Another 1099-OID Fail

[The Observer]

ANGELA UKPOMA,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: JUNE 12, 2012

UNITED STATES TAX COURT

ORDER AND DECISION

The instant case is a collection review proceeding commenced pursuant to section 6330(d)(1) and Rules 330-334. 1

Pending before the Court is respondent's Motion For Summary Judgment and Declaration in support thereof, both filed December 3, 2010. Petitioner filed an Objection on December 8, 2011. On May 22, 2012, respondent filed a supplement to his motion.

As discussed below, we shall grant respondent's Motion For Summary Judgment, as supplemented.

BACKGROUND

At the time that the petition was filed, petitioner resided in the State of Washington.

Petitioner did not file an income tax return for 2005 or 2006. Rather, through the examination process respondent reconstructed petitioner's income for each of those years and, based upon that information, prepared and filed substitute returns for petitioner. See secs. 6020(b), 6212-6213.

On or around July 16, 2008, petitioner submitted a Form 1040, U.S. Individual Income Tax Return, for 2007. In it, she listed $ 112,652.17 of other income and reported no tax liability. She also claimed that she had $ 112,652.17 of withholdings and that this amount should be refunded to her. She attached several documents to her income tax return that purport to corroborate what she reported. These included multiple hand-written Forms 1099-OID purporting to reflect original issue discount and withholdings and Forms 1040-V, Payment Voucher, purporting to reflect payments corresponding to the withholdings. She also attached Form W-8BEN, Certificate of Foreign Status of Nonresident Alien for United States Tax Withholding, and Form 56, Notice Concerning Fiduciary Relationship, naming Secretary of the Treasury Henry M. Paulson, Jr. as her fiduciary. Respondent assessed a $ 5,000 penalty for filing a frivolous tax return. 2 See sec. 6702.

On March 12, 2008, respondent mailed to petitioner a notice of deficiency for 2005 and 2006. See sec. 6212. For each year, respondent determined both a deficiency in income tax (based principally on petitioner's unreported self-employment income) and various additions to tax and/or penalties. Petitioner did not respond and did not file a petition with the Court. See sec. 6213(a); see also sec. 6213(c). Accordingly, for each year, respondent assessed the deficiency in tax, together with applicable addition(s) to tax, as well as statutory interest.

On May 14, 2008, petitioner did, however, file a petition under Chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Eastern District of Washington. This petition was subsequently dismissed. On July 18, 2008, petitioner filed a petition under Chapter 13 of the Bankruptcy Code with the same court. Respondent submitted a proof of claim in the Chapter 13 proceeding for 2005 and 2006. This petition was also ultimately dismissed.

Concurrent with each assessment, respondent sent petitioner a notice and demand for payment for 2005, 2006, and 2007. See sec. 6303(a). In each instance petitioner failed to pay. Thereafter, respondent filed a Federal tax lien and sent petitioner a notice of Federal tax lien filing, and petitioner timely requested an administrative hearing with respondent's Appeals Office. See secs. 6320, 6321.

On October 20, 2009, petitioner mailed the Appeals officer handling her appeal a letter in which she notified him that she would be unable to participate in a scheduled teleconference. In that letter she also stated that she had never been employed or made any income and that, therefore, she did not owe the tax liabilities. She raised no challenges to the collection actions, nor did she propose any collection alternative or invoke any spousal defense.

Ultimately, on November 13, 2009, respondent's Appeals Office issued a Notice Of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 with respect to petitioner's outstanding liabilities for 2005, 2006, and 2007. Petitioner then appealed to this Court. See sec. 6330(d)(1); Rules 330-334.

DISCUSSION

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Florida Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

Sections 6230 and 6330 provide procedures for administrative and judicial review of respondent's lien and levy actions. In short, any person receiving a notice of a lien filing or a proposed levy may request an administrative hearing with respondent's Appeals Office. The Appeals Office is obliged to verify that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1). The person may raise at the administrative hearing any relevant issue relating to the unpaid tax or the collection action, including appropriate spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives. Sec. 6330(c)(2)(A). The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability if the person did not receive a 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).

An opportunity to dispute the underlying tax liability includes the opportunity to contest the liability in a prior judicial proceeding, including a bankruptcy proceeding. If the IRS submits a proof of claim in a taxpayer's bankruptcy proceeding, then, for purposes of section 6330(c)(2)(B), the taxpayer has had the opportunity to dispute the underlying tax liability. Kendricks v. Commissioner, 124 T.C. 69, 77-79 (2005). Here, the IRS submitted a proof of claim in petitioner's Chapter 13 proceeding for 2005 and 2006. Accordingly, petitioner had a prior opportunity to dispute the underlying liability for 2005 and 2006. She is, therefore, precluded from challenging those liabilities at an administrative collection hearing and in the instant proceeding.

