                        T.C. Memo. 2004-48



                      UNITED STATES TAX COURT



                 EDWARD P. HEAPHY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6799-02L.             Filed March 5, 2004.


     Edward P. Heaphy, pro se.

     Monica J. Miller, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:   This case arises from petitioner’s request

for our review of respondent’s determination that respondent’s

filing of a Federal tax lien with respect to the collection of

petitioner’s unpaid tax liability for 1997 was appropriate.   The

issue to be resolved is whether respondent abused his discretion

in making that determination.    In his trial memorandum,
                               - 2 -

respondent raised the issue of whether petitioner should be

required to pay a penalty pursuant to section 6673 for

instituting and/or maintaining this proceeding, and if so, the

amount thereof.1

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits submitted therewith are

incorporated herein by this reference.

     At the time the petition was filed in this case, petitioner

resided in Ormond Beach, Florida.   He is a real estate broker.

     Petitioner submitted to the Internal Revenue Service (the

IRS) a document purporting to be his income tax return for 1997,

with zeros reported for amounts on all lines.   The IRS did not

process that document.   Rather, the IRS prepared a substitute

1997 return for petitioner on which $65,419 was reflected as

commission income.2   That amount was determined in part from a

third-party information return ($46,369) and in part from an

analysis of petitioner’s bank deposits ($19,050).   The substitute

1997 return also reflected $463 of interest income.




     1
      All section references are to the Internal Revenue Code.
     2
      In deciding this case, it is not necessary for us to decide
whether the substitute return meets the requirements of sec.
6020(b). See, e.g., Swanson v. Commissioner, 121 T.C. 111, 112
n.1 (2003).
                               - 3 -

     On January 4, 2000, respondent issued a notice of deficiency

to petitioner with respect to 1997.    In that notice, respondent

(relying on the information used in preparing the 1997 substitute

return3) determined that petitioner was liable for an income tax

deficiency of $8,644, a delinquency addition to tax under section

6651(a)(1) of $2,161, and an estimated tax addition to tax under

section 6654 of $462.44.

     Petitioner received the notice of deficiency; he did not

contest respondent’s determinations by filing a petition in this

Court.   On May 8, 2000, respondent assessed the determined

deficiency, the estimated tax addition, the late filing addition,

and statutory interest.

     Petitioner failed to pay the assessed liabilities for 1997;

consequently, on November 13, 2000, the IRS filed a notice of

Federal tax lien.

     On November 10, 2000, the IRS sent petitioner a notice

entitled “Notice of Federal Tax Lien Filing and Your Right to a

Hearing Under I.R.C. 6320” (the notice of Federal tax lien

filing) with respect to petitioner’s outstanding tax liability

for 1997.   On November 22, 2000, petitioner submitted to the IRS

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

November 21, 2000, and an attachment thereto.   In the attachment,



     3
      Petitioner was allowed estimated expenses of $33,298 on the
basis of the profit ratio shown on petitioner’s 1996 return.
                               - 4 -

petitioner maintained: (1) He is not “statutorily” liable to pay

the taxes at issue; (2) he did not receive a valid notice of

deficiency in connection with the year at issue; and (3) he did

not receive

     the statutory “notice and demand” for payment of the
     taxes at issue * * *. If the appeals officer is going
     to claim that a particular document sent to me by the
     IRS was a “Notice and Demand” for payment, then I am
     requesting that he also provide me with a T.D. or
     Treas. Reg. which identifies that specific document as
     being the official, statutory “Notice and Demand” for
     payment.

     On October 31, 2001, respondent’s Appeals Officer Charles R.

Kelly wrote petitioner to schedule the hearing as requested by

petitioner.   In his letter, Appeals Officer Kelly stated:

     The purpose of a Collection Due Process hearing is to
     (1) verify that the IRS office collecting the tax has
     met the requirements of various applicable law [sic]
     and administrative procedures; (2) hear any relevant
     issue relating to the unpaid tax; and (3) consider
     whether the proposed collection action (lien) balances
     the need for the efficient collection of the taxes with
     any legitimate concern that you may have that any
     collection action be no more intrusive than necessary.

     You failed to file your 1997 tax return and the IRS
     prepared a substitute return for you and issued you a
     statutory notice of deficiency. The notice was sent to
     your last known address at the time it was issued. I
     am enclosing a copy of the statutory notice of
     deficiency and the substitute return.

     A challenge to the existence or amount of the tax
     liability can only be made if a taxpayer did not
     receive a statutory notice of deficiency or did not
     otherwise have an opportunity to dispute that tax
     liability. You were issued a statutory notice of
     deficiency and failed to petition the Tax Court. You
     have had the opportunity to dispute the tax liability.
                               - 5 -

     The underlying tax liability cannot be challenged at
     the Collection Due Process hearing.

