Frey v. Comm'r

2004 T.C. Memo. 87, 87 T.C.M. 1170, 2004 Tax Ct. Memo LEXIS 89

• Court: United States Tax Court
• Decided: March 26, 2004
• Docket: No. 2703-03L
• Status: Unpublished

Opinion

GERALD L. AND JESSICA P. FREY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Frey v. Comm'r

No. 2703-03L

United States Tax Court

T.C. Memo 2004-87; 2004 Tax Ct. Memo LEXIS 89; 87 T.C.M. (CCH) 1170;

March 26, 2004, Filed

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Decision will be entered for respondent.

Gerald L. and Jessica P. Frey, pro sese.

Veena Luthra, for respondent.

Chiechi, Carolyn P.

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CHIECHI

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge : Petitioners filed the petition in this case in response to a notice of determination concerning collection action(s) under section 6320 and/or 6330 (notice of determination).

We must decide whether respondent abused respondent's discretion in determining to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999. We hold that respondent did not abuse respondent's discretion.

             FINDINGS OF FACT

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

Petitioners resided in Newport News, Virginia, at the time they filed the petition in this case.

During 1996, petitioner Gerald L. Frey (Mr. Frey) received wages of $ 37,849.88 from Blackhawk Industries, Inc. (Blackhawk Industries), and petitioner Jessica P. Frey (Ms. Frey) received wages totaling $ 20,799.48 from Smithfield Apartments Corp. (Smithfield Apartments) and Bailey Enterprises, Inc. (Bailey Enterprises). During 1997, Mr. Frey received wages of $ 45,961 from Blackhawk Industries, and Ms. Frey received wages totaling $ 21,998 from Smithfield Apartments and Bailey Enterprises. During 1999, Mr. Frey received wages totaling $ 35,630.92 from the Virginia Department of Transportation (Virginia Transportation Department), Employment Services, Inc. (ESI), and ECPI College of Technology (ECPI College) and unemployment compensation of $ 1,596.

Although Mr. Frey received wages during the years at issue as well as unemployment compensation during 1999 and Ms. Frey received wages during 1996 and 1997, petitioners did not report such wages and unemployment compensation in any Federal income tax return (return) that they submitted to the Internal Revenue Service (IRS).

On or about August 17, 1998, respondent prepared a substitute for return for petitioners' taxable year 1996.

On October 30, 1998, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1996. In that notice, respondent determined that for 1996 petitioners had a deficiency of $ 6,332, an addition to Federal income tax (tax) under section 6651(a)(1)¹ of $ 729.22, an addition to tax under section 6651(a)(1) and (2) of $ 421.33, and an addition to tax under section 6654 of $ 156. Petitioners did not file a petition in the Court with respect to the notice of deficiency relating to their taxable year 1996.

On June 7, 1999, respondent assessed petitioners' tax of $ 6,332, as well as additions to tax under sections 6651(a)(1) and (2) and 6654 totaling $ 1,306.55 and interest as provided by law of $ 751.08, for their taxable year 1996. (We shall refer to those assessed amounts, as well as any interest as provided by law accrued after June 7, 1999, as petitioners' unpaid liability for 1996.)

On June 7, 1999, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1996.

On November 22, 1999, respondent received from petitioners Form 1040, U.S. Individual Income Tax Return, for their taxable year 1996 (1996 Form 1040). The 1996 Form 1040 that petitioners submitted to the IRS did not contain petitioners' original signatures but contained copies of petitioners' signatures dated November 1, 1999. In their 1996 Form 1040, petitioners reported total income of $ 0, total tax of $ 0, and claimed a refund of $ 3,839.28 of tax withheld. Petitioners attached to their 1996 Form 1040 respective Forms W-2, Wage and Tax Statements (Forms W-2), issued by Blackhawk Industries, Smithfield Apartments, and Bailey Enterprises showing wages, tips, and other compensation totaling $ 58,649.36. Petitioners also attached to their 1996 Form 1040 a document (petitioners' attachment to their 1996 Form 1040), which stated in pertinent part:

   I, Gerald L and Jessica P Frey, am submitting this as part of my

   1996 income tax return, even though I know that no section of

   the Internal Revenue Code:

     1) Establishes an income tax "liability" as, for

     example, Code Sections 4401, 5005, and 5703 due with

     respect to wagering, alcohol, and tobacco taxes;

     2) Provides that income taxes "have to be paid on the

     basis of a return" -- as, for example, Code Sections

4374, 4401(c), 5061(a) and 5703(b) do with respect to other

     taxes; I am filing anyway because I know the government has

     prosecuted others for failing to file income tax returns by

     (erroneously) invoking Code Sections 7201 and 7203.

     Therefore, this return is not being filed voluntarily but

     is being filed out of fear that if I did not file this

     return I could also be (illegally) prosecuted for failure

     to file an income return for the year 1996.

     3) In addition to the above, I am filing even though the

     "Privacy Act Notice" as contained in a 1040 booklet

     clearly informs me that I am not required to file. It does

     so in at least two places.

       a) In one place, it states that I need only file a

        return for "any tax" I may be "liable"

for. Since no Code Section makes me "liable"

for income taxes, this provision notifies me that I do

not have to file an income tax return.

         b) In another place, it directs me to

       Code Section 6001. This section provides, in relevant part, that

        "Whenever in the judgment of the Secretary it is

necessary, he may require any person by notice served

on such person; or by regulations, to make such

returns, render such statements, or keep such records,

as the Secretary deems sufficient to show whether or

not such person is liable for the tax under this

title." Since the Secretary of the Treasury did

not "serve" me with any such "notice"

and since no legislative regulation exists requiring

anyone to file an income tax return, I am again

        informed by the "Privacy Act Notice" that I am

        not required to file an income tax return.

4) With respect to the information I included in my return,

I wish to point out that the courts have ruled that: "A

     (1040) form with 'zeros' inserted in the space provided . .

     . qualified as a return." See

     U.S. v. Long, 618 F 2d 74 (9th Cir. 1980),

     U.S. v. Kimball, 896 F.2d 1218 (9th Cir. 1990)

     U.S. v. Moore, 627 F.2d 830 (7th Cir. 1980), and a Las

     Vegas bankruptcy court held that "Zeroes entered on a

     Form 1040 constitutes a return." Cross v. United States (In re Cross), 71 A.F.T.R.2d (RIA) 4822, 91-2 U.S. Tax Cas. (CCH) P50318.

     5) Please note that my 1996 return also constitutes a claim

     for refund pursuant to Code Section 6402.

     6) It should also be noted that I had "zero" income

     according to the Supreme Court's definition of income (See

     Note #1) * * * since I had no earnings in 1996, that would

have been taxable as "income" under the

Corporation Excise Tax Act of 1909, I can only swear to having

     "zero" income in 1996. Obviously, since I know the

     legal definition of "income", if I were to swear to

     having received any other amount of "income," I

     would be committing perjury under both 18 U.S.C. 1621 and

     26 U.S.C. 7206. Therefore, not wishing to commit perjury under

     either statute, I can only swear to have "zero"

income for 1996.

