Opinion
6771-19L
09-24-2021
Cameron Stewart, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER
Michael B. Thornton Judge
This collection due process (CDP) case is before the Court on respondent's motion for summary judgment, filed pursuant to Rule 121 and supported by the declaration of Settlement Officer (SO) Julius B. Hollowell. For the reasons discussed below, we will deny respondent's motion for summary judgment.
All Rule references are to the Tax Court Rules of Practice and Procedure; all section references are to the Internal Revenue Code (Code) in effect at all relevant times.
Background
The following uncontested background information is derived from the parties' various filings. Petitioner resided in California when he filed his petition.
On his timely filed Federal income tax return for taxable year 2014, petitioner reported an income tax liability of $1, 950 and a withholding credit of $9, 109, resulting in a claimed overpayment of $7, 159, which the Internal Revenue Service (IRS) refunded to him on February 25, 2015.
By notice of deficiency dated June 12, 2017, respondent determined that petitioner had a $3, 525 deficiency for taxable year 2014. Respondent asserts that this notice was mailed to petitioner, by certified mail, to his last known address as printed on the notice of deficiency, viz., "CAMERON STEWART/1814 N VAN NESS AVE/LOS ANGELES, CA 90028-5615149" (the North Van Ness address).
On October 23, 2017, respondent assessed the $3, 525 deficiency. On or about April 15, 2018, respondent applied petitioner's 2017 Federal income tax overpayment of $1, 525 against his 2014 income tax liability. Respondent notified petitioner of this action by Notice CP49, "We Applied your 2017 Form 1040 overpayment to an unpaid balance", dated May 7, 2018. This Notice CP49 was addressed to petitioner at the North Van Ness address.
On May 10, 2018, on petitioner's behalf, his representative, James O'Leary, mailed to the IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing, with respect to a "Proposed Levy or Actual Levy" for petitioner's income tax liability for taxable year 2014. The Form 12153 states as the reason for the requested hearing:
The taxpayer did not receive a NOD as required by law and the statute has expired for said period. The collection is unlawful[.] See attached Transcript as provided by the Service to the taxpayer for the tax period 12.31.2014 which clearly shows no NOD issued. Also, a Notice of intent to levy was received by the taxpayer in mid February 2018 with no corresponding notice to POA who was per transcript noted as added 3.15.17[.]
Attached to the Form 12153 was a copy of the Notice CP49 dated May 7, 2018. Also attached to the Form 12153 was a copy of an IRS account transcript, dated May 1, 2018, for petitioner's 2014 Form 1040, indicating various transactions but not including the issuance of a notice of deficiency. A cover letter from the Director, Electronic Products & Services Support, dated May 1, 2018, and addressed to petitioner at the North Van Ness address, indicates that this transcript was sent to petitioner pursuant to his request that same date. This cover letter states that the transcript "shows a summary of your tax return and subsequent actions taken. These actions could include payments, amended returns, and corrections we made to the original return due to math mistakes."
The IRS received petitioner's Form 12153 in its Ogden, Utah, office on May 15, 2018, and forwarded it to the Cincinnati Compliance Center, where it was received on June 13, 2018. From there, the case was sent to respondent's Appeals office (Appeals), and on July 13, 2018, was assigned to SO Hollowell.
On July 1, 2019, the IRS Appeals Office was renamed the Internal Revenue Service Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001(a), 133 Stat. at 983 (2019). Some of the events in this case predate that renaming. We use the term "Appeals" without distinction to refer to the office both before and after the name change.
In the meantime, on May 3, 2018, respondent had seized petitioner's $555 State tax refund and applied it against the unpaid balance of his assessed 2014 income tax liability. Respondent notified petitioner of this action by Notice CP92, "Seizure of your state tax refund and notice of your right to a hearing", dated May 28, 2018. The Form CP92 stated that if petitioner wished to appeal this levy action, he should complete and mail the enclosed Form 12153 by June 27, 2018. The Form CP92 was addressed to petitioner at the North Van Ness address.
