On March 10, 2022, the Tax Court issued a Memorandum Opinion in the case of Bunton v. Commissioner (T.C. Memo. 2022-20). The primary issues presented in Bunton v. Commissioner were (1) whether Brian and Karen were entitled to challenge the existence and amounts of their underlying tax liabilities for the tax years at issue during their collection due process (CDP) proceeding, (2) whether Appeals properly verified the requirements of applicable law and procedure were met, (3) whether Appeals abused its discretion in denying Brian and Karen a face-to-face hearing, and (4) whether Appeals abused its discretion in considering issues raised under IRC § 6330(c)(2).
Held: No, not even a little bit. Also, tax protester alert!
Background to Bunton v. Commissioner (Featuring the Tax Protesters, Brian and Karen Bunton)
On April 15, 2014, Brian and Karen (Brian and Karen…of course she’s a Karen) timely filed a joint 2013 Form 1040. Brian and Karen resided in California when they filed their petition. You may remember Brian and Karen from last year’s failed Tax Court case…
Most importantly, however, Brian and Karen were tax protesters.
In November 2014, the IRS received a letter from Brian and Karen. In said letter, they made the following arguments about why they should not pay tax on the 2013 income reported to have been paid to them on Forms W-2, Wage and Tax Statement, on account of the simple fact that “the payments made to [them]…did not result from any taxable activity and do not constitute any taxable income under relevant law.”
Like any good tax protesters, Brian and Karen attached to their letter two Forms 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distribution From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. They included one for Karen’s employer, Fulcrum BioEnergy, Inc., and one for Brians’s employer, Virgin America, Inc. Both Forms 4852 reported zero wages.
At this point, we just have to hope Brian is a baggage handler and not a pilot…
Brian and Karen also attached to their letter a Form 1040X, Amended U.S. Individual Income Tax Return, for the 2013 tax year, which reported adjusted gross income of zero and tax of zero. It claimed that Brian and Karen were due a refund of $40,471.
For inexplicable reasons, the IRS actually paid the refund.
On April 15, 2015, Brian and Karen timely filed their joint return for 2014 on Form 1040. Although a copy of the return is not in the record, IRS records state that Brian and Karen reported they received no wages, that they reported zero tax liability, and that they claimed a refund of $42,168.49.
Once more, the IRS paid the refund.
No Forms W-2 were attached to the return. Instead, Brian and Karen attached two Forms 4852, one for Ms. Bunton’s employer, Fulcrum BioEnergy, Inc., and one for Mr. Bunton’s employer, Virgin America, Inc. Both Forms 4852 reported zero wages. Letters accompanying the forms made arguments regarding why Brian and Karen should not pay tax on the income reported to have been paid to them on Forms W-2, arguments such as
Because, why not, the IRS paid the refund.
In February 2016, the IRS issued a notice of deficiency to Brian and Karen for 2013 and 2014. The IRS sent the notice by certified mail to Brian and Karen’ address on Pepperwood Way in San Jose, California. For 2013, the determinations in the notice were made by reference to the amounts shown on Brian and Karen’ amended return, not their original return.
The notice determined a $49,916 deficiency for 2013 and a $62,731 deficiency for 2014. It determined an IRC § 6662 accuracy-related penalties of $3,686 for tax year 2013 and $12,546 for tax year 2014. Importantly, the notice advised Brian and Karen that their last day to file a petition with the Tax Court was May 18, 2016. Brian and Karen did not file a petition with the Tax Court disputing the notice of deficiency for 2013 and 2014.
The Notices of Deficiency and Continued Frivolity
In February 2017, the IRS issued a notice of deficiency to Brian and Karen for 2015. The IRS sent the notice by certified mail to Brian and Karen’ Pepperwood Way address. The notice determined a deficiency of $61,653 and an IRC § 6662 accuracy-related penalty of $12,330. The notice advised Brian and Karen that their last day to file a petition with the Tax Court was May 9, 2017. Brian and Karen did not file a petition with the Tax Court disputing the notice of deficiency for 2015.
