                   T.C. Summary Opinion 2011-3



                     UNITED STATES TAX COURT



                LINDA M. ALLIVATO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25733-07S.              Filed January 10, 2011.



     William B. Clayton, for petitioner.

     Audra M. Dineen, for respondent.



     PANUTHOS, Chief 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.    Pursuant to

section 7463(b), the decision to be entered is not reviewable by

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

precedent for any other case.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code,
                                - 2 -

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     This case is before the Court on petitioner’s request for

judicial review of an Internal Revenue Service (IRS)

determination to sustain a notice of intent to levy to collect an

assessed trust fund recovery penalty.     The IRS assessed a trust

fund recovery penalty against petitioner for 2002 pursuant to

section 6672.    The sole issue for decision is whether the IRS

abused its discretion in determining that collection by levy may

proceed.

                             Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time the petition

was filed, petitioner resided in California.

Assessment of Trust Fund Recovery Penalty

     Petitioner operated a now-defunct business named Otavilla

Enterprises.    Otavilla failed to pay employment taxes to the IRS

for the quarter ending December 31, 2002.    The IRS determined

that petitioner was a responsible person required to pay the

employment taxes and proposed a trust fund recovery penalty

against her.    A notice of the penalty was mailed to petitioner’s

last known address.    The notice was returned to the IRS

unclaimed.
                               - 3 -

Petitioner and Mr. Allivato (Mr. Allivato) remain married and

were still living together as husband and wife at the time of

trial.

     The IRS issued petitioner a Notice of Intent to Levy and

Your Right to a Hearing.   Petitioner received this notice and

responded by requesting a collection due process (CDP) hearing.

On August 26, 2005, the IRS issued a letter to petitioner

advising her of the CDP hearing date and requesting that she

submit a completed Form 433-A, Collection Information Statement

for Wage Earners and Self-Employed Individuals and certain tax

returns.   The IRS settlement officer (SO) provided several

extensions.   Petitioner ultimately submitted a completed Form

433-A on January 24, 2006, and a completed Form 656, Offer in

Compromise (OIC), on February 15, 2006.    Petitioner offered to

compromise her liability with a payment of $1,000.1   Petitioner

resubmitted the OIC in July 2006, reducing the offer to $300.

Petitioner asserted that because of an injury sustained by Mr.

Allivato, her earnings would be reduced.    On October 10, 2007,

the IRS issued a notice of determination sustaining the levy.

The IRS also determined that petitioner’s reasonable collection

potential was $4,185 and that the $300 offer was insufficient.



     1
      Petitioner and the SO had discussions about delinquent
returns, currently not collectible status, and partial payment of
the liability after the submission of the OIC in February 2006
and until July 2006.
                                - 4 -

     Petitioner timely filed a petition contesting the notice of

determination.    At some point after the petition was filed the

parties agreed that petitioner had not had a full opportunity for

a CDP hearing because petitioner was not permitted to raise the

issue of her underlying liability at the CDP hearing.    On

December 5, 2008, the Court granted a joint motion to remand the

case to respondent’s Office of Appeals to afford petitioner an

administrative hearing pursuant to section 6330.

The Remand

     The SO requested an updated Form 433-A, Federal income tax

returns, and other financial information.    Petitioner provided a

Form 433-A on March 8, 2009.    The SO conducted a face-to-face

meeting with petitioner on April 8, 2009.    Petitioner informed

the SO that she no longer received unemployment income and had no

other income but was able to pay her expenses through gifts from

Mr. Allivato.    The SO requested substantiation for the claimed

expenses, bank account statements, and information about

petitioner and Mr. Allivato’s finances.    The SO sought this

information since petitioner and Mr. Allivato remain married and

reside in a community property State.

     In two separate letters dated April 29, 2009, petitioner

first represented to the SO that before her marriage to Mr.

Allivato in Illinois in 1978, the two orally agreed to keep their

finances separate.    Petitioner asserted that as a result of that
                                - 5 -

agreement, Mr. Allivato’s finances and assets were not relevant

to the OIC or collection potential.     Petitioner alleged that Mr.

Allivato refused to complete a Form 433-A.    Petitioner

nevertheless provided by enclosure with those letters several

check stubs for disability compensation payments Mr. Allivato had

received and his bank statement showing his pension income and

Social Security benefit payments.

