                              T.C. Memo. 2016-105



                         UNITED STATES TAX COURT



AIDAN IFEANYI OGAMBA AND CELINE NNENNA OGAMBA, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 13468-14L.                        Filed May 26, 2016.



      Aidan Ifeanyi Ogamba and Celine Nnenna Ogamba, for themselves.

      Kristin H. Joe, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      MORRISON, Judge: The petitioners, Mr. Aidan Ifeanyi Ogamba and Ms.

Celine Nnenna Ogamba, challenge the determination of the IRS Appeals Office

dated May 6, 2014. The determination followed a collection-review hearing, the

right to which was triggered by a notice from the IRS that it proposed to levy to

collect the Ogambas’ unpaid liabilities for tax years 2009, 2010, and 2011. Our
                                         -2-

[*2] jurisdiction over the dispute is established by section 6330(d)(1) of the

Internal Revenue Code of 1986, as amended.1 We sustain the determination of the

Appeals Office.

                               FINDINGS OF FACT

      The Ogambas resided in California at the time they filed their petition.

2009 tax return

      On their 2009 joint Form 1040, U.S. Individual Income Tax Return, the

Ogambas claimed dependency-exemption deductions for a son and a daughter.

      The Ogambas did not report any income from canceled debts on the 2009

return.

      The Ogambas reported that their capital losses for the year consisted of a

$3,200 loss on the sale of 400 shares of Ziplink, Inc. They reported that they had

acquired the shares of Ziplink, Inc., on April 4, 2000, and sold them on November

10, 2009, for a sales price of negative $3,200. The Ogambas did not report their

basis in the shares.2 They also reported that they had a capital loss carryover from


      1
       Unless otherwise indicated, all references to sections are to the Internal
Revenue Code of 1986, as amended and in effect at all relevant times. All Rule
references are to the Tax Court Rules of Practice and Procedure.
      2
       Here we explain more specifically how the Ogambas reported the sale of
the 400 shares of Ziplink, Inc. The Ogambas reported “$3,200.00-” on line 8(d),
                                                                   (continued...)
                                         -3-

[*3] prior years of $2,716. When the $2,716 carryover was combined with the

$3,200 loss reported for 2009, the total capital loss reported was $5,916. In

recognition of the rule that only $3,000 in capital losses is deducted from ordinary

income per year, sec. 1211(b), the Ogambas claimed a deduction of $3,000. This

left $2,916 to be carried over to subsequent years as a capital loss carryover.

2010 tax return

      On their 2010 joint Form 1040, the Ogambas claimed dependency-

exemption deductions for the same son and daughter for whom they had claimed

those deductions on their tax return for 2009.

      The Ogambas reported $36,798 on line 21 for “Other income”. The return

described this amount as “Form 1099C”. Form 1099-C, Cancellation of Debt, is

the form used by creditors to report to the IRS that they have canceled (or

forgiven) a debt.

      The Ogambas reported that their capital losses for the year consisted of a

$4,810 loss from the sale of 550 shares of Ziplink, Inc. They reported that they


      2
       (...continued)
which was titled “Sales price”. They left blank line 8(e), which was titled “Cost or
other basis”. And they reported “$3,200.00-” on line 8(f), which was titled:

      Gain or (loss)
      Subtract (e) from (d)
                                         -4-

[*4] had acquired the shares on April 4, 2000, that their basis in the shares was

$10, and that they had sold the shares on October 5, 2010, for a sales price of

negative $4,800.3 They also reported that they had a capital loss carryover from

prior years equal to $2,916. When this $2,916 carryover was combined with the

$4,810 loss reported for 2010, the total capital loss reported was $7,726. In

recognition of the rule that only $3,000 in capital losses is deducted from ordinary

income per year, sec. 1211(b), the Ogambas claimed a deduction of $3,000. This

left $4,726 to be carried over to subsequent years as a capital loss carryover.