They did, however, write a letter. To the IRS. Educating the IRS why the IRS did not, and I quote, “get it.”
On May 2, 2017, Brian and Karen sent a letter to the IRS regarding the notice of deficiency for tax year 2015, which they attached to the letter. The letter included many frivolous arguments, such as stating that their Forms W-2 were incorrect and that it “was necessary that [they] make the corrections…because [Brian and Karen] fully understand that the payers misapplied or did not consider the reporting requirements found in IRC § 6051(a).”
In response, the IRS sent Brian and Karen a Letter LT11, Notice of Intent to Levy and Notice of Your Right to a Hearing, for the years at issue. The letter informed them of their right to request a CDP hearing under IRC § 6330 within 30 days of the date of the letter.
On April 13, 2018, Brian and Karen timely submitted Form 12153, Request for a Collection Due Process or Equivalent Hearing. Of course, they did not select one of the three preprinted reasons they “disagree with the filing of the lien or levy,” (Installment Agreement, Offer-in-Compromise, or I Cannot Pay Balance). Instead, they selected the box marked “Other” and included a note scrawled in red Crayola marker (just spitballing here) on which they wrote:
We are disputing the alleged taxes and penalties associated with these taxes. We would like verification that the IRS performed all the procedures that are required by law. We would like to request a face-to-face hearing close to where we live, which we intend to record. If at the end of the hearing it is found that we owe the tax, then we would like to discuss all the available collection alternatives available to us.
In fairness, this was not nearly as stupid as the other shit they pulled.
Assignment and Review by Appeals
Settlement Officer (SO) Lora Davis was assigned to Brian and Karen’s CDP hearing. (SO Davis clearly drew the short straw.) She researched Brian and Karen’s account transcripts on the IRS Integrated Data Retrieval System. SO Davis’s review of Brian and Karen account transcripts revealed that Brian and Karen had not yet filed their 2017 return.
SO Davis met the statutes and regulations’ every procedural requirement. To wit:
- SO Davis obtained a certified mail list showing that the IRS mailed the notice of deficiency for 2013 and 2014 to Brian and Karen’ Pepperwood Way address;
- SO Davis obtained certified mail receipts showing that the IRS mailed the notice of deficiency for tax year 2015 to Brian and Karen’ Pepperwood Way address;
- In addition to the certified mail list and certified mail receipts, SO Davis obtained other information relevant to the mailing of the notices of deficiency, including Brian and Karen’ tax returns, IRS account transcripts, and copies of the notices of deficiency themselves.
The Tax Court observes that this activity is shown by SO Davis’s case activity notes, and, in any event, the parties stipulated to her thorough actions.[1]
On August 3, 2018, SO Davis sent a letter to Brian and Karen scheduling a telephone conference for September 5, 2018, as part of their CDP hearing. The letter explained that although Brian and Karen requested a face-to-face hearing, SO Davis scheduled a telephone conference and that “[w]e can offer you a virtual conference or a correspondence hearing in lieu of a telephonic hearing.”
The letter noted that Brian and Karen’ Form 12153 had stated that Brian and Karen disagreed with the liabilities. Unfortunately, the letter explained, blew their prior opportunity to raise the liabilities by failing to petition the Tax Court when they were issued notices of deficiency. So, because they had had a prior opportunity, they could not raise these liabilities before Appeals. The letter advised that, if they had further information to provide for consideration as to why they should be able to raise the liabilities, they should provide such information by August 17, 2018.
In standard fashion, the letter stated that for SO Davis to consider collection alternatives, Brian and Karen had to send her a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, with supporting documentation, by August 17, 2018, and their completed 2017 tax return by August 24, 2018.
On August 28, 2018, Brian and Karen sent a letter to SO Davis acknowledging they had received the August 3, 2018, letter scheduling a telephone hearing for September 5, 2018. The letter contended that Brian and Karen were entitled to a face-to-face hearing.
