                  T.C. Memo. 2004-73



                UNITED STATES TAX COURT



           THOMAS C. JOHNSON, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 3028-02L.            Filed March 18, 2004.


     P filed a petition for judicial review pursuant to
secs. 6320 and 6330, I.R.C., in response to a
determination by R to leave in place a filed notice of
Federal tax lien for the 1995, 1996, and 1999 years.

     Held: Because (1) P is not entitled to dispute
his underlying tax liabilities for 1995 and 1996, (2) P
does not dispute his underlying liability for 1999, and
(3) the record does not establish any abuse of
discretion by R, R’s determination to proceed with
collection action is sustained.


Thomas C. Johnson, pro se.

Horace Crump, for respondent.
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             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:    This case was filed in response to a Notice

of Determination Concerning Collection Action(s) Under Section

6320 and/or 6330.1    The issue for decision is whether respondent

may proceed with collection as so determined.

                          FINDINGS OF FACT

     On November 12, 1998, respondent issued to petitioner

separate notices of deficiency for the 1995 and 1996 tax years.2

The notices reflected deficiencies of $1,123 and $3,518, for 1995

and 1996, respectively.    The adjustments were based, for both

years, on disallowance of exemptions claimed by petitioner for

his two children and, for 1996, on disallowance of the earned

income credit and a change in filing status from head of

household to single.    Petitioner and his wife, the children’s

mother, had separated in 1996.    Petitioner received these notices

but did not file a petition for redetermination with the Tax

Court.

     Petitioner was diagnosed with end stage renal disease in

August of 1999 and subsequently began kidney dialysis treatment.



     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended.
     2
       A statutory notice of deficiency for 1995 that had
previously been issued to petitioner on May 16, 1997, was
returned to respondent unclaimed and is not germane to this
proceeding.
                                - 3 -

During the period surrounding his marital separation and the

onset of his illness, petitioner found it difficult to cope with

his financial affairs.    He did not file Federal income tax

returns for 1997 or 1998.    Petitioner then filed his 1999 return,

which was posted at the Internal Revenue Service Center on May

29, 2000.   The return reported a tax liability that was not fully

paid either by withholdings or by any payment submitted with the

return.   Respondent made no adjustments to petitioner’s 1999

reporting and accepted the return as filed.

     Following assessments of petitioner’s tax liabilities for

1995, 1996, and 1999, respondent on or about September 5, 2000,

filed a notice of Federal tax lien with the Judge of Probate in

Mobile County, Alabama.    The notice of lien reflected a total

unpaid balance of $7,235.61, comprising $1,726.20 for 1995,

$4,361.32 for 1996, and $1,148.09 for 1999.    Then, on September

8, 2000, respondent issued to petitioner a Notice of Federal Tax

Lien Filing and Your Right to a Hearing Under IRC 6320 regarding

the just-described lien.

     Respondent on October 10, 2000, received from petitioner a

Form 12153, Request for a Collection Due Process Hearing, with

the following explanation of his disagreement with the lien:

“12-31-95 and 12-31-96 is [sic] not correct.    Would like to

explain at the hearing or over the phone”.    Appeals Officer
                                 - 4 -

Daniel L. Shirah (Mr. Shirah) thereafter sent petitioner a letter

dated October 3, 2001, scheduling the requested conference.

     A telephone conference between petitioner and Mr. Shirah was

conducted on October 19, 2001.    During the conference there

ensued some discussion of collection alternatives, among other

things, and after the conference Mr. Shirah sent to petitioner

for his completion Form 656, Offer in Compromise, and Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals.   Petitioner began filling out the documents

but never submitted completed forms to respondent.

     On January 10, 2002, respondent issued to petitioner the

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330 sustaining proposed collection action.3

Petitioner on February 5, 2002, filed with the Tax Court an

imperfect petition challenging the notice.    The petition

reflected that petitioner wished to have his case heard for two

reasons; i.e., he was experiencing hardship due to the disability

of end stage renal disease, and he had now found proof that his

liability was too great.

     Petitioner then filed an amended petition on March 6, 2002,

consisting of 11 handwritten pages explaining his circumstances.

He indicated therein that the tax years involved were 1995



     3
       We note that the notice of determination refers in
apparent error to “levy”, rather than “lien”, action.
                               - 5 -

through 1999 and concluded the amended petition with the

following statement:

     I also feel that my actual tax bill should be
          1995--204 possible
          1996--2400 + reasonable penalties
          1997--500 + reasonable penalties
          1998--700 + reasonable penalties
          1999--1100 + reasonable penalties
               $4900

     I beg the court to have mercy on me and waive this my
     entire tax bill and remove the lein [sic] on my credit
     record. I’m sorry and plan to never again let this
     happen. [reproduced without certain handwritten
     punctuating or graphical markings]

At the time the petition and the amended petition were filed,

petitioner resided in the State of Alabama.