Notice of deficiency

      On March 30, 2012, the IRS mailed the Ogambas a notice of deficiency for

tax years 2009 and 2010.

      The notice of deficiency allowed the dependency-exemption deductions for

the son and the daughter that the Ogambas had claimed on their 2009 and 2010

returns.


      3
        Here we explain more specifically how the Ogambas reported the sale of
the 550 shares of Ziplink, Inc. The Ogambas reported “$4,800.00-” on line 8(d),
which was titled “Sales price”. They reported “$10.00” on line 8(e), which was
titled “Cost or other basis”. And they reported “$4,810.00-” on line 8(f), which
was titled:

      Gain or (loss)
      Subtract (e) from (d)
                                         -5-

[*5] For 2009, the notice of deficiency determined that the Ogambas had a

capital gain of $2,516, rather than the $3,200 capital loss they reported. It is

unclear whether the $2,516 gain that the IRS determined related to the sale of the

400 shares of Ziplink stock that the Ogambas reported, or to other sales of Ziplink

stock, or to sales of other capital assets. When the $2,516 gain the IRS determined

is combined with the $2,716 capital loss carryover reported from prior years (a

carryover that the IRS did not challenge), the total capital loss, as determined by

the IRS, was $200. Consequently, the notice of deficiency determined that the

amount of capital losses deducted against ordinary income for 2009 was $200, not

the $3,000 that the Ogambas claimed. The IRS also determined that the capital

loss to be carried over from 2009 to later years was zero.

      For 2010, the notice of deficiency determined that the Ogambas had a

capital loss of $4,726, rather than the $4,810 capital loss that the Ogambas

reported. It is unclear whether the $4,726 loss that the IRS determined related to

the sale of the 550 shares of Ziplink stock that the Ogambas reported, or to other

sales of Ziplink stock, or to other capital assets. The IRS calculated that the

Ogambas had a capital loss carryover from prior years of zero, rather than the

$2,716 that they reported. The notice determined that $3,000 of the $4,726 loss
                                         -6-

[*6] should be deducted against ordinary income and that the remaining $1,726 of

the $4,726 loss was available as a capital loss carryover to future years.

      The notice of deficiency made other adjustments not described here. No

adjustment related to income from canceled debts for either 2009 or 2010. In

particular, the notice of deficiency did not make an adjustment to the Ogambas’

income for 2010 as to their reporting of $36,798 as “Other income” described on

their return as “Form 1099C”.

      In the notice of deficiency the IRS determined deficiencies of $15,795 and

$13,900 and section-6662 penalties of $3,159 and $2,278 for 2009 and 2010,

respectively. The Ogambas did not file a Tax Court petition in response to the

notice of deficiency.

      The record does not reveal much about the Ogambas’ 2011 tax year and the

causes of their liability for that year. This absence does not hinder our resolution

of the case because, as we explain later, the Ogambas seek judicial review of only

liability issues related to 2009 and 2010.

The IRS’s notice of proposed levy, the collection-review hearing, and the
procedural history of the case

      On March 2, 2013, the IRS mailed the Ogambas the notice that it proposed

to levy to collect their liabilities for tax years 2009, 2010, and 2011. These
                                        -7-

[*7] liabilities included the deficiencies in income tax and the section-6662

penalties determined in the notice of deficiency for 2009 and 2010. The liabilities

also included section-6651(a)(3) penalties for 2009 and 2010 and underpayment

interest for 2009 and 2010.

      In response to the notice of proposed levy the Ogambas requested a

collection-review hearing with the Appeals Office. During the proceedings before

the Appeals Office the Ogambas stated that they wished to raise issues regarding

the amounts of their income-tax liabilities for 2009 and 2010. They stated that

they never received the notice of deficiency. The Appeals Office wrote a letter to

the Ogambas stating: “You will be allowed to raise the liability during the

Appeals process”. The Ogambas submitted letters to the Appeals Office that they

intended to be their explanation of their arguments regarding the amounts of their

income-tax liabilities for 2009 and 2010.

