                        T.C. Memo. 2009-307



                      UNITED STATES TAX COURT



            LEE D. AND LINDA OLESEN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 28764-08L.             Filed December 28, 2009.



     Steven Ray Mather, for petitioners.

     Elaine Tamiko Fuller, for respondent.



                          MEMORANDUM OPINION


     KROUPA, Judge:   This matter is before the Court on

respondent’s motion in limine to exclude evidence challenging the

amount or existence of unpaid liabilities.     Petitioners filed the

petition in response to a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330
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(determination notice).1    We are asked to decide whether

petitioners may contest the amount of the section 6662(h) penalty

for an underpayment attributable to gross valuation misstatements

(underpayment penalty) by introducing evidence of a Son of BOSS2

settlement initiative respondent offered.    We find that

petitioners are not entitled to introduce evidence challenging

the amount of the underpayment penalty because they received a

deficiency notice and are precluded from challenging the

underlying liability in this collection review proceeding.

Accordingly, we shall grant respondent’s motion in limine.

                             Background

     The following information is stated for purposes of

resolving the pending motion.    Petitioners resided in Colorado at

the time they filed the petition.

The Settlement Initiative

     Petitioners participated in a Son of BOSS transaction

involving Pasa Tiempo Investments, LLC (Pasa Tiempo) in 2001.

The Commissioner announced a settlement initiative to provide

taxpayers who participated in Son of BOSS transactions with an

opportunity to resolve their tax liabilities and avoid


     1
      All section references are to the Internal Revenue Code.
     2
      Son of BOSS transactions allow a taxpayer to reduce or
eliminate capital gains by creating artificial losses through the
transfer of assets laden with significant liabilities to a
partnership.
                                -3-

litigation.   See IRS Announcement 2004-46, 2004-1 C.B. 964.    The

settlement initiative reduced underpayment penalties for

taxpayers who voluntarily disclosed their involvement in Son of

BOSS transactions and conceded all tax benefits before June 21,

2004.

     Taxpayers needed to submit a completed election form to the

Commissioner by June 21, 2004 to participate in the settlement

initiative.   The Commissioner would determine an individual

taxpayer’s eligibility only after receiving the taxpayer’s

completed election form.   The taxpayer would need to provide

additional information and documentation within 60 days of the

notice of eligibility before the Commissioner could issue a Form

906, Closing Agreement on Final Determination Covering Specific

Matters (closing form), to confirm the taxpayer’s participation

in the settlement initiative.   Taxpayers who did not elect to

participate in the settlement initiative would receive a

deficiency notice disallowing all losses from the Son of BOSS

transaction and assessing the maximum underpayment penalties.

     Respondent mailed a notice of the settlement initiative and

an election form to petitioners on June 16, 2004.   Respondent

mailed a followup letter to petitioners at the same address on

September 24, 2004.   Respondent stated in the followup letter

that he had not received petitioners’ election form and requested

additional information from petitioners within 14 days to
                                -4-

determine petitioners’ eligibility for the settlement initiative.

Petitioners failed to file an election and to provide respondent

with information regarding their Son of BOSS transaction in Pasa

Tiempo within the specified time.     Petitioners did not receive a

closing form and were ineligible for the settlement initiative.

The Deficiency Notice and Assessment

     Respondent issued a deficiency notice to petitioners for

2001 on November 2, 2005.   Respondent determined in the

deficiency notice that Pasa Tiempo lacked economic substance and

disallowed all of the Pasa Tiempo items petitioners claimed,

resulting in the deficiency for 2001.    Respondent also determined

that petitioners were liable for the section 6662(h) penalty for

an underpayment attributable to gross valuation misstatements.

Respondent mailed the deficiency notice to the address to which

respondent sent settlement initiative correspondence.    This was

the same address petitioners provided on their income tax returns

for 2004 and 2005.   Respondent prepared a certified mail list

recording that the deficiency notice was sent to petitioners by

certified mail.   The deficiency notice was not returned to

respondent as undeliverable.

     Petitioners did not file a petition to contest the

determinations in the deficiency notice.    Respondent thereafter

assessed the deficiency and the penalty determined in the

deficiency notice.
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The CDP Hearing

     Petitioners failed to pay the assessments, and respondent

issued two notices of Federal tax lien to petitioners.

Petitioners timely requested a collection due process (CDP)

hearing with respondent for administrative review of the

collection action.   During the hearing petitioners raised only

the appropriateness of the underpayment penalty on the ground

that they timely elected to participate in the settlement

initiative.   Neither petitioners nor their counsel denied during

the CDP hearing that they received the deficiency notice for

2001.   In fact, petitioners’ counsel conceded that a deficiency

notice had been issued for 2001 but erroneously stated that it

was issued on a date later than the date it was issued.

     Respondent’s Appeals officer issued the determination notice

following the CDP hearing.   The Appeals officer determined that

petitioners were precluded from challenging the underlying

liability for 2001 because they had received the deficiency

notice.   The Appeals officer’s determination was based on the

facts that the deficiency notice had been sent to petitioners’

last known address by certified mail and that petitioners did not

deny receiving it.   The Appeals officer further determined that

petitioners had not timely elected to participate in the

settlement initiative and that the underpayment penalty amount

was therefore correct.
                                -6-

     Petitioners filed a timely petition with this Court seeking

review of the determinations in the determination notice.

