as follows:
                                      A failure to pay will be considered to be due to reasonable cause to the
                                      extent that the taxpayer has made a satisfactory showing that he exercised
                                      ordinary business care and prudence in providing for payment of his tax
                                      liability and was nevertheless either unable to pay the tax or would suffer
                                      an undue hardship * * * if he paid on the due date. * * * [A] taxpayer
                                      who invests funds in speculative or illiquid assets has not exercised ordi-
                                      nary business care and prudence in providing for the payment of his tax
                                      liability unless, at the time of the investment, the remainder of the tax-
                                      payer’s assets and estimated income will be sufficient to pay his tax or it
                                      can be reasonably foreseen that the speculative or illiquid investment
                                      * * * can be utilized (by sale or as security for a loan) to realize sufficient
                                      funds to satisfy the tax liability. * * *

                                           3. Petitioner’s Alcoholism
                                         In defense of his position that his alcoholism constituted
                                      reasonable cause for his failure to timely pay his 1999 tax
                                      liability, petitioner argues that he was essentially incapaci-
                                      tated by his drinking problem on the April 15, 2000, due date
                                      of the 1999 return. That argument is seriously undercut,
                                      however, by his argument of undue financial hardship. In
                                      connection with the latter argument, petitioner testified that,
                                      between the April 15, 2000, due date and the October 20,




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                                      2000, filing date of the 1999 joint return, he was well aware
                                      of his outstanding tax liability for 1999 and that he took a
                                      number of steps (attempting to borrow against and, then, to
                                      sell his two homes) to raise the funds necessary to discharge
                                      that liability. Those actions are hardly the actions of a man
                                      incapacitated by alcoholism.
                                         Moreover, although petitioner testified that in 2000 he rec-
                                      ognized that his drinking was ‘‘getting problematic’’, it was
                                      not until 2001 that he began drinking throughout the day
                                      and, sometimes, night. Even during the 2001–02 period, how-
                                      ever, he was able to continue his consulting business, and
                                      upon his admittance to the Center on September 5, 2002,
                                      Center personnel noted that he was a ‘‘bright and alert male
                                      in no distress’’ and that his ‘‘affect’’, ‘‘orientation’’, and
                                      ‘‘memory’’ were all normal. 4
                                         Because petitioner was not incapacitated by alcoholism on
                                      the due date of the 1999 joint return or thereafter, that
                                      condition does not constitute reasonable cause for his failure
                                      to timely pay the income taxes shown on that return. See,
                                      e.g., Hazel v. Commissioner, T.C. Memo. 2008–134; Jones v.
                                      Commissioner, T.C. Memo. 2006–176; Harbour v. Commis-
                                      sioner, T.C. Memo. 1991–532; Gardner v. Commissioner, T.C.
                                      Memo. 1982–542.
                                           4. Conclusion
                                        Petitioner has not shown that his failure to timely pay the
                                      tax liability shown on the 1999 return was due to reasonable
                                      cause and not due to willful neglect. Therefore, Mr. Jeka
                                      properly sustained collection with respect to the additions to
                                      tax under section 6651(a)(2). 5




                                        4 Petitioner has neither alleged nor shown a causal relationship between his having operated

                                      in a highly stressful and volatile business environment throughout his employment by Excel and
                                      his failure to timely pay his 1999 tax liability.
                                        5 Because we have sustained, supra, respondent’s crediting of petitioner’s $1,500,000 payment

                                      in partial discharge of his 1999 income tax liability as of July 17, 2001, rather than as of April
                                      15, 2000, as alleged by petitioner, we also reject petitioner’s additional argument that his sec.
                                      6651(a)(2) addition must be reduced to reflect the earlier payment.




