                           T.C. Summary Opinion 2017-82



                           UNITED STATES TAX COURT



                      KELLY BUTLER, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 29230-13S L.                        Filed November 9, 2017.



      Kelly Butler, pro se.

      Jeremy D. Cameron, Peter T. McCary, and A. Gary Begun, for respondent.



                                SUMMARY OPINION


      LEYDEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not


      1
          All section references are to the Internal Revenue Code (Code), as
                                                                       (continued...)
                                        -2-

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      The Internal Revenue Service (IRS)2 Office of Appeals (Appeals Office)

issued petitioner a Notice of Determination Concerning Collection Action(s)

Under Section 6320 and/or 6330 (notice of determination) dated October 25, 2013,

and a Supplemental Notice of Determination Concerning Collection Action(s)

Under Section 6320 and/or 6330 (supplemental notice of determination) dated

December 4, 2015. The notice of determination and the supplemental notice of

determination sustained a proposed levy with respect to petitioner’s unpaid 2010

Federal income tax liability. Petitioner invoked the Court’s jurisdiction by timely

filing a petition for review of the determination pursuant to section 6330(d)(1).3

The issues for decision are: (1) whether petitioner may amend her originally filed


      1
      (...continued)
amended, in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure, unless otherwise indicated.
      2
        The Court uses the term “IRS” to refer to administrative actions taken
outside of these proceedings. The Court uses the term “respondent” to refer to the
Commissioner of Internal Revenue, who is the head of the IRS and is respondent
in this case, and to refer to actions taken in connection with this case.
      3
        On February 28, 2014, the Court ordered that correspondence received
November 27, 2013, from petitioner be filed as of that date as the petition in this
case and that the petition filed December 16, 2013, be filed as the amended
petition in this case.
                                          -3-

2010 Federal individual income tax return (original 2010 tax return) to claim the

filing status of married filing jointly; (2) the amount of Social Security disability

benefits (benefits) petitioner received from the Social Security Administration

(SSA) during 2010; (3) the portion of the benefits petitioner received that is

taxable for 2010; and (4) whether the Appeals Office abused its discretion in

sustaining the proposed levy.

      For reasons stated herein, the Court holds that: (1) petitioner may not

amend her original 2010 tax return to claim the filing status of married filing

jointly; (2) during 2010 petitioner received $84,956 of benefits from the SSA

(hereinafter total benefits); (3) $14,269 of the total benefits is taxable to petitioner

for 2010 (hereinafter taxable benefits); and (4) the Appeals Office did not abuse its

discretion in sustaining the proposed levy.

                                     Background

      The parties submitted this case fully stipulated pursuant to Rule 122.

Petitioner resided in Florida when she timely filed her petition.

I.    Benefits Paid to Petitioner

      In 2010 petitioner received a Form SSA-1099, Social Security Benefit

Statement, from the SSA that reported total benefits of $84,956 as follows:
                                          -4-

                               Benefit           Amount
                        Paid by check or
                         direct deposit         $65,518.37
                        Medicare Part B
                         premiums deducted
                         from benefits              884.00
                        Attorney’s fees          18,553.63

The total benefits included the following amounts paid in 2010 for 2006 through

2009: (1) $13,720 for 2006, (2) $17,016 for 2007, (3) $17,400 for 2008, and

(4) $18,408 for 2009.4 The benefits directly deposited into petitioner’s bank

account consisted of a lump-sum payment of $55,660.87 deposited on July 6,

2010, and payments totaling $9,857.50 deposited approximately monthly from

mid-July through December 2010.

      By letter dated July 24, 2012, the SSA informed petitioner that she would

“soon receive a check for $12,553.63 because we are sending you money which

we did not have to use to pay an attorney [sic] fee.” This amount was part of the

$18,553.63 the SSA reported as attorney’s fees in the 2010 Form SSA-1099. The

SSA reported in a 2012 Form SSA-1099 payments to petitioner totaling $19,078

in 2012 but not the $12,553.63 for the unpaid attorney’s fees.

