                                T.C. Memo. 2015-20



                         UNITED STATES TAX COURT



                   TIFFANY WEI DING, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 24662-13L.                         Filed February 9, 2015.



      Lawrence W. Luttrell, for petitioner.

      Robert W. Mopsick, for respondent.



                           MEMORANDUM OPINION


      LAUBER, Judge: In this collection due process (CDP) case, petitioner

timely sought review pursuant to section 6330(d)(1)1 of a notice of determination



      1
       All statutory references are to the Internal Revenue Code as in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all dollar amounts to the nearest dollar.
                                          -2-

[*2] concerning collection action for tax years 2003, 2004, 2005, 2006, and 2007.

On September 17, 2014, we granted a motion by the Internal Revenue Service

(IRS or respondent) to dismiss the case as moot with respect to tax years 2006 and

2007 because after she filed her petition, petitioner fully paid her tax liabilities for

those years. On September 24, 2014, respondent filed a motion for summary

judgment with respect to tax years 2003, 2004, and 2005. Petitioner filed a

response on December 5, 2014. We will deny respondent’s motion.

                                     Background

      We assume the following facts on the basis of the pleadings, respondent’s

motion for summary judgment, and the attached exhibits. These facts are stated

solely for the purpose of deciding this motion for summary judgment and not as

findings of fact in this case. See Fed. R. Civ. P. 52(a); Rule 1(b); Cook v.

Commissioner, 115 T.C. 15 (2000), aff’d, 269 F.3d 854 (7th Cir. 2001). Petitioner

resided in New Jersey when she filed her petition.

      Petitioner, a real estate professional, filed late her Federal income tax re-

turns for 2003, 2004, and 2005. On these returns she reported tax liabilities of

$43,528, $29,576, and $2,682, respectively. The IRS examined those returns.

Petitioner was absent from the United States during much of the examination

period, caring for sick family members in China. During this time she entrusted
                                         -3-

[*3] her affairs to Robert Klausner, a certified public accountant (C.P.A.) at

Patrizio & Zhao in Parsippany, New Jersey.

      The IRS ultimately proposed for 2003, 2004, and 2005 tax deficiencies of

$140,350, $347,239, and $128,987, respectively, as well as accuracy-related

penalties and additions to tax for late filing. On October 12, 2010, the IRS sent

petitioner a notice of deficiency setting forth these adjustments. This notice was

sent to petitioner at an address in Highlands, New Jersey, which evidently was her

residence.

      When petitioner did not petition this Court within 90 days, the IRS, on April

11, 2011, assessed the tax, penalties, and additions to tax for 2003-2005 as well as

interest accrued to that date. In an effort to collect these assessed amounts, the

IRS filed a notice of Federal tax lien (NFTL) and sent petitioner, on January 17,

2012, a Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC

6320. This notice was addressed to petitioner at a post office box in Navesink,

New Jersey. This post office box was apparently rented by petitioner’s sister, who

received the notice and forwarded it to Mr. Klausner.

      As petitioner’s representative, Mr. Klausner timely filed Form 12153,

Request for a Collection Due Process or Equivalent Hearing, requesting a CDP

hearing. He informed the IRS that petitioner was out of the country caring for
                                         -4-

[*4] family members in China. He also stated that the 2003-2005 examination had

been “closed with adverse adjustments due to lack of information which occurred

just after * * * [petitioner] left the country.” He stated that the missing

information “would reduce the tax liability for those years significantly” and

requested audit reconsideration.

      The case was assigned to IRS settlement officer (SO) Wold to conduct a

CDP hearing. On August 17, 2012, SO Wold noted in her case activity record that

she could not find in the IRS files any notice of deficiency issued for 2003-2005.

However, she did find a Letter 950, issued January 4, 2010, which afforded peti-

tioner appeal rights concerning the proposed audit adjustments for 2003-2005. SO

Wold noted in her case activity record that she would “inquire why the taxpayer

did not appeal the proposed adjustments by Exam when she had the opportunity.”

      On August 20, 2012, SO Wold conducted a face-to-face CDP hearing with

Mr. Klausner and petitioner’s sister, who had also filed a power of attorney. Dur-

ing the hearing petitioner’s representatives sought to challenge her underlying tax

liabilities for 2003-2005. They also requested a collection alternative.

