                            T.C. Summary Opinion 2017-69



                            UNITED STATES TAX COURT



                ABDIWALI SULDAN MOHAMED, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14508-16S L.                          Filed August 29, 2017.



      Abdiwali Suldan Mohamed, pro se.

      Lisa M. Oshiro and Gregory Michael Hahn, for respondent.



                                 SUMMARY OPINION


      GUY, Special Trial 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


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

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

case.

        This case is an appeal from a notice of determination issued by the Internal

Revenue Service (IRS) Office of Appeals (Appeals Office) sustaining a proposed

levy action to collect penalties (totaling $7,000) for the taxable year 2013 that

were assessed against petitioner pursuant to section 6695(g). Respondent filed a

motion for summary judgment with a supporting declaration. Petitioner filed a

response opposing respondent’s motion. Following a hearing on respondent’s

motion, respondent filed a supplement to his motion to which petitioner filed a

further response.

                                     Background2

        Petitioner earned a bachelor’s degree from Western Washington University

in 2004 and a master’s degree from Golden Gate University in 2008. He obtained

a license to practice as a certified public accountant in the State of Washington in



        1
       (...continued)
Revenue Code (Code) in effect at all relevant times, and all Rule references are to
the Tax Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
        2
       The following facts, which are not in dispute, are drawn from the
pleadings, respondent’s motion as supplemented, petitioner’s responses, and
supporting documents.
                                         -3-

2012. Petitioner operates a tax return preparation business under the name Mini-

Max CPA, PS.

      In December 2013 an IRS criminal investigator contacted petitioner and

inquired about Federal income tax returns that he had prepared for the taxable year

2012. The criminal investigator apparently was satisfied that petitioner was not

engaged in criminal activity.

      In early 2014 petitioner prepared and filed more than 300 Federal income

tax returns for his clients for the taxable year 2013. Some of petitioner’s clients’

tax returns were examined in March and April 2014 as part of an IRS earned

income tax credit (EITC) due diligence audit program.

      Petitioner subsequently received and responded to requests for information

from an IRS tax compliance officer (TCO)--an examiner assigned to determine

whether he had complied with EITC due diligence requirements imposed under

section 1.6695-2, Income Tax Regs. Petitioner met with the TCO to review his

records and files related to 50 tax returns that he had prepared for the taxable year

2013. The TCO prepared a detailed report titled “EITC Due Diligence Penalty

Lead Sheet”, dated April 24, 2014 (audit report), in which she concluded that

petitioner had failed to satisfy EITC due diligence requirements in preparing 20 of
                                         -4-

the 50 tax returns selected for review. The TCO in turn recommended that the IRS

impose 20 $500 penalties on petitioner pursuant to section 6695(g).

      On April 28, 2014, the TCO prepared a Form 8484, Report of Suspected

Practitioner Misconduct and Report of Appraiser Penalty, for submission to the

Office of Professional Responsibility (OPR). The TCO attached to the Form 8484

a copy of the audit report. On April 28, 2014, the TCO’s acting immediate

supervisor attached her digital signature to “Part E-Management Approval” of the

Form 8484.

      When petitioner received the audit report, he requested that the Appeals

Office review the matter before assessment. The Appeals Office granted

petitioner’s request, and on May 8, 2015, he met with an Appeals Officer (AO) for

about six hours to review his files related to the 20 tax returns identified in the

audit report. In conjunction with that meeting, the AO determined that section

6695(g) penalties should not be imposed on petitioner in respect of 5 of the 20 tax

returns in question, and she requested that he provide additional information about

4 other tax returns. On May 18, 2015, petitioner faxed to the AO a letter, along

with the additional information that she had requested. On June 26, 2015,

petitioner participated in a telephone conference with the AO, and she informed

him that she would recommend that 14 penalties be assessed against him under
                                         -5-

section 6695(g). Petitioner thanked the AO for working with him and requested a

copy of her report.