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                                           B. The Section 6654 Addition to Tax for Failure To Make
                                              Timely Estimated Tax Payments
                                           1. Discussion
                                         Respondent assessed an addition to tax of $101,872 under
                                      section 6654 for petitioner’s failure to timely pay estimated
                                      tax. Petitioner argues that imposition of the section 6654(a)
                                      addition to tax for underpayment (or, in this case, non-
                                      payment) of estimated tax for 1999 ‘‘would be against equity
                                      and good conscience’’ within the meaning of section
                                      6654(e)(3)(A). 6
                                         Because (1) respondent’s Form 4340 for petitioner for 1999
                                      shows no payments of tax for 1999 until July 17 and October
                                      22, 2001, and (2) petitioner showed a substantial tax liability
                                      on his prior year (1998) return (facts establishing that peti-
                                      tioner had a ‘‘required annual payment’’ for 1999 within the
                                      meaning of section 6654(d)(1)(B)), we find that respondent
                                      has satisfied his burden of production under section 7491(c).
                                      The burden of proof is on petitioner to show that he is cov-
                                      ered by one of the relief provisions of section 6654, which, in
                                      this case, means section 6654(e)(3)(A) (section 6654 contains
                                      no provision relating to reasonable cause and lack of willful
                                      neglect).
                                         Petitioner makes the same arguments (undue hardship,
                                      alcoholism) that he made in alleging reasonable cause under
                                      section 6651(a)(2). For the reasons given for rejecting those
                                      arguments as they related to respondent’s additions to tax
                                      under that provision, we reject them as justification for
                                      reversing respondent’s imposition of the addition to tax
                                      under section 6654(a). The evidence of undue hardship and
                                      alcoholism does not support a finding that imposition of the
                                      section 6654(a) addition to tax herein ‘‘would be against
                                      equity and good conscience’’ within the meaning of section
                                      6654(e)(3)(A).

                                        6 Here, again, we reject petitioner’s additional argument that respondent failed to take into

                                      account petitioner’s alleged payment of $1,500,000 on April 15, 2000, the return due date. We
                                      reject that argument, not only for the reasons stated supra note 5 with respect to respondent’s
                                      imposition of the addition to tax under sec. 6651(a)(2), but also because April 15, 2000, was not
                                      within any period during which an estimated tax payment for 1999 was due. Rather, it con-
                                      stituted the termination date for the running of interest from each of the four estimated pay-
                                      ment dates for 1999. See sec. 6654(b)(2).




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                                           2. Conclusion
                                        Mr. Jeka properly sustained collection with respect to the
                                      addition to tax under section 6654(a).
                                                                           Decision will be entered for respondent.
                                        Reviewed by the Court.
                                        COHEN, FOLEY, VASQUEZ, GALE, THORNTON, MARVEL,
                                      GOEKE, WHERRY, KROUPA, GUSTAFSON, PARIS, and MORRI-
                                      SON, JJ., agree with this opinion of the Court.




                                         HALPERN, J., concurring: I concur with the results reached
                                      by the majority with respect to all of the issues. I write sepa-
                                      rately, however, to express my disagreement with the major-
                                      ity’s failure to hold, in deciding the section 31 credit issue,
                                      that, even if VarTec, in a later year, paid the nonwithheld
                                      taxes associated with the 1999 exercise, petitioner, as a
                                      matter of law, would not be entitled to a section 31(a) credit
                                      for that payment.
                                      I. Introduction
                                         Petitioner’s sole argument is that he is entitled to a section
                                      31(a) credit against his 1999 tax liability for VarTec’s 2004
                                      or 2005 payment of nonwithheld taxes associated with the
                                      1999 exercise. Respondent argues that (1) VarTec did not
                                      make the alleged payment, and (2) as a matter of law, any
                                      such payment would not entitle petitioner to a section 31(a)
                                      credit. The majority holds that petitioner’s argument fails
                                      because a preponderance of the evidence does not support the
                                      existence of such a payment. I would also hold that peti-
                                      tioner’s argument fails because, as respondent argues, any
                                      such payment would not, as a matter of law, entitle him to
                                      a section 31(a) credit. Moreover, I would make the latter
                                      holding the principal holding in the case. The majority would
                                      postpone addressing the legal issue until we are ‘‘presented
                                      with a case in which the IRS proposes to collect a party’s
                                      liability that has been paid by another person.’’ 1 See op. Ct.
                                        1 The above-quoted language implies that an employer’s payment of nonwithheld taxes attrib-

                                      utable to a prior year may constitute a payment of the employee’s tax liability. As discussed
                                      infra, such a payment discharges the employer’s, not the employee’s, tax obligation. See infra
                                      sec. II.B. and C.