     The underlying assessment is valid and I am enclosing a
     Form 4340 “Certificate of Assessments, Payments, and
     Other Specific Matters” which verifies the assessment
     is valid. A “Summary Record of Assessment” (23C) is
     not necessary to verify an assessment. The United
     States Tax Court has held that the Form 4340 is
     sufficient to verify an assessment.

     If you want a Collection Due Process hearing to discuss
     collection alternatives to the lien, please call me on
     or before November 9th. The arguments you raised in
     your Collection Due Process request are not arguments
     that can or will be discussed at the hearing. If I do
     not hear from you by November 9th, I will assume you do
     not wish a hearing. I will conduct the hearing based
     on the case file and issue you a final determination
     letter.

     Substantial correspondence between petitioner and Appeals

Officer Kelly then followed.   Ultimately, on February 5, 2002,

the hearing granted under section 6320 (a section 6320 hearing)

was held.   Present at that hearing were petitioner, petitioner’s

wife (Wendy Zapert) acting under a power of attorney, Appeals

Officer Kelly, and a court reporter who was present at

petitioner’s request.   Appeals Officer Kelly began the section

6320 hearing by summarizing the purpose for the hearing and

stating the events leading to petitioner’s being informed of the

notice of the filing of a tax lien.    Appeals Officer Kelly stated

that he “verified by the review of the entire record that all

statutory, regulatory and administrative requirements for the

collection action has [sic] been met.”   He asked whether
                                 - 6 -

petitioner had received the Form 4340, Certificate of

Assessments, Payments and Other Specified Matters, which he had

sent to petitioner.   Petitioner replied that he had.    Appeals

Officer Kelly then asked whether petitioner had any collection

alternatives to the tax lien.    Petitioner did not respond to

Appeals Officer Kelly’s question.     Rather, Ms. Zapert asserted

that petitioner had been denied a meeting with Appeals before the

notice of deficiency was issued.     Bickering between Ms. Zapert

and Appeals Officer Kelly ensued, and the meeting was terminated

shortly thereafter.   Petitioner never offered any collection

alternatives during the meeting.

     On March 1, 2002, a Notice of Determination Concerning

Collection Action Under Section 6320 (Lien) of the Internal

Revenue Code was sent to petitioner.      In that notice, respondent

determined that the filing of a Federal tax lien was an

appropriate collection action.    Petitioner then filed a petition

with this Court under section 6330(d) disputing respondent’s

determination.   See sec. 6320(c).

                                OPINION

     Section 6321 imposes a lien in favor of the United States

upon all property and rights to property belonging to a person

liable for unpaid taxes after demand for payment has been made.

Within 5 business days after the day of filing the notice of

lien, the Secretary must notify in writing the person against
                                - 7 -

whom the lien is filed (the taxpayer) that a tax lien was filed

and inform the taxpayer of his right to a hearing before an

impartial Appeals officer.   Sec. 6320.    Pursuant to section

6320(c) the hearing is to be conducted pursuant to the rules

provided in subsections (c), (d) (other than paragraph (2)(B)

thereof), and (e) of section 6330.      If the Commissioner issues a

determination letter adverse to the position of the taxpayer, the

taxpayer may seek judicial review of the determination.     Sec.

6330(d).

     This Court has established the following standards of review

in considering whether a taxpayer is entitled to relief from the

Commissioner’s determination:

     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).

     Petitioner apparently has abandoned the positions he took in

the attachment to Form 12153.   At his section 6320 hearing, as

well as at the trial in this case, petitioner claimed that

respondent’s filing of the tax lien against him should be

“declared null and void” because he was denied an administrative

hearing at the audit level before the issuance of the notice of

deficiency.   Petitioner’s claim is meritless.
                                - 8 -

     Section 6330(c)(2) sets forth those matters that may be

raised at a section 6320 hearing.   Specifically, pursuant to

section 6330(c)(2)(A), a person may raise any relevant issue

relating to the unpaid tax, including appropriate spousal

defenses, challenges to the appropriateness of the Commissioner’s

proposed collection actions, and offers of collection

alternatives.    In addition, pursuant to section 6330(c)(2)(B), a

person may challenge the existence or amount of the underlying

tax liability if he/she did not receive a statutory notice of

deficiency for the tax liability or did not have an opportunity

to dispute it.

     Whether petitioner was entitled to an administrative hearing

at the audit level before the issuance of the notice of

deficiency is not a relevant matter to be considered at the

section 6320 hearing.

     Petitioner received a notice of deficiency for 1997; the

events that occurred, or did not occur, before the issuance of

the notice of deficiency are not relevant matters that can be

raised at the section 6320 hearing.     Petitioner had an

opportunity to dispute respondent’s determinations, as set forth

in the notice of deficiency, as well as the arbitrariness of

those determinations.   He failed to take advantage of this

opportunity by timely petitioning this Court.     Because petitioner

received a notice of deficiency for 1997, the existence and/or
                               - 9 -

amount of petitioner’s underlying 1997 tax liability is not a

relevant issue to be addressed at the section 6320 hearing.    See

Sego v. Commissioner, supra at 609.