      On July 9, 2015, the Appeals team manager sent petitioner a closing letter

stating that the Appeals Office had determined that he failed to satisfy EITC due

diligence requirements in preparing 14 tax returns for the taxable year 2013 and

that penalties totaling $7,000 would be assessed against him under section

6695(g). The letter stated that petitioner could contest the determination by

paying the penalties, filing a claim for refund with the IRS, and, if the refund

claim was denied, filing a refund suit in Federal District Court or the U.S. Court of

Federal Claims. The letter was accompanied by a report which included a brief

description and explanation of the Appeals Office rationale for sustaining or

conceding the penalties in respect of the 20 tax returns in question.

      On August 3, 2015, the IRS entered an assessment of $7,000 against

petitioner. The IRS sent petitioner a notice and demand for payment, but he failed

to pay. On November 26, 2015, the IRS sent petitioner a notice of intent to levy

which included notice of his right to request an administrative hearing before the

Appeals Office. Petitioner subsequently submitted to the Appeals Office a timely

Form 12153, Request for a Collection Due Process or Equivalent Hearing,

indicating that he believed the proposed levy action was unwarranted.
                                        -6-

      The Appeals Office assigned petitioner’s case to a settlement officer (SO),

who sent a letter inviting him to provide financial information if he wanted to

present a collection alternative such as an installment agreement or an

offer-in-compromise. The Appeals Office administrative hearing was conducted

by way of a telephone conference call. Although petitioner maintained that he

should be permitted to challenge the underlying assessment, the SO explained that

she had reviewed his transcripts of account and determined that he had previously

challenged the penalties in question before the Appeals Office. Consequently, he

was barred from challenging his underlying liabilities in the administrative

hearing. Because petitioner otherwise declined to offer or agree to a collection

alternative, the Appeals Office issued a notice of determination to petitioner

sustaining the proposed levy action. Petitioner invoked the Court’s jurisdiction by

filing a timely petition for review under section 6330. At the time the petition was

filed, petitioner resided in the State of Washington.

                                     Discussion

I. Summary Judgment

      Summary judgment may be granted with respect to all or any part of the

legal issues in controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials, together with the
                                         -7-

affidavits or declarations, if any, show that there is no genuine dispute as to any

material fact and that a decision may be rendered as a matter of law.” Rule 121(a)

and (b). Respondent’s motion for summary judgment, as supplemented, is well

founded in the light of the averments therein and the declarations and related

exhibits attached thereto. We conclude that there is no dispute as to a material fact

and that respondent is entitled to judgment as a matter of law sustaining the notice

of determination upon which this case is based.

II. Collection Review Proceedings

      If any person liable to pay any tax neglects or refuses to pay such tax within

10 days after notice and demand for payment, the Commissioner is authorized to

collect such tax by levy upon the person’s property. Sec. 6331(a). At least 30

days before enforcing collection by levy on the person’s property, the

Commissioner is obliged to provide a final notice of intent to levy, including

notice of available administrative appeals. Sec. 6331(d). Generally speaking, the

Commissioner cannot proceed with collection by levy until (1) the person has been

given notice and the opportunity for an administrative review of the matter (in the

form of an Appeals Office hearing) and, if the person is dissatisfied, (2) judicial

review of the administrative determination is final. Sec. 6330; see Davis v.
                                         -8-

Commissioner, 115 T.C. 35, 37 (2000); Goza v. Commissioner, 114 T.C. 176,

179-180 (2000).

      The Appeals Office is responsible for conducting administrative hearings in

collection matters. Sec. 6330(b)(1). In particular, the Appeals Office must verify

that the requirements of any applicable law or administrative procedure have been

met in processing the case. Sec. 6330(c)(1), (3)(A). The Appeals Office also must

consider any issues raised by the person relating to the unpaid tax or proposed

levy, including offers of collection alternatives, appropriate spousal defenses, and

challenges to the appropriateness of the collection action. Sec. 6330(c)(2)(A),

(3)(B). A person may challenge the existence or amount of his underlying tax

liability if the person did not receive a notice of deficiency or did not otherwise

have an opportunity to dispute such tax liability. Sec. 6330(c)(2)(B). Section

6330(c)(4) provides in pertinent part that a person may not raise an issue at a

collection review proceeding if that issue was raised and considered in a previous