      4
       The record does not show what portions, if any, of the amounts attributable
to 2006 through 2009 were allocated to Medicare Part B premiums or attorney’s
fees.
                                         -5-

II.   Petitioner’s Original 2010 Tax Return

      Petitioner, assisted by a commercial tax return preparation service, filed her

original 2010 tax return late, on August 6, 2012. In that tax return petitioner

claimed the filing status of married filing separately and entered the name and

Social Security number of her spouse, James Butler.5 Petitioner reported wages of

$3,015; total benefits of $84,956 on line 20a; and taxable benefits of $14,269 on

line 20b.6 Petitioner claimed a standard deduction of $5,700 and reported a total

tax of $793. Petitioner claimed a making work pay credit of $187 and reported an

amount owed of $606. Petitioner did not submit any payment with the original

2010 tax return.

      On October 1, 2012, the IRS notified petitioner it had disallowed the

claimed making work pay credit as a math error. The record does not indicate

whether petitioner challenged the disallowance. On the same day the IRS assessed

the total tax of $793 shown in the tax return, an addition to tax under section

6651(a)(1) for failure to timely file the tax return, an addition to tax under section


      5
          During 2010 petitioner was married to Mr. Butler.
      6
        Petitioner calculated the amount of taxable benefits for 2010 on the basis of
a filing status of married filing separately and having lived apart from Mr. Butler
for all of 2010. See sec. 86(a)(2)(A), (c)(1)(A), (2)(A). Respondent did not
challenge this calculation or that petitioner had lived apart from Mr. Butler for all
of 2010.
                                        -6-

6651(a)(2) for failure to timely pay the tax shown on the tax return, and interest.

The IRS mailed a notice and demand for payment letter to petitioner at her last

known address. Petitioner did not pay the balance due.

III.   Mr. Butler’s 2010 Tax Return

       Mr. Butler filed a 2010 Federal individual income tax return and also

claimed the filing status of married filing separately. The IRS subsequently issued

a notice of deficiency to Mr. Butler for 2010, in response to which he filed a

petition with the Court seeking redetermination of the deficiency. He settled his

case for 2010 by stipulated decision. Butler v. Commissioner, T.C. Dkt. No.

7993-13S (Dec. 6, 2013).

IV.    Request for Collection Due Process Hearing

       The IRS mailed petitioner at her last known address a Notice of Intent to

Levy and Notice of Your Right to a Hearing on April 22, 2013, with respect to the

unpaid tax liability for 2010. Petitioner timely filed a Form 12153, Request for a

Collection Due Process or Equivalent Hearing. Petitioner checked the boxes for

“Filed Federal Tax Lien” and “Proposed Levy or Actual Levy” as the bases for the
                                         -7-

collection due process (CDP) hearing request.7 At the time petitioner filed the

Form 12153 the IRS had not filed a notice of Federal tax lien for the unpaid tax

liability for 2010. In the Form 12153 petitioner requested an offer-in-compromise

as a collection alternative and a withdrawal of lien, asserting “No Tax Due”.

Petitioner also wrote the following in the “other” section of the Form 12153:

“(1) Right to File Jointly[,] (2) Disability, (3) S.S. Pay Reported is [w]rong by

[$]30,000 [for] year 2010”. Mr. Butler signed the Form 12153 as petitioner’s

representative.

      By letter dated June 6, 2013, the IRS informed petitioner that it had received

the Form 12153 and was forwarding it to the Appeals Office. By letter dated July

8, 2013, the Appeals Office informed petitioner it had received her request for a

CDP hearing. The Appeals Office settlement officer (SO) assigned to petitioner’s

CDP hearing request sent petitioner a letter dated July 26, 2013, to schedule a

telephone CDP hearing for August 27, 2013. The SO informed petitioner that if

the date and time were not convenient or if she wanted a face-to-face conference at

the Appeals Office closest to her, she should contact the SO by August 12, 2013.




      7
       Petitioner checked the box to request an equivalent CDP hearing, but the
record shows, and the parties do not dispute, that she timely requested a CDP
hearing.
                                         -8-

       The SO also informed petitioner in that letter that: (1) she could not dispute

the underlying tax liability because it was the result of a tax return she had filed

voluntarily; (2) she could file an amended tax return for consideration; (3) Mr.

Butler had to complete and file a Form 2848, Power of Attorney and Declaration

of Representative, to represent her before the IRS; and (4) in order for the SO to

consider the requested collection alternative, she had to submit by August 12,

2013, copies of her filed 2011 and 2012 tax returns, a Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed Individuals, and a

Form 656, Offer in Compromise.

