                  T.C. Summary Opinion 2009-116



                      UNITED STATES TAX COURT



               DOROTHY SMITH-IRVING, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18234-07S.              Filed July 27, 2009.



     Dorothy Smith-Irving, pro se.

     Cindy Park, for respondent.



     GERBER, 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 reviewable by any other court,




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for period under
consideration.
                                  -2-

and this opinion shall not be treated as precedent for any other

case.

     Respondent determined to proceed to collect petitioner’s

unpaid tax liabilities for tax year 1997 by filing a notice of

Federal tax lien (NFTL).   Petitioner seeks review of that

determination under sections 6320(c) and 6330(d).

     The issue for consideration is whether respondent’s

determination to proceed with collection was an abuse of

discretion.

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioner resided in

California when she filed her petition.

     Petitioner began a prolonged and complex journey when she

filed her 1997 Form 1040, U.S. Individual Income Tax Return, on

April 19, 1999.   On that return she reported a $27,411 tax

liability (original liability).    Petitioner did not remit payment

with her 1997 return.   Respondent assessed the reported liability

(original assessment) and also applied a $1,396 withholding tax

credit.   Additionally, respondent determined additions to tax of

$458.15 for failure to pay estimated tax, $5,853.37 for failure

to file timely the return, and $1,690.97 for failure to pay the

tax shown on the return.   On July 26, 1999, respondent notified
                                -3-

petitioner of his intent to levy, but petitioner did not request

a collection due process (CDP) hearing.

     On December 20, 1999, petitioner filed a Form 1040X, Amended

U.S. Individual Income Tax Return, for 1997 showing reduced

taxable income because of a reduction in the amount reported as

an early withdrawal distribution from her individual retirement

account (IRA).   She claimed a $74,012 reduction of her adjusted

gross income and, in turn, a $13,910 reduction of her tax

liability.   On December 23, 1999, petitioner submitted an offer

to compromise her outstanding tax liability (first OIC).    On

March 26, 2002, respondent rejected petitioner’s first OIC.

     On March 8, 2000, respondent notified petitioner that her

1997 return had been selected for examination.   On January 18,

2001, respondent notified petitioner that the claimed reduction

in adjusted gross income had been disallowed and that additional

tax was due.   The letter was accompanied by a Form 2297, Waiver

of Statutory Notification of Claim Disallowance, with

respondent’s request that petitioner sign and return it if she

agreed with the examination results.   In a February 21, 2001,

letter, respondent asked petitioner to sign a Form 4549-CG,

Income Tax Examination Changes, with the request that petitioner

sign and return it if she agreed with respondent’s determination

of $59,301 of additional taxable income.   The increase was mostly

due to the disallowance of petitioner’s charitable contribution
                                -4-

deduction for lack of substantiation.   Respondent’s determination

obviated the $13,910 reduction in tax liability petitioner

claimed on her amended return and resulted in a $17,038 tax

increase (audit liability).   Respondent also determined an

additional late filing addition to tax of $4,909.88.

     By cover letter dated March 5, 2001, petitioner signed and

returned the Forms 4549-CG and 2297.    However, she did so under

the mistaken belief that respondent was proposing to reduce her

outstanding tax liability to $17,038 rather than increasing it by

that amount.   Petitioner’s cover letter revealed the

misunderstanding and provided respondent with petitioner’s new

address as of April 13, 2001.

     Because it appeared to respondent that petitioner did not

understand the Form 4549-CG, petitioner was issued a notice of

deficiency on May 31, 2001.   The notice of deficiency, however,

was mailed to petitioner’s old address.   There is no indication

that she received the notice, and she did not file a petition

with this Court.   On September 3, 2001, respondent assessed the

deficiency and the addition to tax (audit assessment).

     On December 5, 2001, petitioner filed a chapter 7 bankruptcy

petition.   On March 18, 2002, the bankruptcy court granted a

partial discharge of her 1997 tax liability, abating the

$21,447.83 remaining on the original liability and all associated

penalties and interest.   The audit liability was not abated
                                    -5-

because the audit assessment had been made within 240 days before

the bankruptcy petition’s filing date.

       Pursuant to the bankruptcy court’s order, respondent

adjusted petitioner’s account to reflect the abatement of the

additions to tax for estimated tax, late filing, and failure to

pay.       Respondent, however, did not reduce the original assessment

and the associated interest in accordance with the amounts

abated.

       On August 24, 2005, respondent sent petitioner a second

notice of intent to levy concerning petitioner’s outstanding 1997

tax liability.       Because respondent had not applied the abatement

of the tax liability from the original assessment and its

associated interest, the notice erroneously stated petitioner’s

unpaid tax liability as $35,534.95.       Petitioner did not request a

CDP hearing.

