                       124 T.C. No. 6



                UNITED STATES TAX COURT



    JUANITA AND EMMANUEL KENDRICKS, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 3430-03L.              Filed March 9, 2005.


     At the conclusion of a collection due process
hearing (hearing), R’s Appeals Office (Appeals)
determined to proceed by levy to collect unpaid
assessments of tax. Ps ask us to review that
determination. Among other errors, Ps claim that
Appeals erred in not allowing them to raise at the
hearing the tax liabilities underlying the unpaid
assessments because they had not had the opportunity to
dispute those liabilities in a bankruptcy proceeding
instituted by them.

     1. Held: The bankruptcy proceeding instituted by
petitioners afforded them the opportunity to dispute
the underlying liabilities within the meaning of sec.
6330(c)(2)(B), I.R.C., and, as a result, Ps were
precluded from raising those liabilities during the
hearing.

     2. Held, further, because Ps neither raised
collection alternatives during the hearing nor properly
made an offer in compromise, Appeals did not err in
                               - 2 -

     determining to proceed by levy to collect the unpaid
     assessments of tax.



     Neal Weinberg, for petitioners.

     Brianna Basaraba Taylor, for respondent.



                              OPINION


     HALPERN, Judge:   This case is before the Court to review

determinations made by respondent’s Appeals Office (Appeals) that

respondent may proceed to collect by levy amounts assessed but

unpaid with respect to petitioner Juanita Kendricks’s 1982

through 1984 taxable (calendar) years and petitioners Juanita and

Emmanuel Kendricks’ 1985 taxable (calendar) year (collectively,

the unpaid assessments).1   We review the determinations pursuant

to section 6330(d)(1).2   Petitioners (individually, Mr. or Mrs.

Kendricks) assign error to the determinations on the grounds that

(1) they did not receive notices of deficiency for the years in

issue in time to file a petition in the Tax Court, and,

therefore, Appeals should not have denied them the opportunity to



     1
        For 1982 through 1984, Mrs. Kendricks made separate
returns of income; for 1985 petitioners made a joint return of
income. Mr. Kendricks’s 1982 through 1984 taxable years are not
before us.
     2
        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.
                                   - 3 -

dispute the underlying tax liabilities for those years; (2)

Appeals abused its discretion in determining that collection by

levy was the most appropriate course of action when petitioners

wished to submit collection alternatives and an offer in

compromise was pending; and (3) Appeals would not, in connection

with petitioners’ claims, consider the claims of two nominee

corporations (nominees of Mrs. Kendricks), Foxy Investments,

Inc., and J & K Trucking Co., Inc. (the nominee corporations).

By order dated March 17, 2004, we, in effect, disposed of

petitioners’ third ground, by granting respondent’s motion to

dismiss for lack of jurisdiction (and to obtain certain other

relief) with respect to the nominee corporations.3      With respect

to petitioners’ remaining two grounds, respondent moves for

summary judgment in his favor (the motion).       Petitioners object.

       Rule 121 provides for summary judgment.    Summary judgment

may be granted with respect to all or any part of the legal

issues in controversy "if the pleadings, answers to

interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law."       Rule 121(a) and

(b).       When a motion for summary judgment is made and properly


       3
        We based our order on our finding that the nominee
corporations were not persons liable to pay the unpaid
assessments and, therefore, were not proper parties to this case.
                                   - 4 -

supported, the adverse party may not rest on mere allegations or

denials of the pleadings but must set forth specific facts

showing that there is a genuine issue for trial.      Rule 121(d).

       We are satisfied that there is no genuine issue as to any

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

law.       For the reasons that follow, we shall grant the motion.

                                Background

Introduction

       We draw the following facts from the pleadings and the

declaration of respondent’s counsel, Brianna Basaraba Taylor, as

to (1) the documents contained in respondent’s administrative

files concerning the hearing accorded petitioners pursuant to

section 6330, (2) the documents in respondent’s possession

concerning petitioners’ bankruptcy proceeding, and (3) additional

documents in respondent’s files relating to petitioners’ case.

We believe the following facts to be undisputed and so find for

purposes of disposing of the motion.4

Residence

       At the time the petition was filed, petitioners resided in

Albany, Ga.




