Llanos v. Commissioner
T.C. Memo. 2021-21

On February 22, 2021, the Tax Court issued a Memorandum Opinion in the case of Llanos v. Commissioner (T.C. Memo. 2021-21). The primary issue presented in Llanos v. Commissioner was whether the petitioner was liable for penalties under IRC § 6702.

The Letter Return in Llanos v. Commissioner

On December 1, 2014, the petitioner sent the IRS a letter entitled “Request for Audit Reconsideration for 2010, 2011, and 2012”. The letter states: “I fully intend that the affidavit is my return if I am required to file one.” It further explains that the affidavit includes information to calculate a tax if any is due. The attachment for 2010 is entitled “Request for Determination and Statement/Return of Tax for 2010”, and it states: “I intend that this document is my return if I am required to file one.” He attached the same statement for 2011. The letter raises the question of whether wages he received were taxable income. In 2015, the IRS sent the petitioner a Letter 3176C for each of 2010 and 2011 with respect to his frivolous returns, warning that he would be subject to a $5,000 penalty if he continued to assert frivolous positions.

The “Argument” Against Penalties

The petitioner contended that notices of deficiency were required to be sent before assessment of the IRC § 6702 penalties and that there was not proper managerial approval of the penalties. After the hearing, petitioner sent the settlement officer information in opposition to the IRC § 6702 penalties. This information was meaningless and did not provide substantive reasons why petitioner did not owe the penalties.

Jurisdiction over Crazytown

IRC § 6330(d)(1) provides the Tax Court with jurisdiction to review an appeal from the IRS’s determination to proceed with collection activity regardless of the type of underlying tax involved. A “tax” may include the liability for an IRC §6702 frivolous return penalty. IRC §6665(a)(2). The Tax Court has held that our jurisdiction under IRC § 6330 includes review of the IRS’s determination regarding a collection action with respect to an IRC § 6702 frivolous return penalty. See Callahan v. Commissioner, 130 T.C. 44, 48-49 (2008).

Because a taxpayer does not receive a statutory notice of deficiency before a penalty under IRC § 6702 is assessed, the taxpayer may challenge his or her liability for the penalty in an administrative hearing under IRC § 6320 or IRC § 6330. Callahan, 130 T.C. at 49-50. Petitioner received Letters 1058 for the penalties and requested a hearing. De novo review of an IRC § 6702 penalty determination is not automatic. See Pohl v. Commissioner, T.C. Memo. 2013-291, at *9. If the taxpayer at a CDP hearing presents no evidence or rational argument why the penalty does not apply, the taxpayer has not made a meaningful challenge to the penalty. See Buckardt v. Commissioner, T.C. Memo. 2012-170, *12, aff’d, 584 F. App’x 612 (9th Cir. 2014).

Prior Written Supervisory Approval

The petitioner contends that the requirements of IRC § 6751(b) with respect to the IRC § 6702 penalties were not met. IRC § 6751(b)(1) provides that no penalty under the Code shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination. However, Letters 3176C, which invite petitioner to avoid the frivolous return penalty by correcting the frivolous returns, are not initial determinations of penalty liability for purposes of section 6751(b). See Kestin v. Commissioner, 153 T.C. 14, 29-30 (2019).

(T.C. Memo. 2021-21) Llanos v. Commisioner

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