David and Monika Zisskind v. Commissioner

2007 T.C. Memo. 69

• Court: United States Tax Court
• Decided: March 27, 2007
• Docket: 14621-05L
• Status: Unpublished

Opinion

T.C. Memo. 2007-69

UNITED STATES TAX COURT

DAVID AND MONIKA ZISSKIND, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14621-05L. Filed March 27, 2007.

Timothy J. Burke, for petitioners.

Louise R. Forbes, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: Petitioners filed a petition with this Court

in response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (notice of

determination) for 1999.1 Pursuant to section 6330(d),

1 Unless otherwise indicated, all section references are to (continued...) - 2 -

petitioners seek review of respondent’s determination. The

issues for decision are: (1) Whether petitioners are liable for

an addition to tax under section 6651(a)(2); (2) whether

respondent abused his discretion by determining that petitioners

were not entitled to an abatement of interest under section

6404(e); and (3) whether respondent abused his discretion by

determining that a Federal tax lien was appropriately filed and

would remain in effect until petitioners’ tax liability was

satisfied.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts, the supplemental stipulation of facts,

and the attached exhibits are incorporated herein by this

reference. At the time the petition was filed, petitioners

resided in South Boston, Massachusetts.

During 1999, David Zisskind (petitioner) was a self-employed

real estate developer and contractor. Petitioner owned an

interest in Mercer Properties, L.L.C. (Mercer). In April 1999,

Mercer sold real property developed by petitioner. In April or

May 1999, Mercer distributed profits of $156,857 from that sale

to petitioner. Petitioner knew that he would owe tax as a result

1 (...continued) the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar. - 3 -

of the distribution. However, petitioner did not make any

estimated tax payments during 1999.

Despite their 1999 Federal income tax return’s being due on

August 15, 2000, petitioners filed their return on December 4,

2000. Petitioners reported the distribution of income from

Mercer, total income of $154,751, taxable income of $121,530, and

total tax of $42,159. Petitioners reported zero total payments,

an estimated tax penalty of $805, and a total amount due of

$42,964. Petitioners paid only $500 with their return.

On January 1, 2001, respondent assessed the total amount

petitioners reported due, an addition to tax of $7,589 under

section 6651(a)(1) for failure to timely file, and an addition to

tax of $1,895 under section 6651(a)(2) for failure to pay the

amount shown as tax on the return.

On November 27, 2002, petitioners submitted to respondent a

Form 656, Offer in Compromise, and a Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals. Petitioners proposed to pay $14,000 to compromise

their outstanding tax liability for 1999. Respondent found that

petitioners’ Form 433-A was insufficient, questioned the source

of several deposits into petitioners’ bank account, and

questioned their involvement in at least two limited liability

companies. On July 7, 2003, respondent requested more

information from petitioners. Respondent found the additional - 4 -

information provided by petitioners unsatisfactory and returned

the offer-in-compromise forms to petitioners on April 27, 2004.

On April 29, 2004, respondent sent petitioners a Notice of

Federal Tax Lien and Your Right to a Hearing Under IRC 6320

(notice of Federal tax lien) for their outstanding tax liability

for 1999. At the time respondent issued the notice of Federal

tax lien, petitioners owed $29,414, including penalties and

interest.

On May 18, 2004, petitioners submitted to respondent a Form

12153, Request for a Collection Due Process Hearing (request for

a section 6330 hearing). Petitioners requested that an offer-in-

compromise or an installment agreement be entered into. However,

petitioners did not provide a Form 656, a Form 433-A, or an

installment agreement request.2

On June 17, 2004, Settlement Officer Maria Russo (Ms. Russo)

of respondent’s Boston Appeals Office was assigned to

petitioners’ case. On September 28, 2004, Timothy J. Burke (Mr.