Brian and Karen’ letter stated that not all requirements of law and administrative procedure had been met because (the letter alleged) they “did not receive any statutory notices of deficiency for the tax years 2013-2015, either because they were never created, printed or mailed to us.”
The letter requested SO Davis “address the issues [they] brought up in [their] original Collection Due Process Hearing request.”
The letter did not, however, attach any of the information SO Davis requested in her August 3, 2018 letter. As of September 5, 2018, the date of the scheduled telephone hearing, Brian and Karen had not provided SO Davis with a completed Form 433-A with supporting documentation or submitted their 2017 tax return. They also had not provided any further information for consideration that would allow them to raise their underlying tax liabilities.
The Attempted CDP Hearing and Further Chicanery
On September 5, 2018, SO Davis called Brian and Karen’ representative, Tim Brewer, for the telephone hearing, and was told he was in a meeting. She left a message. Mr. Brewer did not return her call.
On September 7, 2018, SO Davis mailed a followup letter to Brian and Karen. The letter stated that the information requested in her August 3, 2018, letter had not been received but that she would give Brian and Karen an additional 14 days, until September 21, 2018, to provide the requested information before a notice of determination would be issued.
Not dissuaded, on September 17, 2018, Brian and Karen sent a letter to SO Davis in response to her September 7, 2018, letter. The letter again requested a face-to-face hearing be scheduled and that SO Davis “address the issues [they] brought up in [their] original Collection Due Process Hearing request.” The letter did not, however, attach any of the information SO Davis requested in her September 7, 2018, letter.
Brian and Karen Take a Hard Right into Crazytown.
On November 18, 2018, SO Davis received undated correspondence from Brian and Karen. It was filled with frivolous arguments, including
- Brian and Karen were not “citizens of the United States Corporation”
- Brian was a “Trust and a Vessel in Commerce”
- Brian and Karen planned to file a “lawsuit and [seek] a penalty of $2 million against each government officer or agent.”
The Notice of Determination
On February 25, 2019, SO Davis issued Brian and Karen a notice of determination for the years at issue. The notice determined that the proposed levy was appropriate.
Among other procedural safeguards, the notice of determination stated that Brian and Karen’ request for a face-to-face hearing “is denied” because “the information [Brian and Karen] … provided subsequent to [their] request for a hearing fails to reflect the position of non-frivolous challenges to the existence or amount of underlying tax liability” and that they “have not provided all returns to date which is required to proceed with a collection alternative.”
On March 27, 2019, Brian and Karen timely filed a petition with the Tax Court. In the petition, they argued that they were wrongly denied a face-to-face hearing with the Office of Appeals. They also argued that the IRS did not attempt to verify that notices of deficiency were created and mailed to Brian and Karen for the years at issue. They stated that they [*8] did not receive the notices of deficiency. The petition did not raise a challenge to the amounts of the tax liabilities for the years at issue.
And the IRS Swings and Misses on the Accuracy-Related Penalty for Lack of Managerial Approval
The IRS was forced to concede that the determination of the accuracy-related penalties for the years at issue failed to comply with the approval requirements of IRC § 6751(b) because of the lack of timely managerial approval.
Chalk it up to an IRS cockup.
