                              T.C. Memo. 2013-113



                         UNITED STATES TAX COURT



                 KENNETH J. TAGGART, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 24465-10L.                       Filed April 18, 2013.



      Kenneth J. Taggart, pro se.

      Kathleen K. Raup, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      THORNTON, Judge: Pursuant to sections 6320(c) and 6330(d) petitioner

seeks review of respondent’s determination sustaining the filing of a notice of
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[*2] Federal tax lien with respect to petitioner’s Federal income tax for tax years

2006 and 2007.1

                               FINDINGS OF FACT

      The parties have stipulated some facts, which we find accordingly. When

petitioner filed his petition, he resided in Pennsylvania.

Background

      During 2006 and 2007 petitioner worked as a real estate appraiser and a real

estate broker. He conducted his business through two S corporations that he

owned. He also owned four rental properties.

Petitioner’s Tax Returns

      On September 17, 2007, petitioner timely filed his 2006 Federal income tax

return, reporting zero taxable income. On September 30, 2008, petitioner mailed

to respondent an amended 2006 return, reporting taxable income of $100,796 and

tax due of $20,557. He included no payment with his amended 2006 return. On




      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. All monetary amounts are rounded to the
nearest dollar.
                                          -3-

[*3] November 10, 2008, respondent assessed $22,554 in tax and $2,449 in

statutory interest for petitioner’s 2006 tax year.2

      On September 30, 2008, petitioner timely filed his 2007 Federal income tax

return, reporting taxable income of $133,351 and tax of $29,210. He included no

payment with his 2007 return. On November 3, 2008, respondent assessed

$31,576 in tax, $888 in statutory interest, and a $917 addition to tax pursuant to

section 6651(a)(2) for failure to pay timely.3

Petitioner’s Refinancing Activities

      On July 16, 2008, petitioner refinanced the mortgage loan securing one of

his rental properties and used the $31,561 of refinancing proceeds to pay non-

Internal Revenue Service (IRS) debts. On or about December 22, 2008, he

refinanced the mortgage loan securing another rental property and used the

$38,414 of refinancing proceeds to pay non-IRS debts.


      2
       The $1,997 difference between the $22,554 amount respondent assessed
and the $20,557 of tax petitioner reported on his amended return reflects
respondent’s changing, pursuant to math error procedures, petitioner’s filing status
from “Head of Household”, as claimed on his 2006 amended return, to “single”.
Petitioner does not contest this adjustment.
      3
        The difference between the $31,576 respondent assessed and the $29,210
of tax shown on petitioner’s return is attributable to respondent’s math error
adjustments, changing petitioner’s filing status from “Head of Household” to
“single”, and reducing the amount of petitioner’s claimed exemption. Petitioner
does not contest these adjustments.
                                           -4-

[*4] Petitioner’s Offer-in-Compromise

      On June 22, 2009, respondent received from petitioner an offer to

compromise his 2006 and 2007 tax liabilities by paying $2,500 in monthly

installments of $100 each, commencing in July 2009. The offer indicated that it

was based on doubt as to collectibility.

      Petitioner’s offer-in-compromise was assigned to Revenue Officer Monica

Wilborn (RO Wilborn). In a letter to petitioner dated February 5, 2010, RO

Wilborn rejected petitioner’s offer on the ground that the amount offered was less

than the reasonable collection potential (RCP) she calculated in worksheets

attached to the letter.4 RO Wilborn determined that petitioner could pay the full

amount due. The letter stated that if petitioner disagreed with these findings, he

should provide, within 30 days of the date of the letter, any additional information

in writing to support his position and, if he desired reconsideration by the IRS

Appeals Office, a written statement requesting such reconsideration. The letter

stated: “If you do not send this written statement within 30 days of the date of this

letter you will not receive consideration by the Office of Appeals”. The letter also


      4
        RO Wilborn prepared an Income/Expense Table and Asset/Equity Table
using information petitioner had submitted. These tables indicated that
petitioner’s “reasonable collection potential” was $317,123, including the
proceeds he had received from refinancing the mortgage loan securing his two
rental properties.
                                         -5-

[*5] stated: “We may file a notice of federal tax lien in order to protect the

government’s interests. In order to prevent this action, please pay your liability in

full. After we file a notice of federal tax lien you will have the opportunity to

request a hearing with Appeals”.

      By letter dated March 4, 2010, petitioner advised RO Wilborn of his

disagreement with her findings and sought to appeal her rejection of his offer.