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                                      p. 242. It further cautions: ‘‘Our silence on the [legal] issue
                                      should not be construed as our agreement with either party’s
                                      argument.’’ See id. p. 242. The majority leaves open the
                                      possibility that, on the basis of our decision in Whalen v.
                                      Commissioner, T.C. Memo. 2009–37, employees will be
                                      encouraged to argue (as did petitioner) that an employee
                                      whose employer failed to withhold taxes during a particular
                                      taxable year is entitled to a section 31(a) credit for the
                                      employer’s payment in a subsequent taxable year of the non-
                                      withheld taxes. 2
                                        The majority notes that ‘‘Whalen was a deficiency case, not
                                      a collection case’’, thus implying that the case is somehow
                                      distinguishable and, therefore, that the majority’s postpone-
                                      ment in deciding the legal issue would not encourage
                                      employees to advance an argument similar to that advanced
                                      by petitioner. I would submit that an employer’s payment of
                                      a prior year’s nonwithheld taxes either is or is not creditable
                                      by the employee under section 31(a), regardless of the con-
                                      text in which that issue arises.
                                        For the reasons set forth below, I believe the law is clear
                                      that an employer’s (or former employer’s) payment to the
                                      Internal Revenue Service (IRS) of taxes that should have
                                      been, but were not, withheld in a prior year does not entitle
                                      the employee to a section 31(a) credit for that payment.
                                      Under those circumstances we have a duty not to mislead
                                      taxpayers by perpetuating a case, Whalen, that may very
                                      well encourage needless litigation. Therefore, we should hold,
                                      in the alternative, that, as a matter of law, the VarTec pay-
                                         2 The majority seems to not share this concern, describing as obiter dictum our suggestion in

                                      Whalen v. Commissioner, T.C. Memo. 2009–37, that an employer’s subsequent-year payment to
                                      the Internal Revenue Service (IRS) of taxes that should have been withheld in a prior year
                                      ‘‘could plausibly be characterized as withholding’’ eligible for the sec. 31(a) credit. See op. Ct.
                                      p. 242. In Whalen, we went on to state, however, that the employer’s delinquent payment in
                                      2004 of the amount it failed to withhold in 2001 could not properly be credited to the taxpayer
                                      employee for 2004 because ‘‘the tax is considered withheld [by the employer] for * * * [the tax-
                                      payer’s] 2001 income tax.’’ ‘‘Therefore,’’ we added, ‘‘[the taxpayer] is properly denied the use of
                                      the section 31 credit to determine an overpayment for 2004.’’ In other words, in addition to the
                                      earlier statement that it was ‘‘plausible’’ to characterize the employer’s 2004 payment as with-
                                      holding for 2001, we denied the taxpayer a 2004 sec. 31 credit because we considered the pay-
                                      ment as withheld for 2001. We went beyond (1) granting that one could plausibly argue for con-
                                      structive withholding to (2) adopting constructive withholding for 2001 as the reason we denied
                                      the taxpayer a withholding credit for 2004. It is difficult to dismiss our reasoned analysis of
                                      why the taxpayer lost as merely ‘‘something said in passing’’; i.e., ‘‘obiter dictum’’. Black’s Law
                                      Dictionary 1177 (9th ed. 1999) (‘‘Latin ‘something said in passing’ * * * ‘Often shortened to dic-
                                      tum’ ’’). Petitioner did not unreasonably attach more weight to it than that.




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                                      ment alleged by petitioner, even if proven, would not entitle
                                      him to a section 31(a) credit therefor. 3
                                      II. Section 31 Credit Issue
                                           A. Background
                                        Section 3402(a) requires the withholding of income tax on
                                      wages. Section 3401(a) defines ‘‘wages’’ generally as ‘‘remu-
                                      neration * * * for services performed by an employee for his
                                      employer’’. The medium in which the remuneration is paid is
                                      immaterial and may include stock. Sec. 31.3401(a)–1(a)(4),
                                      Employment Tax Regs. Moreover, remuneration for services
                                      constitutes wages even though paid after the recipient’s
                                      employment relationship with the employer has ended. Otte
                                      v. United States, 419 U.S. 43, 49–50 (1974) (‘‘a continuing
                                      employment relationship is not a prerequisite for a pay-
                                      ment’s qualification as ‘wages.’ ’’); sec. 31.3401(a)–1(a)(5),
                                      Employment Tax Regs. (to the same effect as Otte and relied
                                      on by the U.S. Supreme Court therein). The option proceeds
                                      constituted wages subject to withholding of income tax, even
                                      though petitioner received them after having left Excel’s
                                      employ. Petitioner concedes that ‘‘neither Excel or Paine
                                      Webber withheld taxes on his behalf in 1999.’’ Nevertheless,
                                      he argues that VarTec’s alleged 2004 or 2005 payment of
                                      those nonwithheld taxes entitles him to a corresponding
                                      credit for 1999 under section 31(a) and section 1.31–1(a),
                                      Income Tax Regs. Petitioner is mistaken.




