Giamelli v. Comm'r

129 T.C. No. 14, 129 T.C. 107, 2007 U.S. Tax Ct. LEXIS 33

• Court: United States Tax Court
• Decided: October 30, 2007
• Docket: No. 23150-04L
• Status: Published

Opinions

OPINION

Goeke, Judge:

This case is before the Court for review of a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination).¹ Respondent has moved to dismiss for lack of prosecution on the grounds that no party has been substituted for Joseph Giamelli since his death. Alternatively, respondent has moved for summary judgment on the grounds that there is no evidence that the Appeals officer abused her discretion in sustaining the proposed collection action. Because Mrs. Giamelli, as the executrix of Mr. Giamelli’s estate, has moved to be substituted as petitioner, respondent’s motion to dismiss for lack of prosecution will be denied. Further, because Mrs. Giamelli has failed to present any evidence to create a genuine question of fact whether the Appeals officer abused her discretion sustaining the proposed collection action, respondent’s motion for summary judgment will be granted.

Background

Joseph Giamelli and his wife, Joann Giamelli, resided in New York at the time this petition was filed. Mr. and Mrs. Giamelli filed a joint Form 1040, U.S. Individual Income Tax Return, for the 2001 tax year. While Mr. and Mrs. Giamelli reported a tax due, they did not include payment of the tax due with the return. Respondent then assessed the tax due shown on the return and sent Mr. and Mrs. Giamelli notice and demand for payment.

When Mr. and Mrs. Giamelli failed to pay, respondent issued a Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 listing an unpaid balance of assessment of $723,527.01. Mr. Giamelli, while represented by counsel, then submitted to respondent Form 12153, Request for a Collection Due Process Hearing, and, according to Mrs. Giamelli, signed her name without her knowledge or permission.

Mr. Giamelli’s request for a collection review hearing was assigned to one of respondent’s Appeals officers. Mr. Giamelli informed the Appeals officer that he wished to enter into an installment agreement in which he would pay $14,300 monthly to satisfy the 2001 tax liability. During the ensuing months, as Mr. Giamelli and the Appeals officer were discussing the installment agreement, Mr. Giamelli continued to send monthly checks of $14,300 to respondent in partial payment of the 2001 tax liability.

On October 5, 2004, the Appeals officer informed Mr. Giamelli that, under Internal Revenue Service (IRS) guidelines, the installment agreement could not be processed if he was not in compliance with his estimated tax payment requirements for tax years after 2001. Mr. Giamelli did not comply with his estimated tax payment requirements.

On November 15, 2004, respondent issued to Mr. and Mrs. Giamelli the notice of determination sustaining the proposed collection action for the 2001 tax liability. On December 3, 2004, Mr. Giamelli, without Mrs. Giamelli’s knowledge or signature, filed a petition for lien or levy action under section 6320(c). The only issue raised by Mr. Giamelli in his petition was his desire to be allowed to enter into an installment agreement with respondent for the 2001 tax year. After the petition was filed, Mr. Giamelli and respondent agreed to an installment agreement to resolve the outstanding 2001 tax liability, and Mr. Giamelli agreed to sign the necessary decision document to submit to the Court.

In July 2005, before the decision document was executed, Mr. Giamelli was killed in an automobile accident. Subsequently, respondent received a telephone call from Erasmo Bruno, informing respondent of Mr. Giamelli’s death and that Mrs. Giamelli had been named the executrix of his estate. Mr. Bruno further informed respondent that he was now counsel for Mrs. Giamelli and the estate and indicated to respondent that Mrs. Giamelli was withdrawing from the installment agreement.

At a hearing before this Court on respondent’s motions, Mr. Bruno filed a motion to substitute the Estate of Joseph Giamelli, Deceased, Joann Giamelli, Executrix, as petitioner. Mr. Bruno represented to the Court that Mrs. Giamelli had received letters to administer her husband’s estate. Mr. Bruno further informed the Court that Mrs. Giamelli, in her personal capacity, had no knowledge of the outstanding tax liability and had not authorized or signed the petition filed with this Court by Mr. Giamelli. Accordingly, the Court dismissed for lack of jurisdiction the portion of this case relating to Mrs. Giamelli in her personal capacity.