7) I am also putting the IRS on notice that my 1996 tax

return and claim for refund can not be considered

"frivolous" on any basis -- pursuant to

     Code Section 6702. For one thing, there is no statute that

     requires me to make a "self-assessment."

Therefore, how can I be charged with a penalty for not

doing something -- allegedly incorrectly -- that no

statute requires me do at all? * * *

*   *   *   *   *   *   *

11) Should the Service disagree with the figures and

amounts shown on my tax return and claim for refund, then I

demand an office or field audit to discuss these

differences * * *. In addition, if any

"determination" is made that changes in my return

     are warranted, I demand to be notified as to where and

     when I may "inspect" the "text of any

written determination and any background file documents

     relating to such a determination" as provided by 26 USC 6110            *   *   *   *   *   *   *

   *Note #1: The word "income is not defined in

   the Internal Revenue Code. U.S. v. Ballard, 535 F.2d 400, 404

   . But, as stated above, it can only be a

   derivative of corporate activity. The Supreme Court has held

   this numerous times. * * * [Reproduced literally.]

Respondent did not process and file petitioners' 1996 Form 1040 as a tax return. That was because respondent determined that that document was frivolous.

On or about November 13, 2000, respondent prepared a substitute for return for petitioners' taxable year 1997.

On a date not disclosed by the record, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1997. Petitioners did not file a petition in the Court with respect to that notice.

On June 5, 2001, respondent received from petitioners Form 1040A, U. S. Individual Income Tax Return, for their taxable year 1997 (1997 Form 1040A). The 1997 Form 1040A that petitioners submitted to the IRS contained petitioners' original signatures dated May 30, 2001, and copies of petitioners' signatures dated November 1, 1999. In their 1997 Form 1040A, petitioners reported total income of $ 0, total tax of $ 0, and claimed a refund of $ 5,122.83 of tax withheld. Petitioners did not attach to their 1997 Form 1040A any Forms W-2. Petitioners attached to their 1997 Form 1040A a document (petitioners' attachment to their 1997 Form 1040A), which was identical to petitioners' attachment to their 1996 Form 1040 except that petitioners' attachment to their 1997 Form 1040A made references to their taxable year 1997 while petitioners' attachment to their 1996 Form 1040 made references to their taxable year 1996.

Respondent did not process and file petitioners' 1997 Form 1040A as a tax return. That was because respondent determined that that document was frivolous.

On August 13, 2001, respondent assessed petitioners' tax of $ 8,035, as well as additions to tax under sections 6651(a)(1) and (2) and 6654 totaling $ 1,509.43 and interest as provided by law of $ 1,117.83, for their taxable year 1997. (We shall refer to those assessed amounts, as well as any interest as provided by law accrued after August 13, 2001, as petitioners' unpaid liability for 1997.)

On August 13, 2001, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1997.

On or about April 15, 2000, respondent received from petitioners Form 1040 for their taxable year 1999 (1999 Form 1040). In their 1999 Form 1040, petitioners reported total income of $ 0 and total tax of $ 0. Petitioners attached to their 1999 Form 1040 (1) respective Forms W-2 issued by the Virginia Transportation Department, ESI, and ECPI College showing wages, tips, and other compensation paid to Mr. Frey totaling $ 35,630.92 and (2) Form 1099- G, Statement for Recipients of Certain Government Payments, showing unemployment compensation paid to him of $ 1,596. Respondent processed and filed petitioners' 1999 Form 1040 as a tax return.

On June 15, 2001, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1999. In that notice, respondent determined that for 1999 petitioners had a deficiency of $ 3,356. Petitioners did not file a petition in the Court with respect to the notice of deficiency relating to their taxable year 1999.

Instead, on September 1, 2001, in response to that notice, petitioners sent a letter to Gwen A. Krauss, Director, IRS Service Center. That letter stated in pertinent part:

          Your Deficiency Notice dated 6/15/01

   According to your "Deficiency Notice" of above date

   (Attachment 1), there is an alleged deficiency with respect to

   my 1999 income tax of $ 3,356.00, and if I wanted to "contest

   this deficiency before making payment," I must "file a

   petition with the United States Tax Court." Before I file,

   pay, or do anything with respect to your "Notice," I

   must first establish whether or not it was sent pursuant to law,

   whether or not it has the "force and effect of law," and

   whether you had any authority to send me the notice in the first

   place.

           *   *   *   *   *   *   *

   Let me further point out that IR Code Sections 6001 and 6011 (as

   identified in the 1040 Privacy Act) notify me that I need only

   "comply with regulations." Nothing in the Privacy Act    Notice or in the above statutes informs me that I have to

   "comply" with, or pay attention to, letters and/or

   alleged "determinations" sent to me by various and

   sundry employees of the IRS.

   Please note that Section 6212 states that "If the Secretary

   determines that there is a deficiency in respect of any tax

   . . . he is authorized to send notice of such deficiency, etc.,

   etc., etc." However, the "Notice" I received was not

   sent by the Secretary, but by Gwen A Krauss, who is identified

   as being the Director of the IRS Service Center in Chamblee,

   Georgia, and I have no way of knowing whether she has been

   delegated by the Secretary to send out such notices on the

   Secretary's behalf. So before I do anything at all with respect

   to your "Notice," I would have to see a Delegation Order

   from the Secretary of the Treasury delegating to Gwen A Krauss

   the authority to send out Deficiency Notices.

   In addition, I would also like you to send me (or identify for

   me) the legislative regulations that you claim implement

  Code Sections 6212 and 6213. I have also attached an excerpt

   from the IRS Procedures Manual (MT 1218-196, and page P-6-40),

   which points out that the IRS is required to "make available

   to all taxpayers comprehensive, accurate, and timely information

   on the requirements of tax law and regulations." So,

   pursuant to this provision from your Procedures Manual, I am

   asking that you identify (" make available") for me the

   legislative regulations that you claim implement both

  Code Sections 6212 and 6213, since I have not been able to locate

   them.

   Without your furnishing me with these documents and information,

   I will be unable to "ascertain" (pursuant to the

   Federal Crop decision) whether the individual who sent me

   the Deficiency Notice was authorized to do so, and whether I am

   legally required to take any notice of it. I am obviously

   unwilling to "take the risk" referred to by the Supreme

   Court in the above cited case. [Reproduced literally.]

On February 4, 2002, respondent assessed petitioners' tax of $ 3,356, as well as interest as provided by law of $ 520.25, for their taxable year 1999. (We shall refer to those assessed amounts, as well as interest as provided by law accrued after February 4, 2002, as petitioners' unpaid liability for 1999.)

On February 4, 2002, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1999.

On June 21, 2002, respondent issued to petitioners a final notice of intent to levy and notice of your right to a hearing (notice of intent to levy) with respect to their taxable year 1996 and a separate notice of intent to levy with respect to their taxable years 1997 and 1999.