     Respondent requested specific information about petitioner’s

claimed transmutation agreement with Mr. Allivato and an

explanation of how Mr. Allivato was able to make payments

entitling them to claim a mortgage interest deduction on their

2007 joint income tax return which was greater than their gross

earnings for that year.2

     Petitioner inquired as to the whereabouts of certain tax

refunds she had not received.   Petitioner filed joint Federal

income tax returns with Mr. Allivato for several years after the

trust fund recovery penalty at issue arose, and in several years

refunds were due to petitioner and Mr. Allivato.    The SO informed

petitioner that the refunds from the joint returns had been

applied to Mr. Allivato’s separate trust fund recovery penalty

liability for 1999 and therefore were not available to be applied



     2
      On their 2007 joint return, a year in which petitioner was
not employed, petitioner and Mr. Allivato claimed $45,180 in
gross income while simultaneously claiming a mortgage interest
deduction of $45,986.
                               - 6 -

to petitioner’s separate trust fund recovery penalty liability

for 2002.

     In November 2009 the IRS requested that petitioner complete

an OIC and a Form 433-A with both her and Mr. Allivato’s

information and provide some bank statements by December 7, 2009.

Petitioner attempted to make an oral offer to compromise her tax

liability but failed to submit a written OIC or the requested

financial information.   Petitioner requested that the SO include

a statement in a followup letter to petitioner that the IRS would

not consider the OIC without her spouse’s financial information.

The SO sent such a letter on December 3, 2009.   On December 15,

2009, the IRS issued a supplemental notice of determination

sustaining the levy.

                            Discussion

     We have jurisdiction under section 6330(d)(1) to review

respondent’s determination that the notice of intent to levy was

proper and that respondent may proceed to collect by levy.3

In reviewing the Commissioner’s decision to sustain collection

actions, where the validity of the underlying tax liability is

properly at issue, the Court reviews the Commissioner’s

determination of the underlying tax liability de novo.     Sego v.



     3
      The Pension Protection Act of 2006, Pub. L. 109-280, sec.
855, 120 Stat. 1019, amended sec. 6330(d) and granted this Court
jurisdiction over all sec. 6330 determinations made after Oct.
16, 2006. Perkins v. Commissioner, 129 T.C. 58, 63 n.7 (2007).
                                - 7 -

Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114

T.C. 176, 181-182 (2000).    The Court reviews any other

administrative determination regarding proposed collection

actions for abuse of discretion.     Sego v. Commissioner, supra at

610; Goza v. Commissioner, supra at 182.      An abuse of discretion

occurs when the exercise of discretion is without sound basis in

fact or law.   Murphy v. Commissioner, 125 T.C. 301, 308 (2005),

affd. 469 F.3d 27 (1st Cir. 2006).      Under section 6330, the Court

reviews the position taken by the Commissioner in the last

supplemental notice of determination.      Kelby v. Commissioner, 130

T.C. 79 (2008).   The taxpayer has the burden of proving that the

Commissioner’s determination to sustain a proposed collection

action is an abuse of discretion.    Rule 142(a).

     At the collection hearing, a taxpayer may raise any relevant

issues relating to the unpaid tax or proposed levy, including

spousal defenses, challenges to the appropriateness of the

collection actions, and offers of collection alternatives.     Sec.

6330(c)(2)(A).    In addition, she may challenge the existence or

amount of the underlying tax liability, but only if she did not

receive a notice of deficiency or otherwise have an opportunity

to dispute such liability.    Sec. 6330(c)(2)(B).

Trust Fund Recovery Penalty

     Section 6672 imposes a penalty for the willful failure to

collect, account for, and pay over income and employment taxes of
                               - 8 -

employees.   Trust fund recovery penalties are assessed and

collected in the same manner as tax against a person including

“an officer or employee of a corporation, or a member or employee

of a partnership who as such officer, employee, or member is

under a duty to perform” the duties referred to in section 6672.

Sec. 6671(b).   Such persons are referred to as “responsible

persons” and the term may be broadly applied.   Mason v.

Commissioner, 132 T.C. 301, 321 (2009).   A trust fund recovery

penalty may be assessed against any responsible person and is

separate from the employer’s responsibility for the unpaid income

and employment taxes.   Sec. 6672(a); Mason v. Commissioner, supra

at 321.