Petitioner claims that he faxed this letter to RO Wilborn on March 4, 2010, and

placed the original letter in the mail on March 8, 2010. Respondent asserts that he

received no fax of this letter but rather first received the letter on March 12, 2010,

in an envelope with a March 9, 2010, postmark.

      In a letter dated March 16, 2010, RO Wilborn rejected petitioner’s appeal as

untimely but invited him to submit a new offer-in-compromise if he wished.

Notice of Federal Tax Lien and Collection Due Process Hearing

      On February 22, 2010, respondent filed a notice of Federal tax lien against

petitioner in Bucks County, Pennsylvania, in the amount of $59,371 for taxable

years 2006 and 2007. On February 23, 2010, respondent sent petitioner a Notice

of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (notice)

with respect to petitioner’s 2006 and 2007 tax years. On March 31, 2010,

petitioner submitted a Form 12153, Request for a Collection Due Process or
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[*6] Equivalent Hearing. In a cover letter accompanying the Form 12153

petitioner asserted that a tax lien had been placed on his property before the offer-

in-compromise process had been completed. Petitioner also asserted in this letter

that he “would like to submit and discuss this current offer in compromise, or if

needed a resubmission of an offer and compromise to resolve the issue”.

Petitioner’s case was assigned to Settlement Officer Robert A. Richards (SO

Richards).

      In a June 17, 2010, letter to SO Richards, petitioner contended that he had

made a timely appeal of RO Wilborn’s rejection of his offer-in-compromise. The

letter also asserted that the lien had been improperly filed on February 23, 2010,

before any Appeals Office consideration; that the lien would result in undue

hardship to him and impede the IRS’ ability to collect his tax; that he disputed the

findings of the IRS with respect to his offer-in-compromise; and that the

assessment was “inaccurate” in some unspecified way. Petitioner also indicated

that he was interested in pursuing an installment agreement but that because of a

dramatic decline in his real estate appraisal business, he was able to pay only $100

per month.5



      5
       Petitioner’s June 17 letter does not indicate the repayment period nor the
total amount petitioner proposed to pay on the installment agreement.
                                         -7-

[*7] On July 7, 2010, SO Richards held the requested hearing with petitioner.

During the hearing petitioner expressed disagreement with RO Wilborn’s rejection

of his offer. SO Richards indicated to petitioner that his attempted appeal of RO

Wilborn’s rejection of his offer was untimely. According to SO Richards’ case

activity record, he also advised petitioner that he was free to submit another offer

but that, on the basis of his review of the financial information that petitioner had

previously submitted, his determination would coincide with that of RO Wilborn.

According to SO Richards’ case activity record, petitioner did not otherwise raise

any collection alternatives, nor did he challenge his underlying tax liabilities. SO

Richards also discussed with petitioner the dissipation of the proceeds from

petitioner’s refinancings of rental properties in 2008, but petitioner provided no

plausible reason for ignoring the IRS. According to the case activity record, SO

Richards informed petitioner at the conclusion of the hearing that on the basis of

their discussion he would sustain the collection, but that he would take the time to

look at documents that petitioner would forward to his attention.

      On or about July 12, 2010, petitioner sent SO Richards a package of

documents that included a filled-out Form 433-A, Collection Information

Statement for Wage Earners and Self-Employed Individuals, and Form 433-B,

Collection Information Statement for Businesses, with some supporting
                                         -8-

[*8] documentation. Petitioner’s cover letter stated in its entirety: “As requested

at the hearing on June 17, 2010, I have enclosed updated financial information that

you requested. Please do not hesitate to contact me with anything else you may

need”.

      According to SO Richards’ case activity record, on July 12, 2010, he made a

“cursory review” of the documents received from petitioner and concluded they

did not support withdrawing the lien. Another entry on September 21, 2010,

indicates that after an “exhaustive review” of petitioner’s circumstances, SO

Richards had determined that RO Wilborn’s actions had been appropriate.

      On October 4, 2010, respondent issued petitioner a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice)

sustaining the filing of the notice of Federal tax lien. An attachment to the notice

states, among other things, that petitioner had not challenged his underlying

liabilities at any time during the hearing and that his primary concern had been the

adverse effect of the tax lien on his ability to earn a living as a mortgage broker.