By letter dated July 24, 2018, and addressed to petitioner at the North Van Ness address, SO Hollowell scheduled a telephone conference with petitioner for September 11, 2018. On September 11, 2018, SO Hollowell held the scheduled teleconference with petitioner's representative, Mr. O'Leary. In preparation for the meeting, SO Hollowell reviewed the exam file and concluded that the notice of deficiency dated June 12, 2017, and addressed to petitioner at the North Van Ness address had been returned by the post office as undeliverable. SO Hollowell noted in his case activity record: "[T]he certified letter was returned from the post office stating: Return to sender/Not deliverable as addressed/unable to forward. [T]his verifies the tp did not receive the snod to challenge the liability."
During the teleconference, Mr. O'Leary confirmed that petitioner's address on June 12, 2017, (the date on the notice of deficiency) was the North Van Ness address but asserted that petitioner had never received it. SO Hollowell noted in his case activity record that the case history in the administrative file indicated that the IRS had previously "requested a new snod [statutory notice of deficiency] be mailed with a new date allowing time for appeals rights. [T]his was requested on 10-31-2017. There is no indication a new snod was mailed per AMS history." SO Hollowell advised Mr. O'Leary that because petitioner did not actually receive the notice of deficiency, he would give him an opportunity to dispute his liability before an Examination Appeals Officer.
SO Hollowell's notation apparently refers to the administrative history described in a document included as an exhibit to his declaration, which identifies the exhibit only as "'View Details' dated June 26, 2018". This document indicates that on Oct. 31, 2017, as part of a request for audit reconsideration, an IRS agent in the Cincinnati exam operation had noted that petitioner had made an inquiry asserting that the IRS had been mailing its notices to the address on his 2014 tax return rather than his current address and had requested that notices be mailed to the North Van Ness address. This notation indicates that petitioner "wishes to appeal but timeframe may expire due to IRS error. As per Lead Gate; please resend determination to correct address and change dates to allow TP sufficient time to respond/appeal." The record does not indicate who or what "Lead Gate" might be or whether this request was ever implemented.
At SO Hollowell's request, the case was referred to an Examination Appeals Officer to review petitioner's underlying liability. On December 3, 2018, Appeals Officer Mario Pleasants (AO Pleasants) mailed to petitioner, at the North Van Ness address, a letter stating in part: "After thorough review of the case file documents and research, I have determined you did not receive the Statute [sic] Notice of Deficiency dated June 12, 2017, although it was addressed to your current address on file; IRS records to [sic] not verify the taxpayer updated his address and another Statute [sic] Notice of Deficiency was issued". AO Pleasants noted that the substantive issue was whether petitioner was entitled to $26, 365 of miscellaneous deductions claimed on his 2014 Schedule A, Itemized Deductions. He advised petitioner to submit his substantiation for the claimed deductions in 20 days or the case would be returned to SO Hollowell for closure.
By letter dated December 17, 2018, Mr. O'Leary responded that "the matter is not subject to examination and * * * the Statute of Limitation has run" because, as AO Pleasants had acknowledged, petitioner did not receive the notice of deficiency dated June 12, 2017. Mr. O'Leary requested that AO Pleasants provide petitioner a copy of both the first and second notice of deficiency referenced in AO Pleasants' letter, along with the complete administrative file.
On February 6, 2019, AO Pleasants and Mr. O'Leary spoke by telephone. AO Pleasants reiterated his request for substantiating documentation. Mr. O'Leary reiterated his position that it was unfair to ask petitioner to provide additional documentation since he had never received a notice of deficiency although he had requested it several times. He noted that petitioner's 2014 income tax account transcript did not contain an entry recording the issuance of a notice of deficiency. AO Pleasants advised Mr. O'Leary that since the deficiency was assessed before the expiration of the limitations period, Appeals could properly ask petitioner to substantiate the expenses in question.
On February 12, 2019, after consulting with his manager, AO Pleasants called Mr. O'Leary back and reiterated his request for substantiation. Mr. O'Leary once again declined to provide the requested substantiation because, he said, petitioner had never received a notice of deficiency.