     Petitioner was afforded an opportunity at the section 6320

hearing to raise all relevant issues as set forth in section

6330(c)(2)(A), including offers of collection alternatives.    He

failed to take advantage of that opportunity.4

     Petitioner claims that there was an irregularity in the Form

4340 sent to him.   As best we can understand petitioner’s

position, he complains that the Form 4340 was improperly signed

by Kathleen R. Bushnell, Accounting Branch Chief.   This argument

is groundless.

     Section 6301 provides that the Secretary has the power to

collect taxes.   That power can be delegated to IRS District

Directors and in turn redelegated to local-level officials.    See

sec. 301.6301-1, Proced. & Admin. Regs.; Delegation Order No. 198

(Rev. 5), Sept. 7, 2001.   “The delegation of authority down the

chain of command, from the Secretary to the Commissioner of

Internal Revenue, to local IRS employees constitutes a valid


     4
      At trial, petitioner appeared to be willing to discuss
compromising his 1997 tax liability. He did not, however, make
any offer. Moreover, because petitioner failed to file a proper
tax return for 1998, 1999, 2000, or 2001 and appeared unwilling
to do so, the IRS (pursuant to its stated policy) would be
precluded from considering any offer in compromise made by
petitioner with respect to his 1997 unpaid tax liability. In any
event, if petitioner seriously wanted to propose a collection
alternative, he should have done so at the sec. 6320 hearing.
                                - 10 -

delegation by the Secretary to the Commissioner, and a

redelegation by the Commissioner to the delegated officers and

employees.”   Hughes v. United States, 953 F.2d 531, 536 (9th Cir.

1992) (citing section 301.7701-9, Proced. & Admin. Regs.).

     The Internal Revenue Manual, pt. 21.2.3.4.2.1 (Oct. 1,

2002), provides that preparation of Form 4340 is “limited to a

few authorized persons only.    These employees are in the

Compliance and Accounting Branch functions.”    The person signing

the Form 4340 that related to petitioner’s 1997 tax liability was

the accounting branch chief of respondent’s local district

office, Kathleen R. Bushnell.    Without contradictory evidence, we

have no reason to doubt that Ms. Bushnell was authorized to sign

the Form 4340.

     Appeals Officer Kelly stated at the section 6320 hearing

(and we have no reason to believe otherwise) that he verified

that all statutory, regulatory, and administrative requirements

for the collection action involved herein (i.e., the filing of a

Federal tax lien) had been met, as required by section

6330(c)(1).   Appeals Officer Kelly noted that (1) petitioner

failed to file a proper 1997 Federal income tax return; (2) a

statutory notice of deficiency was issued; (3) petitioner failed

to contest respondent’s determinations as set forth in the notice

of deficiency; (4) an assessment of the deficiency was made; (5)

proper balance due notices were issued; (6) when petitioner
                              - 11 -

failed to pay the assessed liabilities, a Federal tax lien was

filed; (7) petitioner was notified by the notice of Federal tax

lien filing that the lien had been filed; and (8) petitioner

timely requested a hearing on Form 12153.

     Appeals Officer Kelly was not required to rely on a

particular document to satisfy the verification requirements of

section 6330(c)(1).   See Roberts v. Commissioner, 118 T.C. 365,

371 n.10 (2002), affd. 329 F.3d 1224 (11th Cir. 2003).     He could

have relied on Form 4340 or another document.   We note that the

record contains an individual master file transcript which would

have enabled Appeals Officer Kelly to satisfy the section

6330(c)(1) verification requirements.

     In sum, we conclude that respondent did not abuse his

discretion in determining that the filing of a Federal tax lien

in the instant situation was appropriate.

     We now turn to whether, pursuant to section 6673, we should

require petitioner to pay a penalty to the United States, and if

so, the amount thereof.   Section 6673 provides, in part, that

whenever it appears to the Tax Court that proceedings before it

have been instituted or maintained by the taxpayer primarily for

delay or the taxpayer’s position in the proceeding is frivolous

or groundless, the Tax Court, in its decision, may require the

taxpayer to pay to the United States a penalty not in excess of

$25,000.   Petitioner’s positions in this case are groundless.
                              - 12 -

     We have no doubt that petitioner, an educated individual,

maintained this proceeding primarily to delay the day the IRS

could collect taxes he owes for 1997.    Petitioner has wasted the

time of respondent’s representatives, as well as the time of this

Court.   We therefore impose a penalty of $3,000 on petitioner

under section 6673.

     We have considered all the arguments and contentions made by

petitioner, and to the extent not discussed herein, we conclude

they are without merit and/or irrelevant.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent.