     Section 6672(b)(1) provides that no penalty may be imposed

unless the Secretary notifies the taxpayer in person or in

writing by mail to the taxpayer’s last known address that the

taxpayer shall be subject to assessment for such penalty.     Actual

receipt of the notice is not required in order to prove that the

Commissioner provided the required preliminary notice.     While

petitioner did not receive the notice, there is no dispute as to

its validity or that it was sent to petitioner’s last known

address.   See Hickey v. Commissioner, T.C. Memo. 2009-2.     If a

notice is not received and the taxpayer has not otherwise had an

opportunity to dispute the liability, the taxpayer may dispute

the existence or amount of the underlying liability.   See sec.
                                - 9 -

6330(c)(2)(B).    Petitioner has conceded that she owes the trust

fund recovery penalty but asserts that she is unable to pay the

full amount.

Offer-in-Compromise

     The Secretary may compromise any civil or criminal case

arising under the internal revenue laws.    Sec. 7122(a); Murphy v.

Commissioner, supra at 308.    Section 7122(d) provides that the

Secretary “shall prescribe guidelines for officers and employees

of the Internal Revenue Service to determine whether an offer-in-

compromise is adequate and should be accepted to resolve a

dispute.”    Taxpayers who wish to propose an OIC must submit a

Form 656.    See Godwin v. Commissioner, T.C. Memo. 2003-289, affd.

132 Fed. Appx. 785 (11th Cir. 2005).    The regulations issued

pursuant to section 7122(d) set forth three grounds for an OIC:

(1) Doubt as to collectibility, (2) doubt as to liability, and

(3) promotion of effective tax administration.    Sec. 301.7122-

1(b), Proced. & Admin. Regs.    Petitioner asserts that her

financial situation would indicate doubt as to collectibility.

     Doubt as to collectibility exists in any case in which the

taxpayer’s assets and income are less than the full amount of the

liability.    Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.   A

determination of doubt as to collectibility includes a

determination of the taxpayer’s ability to pay the liability,

taking into account the taxpayer’s basic living expenses.     Sec.
                              - 10 -

301.7122-1(c)(2), Proced. & Admin. Regs.   An OIC based on doubt

as to collectibility generally is acceptable only if the offer

reflects the taxpayer’s reasonable collection potential; i.e.,

the amount the Commissioner could collect through administrative

and judicial collection proceedings.   Murphy v. Commissioner,

supra at 309 (citing Rev. Proc. 2003-71, sec. 4.02(2), 2003-2

C.B. 517, 517).   Thus an OIC would include disclosure of the

taxpayer’s assets and income in order for the IRS to determine

the taxpayer’s reasonable collection potential.     Id.

     Petitioner argues that she is not required to submit Mr.

Allivato’s financial information upon submission of an OIC.

Petitioner asserts that even though California is a community

property State, she and Mr. Allivato had a valid transmutation

agreement creating separate interests in property for each

spouse.

     In general, property interests are determined by State law.

United States v. Natl. Bank of Commerce, 472 U.S. 713, 722

(1985); Aquilino v. United States, 363 U.S. 509, 513 (1960).

Under California community property law, each spouse has a one-

half ownership interest in the community estate, including income

earned by both spouses during their marriage.     Cal. Fam. Code

sec. 2550 (West 2004).   Therefore, without an agreement to the

contrary, petitioner is entitled to one-half of the salary and

assets accumulated by her and Mr. Allivato during their
                              - 11 -

marriage, which the IRS could levy upon to satisfy her separate

liability.

     In California, married individuals can change the character

of property owned by either or by both spouses by a written

transmutation agreement.   Cal. Fam. Code sec. 850 (West 2004).

California courts have given effect to some oral agreements made

before January 1, 1985.4

Financial Information of Nonliable Spouse

     We need not decide whether there was a valid transmutation

agreement.   Assuming there was, respondent is nevertheless

entitled to require petitioner to provide financial information

of her nonliable spouse.   See Ranuio v. Commissioner, T.C. Memo.

2010-178; sec. 301.7122-1(c)(2)(ii), Proced. & Admin. Regs.

     Where a taxpayer offers to compromise a liability for which

the taxpayer’s spouse has no liability, the Commissioner

generally will not consider the nonliable spouse’s assets and

income in determining the amount of an acceptable OIC.   Sec.