       4
            All dollar amounts have been rounded to the nearest
dollar.
                                - 5 -

Respondent’s Determinations of Deficiencies and Assessments

     On March 24, 1995, respondent mailed to petitioners

statutory notices of deficiency (notices) determining the

deficiencies in, and additions to, tax that underlie the unpaid

assessments.   Petitioners failed to petition the Tax Court in

response to the notices, and, as a result, respondent assessed

the deficiencies and additions to tax that he had determined.

Bankruptcy Case

     On September 13, 1996, petitioners filed a voluntary

petition in bankruptcy under Chapter 13 of the Bankruptcy Code,

11 U.S.C. ch. 13 (“Adjustment of Debts of an Individual with

Regular Income”), in the United States Bankruptcy Court for the

Middle District of Georgia (the bankruptcy case and the

bankruptcy court, respectively).   On October 21, 1996,

petitioners filed with the bankruptcy court both a Chapter 13

plan and a statement of financial affairs, which listed the

Internal Revenue Service (IRS) as a secured creditor with a total

claim of $338,571, of which $206,073 was listed as secured.    On

October 22, 1996, the IRS filed a claim against petitioners

(called a “proof of claim” in bankruptcy parlance) for $428,780,

on the basis of unpaid taxes for 1982 through 1985, all of which

amount was listed as secured.   On November 14, 1996, petitioners

filed an objection to the IRS’s proof of claim on the basis “that

the claim is not owed”, and, on November 15, 1996, petitioners
                                - 6 -

filed a motion to determine the secured status of the IRS’s

claim.    On December 16, 1996, the bankruptcy court granted

petitioners’ motion to convert the bankruptcy case from a case

under Chapter 13 of the Bankruptcy Code to a case under Chapter

11 of the Bankruptcy Code, 11 U.S.C. ch. 11 (“Reorganization”).

Between December 1996 and November 1997, petitioners and the IRS

(the bankruptcy parties) engaged in discovery regarding

petitioners’ objection to the IRS’s proof of claim, and, on

November 10, 1997, the bankruptcy court entered an order setting

petitioners’ objection for trial on February 11, 1998.    On

February 3, 1998, the bankruptcy court entered an order

continuing the trial until April 13, 1998.    On March 31, 1998,

the bankruptcy parties filed a stipulation of dismissal,

dismissing without prejudice both petitioners’ objection to the

IRS’s proof of claim and petitioners’ motion to determine secured

status.    On June 5, 2000, the bankruptcy case was dismissed upon

motion of the IRS when petitioners did not object.

Notices of Intent To Levy and Right to Hearing

     By letter dated October 24, 2001, respondent sent Mrs.

Kendricks a notice of intent to levy and a notice of her right to

a hearing under section 6330 (a collection due process hearing)

with respect to her 1982, 1983, and 1984 tax years, claiming

unpaid taxes, penalties, and interest for those years totaling

$530,908.
                                 - 7 -

     Also by letter dated October 24, 2001, respondent sent

petitioners a notice of intent to levy and a notice of their

right to a collection due process hearing with respect to their

1985 tax year, claiming unpaid tax, penalties, and interest for

that year of $110,676.

Collection Due Process Hearing

     On November 20, 2001, respondent received timely requests

for collection due process hearings from Mrs. Kendricks for her

1982, 1983, 1984, and 1985 tax years and from petitioners for

their 1985 tax year.   In attachments to the requests, petitioners

state that they dispute the liabilities underlying the unpaid

assessments (sometimes, the underlying liabilities) and have not

yet had an opportunity to contest those liabilities.    They also

claim that any levy would cause them hardship.

     In response to the requests, on September 18, 2002,

petitioners and their counsel were afforded a 2-hour, face-to-

face conference with Appeals Officer Allen D. Powell.   At the

conference, petitioners admitted that they had received the

notices but, nevertheless, wished to dispute the underlying

liabilities.   Appeals Officer Powell informed petitioners that

the Internal Revenue Code prohibited them from raising the

underlying liabilities when they had received a notice of

deficiency or otherwise had an opportunity to dispute the tax

liability.   Appeals Officer Powell then asked whether petitioners
                               - 8 -

wished to submit collection alternatives, and petitioners stated

that they did not.

     On or about September 19, 2002, petitioners submitted an

Offer in compromise (offer) to the IRS’s centralized offer in

compromise unit in New York.   The offer related to the unpaid

assessments, and the basis of the offer was “doubt as to

liability”.   Petitioners did not provide a copy of the offer to

Appeals Officer Powell.   By letter dated January 15, 2003, the

offer was returned to petitioners by the IRS because it could not

be processed in the form submitted.    A second offer was submitted

by petitioners’ counsel to the IRS by facsimile transmission on

January 30, 2003.