The attachment notes that during her review of petitioner’s offer-in-compromise,

RO Wilborn had determined that the filing of a lien would be appropriate. The

attachment notes that “at the time the assessments for 2006 and 2007 were

recorded, Mr. Taggert [sic] received a distribution from individual retirement
                                         -9-

[*9] account (IRA)/401K plans totaling close to $70,000” but he had failed to

make any effort to reduce the amounts of his tax liabilities, preferring other

creditors over the IRS. The attachment also states that the offer-in-compromise

that petitioner had submitted “prior to the filing of the CDP request” had been

rejected because RO Wilborn had determined that petitioner’s RCP was greater

than the amount owed and that his appeal of RO Wilborn’s rejection of his offer-

in-compromise had been untimely. The attachment states that petitioner

“expressed no interest in exploring a collection alternative with the Settlement

Officer”.

                                      OPINION

I. Statutory Framework

      Section 6321 imposes a lien in favor of the United States on all property and

property rights of a person who is liable for and fails to pay tax after demand for

payment has been made. The lien arises when assessment is made and continues

until the assessed liability is paid. Sec. 6322. For the lien to be valid against

certain third parties, the Secretary must file a notice of Federal tax lien; within five

business days thereafter, the Secretary must provide written notice to the taxpayer.

Secs. 6320(a), 6323(a). Within 30 days commencing after the end of the 5
                                        - 10 -

[*10] business days, the taxpayer may request an administrative hearing before the

Appeals Office. Sec. 6320(b)(1); sec. 301.6320-1(c)(1), Proced. & Admin. Regs.

      In such a hearing a person may raise spousal defenses, challenges to the

appropriateness of the Commissioner’s intended collection action, and possible

alternative means of collection. Sec. 6320(c), 6330(c)(2). The person may

challenge the existence or amount of his or her underlying tax liability in such a

hearing only if he or she did not receive a statutory notice of deficiency for the tax

liability or did not otherwise have an opportunity to dispute the underlying

liability. Sec. 6330(c)(2)(B). The term “underlying tax liability” includes

amounts reported due on taxpayers’ returns as well as statutory interest, additions

to tax, and penalties. See Montgomery v. Commissioner, 122 T.C. 1, 7-8 (2004);

Katz v. Commissioner, 115 T.C. 329, 339 (2000); Wilson v. Commissioner, T.C.

Memo. 2012-229.

      Once the Appeals officer issues a notice of determination, the taxpayer may

seek judicial review in this Court. Secs. 6320(c), 6330(d)(1). If the validity of the

underlying tax liability is properly at issue, we review that issue de novo. See

Wadleigh v. Commissioner, 134 T.C. 280, 288 (2010); Sego v. Commissioner, 114

T.C. 604, 610 (2000). Other issues we review for abuse of discretion. Wadleigh

v. Commissioner, 134 T.C. at 288; Sego v. Commissioner, 114 T.C. at 610.
                                         - 11 -

[*11] II. Petitioner’s Underlying Tax Liabilities

      Petitioner contends that he is not liable for the section 6651(a)(2) addition

to tax with respect to his 2007 tax year or statutory interest under section 6601

with respect to his 2006 and 2007 tax years.

      During his Appeals hearing petitioner failed to make any meaningful

challenge to the section 6651(a)(2) addition to tax or to the statutory interest.

Consequently, petitioner is precluded from raising these challenges to his

underlying liabilities in this proceeding.6 See Giamelli v. Commissioner, 129 T.C.

107, 114 (2007).

III. Petitioner’s Collection Alternatives

      Petitioner argues that RO Wilborn improperly rejected his offer-in-

compromise and his attempt to appeal that action to the IRS Appeals Office.

Pursuant to section 6330(d)(1) our jurisdiction in this proceeding is with respect to



      6
        Even if we were to assume, contrary to our findings above, that petitioner
properly raised the issue of his underlying liabilities in the Appeals hearing, we
would still conclude that he has failed in this proceeding to show that the
underlying liability for either year at issue is in error. In particular, the stipulated
facts establish that petitioner failed to pay his reported tax liability when he filed
his 2007 Federal income tax return; petitioner has not shown reasonable cause for
this failure so as to create a valid defense to imposition of the sec. 6651(a)(2)
addition to tax. Moreover, petitioner has not shown in what manner the statutory
interest might be in error for either 2006 or 2007; the record does not suggest that
petitioner has requested respondent to abate interest pursuant to sec. 6404.
                                         - 12 -

[*12] the Appeals officer’s determination under “this section”; i.e., section 6330.

