                              T.C. Memo. 2017-244



                        UNITED STATES TAX COURT



                   JAMES HAWVER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20792-15L.                       Filed December 11, 2017.



      Janice Burns King, for petitioner.

      Shannon E. Craft, for respondent.



           MEMORANDUM FINDINGS OF FACT AND OPINION


      PUGH, Judge: Petitioner, while residing in Georgia, timely filed a petition

seeking review of a Notice of Determination Concerning Collection Action(s)
                                        -2-

[*2] Under Section 6320 and/or 6330,1 sustaining a Notice of Intent to Levy and

the filing of a Notice of Federal Tax Lien with respect to petitioner’s outstanding

Federal income tax liabilities for 2005 and 2007. Petitioner does not dispute

respondent’s determination as to 2007; he disputes only respondent’s

determination as to his underlying liability for 2005.

                                 FINDINGS OF FACT

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

I. Tax Return Filing

      On July 11, 2008, petitioner filed his Form 1040, U.S. Individual Income

Tax Return, for the taxable year 2005 (original return). On his original return,

petitioner reported gross income of $277,983 and total tax owed of $89,876. In

2008, before filing the original return, he made three payments of $1,000 each

toward his 2005 tax liability.

      Petitioner then engaged a different accountant. With the help of that

accountant, on December 9, 2009, petitioner submitted to the Internal Revenue

Service (IRS) a Form 1040X, Amended U.S. Individual Income Tax Return, for


      1
        Unless otherwise indicated all section references are to the Internal
Revenue Code of 1986, as amended and in effect at all relevant times. Rule
references are to the Tax Court Rules of Practice and Procedure. All monetary
amounts are rounded to the nearest dollar.
                                        -3-

[*3] 2005 (amended return). The amended return indicated that the changes

consisted of income and deductions that were omitted from the original return,

reducing the original tax liability by $66,463.

      The IRS rejected the amended return as unprocessable by Letter 916C, No

Consideration, dated February 3, 2010, stating: “The law allows you to file a

claim for a refund of taxes you paid. The law does not allow you to file a claim to

reduce the tax you owe”. On February 9, 2010, petitioner submitted another copy

of the amended return, which the IRS again rejected by Letter 916C dated March

3, 2010, for the same reason. Petitioner’s accountant then requested an Appeals

hearing with respect to the disallowed amended return, which the IRS also rejected

by Letter 916C dated September 9, 2010. In Letter 916C, the IRS notified

petitioner that he had to pay the tax owed before the IRS would consider the

appeal and reiterated the statements above regarding claims for refunds being

limited to amounts paid. Petitioner submitted yet another copy of the amended

return on November 19, 2012. This time, the IRS rejected the amended return by

Letter 105C, Total Claim Disallowance, dated February 21, 2013, stating: “You

filed your claim more than 3 years after you filed your tax return”.

      Undeterred by these rejections, petitioner submitted a copy of the amended

return for a fourth time on March 22, 2013. But this time, instead of another
                                        -4-

[*4] rejection letter, petitioner received Letter 4364C dated December 4, 2013,

that stated: “We have adjusted your account as you requested”. Letter 4364C is a

response generated by the IRS about a correction or adjustment being made in

response to a claim filed by a taxpayer. Letter 4364C did not state an amount but

explained that “[i]f the adjustment results in you owing money, we will send you a

separate notice that will tell you the amount you owe for the tax period shown”.

However, the IRS made no adjustments to petitioner’s account transcript to

indicate that the amended return was accepted. Instead on January 14, 2014, the

IRS issued a Notice of Intent to Levy and Notice of Your Right to Hearing for

2005 and 2007 (levy notice). And on March 11, 2014, the IRS issued a Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 for 2005

and 2007 (lien notice).

II. Collection Proceedings

      Petitioner timely sought an administrative hearing regarding both proposed

collection actions. As part of that administrative review, the settlement officer

assigned petitioner’s 2005 underlying liability issue to another Appeals officer

who in turn referred the case to the IRS Examination Division for review. As part

of that review, the revenue agent issued Form 4564, Information Document

Request, to petitioner for records to substantiate reported income and deductions
                                        -5-

[*5] claimed on petitioner’s amended return. After receiving the revenue agent’s

report the Appeals officer issued Form 4549, Income Tax Examination Changes,

dated April 29, 2015. Those changes included the reduction of petitioner’s

income tax liability for 2005 by $11,163, abatement of a $20,222 late filing

addition to tax for the 2005 original return, and a computational adjustment that

reduced the late payment addition to tax for the 2005 original return by $2,791.