     On January 29, 2003, Appeals sent Notices of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330 to

petitioners’ counsel (the notices of determination).    The summary

of determinations section of each of those notices of

determination states:

     During Appeals consideration of your case, you were
     informed that you could not raise the issue of your tax
     liability because you had an opportunity to dispute the
     issue and failed to do so. No collection alternatives
     were explored because you chose not to submit financial
     information to evaluate the collection alternatives.

The section concludes:

     Appeals has obtained verification from the Secretary
     [of the Treasury] that the requirements of any
     applicable law or administrative procedure have been
     met, considered any relevant issues relating to the
     unpaid tax raised at the hearing, and taken into
                                 - 9 -

      consideration whether the proposed collection action
      balances the need for the efficient collection of taxes
      with the legitimate concern of the person that any
      collection action be no more intrusive than necessary.
      Therefore, it is the determination in this case [that]
      the proposed levy action is sustained.

      On March 3, 2003, petitioners filed the petition.

                              Discussion

I.   Collection Due Process

      If any person liable for Federal tax liability neglects or

refuses to make payment within 10 days of notice and demand, the

Commissioner is authorized to collect the tax by levy on that

person's property.   See sec. 6331(a).     As a general rule, at

least 30 days before taking such action, the Commissioner must

provide the person with a written final notice of intent to levy

that describes, among other things, the administrative appeals

available to the person.   See sec. 6331(d).

      Upon request, the person is entitled to an administrative

review hearing before Appeals.    Sec. 6330(b)(1).    The Appeals

officer conducting the hearing must verify that the requirements

of any applicable law or administrative procedure have been met.

Sec. 6330(c)(1).   Section 6330(c)(2) prescribes the relevant

matters that a person may raise at the Appeals hearing, including

spousal defenses, the appropriateness of respondent's proposed

collection action, and possible alternative means of collection.

A taxpayer may contest the existence or amount of the underlying

tax liability at an Appeals Office hearing if the taxpayer did
                                - 10 -

not receive a statutory notice of deficiency with respect to the

underlying tax liability or did not otherwise have an opportunity

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

     Following the hearing, the Appeals officer must determine

whether the collection action is to proceed, taking into account

the verification the Appeals officer has made, the issues raised

by the taxpayer at the hearing, and whether the 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.”     Sec. 6330(c)(3).

We have jurisdiction to review such determinations where we have

jurisdiction over the type of tax involved in the case.     Sec.

6330(d)(1)(A); see Iannone v. Commissioner, 122 T.C. 287, 290

(2004).   Where the underlying tax liability is properly at issue,

we review the determination de novo.     E.g., Goza v. Commissioner,

114 T.C. 176, 181-182 (2000).    Where the underlying tax liability

is not properly at issue, we review the determination for abuse

of discretion.   Id. at 182.    When faced with questions of law, as

we are here (e.g., determining whether the bankruptcy proceeding

instigated by petitioners afforded petitioners the opportunity to

dispute the tax liability), the standard of review makes no

difference.   Whether characterized as a review for abuse of

discretion or as a consideration "de novo" (of a question of

law), we must reject erroneous views of the law.     See Cooter &
                                 - 11 -

Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); Abrams v.

Interco, Inc., 719 F.2d 23, 28 (2d Cir. 1983) (stating that it is

not inconsistent with the abuse of discretion standard to decline

to honor a purported exercise of discretion that is infected by

an error of law); Swanson v. Commissioner, 121 T.C. 111, 119

(2003).

II.   Arguments of the Parties

      Respondent argues that summary judgment is appropriate

because the bankruptcy files and the administrative files

concerning the collection due process hearing (the hearing files)

are not in dispute and establish the material facts of the case,

so that a decision may be rendered as a matter of law.

Respondent claims that petitioners are precluded from challenging

the underlying liabilities because they had a prior opportunity

to dispute those liabilities and that, given petitioners’ failure

to present collection alternatives or the offer to Appeals,

Appeals did not abuse its discretion in deciding that the

proposed levy should be sustained.