On February 13, 2019, AO Pleasants returned the case to SO Hollowell. After noting that there was no change in petitioner's underlying liability, on February 27, 2019, SO Hollowell called Mr. O'Leary and informed him that he would issue a notice of determination. On March 29, 2019, SO Hollowell issued the notice of determination, sustaining the seizure of petitioner's $555 state refund. An attachment to the notice of determination states in part:
Due to clerical error, the notice of determination was date-stamped March 29, 2018, but was actually mailed on March 29, 2019.
Verification of legal and administrative procedural requirements:
I, Julius Hollowell, verified the requirements of any applicable law or administrative procedure were met. IRS records confirmed the proper issuance of the notice and demand, Notice of Intent to Levy and/or Notice of Federal Tax Lien (NFTL) filing, and notice of a right to a Collection Due Process (CDP) hearing.
An assessment was properly made for each tax and period listed on the CDP notice.
Notice and demand for payment was mailed to your last known address.
There was a balance due when the Notice of Intent to Levy was issued or when the NFTL filing was requested.
I had no prior involvement with respect to the specific tax periods either in Appeals or Compliance.
I reviewed the Collection file, IRS records and information you provided.
My review confirmed that the IRS followed all legal and procedural requirements, and the actions taken or proposed were appropriate under the circumstances.
Issues raised by the taxpayer:
Issue: Your power of attorney (James O'Leary) stated on the written appeal request form 12153, The taxpayer did not receive a NOD as required by law and the statute has expired for said period. The collection is unlawful [.] See attached transcripts as provided by the Service to the taxpayer for the tax period 12.31.2014 which clearly shows no NOD issued. Also, a Notice of intent to levy was received by the taxpayer in mid-February 2018 with no correspondence notice to POA who was per transcript noted as added 03-15-2017.
During the appeal telephone conference on 09-11-2018, Mr. O'Leary presented the same issue as in the written appeal request. He disagreed with the current 2014 tax liability.
Response:
Tax liability for 2014
The Appeals Officer determined that you should be given the opportunity to challenge the liability during the appeal telephone conference. This was expressed to your power of attorney. The appeal was transferred to our examination appeals officer to review the liability issue.
Appeals Officer (Mario Pleasant) [sic] reviewed the liability issue with your power of attorney. Ms. Pleasant [sic] determined there would be no change to the 2014 tax liability. The appeal was transferred back to Mr. Hollowell to continue with the collection due process hearing.
There were no other issues raised.
Balancing the need for efficient collection with taxpayer concerns That the collection action be no more intrusive than necessary:
Enforced collection is inevitably intrusive, but it does not appear that any less intrusive action will meet the liability. There was a valid 2014 balance on your account for the seizure of your state refund. The Office of Appeals sustains the seizure of your stated refund of $555.00.
Petitioner timely petitioned this Court. The sole assignment of error was: "No review was made of the statutory requirements of the NOD not being issued in a timely fashion."
Discussion
A. Summary Judgment Standard
Summary judgment may be granted where the pleadings and other materials show that there is no genuine dispute 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). In considering a motion for summary judgment, we view factual materials and inferences drawn therefrom in the light most favorable to the nonmoving party. See Bond v. Commissioner, 100 T.C. 32, 36 (1993). The nonmoving party may not rest upon the mere allegations or denials of his pleading but must set forth specific facts showing there is a genuine dispute for trial. Sundstrand Corp. v. Commissioner, 98 T.C. at 520.
B. Statutory Framework and Standard of Review
Section 6331(a) authorizes the Secretary to levy upon property and property rights of a taxpayer liable for tax if the taxpayer fails to pay the tax within 10 days after notice and demand for payment is made. As a general rule, before levying the Secretary is required to notify the taxpayer in writing of his or her right to a prelevy hearing with Appeals on the issue of whether the levy is appropriate. Sec. 6330(a)(1), (b)(1). Section 6330(f)(2), however, provides an exception to this general rule when the Secretary has served a levy on a State to collect a Federal tax liability from a State tax refund. This section also provides that a taxpayer shall be given the opportunity for the hearing within a reasonable period of time after the levy. We have jurisdiction under section 6330(d) to review respondent's determination regarding the levy upon petitioner's State tax refund. See Clark v. Commissioner, 125 T.C. 108 (2005).