administrative proceeding and the person seeking to raise the issue participated

meaningfully in the previous hearing or proceedings. Finally, the Appeals Office

must consider whether the collection action balances the need for efficient

collection against the person’s concern that collection be no more intrusive than

necessary. Sec. 6330(c)(3)(C).
                                         -9-

      The Tax Court has jurisdiction to review the administrative determination

made by the Appeals Office. Sec. 6330(d)(1). If the taxpayer’s underlying tax

liability is properly in dispute, we review the Appeals Office’s administrative

decision de novo. Goza v. Commissioner, 114 T.C. at 181-182. If the taxpayer’s

underlying tax liability is not properly in dispute, we review the Appeals Office’s

administrative decision for abuse of discretion. Id. at 182. An abuse of discretion

occurs if the Appeals Office exercises its discretion “arbitrarily, capriciously, or

without sound basis in fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23

(1999).

III. Section 6695(g)

      The penalties that petitioner seeks to challenge were assessed under section

6695(g), which provides: “Any person who is a tax return preparer with respect to

any return or claim for refund who fails to comply with due diligence requirements

imposed by the Secretary by regulations with respect to determining eligibility for,
                                        - 10 -

or the amount of, the credit allowable by * * * section 32 shall pay a penalty of

$500 for each such failure.”3 Section 32 provides for the earned income credit.4

      Section 1.6695-2(b), Income Tax Regs., prescribes due diligence

requirements that a tax return preparer must satisfy to avoid a penalty under

section 6695(g). These requirements include preparing and retaining certain IRS

forms (e.g., Form 8867, Paid Preparer’s Earned Income Credit Checklist, and the

Earned Income Credit Worksheet), and the tax return preparer must not know, or

have reason to know, that any information that he relied upon in determining a

taxpayer’s eligibility for, or the amount of, the EITC is incorrect.

      Section 6696(b) provides in relevant part that the deficiency procedures of

subchapter B of chapter 63 of the Code shall not apply with respect to the

assessment or collection of the penalties provided by section 6695. A tax return

preparer nevertheless may request an appeal of an initial determination of a section



      3
       The term “tax return preparer” is defined in sec. 7701(a)(36). Petitioner
does not dispute that he is a tax return preparer within the meaning of this
provision.
      4
        We note that sec. 6695(g) was amended in the Consolidated Appropriations
Act, 2016, Pub. L. No. 114-113, div. Q, sec. 207(a)(1) and (2), 129 Stat. at 3082-
3083, effective for taxable years beginning after December 31, 2015, to extend the
penalty to tax return preparers determining eligibility for, or the amount of, the
credit under sec. 24 (child tax credit) and sec. 25A(a)(1) (Hope Scholarship
Credit).
                                        - 11 -

6695(g) penalty within the IRS. See Internal Revenue Manual (IRM) pt.

20.1.6.19.1(1) (May 16, 2012). A claim for credit or refund of a penalty paid

under section 6695 shall be filed within three years from the time the penalty was

paid. Sec. 6696(c), (d)(2).

IV. Petitioner’s Prior Opportunity To Challenge the Penalties

      Relying on section 6330(c)(2)(B), the Appeals Office determined that

petitioner was barred from challenging his underlying liability for the section

6695(g) penalties during the collection review proceeding because (although he

did not receive a notice of deficiency) he had previously taken advantage of the

opportunity to have the Appeals Office review the matter.

      Petitioner does not dispute that he requested and received Appeals Office

review of the section 6695(g) penalties in 2015 before the proposed levy action.

See sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. (stating that an

opportunity to dispute the underlying liability includes a prior opportunity for a

conference with the Appeals Office that was offered either before or after the

assessment of the liability). As we explained in Lewis v. Commissioner, 128 T.C.

