Friendship Creative Printers Inc.

• Court: United States Tax Court
• Decided: February 22, 2021
• Docket: 7945-19
• Status: Unpublished

Opinion

T.C. Memo. 2021-19

UNITED STATES TAX COURT

FRIENDSHIP CREATIVE PRINTERS INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 7945-19L. Filed February 22, 2021.

Gregg S. Palmer (an officer), for petitioner.

Hilary E. March, for respondent.

MEMORANDUM OPINION

NEGA, Judge: This case is before the Court on a petition for review of a

Notice of Determination Concerning Collection Action(s) Under Section(s) 6320

and/or 6330 (notice of determination).1 Petitioner seeks review of respondent’s

1 Unless otherwise indicated, all section references are to the Internal (continued...)

Served 02/22/21 -2-

[*2] determination to sustain a proposed levy action in collection of $213,460,

arising from petitioner’s: (1) employment tax liabilities and related section

6651(a)(1) additions to tax for failure to timely file Forms 941, Employer’s

QUARTERLY Federal Tax Return, section 6651(a)(2) additions to tax for failure

to timely pay employment taxes, and section 6656 penalties for failure to timely

deposit employment taxes for quarters ending March 31, June 30, and September

30, 2013 (2013 quarters);2 and (2) section 6651(a)(2) additions to tax for failure to

timely pay employment taxes and section 6656 penalties for failure to timely

deposit employment taxes for quarters ending December 31, 2016, and March 31,

June 30, and September 30, 2017 (2016 and 2017 quarters). Respondent has

moved for summary adjudication under Rule 121. For the reasons explained

below, we will grant respondent’s motion for summary judgment.

Background

The following facts are derived from the petition, the exhibits and

declaration attached to respondent’s motion for summary judgment, and the

1 (...continued) Revenue Code in effect at all relevant times. All Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. 2 Respondent concedes the sec. 6656 penalties for petitioner’s failure to make timely deposits for the tax quarters ending March 31 and June 30, 2013. -3-

[*3] parties’ other filings. When Friendship Creative Printers Inc. filed the

petition, it was a corporation organized in Maryland, with its principal place of

business in Maryland.

For the 2013 quarters petitioner did not timely file Forms 941, timely pay its

employment taxes, and timely make the required deposits towards its employment

taxes. Petitioner did, however, make partial payments and deposits throughout

2013 towards its employment tax liabilities for the 2013 quarters. On February 10,

2016, pursuant to substitute-for-return procedures, respondent made assessments

of employment taxes, section 6651(a) additions to tax, and section 6656 penalties

for the 2013 quarters as a result of petitioner’s untimely filings, payments, and

deposits. On May 12, 2016, petitioner filed Forms 941 for the 2013 quarters,

showing amounts greater than those initially assessed by respondent. Respondent

subsequently made additional assessments of petitioner’s employment taxes,

additions to tax, and penalties to the extent that the amounts reported on the

untimely Forms 941 exceeded respondent’s initial assessment.

With respect to the 2016 and 2017 quarters, petitioner filed timely Forms

941 but failed to make timely payments of and deposits towards its employment

taxes. Respondent assessed employment taxes, section 6651(a)(2) additions to tax

for failure to timely pay, and section 6656 penalties for failure to timely deposit. -4-

[*4] On May 7, 2018, respondent mailed to petitioner CP297, Final Notice,

Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice),

concerning petitioner’s employment taxes, additions to tax, and penalties for the

quarters at issue. In response to the levy notice, petitioner timely filed Form

12153, Request for a Collection Due Process or Equivalent Hearing, requesting

either an installment agreement or an offer-in-compromise as a collection

alternative. Petitioner also stated as a reason for requesting a hearing that “JUNE

2013 ALL TAXES WERE PAID 9/6/2013 10/29/2013 10/31/2013.”

On September 10, 2018, a settlement officer (SO) with respondent’s Office

of Appeals (Appeals Office) notified petitioner via letter that a collection due

process (CDP) hearing was scheduled for October 9, 2018. The letter informed

petitioner that if it wanted to pursue an alternative collection method it needed to:

(1) provide a completed Form 433-B, Collection Information Statement for

Businesses; (2) provide signed Forms 941 for all quarters of 2015 and two quarters

of 2018; and (3) become current with its Federal tax deposits and returns. The

letter also requested that petitioner provide the following information:

(1) verification of any income, expenses, assets, and encumbrances listed on the

Form 433-B; (2) a proposed payment plan; (3) verification that all taxes were paid -5-

[*5] for the quarters at issue;3 and (4) proof of timely deposit for all Federal

employment taxes for the current quarter.