Last but not Least, the Law of the Matter
IRC § 6331(a) authorizes the IRS 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. The IRS must first, however, to notify the taxpayer in writing of his or her right to a pre-levy hearing with Appeals on the issue of whether the levy is appropriate.[2] If a taxpayer requests a hearing, such hearing shall be held before an “officer or employee [of Appeals] who has had no prior involvement with respect to the unpaid tax.”[3]
IRC § 6330(c)(2) prescribes the matters that a taxpayer may raise at a CDP hearing, including spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. In making the determination the Appeals must consider issues raised by the taxpayer under IRC § 6330(c)(2), and it must verify that the requirements of any applicable law or administrative procedure have been met.[4]
The existence or amount of the underlying tax liability may be contested at the CDP hearing only if the taxpayer did not receive a notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute the tax liability.[5]
IRC § 6330(d)(1) allows a taxpayer dissatisfied with an IRC § 6330 determination of Appeals to file a petition with the Tax Court. IRC § 6330(d)(1) grants the Tax Court jurisdiction to review the determination. If the existence or amount of the underlying tax liability is properly at issue, the Tax Court will review the determination as to the existence or amount of the taxpayer’s liability de novo.[6]
If the existence or amount of the underlying tax liability is not properly at issue, the Court will review the determination for abuse of discretion.[7] An abuse of discretion occurs if the determination was made “arbitrarily, capriciously, or without sound basis in fact or law.”[8]
Importantly—and lost on many petitioners—if Appeals doesn’t agree with their argument, this is not, alone, an “abuse of discretion.”
The Sufficiency of the Notice of Deficiency
So, if the taxpayers do not receive the notice of deficiency, they may contest the existence and amount of the tax liability at a CDP hearing.
The record shows that the notices of deficiency were mailed by the IRS to Brian and Karen to their address at Pepperwood Way in San Jose, California, which was, coincidentally, the same address used by Brian and Karen on their most recently filed returns.
As such, it was their “last known address.”[11] The mere fact that a notice is mailed does not mean it is received. However, Brian and Karen did not provide any “evidence” to support their assertion that they did not receive the notices of deficiency.
And now, here’s where crazy comes to roost:
Additionally, Brian and Karen’ May 2, 2017 letter to the IRS, which made reference to and attached a copy of the notice of deficiency for tax year 2015, confirmed that Brian and Karen did in fact receive the notice of deficiency for the 2015 tax year.
Damn. Foisted by their own petard.
On the preponderance of the evidence,[12] the Tax Court concluded that the IRS mailed to Brian and Karen notices of deficiency for the tax years at issue to their last known address, and that Brian and Karen received them. Because Brian and Karen received the notices of deficiency, they are not entitled to contest their underlying tax liabilities.[13]
The Tax Court, however, goes one step further.
Even if Brian and Karen had not received the notices of deficiency, they still would not be entitled to contest their underlying liabilities. This is because at the CDP hearing Brian and Karen failed to provide any “genuine information relevant to their underlying tax liabilities.”[14]
The Tax Court, however, goes one step further.
Furthermore, Brian and Karen did not contest their underlying tax liabilities in their petition or present any evidence relevant to their underlying tax liabilities in our Court.
Well, shit.
Appeals Verified Procedural Safeguards Met (Except Penalty Approval, which It Conceded)
IRC § 6330(c)(1) requires Appeals to obtain verification that the requirements of any applicable law or administrative procedure have been met. As part of this review, Appeals must verify that a valid notice of deficiency was mailed to the taxpayer.[15] Importantly, this is the only specific type of verification Brian and Karen argue was not made. The general “you didn’t do your damn job, you damned evil governmental apparatchik” argument is too general and not good enough.
SO Davis obtained a certified mail list and certified mail receipts showing the notices of deficiency were mailed. In addition, she reviewed other corroborating documents, including the notices of deficiency themselves and IRS account transcripts. Therefore, SO Davis properly verified that the notices of deficiency were mailed to Brian and Karen’ last known address.
Brian and Karen observe that IRC § 6330(c)(1) requires Appeals to obtain the necessary verifications “at the hearing.” Brian and Karen contend that Appeals did not have a hearing because it did not have a conference with them. The Tax Court points out politely that a “hearing” for these purposes does not necessarily mean a face-to-face meeting, or even a telephone conversation.[16] It can consist of an exchange of written communications,[17] and that is what Brian and Karen’ hearing comprised of…because neither they nor their representative actually showed up and answered their damn phone.