V.     Initial CDP Hearing

       Petitioner did not contact the SO before the scheduled CDP hearing, submit

the requested information, or participate in the scheduled CDP hearing. The SO

sent petitioner a letter dated August 27, 2013, because petitioner had not called at

the time of the scheduled CDP hearing or submitted the requested information.

The SO gave petitioner until September 10, 2013, to submit the requested

information and informed her that a determination would otherwise be made by

reviewing the administrative file. The SO referred to this letter as the “last chance

letter”.
                                         -9-

      On September 3, 2013, petitioner and Mr. Butler called and spoke with the

SO and asserted that petitioner was not liable for the total tax reported in the

original 2010 tax return. The SO explained that the underlying tax liability was

the result of a tax return petitioner had filed voluntarily and on which she had

reported her income. Petitioner and Mr. Butler notified the SO that they had filed

an amended Federal income tax return claiming the filing status of married filing

jointly, implied that the amended tax return reported no tax due, and stated that the

IRS was going to accept the amended tax return once it was signed.

      The SO informed petitioner and Mr. Butler that the amended tax return

would not be processed by the IRS because Mr. Butler had filed an individual

Federal income tax return for 2010, received a notice of deficiency for 2010, and

filed a petition with the Court seeking redetermination of the deficiency as to his

tax return. The SO informed petitioner that she could not challenge the underlying

tax liability. The SO also informed petitioner and Mr. Butler that petitioner was

not eligible for an installment agreement or an offer-in-compromise because she

had not filed tax returns for 2011 and 2012. Petitioner requested an extension

from the September 10, 2013, deadline in the last chance letter to file the tax

returns for 2011 and 2012 and an offer-in-compromise.
                                        - 10 -

      The SO sent petitioner a letter dated September 3, 2013, to extend the

deadline to September 24, 2013, for her to submit the tax returns for 2011 and

2012 and an offer-in-compromise. Petitioner did not submit the requested tax

returns or information by the extended deadline. The SO verified that the legal

and administrative requirements were met and, on October 25, 2013, issued the

notice of determination that sustained the proposed levy with respect to

petitioner’s unpaid tax liability for 2010.

VI.   Order Remanding to Appeals Office

      This case was set for the Court’s trial session on January 12, 2015, in

Tampa, Florida. Petitioner was not present at calendar call, and instead Mr. Butler

appeared on her behalf, to which respondent objected. At the trial session

respondent made an oral motion for entry of decision. The Court noted that

petitioner had been erroneously informed by the Appeals Office that she could not

challenge the underlying tax liability, even though there was a dispute about the

amount of her benefits that was subject to tax, and that perhaps this erroneous

information had caused her to not submit the requested financial information in

support of a collection alternative. The Court asked whether respondent had

considered waiving the additions to tax pursuant to Internal Revenue Manual
                                        - 11 -

(IRM) pt. 20.1.1.3.6.1 (Aug. 5, 2014).8 On January 12, 2015, the Court ordered

respondent to report whether petitioner qualified for the first-time abate

administrative waiver for the late-filing and late-payment additions to tax and

ordered petitioner to file an objection, if any, to respondent’s oral motion for entry

of decision.

      On January 26, 2015, respondent reported that petitioner did not meet the

first-time abate administrative waiver requirements for the abatement of the late-

filing and late-payment additions to tax because petitioner and Mr. Butler had

been assessed an accuracy-related penalty for 2009 in a significant amount.

Petitioner did not file a response to respondent’s oral motion for entry of decision.

      On March 4, 2015, the Court by order denied respondent’s oral motion for

entry of decision and remanded the case to the Appeals Office for the purpose of

affording petitioner a supplemental CDP hearing under section 6330 at which she

could challenge her underlying tax liability for 2010 and/or present an alternative

to the proposed levy. In that order the Court stated:


      8
        This section of the Internal Revenue Manual (IRM) (hereinafter referred to
as the first-time abate administrative waiver) states that it may be appropriate to
abate additions to tax for failure to timely file and failure to timely pay when the
taxpayer “has no prior penalties * * * for the preceding 3 years * * * and has filed,
or filed a valid extension for, all currently required returns and paid, or arranged to
pay, any tax due.” IRM pt. 20.1.1.3.6.1(1) (Aug. 5, 2014).
                                        - 12 -

      SO Smith informed petitioner that she could not challenge her
      underlying liability as part of the administrative review process
      because she “self-reported” the tax due on her return. On October 25,
      2013, the Appeals Office issued to petitioner a Notice of
      Determination for 2010 stating that she was barred from challenging
      the existence or amount of her underlying liability and that
      respondent would proceed with the proposed levy.

