T.C. Memo. 2018-35
UNITED STATES TAX COURT
ARGOSY TECHNOLOGIES, LLC, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 29856-14L. Filed March 22, 2018.
John J. Petito (a member), for petitioner.
Luanne S. DiMauro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: This proceeding was commenced in response to a
Notice of Determination Concerning Collection Action(s) under Section 6320
and/or 6330 (notice of determination) dated December 1, 2014. Respondent
determined to proceed with the proposed levy to collect petitioner’s unpaid
income tax liabilities for tax years 2010 and 2011. Late filing penalties under -2-
[*2] section 6698 were assessed for the late filing of Forms 1065, U.S. Return of
Partnership Income, for tax years 2010 and 2011.
The issue for consideration is whether the proposed collection action should
be sustained. Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times. Sections 6221-6232, included in
subchapter C, “Tax Treatment of Partnership Items”, were added to the Internal
Revenue Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648.
FINDINGS OF FACT
Petitioner, a limited liability company (LLC), was domiciled in New York
when it timely filed its petition.
On June 28, 2014, respondent sent petitioner a Final Notice of Intent to
Levy and Notice of Your Right to a Hearing. Petitioner timely submitted a Form
12153, Request for a Collection Due Process or Equivalent Hearing. Petitioner
did not request a collection alternative; it only raised the underlying liabilities.
Petitioner asserted that it was not a partnership but a single-member LLC.
For tax years 2010 and 2011 John Petito and his wife were reported on
peititoner’s Schedules B-1, Information on Partners Owning 50% or More of the
Partnership, as owning 100% of petitioner. Mr. Petito signed the hearing request, -3-
[*3] which further asserted that petitioner could not be charged a partnership
penalty. Schedules K-1, Partner’s Share of Income, Deductions, Credits, and
Other Items, for tax years 2010 and 2011 for petitioner were attached to the
hearing request.
Petitioner’s tax returns for both tax years 2010 and 2011 included the
following statement: “This partnership’s section 6231(A)(1)(B)(ii) election to be
covered under TEFRA unified audit procedures is still in existence and in force.”
These returns were not timely filed.
On October 15, 2014, the Appeals officer mailed petitioner a letter
scheduling a telephone collection due process (CDP) hearing for October 31,
2014. The letter explained that petitioner would need to fill out a Form 433-A,
Collection Information Statement for Wage Earners and Self-Employed
Individuals, if it was requesting either an installment agreement or an offer-in-
compromise. The letter further explained that if petitioner did not respond to the
letter or participate in the conference, a determination would be made on the basis
of petitioner’s CDP request. Petitioner did not call in for the scheduled CDP
conference.
On December 1, 2014, the Appeals officer issued a notice of determination
sustaining the proposed levy. The Appeals case memorandum acknowledges that -4-
[*4] petitioner contends it was a single-member entity. The Appeals officer
verified through transcript analysis that assessment was properly made pursuant to
section 6201 for each tax year in issue. The Appeals officer concluded that all of
the requirements of applicable law or administrative procedure had been met.
On December 15, 2014, petitioner filed its petition, asserting that it is a
single-member LLC and cannot be charged a partnership penalty and that the
Appeals officer abused his discretion.
OPINION
Section 6331(a) authorizes the Secretary to levy upon the property and
property rights of a taxpayer who fails to pay a tax within 10 days after notice and
demand. Before the Secretary may levy upon the taxpayer’s property, the
Secretary must notify him or her of the Secretary’s intention to impose the levy.
Sec. 6331(d)(1). The Secretary must also notify the taxpayer of his or her right to
a CDP hearing. Sec. 6330(a)(1). This Court has jurisdiction to review the
Commissioner’s administrative determinations. Sec. 6330(d)(1).
Under certain circumstances a taxpayer may raise challenges to the
Commissioner’s determination of his or her underlying tax liabilities in a CDP
proceeding. See sec. 6330(c)(2)(B). A taxpayer may challenge the amount of the
assessed tax in a CDP proceeding if he or she did not receive a statutory notice of -5-
[*5] deficiency or did not otherwise have an opportunity to dispute the tax
liability. Id.; see also Montgomery v. Commissioner, 122 T.C. 1, 7 (2004).
Where the validity of the taxpayer’s tax liability is properly at issue, we
review the determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-182
(2000). Where the taxpayer’s underlying tax liability is not before us, we review
the determination for abuse of discretion only. Id. at 182. To establish an abuse
of discretion, petitioner must show that the Appeals officer’s decision was
arbitrary, capricious, or without sound basis in fact or law. Giamelli v.
