                        T.C. Memo. 2008-157



                      UNITED STATES TAX COURT



          ERICH S. AND LINDA A. YESSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21745-05L.               Filed June 23, 2008.



     Elliott K. Braverman, for petitioners.

     Kristina L. Rico, for respondent.



                        MEMORANDUM OPINION


     GALE, Judge:   This is a section 63301 proceeding for review

of respondent<s determination to proceed by levy to collect


     1
      Unless otherwise noted, all section references are to the
Internal Revenue Code as in effect for 1985 and 1986 with respect
to the underlying liabilities or as presently in effect with
respect to review of collection actions under sec. 6330. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 2 -

unpaid income taxes with respect to petitioners’ 1985 and 1986

taxable years.    Pending before the Court is respondent’s motion

for summary judgment.

     As discussed more fully below, we conclude that there are no

genuine issues of material fact, and respondent is entitled to

judgment as a matter of law.

                             Background2

     At the time the petition was filed, petitioners resided in

Pennsylvania.

     Petitioners timely filed Form 1040, U.S. Individual Income

Tax Return, for taxable year 1985 on April 15, 1986.    On August

18, 1995, respondent sent petitioners a statutory notice of

deficiency, determining deficiencies for petitioners’ 1985 and

1986 taxable years, as well as fraud additions under section

6653(b)3 against petitioner Erich S. Yesse (Mr. Yesse) for both

taxable years.4   Petitioners received the notice of deficiency.




     2
      The following findings are established in the record, have
been stipulated, and/or are undisputed.
     3
      Sec. 6653(b), applicable in 1985 and 1986, was in
substantial form recodified as sec. 6663 in 1989 for returns due
after Dec. 31, 1989. Omnibus Budget Reconciliation Act of 1989
(OBRA), Pub. L. 101-239, sec. 7721, 103 Stat. 2395.
     4
      The Court dismissed this case as to the income tax
liability for taxable year 1986, excluding the fraud addition,
for lack of jurisdiction. See infra note 5.
                                 - 3 -

     Petitioners did not petition the Tax Court with respect to

the notice of deficiency.    Consequently, respondent assessed the

deficiencies, including the fraud additions, on March 25, 1996.

     On February 8, 2005, respondent sent Final Notices--Notice

of Intent to Levy and Notice of Your Right to a Hearing to

petitioners with respect to the unpaid income tax liability,

excluding the fraud addition, for 19855 and to Mr. Yesse with

respect to the fraud additions for 1985 and 1986.    Petitioners

timely submitted a request for a hearing with respect to both

notices.

     During their hearing respondent’s Appeals officer advised

petitioners that she would not consider challenges to the

underlying liabilities because petitioners had received a

statutory notice of deficiency concerning them and had failed to

petition the Tax Court.     Petitioners indicated that they wanted

respondent’s Appeals Office to consider an offer-in-compromise

based on doubt as to liability.    However, petitioners did not

submit an offer-in-compromise during the hearing.

     On October 21, 2005, the Appeals Office issued petitioners a

Notice of Determination Concerning Collections Action(s) Under


     5
      Earlier, on Jan. 14, 2004, respondent had sent petitioners
a notice of intent to levy with respect to the unpaid income tax
liability, excluding the fraud addition, for 1986. Because
petitioners< request for a hearing under sec. 6330 concerning the
Jan. 14, 2004, notice was untimely, they received an equivalent
hearing, and respondent<s motion to dismiss for lack of
jurisdiction over this portion of the liability was granted.
                                - 4 -

Section 6320 and/or 6330 (notice of determination) sustaining the

proposed levy.

       Petitioners timely petitioned the Court in response to the

notice of determination.    Thereafter, respondent filed the

pending motion for summary judgment, to which petitioners

responded.    Subsequently, the parties were allowed to submit

additional memoranda of law in support of their positions.

                             Discussion

       Summary judgment “is intended to expedite litigation and

avoid unnecessary and expensive trials.”     Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).     Summary judgment may be

granted where there is no genuine issue of material fact and a

decision may be rendered as a matter of law.    Rule 121(a) and

(b).    The moving party bears the burden of proving that there is

no genuine issue of material fact, and factual inferences are

viewed in a light most favorable to the nonmoving party.       Craig

v. Commissioner, 119 T.C. 252, 260 (2002); Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,

79 T.C. 340, 344 (1982).    The party opposing summary judgment

must set forth specific facts which show that a genuine question

of material fact exists and may not rely merely on allegations or

denials in the pleadings.    Grant Creek Water Works, Ltd. v.

Commissioner, 91 T.C. 322, 325 (1988); Casanova Co. v.