      Petitioners argue that summary judgment is not appropriate

because, among other things, there are material issues of fact in

this case, viz, whether petitioners received the notices in time

to file petitions with the Tax Court and whether the bankruptcy

case presented an adequate opportunity to dispute the underlying

liabilities.   Petitioners concede that collection alternatives
                                - 12 -

were not raised at the conference they had with Appeals Officer

Powell on September 18, 2002, but deny that they had a collection

due process hearing because they were not allowed to challenge

the underlying liabilities.     Finally, petitioners argue that

there is an offer in compromise pending with respect to those

liabilities.

III.   Discussion

       A.   Material Issues of Fact

       There is no dispute with respect to the bankruptcy files and

the hearing files.     Those files establish most of the facts

material to this case.     Because petitioners argue that, although

they received the notices, they did not receive them in time to

petition the Tax Court, respondent does not rely on receipt of

the notices as the reason petitioners were precluded at their

conference with Appeals Officer Powell from raising challenges to

their liabilities for the unpaid assessments.     Rather, respondent

relies on the opportunity presented to petitioners by the

bankruptcy case to dispute those liabilities.     Since the relevant

facts with respect to the bankruptcy case are not in dispute, we

are faced with the question of whether, as a matter of law, the

bankruptcy case presented petitioners the opportunity to dispute

the underlying liabilities.     We need make no finding as to when

petitioners received the notices.
                                - 13 -

     B.   The Bankruptcy Case

     While we have yet to consider whether, when the IRS submits

a proof of claim for an unpaid Federal tax liability in a

taxpayer’s bankruptcy action, the taxpayer has the opportunity to

dispute the liability, within the meaning of section

6330(c)(2)(B), at least two other courts have answered that

question in the affirmative.    Johnson v. United States, 92 AFTR

2d 2003-7233, 2003-2 USTC par. 50721 (N.D. Ga. 2003); PCT Servs.,

Inc. v. United States, 92 AFTR 2d 2003-5234, 2003-2 USTC par.

50536 (N.D. Ga. 2003); Triad Microsystems, Inc. v. United States,

90 AFTR 2d 2002-7332, 2003-1 USTC par. 50106 (E.D. Va. 2002).     We

agree with those courts.

     When the IRS submits a proof of claim for unpaid Federal tax

liabilities in a taxpayer's bankruptcy proceeding, the taxpayer

and trustee may object to the IRS’s proof of claim.    Under 11

U.S.C. sec. 505(a), a bankruptcy court may, with certain

restrictions, determine: “the amount or legality of any tax, any

fine or penalty relating to a tax, or any addition to tax,

whether or not previously assessed, whether or not paid, and

whether or not contested before and adjudicated by a judicial or

administrative tribunal of competent jurisdiction.”    We think

that, when the procedure described provides the taxpayer the

opportunity to object to the IRS’s proof of claim for an unpaid

Federal tax liability, the taxpayer is afforded an opportunity to
                              - 14 -

dispute the liability, as contemplated by Congress in section

6330(c)(2)(B).

     In the bankruptcy case, petitioners did in fact file an

objection to the IRS’s proof of claim, as well as a motion to

determine the secured status of the IRS’s claim.   They were

accorded discovery against the IRS for a period of approximately

11 months.   Before the hearing scheduled to hear the objection

was held, however, petitioners stipulated to the dismissal

without prejudice of the objection to the IRS’s proof of claim

and the motion to determine secured status of the IRS’s claim.

Clearly, petitioners had the opportunity to dispute the

underlying liabilities.5   Petitioners’ argument that they did not


     5
        Since the bankruptcy court did not allow the IRS’s proof
of claim, the doctrine of res judicata does not apply to the
underlying liabilities. Where a bankruptcy court has allowed a
tax claim, the doctrine of res judicata bars relitigation of the
underlying tax liability in this court. Fla. Peach Corp. v.
Commissioner, 90 T.C. 678 (1988) (dismissal of bankruptcy
proceeding did not vacate judgment allowing tax claims; effect of
judgment was res judicata); Strong v. Commissioner, T.C. Memo.
2001-103 (allowance of tax claim by bankruptcy court was res
judicata). Sec. 6330(c)(2)(B), while overlapping the doctrine of
res judicata, see Wooten v. Commissioner, T.C. Memo. 2003-113, is
a broader prohibition because, for one thing, it prohibits a
taxpayer from raising in a collection due process hearing (and in
any resulting court review under sec. 6330(d)(1)) her underlying
tax liability if she failed to file a deficiency suit in response
to a timely received notice of deficiency. A taxpayer who so
defaults is no more prevented by res judicata from suing for a
tax refund than are petitioners on account of the bankruptcy
case’s being dismissed without any adjudication of the IRS proof
of claim. It may well be that the policy behind sec.
6330(c)(2)(B) is to consign to a refund suit a taxpayer who
forgoes a prepayment forum, be it the Tax Court (in a deficiency
                                                   (continued...)
                               - 15 -