By virtue of section 6320(c), this jurisdiction extends to an Appeals Office

determination under section 6320. Consequently, we lack jurisdiction in this

proceeding to review, in the first instance, the determinations that RO Wilborn

made before petitioner even requested a hearing pursuant to section 6320. We do,

however, have jurisdiction to review SO Richards’ determinations.

      SO Richards determined, among other things, that petitioner’s appeal of RO

Wilborn’s rejection of his offer-in-compromise was untimely. Assuming, without

deciding, that this is an issue that petitioner was entitled to raise in his section

6320 hearing, we find no abuse of discretion in this determination. Petitioner

contends that his appeal was timely because he faxed his notice of appeal to RO

Wilborn on March 4, 2010, which was the last day of the 30-day deadline to send

the appeal. On the basis of the record before us, which contains no documentary

evidence sufficient to establish that petitioner sent such a fax on March 4, 2010,

we conclude that SO Richards did not abuse his discretion in finding that the

appeal was untimely. In any event, whether that appeal was timely is ultimately of

little consequence, since petitioner had the opportunity to propose collection

alternatives and to resubmit his previously rejected offer-in-compromise in his

section 6320 hearing.
                                       - 13 -

[*13] Insofar as the record reveals, during his section 6320 hearing petitioner

never formally submitted any new offer-in-compromise to SO Richards, even

though he was advised he could do so, but instead sought to have SO Richards

reconsider the offer-in-compromise that RO Wilborn had already rejected. Insofar

as it might be thought that petitioner thereby informally proposed, for SO

Richards’ consideration, the same offer-in-compromise that RO Wilborn had

previously rejected, SO Richards did not abuse his discretion in relying on RO

Wilborn’s analysis, which showed that petitioner’s RCP exceeded the amount of

his offer.

       In particular, SO Richards focused on and discussed with petitioner RO

Wilborn’s finding that petitioner had dissipated $69,975 in assets by refinancing

the mortgage loan securing two rental properties in 2008 and using the proceeds to

pay non-IRS debts.7 A dissipated asset, defined as any asset that has been sold,

transferred, or spent on nonpriority items or debts in disregard of an outstanding

tax liability, may be included in a taxpayer’s RCP. See Johnson v. Commissioner,



       7
        We attach little significance to the fact that the notice of determination
misdescribes the dissipated assets as proceeds from a “distribution from IRA/401K
plans”. On the basis of the administrative record as a whole, we find persuasive
respondent’s contention that SO Richards was in fact referring to the proceeds
from petitioner’s refinancings of his rental properties, which RO Wilborn had
identified as sources of dissipated assets.
                                       - 14 -

[*14] 136 T.C. 475, 487 (2011), aff’d, __Fed. Appx. __, 2013 U.S. App. LEXIS

2082 (D.C. Cir. Jan. 29, 2013); Tucker v. Commissioner, T.C. Memo. 2011-67,

aff’d, 676 F.3d 1129 (D.C. Cir. 2012). The record indicates that during the

Appeals hearing petitioner failed to show that he used the dissipated assets for

necessary living expenses so as to make them excludable from RCP. Cf. Internal

Revenue Manual (IRM) pt. 5.8.5.5.(4) (Sept. 23, 2008). Nor, despite his

assertions to the contrary, has petitioner made any such showing in this

proceeding. SO Richards did not abuse his discretion in concurring with RO

Wilborn’s conclusion that petitioner’s RCP, taking into account the $69,975 of

dissipated assets, exceeded his $2,500 offer.8 See Johnson v. Commissioner, 136

T.C. at 478; Tucker v. Commissioner, T.C. Memo. 2011-67.

      On brief petitioner suggests that it was improper for RO Wilborn and SO

Richards to treat the refinancing proceeds as dissipated assets because the

refinancings occurred “before lien was placed on petitioner”. Petitioner is

mistaken. Petitioner’s income tax for 2006 and 2007 was due on the dates the

returns were required to be filed (determined without regard to any extension of


      8
        Petitioner also takes issue with various other items in RO Wilborn’s
calculation of his RCP. We need not and do not address these other items because
even without taking them into account, we find the dissipated assets are
sufficiently large to justify respondent’s determination that petitioner’s RCP
exceeded his offer.
                                        - 15 -

[*15] time for filing); i.e., April 16, 2007, and April 15, 2008, respectively. See

secs. 6072(a), 6151(a); Tucker v. Commissioner, T.C. Memo. 2011-67. The

refinancings occurred on July 16, 2008, and November 10, 2008, after his tax

liabilities for both 2006 and 2007 had already accrued. In fact, by the time

petitioner received about $38,000 of refinancing proceeds on November 10, 2008,

he had already filed his amended 2006 income tax return and his 2007 income tax

return, each showing a tax liability. The IRS assessed the amounts shown on those

returns (plus interest and the addition to tax) on November 3 and November 10,

2008, respectively--the latter date being the same date as the last refinancing.