                                        3 The fact that this case can be disposed of on the basis of our finding no payment would not

                                      make a holding with respect to sec. 31(a) creditability dictum. The U.S. Supreme Court an-
                                      nounced the pertinent principle over 100 years ago in Union Pac. R.R. v. Mason City & Fort
                                      Dodge R.R., 199 U.S. 160, 166 (1905):
                                      Whenever a question fairly arises in the course of a trial, and there is a distinct decision of
                                      that question, the ruling of the court in respect thereto can, in no just sense, be called mere
                                      dictum. Railroad Companies v. Schutte, 103 U.S. 118, in which this court said (p. 143):
                                      ‘‘It cannot be said that a case is not authority on one point because, although that point was
                                      properly presented and decided in the regular course of the consideration of the cause, some-
                                      thing else was found in the end which disposed of the whole matter. Here the precise question
                                      was properly presented, fully argued, and elaborately considered in the opinion. The decision
                                      on this question was as much a part of the judgment of the court as was that on any other
                                      of the several matters on which the case as a whole depended.’’




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                                            B. Section 3403 Imposes an Independent Liability Upon
                                               Employers for Failure To Withhold Taxes.
                                         In its entirety, section 3403 provides: ‘‘The employer shall
                                      be liable for the payment of the tax required to be deducted
                                      and withheld under this chapter [chapter 24, sections 3401–
                                      3406], and shall not be liable to any person for the amount
                                      of any such payment.’’
                                         Section 31.3403–1, Employment Tax Regs., which imple-
                                      ments section 3403, emphasizes that employers ‘‘required to
                                      deduct and withhold * * * tax under section 3402’’ are liable,
                                      under section 3403, ‘‘for the payment of such tax whether or
                                      not it is collected from the employee by the employer.’’ Thus,
                                      the employer’s tax liability under section 3403 is independent
                                      of the employee’s liability under sections 1 and 61(a)(1) to
                                      pay tax on the same wages. See Whalen v. Commissioner,
                                      T.C. Memo. 2009–37. The employer’s section 3403 liability for
                                      nonwithheld taxes can be abated, however, if the employer
                                      shows that the employee paid the taxes in question. Sec.
                                      3402(d). 4
                                         There is no equivalent general abatement or credit provi-
                                      sion applicable to employees. 5 Thus, an employee’s liability
                                      for income taxes is not subject to abatement or credit under
                                      section 31(a) merely because the employee proves that the
                                      employer paid the tax he had previously failed to withhold.
                                      See sec. 3403. 6 There is an exception, however, in the limited
                                      circumstances wherein the employer pays the employee’s
                                           4 In   pertinent part, sec. 3402(d) provides:
                                      If the employer, in violation of the provisions of this chapter, fails to deduct and withhold the
                                      tax under this chapter, and thereafter the tax against which such tax may be credited is paid,
                                      the tax so required to be deducted and withheld shall not be collected from the employer * * *.
                                         Sec. 3402(d) would appear to represent congressional anticipation of our concern in Whalen
                                      v. Commissioner, T.C. Memo. 2009–37, wherein we observed: ‘‘To conclude that withholding tax
                                      is a separate tax invites the possibility of an employee’s income being taxed twice.’’ There is,
                                      of course, only one tax, but there are two separate and independent collection mechanisms: from
                                      the employer pursuant to sec. 3402 or sec. 3403 and from the employee on the basis of, gen-
                                      erally, secs. 1, 61(a)(1), 6151(a), and 6155.
                                         5 A limited exception to that observation, inapplicable herein, is provided by sec. 4999(c) with

                                      respect to an employer’s excess golden parachute payments to an employee. The effect of that
                                      provision is to require the employer to treat its payment of the 20% excise tax applicable to
                                      such payments as additional income tax withholding. That treatment assures the employee of
                                      a sec. 31(a) credit for the employer’s payment and, in effect, prohibits the Commissioner from
                                      looking to him for payment of that tax with respect to the same excess parachute payment.
                                         6 As a practical matter, sec. 3402(d) may discourage the Commissioner from pursuing the em-

                                      ployee for taxes previously collected from the employer because that provision would permit the
                                      employer to recoup its payment to the extent it can show that the same tax amount was col-
                                      lected from the employee.




