Insanity (definition): doing the same thing repeatedly and expecting a different outcome. At least he was consistent in his obstinance.T.C. Memo. 2013-291
UNITED STATES TAX COURT
CHRISTOPHER V. POHL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23061-12L. Filed December 23, 2013.
Christopher V. Pohl, pro se.
Kathleen K. Raup, for respondent.
MEMORANDUM OPINION
LAUBER, Judge: In this collection due process (CDP) case, petitioner
seeks review pursuant to section 6330(d)(1) of the determination by the Internal
Revenue Service (IRS or respondent) to uphold a notice of intent to levy.
After concessions, the sole issue for decision is whether the IRS erred in
sustaining the notice of intent to levy and determining to proceed with collection
of frivolous return penalties, in the aggregate amount of $30,000, assessed against
petitioner for tax years 2005-10. The IRS has moved for summary judgment
under Rule 121, contending that there are no disputed issues of material fact and
that its action in sustaining the levy was proper as a matter of law. We agree and
accordingly will grant the motion.
Background
Petitioner earned wages and other compensation from various business
activities during 2005-10. He worked for several businesses and ran his own
window washing company, but his primary source of income was from his
employment at Borgata Hotel Casino & Spa in Atlantic City, New Jersey. His
income from Borgata began in 2005, grew in 2006, and averaged about $50,000 in
tax years 2007-10, when it became his main source of income. For all six tax
years at issue, petitioner and the IRS received third-party information returns
--i.e., Forms W-2, Wage and Tax Statement, and Forms 1099-MISC,
Miscellaneous Income--reporting the wages and nonemployee compensation that
petitioner received. The Forms W-2 showed a small amount of Federal income tax
withholding for two of the years at issue and no Federal income tax withholding
for the other years. The Forms W-2 reflected withholding of some employment
tax for each year.
Petitioner did not file Federal income tax returns for any of the years at
issue. After commencing an examination in September 2010, respondent learned
through the summons process that petitioner had asserted to at least one employer
that he was “tax exempt.” This appeared to explain why petitioner’s employers
had withheld very little tax from his paychecks.
On April 7, 2011, an IRS revenue agent (RA) had a face-to-face meeting
with petitioner at respondent’s May’s Landing, N.J., office. At the meeting
petitioner hand delivered purported “tax returns” for 2005-10, each prepared on
Form 1040EZ, Income Tax Return for Single and Joint Filers With No
Dependents. On each of these documents petitioner listed his occupation as “nonfederal
worker”; reported his income from wages as zero; sought refund of all
taxes (including employment taxes) withheld during each year; and attached
allegedly “corrected” Forms 1099-MISC. On these forms petitioner covered
the wages reported by his employers with correction fluid and replaced those
amounts with zero.
On April 11, 2011, the RA sent petitioner copies of relevant Code provisions
and judicial opinions addressing frivolous tax returns. On May 13, 2011,
the RA forwarded petitioner’s purported “tax returns” for 2005-10 to the IRS
Frivolous Return Program (FRP) in Ogden, Utah. On August 10, 2011, an FRP
staff member mailed petitioner a letter warning him of the potential consequences
of taking frivolous return positions. The letter clearly outlined respondent’s
conclusion that petitioner had taken frivolous positions on his 2005-10 “returns”
and warned petitioner that the IRS would assess a $5,000 penalty for each year for
which he filed a frivolous return. The letter alerted petitioner to his statutory right
to withdraw his “returns” and file nonfrivolous returns within 30 days. If he did
so, petitioner would avoid the $5,000 penalty imposed by section 6702 upon any
person who files “what purports to be a return of tax” but “does not contain
information on which the substantial correctness of the self-assessment may be
judged” and is “based on a position which the Secretary has identified as
frivolous.”