Petitioner submitted his request for a CDP hearing on May 10, 2018, shortly after the IRS issued to him Notice CP49, notifying him that his 2017 Form 1040 overpayment had been applied to his 2014 unpaid balance. He attached a copy of the Notice CP49 to his Form 12153. The IRS did not issue petitioner Notice CP92, notifying him of the seizure of his $555 State tax refund, until May 28, 2018. From this sequence of events it appears that petitioner's request for a CDP hearing, as initially submitted, was in response to the Notice CP49 rather than to the Notice CP92. The IRS' application of his 2017 tax overpayment, however, did not constitute a levy action subject to review under sec. 6330. See Boyd v. Commissioner, 124 T.C. 296, 300 (2005), aff'd, 451 F.3d 8 (1st Cir. 2006) (noting that the application of an overpayment is an offset, as distinct from a levy, and holding that the Commissioner's application of a taxpayer's overpayment for one taxable year to offset the taxpayer's liability for another taxable year does not constitute a collection action that is subject to review under sec. 6330). SO Hollowell treated petitioner's May 10, 2018, request for a CDP hearing as relating to the IRS' seizure of his $555 State tax refund--an action that is subject to review under section 6330--, and the notice of determination expressly sustained only that specific collection action. Accordingly, our jurisdiction in this case is limited to review of the determination sustaining the IRS' seizure of petitioner's $555 State tax refund.
Section 6330(c)(2) prescribes the matters that a person may raise at an Appeals hearing, including spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. In addition to considering issues raised by the taxpayer under section 6330(c)(2), the Appeals officer must verify that the requirements of any applicable law or administrative procedure have been met. Sec. 6330(c)(1), (3). The existence or amount of the underlying tax liability may be contested at an Appeals hearing only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B); see Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180-181 (2000). If the validity of the underlying tax liability is properly at issue, the Court will review the taxpayer's liability de novo. See Sego v. Commissioner, 114 T.C. at 609-610. Where there is no dispute concerning the underlying tax liability, the Court reviews the IRS decision for abuse of discretion. Goza v. Commissioner, 114 T.C. at 182.
C. Verification
Independent of any issue raised or argument made by the taxpayer, section 6330(c)(1) requires the Appeals officer conducting a CDP hearing to "verify that the requirements of any applicable law or administrative procedure have been met." Hoyle v. Commissioner, 131 T.C. 197, 202-203 (2008). An assessment is not valid unless it is duly preceded by the mailing of a notice of deficiency to the taxpayer's last known address. Sec. 6213(a). Consequently, section 6330(c)(1) requires Appeals, as part of its review, to verify that a valid notice of deficiency was mailed to the taxpayer's last known address. Jordan v. Commissioner, 134 T.C. 1, 12 (2010); Hoyle v. Commissioner, 131 T.C. at 202-203.
Where a taxpayer identifies an irregularity in the assessment procedure, an Appeals officer cannot rely solely on the tax transcripts in order to verify that a notice of deficiency was sent. See Hoyle v. Commissioner, 131 T.C. at 205 n.7 ("[W]here a taxpayer alleges no notice of deficiency was mailed he has * * * '[identified] an irregularity[.]'") (alteration in original); see also Nestor v. Commissioner, 118 T.C. 162, 166-167 (2002). Instead, the Appeals officer must "examine underlying documents in addition to the tax transcripts, such as the taxpayer's return, a copy of the notice of deficiency, and the certified mailing list". Chief Counsel Notice CC-2006-019 at 18 (Aug. 18, 2006); see Marlow v. Commissioner, T.C. Memo. 2010-113, slip op. at 21; Casey v. Commissioner, T.C. Memo. 2009-131, slip op. at 18-19 (noting that the Appeals officer examined notices of deficiency that were in the administrative file and concluded that a notice of deficiency had been mailed to the taxpayer).