On or about July 20, 2002, in response to the notice of intent to levy with respect to their taxable year 1996, petitioners filed Form 12153, Request for a Collection Due Process Hearing (Form 12153), and requested a hearing with respondent's Appeals Office (Appeals Office). On the same date, in response to the notice of intent to levy with respect to their taxable years 1997 and 1999, petitioners filed Form 12153 and requested a hearing with the Appeals Office. Petitioners attached, inter alia, a document to their Form 12153 with respect to their taxable year 1996 (petitioners' attachment to their 1996 Form 12153) and a document to their Form 12153 with respect to their taxable years 1997 and 1999 (petitioners' attachment to their 1997 and 1999 Form 12153). Petitioners' attachment to their 1996 Form 12153 and petitioners' attachment to their 1997 and 1999 Form 12153 were identical and set forth, inter alia, the same types of statements, contentions, arguments, requests, and questions that petitioners set forth in petitioners' attachment to their 1996 Form 1040 and petitioners' attachment to their 1997 Form 1040A. In addition, petitioners' attachment to their 1996 Form 12153 and petitioners' attachment to their 1997 and 1999 Form 12153 stated in pertinent part:

   1) * * * at my CDP hearing I demand that the appeals officer

   have at the hearing the delegation order from the

   Secretary of the Treasury delegating to the

   Operations Manager, Automated Collection System the authority to

   notify me to my right for a CDP hearing * * *.

     b) * * * I am requesting that you have at the CDP hearing *

     * * a "delegation" order, emitting directly from

     the Secretary, authorizing the IRS employee who signed for

     him (them), the authority to impose and file such notices

     of liens against us.

     c) In lieu of having such a "delegation order," I

     am requesting that you have the job description of IRS

     employee(s) and the individual who signed the notice at

     issue for him to see if any such authority is included in

     their job description.

   2) The document also says that "We have made a demand

   for payment of this liability." (Emphasis added)

     a) Please note (as explained in paragraph 4 herein), we

     claim we never received such a "demand" for

     payment.

        1) If you claim otherwise, than I demand that you have

        at the CDP hearing the Form Number of the document

        that you claim was sent to us as constituting the

        "demand" referred to in paragraph 2) above.

        2) Since the Code Section establishing the

        "liability" referred to above is also not

        identified, I am requesting that you specifically

        identify the Code Section establishing * * *

   3) VERIFICATION FROM THE SECRETARY

     I also expect you to have at the CDP hearing

   "verification from the Secretary that the requirements of

   any applicable law or administrative procedure have been

   met." That is the specific statement from the Secretary (or

   his delegate) that THE LAW requires you to have. PLEASE BE

   ADVISED THAT SECTION 6330(c)(3)(A) REQUIRES THAT THIS

   VERIFICATION BE "PRESENTED" TO US. Please don't

   tell us at the CDP hearing that in lieu of having that specific

   document from the Secretary as required by law to be

   "presented" to us, that you have some unsigned, IRS

   transcript. * * * I will not accept any claim of yours that

   "the courts have held that an unsigned, computer printout

   satisfies the legal requirements of Code Sections 6320 &

  6330," in lieu of "presenting" us with

   "verification (from the Secretary) . . . that the

   requirements of any applicable law or administrative procedure

   have been met," stated in the law. * * *

     4) Also, pursuant to Code Section 6201(1), before I can owe

   any income taxes there has to be an assessment based on a

   "return or list." I filed a return showing no taxes due.

   Therefore, I don't see how the IRS could have made a lawful

   assessment from a return showing no income taxes due and

   owing, unless the IRS prepared another 1040 showing a

   different amount due. Therefore, at my CDP hearing, I am

   demanding that the following items be produced and made

   available to us:

     a) Proof of assessment. * * * Please have a form 4340 at

     my CDP hearing certifying that such an assessment has been

     made.

   6) We claim there is no underlying, statutory liability in

   connection with the income taxes at issue.

     a) In addition, we are challenging the "existence"

     of the underlying tax liability as the law (

     Sec. 6330(c)(2)(B)) and regulation (301.6330-1T-(e))

     specifically permit us to do. If the appeals officer

     believes otherwise, he need only identify for us the Code

     Section that establishes such a liability * * *. The * * *

     IR Code * * * that we will bring to the CDP hearing lists

     some 40 taxes under the caption "Liability for

     tax"; however, I cannot find an entry for "income

     taxes." * * *

     b) The issue of the "existence" of the

     "underlying tax liability" is certainly relevant as

     to whether or not we owe the income taxes at issue. Since

     the legal "existence" of an income tax liability is

     such an easy thing to establish * * * why wouldn't the

     appeals officer simply identify such a Code section if it

     exists? The only possible reason for him not doing so,

     is if that no such Code section does exist.

     c) One (nonsensical) excuse the appeals officer might offer

     * * * is to claim that he is not going to get into this

     issue because we allegedly got a notice of deficiency and

     so we had an "opportunity to dispute such a tax

     liability" as mentioned in Section 6330(c)(2)(B).

     However, we never had such an opportunity. Attached, as

     Exhibit D, is a copy of the "deficiency notice"

     [1999] we received. It was prepared and sent out by Gwen

     Krauss who is identified as Director of the Customer

     Service Center, Chamblee Georgia. However, Code Section

     6212 provides that it is "the Secretary" who

     "determines that there is a deficiency" and that

     "he is authorized to send such notice." * * *

     Therefore, after receiving those Deficiency Notices from

     Gwen Krauss * * * we wrote her * * * asking her to supply

     us with her delegation of authority from the Secretary to

     send out such Notices (pursuant to Code Sections

     7701(a)(11)(B) & 7701(a)(12)(A)(i)), and she never answered our

     letter. We have since received proof that Gwen Krauss

     has no such delegation of authority. Therefore, the

Deficiency Notices we received from her were invalid -- and

we are barred from petitioning Tax Court from invalid

Deficiency Notices. Beside, we are not challenging the

"amount" of the alleged "deficiency": we

are challenging its "existence," as a matter of

law. However, since Tax Court is not a court of law (See

     Freytag v. C.I.R., 501 U.S. 868, 111 S. Ct. 2631, 115 L. Ed. 2d 764 * * * the Tax

     Court would have no jurisdiction to consider the legal

     question of whether or not the Internal Revenue Code

     establishes an income tax "liability" as a matter

of law.

*   *   *   *   *   *   *

7) We claim there is no statute requiring us "to pay"

the income taxes at issue.

 Another relevant issue is "Whether or not there is a

   statute requiring us 'to pay' the income taxes at issue?"

    Code Section 6321 provides that only when one fails "to pay

   any tax" can there be "a lien in favor of the United

   States." Therefore, before there can be a "lien in favor

   of the United States" there must be a statutory requirement

   "to pay" the income taxes at issue. The Index of the

   Code we will bring to our CDP hearing contains a Section

   entitled "Payment of tax." (Attached as Exhibit H) It

   contains over 60 entries. * * * however, there is no entry we

   can find for "income taxes." It is therefore our

   belief that there is no law requiring us "to pay" income

   taxes, and this certainly is a "relevant issue" that is

   appropriately raised at a CDP hearing -- since, if the appeals

   officer can not identify any statute that requires us "to

   pay" income taxes, how can he approve an IRS lien on

   our property in connection with a tax the payment for which he

   can not find shown in any law?