Petitioner’s president, Gregg S. Palmer, left the SO a voicemail on October

8, 2018, asking to reschedule the October 9th CDP hearing. The SO returned

Palmer’s phone call the following day, and they rescheduled the hearing for

October 25, 2018. During the phone call the SO asked Palmer if he had any

questions concerning the information requested in the September 10, 2018, letter.

Palmer stated that he did not have the letter with him but would review it and

contact the SO before the October 25th CDP hearing if he had any questions.

On October 25, 2018, the SO held a telephone CDP hearing with Palmer,

who had failed to provide any of the information requested in the September 10,

2018, letter. With respect to the 2013 quarters, the SO explained that “respondent

had made employment tax assessments before petitioner filed the delinquent

Forms 941 and that the delinquent Forms 941 reflected employment tax liabilities

greater than what” respondent had initially assessed. Palmer reiterated his belief

that petitioner had paid all balances due but did not provide any evidence to

substantiate that claim. The SO stated that she would send Palmer transcripts of

3 Because petitioner asserted that it had paid its taxes for the 2013 quarters, the SO requested that petitioner provide verification through checks, bank statements, etc. to show that the taxes were, in fact, paid. -6-

[*6] petitioner’s Form 941 liabilities for the 2013 quarters to review against

petitioner’s records.

The parties also generally discussed various collection alternatives. During

their conversation Palmer neither expressly requested a specific alternative nor

provided any financial information. The SO informed Palmer that petitioner was

not current with its Federal tax deposits or filing obligations. The SO then stated

that she would send Palmer a letter instructing him in further steps and outlining

“which of petitioner’s returns remained outstanding.”

Following the CDP hearing, the SO sent petitioner transcripts detailing

petitioner’s Form 941 liabilities for all four quarters for each of 2013 through

2017 and a letter instructing petitioner to: (1) compare the IRS’ transcripts with

petitioner’s records for discrepancies; (2) file Forms 941 for all four quarters of

2015 and three quarters of 2018; (3) file Form 940, Employer’s Annual Federal

Unemployment Tax Return, for the 2014 taxable year; (4) become current with its

Federal tax deposits for the current quarter and provide verification to that effect;

and (5) complete Form 433-B and attach the related financial information by

November 9, 2018.

On November 9, 2018, petitioner submitted the following information to the

SO: (1) a completed Form 433-B; (2) a profit and loss statement; (3) six months -7-

[*7] of bank statements; (4) Forms 941 for the quarters of 2014 without original

signatures; (5) Form 940 for taxable year 2014 without an original signature; and

(6) Forms 941 for all four quarters of 2015 and three quarters of 2018 without

original signatures.

Petitioner also submitted three documents pertaining to its claim that it had

paid all taxes due for the 2013 quarters. Two of the documents detailed each

payment and deposit that petitioner had made throughout 2013 towards its

employment tax liabilities for the 2013 quarters, with handwritten checkmarks

next to each amount. The third document contained two lists. The first list totaled

petitioner’s employment tax liabilities for the 2013 quarters that it had reported on

its untimely Forms 941. The second list totaled the deposits and payments that

petitioner had made throughout 2013 toward those liabilities, showing the totals

matching.

After the SO reviewed the above documents and concluded that the

proposed levy should be sustained, the Appeals Office issued to petitioner a notice

of determination sustaining the proposed levy on April 18, 2019. Petitioner timely

filed a petition for review of respondent’s determination. On January 2, 2020,

respondent moved for summary adjudication, to which petitioner responded in

opposition. -8-

[*8] Discussion

I. Summary Judgment Standard of Review

“Summary judgment is intended to expedite litigation and avoid

unnecessary and expensive trials.” Fla. Peach Corp. v. Commissioner, 90 T.C.

678, 681 (1988). The Court may grant summary judgment where there is no

genuine dispute as to any material fact and a decision may be rendered as a matter

of law. Rule 121(b); Naftel v. Commissioner, 85 T.C. 527, 529 (1985). The

moving party bears the burden of proving that there is no genuine issue of material

fact. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). The opposing party

cannot rest upon mere allegations or denials in his pleadings but, rather, must “set

forth specific facts showing that there is a genuine dispute for trial.” Rule 121(d).