      *           *          *          *          *           *          *

              There is no indication in the administrative record that
      petitioner was issued a notice of deficiency for 2010 or that she
      otherwise had a prior opportunity to dispute the amount of her tax
      liability for that year. On this record, we conclude that the Appeals
      Office erred in denying petitioner the opportunity to challenge her
      underlying liability during the administrative review process.

VII. Supplemental CDP Hearing and Supplemental Notice of Determination

      The SO sent petitioner a letter dated March 19, 2015, to schedule a

supplemental telephone CDP hearing for April 20, 2015. In that letter the SO

informed petitioner that during that supplemental CDP hearing petitioner could

raise collection alternatives to the proposed levy, challenges to the appropriateness

of the collection action, spousal defenses, if applicable, and challenges to the

underlying tax liability. The SO informed petitioner that if she wanted to dispute

the total tax reported in her original 2010 tax return, she would have to file a Form

1040X, Amended U.S. Individual Income Tax Return, for 2010 by April 9, 2015.

The SO confirmed that at that time petitioner was in filing compliance with all
                                        - 13 -

required tax returns, but the SO informed petitioner that she had to complete a

Form 433-A and Form 656 by April 2, 2015, if she wanted to propose an offer-in-

compromise as a collection alternative.

      On March 27, 2015, petitioner faxed to the SO a copy of a 2010 Form

1040X that she had filed with the IRS.9 Petitioner attached to the 2010 Form

1040X a proposed 2010 Form 1040, U.S. Individual Income Tax Return,

(proposed 2010 tax return) that reported total benefits of $65,518 on line 20a and

taxable benefits of $8,571 on line 20b, both less than the total benefits and taxable

benefits petitioner had reported in her original 2010 tax return.10 The proposed

2010 tax return reported an amount owed of $224, also less than the total tax

petitioner had reported in her original 2010 tax return. Petitioner included a copy

of a check dated March 3, 2015, for $224 that she had submitted to the IRS with

the 2010 Form 1040X. The copy of the check was superimposed over the top of

the second page of the copy of the 2010 Form 1040X and obstructed a portion of


      9
      The 2010 Form 1040X bears the signature of Mr. Butler with a notation
“For Kelly Butler”.
      10
        The record does not show, and petitioner has not explained, how she
calculated the asserted taxable benefits in the proposed 2010 tax return. Petitioner
also reported no wages in the proposed 2010 tax return but reported taxable IRA
distributions of $3,015. The 2010 Form 1040X and the proposed 2010 tax return
were prepared by the same commercial tax return preparation service that had
prepared petitioner’s original 2010 tax return.
                                        - 14 -

the amended tax return. In Part III, Explanation of changes, of the 2010 Form

1040X petitioner wrote: “ONLY PAID BY SS 65585 in 2010”.

      The SO held the supplemental CDP hearing by telephone on April 20, 2015,

with petitioner and Mr. Butler. The SO confirmed that the IRS had received

petitioner’s 2010 Form 1040X because the payment had posted with a designated

code indicating that the payment had arrived with an amended tax return.

However, the IRS had not yet reviewed the 2010 Form 1040X. The SO notified

petitioner that the underlying tax liability could not be resolved until the IRS

reviewed the 2010 Form 1040X.

      The SO requested an unobstructed copy of the 2010 Form 1040X from

petitioner to forward to the IRS to expedite its processing. Petitioner submitted an

unsigned, unobstructed copy of the second page of the 2010 Form 1040X to the

SO. The SO forwarded the 2010 Form 1040X to the IRS for processing on June 4,

2015, and again on July 16, 2015.