      On July 15, 2015, respondent issued a notice of determination. The notice

stated that the settlement officer concluded that petitioner was precluded from

challenging the underlying liability because he had had a prior opportunity to

challenge that liability but that his underlying liability was considered under

Appeals’ general authority. The notice then described adjustments that Appeals

made to petitioner’s liability that were based on the IRS agent’s review of

petitioner’s amended return and documentation provided.

                                     OPINION

      In an administrative hearing the settlement officer must verify that the

requirements of any applicable law or administrative procedure have been met,2

consider issues properly raised by the taxpayer, and consider whether the proposed

      2
        Petitioner has not challenged whether the settlement officer satisfied the
verification requirements of sec. 6330, and our review of the record and the notice
of determination likewise reveals no irregularities.
                                         -6-

[*6] collection action balances the need for the efficient collection of taxes with

the taxpayer’s legitimate concern that any collection action be no more intrusive

than necessary. Sec. 6330(b) and (c)(3). The only issue raised at the hearing was

petitioner’s liability for 2005 and whether Letter 4364C bound the IRS.

Petitioner’s pretrial memorandum stated that the issue for us to decide is

“[p]rocessing and determination of [F]orm 1040X and allowance of ‘rebate

refund’ (abatement) of income tax for 2005”. Respondent’s pretrial memorandum

framed the issue as “[w]hether petitioner can prove that his 2005 income tax

liability should be less than the assessed amount”. At trial petitioner did not

present any evidence regarding his underlying liability; rather he argued that

Letter 4364C was correct and should bind the IRS.

      There is no dispute that the IRS issued at least one erroneous letter to

petitioner. Respondent argues that Letter 4364C was the erroneous letter.

Petitioner argues that this was the only correct letter; all the others were incorrect.

It is likely that all of the letters were issued in error: Letters 916C and 105C

because petitioner had not filed a claim for refund, and Letter 4364C because the

IRS made no corresponding adjustment to petitioner’s account. Regardless of

what the prior error was, when given the opportunity at trial, petitioner offered no

support for his position that Letter 4364C was correct.
                                         -7-

[*7] Respondent does not dispute that petitioner did not have a prior opportunity

to challenge his 2005 liability, putting his underlying liability at issue before us.3

Where, as here, the underlying tax liability is at issue, the Court reviews the

Commissioner’s determination de novo. Goza v. Commissioner, 114 T.C. 176,

181-182 (2000). The taxpayer bears the burden of proof regarding his or her

underlying liability. See Rule 142(a). As we noted at trial, while we could

consider the underlying liability de novo, there is no evidence for us to consider

because petitioner produced no evidence to substantiate the adjustments that he

claimed on his amended return.

      Petitioner has not offered any authority for his proposition that Letter 4364C

is a binding determination, nor could we find any such authority. Petitioner does

not claim that Letter 4364C is a closing agreement under section 7121 or

compromise under section 7122. And we know of no other notice that would bind

the IRS in the way petitioner claims. Even a notice of deficiency is not so

binding; our Rules anticipate that the IRS may assert new matters, increases in

deficiency, and affirmative defenses in an answer although the IRS will bear the


      3
        The parties have not explained the basis for the statement in the notice of
determination that petitioner had had a prior opportunity to challenge his liability;
but as respondent does not take this position, we will not concern ourselves with
the provenance of the statement.
                                         -8-

[*8] burden of proof as to those matters. Rule 142(a); see also secs. 6212(a),

6214(a).

      Nor do we accept petitioner’s argument that the IRS never revoked the

“correct allowance letter”. The IRS never adjusted petitioner’s account transcript,

and it issued the levy and lien notices at issue here. It is well established that the

IRS is not bound by erroneous, incorrect, or incomplete advice given by agents.

Bornstein v. United States, 170 Ct. Cl. 576, 582 (1965); Schwalbach v.

