                               T.C. Memo. 2020-47



                         UNITED STATES TAX COURT



            PATRICK’S PAYROLL SERVICES, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20245-18L.                         Filed April 14, 2020.



      Joseph Falcone, for petitioner.

      Michael C. Dancz and John Q. Walsh, Jr., for respondent.



                           MEMORANDUM OPINION


      URDA, Judge: In this collection due process (CDP) case Patrick’s Payroll

Services, Inc. (Patrick’s Payroll), seeks review pursuant to section 6330(d)(1)1 of


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
Court Rules of Practice and Procedure. We round all monetary amounts to the
                                                                       (continued...)
                                         -2-

[*2] the determination of the Internal Revenue Service (IRS) Office of Appeals2 to

uphold a notice of intent to levy to collect its outstanding 2010 and 2011

employment tax liabilities as well as associated penalties and additions to tax.

Specifically, Patrick’s Payroll seeks to challenge its underlying liabilities and

raises no other issues.

      Respondent has moved for summary judgment under Rule 121, contending

that no disputed issues of material fact remain, that Patrick’s Payroll is barred

from challenging its underlying liabilities, and that the settlement officer acted

within his discretion in upholding the levy action. We agree and accordingly will

grant the motion.

                                     Background

      The following facts are based on the parties’ pleadings and motion papers,

including the attached declarations and exhibits. See Rule 121(b). Patrick’s




      1
       (...continued)
nearest dollar.
      2
       On July 1, 2019, the IRS Office of Appeals was renamed the IRS
Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25,
sec. 1001, 133 Stat. at 983 (2019). As the events in this case predated that change,
we will use the name in effect at the times relevant to this case, i.e., the Office of
Appeals.
                                       -3-

[*3] Payroll had its principal place of business in Monroe, Michigan, when it

timely filed its petition.

A.     2010 and 2011 Tax Liabilities

       Patrick’s Payroll was an employee leasing company that provided payroll

services in 2010 and 2011 to one client, a private security company for whom the

owner of Patrick’s Payroll worked as a security guard. Patrick’s Payroll treated

the security company’s workers as its own employees, paying their wages and

issuing Forms W-2, Wage and Tax Statement, to them during 2010 and 2011. It

failed, however, to pay over the required Federal employment taxes to the IRS and

did not file the required Federal employment tax returns (Form 940, Employer’s

Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer’s

Quarterly Federal Tax Return) for 2010 and 2011.

       By 2015 the IRS had launched an examination into the 2010 and 2011

employment tax liabilities relating to the security company’s leased workers.

During the examination Patrick’s Payroll pleaded ignorance of the requirement to

file the employment tax returns, failed to introduce any documentation, and

refused interview requests from the IRS.

       The revenue agent conducting the examination thereafter discussed with her

immediate supervisor her intention to assert additions to tax under
                                           -4-

[*4] section 6651(a)(1) and (2) (for failure to timely file and pay, respectively) and

penalties under section 6656 (for failure to deposit taxes) with respect to the 2010

and 2011 employment tax liabilities. On June 28, 2016, the supervisor approved

in writing the revenue agent’s proposed assertion of additions to tax and penalties.

          On April 24, 2017, the revenue agent sent Patrick’s Payroll a Letter 950-D

(30-day letter) proposing employment tax liabilities, along with the foregoing

additions to tax and penalties, totaling $985,627 for 2010 and 2011. The 30-day

letter informed Patrick’s Payroll that it could contest the proposed changes by

requesting a conference with the Office of Appeals within 30 days of the date of

the letter. Patrick’s Payroll did not do so. The revenue agent accordingly closed

the case in August 2017, and the IRS assessed the amounts set forth in the 30-day

letter.

B.        CDP Proceeding

          To collect the unpaid 2010 and 2011 liabilities of Patrick’s Payroll, the IRS

issued a notice of intent to levy, which apprised Patrick’s Payroll of its right to

request a CDP hearing pursuant to section 6330(a). Patrick’s Payroll filed a timely

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

which it requested that its account be placed in currently not collectible (CNC)

status for 2010 and 2011 as a collection alternative. It also disputed the
                                         -5-

[*5] calculation of the underlying liabilities, asserting that it had begun operations

in September 2010 and thus was not responsible for employment taxes before that

time. Patrick’s Payroll did not identify any other issues on the form.3

      The case thereafter was assigned to a settlement officer in the Office of

Appeals. On May 30, 2018, the settlement officer sent Patrick’s Payroll a letter

scheduling a telephone CDP hearing. Among other things the settlement officer

requested that Patrick’s Payroll submit a Form 433-B and a specific proposal for

its collection alternative within 14 days, emphasizing that he could not consider

any collection alternatives without such information. Patrick’s Payroll again did

not provide the requested information.