301.7122-1(c)(2)(ii)(A), Proced. & Admin. Regs.   However, a




     4
      Respondent points out that in such cases, California courts
have looked to objective evidence which shows the intent of the
parties, such as surrounding circumstances, the parties’ actions,
and their dealings with property. See Jafeman v. Jafeman, 105
Cal. Rptr. 483, 490 (Cal. Ct. App. 1972). The parties provided
in a joint exhibit a deed search showing that petitioner jointly
owned property in Arizona with Mr. Allivato in 1989 after the
alleged oral agreement and before their relocation to California.
                               - 12 -

nonliable spouse’s assets and income may be considered to

investigate whether:   (1) Property has been transferred from the

taxpayer to the nonliable spouse under circumstances that would

allow the Commissioner to collect the liability from the

property, e.g., property conveyed in fraud of creditors; (2)

property has been transferred from the taxpayer to the nonliable

spouse for the purpose of removing the property from

consideration by the Commissioner in evaluating the taxpayer’s

OIC; or (3) collection of the taxpayer’s liability from the

assets and income of the nonliable spouse is permitted under

applicable State law, e.g., State community property law (this

subsection would not apply if petitioner entered into a valid

transmutation agreement).    Sec. 301.7122-1(c)(2)(ii), Proced. &

Admin. Regs.

     The Commissioner may also request information regarding the

assets and income of a nonliable spouse for the purpose of

verifying the amount of and responsibility for expenses claimed

by the taxpayer.   Sec. 301.7122-1(c)(2)(ii)(A), Proced. & Admin.

Regs.   Petitioner provided a Form 433-A in March 2009 which

claimed, among other things, that her unemployment income

exceeded her costs and those costs included health insurance for

both her and Mr. Allivato.   When petitioner’s unemployment

compensation ended, the IRS requested Mr. Allivato’s financial

information in order to verify the amount of and responsibility
                                - 13 -

for expenses petitioner claimed.    Petitioner did not provide

substantiation of how her expenses were being paid.    She asserted

that her living expenses were funded by gifts from Mr. Allivato.

Although multiple requests for financial information and

substantiation, Form 433-A, and an OIC were made, petitioner

provided limited financial information, piecemeal over the course

of the year after the remand.    Petitioner failed to submit an OIC

after the remand.

     When a hearing officer is unable or refuses to consider

collection alternatives because of a taxpayer’s failure to

provide financial information, courts have held that there was no

abuse of discretion.   Schwersensky v. Commissioner, T.C. Memo.

2006-178; see also Lance v. Commissioner, T.C. Memo. 2009-129.

Taxpayers who wish to propose an OIC must submit a Form 656.     See

Godwin v. Commissioner, T.C. Memo. 2003-289.    We are satisfied

that it was not unreasonable for the SO to require financial

information for the nonliable husband under the facts and

circumstances of this case.   Therefore, we hold that the SO’s

actions in sustaining the levy were appropriate and not an abuse

of discretion.

Interest Abatement

     In her trial memorandum petitioner asserts that she is

entitled to interest abatement as a result of delays caused by

respondent.   As previously indicated, the Court granted a joint
                              - 14 -

motion to remand this case to respondent’s Office of Appeals in

December 2008.   During 2009 there was a face-to-face meeting as

well as many communications between petitioner and the SO.   In

November 2009 the SO provided a December 7, 2009, deadline to

petitioner for the submission of an OIC.   When no written OIC was

submitted, the supplemental notice of determination was issued on

December 15, 2009.5

     The supplemental determination did not consider the issue of

interest abatement.   The record reflects that any request for

interest abatement was submitted after the SO closed the case and

while the December 15, 2009, supplemental determination was being

processed.   We have held that while we may review an Appeals

officer’s determination regarding interest abatement if a

taxpayer requests an abatement of interest in a section 6330

hearing, we will not consider same if it was not raised in the

section 6330 hearing or considered in the notice of

determination.   Giamelli v. Commissioner, 129 T.C. 107 (2007);

Katz v. Commissioner, 115 T.C. 329, 340-341 (2000); MacDonald v.

Commissioner, T.C. Memo. 2009-63.




     5
      Apparently petitioner sent to respondent a letter
requesting an abatement of interest on Dec. 14, 2009. On Dec.
18, 2009, respondent sent a letter to petitioner advising that
the issue of interest abatement had not been raised during the
CDP hearing.
                                - 15 -

     We are satisfied that respondent reasonably set a deadline

for submission of an OIC.     Petitioner failed to timely submit a

written OIC and failed to raise the issue of interest abatement

at the CDP hearing.   Thus, the notice of determination properly

did not consider that issue.     Accordingly, we hold that this

Court does not have jurisdiction to consider petitioner’s request

for abatement of interest.     See Giamelli v. Commissioner, supra.

Conclusion

     We conclude that there was no abuse of discretion in

sustaining the levy because petitioner did not submit an OIC or

the required documents.     Additionally, we have no jurisdiction

over the claim for interest abatement.

     To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.
