                              T.C. Memo. 2013-197



                        UNITED STATES TAX COURT



                  PAMELA L. LENGUA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19255-12L.                      Filed August 27, 2013.



      Pamela L. Lengua, pro se.

      Halvor R. Melom, for respondent.



           MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: The petition in this case was filed in response to a

Notice of Determination Concerning Collection Action(s) under Section 6320

and/or 6330 (notice of determination) dated June 27, 2012, upholding a proposed

levy collection action for tax periods ending September 30 and December 31,
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[*2] 2008, and September 30 and December 31, 2009. Respondent has abated the

trust fund recovery penalty associated with the quarterly period ending September

30, 2008; therefore, that quarterly period is no longer in issue. See Kelby v.

Commissioner, 130 T.C. 79, 84-85 (2008), aff’d, 444 Fed. Appx. 950 (9th Cir.

2011). We must consider whether respondent’s determination to proceed with the

collection action regarding petitioner’s section 6672 liabilities for the remaining

periods in issue was an abuse of discretion.

      Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect at all relevant times, and all Rule references are to the Tax

Court Rules of Practice and Procedure. We round all monetary amounts to the

nearest dollar.

                               FINDINGS OF FACT

      Petitioner resided in California when the petition was filed. Petitioner was

president of Hey Baby Enterprises, Inc. (HBE), a California corporation

incorporated in January 2008, at all times during 2008 and 2009.

      HBE filed Forms 941, Employer’s Quarterly Federal Tax Return, for

quarterly periods ending September 30 and December 31, 2008, and September

30, 2009. HBE reported tax liabilities of $14,840, $16,988, and $12,602,

respectively. HBE did not file a Form 941 for the quarterly period ending
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[*3] December 31, 2009. Pursuant to section 6020(b), respondent filed a

substitute for return for HBE for that quarterly period showing a liability of

$32,138. HBE did not pay the tax liabilities in full for the periods in issue.

      On March 10, 2010, respondent mailed a Letter 1153 to petitioner’s last

known address, notifying her of respondent’s intent to assess trust fund recovery

penalties (TFRPs) pursuant to section 6672 for the periods in issue. The Letter

1153 further notified petitioner that she could request a hearing in response.

Petitioner received the letter, but she did not request a hearing in response to it.

      As of July 5, 2010, HBE had not fully paid the tax liabilities for the periods

in issue. Therefore, respondent assessed against petitioner TFRPs of $8,623,

$9,869, $7,002, and $7,167 for the quarterly periods ending September 30 and

December 31, 2008, and September 30 and December 31, 2009, respectively.

      The assessed balance due for petitioner’s TFRP liability for the quarterly

period ending December 31, 2008, is currently $9,869; no amounts have been

credited against that liability. The assessed balance due for petitioner’s TFRP

liability for the quarterly period ending September 30, 2009, is currently $7,002;

no amounts have been credited against that liability. Finally, the assessed balance

due for petitioner’s TFRP liability for the quarterly period ending December 31,
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[*4] 2009, is currently $7,167; offsetting credits and debits of $18,006 were

applied on July 5, 2010.

      On January 26, 2011, respondent sent petitioner a Letter 1058, Final Notice

of Intent to Levy and Notice of Your Right to Hearing, regarding her TFRP

liabilities for the periods in issue. On February 28, 2011, petitioner filed a Form

12153, Request for a Collection Due Process or Equivalent Hearing (CDP hearing

request). In the CDP hearing request petitioner wrote: “The amounts listed on the

final notice * * * of intent to levy, dated 1-26-11, are incorrect. Not all payments

have been credited. Actual amounts are lower.” She did not request any

collection alternatives.

      On March 16, 2011, petitioner sent respondent a letter in which she claimed

that she was being assessed for her corporation’s tax liabilities, resulting in

“double liabilities”. On May 13, 2011, respondent sent petitioner a letter

explaining the Appeals process.

      On February 2, 2012, the settlement officer sent petitioner a letter

scheduling a telephone CDP hearing for March 2, 2012. The February 2, 2012,

letter explained that the Appeals Office cannot approve an installment agreement

or accept an offer-in-compromise unless all estimated tax payments for the current

year’s income tax liability have been made. The February 2, 2012, letter also
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[*5] explained that delinquent estimated tax payments can be included in an

installment agreement, but the estimated tax payments must be paid in full before

an offer-in-compromise can be accepted. The February 2, 2012, letter noted that

petitioner had not made estimated tax payments for 2011. Additionally, the

February 2, 2012, letter requested that petitioner provide a completed Form 433-A,

Collection Information Statement for Wage Earners and Self-Employed

Individuals; a completed Form 443-B, Collection Information Statement for

Businesses, and other supporting documents; petitioner’s unfiled Federal income

tax return for 2009; and proof of estimated tax payments for 2009 (collectively,

the requested documents). Petitioner did not respond to the February 2, 2012,

letter.