Commissioner, 111 T.C. 215, 228 n.4 (1998).4 And, as part of the administrative

review of the proposed collection actions, the IRS made certain adjustments to

petitioner’s underlying liability. That review did not result in wholesale

acceptance of petitioner’s amended return, but such a de novo review is the relief

that petitioner sought from Appeals and is entitled to before us, not acceptance of

his amended return without change.

      We also reject petitioner’s argument that Letter 4364C was a

“determination” within the meaning of section 1313 because it was “a final

      4
         Petitioner did not argue that the doctrine of equitable estoppel applies; that
is the usual argument when the IRS issues erroneous letters or notices. In any
event, petitioner identified no detrimental reliance on the erroneous letter, and
therefore the doctrine would not provide any relief. See, e.g., Graff v.
Commissioner, 74 T.C. 743, 761-765 (1980), aff’d, 673 F.2d 784 (5th Cir. 1982).
Petitioner did rely on Letter 4364C at trial, but was given the opportunity to offer
evidence of his underlying liability and chose instead to rely only on Letter 4364C.
                                         -9-

[*9] disposition”. The statute provides that “a claim for refund shall be deemed

finally disposed of * * * as to items with respect to which the claim was allowed,

on the date of allowance of refund or credit”. Sec. 1313(a)(3). But Letter 4364C

does not indicate the amount allowed, and no corresponding changes were made to

petitioner’s account transcript. More generally, the mitigation provisions of

sections 1311 to 1314 do not apply to correct the error petitioner alleges needs

mitigating, namely the allegedly erroneous issuance of the levy notice and the lien

notice to him. Secs. 1311 and 1312; see Beaudry Motor Co. v. United States, 98

F.3d 1167, 1168 (9th Cir. 1996); Costello v. Commissioner, T.C. Memo. 2016-33,

at *7-*8.

      While petitioner alleges that the settlement officer violated section 6330,5

the alleged violation (a failure to discuss adjustments to petitioner’s underlying

liability) relates to the determination of petitioner’s underlying liability. But when

a taxpayer’s underlying liability is at issue, we review that underlying liability de

novo. And in our de novo review of a taxpayer’s underlying liability we consider

evidence of that taxpayer’s income and deductions; we do not review actions taken

by the Commissioner during the audit process for abuse of discretion. See

Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327-328 (1974)

      5
          Petitioner cited sec. 6303; we assume sec. 6330 was intended.
                                         - 10 -

[*10] (describing the rationale for not looking behind a notice of deficiency as

“the fact that a trial before the Tax Court is a proceeding de novo; our

determination as to a petitioner’s tax liability must be based on the merits of the

case and not any previous record developed at the administrative level”).

      Petitioner cites section 6404(a) as authority for abatement. That would

require us to conclude that the amounts were excessive, but we have no evidence

on which we could base such a conclusion. And abatement under section 6404(a)

is not available with respect to assessments of income tax. Sec. 6404(b).

      Finally, we cannot accept petitioner’s argument that Letter 4364C is

credible evidence of his underlying liability shifting the burden of proof to

respondent pursuant to section 7491. Because Letter 4364C conflicts with others,

it serves to establish only that the IRS issued at least one erroneous letter to

petitioner. The question is which one (or ones). We agree with petitioner that it is

possible that the IRS issued three incorrect letters before issuing a correct letter.

But petitioner offered no evidence to support his position that Letter 4364C was

correct and the preceding three letters were incorrect, even though he was entitled

to de novo review of his underlying liability. Therefore we hold that petitioner has

not met the requirements of section 7491 to shift the burden of proof to

respondent. See sec. 7491(a)(1) (requiring a taxpayer to “introduce[] credible
                                       - 11 -

[*11] evidence with respect to any factual issue relevant to ascertaining the

liability of the taxpayer”).

      Petitioner, who was represented by counsel, chose not to produce evidence

of his income and deductions even though his accountant testified that some

supporting documentation did exist. He now must face the consequences of this

choice as we reject his position and uphold the notice of determination.

                                    Conclusion

      On the basis of our review of the evidence offered at trial, we conclude that

Appeals satisfied the verification requirements of section 6330 and did not abuse

its discretion in sustaining the proposed collection actions. Any contentions we

have not addressed are irrelevant, moot, or meritless.

      To reflect the foregoing,


                                                      An appropriate order and

                                                decision will be entered.