No Abuse of Discretion in not Offering Brian and Karen a Face-to-Face Hearing
Brian and Karen requested a face-to-face hearing with the Appeals to discuss (1) their underlying tax liabilities for the years at issue and (2) collection alternatives if it were determined they were liable for the underlying tax liabilities for the years at issue. As the Tax Court succinctly points out, Appeals (or any officer thereof) does not have to acquiesce to the request of a frivolous taxpayer.
A face-to-face conference will not be granted concerning a taxpayer’s underlying liability if the taxpayer presents only frivolous issues concerning the liability.[18] Brian and Karen presented only frivolous issues. Therefore, Appeals did not abuse its discretion by deciding not to offer Brian and Karen a face-to-face conference to discuss their underlying tax liabilities.
Furthermore, a face-to-face conference is not required to discuss collection alternatives unless the taxpayer qualifies for collection alternatives.[19] Brian and Karen did not qualify for collection alternatives, as they failed to submit a 2017 tax return or a Form 433-A. As such, neither Appeals in general nor SO Davis specifically, abused its (her) discretion by deciding not to offer Brian and Karen a face-to-face conference to discuss collection alternatives.[20]
Because you know, all the crazy.
No Abuse of Discretion for Appeals to Consider Issues Raised under IRC § 6330(c)(2)
No Abuse of Discretion in Applying Balancing Test
Finally, Appeals must consider “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern…that any collection action be no more intrusive than necessary.”[21] Brian and Karen do not argue that the Office of Appeals erred in making this balancing determination. Since Brian and Karen did not raise this argument before the Tax Court, they have waived it.[22]
Bunton v. Commissioner (T.C. Memo. 2022-20)
Footnotes:
- See Treas. Reg. § 301.6330-1(f), Q&A-F4 (Appeals’ reliance on record appropriate). ↑
- IRC § 6330(a)(1), (b)(1). ↑
- IRC § 6330(b)(3). ↑
- IRC § 6330(c)(1), (3). ↑
- IRC § 6330(c)(2)(B); Sego v. Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176, 180-81 (2000). ↑
- See Sego, 114 T.C. at 609-10. ↑
- Goza, 114 T.C. at 182. ↑
- Woodral v. Commissioner, 112 T.C. 19, 23 (1999). ↑
- IRC § 6211. ↑
- IRC § 6212(a) and (b)(1). ↑
- See Treas. Reg. § 301.6212-2(a) (stating that the last known address is the “address that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the [IRS] is given clear and concise notification of a different address”). ↑
- See Sego, 114 T.C. at 611. ↑
- See IRS 6330(c)(2)(B). ↑
- See Treas. Reg. § 301.6330-1(f)(2), Q&A-F3. ↑
- Jordan v. Commissioner, 134 T.C. 1, 12 (2010), supplemented by T.C. Memo. 2011-243. ↑
- Treas. Reg. § 301.6330-1(d)(2), Q&A-D6. ↑
- Id. ↑
- Treas. Reg. §§ 301.6320-1(d)(2), Q&A-D8, 301.6330-1(d)(2), Q&A-D8; see Williams v. Commissioner, 718 F.3d 89, 93 (2d Cir. 2013). ↑
- Treas. Reg. § 301.6330-1(d)(2), Q&A-D8. ↑
- See, e.g., Steinhardt v. Commissioner, T.C. Memo. 2018-206, aff’d per curiam, 792 F. App’x 721 (4th Cir. 2020); Talbot v. Commissioner, T.C. Memo. 2016-191, aff’d, 708 F. App’x 421 (9th Cir. 2017); Hull v. Commissioner, T.C. Memo. 2015-86; Rivas v. Commissioner, T.C. Memo. 2012-20; Toth v. Commissioner, T.C. Memo. 2010-227; Huntress v. Commissioner, T.C. Memo. 2009-161.Holy crap, that’s a smorgasbord of case cites. That’s the judicial equivalent of the court saying, “Just SHUT THE HELL UP, Karen!!!” ↑
- See § 6330(c)(3)(C). ↑
- See 3K Inv. Partners v. Commissioner, 133 T.C. 112, 121 n.9 (2009). ↑