   8) We maintain that there is no law that authorizes the IRS

   to claim that we owe more in income taxes * * * than the

   "zeros" we reported on our income tax returns for those

   years [1996, 1997, and 1999].

     * * * Section 6201(a)(2)(A) further provides that with

   respect to taxes "payable by stamp," the Secretary is

   authorized "to estimate the amount of tax which has been

   omitted to be paid" by stamp. However, we cannot find

   any provision in Code Section 6201 or any other Code

   Section that authorizes the Secretary (let alone the IRS) to

   similarly "estimate the amount of tax" which we

   allegedly omitted from our 1996[, 1997, and 1999] tax returns.

   Therefore it is our contention that no law authorizes the

   Secretary (let alone any IRS agent) to determine that we owe

   more in income taxes than the "zeros" we reported on our

   1996[, 1997, and 1999] income tax returns. * * *

     This is also to remind you that I will be tape recording

   the CDP hearing and I will have a court reporter present. I will

   also have a witness present. [Reproduced literally; fn. refs.

   omitted.]

On October 21, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

   Your Collection Due process appeal request has been assigned to

   me for consideration.

   I will contact you as soon as I am able to review your file and

   determine if we can resolve your case by correspondence or phone

   in lieu of a personal conference. If a personal conference is

   needed, I will schedule a meeting with you or your

   representative.

   In order for your appeal to be considered, you must be in [sic]

   current in filing tax returns. If you have not done so, please

   file the delinquent return(s) immediately. * * *

On October 23, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

   HEARING IN PERSON OR BY TELEPHONE

     o IN PERSON should you prefer to discuss the

      case in person, I have scheduled a conference for

      November 6, 2002 at 10:00 AM * * *

     o TELEPHONE HEARING If you prefer a telephone

      hearing, please call me at * * *

     o CONFIRM WITHIN 7 DAYS please call me within

      7 days of the date of this letter to confirm whether you

      will appear. If the date is not convenient, I will be

      happy to reschedule the hearing.

   Please see the tax transcripts and important

   information enclosed concerning your hearing.

On October 31, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

   This letter is to confirm that your hearing date is changed to

   November 20 at 10:00 AM. per your request.

     * * * Our records also indicate that you have not filed

   your 1998 and 2001 income tax returns. If you have filed them,

   please provide your copy of the returns.

On November 13, 2002, petitioners sent the settlement officer a letter. That letter stated in pertinent part:

     We have requested a Collection Due Process Hearing as

   provided for in Code sections 6320 & 6330 * * *, which is

   scheduled for November 20, 2002. We are writing to make clear

   our position as relates to the harassment, threats of seizures

   and liens by the IRS.

     Based on these omissions we are contacting the Taxpayer

   Advocate for resolution of these options.

     Further, we are requesting an impartial officer, for the up

   coming Due Process Hearing. This request in based on the

   partiality of the current officer in indicating that we must be

   current in filing tax returns for our appeal to be considered.

   This is blatantly false. * * *

     We intend to record the hearing and have a witness in

   attendance.

     It is clear that before any appeals officer can recommend

   the seizure of any property pursuant to Code Section 6331    certain elements have to be present. For one thing (pursuant to

   that statute) that person has to be statutorily "liable to

   pay" the taxes at issue, and only after he "neglects or

   refuses to pay the same within 10 days after notice and

   demand," can his property be subject to seizure. Therefore,

   apart from the appeals officer having to identify the statute

   that makes me "liable to pay" the taxes at issue, he

   needs to have a copy of the statutory "notice

   and demand" which I "neglected" and

   "refused" to pay. In addition, we can't be

   "liable" to pay an income tax, if the tax in question

   has never been assessed against me as required by Code Sections

   6201 and 6203. So we will need to see a copy of the record of

   our assessments. And since (as provided by Code Section

  6201(a)(1) and IRS Transaction Code 150) all assessments have to

   be based on filed returns, I will have to see a copy of

   the return from which any claimed assessment is based.

   In lieu of producing these specific documents "verification

   from the Secretary (of the Treasury) that the requirements of

   met," will be acceptable. But the appeals officer better

   have either the specific documents as identified above, or

   "verification from the Secretary." If the appeals

   officer cannot produce neither document, than no Due Process

   Hearing should be scheduled until he has those documents in

   hand. If the appeals officer recommends "enforcement of

   collection action including levy," without having produced

   these specific documents, then it will be obvious that the

   appeals officer is simply attempting to thwart and

   circumvent the Code Section 6330 in order to enable the IRS to

   continue its practice of making the illegal seizures uncovered

   by the Senate Finance Committee * * * which

   THE "DUE PROCESS HEARING" was designed to

   eliminate.

     Summarizing: We requested a "Due Process Hearing"

   as outlined in Form 12153. We are "challenging the

   appropriateness of (the) collection action" as specified in

  6330(c)(2)(A)(ii) since the IRS denied all of our requests for

   the initial "examinations" and "interviews" as

   provided for in Publications 1 & 5. In addition, no lien for

   taxes pursuant to Code Sections 6321 and 6322 is possible

   because no valid, underlying assessment was ever made. In

   addition, we never received the statutory "notice and

   demand" for payment of the taxes at issue as required by

  Code Sections 6203, 6321, and 6331. If the appeals officer is

   going to claim that a particular document sent to me by the IRS

   was a "Notice and Demand" for payment, then I am

   requesting that he also provide me with a T. D. or Treas. Reg.

   which identifies that specific document as being the official,

   statutory "Notice and Demand" for payment.

     In addition, we are "challenging the existence of the

   underlying tax liability" as we are authorized to do in Code

  Section 6330(c)(2)(B). In addition, we did not receive a (valid)

   notice of deficiency in connection with any of the years at

   issue. We are also requesting that the appeals officer have at

   the "Due Process Hearing" a copy of the "Summary

   Record of Assessment" (Form 22 C) together with the

   "pertinent parts of the assessment which set forth the name

   of the taxpayer, the date of the assessment, the character of

   the liability assessed, the taxable period, and the amount

   assessed" as provided for in Treas. Reg. 301.6203-1.

     Also you are reminded that the Section 6330(c)(1)    REQUIRES you to have "verification from the

   Secretary (or someone with delegated authority from him)

   that the requirements of any applicable law or administrative

   procedures have been met." So unless you have, at the very

   least, that document, you should not even schedule a Due Process

   Hearing. * * * [Reproduced literally; fn. ref. omitted.]

On November 16, 2002, petitioners sent a letter to "Internal Revenue Service Appeals Office Supervisor". In that letter, petitioners stated in pertinent part:

   This is to indicate irregularities in our requested Due Process

   Hearing. According to title 26 sections 6320 and 6330 only a

   single year is at issue for each hearing/appeal. Yet we are

   confronted with a partial (prejudiced) appeals officer for the

   following reasons:

     1. Multiple years of [sic] combined into a single session,

     we are only allotted one hearing/appeal per year in

     question.

     2. The hearing/appeals officer is making demands outside of

     sections 6320 and 6330 regarding "filings must be

     current". Which is blatantly incorrect and harassing.