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                                      taxes that the employer did not timely withhold and the
                                      employee reimburses him under the correction and settle-
                                      ment procedures adopted by the regulations under section
                                      6205 (discussed infra section II.C. of this concurring opinion).
                                      Absent satisfaction of that exception, employer payments of
                                      nonwithheld taxes under section 3403 do not constitute pay-
                                      ments of taxes that have ‘‘actually been withheld at the
                                      source’’ as required by section 1.31–1(a), Income Tax Regs.
                                      Therefore, such payments are not creditable by the employee
                                      under section 31(a) (discussed infra section II.D. of this
                                      concurring opinion).
                                           C. Section 6205(a)(1) and the Regulations Governing
                                              Corrections of Prior Underwithholdings
                                           In relevant part, section 6205(a)(1) provides:
                                      If less than the correct amount of tax imposed by section * * * 3402 is
                                      paid with respect to any payment of wages or compensation, proper adjust-
                                      ments, with respect to both the tax and the amount to be deducted, shall
                                      be made, without interest, in such manner and at such times as the Sec-
                                      retary may by regulations prescribe.

                                         The fact that an employer may make ‘‘proper adjustments,
                                      with respect to both the tax and the amount to be deducted
                                      [from employee wages]’’ on an interest-free basis incentivizes
                                      employers to make voluntary corrections of employment tax
                                      returns reflecting underwithholdings.
                                         The regulations under section 6205(a)(1) permit an
                                      employer to correct an underwithholding of income tax (on
                                      an interest-free basis) on a supplemental return filed as late
                                      as ‘‘the last day on which the return is required to be filed
                                      for the return period in which the error was acertained.’’ Sec.
                                      31.6205–1(c)(2)(i), Employment Tax Regs. 7 Moreover, audit
                                      adjustments resulting from employment tax audits alleging
                                      income tax underwithholding may be paid, interest free, by
                                      the employer after the conclusion of the audit and appeals
                                      process, provided the payment is accompanied by a signed
                                      Form 2504, Agreement to Assessment and Collection of Addi-
                                         7 Except as otherwise noted, the sec. 6205 regulations cited throughout this concurring opinion

                                      were in effect in 1999 and during the period of the Excel audit and appeal and the Teleglobe
                                      and VarTec bankruptcies. The regulations are superseded by regulations finalized on July 1,
                                      2008, T.D. 9405, 2008–32 I.R.B. 293, which apply to ‘‘any error acertained on or after January
                                      1, 2009’’, id. The 2008 regulations do not change, in any material respect, the prior regulations
                                      cited herein.




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                                      tional Tax and Acceptance of Overassessment, and is made
                                      before the employer receives a notice and demand for pay-
                                      ment. Sec. 31.6205–1(a)(6)(i), Employment Tax Regs. (as
                                      amended in 2001); Rev. Rul. 2009–39, Situation 9, 2009–52
                                      I.R.B. 951, 956 (obsoleting Rev. Rul. 75–464, Situation 2,
                                      1975–2 C.B. 474, 475, to the same effect).
                                         When the employer corrects an underwithholding of
                                      income tax and pays amounts pursuant to section 3403, the
                                      section 6205 regulations restrict the situations in which the
                                      employer is entitled to employee reimbursements. In general,
                                      an employer is permitted to collect income tax withholding
                                      shortfalls from its employees if it collects the underwithheld
                                      amount within the same calendar year as the underwith-
                                      holding ‘‘by deducting such amount from remuneration of the
                                      employee, if any, under * * * [the employer’s] control
                                      [whether or not the remuneration constitutes wages].’’ Sec.
                                      31.6205–1(c)(4), Employment Tax Regs. Undercollections in a
                                      calendar year not so corrected are ‘‘a matter for settlement
                                      between the employee and the employer within such cal-
                                      endar year.’’ Id. I interpret that last provision to cover situa-
                                      tions in which the employer is unable to deduct the requisite
                                      amount from employee remuneration before yearend; e.g.,
                                      because the employee is entitled to too little or to no addi-
                                      tional remuneration from the employer before then. It is not
                                      clear whether ‘‘settlement’’ before yearend means actual pay-
                                      ment before yearend by the employee or execution before
                                      yearend of a binding obligation to pay after yearend; e.g.,
                                      where the employee has insufficient funds to pay by yearend.
                                      Moreover, it is not clear whether such a binding obligation
                                      must be in the form of a debt instrument either bearing
                                      arm’s-length interest, or, if no (or too little) interest is pro-
                                      vided for, governed by the interest imputation rules of sec-
                                      tion 7872. There is no need to opine on those issues because
                                      none of the circumstances described in section 31.6205–
                                      1(c)(4), Employment Tax Regs., is present in this case. 8
                                         8 It is only during the limited period in which an employer may seek reimbursement from an