Commissioner, 129 T.C. 107, 111 (2007); Woodral v. Commissioner, 112 T.C. 19,
23 (1999). The Court does not conduct an independent review and substitute its
judgment for that of the Appeals officer. Murphy v. Commissioner, 125 T.C. 301,
320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
Petitioner contends that its underlying liabilities were raised in its CDP
hearing request, in which it stated that a single-member LLC could not be subject
to partnership penalties. Petitioner did not have a prior opportunity to dispute the
assessed tax liabilities. Although petitioner did not call in for the scheduled
conference, it did challenge the underlying liabilities and there was written
correspondence. See sec. 301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs.;
see also Davis v. Commissioner, 115 T.C. 35, 41 (2000). -6-
[*6] Petitioner contends that it is a single-member LLC, and not a partnership,
and therefore was not required to file a partnership return. Section 6031 requires
every partnership as defined in section 761(a) to file a tax return for each taxable
year. Section 6698 imposes a penalty against the partnership for the failure to
timely file a partnership return.
For tax years 2010 and 2011 Mr. and Mrs. Petito were reported on
petitioner’s Schedules B-1 as owning 100% of Argosy. Pursuant to section
6231(a)(1)(B)(ii), petitioner elected to be covered under TEFRA. It filed
partnership returns and selected on its Forms 1065 that it was a domestic LLC.
Since petitioner represented itself as a partnership on its tax returns, it may
not argue that it is another entity and disclaim its validity. See Halstead v.
Commissioner, 296 F.2d 61 (2d Cir. 1961), aff’g T.C. Memo. 1960-106; Brennan
v. Commissioner, T.C. Memo. 2012-187, aff’d sub nom. Ashland v.
Commissioner, 584 F.
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T.C. Memo. 2018-35
UNITED STATES TAX COURT
ARGOSY TECHNOLOGIES, LLC, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 29856-14L. Filed March 22, 2018.
John J. Petito (a member), for petitioner.
Luanne S. DiMauro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: This proceeding was commenced in response to a
Notice of Determination Concerning Collection Action(s) under Section 6320
and/or 6330 (notice of determination) dated December 1, 2014. Respondent
determined to proceed with the proposed levy to collect petitioner’s unpaid
income tax liabilities for tax years 2010 and 2011. Late filing penalties under -2-
[*2] section 6698 were assessed for the late filing of Forms 1065, U.S. Return of
Partnership Income, for tax years 2010 and 2011.
The issue for consideration is whether the proposed collection action should
be sustained. Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times. Sections 6221-6232, included in
subchapter C, “Tax Treatment of Partnership Items”, were added to the Internal
Revenue Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),
Pub. L. No. 97-248, sec. 402(a), 96 Stat. at 648.
FINDINGS OF FACT
Petitioner, a limited liability company (LLC), was domiciled in New York
when it timely filed its petition.
On June 28, 2014, respondent sent petitioner a Final Notice of Intent to
Levy and Notice of Your Right to a Hearing. Petitioner timely submitted a Form
12153, Request for a Collection Due Process or Equivalent Hearing. Petitioner
did not request a collection alternative; it only raised the underlying liabilities.
Petitioner asserted that it was not a partnership but a single-member LLC.
For tax years 2010 and 2011 John Petito and his wife were reported on
peititoner’s Schedules B-1, Information on Partners Owning 50% or More of the
Partnership, as owning 100% of petitioner. Mr. Petito signed the hearing request, -3-
[*3] which further asserted that petitioner could not be charged a partnership
penalty. Schedules K-1, Partner’s Share of Income, Deductions, Credits, and
Other Items, for tax years 2010 and 2011 for petitioner were attached to the
hearing request.
Petitioner’s tax returns for both tax years 2010 and 2011 included the
following statement: “This partnership’s section 6231(A)(1)(B)(ii) election to be
covered under TEFRA unified audit procedures is still in existence and in force.”
These returns were not timely filed.
On October 15, 2014, the Appeals officer mailed petitioner a letter
scheduling a telephone collection due process (CDP) hearing for October 31,
2014. The letter explained that petitioner would need to fill out a Form 433-A,
Collection Information Statement for Wage Earners and Self-Employed
Individuals, if it was requesting either an installment agreement or an offer-in-
compromise. The letter further explained that if petitioner did not respond to the
letter or participate in the conference, a determination would be made on the basis
of petitioner’s CDP request. Petitioner did not call in for the scheduled CDP
conference.
On December 1, 2014, the Appeals officer issued a notice of determination
sustaining the proposed levy. The Appeals case memorandum acknowledges that -4-
[*4] petitioner contends it was a single-member entity. The Appeals officer
verified through transcript analysis that assessment was properly made pursuant to
section 6201 for each tax year in issue. The Appeals officer concluded that all of
the requirements of applicable law or administrative procedure had been met.