Commissioner, 87 T.C. 214, 217 (1986).
                               - 5 -

     Section 6331(a) authorizes the Secretary to levy upon

property and property rights of a taxpayer liable for taxes who

fails to pay those taxes within 10 days after notice and demand

for payment is made.   Section 6330(a) requires the Secretary to

send a written notice to the taxpayer of the amount of the unpaid

tax and of the taxpayer’s right to a section 6330 hearing at

least 30 days before any levy is begun.

     If a section 6330 hearing is requested, the hearing is to be

conducted by the Commissioner’s Office of Appeals, and at the

hearing the Appeals officer or employee conducting it must verify

that the requirements of any applicable law or administrative

procedure have been met.   Sec. 6330(b)(1), (c)(1).   The taxpayer

may raise at the hearing “any relevant issue” relating to the

unpaid tax or the proposed levy.   Sec. 6330(c)(2)(A).   The

taxpayer may also raise challenges to the existence or amount of

the underlying tax liability if the taxpayer did not receive any

statutory notice of deficiency with respect thereto or did not

otherwise have an opportunity to dispute the liability.    Sec.

6330(c)(2)(B).

     At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection and shall

take into account:   (i) The verification that the requirements of

any applicable law or administrative procedure have been met,

(ii) the relevant issues raised by the taxpayer, (iii) the
                              - 6 -

challenges to the underlying tax liability by the taxpayer, where

permitted, and (iv) whether any proposed collection action

balances the need for the efficient collection of taxes with the

legitimate concern of the taxpayer that the collection action be

no more intrusive than necessary.   Sec. 6330(c)(3).

     In the case of the determination at issue, which pertains to

the income tax, we have jurisdiction to review the Appeals

officer’s determination by virtue of section 6330(d)(1)(A),

before its amendment in the Pension Protection Act of 2006, Pub.

L. 109-280, sec. 855(a), 120 Stat. 1019.6   See Iannone v.

Commissioner, 122 T.C. 287, 290 (2004).

     Respondent contends that he is entitled to summary judgment

because the only issues petitioners raised in connection with

their hearing were challenges to the underlying tax liabilities

which were precluded under section 6330(c)(2)(B) because

petitioners received a notice of deficiency with respect to the

underlying liabilities.

     Petitioners contend that respondent’s Appeals officer abused

her discretion by refusing to consider during the hearing an

offer-in-compromise based upon doubt as to liability.   Respondent



     6
      Sec. 6330(d)(1) has been amended to give this Court
jurisdiction to review all determinations under sec. 6330,
effective for determinations made after 60 days after Aug. 17,
2006. Pension Protection Act of 2006, Pub. L. 109-280, sec.
855(a), 120 Stat. 1019. The determination in this case was made
on Oct. 21, 2005.
                              - 7 -

argues that petitioners never submitted an offer-in-compromise

and that, in any event, an offer-in-compromise based on doubt as

to liability would constitute an impermissible challenge to the

underlying liability.

     Petitioners argue that there was an abuse of discretion in

the failure to consider their offer-in-compromise7 because there

was substantial doubt as to their liability for the 1985

deficiency and the 1985 and 1986 fraud additions.   In

petitioners’ view, there is substantial doubt because the notice

of deficiency for their 1985 and 1986 taxable years was mailed

more than 3 years after their returns for those years were filed

and consequently after the period of limitations on assessment

had expired, see sec. 6501(a), and because respondent may rely

upon the unlimited assessment period provided in section

6501(c)(1) only upon a showing by clear and convincing evidence


     7
      Although petitioners concede that they did not actually
submit a specific offer-in-compromise based on doubt as to
liability to the Appeals officer conducting their sec. 6330
hearing they argue that the Appeals officer’s stated
unwillingness to consider any such offer-in-compromise was the
cause of their failure. Since, as discussed hereinafter, any
consideration at the sec. 6330 hearing of an offer-in-compromise
based on doubt as to liability would have been precluded under
sec. 6330(c)(2)(B), it is immaterial whether petitioners’ failure
to submit an actual offer-in-compromise was attributable to the
Appeals officer<s representations. We note, however, that
respondent alleges, the Appeals officer<s case activity records
document, and petitioners have not specifically disputed that the
Appeals officer advised petitioners< representative that if they
wished to dispute the liability they should seek audit
reconsideration or submit an offer-in-compromise (outside their
sec. 6330 hearing).
                                 - 8 -

that the returns were fraudulent, which respondent has not done,

see sec. 7454(a); Rule 142(b).    Respondent counters that the

period of limitations on assessment remained open pursuant to

section 6501(c)(1) because petitioners’ returns for 1985 and 1986

were fraudulent, as determined in the notice of deficiency issued

to petitioners for those years.    Since petitioners received the

notice of deficiency and failed to timely petition the Tax Court,

respondent argues, they may not challenge the underlying

liability, including the fraud additions, either directly, or

indirectly by raising an offer-in-compromise based on doubt as to

liability, in a section 6330 collection proceeding.