Mrs. Giamelli, as executrix of the estate, now wishes to disclose certain wrongdoings of her husband that she believes would alter the underlying tax liability for 2001. The estate has suggested to the Court that Mr. Giamelli was involved in a fraudulent scheme whereby certain bribes were paid by Mr. Giamelli which were not disclosed on the income tax return in order to conceal this illegal activity. The estate would like to disclose this alleged fraudulent scheme in order to deduct the alleged illegal payments and thereby show that the tax due should be less than originally reported.

Discussion

I. Motion To Dismiss for Lack of Prosecution

Respondent first moves for dismissal for lack of prosecution because no party has been substituted for Mr. Giamelli since his death in July of 2005.

Under Rule 63(a), “If a petitioner dies, the Court, on motion of a party or the decedent’s successor or representative or on its own initiative, may order substitution of the proper parties.” Under Rule 60(c), the capacity of an individual to be substituted is determined by local law. Under New York law, “A personal representative is a person who has received letters to administer the estate of a decedent.” N.Y. Est. Powers & Trusts Law sec. 1-2.13 (McKinney 1998).

At a hearing before this Court on respondent’s motion to dismiss, counsel for Mrs. Giamelli filed a motion to substitute as petitioner the Estate of Joseph Giamelli, Deceased, Joann Giamelli, Executrix, in the place of Joseph Giamelli. Counsel represented to the Court that Mrs. Giamelli had received letters to administer her husband’s estate. While Mrs. Giamelli’s motion did not include a copy of the letters to administer the estate, we are satisfied on counsel’s representation that Mrs. Giamelli has been appointed the executrix of her husband’s estate and that she wishes to continue with his petition in that capacity.

Accordingly, because we find that Mrs. Giamelli wishes to be substituted for Mr. Giamelli in her capacity as the executrix of Mr. Giamelli’s estate, an appropriate order will be entered amending the caption of this case. Further, respondent’s motion to dismiss for lack of prosecution will be denied.

II. Motion for Summary Judgment

Respondent has also filed a motion for summary judgment pursuant to Rule 121(a). Respondent argues for summary judgment on the grounds that the Appeals officer properly exercised her discretion in rejecting the proposed installment agreement and sustaining the proposed collection action because Mr. Giamelli was not in compliance with his current tax obligations.

Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted where there is no genuine issue of any material fact and a decision may be rendered as a matter of law. Rule 121(a) and (b); see Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences will be read in a manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).

This collection review proceeding was begun pursuant to section 6320, which provides for Tax Court review of respondent’s administrative determinations to proceed with the collection of tax liabilities via liens. Where the validity of the underlying tax liability is at issue in a collection review proceeding, the Court will review the matter de novo. Davis v. Commissioner, 115 T.C. 35, 39 (2000). However, where the underlying liability is not at issue, we review the Appeals officer’s determinations regarding the collection action for an abuse of discretion. Goza v. Commissioner, 114 T.C. 176 (2000). Mr. Giamelli did not challenge the validity of the underlying tax liability, and thus this Court would pursuant to precedent review respondent’s administrative determinations for abuse of discretion; that is, whether the determinations were arbitrary, capricious, or without sound basis in fact or law. See Sego v. Commissioner, 114 T.C. 604, 610 (2000); Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

Internal Revenue Service guidelines require a taxpayer to be current with filing and payment requirements to qualify for an installment agreement. 2 Administration, Internal Revenue Manual (CCH), sec. 5.14.1.2(9)(e), at 17,504. The Appeals officer, in reliance on the IRS guidelines, rejected Mr. Giamelli’s proposed installment agreement because he was not in compliance with his estimated tax payments for tax years after 2001. Reliance on a failure to pay current taxes in rejecting a collection alternative does not constitute an abuse of discretion. See Orum v. Commissioner, 123 T.C. 1, 4, 13 (2004), affd. 412 F.3d 819 (7th Cir. 2005).

The estate has not presented any evidence to suggest the Appeals officer abused her discretion in rejecting Mr. Giamelli’s proposed installment agreement. Accordingly, without any evidence to the contrary, we find that respondent’s Appeals Office did not abuse its discretion in sustaining the proposed collection action based on the record before it.

We now turn to arguments raised by the estate’s new counsel for the first time after Mr. Giamelli’s death.² The estate now argues that Mr. Giamelli overstated his income tax liability in an effort to conceal fraudulent business dealings, and that consequently the estate is only a partial successor in interest to Mr. Giamelli. The estate reasons that because the estate has an interest in conflict with Mr. Giamelli’s, it should be allowed to challenge the underlying liability. Alternatively, the estate asserts that it is a separate person entitled to its own collection review proceeding.