The factual materials and inferences drawn from them will be viewed in the light

most favorable to the nonmoving party. Bond v. Commissioner, 100 T.C. 32, 36

(1993).

Respondent moves for summary adjudication, arguing that he did not abuse

his discretion in sustaining the proposed levy. Since we consider respondent’s

motion for summary judgment, we draw all factual inferences in favor of

petitioner. See id. -9-

[*9] II. Jurisdiction and Standard of Review

Section 6330 requires the Commissioner to notify a taxpayer if he intends to

levy on the taxpayer’s property. The notice must inform the taxpayer of his or her

right to a CDP hearing regarding the proposed collection action. Sec. 6330(a). In

a CDP hearing, taxpayers may raise any relevant issue, such as a request for

consideration of a collection alternative. Sec. 6330(c)(2)(A). A determination to

sustain a proposed levy may be reviewed by this Court. Sec. 6330(d)(1); see

Rules 330-334. In general, upon review of a determination sustaining a proposed

levy, the Court will limit its review to those issues properly raised during the

administrative hearing. Giamelli v. Commissioner, 129 T.C. 107, 114-115 (2007).

A taxpayer may petition the Court under section 6330(d) to review the

Commissioner’s determination. Where the validity of the underlying tax liability

is properly at issue, we review the tax liability de novo. Sego v. Commissioner,

114 T.C. 604, 610 (2000). Where the underlying tax liability is not at issue, this

Court reviews the Commissioner’s determination for abuse of discretion. Goza v.

Commissioner, 114 T.C. 176, 182 (2000). An abuse of discretion occurs when the

Commissioner’s determination is arbitrary, capricious, or without sound basis in

fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469

F.3d 27 (1st Cir. 2006); Freije v. Commissioner, 125 T.C. 14, 23 (2005). -10-

[*10] Petitioner contends that it made sufficient--but untimely--payments and

deposits toward its employment tax liabilities for the 2013 quarters that it reported

on the untimely Forms 941. Petitioner, however, failed to assert any assignment of

error with respect to the 2016 and 2017 quarters; thus, respondent’s

determinations of section 6651(a)(2) additions to tax and section 6656 penalties

for those quarters are deemed conceded. See Rule 331(b)(4); Perkins v.

Commissioner, 129 T.C. 58, 67 (2007) (deeming as conceded the portion of the

taxpayer’s underlying liability that he failed to address but had reported as due on

his return and had yet to pay).

With respect to the 2013 quarters, petitioner failed to expressly challenge its

liability for the section 6651(a) additions to tax and the section 6656 penalties.

But because petitioner believes that it fully paid its employment tax liabilities for

those quarters, its failure to mention the section 6651(a) additions to tax and the

section 6656 penalties can be construed as an implied challenge to its underlying

liability. See Patrick’s Payroll Servs., Inc. v. Commissioner, T.C. Memo. 2020-47,

at *10-*11 (citing Katz v. Commissioner, 115 T.C. 329, 339 (2000)) (reiterating

that the term “underlying tax liability” comprises “the tax deficiency, any penalties

and additions to tax, and statutory interest”). Consequently, we review the

underlying liability as it relates to 2013. -11-

[*11] A. Underlying Liability

In reviewing the Commissioner’s determination, including challenges to the

underlying liability, we consider only issues that the taxpayer properly raised

during the CDP hearing. LG Kendrick, LLC v. Commissioner, T.C. Memo.

2016-22, at *13, aff’d, 684 F. App’x 744 (10th Cir. 2017); sec. 301.6330-1(f)(2),

Q&A-F3, Proced. & Admin. Regs.; see also Giamelli v. Commissioner, 129 T.C.

at 114-115. The taxpayer does not properly raise an issue during the hearing if it

fails to present “any evidence with respect to that issue after being given a

reasonable opportunity” to do so. LG Kendrick v. Commissioner, at *13 (quoting

section 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.).