Burke), petitioners’ attorney, telephoned Ms. Russo to discuss

petitioners’ request for a section 6330 hearing. On October 21,

2 At various times during their sec. 6330 hearing and afterwards, petitioners requested an offer-in-compromise or an installment agreement. In the notice of determination, respondent determined that petitioners abandoned their request for an offer-in-compromise and did not provide adequate financial information so that an installment agreement could be considered. Petitioners do not dispute this determination in their petition or on brief, and we do not discuss the offer-in-compromise and the installment agreement further. - 5 -

2004, Mr. Burke sent a letter to Ms. Russo disputing petitioners’

liability for the additions to tax under section 6651(a)(1) and

(2).

Petitioners’ section 6330 hearing was held on December 16,

2004. During the hearing, petitioners contested their liability

for the additions to tax under section 6651(a)(1) and (2),

requested an abatement of interest under section 6404(e), and

requested the withdrawal of the Federal tax lien. Ms. Russo

informed petitioners they would not be liable for the additions

to tax under section 6651(a)(1) and (2) if they could establish

that their failure to timely file and pay was due to reasonable

cause. Ms. Russo requested that petitioners provide her with

additional information to establish reasonable cause.

Between January 31 and April 22, 2005, petitioners provided

Ms. Russo with bank statements, their 2000 Federal income tax

return, and other information intended to establish reasonable

cause for their failure to timely file and pay. On April 27,

2005, Ms. Russo advised petitioners that she would review the

information submitted and make her determination.

On July 1, 2005, respondent issued petitioners the notice of

determination. Respondent determined that petitioners

established their failure to timely file was due to reasonable

cause. Accordingly, respondent determined petitioners were not

liable for an addition to tax under section 6651(a)(1). However, - 6 -

respondent determined petitioners were liable for an addition to

tax under section 6651(a)(2) because they did not establish that

their failure to pay the tax shown on their return was due to

reasonable cause.3 Respondent also determined petitioners were

not entitled to an abatement of interest. Because petitioners

“provided no concrete information as to how the collection would

be facilitated” if the notice of Federal tax lien were withdrawn,

respondent determined the Federal tax lien should not be

withdrawn. Respondent verified that all statutory and

administrative requirements were met and concluded that the

filing of the notice of Federal tax lien was appropriate.

In response to the notice of determination, petitioners

filed a petition with this Court on August 8, 2005.

OPINION

Section 6321 imposes a lien in favor of the United States on

all property and rights to property of a taxpayer liable for

taxes when a demand for payment of the taxes has been made and

the taxpayer fails to pay those taxes. Section 6320(a) provides

that the Secretary shall furnish the taxpayer with written notice

of a Federal tax lien within 5 business days after the notice of

lien is filed. Section 6320 further provides that the taxpayer

3 Because respondent found petitioners were not liable for the addition to tax under sec. 6651(a)(1), respondent increased the amount of the addition to tax under sec. 6651(a)(2) by $4,725 to $6,620. - 7 -

may request an Appeals hearing within 30 days beginning on the

day after the 5-day period described above. Sec. 6320(a)(3)(B)

and (b)(1). Section 6320(c) provides that the Appeals hearing

generally shall be conducted consistent with the procedures set

forth in section 6330.

Section 6330(c) provides for review with respect to

collection issues such as the appropriateness of the

Commissioner’s proposed collection actions and the possibility of

collection alternatives. Sec. 6330(c)(2)(A). The taxpayer may

also challenge the amount of the underlying tax liability if a

statutory notice of deficiency was not received or the taxpayer

did not otherwise have an opportunity to dispute the tax

liability. Sec. 6330(c)(2)(B).

Pursuant to section 6330(d)(1), within 30 days of the

issuance of a notice of determination the taxpayer may appeal the

determination to this Court if we have jurisdiction over the

underlying tax liability. Where the validity of the underlying

tax liability is properly at issue, the Court will review the

matter de novo. Sego v. Commissioner, 114 T.C. 604, 610 (2000);

Goza v. Commissioner, 114 T.C. 176, 181 (2000). Where the

validity of the underlying tax liability is not properly at

issue, however, the Court will review the Commissioner’s

determination for an abuse of discretion. Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 181. - 8 -

Because the underlying income tax liability was self-

assessed, petitioners did not receive a notice of deficiency.