      In these letters to the Appeals Office the Ogambas contended that they were

entitled to dependency-exemption deductions for two additional persons: (1) Mr.

Ogamba’s father and (2) a son other than the son for whom they had already

claimed a dependency-exemption deduction on their 2009 and 2010 returns

(“second son”). Attached to these letters was a letter from Mr. Ogamba’s father

stating that he had stayed with Mr. Ogamba at the Ogambas’ house from February
                                         -8-

[*8] 12, 2008, to January 20, 2011. The letter from Mr. Ogamba’s father also

stated: “He [Mr. Ogamba] will claim me as his dependent for Tax Year 2008,

2009 & 2010.”

      For both 2009 and 2010, the Ogambas’ letters to the Appeals Office

asserted: “The Capital Gains and Losses Ziplink Inc. Shares Sales resulting in our

losses and a Deduction of $3,000.00 should be granted. Please see documents.”

Attached to the letters to the Appeals Office was a press release, dated August 22,

2011, announcing that the “Zachs Family” (described as the majority shareholder

of Ziplink, Inc.) had offered to purchase shares of Ziplink, Inc., for 6.5 cents per

share and that the offer would stand until September 19, 2011.

      Regarding both 2009 and 2010, the Ogambas’ letters to the Appeals Office

asserted: “Part of our income was from our Loan Modification debt relief

(Mortgage Forgiveness debt relief) for our Primary Residence. I believe that

amount should not have been added as our income.” Regarding 2010, the

Ogambas’ letters to the Appeals Office stated: “My Bank of America Visa Card

debt forgiveness write off amount was added as our primary income. This

Cancellation of debt was as a result of our Rental Home Reconstruction. And to

the best of my knowledge, this Business loss should be depreciated.” Attached to
                                         -9-

[*9] the letters to the Appeals Office were five Forms 1099-C that included the

following information:

                                             Debt        Amount of
 Year      Debtor         Creditor        description   debt canceled   Date canceled
 2009    Aidan      GMAC Mortgage         Mortgage       $1,293.67      Jan. 15, 2009
         Ogamba

 2009    Celine     GMAC Mortgage         Mortgage         1,293.67     Jan. 15, 2009
         Ogamba
 2010    Aidan      GMAC Mortgage         Mortgage          677.13      Mar. 8, 2010
         Ogamba
 2010    Celine     GMAC Mortgage         Mortgage          677.13      Mar. 8, 2010
         Ogamba
 2010    Aidan      Bank of America       Credit Card    35,443.62      Mar. 15, 2010
         Ogamba

        The Appeals Office informed the Ogambas that it would not make any of

the adjustments that they had requested to their income-tax liabilities. The

Ogambas agreed to pay their liabilities for 2009, 2010, and 2011 through

installment payments.

        In a notice of determination dated May 6, 2014, the Appeals Office refused

to make any of the adjustments that the Ogambas’ had requested to their income-

tax liabilities. The notice of determination stated that the Ogambas had requested

two additional dependency-exemptions but that the only support they submitted

for those deductions was a letter from Mr. Ogamba’s father. The notice of

determination stated that the Ogambas submitted no other information to
                                        -10-

[*10] substantiate their entitlement to the dependency-exemption deductions, and

that “[s]ufficient information/documentation has not been provided to allow either

dependent.” The notice of determination stated that the IRS had disallowed a

$3,000 capital-loss deduction for the 2009 tax year, that the Ogambas had

provided a press release to support the loss, and that the Ogambas “have not

provided sufficient information/documentation to show they are entitled to the

loss.” With respect to the canceled-debt income, the notice stated: “There is no

indication that this income was included on their tax returns, and there was no

adjustment for this income by Examination.” Because the Ogambas had agreed to

pay their liabilities for the years 2009 through 2011 in installment payments, the

Appeals Office determined not to sustain the proposed levy.

      The Ogambas filed a timely petition challenging the notice of determination.

