                  T.C. Memo. 2006-29



                UNITED STATES TAX COURT



            ROGER L. SHERER, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 15976-04L.           Filed February 21, 2006.



     P seeks relief from a tax lien filed for 1999
under sec. 6330(d), I.R.C. P contests the income tax
liability assessed for 1999. R disputes whether P had
an opportunity to contest the 1999 liability and
asserts P refused receipt of the notice of deficiency.
However, P did not receive the notice of deficiency for
1999 which was mailed to two addresses, neither of
which was P’s residence at the time.

     P did not file an income tax return for 1999. In
response to the Appeals officer in the communications
after his request for a hearing under sec. 6330,
I.R.C., P provided support for his claimed bases in
securities, the proceeds of the sale of which create
the 1999 liability. The Appeals officer declined to
consider P’s information until he filed a return for
1999. Since P did not file a 1999 return, R issued a
notice of determination.
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          Held: P’s 1999 tax liability is properly before
     this Court subject to de novo review, since P did not
     receive the notice of deficiency for 1999 and did not
     otherwise have an opportunity to dispute the liability.
     Sego v. Commissioner, 114 T.C. 604 (2000),
     distinguished.

          Held further, P’s failure to file a return for
     1999 does not bar consideration of P’s evidence of his
     bases in securities sold in 1999. Upon consideration
     of P’s evidence, the Court finds that P has no tax
     liability for 1999 and accordingly, the collection
     action is not upheld.



     Roger L. Sherer, pro se.

     Sean Gannon, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   The issues before us are whether petitioner

has received a notice of deficiency for 1999 or otherwise had an

opportunity to dispute his tax liability for 1999, and whether

petitioner is required to file a Federal income tax return to be

allowed his claimed bases in securities he sold in 1999.

     The petition in this case was filed under section 6330(d)1

in response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination) relating to a Federal tax lien filed for the

taxable year 1999.



     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code as amended.
                                 - 3 -

                          FINDINGS OF FACT

     The parties have stipulated some of the facts, and those

facts are included herein by this reference.    Other evidence was

taken via testimony at trial.

     At the time of the filing of the petition, petitioner

resided in Kingston, Illinois.

     Petitioner has not filed a Federal income tax return for the

taxable year 1999.    Pursuant to section 6020(b), respondent

prepared a substitute for return for petitioner for the taxable

year 1999 in July 2001.    The substitute for return was based on

information respondent received from third parties showing

proceeds from sales of certain assets and interest income.      On

July 11, 2002, respondent mailed a notice of deficiency to

petitioner related to the taxable year 1999, determining a

deficiency in income tax and additions to tax attributable to the

deficiency.    Respondent used the address that petitioner had

shown on the income tax return he filed for the taxable year

1997.   The 1997 return was the last return petitioner filed

before 2002.

     Petitioner did not notify the Internal Revenue Service of

any change of address, and the July 11, 2002, notice of

deficiency was returned by the U.S. Postal Service (USPS) to

respondent.    The envelope which contained the notice of

deficiency was stamped by the USPS with the word “Unclaimed”.
                               - 4 -

     On July 11, 2002, respondent mailed a duplicate notice of

deficiency to petitioner at another address.   This second notice

of deficiency was also returned by the USPS, and the envelope

containing it was stamped “Unclaimed”.   The second notice was

mailed on the basis of respondent’s attempts to find petitioner’s

current address using a “postal tracer research” procedure

provided by the USPS.

     Petitioner did not reside at either of the addresses to

which the notice of deficiency was mailed on July 11, 2002, and

petitioner did not receive the notice of deficiency.   As a

result, petitioner did not file a deficiency suit with this

Court.   Respondent assessed the income tax deficiency and the

additions to tax on December 9, 2002.    On December 9, 2002, and

January 13, 2003, petitioner was issued a notice of demand for

payment of the tax liability and the additions to tax for 1999.

On November 28, 2003, respondent filed with the Recorder of

Deeds, DeKalb County, Illinois, a notice of Federal tax lien with

respect to petitioner’s tax liability and the additions to tax.

On December 4, 2003, respondent mailed to petitioner at a third

address in Kingston, Illinois, a notice of Federal tax lien

filing with respect to the lien filed for the taxable year 1999.

On or about January 5, 2004, respondent received a timely Form
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12153, Request for Collection Due Process Hearing.    In his Form

12153, petitioner contested only the tax liability.

     On January 29, 2004, respondent mailed to petitioner a

letter advising him that his Form 12153 had been received and

that his request for a hearing was being processed.    Petitioner

was further advised in this letter that he had not filed income

tax returns for the taxable years 1998, 1999, 2000, 2001, and

2002, and he was instructed to file said returns by February 12,

2004.   He was further instructed that if he failed to file the

returns, the matter would be forwarded to respondent’s Appeals

Office for consideration of his request for a hearing.

Petitioner has acknowledged that he received the January 29,

2004, letter.   Petitioner failed to file, as of the date of

trial, any income tax returns for the taxable years 1998 through

2002.

     In an April 14, 2004, letter, the Appeals officer advised

petitioner to contact her and schedule a hearing.    She also

advised petitioner that he should provide her with all

information he had in support of his position that his underlying

tax liability was in error, and that she could not offer him a

collection alternative in satisfaction of his tax liability for

1999 because he continued to fail to file his income tax returns.