      SO Wold pointed out that if petitioner had neglected to pursue a prior op-

portunity to dispute her 2003-2005 tax liabilities, she could not challenge those

liabilities at the CDP hearing. SO Wold then produced a copy of the Letter 950
                                        -5-

[*5] and asked why petitioner had not responded to this letter by filing a protest

with IRS Appeals. Petitioner’s sister stated that petitioner had not received this

letter. SO Wold then informed petitioner’s representatives that because she could

not find a copy of any notice of deficiency in the IRS files and because petitioner

had not received the Letter 950, petitioner’s representatives would be permitted to

challenge her underlying tax liabilities for 2003-2005 during the CDP process.

      On September 17, 2012, SO Wold received a package of documents from

petitioner’s representatives relating to the 2003-2005 audit adjustments. The case

was then assigned to Appeals Officer (AO) Kilanowski for audit reconsideration.

AO Kilanowski performed a thorough review of petitioner’s documentation and

met with her representatives during the ensuing six months.

      On March 12, 2013, AO Kilanowski prepared a report recommending sub-

stantial adjustments in petitioner’s favor. He stated that a notice of deficiency had

been sent for 2003-2005 but that “the taxpayer defaulted due to being out of the

United States.” Citing the documentation petitioner’s representatives had supplied

concerning her cost of goods sold, business expenses, and other items, AO Kilan-

owski recommended that her taxable income for 2003, 2004, and 2005, as deter-

mined by Exam, should be adjusted downward by $75,000, $282,895, and

$472,179, respectively. These adjustments represented approximately 46% of the
                                         -6-

[*6] adjustments to which petitioner’s representatives contended that she was

entitled. AO Kilanowski recommended that the IRS make no concession on the

accuracy-related penalties or the additions to tax for late filing.

      The IRS made the adjustments to petitioner’s accounts as recommended by

AO Kilanowski. In July 2013 SO Wold informed Mr. Klausner that, after these

adjustments were made, petitioner’s total balance due for 2003-2005 (including

accrued interest) was $930,867. SO Wold indicated that in order for her to

consider collection alternatives, petitioner would need to liquidate certain real

estate holdings or obtain a loan by borrowing against those assets.

      In August 2013 Mr. Klausner informed SO Wold that petitioner intended

either to sell her real estate holdings or to obtain a loan, which she was attempting

to negotiate from a source in China. On September 3, 2013, Mr. Klausner called

SO Wold to say that he had no new information to report. At this point SO Wold

concluded that the case should be closed.

      On September 13, 2013, the IRS sent petitioner a Notice of Determination

Concerning Collection Action(s) under Section 6320 and/or 6330 sustaining the

NFTL filing for 2003-2005. This notice was addressed to petitioner at her sister’s

post office box in Navesink, New Jersey. Under the caption “Summary of
                                        -7-

[*7] Determination,” the IRS stated that it had made the following determinations

concerning petitioner’s tax liabilities for 2003-2005:

      Your account has been adjusted in accordance with your audit recon-
      sideration for the Form 1040 returns for the tax years, 2003, 2004,
      [and] 2005 * * *. Your request for an installment agreement could
      not be granted, because your collection information statement showed
      that you have an inability to make monthly payments. Based on the
      information listed in your collection information statement, we cannot
      deem your account as currently not collectible, as it appears that you
      have equity in assets.

      Petitioner timely petitioned for review of this notice of determination. Her

petition seeks to challenge in two respects her underlying tax liabilities for 2003-

2005. She first contends that the IRS incorrectly determined her “self employment

taxes and/or capital gains taxes” for 2003-2005. She next contends that the IRS

improperly determined penalties and additions to tax for these years inasmuch as

“there does exist reasonable cause” for her late filings and omissions.

                                     Discussion

      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,
                                           -8-

[*8] (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. Ibid.

      In seeking summary judgment, respondent contends that petitioner is pre-

cluded from challenging her underlying tax liabilities for 2003-2005 because she

received a notice of deficiency but neglected to petition this Court in response.

Respondent has attached to his pleadings a copy of the notice of deficiency dated

October 10, 2012. Respondent has also attached to his pleadings a copy of a U.S.