Respondent concedes that petitioner did not have a prior opportunity to dispute the section 6702 frivolous return penalty for 2007. Petitioner was entitled to raise it in her collection hearing and she may raise it in this proceeding. Lindberg v. Commissioner, T.C. Memo. 2010-67. However, in her Objection to respondent's motion, petitioner states only that she may dispute the underlying liability, but she raises no issue that in any way refutes respondent's assessment of the frivolous return penalty. Moreover, we have reviewed the income tax return that she submitted for 2007. It is clear from the contents of that return and the attachments thereto that her submission typifies that of a tax protestor. Petitioner created the documents as part of an obvious effort to mislead the IRS into issuing her a tax refund. Her claimed withholding and refund amounts are patently frivolous in nature and the tactic she pursued has been identified as frivolous by the IRS and this Court. See Ernle v. Commissioner, T.C. Memo. 2010-237; IRS Notice 2010-33, 2010-17 I.R.B. 609. Consequently, we hold that respondent was justified in imposing a sec. 6702(a) civil penalty on petitioner in respect of her 2007 income tax return.

The record includes Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, for the income taxes, additions to tax, and frivolous return penalty in issue. Such transcripts of account may be used to satisfy the verification requirements of section 6330(c)(1). Roberts v. Commissioner, 118 T.C. 365, 371 n.10 (2002), aff'd, 329 F.3d 1224 (11th Cir. 2003). The record shows that the Appeals officer obtained and reviewed computerized transcripts of account for petitioner's tax years in issue. Federal tax assessments are formally recorded on a record of assessment. Sec. 6203. "The summary record, through supporting records, shall provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment." Sec. 301.6203-1, Proced. & Admin. Regs. Petitioner has not alleged any irregularity in the assessment procedure that would raise a justiciable issue about the validity of the assessment or the information contained in the computerized transcripts of account. See Davis v. Commissioner, 115 T.C. 35, 41 (2000); Mann v. Commissioner, T.C. Memo. 2002-48. Accordingly, we hold that the Appeals officer satisfied the verification requirement of section 6330(c)(1). Cf. Nicklaus v. Commissioner, 117 T.C. 117, 120-121 (2001).

Petitioner also objects to respondent's determination on the grounds that petitioner believes she was denied her opportunity for a hearing. However, as we have often noted, a section 6330 hearing may properly take the form of a telephone conference or one or more written communications between the taxpayer and the Appeals officer. Katz v. Commissioner, 115 T.C. 329, 337-338 (2000); sec. 301.6330-1(d)(2), Q & A-D6, Proced. & Admin. Regs. Petitioner submitted written correspondence to the Appeals officer in which the only issue she raised was with respect to her underlying liabilities. As discussed above, except for the section 6702 civil penalty, she is precluded from challenging the underlying liabilities. With respect to the section 6702 civil penalty, we have considered it on the merits and found that she is liable for such penalty. Petitioner, therefore, had her opportunity for a section 6330 hearing.

Petitioner has failed to raise a spousal defense, make a valid challenge to the appropriateness of respondent's intended collection action, or offer alternative means of collection. These issues are now deemed conceded. Rule 331(b)(4). In the absence of a valid issue for review, we conclude that respondent is entitled to judgment as a matter of law sustaining the notice of determination on which this case is based.

Upon due consideration and for cause, it is

ORDERED that respondent's Motion For Summary Judgment, filed December 3, 2010, and supplemented May 22, 2012, is granted. It is further

ORDERED AND DECIDED that respondent may proceed with the collection action (lien filing) in respect of petitioner's outstanding income tax liabilities for the taxable (calendar) years 2005 and 2006 and outstanding section 6702 civil penalty liability for the taxable (calendar) year 2007, as determined in the Notice Of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330, dated November 13, 2009, upon which notice this case is based.

Entered: June 12 2012

(Signed)

Robert N. Armen, Jr.
Special Trial Judge

FOOTNOTES:

/1/ All section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

/2/ Also, on or around August 24, 2010, petitioner submitted a Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents, for 2007. In it, she reported a total of $ 33 of interest income, no taxable income, and no tax liability or refund.