      The IRS notified petitioner in a letter dated September 21, 2015, that the

2010 Form 1040X could not be processed because the income petitioner had

reported did not match the income reported by the SSA to the IRS. The letter

included IRS tax return transcripts and wage and income transcripts for 2010 for

petitioner to review.
                                         - 15 -

      The SO also notified petitioner in a letter dated September 30, 2015, that the

2010 Form 1040X had not been accepted and gave her 14 days to submit a new

Form 1040X reporting the income the SSA reported she had received in 2010. In

that letter the SO also notified petitioner that she could enter into a collection

alternative by contacting the SO within 14 days. Petitioner neither submitted a

new Form 1040X for 2010 nor contacted the SO to discuss a collection alternative.

      The Appeals Office issued the supplemental notice of determination, again

sustaining the proposed levy. The SO determined that the amended tax return that

petitioner had submitted could not be accepted because it did not report all the

income the SSA reported she had received and that petitioner had not shown that

the total tax, as reported in her original 2010 tax return, was incorrect. The SO

also rejected petitioner’s request for a collection alternative because petitioner had

not provided a Form 433-A or a Form 656 as requested.

                                      Discussion

I.    Jurisdiction and Standard of Review

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

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

days after notice and demand for payment. Section 6331(d) provides that the levy

authorized by section 6331(a) may be made with respect to any unpaid tax only
                                       - 16 -

after the Commissioner has notified the person in writing of his intention to make

the levy at least 30 days before any levy action is begun. Section 6330 elaborates

on section 6331 and provides that the written notice must inform the taxpayer of

her right to request a CDP hearing. Sec. 6330(a)(3)(B); sec. 301.6330-1(b)(1),

Proced. & Admin. Regs.11

      If a CDP hearing is requested, the hearing is to be conducted by the Appeals

Office. Sec. 6330(b)(1). At the hearing the SO conducting it must verify that the

requirements of any applicable law or administrative procedure have been met.

Sec. 6330(c)(1). The taxpayer may raise at the CDP hearing “any relevant issue

relating to the unpaid tax or the proposed levy, including appropriate spousal

defenses; challenges to the appropriateness of collection actions; and offers of

collection alternatives”. Sec. 6330(c)(2)(A). Within 30 days after the Appeals

Office issues a notice of determination the taxpayer may appeal the determination

to the Court. Sec. 6330(d)(1).

      11
        Petitioner in the Form 12153 requested a withdrawal of a Federal tax lien.
However, the record does not indicate that a Federal tax lien was filed at the time
petitioner filed the Form 12153. Petitioner did not raise the issue of withdrawal of
a Federal tax lien with the SO or in her petition. That issue is not properly before
the Court and is deemed conceded. See Rule 331(b)(4) (“Any issue not raised in
the assignments of error shall be deemed to be conceded.”); sec. 301.6330-1(f)(2),
Q&A-F3, Proced. & Admin. Regs. (“In seeking Tax Court review of a Notice of
Determination, the taxpayer can only ask the court to consider an issue * * * that
was properly raised in the taxpayer’s CDP hearing.”).
                                        - 17 -

      In reviewing an IRS administrative determination in a CDP case, if the

underlying tax liability is properly in dispute, the Court reviews the determination

regarding the underlying tax liability de novo. Goza v. Commissioner, 114 T.C.

176, 181-182 (2000). The Court reviews all other determinations for abuse of

discretion. Id. at 182. Abuse of discretion exists when a determination is

arbitrary, capricious, or without sound basis in fact or law. See Murphy v.

Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).

II.   Underlying Tax Liability

      The underlying tax liability in this case consists of the total tax petitioner

reported in her original 2010 tax return, the addition to tax under section

6651(a)(1) for failure to timely file, the addition to tax under section 6651(a)(2)

for failure to timely pay, and the interest. See Katz v. Commissioner, 115 T.C.

329, 339 (2000) (finding that the term “underlying tax liability” includes any

amount owed by a taxpayer pursuant to the tax laws, including additions to tax and

interest). Generally, the Court does not have authority to consider issues not

raised before the Appeals Office. Sec. 301.6330-1(f)(2), Q&A-F3, Proced. &

Admin. Regs.

      Petitioner has consistently challenged the amount of total benefits she

received from the SSA and the portion of the total benefits that is taxable to her
                                         - 18 -

for 2010. More specifically, petitioner asserted in her petition and her amended

petition that the total tax she had reported in her original 2010 tax return was

wrong for two reasons: (1) she was entitled to file an amended 2010 tax return to

claim the filing status of married filing jointly with her husband and (2) the SSA

incorrectly reported the amount of total benefits she received in 2010 and, as a

result, the portion of the total benefits that is taxable to her for 2010 was less than

she had reported.