      The telephone CDP hearing was held on July 25, 2018. During the hearing

a representative of Patrick’s Payroll admitted that the company had failed to timely

file the Forms 941 for 2010 and 2011 and conceded that it owed “some tax”. The

representative nonetheless challenged the “apportionment” of the underlying

employment tax liabilities, noting, among other things, that Patrick’s Payroll was




      3
        After receiving the Form 12153, the IRS issued a Letter 5139, which
informed Patrick’s Payroll that it was required to file all Federal tax returns and to
submit a Form 433-B, Collection Information Statement for Businesses, in order to
be eligible for the proposed collection alternative. Patrick’s Payroll did not take
any action in response to this letter.
                                            -6-

[*6] defunct as of October 2011 and had no assets.4 Although the representative

was unable to offer details about the purported apportionment, the settlement

officer agreed to provide account transcripts and audit workpapers for his review.

The settlement officer also requested that Patrick’s Payroll provide information

about any collection alternative within two weeks (by August 8).

        On August 2 Patrick’s Payroll sent the settlement officer a copy of its draft

Form 1120, U.S. Corporation Income Tax Return, for 2011 and a document

showing that its bank account was opened on September 7, 2010, and closed on

October 11, 2011. Patrick’s Payroll did not provide any more detailed financial

information or information about collection alternatives. Having heard nothing

more from Patrick’s Payroll by September 7, 2018, the settlement officer closed

the case.

        The Office of Appeals thereafter issued a notice of determination sustaining

the proposed levy action against Patrick’s Payroll and rejecting its request for a

collection alternative. The notice stated that Patrick’s Payroll had failed to offer

any response to the IRS transcripts and audit workpapers regarding its underlying

liabilities and that no collection alternative could be considered because Patrick’s


        4
            The record indicates that Patrick’s Payroll was dissolved as of July 15,
2013.
                                        -7-

[*7] Payroll had failed to provide the financial information necessary to conduct a

proper analysis.

C.    Tax Court Proceedings

      Patrick’s Payroll filed a timely petition with this Court seeking review of the

notice of determination. Respondent subsequently filed a motion for summary

judgment to which Patrick’s Payroll responded.

                                    Discussion

I.    Jurisdiction

      The corporate petitioner in this case, Patrick’s Payroll, was dissolved in

2013, and we must consider its capacity to engage in litigation in our Court. See

Rule 60(c); see also NT, Inc. v. Commissioner, 126 T.C. 191, 193-194 (2006);

David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 269-271 (2000), aff’d,

22 F. App’x 837 (9th Cir. 2001). “If a petitioner lacks capacity, this Court has

held that it must dismiss the case for lack of jurisdiction.” Brannon’s of Shawnee,

Inc. v. Commissioner, 71 T.C. 108, 111 (1978); see also Central Motorplex, Inc. v.

Commissioner, T.C. Memo. 2013-286.

      A corporation’s capacity to engage in litigation in this Court is determined

by the law under which the corporation was organized, which in this case is the

law of Michigan. See Rule 60(c). Generally, Michigan law provides that a
                                         -8-

[*8] dissolved corporation “shall continue to function in the same manner as if

dissolution had not occurred”, and it “may sue and be sued in its corporate name

* * * in the same manner as if dissolution had not occurred.” Mich. Comp. Laws

Ann. sec. 450.1834 (West 2020). However, Michigan law also provides that a

dissolved corporation “shall continue its corporate existence but shall not carry on

business except for the purpose of winding up its affairs” by, inter alia, “[p]aying

its debts and other liabilities.” See id. sec. 450.1833(c). Reading the statutes

together, Michigan courts have held that a dissolved Michigan corporation has a

reasonable period to wind up its affairs, including pursuing litigation. See, e.g.,

Flint Cold Storage v. Dep’t of Treasury, 776 N.W.2d 387, 394-396 (Mich. Ct.

App. 2009).

      We conclude that Patrick’s Payroll’s litigation in this Court began within a

reasonable period after its dissolution. Patrick’s Payroll was dissolved on July 15,

2013. The record shows that the IRS had launched its examination into the

underlying employment tax liabilities by 2015, closed its examination and

assessed the tax liabilities in 2017, and then began collection actions in 2018.

After the Office of Appeals issued a notice of determination on September 19,

2018, upholding the proposed levy action, Patrick’s Payroll timely appealed to this
                                          -9-

[*9] Court under section 6330(d)(1). Its actions since have been consistent with

an effort to wind up its affairs.