     On May 6, 2002, respondent moved to dismiss for lack of

jurisdiction and to strike insofar as the case related to 1997

and 1998, on the ground that no determination concerning

collection action(s) had been made for those years.   This motion

was granted, and respondent thereafter answered the petition as

it related to 1995, 1996, and 1999.

     On August 22, 2003, respondent filed a motion for summary

judgment, which was calendared for hearing at the Court’s October

20, 2003, Mobile, Alabama, trial session.   Both parties appeared

and were heard, and the motion for summary judgment was taken

under advisement.   However, because the Court at that time also

advised that it appeared unlikely that the motion would be

granted in its entirety, the parties proceeded to try the case on
                                - 6 -

the merits.   In these circumstances, the Court shall now deny

respondent’s motion for summary judgment as moot.

                               OPINION

I.   Collection Actions--General Rules

      Section 6321 imposes a lien in favor of the United States

upon all property and rights to property of a taxpayer where

there exists a failure to pay any tax liability after demand for

payment.   The lien generally arises at the time assessment is

made.   Sec. 6322.   Section 6323, however, provides that such lien

shall not be valid against any purchaser, holder of a security

interest, mechanic’s lienor, or judgment lien creditor until the

Secretary files a notice of lien with the appropriate public

officials.    Section 6320 then sets forth procedures applicable to

afford protections for taxpayers in lien situations.

      Section 6320(a)(1) establishes the requirement that the

Secretary notify in writing the person described in section 6321

of the filing of a notice of lien under section 6323.      This

notice required by section 6320 must be sent not more than 5

business days after the notice of tax lien is filed and must

advise the taxpayer of the opportunity for administrative review

of the matter in the form of a hearing before the Internal

Revenue Service Office of Appeals.      Sec. 6320(a)(2) and (3).

Section 6320(b) and (c) grants a taxpayer who so requests the

right to a fair hearing before an impartial Appeals officer,
                              - 7 -

generally to be conducted in accordance with the procedures

described in section 6330(c), (d), and (e).

     Section 6330(c) addresses the matters to be considered at

the hearing:

          SEC. 6330(c). Matters Considered at Hearing.--In
     the case of any hearing conducted under this section--

               (1) Requirement of investigation.--The
          appeals officer shall at the hearing obtain
          verification from the Secretary that the
          requirements of any applicable law or
          administrative procedure have been met.

               (2) Issues at hearing.--

                    (A) In general.--The person may raise at
               the hearing any relevant issue relating to
               the unpaid tax or the proposed levy,
               including--

                         (i) appropriate spousal defenses;

                         (ii) challenges to the
                    appropriateness of collection actions;
                    and

                         (iii) offers of collection
                    alternatives, which may include the
                    posting of a bond, the substitution of
                    other assets, an installment agreement,
                    or an offer-in-compromise.

                    (B) Underlying liability.--The person
               may also raise at the hearing challenges to
               the existence or amount of the underlying tax
               liability for any tax period if the person
               did not receive any statutory notice of
               deficiency for such tax liability or did not
               otherwise have an opportunity to dispute such
               tax liability.

     Once the Appeals officer has issued a determination

regarding the disputed collection action, section 6330(d) allows
                                - 8 -

the taxpayer to seek judicial review in the Tax Court or,

depending upon the circumstances, a U.S. District Court.    In

considering whether taxpayers are entitled to any relief from the

Commissioner’s determination, this Court has established the

following standard of review:

      where the validity of the underlying tax liability is
      properly at issue, the Court will review the matter on
      a de novo basis. However, where the validity of the
      underlying tax liability is not properly at issue, the
      Court will review the Commissioner’s administrative
      determination for abuse of discretion. [Sego v.
      Commissioner, 114 T.C. 604, 610 (2000).]

II.   Challenges to Underlying Liabilities

      As indicated in the above quotation of section

6330(c)(2)(B), challenges to the underlying tax liability may be

raised only where the taxpayer did not receive a notice of

deficiency or otherwise have an opportunity to dispute such

liability.