On November 20, 2002, respondent's settlement officer held an Appeals Office hearing with petitioners regarding the respective notices of intent to levy with respect to their taxable year 1996 and their taxable years 1997 and 1999. James Cain accompanied petitioners to the Appeals Office hearing. The settlement officer did not allow petitioners to make an audio recording of the Appeals Office hearing.

On November 26, 2002, the settlement officer sent a letter to petitioners (settlement officer's November 26, 2002 letter) with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

   This letter is pertaining to your letter dated 11-13-2002 and

   the hearing on 11-20-2002. I will attempt here to address the

   points raised in your appeals request and also discuss those

   matters that can be considered under this process.

  Section 601.106(b)) of the Regulations and Internal Revenue

   Manual Section 8122.5 provide that the Appeals Division of the

   Internal Revenue Service cannot consider arguments based on

   moral, religious, political, constitutional, conscientious or

   similar grounds. Formal appeal procedures do not extend to these

   types of arguments.

   On the issue of impartiality, the statute defines impartiality

   as "prior involvement with respect to the same unpaid

   tax." You have not alledged [sic], and I, the Settlement

   Officer have had no such prior involvement with your unpaid tax

   liability. With regards to your request of the delegation

   authority of an IRS official, please see the attachment listing

   court cases showing the courts presume that the IRS official(s)

   have properly discharged their official duties if there is no

   clear evidence to the contrary. The burden of proof is upon you

   to prove that I am not an impartial officer.

   Your 1996 and 1997 taxes have not been discharged by the

    Bankruptcy Court. You can contact your bankruptcy attorney for

   more information.

   Your request for appeal on form 12153 is a Collection Due

   Process (CDP) Appeals. The three key points that Appeals can

   consider in a CDP hearing involve items such as those listed

   below:

     1. Applicable administrative procedures

     2. Relevant issues such as innocent spouse, collection

     alternatives and underlying liability.

     3. Efficient collection measures versus intrusiveness.

   Based upon a review of your case file, I find no error in the

   part of the Service in sending you the proper notices of an

   outstanding liability. The records indicated that notices were

   issued for all of the years reflecting a balance due and asking

   you either pay in full or call the IRS to discuss payment

   arrangements. To date, no agreement has been instituted.

   The underlying liability appears to be correct. The assessments

   were based on your income and withholdings. You have not pointed

   to any errors and you have been unwilling to discuss collection

   alternatives which include full payment, monthly payment, offer

   in compromise etc.

   Please respond within 2 weeks of the date of this letter if you

   have valid issues or want to propose a payment resolution. If I

   do not receive a timely response, I will proceed with the

   issuance of a decision letter that will sustain the levy action.

On November 27, 2002, the IRS Team Manager for Area 2, General Appeals, wrote a letter to petitioners. That letter stated in pertinent part:

   This is in response to your letter dated November 16, 2002 that

   was addressed to this office. I apologize for not responding

   earlier but I have been away from the office.

   In your letter you are concerned about the fact that the

   Settlement Officer who met with you considered more than one

   year (return) at the meeting and that she asked about subsequent

   filings of Federal tax returns. You also ask that this matter be

   reassigned. There is nothing wrong with the Settlement Officer's

   handling of either of these items. I, therefore, will not

   reassign this matter to another Appeals or Settlement Officer.

   There is nothing wrong with the Settlement Officer considering

   all of the tax periods before Appeals at one hearing. In

   addition, taxpayers must be current in the filing of their

   Federal tax returns before we can offer collection alternatives

   to help them. Thus, the Settlement Officer was merely asking

   about subsequent filings to see if she could offer collection

   alternatives to you for the amounts owed in the periods under

   our jurisdiction. Both actions are appropriate.

   In addition, I would urge you to "step back and look at the

   course of action" you are taking. The returns you have filed

   showing nothing but zeros, and the arguments you have made, have

   no merit whatsoever. The arguments you are making are frivolous

   and make no sense. In fact, if you pursue these arguments in the

   courts, the Court will, in all probability, and should, assert

   it's own penalty for filing a frivolous lawsuit. The court cases

   clearly support the Service's position on the issues you raise

   and indicate that the courts are tired of these types of

   illogical issues.

   I strongly urge you to move away from the destructive path you

   are following, file proper tax returns as required by law, and

   make arrangements to pay the taxes you owe for the schools you

   attend, the roads you ride on, the military that defends you,

   the courts that protect your legitimate rights, and the freedoms

   you enjoy. Please look at the arguments you are making and ask

   yourself if they make any sense. Read the court cases cited by

   the Settlement Officer in the attachment (copy attached) to her

   letter to you dated November 26, 2002 and evaluate the merits of

   the arguments you are making. If you do not take steps to

   correct the situation, it will become more and more burdensome

   with larger, unpaid liabilities increased by interest and

   penalties.

   I cannot recommend that you seek the advice of an expert.

   However, if you go to any reputable Attorney or Certified Public

   Accountant in your area, I am confident that they will tell you

   that your arguments are not correct and they will recommend that

   you quickly take corrective action. Neither the IRS, nor the

   Courts, nor the Congress, nor any reputable professional will

   support the arguments you are making.

   My comments are not intended to offend you in any way. They are

   made out of my concern for individuals and intended to provide

   you with assistance. I hope this addresses the concerns

   contained in your letter dated November 16, 2002.

   Finally, I have enclosed a copy of a relatively new court case

   (Steven R. Smith, United States District Court of Nevada,

   2002 TNT 223-17) in which the taxpayer makes arguments similar

   to those you have made about Delegation Orders, etc. As you can

   see, the Court decides the case in favor of the Government.

On December 10, 2002, in response to the settlement officer's November 26, 2002 letter to petitioners, petitioners sent a letter to the settlement officer (petitioners' December 10, 2002 letter). Petitioners' December 10, 2002 letter stated in pertinent part:

   In response to your letter of November 26, 2002, and based upon

   your invitation to do so, we raise these valid issues in regard

   to your statements and exhibits:

     1. We did not raise any arguments based on moral,

     religious, political, constitutional, conscientious or

     similar grounds, so we will not help you to pretend that we

     did.

     2. On the issue of impartiality, your letter of November

     26th proves that you are NOT impartial to the proposed

     collection action:

        a.) We did not raise any arguments whatsoever. We

        asked for the documents that the laws describe, which

        must be present before a determination can be made by

        you to proceed with collection by distraint.