      Petitioner, however, did not challenge the additions to tax under section

6651(a)(1) and (2) or the interest in the Form 12153, during the CDP hearings, or

in her petition and amended petition. The additions to tax and interest therefore

are not properly before this Court. See sec. 301.6330-1(f)(2), Q&A-F3, Proced. &

Admin. Regs.; see also Rule 331(b)(4) (“Any issue not raised in the assignments

of error shall be deemed to be conceded.”).

      A.     Changing Filing Status to Married Filing Jointly

      Petitioner argued that her tax liability for 2010 would be reduced by her

filing an amended 2010 tax return claiming the filing status of married filing

jointly. Petitioner asserted in her amended petition that her total tax for 2010

would have been reduced because she could have used a loss carryforward,

presumably attributable to Mr. Butler, if she was allowed to amend her 2010 tax
                                         - 19 -

return to claim the filing status of married filing jointly. The Court does not need

to consider whether there are any losses that can be carried forward because

petitioner is barred from amending her original 2010 tax return to claim the filing

status of married filing jointly.

       A married taxpayer may not file a Federal tax return claiming the filing

status of married filing jointly if, after claiming the status of married filing

separately in a separate tax return, either spouse has been sent a notice of

deficiency and either spouse files a petition with the Court with respect to the

notice of deficiency. Sec. 6013(b)(2)(B). Both petitioner and Mr. Butler claimed

the filing status of married filing separately in their respective tax returns for 2010.

Mr. Butler received a notice of deficiency with respect to his 2010 tax return and

filed a petition with the Court with regard to his tax return. See Butler v.

Commissioner, T.C. Dkt. No. 7993-13S (Dec. 6, 2013). Accordingly, petitioner

may not amend her original 2010 tax return to claim the filing status of married

filing jointly.

       B.     2010 Total Benefits

       Petitioner disputes the amount of total benefits she received from the SSA in

2010 and, in turn, the portion of the total benefits that is taxable to her for 2010.

Gross income includes all income from whatever source derived unless excludable
                                         - 20 -

by a specific Code provision. Sec. 61(a). Benefits are included in gross income.

Sec. 86. Social Security disability benefits are treated in the same matter as other

Social Security benefits. See sec. 86(d)(1); Thomas v. Commissioner, T.C. Memo.

2001-120, 2001 Tax Ct. Memo LEXIS 148, at *4. Benefits generally are included

in gross income for the year in which they are received, even if the benefits are

attributable to prior years.12 Secs. 86(e), 451(a).

      The SSA reported that petitioner received total benefits of $84,956 in 2010.

Petitioner disagrees. Petitioner claims that she received only $65,518.37 from

SSA, the amount the SSA directly deposited into her bank account during 2010,

and that she did not receive the amount reported as attorney’s fees in 2010.

Petitioner does not address whether the Medicare Part B premiums of $884

constitute amounts received in 2010, and therefore we also deem this issue

conceded. See Rule 331(b)(4) (“Any issue not raised in the assignments of error

shall be deemed to be conceded.”).


      12
        A taxpayer may make an election with respect to the amount of a lump-
sum payment of benefits received during a taxable year in which the portion of the
payment is attributable to prior years. Sec. 86(e). Petitioner was eligible to make
a sec. 86(e) election on her original 2010 tax return because she received a lump-
sum payment of benefits during 2010 that was in part attributable to 2006, 2007,
2008, and 2009. Petitioner did not make a sec. 86(e) election on her original 2010
tax return. Neither petitioner nor respondent provided a computation showing that
petitioner would benefit from a sec. 86(e) election.
                                        - 21 -

      With respect to the reported attorney’s fees, as a general rule income is

taxed to the person earning it even if the right to receive the income is

contractually assigned to another person before it is earned. Lucas v. Earl, 281

U.S. 111, 114-115 (1930); Kenseth v. Commissioner, 114 T.C. 399, 412 (2000),

aff’d, 259 F.3d 881 (7th Cir. 2001); Banks v. Commissioner, T.C. Memo. 2001-

48, 2001 Tax Ct. Memo LEXIS 68, at *21-*25; see also S. Rept. No. 98-23, at 26

(1983), 1983-2 C.B. 328 (stating that the total amount of Social Security benefits

received by a taxpayer is not to be reduced by attorney’s fees). Under this

principle, the amount of the benefits reported as attorney’s fees in 2010 is

considered an amount received by petitioner, despite the fact that SSA paid her

attorney the reported fee amount. Petitioner received a benefit from these funds in

the form of payment for services required to obtain her benefits. See Kenseth v.