During the CDP hearing petitioner’s representative reiterated his belief that

petitioner had paid all balances due for the 2013 quarters. Although the

information that the SO requested was not provided before the hearing, petitioner

did submit some of the requested information thereafter, within the SO’s

November 9 deadline. Included in this information were the three documents

pertaining to petitioner’s claim that it had paid all taxes due for the 2013 quarters

and, thus, that it is not liable for the related additions to tax and penalties that

respondent now seeks to collect. -12-

[*12] 1. Employment Taxes

In contending that it made sufficient payments and deposits towards its

employment tax liabilities for the 2013 quarters, we understand that petitioner

does not contest respondent’s assessment of employment taxes based on the

untimely Forms 941. We thus limit our analysis on liability to whether petitioner

is liable for the related section 6651(a) additions to tax and section 6656 penalties.

2. Section 6651(a) Additions to Tax and Section 6656 Penalties

Section 6651(a) imposes additions to tax for failure to file a timely tax

return and for failure to timely pay the amount of tax shown on the return, unless

the taxpayer establishes that the failure was due to reasonable cause and not

willful neglect.4 Sec. 6651(a)(1) and (2); Lloyd v. Commissioner, T.C. Memo.

2020-92, at *18-*19. Section 6656 similarly imposes a penalty for failure to make

a timely deposit, unless the taxpayer establishes that the failure was due to

reasonable cause and not willful neglect. Sec. 6656(a); Charlotte’s Office

Boutique, Inc. v. Commissioner, 121 T.C. 89, 109 (2003), supplemented by T.C.

Memo. 2004-43, aff’d, 425 F.3d 1203 (9th Cir. 2005).

4 In general, the Commissioner bears the burden of production with respect to the liability of an individual taxpayer for additions to tax and penalties under sec. 7491(c). Because sec. 7491(c) specifically applies only to an “individual”, and petitioner here is a corporation, it is not applicable. See Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 154 T.C. 68, 79 n.12 (2020). -13-

[*13] Respondent determined section 6651(a) additions to tax and section 6656

penalties with respect to the 2013 quarters because of petitioner’s failure to timely

file Forms 941, timely pay its employment taxes, and timely make the required

deposits for those quarters. The record establishes (and petitioner concedes) that

petitioner did, in fact, fail to timely file the returns, timely pay its employment

taxes, and timely make the required deposits. Petitioner has failed to adduce any

evidence or otherwise argue that the untimeliness was due to reasonable cause; to

the contrary, petitioner admits that its filings, payments, and deposits were “late.”

Accordingly, we sustain respondent’s determinations of the section 6651(a)

additions to tax and section 6656 penalties, and we turn to reviewing the SO’s

decision for abuse of discretion.

B. Abuse of Discretion

In deciding whether there was an abuse of discretion in sustaining a

proposed levy, we consider whether the SO: (1) properly verified that the

requirements of applicable law and administrative procedure have been met;

(2) considered issues raised by the taxpayer; and (3) considered whether any

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 sec. 6330(c)(1), (2), and (3). -14-

[*14] 1. Verification

Petitioner neither alleges in its petition nor argues that the SO failed to

satisfy the verification requirements of section 6330(c)(1).5 Any issue under the

verification requirement, therefore, is deemed conceded. Rule 331(b)(4); Biggs-

Owens v. Commissioner, T.C. Memo. 2020-113, at *10 n.6; Nguyen v.

Commissioner, T.C. Memo. 2020-97, at *16 n.10; Morgan v. Commissioner, T.C.

Memo. 2018-98, at *11 n.6; see Funk v. Commissioner, 123 T.C. 213, 216-217

(2004).

2. Issues Raised

During the CDP hearing petitioner contended that it had paid all balances

due for the 2013 quarters. Following the hearing, petitioner submitted to the SO

three documents that it believed supported its contention, two of which appear to

be copies of the IRS’ transcripts detailing the partial payments and deposits it

made throughout 2013 towards its employment tax liabilities for the 2013 quarters.

On these two documents petitioner made handwritten checkmarks next to each

5 One issue that may arise under the verification requirement, for example, is whether the SO has verified that respondent has met the requirements of sec. 6751(b)(2)(A) relating to penalties. See, e.g., Blackburn v. Commissioner, 150 T.C. 218, 219-220 (2018). -15-

[*15] amount, presumably as confirmation that it had made each payment and

deposit.6 The third document includes two lists: (1) a list totaling the employment

tax liabilities for the 2013 quarters that petitioner reported on the untimely Forms

941, and (2) a list totaling the partial deposits and payments made throughout

2013 toward those liabilities, showing the totals matching.