Specifically, petitioners seek to abate the underpayment penalty

in this collection review matter.     Petitioners also argue in the

petition that respondent abused his discretion in filing the

Federal tax lien.   Respondent filed a motion in limine to exclude

all evidence, both testimony and documentary, challenging the

underlying liability.

                            Discussion

     We are asked to decide in this collection review matter

whether petitioners may introduce evidence of a Son of BOSS

settlement initiative to challenge the amount of the underpayment

penalty for 2001.   Respondent argues that they may not because

they received the deficiency notice for 2001.     Petitioners now

argue in objecting to respondent’s motion in limine that they did

not receive the deficiency notice.

     We begin with a brief overview of our jurisdiction in

collection review cases.   A lien in favor of the United States is

placed on all property and rights to property of a taxpayer when

demand for payment of that person’s liability for taxes is made

and the person fails to pay those taxes.     Sec. 6321.   The lien

arises when the assessment is made.    Sec. 6322.   The Secretary

shall furnish the taxpayer described in section 6321 with written

notice that a lien was filed.   Sec. 6320.    The taxpayer may then
                                   -7-

request an administrative hearing to be conducted in a manner

consistent with the procedures set forth in section 6330(c), (d),

and (e).   Sec. 6320(c).    After the hearing, the Appeals officer

is required to make a determination that addresses issues the

taxpayer raised, verifies that all requirements of applicable law

and administrative procedures have been met, and 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.     Sec. 6330(c)(3).   The taxpayer may

then seek judicial review of the determination notice in this

Court.    See sec. 6330(d); Davis v. Commissioner, 115 T.C. 35, 37

(2000).

     Our jurisdiction to review a CDP determination is dependent

on the issuance of a valid notice of determination and a timely

filed petition for review.     See sec. 6330(d)(1); Prevo v.

Commissioner, 123 T.C. 326, 328 (2004).     A taxpayer may raise at

the CDP hearing any relevant issue regarding the Commissioner’s

collection activities, including spousal defenses, challenges to

the appropriateness of the Commissioner’s intended collection

action, and alternative means of collection.      See sec.

6330(c)(2)(A); Sego v. Commissioner, 114 T.C. 604, 609 (2000);

Goza v. Commissioner, 114 T.C. 176, 180 (2000).      A challenge to

the amount of an assessed penalty constitutes a challenge to the

underlying liability.      Montgomery v. Commissioner, 122 T.C. 1, 7-
                                 -8-

8 (2004).    A taxpayer cannot challenge the underlying liability

in a CDP hearing if the taxpayer received a deficiency notice.

Sec. 6330(c)(2)(B); Kuykendall v. Commissioner, 129 T.C. 77, 80

(2007).

     Generally, we will not review an underlying liability when

it is challenged for the first time on appeal of a determination

notice.    Giamelli v. Commissioner, 129 T.C. 107, 114 (2007).     We

will review, however, the Appeals officer’s verification of the

administrative requirements, such as the issuance of a deficiency

notice, without regard to whether the taxpayer raised it at the

Appeals hearing.    Hoyle v. Commissioner, 131 T.C. __, __ (2008)

(slip op. at 11).    Accordingly, we have jurisdiction in this

collection review proceeding to verify the Appeals officer’s

determination that petitioners received the deficiency notice and

are therefore precluded from challenging the underlying

liability.

     We agree with the Appeals officer that the record

establishes that petitioners received a deficiency notice for

2001.    Respondent issued the deficiency notice to petitioners’

last known address as provided on their returns for 2004 and

2005.    See Armstrong v. Commissioner, 15 F.3d 970, 973-974 (10th

Cir. 1994), affg. T.C. Memo. 1992-328.3   Furthermore,


     3
      We follow the Court of Appeals opinion squarely on point
when appeal from our decision would lie in that court absent
                                                   (continued...)
                                  -9-

respondent’s production of a certified mail list recording the

mailing of the deficiency notice creates a strong presumption

that the notice was mailed and was delivered or offered for

delivery at the address to which it was sent.     See Casey v.

Commissioner, T.C. Memo. 2009-131.      Receipt of the deficiency

notice is presumed in the absence of clear evidence to the

contrary.   See Sego v. Commissioner, supra at 611.     Petitioners

failed to produce evidence to rebut the presumption that they

received the deficiency notice.    In fact, petitioners’ counsel’s

concessions during the CDP hearing further support the Appeals

officer’s determination that petitioners received the deficiency

notice.   Accordingly, we find that petitioners received a

deficiency notice for 2001 and are therefore precluded from

introducing evidence of the Son of BOSS settlement initiative to

challenge the underpayment penalty.

     We have considered all of the contentions and arguments of

the parties that are not discussed, and we find them to be

without merit, irrelevant or moot.




     3
      (...continued)
stipulation by the parties to the contrary. Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971). We agree with respondent that appeal would lie in the
Court of Appeals for the Tenth Circuit on account of petitioners’
legal residence at the time the petition was filed, and not the
location of petitioners’ last known address. See sec.
7482(b)(1)(A).
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To reflect the foregoing,


                                   An appropriate order will

                            be issued.