Commissioner, 114 T.C. at 413. The Court concludes that petitioner received total

benefits of $84,956 in 2010.13

      13
        In some circumstances amounts paid for attorney’s fees are deductible as a
miscellaneous expense in Schedule A, Itemized Deductions. See sec. 212(1).
Although the SSA reported the amount of attorney’s fees as $18,553.63 for 2010,
the amount of the deduction is limited to expenses related to the collection of
income which is required to be included in gross income for Federal income tax
purposes. Sec. 212(1); sec. 1.212-1(a)(1)(i), (e), Income Tax Regs. The
deductibility of the allocable attorney’s fees is academic because the amount of the
legal fees incurred in securing her benefits (i.e., $3,117, or 16.8% of the attorney’s
                                                                         (continued...)
                                        - 22 -

III.   2010 Taxable Benefits

       In her original 2010 tax return petitioner reported $14,269 as the amount of

taxable benefits for that year. See supra p. 5 and note 6. In the proposed 2010 tax

return, attached to the 2010 Form 1040X, petitioner asserted that the amount of

taxable benefits for 2010 was less, $8,571. Petitioner has not explained how she

calculated the asserted revised amount of taxable benefits of $8,571.

       Consequently, the Court decides that the amount of petitioner’s 2010

taxable benefits is $14,269, computed by petitioner as discussed supra note 6 (a

computation neither the IRS nor respondent challenged).

IV.    Abuse of Discretion

       In deciding whether the SO abused her discretion in sustaining the proposed

levy, we consider whether she: (1) properly verified that the requirements of any

applicable law or administrative procedure had been met; (2) considered any

relevant issues petitioner had raised; and (3) determined whether “any proposed

collection action balances the need for efficient collection of taxes with the


       13
         (...continued)
fees, the same percentage of the benefits required to be included in gross income)
is less than the standard deduction for 2010 for married filing separately (i.e.,
$5,700) claimed in petitioner’s original 2010 tax return. See sec. 212(1); Andrews
v. Commissioner, T.C. Memo. 1992-668, 1992 Tax Ct. Memo LEXIS 708, at *13;
sec. 1.212-1(a)(1)(i), (e), Income Tax Regs.
                                        - 23 -

legitimate concern of * * * [petitioner] that any collection action be no more

intrusive than necessary.” See sec. 6330(c)(3).

      It is clear from the Court’s review of the record that the SO analyzed the

transcript of petitioner’s account and verified that the requirements of applicable

law and administrative procedure were followed. The SO stated in her case

activity report that she had reviewed petitioner’s account transcript and confirmed

that the “proper assessment was made.”

      The SO did not abuse her discretion in rejecting petitioner’s request for an

offer-in-compromise as a collection alternative. The SO informed petitioner that

she had to submit a Form 433-A, Form 656, and supporting financial

documentation, but petitioner failed to do so. The SO did not abuse her discretion

in determining that petitioner was ineligible for a collection alternative under these

circumstances. See Bergdale v. Commissioner, T.C. Memo. 2014-152, at *11-*12

(“[T]here is no abuse of discretion when the settlement officer fails to consider a

taxpayer’s request for an offer-in-compromise when a Form 656 was not filed.”).

                                     Conclusion

      The Court sustains the Appeals Office’s determination in the notice of

determination and the supplemental notice of determination and holds that:
                                         - 24 -

(1) petitioner may not amend her original 2010 tax return to claim the filing status

of married filing jointly; (2) petitioner received total benefits from the SSA of

$84,956 in 2010; (3) $14,269 of those total benefits is taxable to petitioner in

2010; and (4) the Appeals Office did not abuse its discretion in sustaining the

proposed levy.

      In reaching the conclusions described herein, the Court has considered all

arguments made, and, to the extent not mentioned above, the Court finds them to

be moot, irrelevant, or without merit.

      To reflect the foregoing,


                                                  Decision will be entered for

                                         respondent.