have an “adequate” opportunity to challenge the IRS’s proof of

claim, because they did not have access to records that had been

seized by the IRS during its criminal investigation of Mrs.

Kendricks, and never returned to them, is to no avail.   With

respect to the burden of proof in connection with tax claims in

bankruptcy cases, the rule is that, in the absence of

modification expressed in the Bankruptcy Code, the burden of

proof with respect to a tax claim in bankruptcy remains where the

substantive tax law puts it.   Raleigh v. Ill. Dept. of Revenue,

530 U.S. 15, 26 (2000).   The Bankruptcy Code makes no provision

for altering the burden of proof with respect to a tax claim, id.

at 22, and, in general, where the Commissioner has determined a

deficiency in tax, the taxpayer bears the burden of proving facts

that show that determination to be incorrect, see Rule 142.

Welch v. Helvering, 290 U.S. 111, 115 (1933); Feldman v.

Commissioner, 20 F.3d 1128, 1132 (11th Cir. 1994), affg. T.C.

Memo. 1990-532.   Under the Federal Rules of Evidence, “the

inability to produce a record which is unintentionally lost,



     5
      (...continued)
suit) or the bankruptcy court (where the action is dismissed
without resolving the IRS’s claims). See Aguirre v.
Commissioner, 117 T.C. 324, 327 (2001). But cf. Montgomery v.
Commissioner, 122 T.C. 1, 9 (2004) (sec. 6330(c)(2)(B) permitted
taxpayers to challenge the existence or amount of the tax
liability reported on their original income tax return because
they had not received a notice of deficiency for the year in
question and they had not otherwise had an opportunity to dispute
the tax liability in question).
                               - 16 -

whether by the petitioner, the Commissioner, or by a third party,

alters the type of evidence which may be offered to establish a

fact, but the rule does not affect the burden of proving a fact.”

Fed. R. Evid. 1004; Malinowski v. Commissioner, 71 T.C. 1120,

1125 (1979).    Petitioners do not claim that their tax records

were intentionally lost.    In the course of the bankruptcy case,

they had approximately 11 months to conduct discovery, and any

relief that they thought they deserved on account of the absence

of their records they could have requested from the bankruptcy

court.    We see no merit to their claim that they had an

inadequate opportunity to challenge the IRS’s proof of claim.

     C.    No Abuse of Discretion

     In response to their requests for collection due process

hearings, petitioners and their counsel were afforded a 2-hour,

face-to-face conference with Appeals Officer Powell.    Petitioners

complain that the conference did not amount to a proper hearing

because they were not allowed to raise the underlying

liabilities.    Since they had no right to raise the underlying

liabilities, that complaint is without merit.    Petitioners argue

that the Appeals Office abused its discretion by issuing the

notices of determination while an offer in compromise was

pending.    Apparently, petitioners did submit an offer in

compromise to someone at the IRS, but not to the Appeals Office

conducting their collection due process hearing.    Moreover, that
                               - 17 -

offer was returned to petitioners as not processable in the form

submitted.    A second offer (we assume corrected) was sent to the

IRS the day after the notices of determination were sent.     Since

there was no offer in compromise before Appeals, there was no

abuse of discretion in Appeals’ failing to consider an offer in

compromise.    Finally, petitioners can raise no issue here that

they did not raise during their collection due process hearing.

See Magana v. Commissioner, 118 T.C. 488, 493 (2002); secs.

301.6320-1(f)(2), Q&A-F5, and 301.6330-1(f)(2), Q&A-F5, Proced. &

Admin. Regs.

      D.   Conclusion

      Petitioners have failed to show any error in Appeals’

determination to proceed to collect by levy the unpaid

assessments.

IV.   Conclusion

      As stated, we shall grant the motion.


                                          An appropriate order and

                                     decision will be entered for

                                     respondent.