        We cite as a valid issue: The Statute, IR Code

     6330(c)(3) entitled " Basis for the

     determination. The determination by an appeals

     officer under this subsection shall take into

     consideration-A.) the verification presented under

     paragraph (1),; B.) the issues raised under paragraph (2),

     which is "any relevant issue relating to the

     unpaid tax or proposed levy" . . .

        b.) You state * * * "Based upon a review of your

        case file, I find no error in the part of the Service

        in sending you the proper notices of an outstanding

        liability", yet, you do not name by what Statute

        we are made liable and you do not present for us the

        documents which support the assessments with the

        authority of the Service employees that were involved

        in making such assessments. You state that notices of

        balance due were issued . . . Well, IR Code Section

        6331 cannot apply to us until we have neglected or

        refused to pay 10 days following the Notice and Demand

        for Payment. Seven Statutes and various IRS

        Publications refer to the requirement for the Notice

        and demand for payment. We find no authority referring

        to a "notice of balance due". We did not

         receive a statutory Notice and Demand for payment.

        c.) You state in your letter * * * "The underlying

        liability appears to be correct. The assessments were

        based on your income and withholdings." The

        underlying liability is based upon what statute? Where

        did you find a liability for the income tax in the

        Internal Revenue Code? * * * we are contesting not

        only the existence and the amount of the underlying

        liability for the taxes and penalties at issue, but,

        also the authority of the Revenue Officers who changed

        our returns and who sent out the Final Notice giving

        rise to our opportunity to a Collection Due Process

        Hearing -- our right to a fair and impartial hearing

        conducted by an impartial appeals officer who has

        fulfilled the requirement of the investigation as

        provided for in IR Code Section 6330(c)(1). If you did

         indeed conduct that impartial investigation, you

        should be able to provide us with the documents you

        inspected to verify the validity and accuracy of the

        assessments. * * * We have requested the documentation

        that the law provides that we may see.

        d.) Further, the exhibits attached to your letter are

        totally irrelevant to our case. They, too, point to

        your bias toward the government. First of all, the

        definition of Gross Income does not make one liable

        for the tax. The issue of the Sixteenth Amendment of

        the Constitution is not a relevant issue to be raised

        when all we are asking for is proof that the

        verification from the Secretary requirement has been

        fulfilled; that the Notice and Demand for payment

        requirement as been met; that the assessments are

        valid and accurately determined and recorded pursuant

        to some statute by authorized Internal Revenue Service

        personnel; and, that you have personally acquired

        verification from somebody other than yourself that

        all of the administrative procedures and applicable

        laws have been met. Verification means, a formal

        written statement. * * * We are in the dark as to what

        happened on our case, as all of the notices came

        without reference to any delegation orders or other

        legal basis for their issuance. Many of them were not

        even signed! Why wouldn't you want us to see the

        authority for these notices if indeed they are

        "Statutory", as you claim them to be?

     3. Finally, you stated in your letter that we have not

     pointed to any errors and that we have been unwilling to

     discuss collection alternatives . . . and, then you

     threatened to proceed with an issuance of a letter that

     will sustain the levy action. We cannot fathom what premise

     you found to base those statements on. It is absurd! You

     have not provided one document required of you by the law,

     and, until you do, you have nothing more than a

     wish for our property. Here are the errors you

     have ignored thus far that we have clearly outlined in

     previous correspondences and at our "Collection Due

     Process Hearing":

        A.) The FINAL NOTICE we received was not sent out by

        the Secretary or his delegate. * * *

        B.) We did not receive the Statutory Notice and demand

        for the unpaid tax from the Secretary or his delegate.

        * * *

        C.) The assessments were not made by authorized IRS

        personnel. We know this because no where in the Code

        is there any mention of IRS agents having the

        authority to make a return for income taxes, and no

        where in the Internal Revenue Manual does it speak of

        the authority of IRS agents to make 1040 Forms or to

        do anything with respect to returns of income tax.

        D.) Another very relevant issue we have raised and

        that goes to prove the fact that you have not been

        impartial to the proceedings thus far is that we have

        asked for you to cite the Statute in the Internal

        Revenue Code that provides for the payment of the

        income tax. Now, whether or not there is a law that

        requires the payment of the income tax cannot be

        deemed frivolous or merit less. * * * [Reproduced

        literally.]

On November 5, 2002, John W. Raymond (Mr. Raymond), an attorney, sent a letter (Mr. Raymond's November 5, 2002 letter) to the settlement officer with respect to petitioners' chapter 7 bankruptcy case. That letter stated in pertinent part:

     Reference the attached letter dated October 21, 2002 which

   you sent to Gerald and Jessica Frey. Be advised that Gerald and

   Jessica Frey filed a Chapter 7 Bankruptcy, Case No. 02-51961-

   DHA, in the United States Bankruptcy Court, Eastern District of

   Virginia, Newport News Division, on July 3, 2002. Internal

   Revenue Service was a listed creditor and was sent Notice of the

   bankruptcy filing by the bankruptcy court.

     Debtors received their bankruptcy Discharge on October 10

   [sic], 2002. (copy of Order attached) Their liability for tax

   debts for calendar year 1996 and 1997 were discharged in the

   bankruptcy.

The "bankruptcy discharge" referred to in Mr. Raymond's November 5, 2002 letter is an order dated October 12, 2002 (U.S. Bankruptcy Court's October 12, 2002 order) of the United States Bankruptcy Court, Eastern District of Virginia (U.S. Bankruptcy Court). That order stated as follows:

     It appearing that the debtor(s) is/are entitled to a

   discharge,

   IT IS ORDERED:

     The debtor(s) is/are granted a discharge under section 727    of title 11, United States Code * * *.

The U.S. Bankruptcy Court's October 12, 2002 order further stated: " SEE BACK SIDE OF THIS ORDER FOR IMPORTANT INFORMATION ". The back side of that order stated in pertinent part:

   Debts that are Not Discharged

     Some of the common types of debts which are not discharged

   in a chapter 7 bankruptcy case are:

     a. Debts for most taxes;

On December 9, 2002, Mr. Raymond sent a letter to an IRS bankruptcy specialist (Mr. Raymond's December 9, 2002 letter). That letter stated in pertinent part:

     You and I discussed the above matter on November 19, 2002.

   You informed me that the 1996 and 1997 taxes had not been

   discharged in the Freys' bankruptcy as a substitute return had

   been filed by the IRS for the Freys and the Freys did not file

   the returns until November 13, 2000. The Freys state that they

   filed the returns prior to November 2000.

     The Freys inform me that they received the 09-20-1999

   Notice Number CP 504 on September 30, 1999. The Notice had been

   mailed to a prior address so the Freys did not get it for ten

   days. Mr. Frey called Mrs. Lee (as noted on page two of exhibit

   A) of the IRS and was informed by Mrs. Lee that the IRS had no

   returns for 1996 and 1997. Mrs. Lee advised the Freys to mail

   the returns to IRS, Attn: ASFR, Philadelphia, PA 19255.

     The Freys had previously filed the returns but complied

   with Mrs. Lee's directions. The returns were still packed with

   their household goods because of the Freys' move. The Freys

   found the returns (copies attached) dated them 11-1-99 and

   mailed the returns to the ASFR address given by Mrs. Lee.

     The Freys received nothing further from the IRS until 2001

   when the Freys were advised that the IRS had not received the

   1997 return. The Freys dated the 1997 returns 5-30-01 and mailed

   them to the IRS.

     It appears to me that the taxes should have been discharged

   in the bankruptcy based on the 1999 filing date.