On December 15, 2014, petitioner filed its petition, asserting that it is a
single-member LLC and cannot be charged a partnership penalty and that the
Appeals officer abused his discretion.
OPINION
Section 6331(a) authorizes the Secretary to levy upon the property and
property rights of a taxpayer who fails to pay a tax within 10 days after notice and
demand. Before the Secretary may levy upon the taxpayer’s property, the
Secretary must notify him or her of the Secretary’s intention to impose the levy.
Sec. 6331(d)(1). The Secretary must also notify the taxpayer of his or her right to
a CDP hearing. Sec. 6330(a)(1). This Court has jurisdiction to review the
Commissioner’s administrative determinations. Sec. 6330(d)(1).
Under certain circumstances a taxpayer may raise challenges to the
Commissioner’s determination of his or her underlying tax liabilities in a CDP
proceeding. See sec. 6330(c)(2)(B). A taxpayer may challenge the amount of the
assessed tax in a CDP proceeding if he or she did not receive a statutory notice of -5-
[*5] deficiency or did not otherwise have an opportunity to dispute the tax
liability. Id.; see also Montgomery v. Commissioner, 122 T.C. 1, 7 (2004).
Where the validity of the taxpayer’s tax liability is properly at issue, we
review the determination de novo. Goza v. Commissioner, 114 T.C. 176, 181-182
(2000). Where the taxpayer’s underlying tax liability is not before us, we review
the determination for abuse of discretion only. Id. at 182. To establish an abuse
of discretion, petitioner must show that the Appeals officer’s decision was
arbitrary, capricious, or without sound basis in fact or law. Giamelli v.
Commissioner, 129 T.C. 107, 111 (2007); Woodral v. Commissioner, 112 T.C. 19,
23 (1999). The Court does not conduct an independent review and substitute its
judgment for that of the Appeals officer. Murphy v. Commissioner, 125 T.C. 301,
320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
Petitioner contends that its underlying liabilities were raised in its CDP
hearing request, in which it stated that a single-member LLC could not be subject
to partnership penalties. Petitioner did not have a prior opportunity to dispute the
assessed tax liabilities. Although petitioner did not call in for the scheduled
conference, it did challenge the underlying liabilities and there was written
correspondence. See sec. 301.6330-1(d)(2), Q&A-D6, Proced. & Admin. Regs.;
see also Davis v. Commissioner, 115 T.C. 35, 41 (2000). -6-
[*6] Petitioner contends that it is a single-member LLC, and not a partnership,
and therefore was not required to file a partnership return. Section 6031 requires
every partnership as defined in section 761(a) to file a tax return for each taxable
year. Section 6698 imposes a penalty against the partnership for the failure to
timely file a partnership return.
For tax years 2010 and 2011 Mr. and Mrs. Petito were reported on
petitioner’s Schedules B-1 as owning 100% of Argosy. Pursuant to section
6231(a)(1)(B)(ii), petitioner elected to be covered under TEFRA. It filed
partnership returns and selected on its Forms 1065 that it was a domestic LLC.
Since petitioner represented itself as a partnership on its tax returns, it may
not argue that it is another entity and disclaim its validity. See Halstead v.
Commissioner, 296 F.2d 61 (2d Cir. 1961), aff’g T.C. Memo. 1960-106; Brennan
v. Commissioner, T.C. Memo. 2012-187, aff’d sub nom. Ashland v.
Commissioner, 584 F. App’x 573 (9th Cir. 2014). Petitioner contends that a Mr.
and Mrs. Petitio were one partner. However, there is no evidence of an election
pursuant to section 761(f).
Section 6698 provides an exception to the penalty for late filing if it can be
shown that the failure is due to reasonable cause. Petitioner did not argue
reasonable cause. Rather petitioner argued that it was a single-member LLC. We -7-
[*7] conclude that petitioner is liable for the section 6698 penalty for tax years
2010 and 2011.
Petitioner contends that respondent’s determination constitutes an abuse of
discretion. Section 6330(c)(3) requires the Appeals officer to consider the
following during a CDP hearing: (1) whether the requirements of any applicable
law or administrative procedure have been met; (2) any issues appropriately raised
by the taxpayer; and (3) whether the proposed collection action balances the need
for the efficient collection of taxes with the legitimate concern of the taxpayer that
any collection action be no more intrusive than necessary. See Lunsford v.
Commissioner, 117 T.C. 183, 184 (2001). We note that the Appeals officer
properly based his determination on the factors specified by section 6330(c)(3).
Petitioner did not request any collection alternatives, and the only issue it
raised was the underlying tax liabilities. The Appeals officer did not abuse his
discretion in sustaining the proposed levy for tax years 2010 and 2011.
Any contention we have not addressed is irrelevant, moot, or meritless.
To reflect the foregoing,
Decision will be entered for
respondent.