The parties agree petitioners have not had an opportunity to

dispute their liability for the addition to tax under section

6651(a)(2). Therefore, we review de novo whether petitioners are

liable for the addition to tax under section 6651(a)(2). See

Downing v. Commissioner, 118 T.C. 22, 29 (2002); Ramirez v.

Commissioner, T.C. Memo. 2005-179; Godwin v. Commissioner, T.C.

Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th Cir. 2005).

However, we review for an abuse of discretion respondent’s

determinations rejecting an abatement of interest and sustaining

the Federal tax lien. See Downing v. Commissioner, supra at 29;

Ramirez v. Commissioner, supra; Godwin v. Commissioner, supra;

see also sec. 6404(h)(1).

A. Addition to Tax Under Section 6651(a)(2)

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount shown as a tax on a return by the date prescribed

(determined with regard to any extension of time for payment).

Section 7491(c) requires respondent to carry the burden of

production with respect to the addition to tax for failure to

pay. Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To

meet his burden of production, respondent must come forward with

sufficient evidence indicating that it is appropriate to impose

the addition to tax. Id. Once respondent meets this burden, - 9 -

petitioners must come forward with evidence sufficient to

persuade the Court that they are not liable for the addition to

tax.

The parties stipulated that petitioners did not pay their

tax liability for 1999 when it was due. Respondent’s Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters, indicates that, at the time of trial, petitioners still

had an outstanding tax liability for 1999. Further, petitioner

testified that petitioners have not paid their outstanding tax

liability for 1999. We find that, on these facts, respondent has

met his burden of production under section 7491(c).

Petitioners may avoid the addition to tax if they can

establish that their failure to timely pay was due to reasonable

cause and not due to willful neglect. Sec. 6651(a). A showing

of reasonable cause requires a taxpayer to demonstrate that he

exercised ordinary business care and prudence but nevertheless

was unable to pay the tax within the prescribed time. Sec.

301.6651-1(c)(1), Proced. & Admin. Regs. The taxpayer will be

considered to have exercised ordinary business care and prudence

if he made reasonable efforts to conserve sufficient assets in

marketable form to satisfy his tax liability and nevertheless was

unable to pay all or a portion of the tax when it became due.

Id. - 10 -

Petitioner knew that he would owe tax as a result of the

distribution of profits from Mercer, but petitioners failed to

make estimated tax payments and paid only $500 when they filed

their return. Nevertheless, petitioners argue they had

reasonable cause for their failure to timely pay their full tax

liability because they made reasonable efforts to conserve

sufficient assets in marketable form to satisfy their tax

liability but were nevertheless unable to pay the tax when it

became due. Petitioners assert they invested the profits

received from Mercer with Merrill Lynch “into stocks like Intel

and high tech stocks and things that were safe”. However,

petitioners assert that “Merrill Lynch lost it”, leaving

petitioners unable to satisfy their tax obligations. Petitioner

testified that he believed he was making a conservative

investment and he “thought it was the same thing as a bank.”

While petitioners provided Ms. Russo with bank statements to

support their contention that they were unable to pay their

outstanding tax liability, they did not provide Ms. Russo with

information regarding their investment with Merrill Lynch. Other

than petitioner’s testimony, there is no evidence in the record

concerning petitioners’ investment with Merrill Lynch, or that

such an investment was even made. Other than stating they

invested in “stocks like Intel and high tech stocks”, petitioners

have not specifically identified what stocks they invested in. - 11 -

Petitioners provided the Court with no information

indicating when their investment became worthless. In fact,

petitioners did not claim a capital loss on their 2000 Federal

income tax return, indicating that their investment did not

become worthless in 2000. Without this information, we cannot

determine whether petitioners had the ability to pay their tax

liability when it was due.