      In short, under Michigan law Patrick’s Payroll continues in existence for

purposes of this proceeding and has the legal capacity to maintain this suit.

II.   Governing Standards

      A.     Summary Judgment

      The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90

T.C. 678, 681 (1988). Under Rule 121(b) the Court may grant summary judgment

when there is no genuine dispute as to any material fact and a decision may be

rendered as a matter of law. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from them in the

light most favorable to the nonmoving party. Id. However, the nonmoving party

may not rest upon the mere allegations or denials of its pleadings but instead must

set forth specific facts showing that there is a genuine dispute for trial.

Rule 121(d); see Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
                                        - 10 -

[*10] B.     Standard of Review

       We have jurisdiction to review the Office of Appeals’ determination

pursuant to section 6330(d)(1). See Murphy v. Commissioner, 125 T.C. 301, 308

(2005), aff’d, 469 F.3d 27 (1st Cir. 2006). Where the validity of the underlying

tax liability is properly at issue, we review the determination regarding the

underlying tax liability de novo. Sego v. Commissioner, 114 T.C. 604, 610

(2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000). We review all

other determinations for abuse of discretion. Sego v. Commissioner, 114 T.C.

at 610; Goza v. Commissioner, 114 T.C. at 182. In reviewing for abuse of

discretion we must uphold the Office of Appeals’ determination unless it is

arbitrary, capricious, or without sound basis in fact or law. See, e.g., Murphy v.

Commissioner, 125 T.C. at 320; Taylor v. Commissioner, T.C. Memo. 2009-27, 97

T.C.M. (CCH) 1109, 1116 (2009).

III.   Underlying Liability

       Patrick’s Payroll has challenged its 2010 and 2011 underlying liabilities

both in its CDP hearing and in this Court. A taxpayer may raise a challenge to his

underlying liability in a CDP hearing only if he “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 phrase “underlying tax
                                         - 11 -

[*11] liability” includes the tax deficiency, any penalties and additions to tax, and

statutory interest. Katz v. Commissioner, 115 T.C. 329, 339 (2000).

      In determining whether the taxpayer had an opportunity to dispute his

liability, the regulations distinguish between liabilities that are subject to

deficiency procedures and those that are not. Employment tax liabilities are not

subject to deficiency procedures. See Romano-Murphy v. Commissioner, 152

T.C. 278, 292 (2019), supplementing T.C. Memo. 2012-330; see also Durda v.

Commissioner, T.C. Memo. 2017-89, at *6-*7. With respect to such liabilities, the

regulations provide that “[a]n opportunity to dispute the underlying liability

includes a prior opportunity for a conference with Appeals that was offered either

before or after the assessment of the liability.” Sec. 301.6330-1(e)(3), Q&A-E2,

Proced. & Admin. Regs.

      Patrick’s Payroll does not dispute that it received a 30-day letter affording it

the opportunity to contest its 2010 and 2011 underlying liabilities before the

Office of Appeals. Nor does it deny that it did not timely request the conference.

Rather, Patrick’s Payroll challenges the validity of section 301.6330-1(e)(3),

Q&A-E2, Proced. & Admin. Regs., and argues that a prior opportunity for a

conference with the Office of Appeals does not constitute an “opportunity to

dispute such tax liability” within the meaning of section 6330(c)(2)(B) and should
                                       - 12 -

[*12] not preclude its liability challenge. We have consistently rejected this

argument5 as have all the Courts of Appeals that have considered the issue. See

Lewis v. Commissioner, 128 T.C. 48, 60-61 (2007) (concluding that a conference

with the Office of Appeals provides a taxpayer a meaningful opportunity to

dispute an underlying tax liability); Bletsas v. Commissioner, T.C. Memo. 2018-

128, at *8-*9, aff’d, 784 F. App’x 835 (2d Cir. 2019); Thompson v.

Commissioner, T.C. Memo. 2012-87, 103 T.C.M. (CCH) 1470, 1472 (2012); see

also Our Country Home Enters., Inc. v. Commissioner, 855 F.3d 773, 783-791

(7th Cir. 2017); Keller Tank Servs. II, Inc. v. Commissioner, 854 F.3d 1178, 1195-

1200 (10th Cir. 2017); Iames v. Commissioner, 850 F.3d 160, 164-165 (4th Cir.

2017); Hassell Family Chiropractic, DC, PC v. Commissioner, 368 F. App’x 695,

696 (8th Cir. 2010), aff’g T.C. Memo. 2009-127.