Respondent argues that, while these documents reflect that the total amount

of payments and deposits petitioner made equals the total amount of liabilities that

it reported on the delinquent Forms 941, petitioner failed to show that it paid the

section 6651(a) additions to tax, section 6656 penalties, and interest that resulted

from its untimely filings, payments, and deposits. Thus, respondent contends that,

by petitioner’s own calculations, the payments and deposits that petitioner made

were insufficient to pay the employment tax assessments and the assessed

additions to tax, penalties, and interest for the 2013 quarters. We agree.

These documents indicate that petitioner’s total payments and deposits that

it made throughout 2013 match the total amounts reported on the delinquent

Forms 941. These documents, however, lack any indication that it paid the section

6651(a) additions to tax, section 6656 penalties, and interest that resulted from its

6 The checkmarks were presumably made by Palmer or another employee of petitioner, given that it is a corporation. Nevertheless, we attribute the handwritten checkmarks to petitioner. -16-

[*16] untimely filings, payments, and deposits. A review of the record indicates

further that respondent applied petitioner’s partial payments and deposits against

not only the assessed employment taxes but also the assessed section 6651(a)

additions to tax, section 6656 penalties, and interest, resulting in petitioner’s

having an outstanding balance for each of the 2013 quarters. See Rev. Proc.

2002-26, sec. 3.02, 2002-1 C.B. 746, 746 (authorizing the IRS, in the absence of a

specific written directive, to apply partial payments of a liability against additional

taxes, penalties, and interest that have been assessed against a taxpayer).

Moreover, while petitioner noted on the first two documents that certain

payments and deposits were to be applied for particular quarters, the record shows

respondent applied those payments and deposits for different quarters. See id.

(explaining that, where a taxpayer has tendered only partial payment, without

providing “specific written directions as to the application of [the] payment,” and

has been assessed additional taxes, penalties, and interest, the IRS can apply the

payment in the manner that “serve[s] its best interest”). Consequently,

respondent’s application of the payments and deposits resulted in petitioner’s still

owing employment taxes, section 6651(a) additions to tax, section 6656 penalties,

and interest. Accordingly, we conclude that the SO did not abuse her discretion in -17-

[*17] rejecting petitioner’s claim that it had fully paid its employment tax

liabilities for the 2013 quarters.

Although petitioner failed to allege or otherwise argue that the SO abused

her discretion in rejecting petitioner’s eligibility for an installment agreement, we

note that petitioner did indicate on Form 12153 its intention to enter into an

installment agreement or offer-in-compromise and that Palmer and the SO did

discuss collection alternatives during the CDP hearing. That said, petitioner did

not provide the SO with proof that it was current with its recent Federal tax

deposits or that it was current with all filing obligations. While it did provide the

SO with copies of the requested unfiled Forms 940 and 941 for certain quarters,

the SO declined to process them because they did not have original signatures.

We have consistently held that it is not an abuse of discretion for the SO to

reject collection alternatives and sustain a collection action where (as here) the

taxpayer has failed, after being given sufficient opportunities, to supply the

required forms and information. See Huntress v. Commissioner, T.C. Memo.

2009-161, slip op. at 12. We have likewise held that it is not an abuse of

discretion for an SO to reject a collection alternative where the taxpayer is not in

compliance with its ongoing tax obligations. See Cox v. Commissioner, 126 T.C.

237, 257 (2006), rev’d on other grounds, 514 F.3d 1119 (10th Cir. 2008); Hull v. -18-

[*18] Commissioner, T.C. Memo. 2015-86, at *15. The SO afforded petitioner

ample time to provide the requested documents and comply with all filing,

payment, and deposit requirements. Petitioner failed to do so. Accordingly, we

conclude that the SO did not abuse her discretion in finding petitioner ineligible

for a collection alternative.

3. Balancing

Petitioner also failed to allege in its petition or otherwise argue that the SO

did not consider “whether any proposed collection action balances the need for the

efficient collection of taxes with the legitimate concern of the person that any

collection action be no more intrusive than necessary.” Sec. 6330(c)(3)(C).

Consequently, this issue is deemed conceded. See Rule 331(b)(4); Patrick’s

Payroll Servs., Inc. v. Commissioner, at *15.

III. Conclusion

For the reasons stated above, we conclude that there is no genuine dispute

of material fact and that respondent is entitled to summary judgment as a matter of

law. Accordingly, we will grant respondent’s motion for summary judgment. -19-

[*19] To reflect the foregoing,

An appropriate order will be issued

and decision will be entered.