      A.   1995 and 1996

      With respect to 1995 and 1996, petitioner conceded to

Mr. Shirah during his Appeals Office hearing that he had received

the notices of deficiency issued by respondent.   Thus, regardless

of the validity of the arguments submitted by petitioner in his

petition and amended petition concerning the adjustments made by

respondent to his 1995 and 1996 returns, he is precluded from

raising those disputes in this proceeding.   The Court concludes
                                 - 9 -

that petitioner may not challenge his underlying tax liabilities

for 1995 and 1996.

       B.   1999

       With respect to the 1999 year, the unpaid balance of

$1,148.09 is based on the tax liability self-reported by

petitioner on his filed return.    Petitioner in his amended

petition indicated that he believed his liability for 1999 should

be $1,100.     At trial, however, petitioner explained that he had

just rounded the figure in preparing the amended petition and did

agree to the $1,148.09 amount.    Therefore, while section

6330(c)(2)(B) does not preclude taxpayers from challenging self-

reported liabilities, Montgomery v. Commissioner, 122 T.C. ___,

___ (2004) (slip op. at 14), it is clear that petitioner does not

propose to do so here.

III.    Review for Abuse of Discretion

       In light of our conclusions supra regarding challenges to

the underlying liabilities, disposition of this case rests upon

whether the record reflects an abuse of discretion on the part of

respondent in determining to proceed with collection efforts in

the form of a filed lien.    Action constitutes an abuse of

discretion under this standard where arbitrary, capricious, or

without sound basis in fact or law.      Woodral v. Commissioner, 112

T.C. 19, 23 (1999).     The Court considers whether the Commissioner

committed an abuse of discretion in rejecting a taxpayer’s
                                - 10 -

position with respect to any relevant issues, including those

items enumerated in section 6330(c)(2)(A); i.e., spousal

defenses, challenges to the appropriateness of the collection

action, and offers of collection alternatives.

     Here, petitioner apparently expressed interest in an offer

in compromise.   Section 7122(a), as pertinent here, authorizes

the Secretary to compromise any civil case arising under the

internal revenue laws.     Regulations promulgated under section

7122 set forth three grounds for compromise of a liability:     (1)

Doubt as to liability, (2) doubt as to collectibility, or (3)

promotion of effective tax administration.     Sec. 301.7122-1(b),

Proced. & Admin. Regs.4    With respect to the third listed ground,

a compromise may be entered to promote effective tax

administration where:     (1)(a) Collection of the full liability

would cause economic hardship; or (b) exceptional circumstances

exist such that collection of the full liability would undermine


     4
       Sec. 301.7122-1, Proced. & Admin. Regs., contains an
effective date provision stating that the section applies to
offers in compromise pending on or submitted on or after July 18,
2002. Sec. 301.7122-1(k), Proced. & Admin. Regs. Previous
temporary regulations by their terms apply to offers in
compromise submitted on or after July 21, 1999, through July 19,
2002. Sec. 301.7122-1T(j), Temporary Proced. & Admin. Regs., 64
Fed. Reg. 39027 (July 21, 1999). Because the final and temporary
regulations do not differ materially in substance in any way
relevant here, and for purposes of simplicity and convenience,
the final regulations will be cited. We further note that
temporary regulations are entitled to the same weight and binding
effect as final regulations. Peterson Marital Trust v.
Commissioner, 102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d
Cir. 1996).
                              - 11 -

public confidence that the tax laws are being administered in a

fair and equitable manner; and (2) compromise will not undermine

compliance by taxpayers with the tax laws.   Sec. 301.7122-

1(b)(3), Proced. & Admin. Regs.

     To enable the Commissioner to evaluate a taxpayer’s

qualification for an offer in compromise, and particularly in the

face of allegations of economic hardship, the taxpayer must

submit complete financial data.   Petitioner, however, has

admitted that he never supplied a completed Form 656 or 433-A to

respondent.   Hence, although the Court is sympathetic to the

economic difficulties brought on by petitioner’s marital

separation and medical condition, it cannot be said that

respondent acted arbitrarily or capriciously in determining to

leave in place the filed lien when petitioner submitted no offer

in compromise or documentation of his financial circumstances.

     Petitioner at trial communicated an interest in pursuing an

offer in compromise on a prospective basis, and the Court would

encourage these efforts.   Nonetheless, as of the January 10,

2002, date of the notice of determination, the record does not

reveal any abuse of discretion on the part of respondent.     We

shall sustain respondent’s collection efforts in the form of a

filed Federal tax lien.
                        - 12 -

To reflect the foregoing,


                                  An appropriate order

                             denying respondent’s motion

                             for summary judgment and

                             decision for respondent will

                             be entered.