The estate’s arguments imply that we may consider arguments about the underlying tax liability never raised before in the administrative collection review proceedings. This Court’s jurisdiction in a collection review proceeding under sections 6320 and 6330 is dependent on the issuance of a valid notice of determination by the Commissioner’s Appeals Office and the timely filing of a petition for review. Sec. 6330(d); see also Smith v. Commissioner, 124 T.C. 36, 38 (2005). The focus of any review in this Court under section 6330(d) is the determination of the Commissioner’s Appeals Office under section 6330(c). Offiler v. Commissioner, 114 T.C. 492, 498 (2000).

Under section 6330(c)(3), the determination of the Appeals officer shall take into consideration “the issues raised under paragraph (2)”.³ Section 6330(c)(2)(A) permits the taxpayer to “raise at the hearing any relevant issue relating to the unpaid tax” or the proposed collection action. Section 6330(c)(2)(B) permits a taxpayer to “raise at the hearing challenges to the existence or amount of the underlying tax liability” under certain circumstances. The statute contemplates consideration of issues “raised” by the taxpayer at the hearing. Thus, if an issue is never raised at the hearing, it cannot be a part of the Appeals officer’s determination.

The Commissioner’s interpretive regulation addressing the scope of an appeal to the Tax Court of a determination by an Appeals officer is consistent with this statutory language. Sec. 301.6320-l(f)(2), Q&A-F5, Proced. & Admin. Regs.⁴ (“In seeking Tax Court * * * review of Appeals’ Notice of Determination, the taxpayer can only request that the court consider an issue that was raised in the taxpayer’s CDP hearing.”).

While we think the statute is clear, the legislative history of sections 6320 and 6330 further confirms our reading.

Judicial review

The conferees expect the appeals officer will prepare a written determination addressing the issues presented by the taxpayer and considered at the hearing. The determination of the appeals officer may be appealed to Tax Court * * * Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is a part of the appeal, no levy may take place during the pend-ency of the appeal. The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. * * * [H. Conf. Rept. 105-599, at 266 (1998), 1998-3 C.B. 747, 1020.]

The history further states: “It is the responsibility of the taxpayer to raise all relevant issues at the time of the pre-levy hearing.” Id. While the conferees’ description of a tax liability which was “properly at issue” could be read as broader than matters actually raised with the Appeals officer, the statutory language and conferees also anticipate Tax Court review of a “determination” regarding the tax liability. Sec. 6330(d)(1); H. Conf. Rept. 105-599, supra at 266, 1998-3 C.B. at 1020. If the tax liability is not raised with the Appeals officer, the determination would not have addressed it.

The statute and the regulation make clear that in this context we do not enjoy the same discretion as the Courts of Appeals to consider issues raised for the first time on appeal. Compare sec. 6330(d) and sec. 301.6320-l(f)(2), Q&A-F5, Proced. & Admin. Regs., with, e.g., Sniado v. Bank Austria AG, 378 F.3d 210, 213 (2d Cir. 2004) (recognizing a Court of Appeals’ discretion to entertain arguments raised for the first time on appeal). Accordingly, we shall not review an underlying liability when raised for the first time on appeal of a notice of determination.⁵

We note that our jurisdiction pursuant to section 6330(d) differs from our jurisdiction under section 6213(a). In deficiency cases, taxpayers may raise any issue regarding their tax liability for the period in question regardless of their prior communication of such issues to the Commissioner. Our statutory role in such cases is “for a redetermination of [a] deficiency” and “to determine the amount of [an] overpayment”. Secs. 6213(a), 6512(b).⁶ In contrast, issues under section 6330 must have been raised properly when the Appeals officer made her determination before we can review those issues in the context of an appeal of that determination.

The benefit of encouraging taxpayers to raise liability questions first with the Appeals officer provides further support for the approach in the regulation. Allowing the tax liability to be raised initially only after the case has been petitioned to this Court would eliminate the Appeals officer’s role and permit liability issues to be litigated without any prior consideration by any level of respondent’s organization. Liability issues are likely to arise under section 6330 based on requests for reconsideration of taxes previously reported on a return. The judicial consideration of such liabilities without some prior review by the Commissioner would frustrate the administrative review process created by section 6330.

