LG Kendrick, LLC v. Comm'r
This text of 146 T.C. No. 2 (LG Kendrick, LLC v. Comm'r) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
An appropriate order and decision will be entered.
P is a single-member LLC that operates a franchise business. The Internal Revenue Service (IRS) determined that P had employees and had unpaid Federal employment taxes, i.e., unpaid withholding and Federal Insurance Contributions Act tax liabilities with respect to its Forms 941, Employer's Quarterly Federal Tax Return, for the last three quarters of 2009 and all four quarters of 2010 and unpaid Federal Unemployment Tax Act tax liabilities with respect to its Forms 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for the 2009 and 2010 taxable years (collectively, periods at issue).
After processing substitutes for returns and assessing the employment taxes for the periods at issue, the IRS mailed to P a notice of the filing of a notice of Federal tax lien (NFTL) and a levy notice with respect to the periods at issue. P timely requested and received a
*18 MARVEL,
The issues for decision are whether: (1) we have jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability; (2) petitioner may challenge its underlying liabilities (and if so, the correct amounts of the underlying liabilities); and (3) the Appeals Office abused its discretion in sustaining the NFTL filing and the proposed levy action. We hold that we do not have jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability, that petitioner cannot challenge the underlying liabilities for the periods over which we have jurisdiction, and that the Appeals Office did not abuse its discretion.*4 We sustain the IRS' determinations for the periods over which we have jurisdiction.
The parties submitted this case fully stipulated under
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An appropriate order and decision will be entered.
P is a single-member LLC that operates a franchise business. The Internal Revenue Service (IRS) determined that P had employees and had unpaid Federal employment taxes, i.e., unpaid withholding and Federal Insurance Contributions Act tax liabilities with respect to its Forms 941, Employer's Quarterly Federal Tax Return, for the last three quarters of 2009 and all four quarters of 2010 and unpaid Federal Unemployment Tax Act tax liabilities with respect to its Forms 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for the 2009 and 2010 taxable years (collectively, periods at issue).
After processing substitutes for returns and assessing the employment taxes for the periods at issue, the IRS mailed to P a notice of the filing of a notice of Federal tax lien (NFTL) and a levy notice with respect to the periods at issue. P timely requested and received a
*18 MARVEL,
The issues for decision are whether: (1) we have jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability; (2) petitioner may challenge its underlying liabilities (and if so, the correct amounts of the underlying liabilities); and (3) the Appeals Office abused its discretion in sustaining the NFTL filing and the proposed levy action. We hold that we do not have jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability, that petitioner cannot challenge the underlying liabilities for the periods over which we have jurisdiction, and that the Appeals Office did not abuse its discretion.*4 We sustain the IRS' determinations for the periods over which we have jurisdiction.
The parties submitted this case fully stipulated under
Petitioner is a single-member LLC formed in 2009 that operates as a franchise of the business The UPS Store. Its manager and sole member is Michael E. Lunnon.6 From 1995 until petitioner's formation in 2009, Mr. Lunnon operated the franchise business as a sole proprietorship, originally under the name Mail Boxes Etc. Mr. Lunnon reported wages and paid employment taxes with respect to employees of the franchise to the State of New Mexico until 2002. He also filed Forms 941 with*5 the IRS for the December 31, 2001, quarter through the March 31, 2003, quarter. During the periods at issue petitioner paid an average of five individuals approximately twice per month. Mr. Lunnon has maintained a workers' compensation and employer's liability insurance policy since at least 2003.7 A 2006 insurance policy application that Mr. Lunnon signed and submitted for his business shows an estimated annual payroll of $75,000. The policy was renewed every year until at least 2011. However, petitioner did not file Forms 941 or Forms 940 or pay any employment tax for the periods at issue.
After the IRS had summoned and reviewed bank records*6 associated with petitioner's business and made a field call to the business, the IRS concluded that petitioner had paid employees approximately $7,440 per month8 and therefore had employment tax liabilities for the periods at issue. Although the IRS requested that Mr. Lunnon file on behalf of petitioner employment tax returns for the delinquent periods, Mr. Lunnon refused, and Revenue Officer T.W. *21 Lyons prepared a substitute for return under
The revenue officer sent petitioner a Letter 1085(DO), dated March 31, 2011, by certified mail to the business address. One of the individuals who the IRS had determined was an employee, Cameron Curley, signed the certified mail receipt on April 4, 2011. The letter informed petitioner about the substitutes for returns and stated that petitioner had 30 days to prepare and mail employment tax returns, mail additional information petitioner wanted the IRS to consider, or request a conference with Revenue Officer Lyons. The letter further stated that the IRS would process the substitutes for returns and assess the tax reflected on the returns*7 "plus any additional penalties and interest" if petitioner did not respond within 30 days. The letter explained that petitioner's representative could request a meeting or a telephone conference with the revenue officer's supervisor if petitioner did not agree "with any or all of the IRS findings given you". If petitioner still did not agree with the findings after a conference with the supervisor, it would have the opportunity to "appeal * * * [its] case to the Area Director of General Appeals."