          Petitioner did not contact the settlement officer on March 2, 2012, for the

scheduled telephone CDP hearing. On March 2, 2012, respondent sent petitioner a

followup letter, asking her to provide the requested documents within 14 days. On

March 15 and 16, 2012, petitioner’s husband attempted to reach the settlement

officer by phone. The settlement officer declined to discuss the case with him.

          On March 16, 2012, a telephone CDP hearing was held. Petitioner

explained that her corporate tax liabilities were before another settlement officer

and that she was seeking an installment agreement for those liabilities. The
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[*6] settlement officer extended the deadline for petitioner to submit the requested

documents to March 19, 2012.

      On or around March 15, 2012, petitioner provided a Form 433-A and some

supporting documentation, which indicated that she had equity of $200,000 in her

home. The settlement officer estimated that petitioner’s residence was worth

$499,800 and was subject to an encumbrance of $179,000. On March 16, 2012,

petitioner sent respondent a letter which explained that HBE had made the

following voluntary payments: $3,400 on August 24, 2010; $2,500 on September

22, 2010; $2,500 on October 22, 2010; and $2,500 on November 24, 2010. The

settlement officer verified these payments and determined that they had been

applied to the quarterly period ending September 30, 2008. On May 11, 2012, the

settlement officer spoke with petitioner and suggested that she take out a loan to

pay her TFRP liabilities.

      On June 27, 2012, respondent issue the notice of determination, sustaining

the levy and delaying collection until January 1, 2013. Respondent delayed

collection to give petitioner time to refinance the mortgage on her residence. In

the notice of determination the settlement officer verified that all requirements of

applicable law and administrative procedure had been met. The settlement officer

also determined that the collection action balanced the need for efficient collection
                                         -7-

[*7] of unpaid penalties with the legitimate concern that such actions be no more

intrusive than necessary.

      On July 31, 2012, petitioner filed the petition with this Court, stating: “The

IRS has incorrectly imposed a civil penalty liability on me personally.”

                                     OPINION

I.    Trust Fund Recovery Penalty

      Section 6672(a) imposes a penalty--commonly referred to as the TFRP--for

willfully failing to collect, account for, and pay over income and employment

taxes of employees. These penalties are assessed and collected in the same

manner as taxes against a person who is “an officer or employee of a corporation

* * * who as such officer, [or] employee * * * is under a duty to perform”, in this

case, the duties to which section 6672 refers. Sec. 6671(b). Such persons are

referred to as “responsible persons”, a term which may be broadly applied. Mason

v. Commissioner, 132 T.C. 301, 321 (2009).

      The parties stipulated that petitioner is the responsible person for HBE; i.e.,

the person required to collect, truthfully account for, and pay over the tax

liabilities shown on the Forms 941 for HBE for the periods in issue. The parties

further stipulated that petitioner is liable for the TFRPs assessed on July 5, 2010.
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[*8] II.     Scope of Review

       Under certain circumstances a taxpayer may raise challenges in a CDP

proceeding to the Commissioner’s determination of his or her underlying tax

liabilities. See sec. 6330(c)(2)(B). A taxpayer may challenge in a CDP

proceeding the amount of the tax assessed by the Commissioner if he or she did

not receive a statutory notice of deficiency or did not otherwise have an

opportunity to dispute the tax liability. Id.; see also Montgomery v.

Commissioner, 122 T.C. 1, 7 (2004). Moreover, the Court will consider an

underlying tax liability on review only if the taxpayer properly raised the issue

during the CDP hearing. Giamelli v. Commissioner, 129 T.C. 107, 112-116

(2007); see also sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.

       Where the assessments against the taxpayer are TFRPs, the Commissioner

does not issue or mail a notice of deficiency. See sec. 6212(a). Instead, in general

the Commissioner must provide the taxpayer with a notice of the TFRPs (section

6672(b) notice) before assessment. Sec. 6672(b)(1). A Letter 1153 provides a

taxpayer with a section 6672(b) notice and the means of protesting a proposed

TFRP administratively with the Commissioner. Mason v. Commissioner, 132 T.C.

at 317. We have held that the receipt of Letter 1153 constitutes an opportunity to

dispute the taxpayer’s liability within the meaning of section 6330(c)(2)(B). E.g.,
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[*9] Solucorp, Ltd. v. Commissioner, T.C. Memo. 2013-118; Morgan v.

Commissioner, T.C. Memo. 2011-290.