Under these circumstances, SO Richards did not abuse his discretion in

concluding that the refinancing proceeds were properly included in petitioner’s

RCP as dissipated assets. See Tucker v. Commissioner, T.C. Memo. 2011-67;

IRM pt. 5.8.5.5 (7) (Sept. 23, 2008) (discussing timing of transfer of assets).

IV. Challenges to Appropriateness of Notice of Lien Filing

      Petitioner contends that respondent improperly filed the notice of tax lien

before RO Wilborn had rejected his offer-in-compromise. Petitioner is mistaken.

The Commissioner is not precluded from filing a notice of tax lien while a pending

offer is being reviewed or even after it is accepted. See Baltic v. Commissioner,
                                        - 16 -

[*16] 129 T.C. 178, 180 n.4 (2007); Schropp v. Commissioner, T.C. Memo. 2010-

71, aff’d, 405 Fed. Appx. 800 (4th Cir. 2010).

      Petitioner argues that the filing of the notice of tax lien resulted in an undue

hardship to him. He argues that the filing of the notice of tax lien has hindered

him from participating in Federal Housing Administration (FHA) appraisals.

Petitioner conceded at trial, however, that because of a prior loan default he would

have been disqualified from conducting FHA appraisals even if respondent had

withdrawn the lien. Moreover, as just discussed, in 2008 petitioner dissipated

approximately $70,000 that he could have used to repay his tax liabilities.

We conclude and hold that SO Richards did not abuse his discretion in

determining that the filing of the notice of tax lien did not create an undue

hardship for petitioner.

      Petitioner suggests that the notice of Federal tax lien hampers his payment

of his outstanding tax liabilities and that withdrawing the notice would be in the

best interests of both the United States and himself. Section 6323(j) permits the

Secretary to withdraw a notice of Federal tax lien if he determines, among other

things, that the “withdrawal of such notice will facilitate the collection of the tax

liability” or “the withdrawal of such notice would be in the best interests of the

taxpayer * * * and the United States.” Section 6323(j) uses discretionary, not
                                        - 17 -

[*17] mandatory, language, and respondent is not required to withdraw the lien

even for one of the reasons stated in section 6323(j). See Kyereme v.

Commissioner, T.C. Memo. 2012-174; Crisan v. Commissioner, T.C. Memo.

2007-67; see also sec. 301.6323(j)-1(c), Proced. & Admin. Regs. Respondent did

not abuse his discretion in not withdrawing the lien notice, especially in the light

of petitioner’s dissipation of approximately $70,000 in assets.

      Petitioner asserts that respondent violated his due process rights under the

Fifth Amendment by filing the lien without first affording him a hearing. For

many years the courts have approved the Commissioner’s use of statutorily created

summary collection provisions and found them to be constitutional. See Phillips

v. Commissioner, 283 U.S. 589 (1931); Kahn v. United States, 753 F.2d 1208,

1218 (3d Cir. 1985). Respondent’s filing of notices of Federal tax lien did not

improperly deprive petitioner of property or property rights. See Scott v.

Commissioner, T.C. Memo. 2007-91, aff’d, 262 Fed. Appx. 597 (5th Cir. 2008).

The enactment in 1998 of sections 6320 and 6330 created certain precollection

rights and privileges, and petitioner has availed himself of them in his Appeals

hearing and in this proceeding. These procedures do not require a hearing before

the Commissioner files a lien, nor does the Constitution. See Benistar Admin

Servs., Inc., v. United States, 758 F. Supp. 2d 95 (D. Conn. 2010).
                                       - 18 -

[*18] On the basis of our examination of the entire record before us, we conclude

and hold that respondent did not abuse his discretion in determining to proceed

with the collection action as determined in the notice of determination.

      To reflect the foregoing,


                                                          Decision will be entered

                                                    for respondent.