On September 14, 2011, petitioner replied by reiterating his position that he
is exempt from taxation because, as a private sector worker, he is not an
“employee” under section 3401 and therefore cannot receive “wages.” He again
demanded a refund of withheld taxes and attached copies of the purported “tax
returns” that the IRS had already determined to be frivolous.
On November 21, 2011, respondent assessed a $5,000 frivolous return
penalty under section 6702 for each of the six tax years at issue and sent petitioner
a notice of balance due for 2005-10. Having received no payment, respondent on
April 2, 2012, issued petitioner a Final Notice of Intent to Levy and Notice of
Your Right to a Hearing under Section 6330. By letter dated May 1, 2012,
petitioner requested a CDP hearing. By letter dated June 1, 2012, a settlement
officer (SO) from respondent’s Appeals Office acknowledged petitioner’s hearing
request and scheduled a telephone CDP hearing for July 5, 2012, to discuss any
nonfrivolous issues that petitioner wished to raise. In addition, the SO noted in
her case activity record for petitioner on June 1 her verification that respondent
had made valid assessments of the frivolous return penalties.
By letter dated June 29, 2012, petitioner sent the SO more copies of the
“returns” he had submitted previously. He reiterated his contentions that he is
exempt from tax and that the IRS cannot rely upon Forms W-2 and Forms 1099-
MISC to establish the wages and nonemployee income that he received.
Petitioner alternatively argued that he is not a “person” within the meaning of
section 6041(a) and hence that Form 1099-MISC reporting does not apply to him.
During the CDP hearing on July 5, 2013, petitioner did not supply any new
information or seek a collection alternative. Respondent described the substance
of the call in the notice of determination: “After 45 minutes of going around in
circles with the taxpayer asking to define words * * * , the Settlement Officer told
the taxpayer that after a review of the information * * * a determination letter will
be issued.” On August 9, 2012, the IRS issued a notice of determination
sustaining the proposed levy. Petitioner timely sought review in this Court.
Discussion
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). We 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.
Rule 121(b); 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. Sundstrand Corp., 98 T.C. at 520. However,
the nonmoving party “may not rest upon mere allegations or denials” but instead
“must set forth specific facts showing there is a genuine dispute.” Rule 121(d);
see Sundstrand Corp., 98 T.C. at 520. We conclude that there are no material facts
in dispute and that this case is appropriate for summary adjudication.
B. Standard of Review
Section 6330(d)(1) does not prescribe the standard of review that this Court
shall apply in reviewing an IRS administrative determination in a CDP case. The
general parameters for such review are marked out by our precedents. Where the
validity of the underlying tax liability is at issue, the Court will review the Commissioner’s
determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-
182 (2000). Where there is no dispute concerning the underlying tax liability, the
Court reviews the IRS decision for abuse of discretion. Id. at 182.
The section 6702 frivolous return penalty, as an assessable penalty, is not
subject to the deficiency procedures outlined in sections 6211-6216. See sec.
6703(b). Because a taxpayer will not have received a notice of deficiency before
assessment of this penalty, he can dispute his liability for the penalty at a CDP
hearing and on review of the CDP determination in this Court, in the absence of
any other opportunity to contest it. See Callahan v. Commissioner, 130 T.C.
44, 49-50 (2008). In this setting, the frivolous return penalty is the “underlying
tax liability,” and the taxpayer is entitled to de novo review of this liability if he
has raised a meaningful challenge to the penalty at his CDP hearing. See id.; Goza
v. Commisioner, 114 T.C. at 182.
However, de novo review of frivolous return penalties is not automatic. To
receive de novo review, the taxpayer at the CDP hearing must make a meaningful
challenge to the penalty itself--e.g., by plausibly contending that his return contains
sufficient “information on which the substantial correctness of the selfassessment
may be judged,” sec. 6702(a)(1)(A), or that his position is not one
“which the Secretary has identified as frivolous,” sec. 6702(a)(2)(A). If the taxpayer
at his CDP hearing advances no rational argument about why the penalty
does not apply but instead insists on maintaining frivolous arguments that his
wages are not “income,” he has not made a meaningful challenge to his liability
for the penalty. See Buckardt v. Commissioner, T.C. Memo. 2012-170, 103
T.C.M. (CCH) 1909, 1912. The regulations explicitly provide that an issue is not
properly raised before this Court if a taxpayer fails to present the IRS Appeals
Office with any evidence relating to the issue after being afforded an opportunity
to do so. Sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.