48, 61 (2007), Congress structured section 6330 to preclude taxpayers who were

previously afforded a conference with the Appeals Office from raising the

underlying liability again in a collection review hearing and before this Court.
                                        - 12 -

Accord Iames v. Commissioner, 850 F.3d 160, 165 (4th Cir. 2017). Petitioner

maintains, however, that the Appeals Office prematurely terminated its review in

2015 and issued its closing letter without giving him a final chance to rebut the

AO’s conclusions. We disagree.

      Petitioner took full advantage of every opportunity offered to him to

challenge the imposition of the penalties in dispute. He actively participated in the

initial examination process. After the TCO recommended that 20 penalties be

assessed against him under section 6695(g), petitioner requested and was granted

Appeals Office review. Petitioner again actively participated in the Appeals

Office review process. He attended a lengthy meeting with the AO assigned to

review the matter, submitted additional documentation to the AO as requested, and

participated in a followup conference call. Ultimately, the Appeals Office

(through the Appeals team manager) issued a closing letter to petitioner informing

him that section 6695(g) penalties would be assessed in respect of 14 tax returns

that he had prepared.

      In sum, the record shows that in 2015 petitioner was provided a full and fair

opportunity to challenge the imposition of the disputed penalties before the

Appeals Office and he meaningfully participated in that proceeding. Although

petitioner would have preferred to continue to dispute his liability, we are satisfied
                                        - 13 -

that the Appeals Office conducted a fair and comprehensive review of the matter

and acted properly in concluding the matter by issuing its closing letter.

V. Supervisory Approval of Initial Penalty Determination

      Section 6751(b) provides: “No penalty under this title shall be assessed

unless the initial determination of such assessment is personally approved (in

writing) by the immediate supervisor of the individual making such determination

or such higher level official as the Secretary may designate.”5 The Secretary has

not designated any higher level official for purposes of section 6751(b).

Consequently, the statute requires the approval of the immediate supervisor of the

person making the initial determination.

      Respondent avers that the TCO’s (acting) immediate supervisor approved

the initial determination to impose 20 section 6695(g) penalties on petitioner when

she signed the Form 8484 and approved the referral of the matter, including the

audit report, to the OPR.6 We agree with respondent.




      5
       Sec. 6751(b)(2) provides exceptions for additions to tax assessed under
secs. 6651, 6654, or 6655 or any penalty automatically calculated through
electronic means.
      6
       Respondent did not offer a Form 8278, Assessment and Abatement of
Miscellaneous Civil Penalties, which normally is used to assert preparer penalties.
Internal Revenue Manual (IRM) pt. 20.1.6.5.9 (May 16, 2012).
                                        - 14 -

      On its face, Form 8484 is a report that IRS personnel are encouraged to use

to convey information to the OPR about questionable practitioner conduct.

Although the form does not function to authorize the assessment of a penalty, in

this case the TCO’s acting immediate supervisor placed her digital signature on

the Form 8484 indicating that she agreed with the referral of the matter to the OPR

and that she approved the audit report (attached to the Form 8484) which

recommended that 20 section 6695(g) penalties be assessed against petitioner.7

The audit report included a detailed explanation in support of each of the 20

penalties. Under the circumstances of this case, we conclude that the TCO’s

initial determination to assess the penalties in dispute was personally approved in

writing by her immediate supervisor within the meaning of section 6751(b).

VI. Appeals Office Determination

      Petitioner has not raised any other challenge to the Appeals Office

determination sustaining the proposed levy action. In any event, the record shows

that the Appeals Office fulfilled its obligations as prescribed in section 6330. In

the absence of a valid defense to the proposed levy or a viable collection

alternative, the proposed levy action balances the need for efficient collection


      7
       A duly designated acting manager may serve as an immediate supervisor
within the meaning of sec. 6751(b). See IRM pt. 20.1.6.1.1.2 (Sept. 10, 2013).
                                       - 15 -

against petitioner’s concern that collection be no more intrusive than necessary.

See sec. 6330(c)(3)(C); Pough v. Commissioner, 135 T.C. 344, 351 (2010).

Consequently, we will grant respondent’s motion for summary judgment, as

supplemented.

      To reflect the foregoing,


                                                An appropriate order and decision

                                       will be entered.