In deficiency cases the Commissioner bears the initial burden of proving by competent and persuasive evidence that the notice of deficiency was properly mailed to the taxpayer. Clough v. Commissioner, 119 T.C. 183, 187 (2002); Coleman v. Commissioner, 94 T.C. 82, 90 (1990); August v. Commissioner, 54 T.C. 1535, 1536-1537 (1970). We have also required the Commissioner in deficiency cases to show that the notice of deficiency was properly delivered to the U.S. Postal Service (USPS) for mailing. See Clough v. Commissioner, 119 T.C. at 187. The act of mailing the notice of deficiency is generally proven by documentary evidence of mailing or by evidence of the Commissioner's mailing practices corroborated by direct testimony. Coleman v. Commissioner, 94 T.C. at 90; Magazine v. Commissioner, 89 T.C. 321, 324-326 (1987). Exact compliance with USPS Form 3877 mailing procedures raises a presumption of official regularity in favor of the Commissioner. Hoyle v. Commissioner, 131 T.C. at 203; Coleman v. Commissioner, 94 T.C. at 91. Although this is not a deficiency case, we have applied these same principles in a CDP setting. See Meyer v. Commissioner, T.C. Memo. 2013-268.
The notice of determination in this case does not expressly state that the settlement officer verified that a notice of deficiency was mailed to petitioner's last known address; it merely states, without elaboration, that "[a]n assessment was properly made". This is especially worrisome because the notice of determination expressly states that the settlement officer verified various other statutory requirements. For instance, it states: "IRS records confirmed the proper issuance of the notice and demand, Notice of Intent to Levy and/or Notice of Federal Tax Lien (NFTL) filing, and notice of a right to a Collection Due Process (CDP) hearing." And it states that "[n]otice and demand for payment was mailed to your last known address."
Respondent's motion for summary judgment and SO Hollowell's declaration state identically that "the administrative record does not contain a copy of any * * * Notice of Intent to Levy addressed to petitioner, with respect to taxable year 2014 or otherwise." Indeed, it is not apparent why the seizure of petitioner's State tax refund would have been preceded by the issuance of a notice of intent to levy or notice of Federal tax lien filing. These considerations lead us to suspect that at least some of the quoted statements in the notice of determination may be boilerplate.
The notice of determination notes petitioner's assertions in his Form 12153 that he had received no notice of deficiency and that the IRS tax transcript that had been provided to him did not show the issuance of any notice of deficiency. In response to these assertions, the notice of determination states with little elaboration, "The Appeals Officer determined that you should be given the opportunity to challenge the liability during the appeal telephone conference." From this response it would appear that Appeals sought in effect to cure any defect in the mailing of the notice of deficiency by conceding petitioner the opportunity to dispute his underlying liability. Allowing petitioner the opportunity to dispute his underlying liability does not, however, perfect an assessment made in derogation of section 6213(a). See Freije v. Commissioner, 125 T.C. 14, 35 (2005).
The record before us contains no USPS Form 3877 certified mailing list nor any explanation for its absence. Respondent's motion for summary judgment, like the notice of determination, does not expressly address petitioner's contention that the IRS tax transcript provided to him does not reflect the issuance of any notice of deficiency. Nor has respondent expressly addressed the significance, if any, of the indication in the administrative record that an IRS exam agent at one point concluded that a second notice of deficiency should have been mailed to petitioner at his correct address or petitioner's assertion that he never received any such second notice of deficiency. Rather, respondent's motion for summary judgment relies almost entirely on a copy of the notice of deficiency dated June 12, 2017, as included as an exhibit to SO Hollowell's declaration in support of respondent's motion for summary judgment.
In his declaration SO Hollowell asserts: "The administrative file contains the copy of the Notice of Deficiency that was mailed to petitioner; it is stapled to the envelope in which it was mailed." Attached as an exhibit to SO Hollowell's declaration is a document identified as "Letter 3219, Notice of Deficiency, dated June 12, 2017, together with attached windowed envelope (front and back sides) and mailing address stuffer." This copy of the notice of deficiency is dated June 12, 2017, and shows a 22-digit number at the top center of both its first page and its cover page; the record does not explain the meaning or purpose of this number.