The record before us clearly shows that petitioner made no meaningful challenge
to the frivolous return penalties at his CDP hearing. The only discernible
argument he advanced at the hearing was that his wages are exempt from tax
because he is a non-Federal worker, an argument identified as frivolous by the
Secretary in Notice 2007-30, 2007-1 C.B. 883. Because we find that petitioner did
not meaningfully challenge his underlying liability for the penalty at the CDP
hearing, we will apply an abuse of discretion standard to our review of the SO’s
determination.
C. Analysis
Because petitioner’s underlying liability is not at issue, the only question
we consider is whether respondent properly sustained a levy to collect this
liability. We review the record to determine whether the Appeals officer (1)
verified that the requirements of applicable law and administrative procedure have
been met; (2) considered whether the issues petitioner raised have merit; and (3)
considered 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). At the
CDP hearing, the taxpayer may raise any relevant issue relating to the unpaid tax
or levy, including “challenges to the appropriateness of collection actions”
and “offers of collection alternatives.” Sec. 6330(c)(2)(A)(ii) and (iii).
Petitioner at the CDP hearing raised no colorable issues about the penalties
or the levy, and he offered no collection alternative. Rather, his assertions at both
the administrative and litigation stages of this case have consisted entirely of
frivolous arguments. A sampling of his arguments includes the assertions that he
has no “wages” because he is not an employee of the Federal Government; that
Forms 1099-MISC and W-2 may not be used for private sector workers; the IRS
may not rely on information returns received from third parties; and that the IRS
lacks authority to levy on the property of private sector workers.
It is clear from our review of the record that the Appeals officer verified that
the requirements of any applicable law and administrative procedure were
followed; that petitioner’s claims lack merit; and that in sustaining the levy the
Appeals officer properly balanced “the need for the efficient collection of taxes
with the legitimate concern of * * * [petitioner] that any collection action be no
more intrusive than necessary.” Sec. 6330(c)(3). Petitioner contends that
the IRS did not make a “lawful assessment” of the frivolous return penalties
because it assertedly failed to satisfy the procedural requirements of section
6751(b). We reject this contention. Section 6330(c)(1) requires the Appeals
officer to “obtain verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met.” A determination of
lawful assessment is a component of this verification requirement. See Ron
Lykins, Inc. v. Commissioner, 133 T.C. 87, 96-97 (2009). The administrative
record includes multiple entries by the SO confirming that she verified that valid
assessments of the frivolous return penalties had been made. Finding no abuse of
discretion in any of these respects, we will grant summary judgment for
respondent and affirm the proposed collection action.
D. Sanctions
This Court now considers sua sponte whether to impose sanctions on
petitioner under section 6673(a)(1). This section authorizes the imposition of a
penalty not in excess of $25,000 when a taxpayer has instituted or maintained Tax
Court proceedings primarily for delay or has taken a frivolous or groundless
position in this Court.
The positions petitioner maintains are unquestionably frivolous, and this
Court would therefore be justified in imposing additional sanctions. However,
because this appears to be petitioner’s first foray into this Court, we instead offer a
word of caution. Petitioner is admonished to refrain from advancing frivolous
arguments in any future filings he may make in this Court, because the Court next
time is unlikely to show leniency. Failure to heed this warning may lead to the
imposition of a substantial monetary penalty under section 6673(a)(1).
An appropriate order and decision will be entered.
And hey - he got a break. $30,000 in Frivpens, but no sanctions (this time).