     On May 24, 2004, petitioner mailed to the Appeals officer a

copy of a Form 1099-MISC, Miscellaneous Income, issued to
                                - 6 -

petitioner for the year 1999 from Bear, Stearns Securities Corp.

(Bear Stearns) and a two-page summary in which he reported his

cost bases in the stocks and bonds sold during 1999, with the

exception of securities in the Bidwell Co. (Bidwell) described in

the Form 1099-MISC.    The Bear Stearns information petitioner

presented showed cost bases for those securities purchased in

1999.   Petitioner also claimed a $21,228 mortgage interest

expense for the taxable year 1999 in his letter.    This expense

was supported by third-party documentation.    Respondent did not

allow this mortgage interest expense in preparing the substitute

for return for 1999.    In a reply letter dated June 14, 2004, the

Appeals officer advised petitioner to file an income tax return

for the taxable year 1999 in order to obtain credit for the cost

bases he reported in his summary and for the mortgage interest

expense he claimed.    Also in the letter of June 14, 2004, the

Appeals officer advised petitioner that she would be issuing a

notice of determination, sustaining respondent’s proposed lien

collection action, should petitioner fail to file an income tax

return for the year 1999 by June 18, 2004.    Petitioner received

the June 14, 2004, letter.    Petitioner did not file an income tax

return for 1999.   On July 9, 2004, the Appeals officer attempted

to contact petitioner via telephone.    Petitioner did not respond.

     The Appeals officer issued a notice of determination to

petitioner on August 4, 2004, sustaining the proposed lien action
                                 - 7 -

relating to petitioner’s income tax liability for the taxable

year 1999, including the liability for the additions to tax.      The

Appeals officer took the position in the notice of determination

that petitioner’s failure to file an income tax return for the

year 1999 supported the position that the proposed lien balance

should be sustained and prevented her from considering the

information petitioner submitted concerning his bases and

mortgage interest deductions.

     On September 2, 2004, petitioner filed a timely petition in

this Court challenging the underlying liability for the taxable

year 1999.

                                OPINION

     Respondent’s initial position is that petitioner failed to

accept the notice of deficiency for 1999 which was mailed to him,

and therefore he loses his right to pursue objections to the

underlying tax liability in this proceeding.      Sec. 6330(c)(2)(B).

Petitioner maintains he did not receive the notice of deficiency

and therefore he may contest the underlying tax liability in this

proceeding.   We have found as fact that petitioner did not live

at either of the addresses to which the notice of deficiency was

sent and that he never received it.       There was not a deliberate

refusal of delivery.   These facts distinguish this case from Sego

v. Commissioner, 114 T.C. 604 (2000).       While the notice of

deficiency was mailed to the last known address and is valid,
                                 - 8 -

petitioner nevertheless did not live at the address when the

notice was mailed and did not otherwise have an opportunity to

dispute the liability for 1999.    Petitioner raised the underlying

tax liability before the Appeals Office and is entitled to a

hearing regarding his liability for the Federal income tax in

1999.

     Respondent’s position regarding the underlying tax liability

is that petitioner failed to raise that question properly before

the Appeals Office by failing to file a Federal income tax return

as requested by the Appeals officer.     We must determine whether

petitioner’s failure to submit an income tax return for 1999

prevents the consideration of petitioner’s claims regarding his

bases and interest deductions.    Our review of petitioner’s tax

liability under section 6330(c)(2)(B) is de novo.    See Goza v.

Commissioner, 114 T.C. 176, 181 (2000) (quoting the legislative

history of section 6330, H. Conf. Rept. 105-599, at 266 (1998)).

     In deficiency cases, this Court has allowed deductions

normally claimed on Schedule A, Itemized Deductions, to taxpayers

who have not filed income tax returns.    See, e.g., Robertson v.

Commissioner, T.C. Memo. 2000-100, affd. 15 Fed. Appx. 467 (9th

Cir. 2001).   There are stronger reasons to permit petitioner to

substantiate his bases because only the gains from the sales are

gross income.   See sec. 61(a)(3).   We see no material distinction

between precedent and the present case, and we will review the
                                 - 9 -

evidence petitioner submitted to the Appeals Office and his

testimony to determine his tax liability.

     Petitioner seeks to establish his bases in assets that were

sold in the taxable year.   Although it would have obviously been

preferable had petitioner filed a return for 1999, we find

petitioner’s testimony regarding his bases to be credible and to

be corroborated in large part by the documentation he submitted

to the Appeals Office.   On the basis of our de novo review of

this evidence, we find petitioner had a capital loss for the

taxable year 1999 before considering the sale of Bidwell stock

for $9,625.   Petitioner presented no evidence regarding his basis

in that stock, but the loss established by the evidence we have

accepted exceeds the Bidwell sale proceeds and the $232 in

interest income petitioner received in 1999.       In addition,

petitioner’s mortgage interest deduction is consistent with

documentary evidence respondent presented, and it is allowable.

Accordingly, we find on the evidence before us that petitioner

does not have an outstanding tax liability for 1999.       On this

record, there is no tax liability to collect for 1999.

Therefore, respondent’s collection action regarding tax and

additions to tax for 1999 is not sustained.

     To reflect the foregoing,


                                         Decision will be entered

                                 for petitioner.