                                      employee for the amount of the former’s underwithholding corrections that a failure to do so
                                      will result in debt forgiveness income to the employee under sec. 61(a)(12). Employer underwith-
                                      holding corrections after the expiration of that period, because they do not give rise to a right
                                      of reimbursement from the employee, do not discharge any debt that could result in debt forgive-
                                      ness income to the employee. Moreover, because all underwithholding corrections by an em-
                                      ployer pursuant to sec. 3403 discharge the employer’s, rather than the employee’s, tax obliga-
                                      tion, Old Colony Trust v. Commissioner, 279 U.S. 716 (1929) (payment by an employer of an
                                                                                                   Continued




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                                           D. Application of the Section 31(a) Credit
                                         Section 31(a)(1) provides to every employee a credit against
                                      the employee’s income tax obligation with respect to his or
                                      her wages for ‘‘[t]he amount withheld as tax under chapter
                                      24 [sections 3401–3406]’’. Section 1.31–1(a), Income Tax
                                      Regs., limits the credit to ‘‘[t]he tax deducted and withheld
                                      at the source upon wages under chapter 24 of the Internal
                                      Revenue Code’’. That regulation further provides: ‘‘If the tax
                                      has actually been withheld at the source, credit or refund
                                      shall be made to the recipient of the income even though
                                      such tax has not been paid over to the Government by the
                                      employer.’’
                                         It is clear from that language that an employee’s right to
                                      a section 31(a) credit for employer income tax withholding is
                                      dependent on a finding that the tax has ‘‘actually been with-
                                      held’’ by the employer. The requisite actual withholding
                                      would occur only if the employer (1) withholds the required
                                      amounts from its wage payments to the employee pursuant
                                      to section 3402 or (2) corrects its failure to withhold the
                                      required amount, pursuant to section 6205 and the regula-
                                      tions thereunder, and recoups (or ‘‘settles’’) from the
                                      employee its payment of the underwithholding during the
                                      calendar year in which the underwithholding occurred as
                                      permitted by section 31.6205–1(c)(4), Employment Tax Regs.
                                      Only under those circumstances, not present herein, is it
                                      reasonable to conclude that there has been actual with-
                                      holding by the employer (i.e., ‘‘at the source’’). Therefore, any
                                      assumed 2004 or 2005 payment of taxes that should have
                                      been withheld from the proceeds of petitioner’s 1999 option
                                      exercises does not constitute an ‘‘amount withheld as tax
                                      under chapter 24’’ under section 31(a); likewise, it does not
                                      constitute ‘‘tax deducted and withheld at the source’’ as
                                      required by section 1.31–1(a), Income Tax Regs. 9
                                         Permitting an employee to automatically claim a section
                                      31(a) credit for any employer payment of tax pursuant to sec-
                                      employee’s income tax obligation in consideration of the employee’s services performed on behalf
                                      of the employer constitutes income to the employee), is inapplicable thereto.
                                         9 I recognize that conclusion is inconsistent with our observation in Whalen v. Commissioner,

                                      T.C. Memo. 2009–37, that such a payment ‘‘could plausibly be characterized as withholding tax
                                      under chapter 24 with a corresponding section 31 credit being allowed to a proper recipient for
                                      an appropriate year.’’ But it is the argument of this section II.D. that the payment in Whalen
                                      could not have been creditable under sec. 31(a) for any year.