On January 14, 2003, the IRS bankruptcy specialist to whom Mr. Raymond had sent Mr. Raymond's December 9, 2002 letter sent a letter to Mr. Raymond. That letter stated in pertinent part:

     This is in regards to correspondence we received on

   December 11, 2002. In your correspondence you provided copies of

   tax returns for years 1996 and 1997. I have reviewed the

   information you have provided and have made these determinations

  base[d] on the information. Tax year 1996 will be processed as

   the original filed return and if excepted [sic] as filed, there

   will not be any balance due. The tax return 1996 that you

   provided shows and [sic] overpayment of $ 3,839.28. The Refund

   Expiration Date for 1996 is April 15, 2000, therefore, the

   above-mentioned debtor's will not receive the overpayment. The

   information provided for tax year 1997, I could find no evidence

   that the return was filed or received prior to the date that

   Internal Revenue Service made the assessment of August 13, 2001.

   Tax year 1997 still remains to be nondischargeable as we had

   determined at discharge.

On January 23, 2003, the Appeals Office issued to petitioners a notice of determination with respect to their taxable years 1996, 1997, and 1999. That notice of determination stated in pertinent part:

   Summary of Determination

   The determination of the Appeals Office is to sustain the

   decision to issue the Final Notice of Intent To Levy/Seizure.

   The assessment is valid and the actions were appropriate.

   You did not respond to this office's request for information and

   made no proposals to resolve the delinquent liability. The case

   is being returned to the Compliance Office for appropriate

   collection actions.

An attachment to the notice of determination stated in pertinent part:

   Summary of the issues and brief back ground:

   * * * You filed a timely request for a hearing with Appeals

   under the provisions of IRC 6630 concerning the appropriateness

   of propsong a levy action to secure payment for the above listed

   tax liabilities [with respect to petitioners' taxable years

   1996, 1997, and 1999]. You claimed your gross income was not

   taxable and your tax assessments were illegal and not valid. A

   hearing was held with you on 11-20-2002. The hearing was

   terminated when you claimed the Settlement Officer had no

   authority to conduct the hearing. The issues you raised were

   later responded by correspondence from the Settlement Officer

   and the Appeals Team Manager

   Verification of Applicable Law and Administrative

   Procedures

   With the best information available, the requirements of various

   applicable law or administrative procedures have been met.

   Internal Revenue Code (IRC) Section 6331(d) requires that the

   Internal Revenue Service (IRS) notify a taxpayer at least 30

   days before a Notice of Levy can be issued. The tax transcript

   shows that this notice was mailed to you * * *

   You were given the opportunity to raise any relevant issue

   related to the unpaid tax of the proposed levy at the hearing *

   * *

   This Settlement Officer has had no prior involvement with

   respect to this tax liability.

   Relevant Issues Presented by the Taxpayer

   Records show you filed the 1996, 1997 and 1999 tax returns

   claiming zero income even though you attached forms W-2 with the

   returns showing your gross income * * *. The tax assessments

   were made based on these incomes. The Final Notice pertaining to

   the unpaid balance of these tax periods was sent to you on 06-

   20-2002. You were also advised by the Settlement Officer that

   the 1996 and 1997 tax liabilities were not discharged by the

   bankruptcy court. You made frivolous claims such as the IRS

   agents had no authority to make income tax assessments, the

   gross income were not taxable and the assessments were illegal.

   You were provided with the tax transcripts demonstrating the

   fact of assessment. The transcripts show the same essential

   information found on a Form 4340, Certificate of Assessments and

   Payments. * * *

   Under Section 6330(c)(2)(B), neither the existence nor the

   amount of the underlying tax liability can be contested at an

   Appeals Office hearing unless the taxpayer did not receive a

   notice of deficiency for the tax in question or did not

   otherwise have an earlier opportunity to dispute such tax

   liability. Records indicated the notices of deficiency were

   mailed to you * * *. You received a notice of deficiency, but

   yet failed to file a petition for redetermination with the

   Court. Therefore, your issue of the underlying tax liability

   cannot be considered by the Appeals Office under the CDP appeal.

   Balancing Efficient Tax Collection with Concern Regarding

   Intrusiveness

   Appeals has verified, or received verification, that applicable

   laws and administrative procedures have been met; has considered

   the issues raised; and has balanced the proposed collection with

   legitimate concern that such action be no more intrusive than

   necessary by IRC Section 6330(c)(3).

   Collection alternatives include full payment, installment

   agreement, offer in compromise and currently uncollectible due

   to financial hardship. At the hearing and subsequent

   correspondence, you did not raise a spousal defense or challenge

   the Compliance's proposed levy action by offering a less

   instrusive collection alternative. As of this date, you have not

   provided the information for us to determine your ability to pay

   and submitted no resolution to your tax liability.

   The Appeals Office believes that the Compliance Office's

   decision to issue the Final Notice was appropriate and sustains

   the action in full. The case is being returned to Compliance for

   appropriate collection actions. [Reproduced literally.]

On February 20, 2003, petitioners filed with the Court a petition for review of the notice of determination with respect to their taxable years 1996, 1997, and 1999 and attached to the petition certain exhibits. The petition and most of those exhibits contained the same types of statements, contentions, arguments, and questions that petitioners set forth in petitioners' attachment to their 1996 Form 1040, petitioners' attachment to their 1997 Form 1040A, petitioners' attachment to their 1996 Form 12153, petitioners' attachment to their 1997 and 1999 Form 12153, and the various letters described above that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999.

On May 29, 2003, the Court issued an Order (Court's May 29, 2003 Order) in which, inter alia, the Court indicated that it had reviewed the petition and the exhibits attached thereto and found the petition and certain of those exhibits to contain statements, contentions, arguments, and questions that the Court found to be frivolous and/or groundless. In that Order, the Court reminded petitioners about section 6673(a)(1).

                OPINION

A taxpayer may raise challenges to the existence or the amount of a taxpayer's underlying tax liability 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). Where the validity of the underlying tax liability is properly placed at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

The record establishes that respondent issued to petitioners respective notices of deficiency relating to their taxable years 1996, 1997, 1999 ² and that they did not file a petition with the Court with respect to any of such notices. On the instant record, we find that petitioners may not challenge the existence or the amount of petitioners' unpaid liability for 1996, petitioners' unpaid liability for 1997, and petitioners' unpaid liability for 1999. See sec. 6330(c)(2)(B); Sego v. Commissioner, supra; Goza v. Commissioner, supra.

Where, as is the case here, the validity of the underlying tax liability for each of the years 1996, 1997, and 1999 is not properly placed at issue, the Court will review the determination of the Commissioner for abuse of discretion. Sego v. Commissioner, supra;Goza v. Commissioner, supra.

We turn to the issues that petitioners raised in petitioners' attachment to their 1996 Form 12153, in petitioners' attachment to their 1997 and 1999 Form 12153, in the letters that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999, at their Appeals Office hearing, and in the petition and the exhibits attached to the petition, which we shall review for abuse of discretion. We find petitioners' attachment to their 1996 Form 12153, petitioners' attachment to their 1997 and 1999 Form 12153, the various letters that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999, and the matters that petitioners raised at their Appeals Office hearing to be frivolous and/or groundless. ³ In the Court's May 29, 2003 Order, we found that petitioners' petition and certain exhibits attached thereto contained statements, contentions, arguments, and questions that were frivolous and/or groundless. We conclude that the following allegations in petitioners' petition raise valid issues that we shall address: Petitioners' allegation that the Appeals Office improperly refused to allow them to make an audio recording of their Appeals Office hearing, as required by section 7521(a)(1), and petitioners' allegation that petitioners' unpaid liability for 1996 and petitioners' unpaid liability for 1997 were discharged in petitioners' bankruptcy proceeding.