       On January 9, 2006, petitioner offered to compromise her

outstanding tax liabilities2 for $31,500 (second OIC) on the

basis of doubt as to liability and doubt as to collectibility.

On April 19, 2006, respondent rejected the second OIC and filed

an NFTL with respect to petitioner’s unpaid tax liabilities.      On

April 21, 2006, respondent notified petitioner of the NFTL




       2
      Petitioner also had unpaid tax liabilities for 2002, 2003,
and 2004.
                                 -6-

filing.   On May 22, 2006, petitioner made a timely request for a

CDP hearing.

     On June 20, 2007, Settlement Officer Nathan August (Mr.

August) conducted a telephone CDP hearing with petitioner.    He

told petitioner that she could not contest the underlying tax

liability because she had had a prior opportunity to do so.    He

also informed her that the abatement of the original liability

had not been posted to her account.    He estimated that she would

have a remaining liability of approximately $20,000 to $25,000

after the abatement was applied because the audit liability had

not been discharged.

     Mr. August also reviewed respondent’s decision to reject

petitioner’s second OIC.    He stated that there was no doubt as to

liability because she had consented to the audit assessment by

signing the Form 4549-CG.   He also stated that there was no doubt

as to collectibility because she had sufficient assets and/or

monthly income to fully pay the liability.   Because Mr. August

believed there was no doubt as to liability or collectibility, he

informed petitioner that he would be sustaining the rejection of

the second OIC.

     Petitioner argued that the NFTL was invalid because the

amount of the 1997 liability reflected on the NFTL was incorrect.

Mr. August explained that an incorrect amount did not provide a
                                   -7-

basis to amend the NFTL.    He therefore indicated that he would be

sustaining the filing of the NFTL.

     Petitioner also requested abatement of interest and

additions to tax, stating that she had not been aware of the

nondischargeability of the audit liability.      Mr. August advised

her that the interest and addition to tax accruals resulted from

petitioner’s failure to pay rather than from any errors or delays

by respondent.    As a result, Mr. August did not find cause for

abatement.

     On July 16, 2007, respondent sent petitioner a notice of

determination sustaining the NFTL filing.      Respondent also sent

petitioner a letter informing her of the rejection of her request

for abatement of interest for the period from September 3, 2001,

to June 20, 2007.    On August 14, 2007, petitioner filed a

petition with the Court for review of the notice of

determination.

                                Discussion

     If a taxpayer neglects or refuses to pay a tax owed after

demand for payment, the unpaid tax will be a lien in favor of the

United States upon all property and rights to property belonging

to that person.    Sec. 6321.

     Upon request, the taxpayer is entitled to an administrative

review hearing before an impartial officer or employee of the

Appeals Office.    Sec. 6320(b).    The hearing is conducted
                                 -8-

according to the procedures under section 6330(c), (d), and (e).

Sec. 6320(c).    At the hearing, the taxpayer may raise any issue

relevant to the unpaid tax or the Commissioner’s collection

activities.   Sec. 6330(c)(2)(A).   However, if a taxpayer received

a statutory notice of deficiency for the year in issue or

otherwise had a prior opportunity to dispute the underlying tax

liability, the taxpayer is precluded from challenging the

existence or amount of the liability.      Sec. 6330(c)(2)(B).   A

taxpayer who has signed a Form 4549-CG is deemed to have had an

opportunity to dispute the underlying tax liability.      Zapara v.

Commissioner, 124 T.C. 223, 228 (2005); see Aguirre v.

Commissioner, 117 T.C. 324, 327 (2001).      A taxpayer who

previously received a notice under section 6330 for the same tax

and tax periods and did not request a hearing has already

received an opportunity to challenge the existence and amount of

the underlying liability.   Sec. 301.6320-1(e)(3), Q&A-E7, Proced.

& Admin. Regs.

     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 the

taxpayer raised 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).
                                  -9-

       For determinations made after October 16, 2006, this Court

has jurisdiction to review the determination irrespective of the

type of tax liability involved.    Pension Protection Act of 2006,

Pub. L. 109-280, sec. 855, 120 Stat. 1019; Callahan v.

Commissioner, 130 T.C. 44 (2008).       When the validity of the

underlying tax liability is properly at issue, we review the

determination de novo.    Goza v. Commissioner, 114 T.C. 176, 181-

182 (2000).    When the underlying tax liability is not in issue,

we review for abuse of discretion.       Id. at 182.   Under the abuse

of discretion standard, the taxpayer is required to show that the

Commissioner’s actions were arbitrary, capricious, or without

sound basis in fact.    See Knorr v. Commissioner, T.C. Memo. 2004-

212.