Postal Service Form 3877, which indicates that an article with a tracking number

corresponding to that on the notice of deficiency was mailed to petitioner on

October 12, 2012, at her Highlands, New Jersey, address. Thus, although the SO

was initially unable to find the notice of deficiency, it now appears that a notice

was timely mailed. Because petitioner did not petition this Court in response to

that notice, respondent contends that she cannot challenge her underlying tax

liabilities for 2003-2005. Respondent further contends that SO Wold did not

abuse her discretion in declining to offer petitioner a collection alternative; that

there is no genuine dispute concerning any material fact; and that the IRS is

entitled to judgment as a matter of law.
                                        -9-

[*9] We conclude that summary judgment must be denied. As respondent

properly recognizes, for purposes of determining whether a taxpayer can raise

liability under section 6330(c)(2)(B), actual receipt of the statutory notice must be

determined. See Sego v. Commissioner, 114 T.C. 604, 610-611 (2000); Tatum v.

Commissioner, T.C. Memo. 2003-115. Construing the facts of record and

inferences drawn from them in the light most favorable to petitioner, we conclude

that there is a genuine dispute of material fact as to whether she actually received

the notice of deficiency.

      The record establishes that petitioner was absent from the United States dur-

ing much of the 2010 calendar year. For that reason, she entrusted her affairs to

her C.P.A., whose firm was in Parsippany, New Jersey, and to her sister, who

received mail at a post office box in Navesink, New Jersey. All notices and other

communications that the IRS addressed to her sister’s post office box and to her

C.P.A. appear to have received prompt responses.

      On the other hand, petitioner’s sister informed SO Wold that petitioner

never received the Letter 950. That letter, like the notice of deficiency, was

presumably mailed to petitioner’s Highlands, New Jersey, address. AO

Kilanowski stated in his report that a notice of deficiency had been sent to

petitioner for 2003-2005 but that “the taxpayer defaulted due to being out of the
                                        - 10 -

[*10] United States.” Viewing inferences from these facts in the light most

favorable to petitioner, we conclude that there is a genuine dispute of fact as to

whether the notice of deficiency, if mailed to her “last known address,” was

actually received by her.

      If petitioner did receive the notice of deficiency, it would appear that she

will be precluded from disputing her underlying tax liabilities for 2003-2005 even

though SO Wold permitted her representatives to raise those liabilities, and even

though the IRS actually adjusted them, during the CDP process. The regulations

specifically address the situation where “an Appeals officer considers the merits of

a taxpayer’s liability in a CDP hearing when the taxpayer had previously received

a statutory notice of deficiency.” Sec. 301.6320-1(e)(3), Q-E11, Proced. &

Admin. Regs. The regulations provide that, in this situation, any adjustment to the

taxpayer’s underlying tax liability will not be considered part of the notice of

determination:

      In the Appeals officer’s sole discretion, * * * the Appeals officer may
      consider the existence or amount of the underlying tax liability, or
      such other precluded issues, at the same time as the CDP hearing.
      Any determination, however, made by the Appeals officer with
      respect to such a precluded issue shall not be treated as part of the
      Notice of Determination issued by the Appeals officer and will not be
      subject to any judicial review. Because any decisions made by the
      Appeals officer on such precluded issues are not properly a part of the
      CDP hearing, such decisions are not required to appear in the Notice
                                        - 11 -

      [*11] of Determination issued following the hearing. Even if a
      decision concerning such precluded issues is referred to in the Notice
      of Determination, it is not reviewable by the Tax Court because the
      precluded issue is not properly part of the CDP hearing.

Id. para. (e)(3), A-E11.

      We upheld the validity of this regulation in Behling v. Commissioner, 118

T.C. 572 (2002), concluding that it “presents a reasonable and ‘taxpayer-friendly’

approach to the collection review process reflecting ‘respondent’s good-faith ef-

fort * * * to provide a taxpayer with a final opportunity for administrative review’

of his or her tax liability.” Id. at 579 (quoting Kennedy v. Commissioner, 116

T.C. 255, 262 (2001)). We accordingly held in Behling that “respondent’s deci-

sion to permit petitioner to offer information at the Appeals Office hearing rele-

vant to the existence or amount of his underlying tax liability did not result in a

waiver by respondent of the restriction set forth in section 6330(c)(2)(B).” 118

T.C. at 579; see also Holland v. Commissioner, T.C. Memo. 2013-205. Unless

petitioner can advance persuasive factual distinctions between her situation and

the situation set forth in the regulation and in Behling, the same result would seem

to follow here. But neither party has addressed this issue, and we have no

occasion to decide it now.
                                    - 12 -

[*12] For these reasons we will deny respondent’s motion for summary judgment

filed September 24, 2014.


                                             An appropriate order will be issued.