     We agree with respondent.    In Baltic v. Commissioner, 129

T.C. 178, 183 (2007), we held that a challenge to the amount of

the tax liability made in the form of an offer-in-compromise

based on doubt as to liability by a taxpayer who has received a

notice of deficiency is a challenge to the underlying liability

precluded by section 6330(c)(2)(B).      We conclude that under

Baltic it was not an abuse of discretion for the Appeals officer

to refuse to consider at the section 6330 hearing an offer-in-

compromise by petitioners premised on Mr. Yesse’s asserted

doubtful liability for the fraud additions, because such an

offer-in-compromise would constitute a challenge to the

underlying tax liability.   Although not defined in the statute or

the legislative history, the term “underlying tax liability” as
                               - 9 -

used in section 6330 is “a reference to the amounts that the

Commissioner assessed for a particular tax period * * * [and] may

encompass an amount assessed following the issuance of a notice

of deficiency under section 6213(a)”.   Montgomery v.

Commissioner, 122 T.C. 1, 7-8 (2004).   For the years at issue,

the punishment for fraud was an addition to tax, see sec. 6653,

and such additions to tax, as well as penalties, “shall be

assessed, collected, and paid in the same manner as taxes”, and

any reference to “tax” imposed by the Internal Revenue Code

“shall be deemed also to refer to the additions to the tax” and

penalties, sec. 6662(a).8   Petitioners admit that they received

the notice of deficiency that determined fraud additions against

Mr. Yesse for 1985 and 1986 and decided against petitioning the

Tax Court on the basis of “apparent improper legal advice”.

Consequently, petitioners’ opportunity to dispute the fraud

additions (and the 1985 deficiency9) in the Tax Court before




     8
      In 1989 sec. 6662(a) was recodified as sec. 6665(a), and as
previously noted, sec. 6653(b) was in substantial form recodified
as sec. 6663 with fraud redesignated as a “penalty” rather than
“addition to tax”, effective for returns due after Dec. 31, 1989.
See OBRA sec. 7721.
     9
      The fraud addition for 1985 determined and assessed against
Mr. Yesse suspends the period of limitations on assessment for
the 1985 deficiency with respect to both petitioners. See
Ballard v. Commissioner, 740 F.2d 659, 663 (8th Cir. 1984), affg.
in part and revg. in part T.C. Memo. 1982-466; Vannaman v.
Commissioner, 54 T.C. 1011, 1018 (1970).
                              - 10 -

paying them10 ended with the expiration of the 90-day period in

which they could have petitioned the Tax Court with respect to

the notice of deficiency.   Under Baltic they may not resurrect

that opportunity by raising an offer-in-compromise based on doubt

as to liability in a section 6330 proceeding.   The Appeals

officer’s refusal to consider their offer-in-compromise was

therefore no abuse of discretion.

     Finally, as recorded in the notice of determination, the

Appeals officer verified that the requirements of applicable law

and administrative procedure had been met and took into account

whether any proposed collection action balanced the need for the

efficient collection of taxes with the legitimate concern of

petitioners that the collection action be no more intrusive than

necessary.   See sec. 6330(c)(3).   Petitioners have identified no

specific infirmities in the foregoing not heretofore addressed.

                            Conclusion

     Since we have found that the Appeals officer<s refusal to

consider an offer-in-compromise based on doubt as to liability

was not an abuse of discretion, we conclude that no genuine


     10
      As part of their claim that their offer-in-compromise
based on doubt as to liability should have been considered,
petitioners insist that respondent would be unable to demonstrate
fraud by clear and convincing evidence in any refund litigation.
Because petitioners received a notice of deficiency regarding the
fraud additions, they may not dispute them in a sec. 6330
proceeding, either directly or indirectly through their offer-in-
compromise. Accordingly, their contentions regarding the outcome
of any refund litigation are irrelevant.
                               - 11 -

issues of material fact remain and hold that respondent is

entitled to judgment as a matter of law that he may proceed with

the proposed levy to collect petitioners’ income tax liabilities

for 1985 and 1986.   Accordingly, we shall grant respondent’s

motion for summary judgment.

     To reflect the foregoing,



                                      An appropriate order and

                                 decision will be entered.