      Patrick’s Payroll offers us no persuasive reason to reconsider our well-

established precedent on this point, and we accordingly conclude that it is




      5
        Patrick’s Payroll acknowledges that this Court’s precedent on this point
resolves this case. It nonetheless makes this argument to preserve its legal theory
for further review.
                                         - 13 -

[*13] precluded from challenging its underlying liabilities for its 2010 and 2011

tax years.6

IV.   Abuse of Discretion

      We next consider whether the settlement officer: (1) properly verified that

the requirements of applicable law or administrative procedure have been met;

(2) considered any relevant issues Patrick’s Payroll raised; and (3) considered

whether “any proposed collection action balances the need for the efficient

collection of taxes with the legitimate concern of * * * [Patrick’s Payroll] that any

collection action be no more intrusive than necessary.” See sec. 6330(c)(3). Our

review of the record establishes that the settlement officer satisfied all of these

requirements.

      A.      Verification

      As an initial matter, this Court has authority to review satisfaction of the

verification requirement regardless of whether the taxpayer raised that issue at the

CDP hearing. See Hoyle v. Commissioner, 131 T.C. 197, 200-203 (2008),


      6
       Although Patrick’s Payroll cannot challenge its underlying liabilities for
2010 and 2011 in a CDP proceeding, our ruling does not preclude Patrick’s
Payroll from (1) seeking audit reconsideration with the IRS (although such
reconsideration is not subject to judicial review) or (2) paying the liabilities and
claiming a refund and, if the refund is disallowed, litigating that claim in the Court
of Federal Claims or the appropriate Federal District Court.
                                         - 14 -

[*14] supplemented by 136 T.C. 463 (2011). Patrick’s Payroll does not allege in

its petition that the settlement officer failed to satisfy this requirement, and we

conclude, from our review of the record, that the settlement officer conducted a

thorough review of the account transcripts and verified that all applicable

requirements were met.7

      B.     Issues Raised

      Patrick’s Payroll raised only one issue in the Office of Appeals aside from

its underlying liability challenge; it requested as a collection alternative that its

account be placed in CNC status. It did not raise this issue in its petition,

however, and thus has conceded the point. See Rule 331(b)(4) (“Any issue not

raised in the assignments of error shall be deemed to be conceded.”); see also

CreditGuard of Am., Inc. v. Commissioner, 149 T.C. 370, 379 (2017).

      Even had Patrick’s Payroll properly raised the issue, its repeated failure to

submit the financial information requested during the CDP proceeding would

      7
        “Where the supervisory approval requirement of section 6751(b)(1)
applies, the Appeals officer should obtain verification that such approval was
obtained”. ATL & Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 144
(2019). However, the approval requirement of sec. 6751(b)(1) does not apply to
additions to tax under sec. 6651(a)(1) and (2). See sec. 6751(b)(2)(A). To the
extent that the approval requirement applies to the sec. 6656(a) penalties assessed
against Patrick’s Payroll, the IRS satisfied it because the record reflects that the
revenue agent’s immediate supervisor approved in writing her assertion of
sec. 6656(a) penalties before she issued the 30-day letter.
                                        - 15 -

[*15] justify our sustaining the settlement officer’s rejection of its proposed

collection alternative. See, e.g., Gilmore v. Commissioner, T.C. Memo. 2019-97,

at *15; Eichler v. Commissioner, T.C. Memo. 2018-161, at *11; see also sec.

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

      The settlement officer’s rejection of the collection alternative in this case

accordingly did not represent an abuse of discretion.

      C.     Balancing

      Patrick’s Payroll did not allege in its petition or argue at any later point that

the settlement officer failed to consider “whether any proposed collection action

balances the need for the efficient collection of taxes with the legitimate concern

of the person that any collection action be no more intrusive than necessary.”

Sec. 6330(c)(3)(C). It thus has conceded this issue too. See Rules 121(d),

331(b)(4); see also Ansley v. Commissioner, T.C. Memo. 2019-46, at *19. In any

event we see nothing to disturb the settlement officer’s express conclusion in the

notice of determination that the proposed levy action balanced the need for

efficient tax collection with any legitimate concerns of Patrick’s Payroll about

intrusiveness.
                                        - 16 -

[*16] V.     Conclusion

      Finding no abuse of discretion in any respect, we will grant summary

judgment to respondent and affirm the IRS’ determination to sustain the notice of

intent to levy issued to Patrick’s Payroll relating to its 2010 and 2011 tax years.

      To reflect the foregoing,


                                                 An appropriate order and decision

                                        will be entered.