We consider first petitioners' position that the refusal by the Appeals Office to permit them to make an audio recording of the Appeals Office hearing held on November 20, 2002, was improper under section 7521(a)(1). Throughout the period commencing with petitioners' sending to the IRS their 1996 Form 1040 reporting total income of $ 0 and total tax of $ 0 and ending with their filing briefs with the Court, petitioners have made statements, contentions, arguments, and requests and raised questions that the Court finds to be frivolous and/or groundless. Consequently, even though we held in Keene v. Comm'r, 121 T.C. 8 (2003), that section 7521(a)(1) requires the Appeals Office to allow a taxpayer to make an audio recording of an Appeals Office hearing held pursuant to section 6330(b), we conclude that (1) it is not necessary and will not be productive to remand this case to the Appeals Office for another hearing under section 6330(b) in order to allow petitioners to make such an audio recording, see Lunsford v. Comm'r, 117 T.C. 183, 189 (2001), and (2) it is not necessary or appropriate to reject respondent's determination to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999, see id. ⁴

We next consider petitioners' position that the U.S. Bankruptcy Court discharged petitioners' unpaid liability for 1996 and petitioners' unpaid liability for 1997. ⁵An individual debtor is not to be discharged in a bankruptcy proceeding from certain specified categories of debt. 11 U.S.C. sec. 523(a)(2000). The first such category is described in pertinent part in 11 U.S.C. sec. 523(a)(1) as follows:

  section 523. Exceptions to discharge

     (a) A discharge under section 727, 1141, 1228(a), 1228(b),

or 1328(b) of this title [title 11] does not discharge an

   individual debtor from any debt --

     (1) for a tax * * * --

(B) with respect to which a return, if required --

(i) was not filed; * * *

In the instant case, respondent did not process and file as tax returns the 1996 Form 1040 and the 1997 Form 1040A which respondent received from petitioners and in which petitioners reported total income of $ 0 and total tax of $ 0. That was because respondent determined that those documents were frivolous. ⁶An individual debtor is not discharged in a bankruptcy proceeding from a debt for tax with respect to which a return is not filed. 11 U.S.C. sec. 523(a)(1)(B)(i). On the record before us, we find that pursuant to 11 U.S.C. sec. 523(a)(1)(B)(i) the U.S. Bankruptcy Court did not discharge petitioners from their unpaid liability for 1996 and petitioners' unpaid liability for 1997.

Based upon our examination of the entire record before us, we find that respondent did not abuse respondent's discretion in determining to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999.

Although respondent does not ask the Court to impose a penalty on petitioners under section 6673(a)(1), the Court will sua sponte determine whether to impose such a penalty. Section 6673(a)(1) authorizes the Court to require a taxpayer to pay to the United States a penalty in an amount not to exceed $ 25,000 whenever it appears to the Court, inter alia, that a proceeding before it was instituted or maintained primarily for delay, sec. 6673(a)(1)(A), or that the taxpayers' position in such a proceeding is frivolous or groundless, sec. 6673(a)(1)(B).

In Pierson v. Commissioner, 115 T.C. 576, 581 (2000), we issued an unequivocal warning to taxpayers concerning the imposition of a penalty under section 6673(a)(1) on those taxpayers who abuse the protections afforded by sections 6320 and 6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in such actions. The Court's May 29, 2003 Order reminded petitioners about section 6673(a)(1). Before the trial in this case began, the Court again reminded petitioners about section 6673(a)(1) and indicated that if petitioners advanced frivolous and/or groundless arguments at trial, the Court would impose a penalty on them under that section. During the trial, upon questioning by the Court, Mr. Frey indicated that petitioners continue to adhere to the statements, contentions, arguments, requests, and questions set forth in petitioners' attachment to petitioners' 1996 Form 1040 and petitioners attachment to petitioners' 1997 Form 1040A.

On the record before us, we find that petitioners have advanced, we believe primarily for delay, frivolous and/or groundless statements, contentions, arguments, requests, and questions with respect to their taxable years 1996, 1997, and 1999, thereby causing the Court to waste its limited resources in addressing such matters. As a result of petitioners' position and actions in the instant case with respect to those taxable years, we shall impose a penalty on them pursuant to section 6673(a)(1) in the amount of $ 4,000.

We have considered all of petitioners' statements, contentions, arguments, requests, and questions that are not discussed herein, and we find them to be without merit and/or irrelevant.

To reflect the foregoing,

Decision will be entered for respondent.

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Footnotes

• 1. All section references are to the Internal Revenue Code in effect at all relevant times.

• 2. With respect to petitioners' taxable year 1996, the transcripts of account that a representative of respondent prepared relating to that year reflected that respondent issued a notice of deficiency to petitioners with respect to their taxable year 1996. With respect to petitioners' taxable year 1997, the transcripts of account that a representative of respondent prepared relating to that year did not reflect that respondent issued a notice of deficiency to petitioners with respect to their taxable year 1997. However, the revenue agent who testified on behalf of respondent at the trial in this case indicated that transcripts of account do not necessarily reflect such information. Indeed, although the record in the instant case contains a copy of the notice of deficiency that respondent issued with respect to petitioners' taxable year 1999, the transcripts of account that a representative of respondent prepared relating to that year did not reflect that respondent issued such a notice to petitioners. The notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999, as well as the settlement officer's history sheet or case activity records relating to those years, reflected that respondent issued respective notices of deficiency with respect to those years. In this connection, it is noteworthy that, in petitioners' attachment to petitioners' 1996 Form 12153 and petitioners' attachment to petitioners' 1997 and 1999 Form 12153, as well as in various letters described above that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999, petitioners did not complain that they did not receive notices of deficiency with respect to 1996, 1997, and 1999. Instead, they argued in those documents that they did not receive valid notices of deficiency for any of those years because the notices of deficiency that they received were not signed by the Commissioner of Internal Revenue (Commissioner) or a properly authorized delegate of the Commissioner. Finally, we note that we did not find credible Mr. Frey's testimony that he did not receive notices of deficiency with respect to 1996, 1997, and 1999. Such testimony is inconsistent with other testimony of Mr. Frey that he may have received such notices and is contrary to other evidence in the record.

• 3. We also find petitioners' attachment to their 1996 Form 1040 and petitioners' attachment to their 1997 Form 1040A to be frivolous and/or groundless.

• 4. See Kemper v. Comm'r, T.C. Memo. 2003-195.

• 5. Petitioners did not argue at their Appeals Office hearing that the U.S. Bankruptcy Court discharged petitioners' unpaid liability for 1999.

• 6. We have recently observed: "The majority of courts, including this Court, have held that, generally, a return that contains only zeros is not a valid return." Cabirac v. Comm'r, 120 T.C. 163, 169 (2003).