      On March 10, 2010, respondent sent petitioner a Letter 1153 notifying her

of respondent’s intent to assess TFRPs for the periods in issue. Petitioner received

it, but she did not respond to it or contest the proposed amounts. Petitioner thus

had a prior opportunity to challenge the underlying liabilities. See Mason v.

Commissioner, 132 T.C. at 317-318; Solucorp, Ltd. v. Commissioner, T.C. Memo.

2013-118. Consequently, petitioner was precluded from challenging the

underlying liabilities during her CDP hearing.

      Petitioner disputes the underlying liabilities in her petition, claiming that the

section 6672 penalties were duplicative of her corporation’s employment tax

liabilities, that her corporation is on an installment agreement, and that payments

made by her corporation have not been properly credited. Because petitioner was

precluded from challenging the underlying liabilities during her CDP hearing, she

is likewise precluded from challenging them before this Court.

      Even if petitioner could challenge her underlying liabilities before this

Court, her claims would fail. Petitioner does not dispute that she, as the president

of her corporation, has the power to ensure that it complies with its legal

obligation regarding employment taxes. The liability imposed on responsible
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[*10] persons pursuant to section 6672 is separate and distinct from an employer’s

liability for trust fund taxes. Mason v. Commissioner, 132 T.C. at 321; see also

Solucorp, Ltd. v. Commissioner, at *12. Consequently, the Commissioner is not

required to attempt to collect the underlying trust taxes from the employer before

attempting to collect section 6672 penalties against a responsible person pursuant

to section 6672. See Mason v. Commissioner, 132 T.C. at 321; see also United

States v. Huckabee Auto Co., 783 F.2d 1546, 1549 (11th Cir. 1986); Hornsby v.

IRS, 588 F.2d 952, 954 (5th Cir. 1979). Petitioner’s liabilities for section 6672

penalties are separate and distinct from HBE’s Form 941 tax liabilities. See

Freeman v. Commissioner, T.C. Memo. 2011-38.

       Because the validity of the underlying liabilities as determined by the

Commissioner are not properly in issue, we review the determination for abuse of

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

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

III.   Abuse of Discretion

       An abuse of discretion occurs if the Appeals Office exercises its discretion

“arbitrarily, capriciously, or without sound basis in fact or law.” Woodral v.

Commissioner, 112 T.C. 19, 23 (1999); see also Keller v. Commissioner, 568 F.3d

710, 716 (9th Cir. 2009), aff’g in part T.C. Memo. 2006-166.
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[*11] Section 6330(c)(3) requires the settlement officer to consider the following

during a CDP hearing: (1) whether the requirements of any applicable law or

administrative procedure have been met; (2) any issues appropriately raised by the

taxpayer; and (3) whether the proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the taxpayer that any

collection action be no more intrusive than necessary. See also Lunsford v.

Commissioner, 117 T.C. 183, 184 (2001). We note that the settlement officer in

this case properly based her determination on the factors specified by section

6330(c)(3).

      Petitioner did not request any collection alternatives at the hearing. In

addition, petitioner filled out a Form 433-A on March 15, 2012, and provided

supporting documents. The Form 433-A states that petitioner had no monthly

income, had $300 in her bank account, and had $200,000 of equity in a residence.

The settlement officer estimated that the value of the residence was $499,800, with

an encumbrance of $179,000, which left $321,000 in available equity. The

settlement officer concluded that petitioner would have sufficient assets to pay her

liabilities if she obtained a loan. The levy action was suspended in order to give

petitioner time to refinance the mortgage on her residence.
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[*12] The settlement officer did not abuse her discretion by determining that

petitioner did not qualify for collection alternatives because petitioner had

sufficient assets to pay the liabilities in full. We have held that there is no abuse

of discretion for failing to consider a collection alternative when the taxpayer

failed to submit a collection alternative for review. See Kendricks v.

Commissioner, 124 T.C. 69, 79 (2005). Moreover, it is proper to include the

equity in real estate owned by the taxpayer in a computation of available assets.

See Sullivan v. Commissioner, T.C. Memo. 2009-4. The Internal Revenue

Manual pt. 5.15.1.26(3) (May 9, 2008) states that “[t]he equity in real estate

should be pursued as a means to full[y] pay or reduce the tax liability.” It also

instructs Appeals officers to ask the taxpayer to secure a loan and that the

taxpayer’s “[r]efusal to pro-actively seek a loan will be considered refusal to pay”.

Id.; see also Antioco v. Commissioner, T.C. Memo. 2013-35, at *19. The

settlement officer gave petitioner time to arrange a loan. Consequently, we hold

that the settlement officer did not abuse her discretion in upholding the proposed

collection action.

      We have considered the other arguments of the parties, and they are either

without merit or need not be addressed in view of our resolution of the issue.
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[*13] To reflect the foregoing,


                                                 Decision will be entered

                                           for respondent.