They limit their challenge to the amounts of their liabilities for 2009 and 2010,

including the income-tax liabilities, the section-6662 penalties, the section-

6651(a)(3) penalties, and underpayment interest. Before trial the IRS submitted a

pretrial memorandum in which it claimed the Ogambas could not challenge certain

of the liabilities for 2009 and 2010 because, it contended, they had received the

notice of deficiency. The Court issued an order stating that “the evidence the

parties should submit at trial should include evidence related to the amount of the
                                         -11-

[*11] Ogambas’ 2009 and 2010 tax liabilities” and that “[i]f the Court determines

that the Ogambas did not receive the notice of deficiency, the Court will review

any appropriate issues regarding the amount of the Ogambas’ 2009 and 2010 tax

liabilities and will consider the evidence presented at trial with respect to the

amount of the 2009 and 2010 tax liabilities.” At trial the Court admitted the letters

(and attachments) that the Ogambas had sent to the Appeals Office. At trial Mr.

Ogamba testified that the Ogambas had not received the notice of deficiency. As

to the second son for whom the Ogambas seek dependency-exemption deductions,

Mr. Ogamba testified:

      We have five kids, and during the filing, one of my sons was doing a
      part-time job, so I did not include him. But later on after submitting
      the taxes, we found out that he only made $400 during this part-time
      job, which isn’t enough. So during the second phrase, we decided to
      use, add him as our dependent, which might--our prior tax years
      shows that’s our dependent.

As to the dependency-exemption deductions for his father, Mr. Ogamba testified:

“The next dependent is my father, who stays with me. I used him this time, but I

was surprised, Your Honor, the IRS officer disallowed my dependents, even

though they can see from our previous records that these individuals were used

during our filing.”
                                          -12-

[*12]                                  OPINION

        Before the IRS can levy to collect a liability, it must notify the taxpayer of

the right to a collection-review hearing with its Appeals Office. Sec. 6330(a)(1),

(b)(1). At the hearing the taxpayer is entitled to raise various issues, including

“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.”

Sec. 6330(c)(2)(B). The “underlying tax liability” includes all liabilities that are

subject to the proposed levy. Katz v. Commissioner, 115 T.C. 329, 338 (2000).

        After the collection-review hearing, the Appeals Office makes a

determination about the appropriateness of the proposed levy. Sec. 6330(c)(3)(C).

The determination must also consider the issues raised by the taxpayer. Sec.

6330(c)(3)(B). If the taxpayer is dissatisfied with the determination, he or she can

appeal the determination to the Tax Court, as the Ogambas have done here. Sec.

6330(d)(1). The Tax Court can review only the issues that were properly raised by

the taxpayer at the collection-review hearing with the Appeals Office. See sec.

301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.

        The IRS contends that the Ogambas are barred from contesting the amounts

of their income-tax liabilities for 2009 and 2010 because it claims that the
                                          -13-

[*13] Ogambas received the notice of deficiency. See sec. 6330(c)(2)(B). The

notice of deficiency entitled the Ogambas to file a petition in the Tax Court. Sec.

6213(a). Had they filed a petition challenging the notice of deficiency, a

deficiency case would have begun. In that deficiency case, the Tax Court would

have been authorized to redetermine the deficiencies, which would include

resolving issues regarding the amounts of the Ogambas’ liabilities for income tax.

Sec. 6214(a) (giving Tax Court jurisdiction to redetermine deficiencies); sec.