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                                      tion 3403 would benefit equally employees who paid taxes on
                                      their wage income (whether or not withheld and reported on
                                      a Form W–2, Wage and Tax Statement) and employees, such
                                      as petitioner, who never paid taxes on that income, thereby
                                      unjustly enriching the latter. Moreover, such a result would
                                      open the door to unwarranted tax planning arrangements
                                      designed to frustrate the Commissioner’s right to collect
                                      interest and additions to tax or penalties on late payments
                                      or underpayments of tax pursuant to sections 6601,
                                      6651(a)(2), and 6654. For example, employees who have pur-
                                      posely underpaid their taxes on wage income and had their
                                      returns audited and been assessed significant deficiencies
                                      and interest (not unlike petitioner) would have the proce-
                                      dural ability to persuade their employers (or former
                                      employers) to voluntarily and retroactively pay those payroll
                                      taxes under the interest-free adjustment procedures of sec-
                                      tion 31.6205–1(c), Employment Tax Regs., by agreeing to
                                      reimburse the employer (or former employer) in full, thus
                                      enabling the employees to use the section 31(a) credit to
                                      effectively erase their liability for interest and, perhaps,
                                      additions to tax and penalties with respect to the defi-
                                      ciencies. 10 Where the employer has made a payment under
                                      section 3403 in a year after the year of underwithholding,
                                      the Commissioner should be permitted to collect the appro-
                                      priate interest and additions to tax from the employee even
                                      though the Commissioner may be required to refund the tax
                                      amount to the employer pursuant to section 3402(d).
                                         Petitioner’s arguments to the contrary are not persuasive.
                                      His basic argument, that so-called constructive withholding
                                      satisfies the requirements of section 31(a) and that, under
                                      Whalen v. Commissioner, T.C. Memo. 2009–37, VarTec’s 2004
                                      or 2005 payment of nonwithheld taxes in bankruptcy con-
                                      stituted a constructive withholding of those taxes flies in the
                                      face of the specific requirement in section 1.31–1(a), Income
                                      Tax Regs., that availability of the credit be limited to tax
                                      that ‘‘has actually been withheld at the source’’. It is also
                                      inconsistent with the U.S. Supreme Court’s description of
                                        10 By treating VarTec’s assumed 2004 or 2005 payment in partial discharge of the Commis-

                                      sioner’s proof of claim in the VarTec bankruptcy as withholding tax associated with petitioner’s
                                      1999 exercise (i.e., as ‘‘tax actually * * * withheld at the source’’), that payment would nec-
                                      essarily be deemed to have been made on the original due date of the 1999 return, April 15,
                                      2000. See sec. 6513(b)(1); Baral v. United States, 528 U.S. 431, 435–437 (2000).




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                                      withholding in Begier v. IRS, 496 U.S. 53 (1990), which peti-
                                      tioner cites as supportive of his position. In Begier, a case in
                                      which a trustee in bankruptcy unsuccessfully disputed the
                                      defendant’s right to retain the debtor’s prepetition payments
                                      to it of withheld taxes, the Court stated, in pertinent part:
                                      Section 3402(a)(1) requires that ‘‘every employer making payment of wages
                                      shall deduct and withhold upon such wages [the employee’s federal income
                                      tax].’’ (Emphasis added.) Withholding thus occurs at the time of payment
                                      to the employee of his net wages. * * * The common meaning of ‘‘with-
                                      holding’’ supports our interpretation. See Webster’s Third New Inter-
                                      national Dictionary 2627 (1981) (defining ‘‘withholding’’ to mean ‘‘the act
                                      or procedure of deducting a tax payment from income at the source’’)
                                      (emphasis added). [Id. at 60–61.]

                                      III. Conclusion
                                        Assuming that Excel or VarTec paid all or a portion of
                                      petitioner’s outstanding, self-assessed liability with respect to
                                      his income from the 1999 exercise, he would not be entitled
                                      to a credit under section 31(a)(1) for that payment, and we
                                      should say so. 11
                                        HOLMES, J., agrees with this concurring opinion.

                                                                               f




                                        11 And finally, borrowing from Judge Holmes’ baseball analogy in Stromme v. Commissioner,

                                      138 T.C. 213, 227 (2012) (Holmes, J., concurring), if an umpire calls a pitch a ball, and if the
                                      catcher complains that the pitch was in fact over the plate, it would not be improper for the
                                      umpire to point out to the catcher that, even if the pitch crossed the corner of the plate, it was
                                      below the batter’s knees and, still, a ball.




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