There is no evidence in the record regarding whether

petitioners exercised ordinary business care and prudence in

monitoring their investment. Additionally, given that petitioner

was a self-employed real estate developer and contractor, we do

not find credible his testimony that he thought investing with

Merrill Lynch was the same thing as depositing the money with a

bank.

Petitioners have not established that they made a

“reasonable efforts to conserve sufficient assets in marketable

form”. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

Petitioners have failed to show that their failure to timely pay

the amount of tax shown on their return was due to reasonable

cause and not due to willful neglect. Therefore, we hold that

petitioners are liable for an addition to tax under section

6651(a)(2) as respondent determined. - 12 -

B. Abatement of Interest Under Section 6404(e)

Section 6404(e)(1) provides that the Secretary may abate the

assessment of interest that accrued as the result of any

unreasonable error or delay by an officer or employee of the

Internal Revenue Service in performing a ministerial or

managerial act. However, section 6404(e)(1) also provides that

“an error or delay shall be taken into account only if no

significant aspect of such error or delay can be attributed to

the taxpayer involved, and after the Internal Revenue Service has

contacted the taxpayer in writing with respect to such deficiency

or payment.”

The Court may order abatement if the Secretary abuses his

discretion by failing to abate interest. Sec. 6404(h)(1). In

order to prevail, a taxpayer must prove the Commissioner

exercised his discretion arbitrarily, capriciously, or without

sound basis in fact or law. Woodral v. Commissioner, 112 T.C.

19, 23 (1999); Nelson v. Commissioner, T.C. Memo. 2004-34.

Petitioners argue that respondent abused his discretion by

failing to abate interest that accrued “due to the Respondent’s

unnecessary delay in resolving the present matter”. Petitioners

assert respondent delayed in returning to them the offer-in-

compromise forms submitted on November 27, 2002, and failed to

meet with petitioners despite several requests to do so. - 13 -

Petitioners have not shown that respondent caused any

unreasonable error or delay in the evaluation of their offer-in-

compromise forms submitted on November 27, 2002. Moreover, any

delays in processing the offer-in-compromise were attributable in

significant part to petitioners’ failure to provide the revenue

officer with requested information or clarification of other

information.

Petitioners’ assertion that respondent failed to meet with

them to resolve this case despite several attempts by petitioners

to do so is without support. Petitioners provided no specific

information regarding who they tried to contact or when.

Additionally, Ms. Russo’s casenotes indicate that she promptly

responded to all telephone calls and correspondence.

Petitioners have failed to establish that respondent caused

any unreasonable errors or delays in the performance of a

ministerial or managerial act. Therefore, petitioners have

failed to show that respondent abused his discretion by rejecting

their request for an abatement of interest. We hold that

respondent did not abuse his discretion by rejection petitioners’

request for an abatement of interest.

C. Appropriateness of the Federal Tax Lien

During their section 6330 hearing, petitioners requested

that respondent release the Federal tax lien. However,

petitioners did not allege in their petition that respondent - 14 -

erred by determining that the Federal tax lien should not be

withdrawn. At trial, petitioner testified that the Federal tax

lien was affecting his business and petitioners would be able to

pay their taxes if the lien was removed. On brief, petitioners

requested that the Court find as a fact that “The Petitioner

believes that if the Federal Tax Lien was taken off, he would be

able to earn money to pay his 1999 tax liability.” However,

petitioners did not argue on brief that respondent abused his

discretion by determining that the Federal tax lien should not be

withdrawn.

Rule 331(b)(4) provides that, in a lien or levy action, the

petition must include “Clear and concise assignments of each and

every error which the petitioner alleges to have been committed

in the notice of determination. Any issue not raised in the

assignments of error shall be deemed to be conceded.” Because

petitioners did not allege in their petition that respondent

abused his discretion by determining that the Federal tax lien

should not be withdrawn and because petitioners did not address

it on brief, we find that petitioners have conceded the issue.

Therefore, we hold that respondent did not abuse his discretion

by determining that a Federal tax lien was appropriately filed

and would remain in effect until petitioners’ tax liability was

satisfied. - 15 -

In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.