This, of course, is not the first time we have addressed the scope or our review of the Commissioner’s collection determinations. See Bruce v. Commissioner, T.C. Memo. 2007-161; Bourbeau v. Commissioner, T.C. Memo. 2003-117; Tabak v. Commissioner, T.C. Memo. 2003-4; Miller v. Commissioner, 115 T.C. 582, 589 n.2 (2000), affd. 21 Fed. Appx. 160 (4th Cir. 2001). Previously, we have left the door open to the possibility that we might consider issues not raised in the administrative hearing. See Magana v. Commissioner, 118 T.C. 488, 493 (2002) (“generally it would be anomalous and improper for us to conclude that respondent’s Appeals Office abused its discretion under section 6330(c)(3) in failing to grant relief, or in failing to consider arguments, issues, or other matter not raised by taxpayers or not otherwise brought to the attention of respondent’s Appeals Office” (emphasis added)). We hold today that we do not have authority to consider section 6330(c)(2) issues that were not raised before the Appeals Office.⁷

Thus, while the estate now disagrees with the income tax returns, this has no bearing on the limited decision before this Court. Mr. Giamelli submitted a Form 12153, Request for a Collection Due Process Hearing, to respondent. The only issue raised by Mr. Giamelli in the subsequent hearing with respondent’s Appeals officer was his desire to enter into an installment agreement to satisfy the 2001 tax liability. Mr. Giamelli, while represented by counsel, did not challenge the underlying liability, and the Appeals officer did not consider it. When Mr. Giamelli failed to become compliant with his estimated tax obligations, the Appeals officer issued a notice of determination rejecting the proposed installment agreement and sustaining respondent’s collection action.

Because the only issue raised with the Appeals officer was the installment agreement, our review is limited to the determination reached by the Appeals officer to reject the proposed installment agreement because of Mr. Giamelli’s noncompliance. The argument that an estate is a separate person and is entitled to its own collection review hearing fails for the same reason. While the estate has cited no authority for this novel argument, and we know of none, such an argument is not timely. As discussed above, our review is limited to the determination issued by respondent’s Appeals Office. The estate has presented no evidence to suggest that the Appeals officer abused her discretion, on the facts as they were presented to her by Mr. Giamelli, when she declined to enter into an installment agreement with Mr. Giamelli.

Accordingly, without any evidence to create a question of fact whether respondent’s Appeals Office abused its discretion, respondent’s motion for summary judgment will be granted.

To reflect the foregoing,

An appropriate order and decision will be entered.

Reviewed by the Court.

Cohen, Halpern, Chiechi, Foley, Thprnton, Haines, Kroupa, and Holmes, JJ., agree with this majority opinion.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2 The estate’s new arguments were not raised in the petition by the former counsel for Mr. Giamelli. Accordingly, were this case to survive summary judgment, the estate would be required to seek leave to amend the petition. By informal agreement, the parties have argued respondent’s motion for summary judgment presuming the estate would be permitted to raise these new arguments, and respondent argues for summary judgment even if these new arguments were accepted as true.

3 Sec. 6330(c)(2) provides as follows:

(2) Issues at hearing.—

(A) In GENERAL. — The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including—

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

(B) Underlying liability. — The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

4 The revised regulations, effective Nov. 16, 2006, now state: “In seeking Tax Court review of a Notice of Determination, the taxpayer can only ask the court to consider an issue, including a challenge to the underlying liability, that was properly raised in the taxpayer’s CDP hearing.” Sec. 301.6320-1(0(2), Q&A-F3, Proced. & Admin. Regs.

5 We do not address here the question of whether a taxpayer, having raised one issue with respect to his or her underlying liability in a collection review hearing, may then raise new and different issues with respect to the underlying liability for the first time on appeal of respondent’s determination before this Court. Mr. Giamelli did not raise any questions with respect to his underlying liability, and the Appeals officer did not consider the underlying liability in making her determination.

6 In Greene-Thapedi v. Commissioner, 126 T.C. 1, 8-13 (2006), we held that our jurisdiction under sec. 6330(d)(1) is more limited than in the deficiency context and does not include the authority to determine an overpayment or to order a refund.

7 This case does not involve an issue regarding the accuracy or completeness of the administrative record. See Murphy v. Commissioner, 125 T.C. 301, 311 (2005), affd. 469 F.3d 27 (1st Cir. 2006).