6211(a) (generally defining a deficiency as the correct tax minus the tax shown on

the return). The Court also would have had jurisdiction to redetermine the

Ogambas’ liability for the section-6662 penalties. See sec. 6214(a); Estate of

Quick v. Commissioner, 110 T.C. 172, 179-180 (1998). Mr. Ogamba credibly

testified that the Ogambas never received a notice of deficiency. Because the

Ogambas did not receive a notice of deficiency, they were not prevented from

raising their “underlying tax liability” (i.e., their liabilities for income tax and the

section-6662 penalties) at the collection-review hearing at the Appeals Office. It

is therefore appropriate for us to consider the Ogambas’ challenge to their income-

tax liabilities for 2009 and 2010. However, as explained infra part 1 we hold that

the evidence does not show that the Appeals Office erred in its determinations

regarding the amounts of the Ogambas’ 2009 and 2010 income-tax liabilities. The
                                        -14-

[*14] Ogambas also attempt to raise challenges with us to their liability for

section-6662 penalties, section-6651(a)(3) penalties, and overpayment interest.

However, as explained infra part 2 below, we hold that the Ogambas failed to

make these challenges with the Appeals Office. Because of that failure they are

barred from raising these issues with us. See 301.6330-1(f)(2), Q&A-F3, Proced.

& Admin. Regs.

1.    The evidence is insufficient to show that the IRS’s determinations of the
      amounts of the Ogambas’ income-tax liabilities for 2009 and 2010 are
      incorrect.

      The evidence the Ogambas presented at trial does not show that the Appeals

Office was incorrect in its determinations of the amounts of their income-tax

liabilities for 2009 and 2010. At a trial involving challenges to the underlying tax

liability (including the amount of an income-tax liability), the Tax Court gives no

deference to the determination of the Appeals Office and it considers evidence

beyond that which was presented to the Appeals Office. (These principles are

explained, for a case which like this one is appealable to the Court of Appeals for

the Ninth Circuit, in Jordan v. Commissioner, 134 T.C. 1, 5, 8-9 (2010).)

Furthermore, the taxpayers have the burden of proof. See Tax Ct. R. Pract. &

Proc. 142(a); sec. 7491(a)(1) (shifting burden to IRS if certain conditions are met,

none of which are met by the Ogambas). There are three areas in which the
                                         -15-

[*15] Ogambas dispute the amounts of their income-tax liabilities: (1)

dependency-exemption deductions, (2) capital losses, and (3) income from

canceled debts. We discuss each area below in parts 1.a and 1.b and 1.c,

respectively.

      a.        Dependency-exemption deductions

      Section 151(a) and (c) provides that a taxpayer can deduct an exemption

amount for each dependents. A dependent is defined as either a qualifying child

or a qualifying relative. Sec. 152(a).

      The only evidence the Ogambas gave about the second son for whom they

seek additional dependency-exemption deductions is that he earned only $400

during one of the two years at issue. One of the tests for being a qualifying child

is that the child must not be self-sufficient. Specifically, the child must not

provide over one-half of his or her own support during the year. Sec.

152(c)(1)(D). A child who earns only $400 per year would seemingly not be self-

sufficient. But there are other requirements to be a qualifying child. The child

must be younger than 19 years of age (or younger than 24 years of age if a

student). Sec. 152(c)(1)(C). The child must have the same principal place of

abode as the taxpayer for more than half the year. Sec. 152(c)(1)(B). The

evidence does not show that these other requirements were satisfied with respect
                                        -16-

[*16] to the Ogambas’ second son. There is also insufficient evidence to show

that the second son was a qualifying relative. To be a qualifying relative, the

relative must be financially dependent on the taxpayer. Specifically, the taxpayer

must provide over one-half of the relative’s support. Sec. 152(d)(1)(C). The

record does not reveal how much support the Ogambas gave their son. For

example, the record does not reveal whether the second son lived in the Ogambas’

house (and therefore received support in the form of free housing) or whether he

received support from other relatives, from the government, or from a school, for

example. We therefore conclude that the Ogambas have not proven that their

second son was a qualifying relative.

      Similarly, there is insufficient evidence to show that Mr. Ogamba’s father

was a qualifying relative. Mr. Ogamba testified that his father stayed with him.