       Respondent contends that petitioner was not entitled to

dispute her underlying tax liability at the CDP hearing because

she:    (1) Signed the Form 4549-CG; (2) was sent a notice of

deficiency and did not petition the Court; and (3) received the

second notice of intent to levy and did not request a CDP

hearing.

       Petitioner argues that the Form 4549-CG was invalid because

she signed it under the mistaken belief that her tax liability

had been reduced to $17,038 rather than increased.       Petitioner

further contends that the notice of deficiency was also invalid

because it was not sent to her last known address.
                               -10-

     Though the Form 4549-CG and the notice of deficiency were

invalid (discussed infra), petitioner did have an opportunity to

dispute her underlying tax liability when she received the second

notice of intent to levy.   Accordingly, we will review

respondent’s determination for abuse of discretion.

     Section 6330(c)(1) and (3) requires the Appeals officer to

obtain verification that the requirements of any applicable law

or administrative procedure have been met.   In order to collect a

tax owed by the taxpayer, the Commissioner generally must assess

the liability within 3 years after the return is filed.    Secs.

6303(a), 6501(a).   Section 6503(h) extends that 3-year period of

limitations for the time the Commissioner is precluded from

assessing the tax because of the filing of a bankruptcy petition,

plus 60 days.   The Commissioner is generally precluded from

assessing a deficiency until after the mailing of a notice of

deficiency, unless the taxpayer waives that restriction.    Sec.

6213(a), (d).

     The audit assessment was made after petitioner had submitted

a signed Form 4549-CG and after respondent had issued her a

notice of deficiency.   Petitioner claims the Form 4549-CG and the

notice of deficiency were invalid.

     Form 4549-CG includes a waiver under which a taxpayer

consents to immediate assessment and collection and waives the

right to receive a notice of deficiency.   We apply contract
                               -11-

principles in determining the enforceability of waiver documents.

Horn v. Commissioner, T.C. Memo. 2002-207.    In California a

party’s unilateral mistake is ground for relief where the other

party knew or had reason to know of the mistake.    Libby, McNeil &

Libby, Cal. Canners & Growers v. United Steelworkers of Am., 809

F.2d 1432, 1434 (9th Cir. 1987); 1 Restatement, Contracts 2d,

sec. 153(b) (1981).

     When petitioner signed the Form 4549-CG, she believed that

the audit examiner had told her that her tax liability would be

reduced.   The accompanying cover letter communicated her

confusion as to the amount of her tax liability:   “I am a little

skeptic [sic] in signing this because it looks like $27,000 is

the amount due instead of $17,000.”   (Emphasis added.)     The cover

letter put respondent on notice that petitioner did not

understand she was consenting to the assessment of an additional

tax liability, and respondent accordingly issued petitioner a

notice of deficiency.   Because respondent was aware of

petitioner’s unilateral mistake, there was no meeting of the

minds and the Form 4549-CG waiver is invalid.

     Petitioner also claims the notice of deficiency is invalid

because it was sent to the wrong address.    A notice of deficiency

is sufficient if mailed to the taxpayer’s last known address.

Sec. 6212(b); Frieling v. Commissioner, 81 T.C. 42, 52 (1983).      A

taxpayer’s last known address is the address shown on the
                                 -12-

taxpayer’s most recently filed return, absent clear and concise

notice of a change of address.    Sec. 301.6212-2(a), Proced. &

Admin. Regs.

     Petitioner’s March 5, 2001, cover letter provided respondent

with such notice of her change of address.    The letter informed

the audit examiner that she would be moving to her new address on

April 13, 2001.    Respondent issued the notice of deficiency after

that date on May 31, 2001, but nevertheless mailed it to

petitioner’s old address.    Because the notice of deficiency was

not sent to petitioner’s last known address and there is no

evidence she actually received it, the notice is invalid.

      Because the Form 4549-CG and the notice of deficiency were

invalid, the September 3, 2001, assessment was improper.

Respondent did not make a valid assessment of the audit liability

before the period for assessment, as extended by the bankruptcy

filing, expired.   Because respondent’s assessment was invalid on

account of the expiration of the assessment period, Mr. August’s

verification that the requirements of applicable law had been met

was incorrect.    Respondent’s determination to sustain the NFTL

filing was therefore in error as a matter of law and was an abuse

of discretion.
                                 -13-

Accordingly, respondent cannot proceed with collection.

     To reflect the foregoing,


                                             Decision will be entered

                                        for petitioner.