The copy of the envelope that is part of this same exhibit and that was allegedly stapled to the notice of deficiency in the administrative file is imprinted at the top with the words "CERTIFIED MAIL". The envelope is a "windowed" or "look through" envelope, such that petitioner's address as printed on the notice would have appeared through the transparency. The "window" of the photocopied envelope is partially occluded by what appears to be the corner of a USPS return-to-sender label captioned "NIXIE" followed by the numbers and characters "910 FE 1260 0006/17/17". Immediately below this information appears the words: "RETURN TO SENDER/NOT DELIVERABLE AS ADDRESSED/UNABLE TO FORWARD". Below these words are some other numbers, including the zip code "459990040", which matches the zip code for the IRS' Cincinnati, Ohio, mailing address as shown on the notice of deficiency. The return-to-sender label does not include, however, any readily identifiable linkage to the North Van Ness address, although on the bottom of the envelope (outside the return-to-sender label and seemingly partly occluded by it) there appears an unconventionally configured portion of petitioner's zip code ("90028>56"). None of the numbers on the envelope or on the USPS return-to-sender label matches the 22-digit number found on the notice of deficiency or its cover letter. Nor is it apparent from this record that there is any certified mailing number on the envelope. Cf. IRM pt. 4.8.9.11.3(2) (July 9, 2013) (requiring that certified mailing numbers be on Form 3877 and the envelopes containing the notices).
We take judicial notice that according to USPS Publication 32, Glossary of Postal Terms, "nixie" refers to "A mailpiece that cannot be sorted or delivered because of an incorrect, illegible, or insufficient delivery address." https://about.usps.com/publications/pub32/pub32_terms.htm.
In his motion for summary judgment, referring to this exhibit, respondent asserts that "[t]his evidence is sufficient to prove that the notice of deficiency was mailed, by certified mail, to petitioner's last known address." Respondent points to Noyes v. Commissioner, T.C. Memo. 2017-27, which held that the Commissioner had mailed certain notices of deficiency in the envelopes to which they were attached. Respondent characterizes the evidence in Noyes as "remarkably similar" to the evidence in the case before us. Notwithstanding some similarities in the evidence in these two cases, however, there are also some notable differences.
For one thing, the Court in Noyes found that the USPS return-to-sender label on each envelope in question bore USPS notations (alphanumeric characters corresponding to the first four letters of the taxpayer's name and the last three digits of the taxpayer's street address) indicating that the notice was mailed to the taxpayer at his last known address. By contrast, as far as we can tell, the USPS return-to-sender label in question in this case lacks notations indicating that it was mailed to petitioner or at what address. On this record we are left to guess the provenance and significance of the portion of petitioner's zip code that appears on the envelope outside the USPS return-to-sender label or, for that matter, various other unexplained markings and numbers on the envelope.
More fundamentally, the instant case is before us on respondent's motion for summary judgment, whereas Noyes was decided after a bench trial in which the Commissioner presented documentary evidence of the mailing of the notices of deficiency corroborated by direct testimony. As respondent acknowledges in his motion for summary judgment, the traditional rules of summary judgment dictate that in reviewing his motion "[f]acts are viewed in the light most favorable to the nonmoving party." Viewing the facts and the inferences therefrom in the light most favorable to petitioner, as the nonmoving party, we conclude that the record before us does not establish that the settlement officer verified that the notice of deficiency was mailed to petitioner at his last known address. See Med. Practice Solutions v. Commissioner, T.C. Memo. 2009-214. Accordingly, respondent has not established that he is entitled to judgment in his favor as a matter of law or that there is no genuine dispute as to any material fact. Summary judgment is not appropriate in these circumstances.
Upon due consideration, it is hereby
ORDERED: That respondent's motion for summary judgment, filed February 21, 2020, is denied. It is further
ORDERED: That jurisdiction is no longer retained by the undersigned and this case is restored to the general docket for trial or other disposition in due course.