This claim is supported by his father’s letter, which was submitted by the

Ogambas to the Appeals Office and made part of the trial record. But sharing a

place of abode with the taxpayer is not itself a requirement to be a qualifying

relative. See sec. 152(d)(1). For Mr. Ogamba’s father to be a qualifying relative,

the Ogambas had to provide more than half of the father’s support. Sec.

152(d)(1)(C). Furthermore, the father’s gross income had to be below the
                                         -17-

[*17] exemption amount. Sec. 152(d)(1)(B). The evidence does not show that

these requirements were met.

      b.     Capital losses

      The following table summarizes the capital losses as reported by the

Ogambas for 2009 and 2010 and then as adjusted in the notice of deficiency:

                                                                    As determined
                     Item                          As reported       by the IRS
Capital gain or loss carryover to 2009              -$2,716             -$2,716
Capital gain or loss for 2009                        -3,200               2,516
 Total capital gain or loss for 2009                 -5,916                -200
Deduction against ordinary income for 2009            3,000                 200
Capital gain or loss carryover to 2010               -2,916                   0
Capital gain or loss for 2010                        -4,810              -4,726
 Total capital gain or loss for 2010                 -7,726              -4,726
Deduction against ordinary income for 2010            3,000               3,000
Capital gain or loss carryover to 2011               -4,726              -1,726

The $3,200 capital loss the Ogambas reported for 2009 corresponded to a reported

sale of 400 shares of Ziplink on November 10, 2009. The $4,810 capital loss

reported by the Ogambas for 2010 corresponded to a reported sale of 550 shares of

Ziplink stock on October 5, 2010. It is difficult to determine how the Ogambas

calculated the losses they reported on their sales of Ziplink stock. For 2009, they

reported a loss of $3,200. It is unclear how this $3,200 loss was calculated from
                                         -18-

[*18] the sale price they reported, -$3,200. (It is unclear how stock can be sold for

a negative sale price.) Furthermore, they did not report their basis in the stock.

For 2010, they reported a loss of $4,810. It is unclear how this $4,810 was

calculated from the basis they reported, $10, and the sale price they reported they

received, -$4,800. The Ogambas’ brief does not make their position any clearer.

Their explanation of the issue on brief is short and vague: “[W]e indeed suffered

capital losses during these years [2009 and 2010] in the stock market. Our Ziplink

Inc. shares lost its value during our sales and fell to penny stocks.”

      A taxpayer may deduct a loss on the sale of stock for the year in which the

stock is sold. See sec. 165(a); sec. 1.165-1(b), (c)(1), (3), Income Tax Regs. The

loss is equal to the sale price of the stock minus the basis. See sec. 1001(a) and

(b). The record does not reveal the prices at which the Ogambas sold their Ziplink

stock, the dates of the sale, or their basis. The only evidence in the record

regarding the Ziplink stock is (1) the Ogambas’ tax returns, the calculations on

which are inexplicable, and (2) the 2011 press release regarding an offer to

purchase Ziplink stock, which suggests only that the market value of the stock was

about 6.5 cents per share in 2011. It appears that the Ogambas contend that their

reporting of the sale of Ziplink stock on their returns was correct. But the record

does not support this contention.
                                        -19-

[*19] c.       Income from canceled debt

         Section 61(a)(12) provides that gross income includes income from

canceled debts. However, section 108(a)(1)(E) provides that gross income does

not include income from a canceled debt that is “qualified principal residence

indebtedness”. And section 108(a)(1)(D) provides that gross income does not

include income from a canceled debt that is “qualified real property business

indebtedness”. The Ogambas argue that under these exceptions they should

exclude, from their gross income, the income from the following canceled debts:

(1) a $1,293.67 debt canceled January 15, 2009, (2) another $1,293.67 debt

canceled January 15, 2009, (3) a $677.13 debt canceled March 8, 2010, (4) another

$677.13 debt canceled March 8, 2010, and (5) a $35,443.62 debt canceled March

15, 2010. These debts correspond to the amounts reported on Forms 1099-C as

shown in the table supra page 9.

         The IRS argues that the Ogambas did not report income from any of the

above-listed canceled debts on their 2009 or 2010 returns and that the notice of

deficiency did not determine that income from these canceled debts should be

included in the Ogambas’ income. Thus, the IRS argues, the income-tax liabilities

it sought to collect by levy are not predicated on income from these canceled

debts.
                                        -20-

[*20] The Ogambas reported no income from canceled debts on their 2009 return.

Furthermore, the notice of deficiency did not determine that the Ogambas had

income from canceled debts for 2009. On their 2010 return, by contrast, the

Ogambas reported income $36,798 from canceled debts. This amount is equal to

the sum of the amounts of the third, fourth, and fifth canceled debts. The notice of

deficiency did not determine an adjustment to this aspect of the return. Therefore,

it appears that the IRS included the canceled-debt income reported by the

Ogambas for 2010 in its determination of the Ogambas’ income for that year. It

follows that the income-tax liability for 2010 that the IRS proposed to collect by

levy was predicated on the Ogambas’ having had $36,798 of canceled-debt

income that was includable in their gross income. Whether this income is truly

includable in the Ogambas’ gross income is therefore relevant to the amount of the

“underlying tax liability”. See sec. 6330(c)(2)(B).

      The IRS argues that the Ogambas did not provide any credible testimony or

evidence to support their position that the canceled debts were “qualified principal

residence indebtedness” or “qualified real property indebtedness”. We agree with

the IRS.

      For a debt to be “qualified principal residence indebtedness” the debt must,

among other things, have financed the taxpayer’s principal residence. Secs.
                                        -21-

[*21] 108(a)(1)(E), (h)(2), (5), 121, 163(h)(3)(B). The record does not show

whether the three debts canceled in 2010 financed the Ogambas’ principal

residence.

      For a debt to be “qualified real property business indebtedness” it must,

among other things, have financed real property used in the taxpayer’s trade or

business. Sec. 108(c)(3) and (4). Furthermore, the taxpayer is required to

properly make an election to exclude income from such a canceled debt. Sec.

108(c)(3)(C); sec. 1.108-5, Income Tax Regs. The record does not show that these

requirements have been met for any of the three debts canceled in 2010.

      In conclusion, the Ogambas have not proven that any of the three debts

canceled in 2010 are “qualified primary residence indebtedness” or “qualified real

property business indebtedness”. Therefore, these three debts are not excludable

from the Ogambas’ gross income under section 108(a)(1)(D) or (E).

2.    At the collection-review hearing with the Appeals Office, the Ogambas
      failed to raise the issues of the section-6662 penalties, the section-
      6651(a)(3) addition to tax, and underpayment interest.

      The amounts that the IRS seeks to collect by levy include not only income-

tax liabilities, but also the following amounts: (1) penalties under section 6662 for

2009 and 2010, (2) additions to tax under section 6651(a)(3) for failing to pay tax

that should have been shown on returns for years that include 2009 and 2010, and
                                         -22-

[*22] (3) interest on underpayments of tax for years that include 2009 and 2010.

Section 6662 imposes a penalty on a taxpayer who reports less than the correct

amount of tax on a return. Section 6651(a)(3) requires a taxpayer to pay an

addition to tax if the taxpayer fails to pay an amount of tax that should have been

shown on a return but was not so shown. Underpayment interest is the interest the

taxpayer must pay from the due date for payment of taxes until the date the tax is

paid. Sec. 6601(a). The Ogambas contend that the additions to tax, penalties, and

interest should be abated for 2009 and 2010. However, they did not make this

contention to the Appeals Office. Therefore, they are barred from seeking Tax

Court review of their liability for the section-6651(a)(3) addition to tax, the

section-6662 penalties, and underpayment interest. See sec. 301.6330-1(f)(2),

Q&A-F3, Proced. & Admin. Regs.

3.    Conclusion

      To reflect the foregoing,


                                                      Decision will be entered for

                                                respondent.