Petitioner or its representative did not respond to the Letter 1085(DO) within 30 days. The IRS processed the substitutes for returns and assessed the tax. On August 2, 2011, the IRS mailed to petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice), with respect to the periods at issue. In the levy notice the IRS proposed for the first time additions to tax under
*22 Petitioner's case was transferred to Settlement Officer Joann Mares in the IRS Appeals Office. Settlement Officer Mares scheduled a telephone conference call for February 28, 2012, but Mr. Lunnon told Settlement Officer Mares that petitioner preferred to conduct the
Because petitioner did not give Settlement Officer Mares any pertinent information, she sustained the proposed levy and the NFTL filing on the basis of the information in the administrative record. On March 27, 2012, the Appeals Office issued two documents titled Notice of Determination Concerning Collection Action(s) Under
One notice sustained the collection action for the liabilities at issue, except that it did not address the proposed levy or the NFTL filing for petitioner's December 31, 2010, Form 941 liability (first notice of determination). The first page of the first notice of determination had a list titled "Tax Period(s) Ended", which listed the taxable periods to which the notice pertained and included the December 2010 taxable period.9*23 The third page of the first notice of determination contained two tables detailing to which*10 taxable periods and collection activities the notice pertained. The first table included the proposed levy of the Form 941 liabilities for the quarters ending June 30, 2009, through September 30, 2010, inclusive, and of the Form 940 liabilities for the taxable periods "12/31/09" and "12/31/10". The second table included the NFTL filing with respect to the Form 941 liabilities for the quarters June 30, 2009, through September 30, 2010, inclusive, and with respect to the Form 940 liabilities for the taxable periods "12/31/09" and "12/31/10".
The other notice of determination sustained the proposed levy of petitioner's December 31, 2010, Form 941 liability (second*11 notice of determination). The first page of the second notice of determination listed the relevant taxable period as December 2010. A table on the third page clarified that the notice pertained only to the proposed levy of petitioner's December 31, 2010, Form 941 liability.
Neither the first notice of determination nor the second notice of determination (together, original notices of determination) addressed the NFTL filing for petitioner's December 31, 2010, Form 941 liability or the proposed
Petitioner timely filed a petition in this Court disputing the original notices of determination. In preparation for trial the IRS subpoenaed additional bank records and documents related to the workers' compensation insurance policy. Respondent subsequently filed a motion to remand petitioner's case to the Appeals Office because, during the
*24 On remand the case was returned to Settlement Officer Mares. Settlement Officer Mares mailed to petitioner the documents that the IRS had relied upon to assess the underlying liabilities and documents supporting the assessments that the IRS had obtained during the pendency of the Tax Court case, including copies of checks drawn on petitioner's bank account that Mr. Lunnon wrote to the same individuals twice per month, employment tax transcripts from the State of New Mexico, workers' compensation insurance policy documents, IRS transcripts, and internal IRS documents summarizing petitioner's bank records. Settlement Officer Mares also mailed to petitioner a letter dated August 22, 2013, which stated: "I wasn't sure if you understood [upon the receipt of the Letter 1085(DO)] that you could have prepared and signed tax returns that you believe are correct and return them to the IRS within 30 days. If you have the correct returns*13 you may submit these to me on or before August 31, 2013 so that the Internal Revenue Service can process them."10 The letter also asked petitioner to explain its relationship with Cameron Curley and requested that petitioner submit financial information to Settlement Officer Mares and file the delinquent Forms 941 and 940 for the periods at issue by August 31, 2013, so that she could consider collection alternatives. The letter also warned petitioner that, if it did not respond to the letter, Settlement Officer Mares would make a supplemental determination on the basis of information already in the record.
Instead of supplying the requested information, Mr. Lunnon sent a letter to Settlement Officer Mares challenging the documents that respondent had provided because at least some of them were not available when the IRS made its original determinations*14 and because some of the documents referred to Mr. Lunnon rather than to petitioner. In response Settlement Officer Mares allowed petitioner until September 13, 2013, to prepare the requested returns using the documents that respondent had provided to it or any other additional information petitioner had. Mr. Lunnon did not cause *25 petitioner to file the delinquent returns or send Settlement Officer Mares pertinent information. Instead, Mr. Lunnon continued to challenge the relevancy of the documents respondent had provided but did not say the documents reflected incorrect information or deny that petitioner had employees for the periods at issue.
Because petitioner did not file the delinquent returns or provide information after multiple opportunities to do so, the Appeals Office issued to petitioner a Supplemental Notice of Determination Concerning Collection Action(s) Under
The Secretary is authorized to collect tax by levy upon a taxpayer's property if any taxpayer liable to pay any tax neglects or refuses to pay such tax within 10 days after notice and demand for payment.
At a
Following a hearing, the Appeals Office must issue a notice of determination regarding the appropriateness of the collection action. The Appeals Office is required to take into consideration: (1) verification presented by*17 the Secretary that the requirements of applicable law and administrative procedure have been met, (2) relevant issues that the taxpayer raised, and (3) whether the proposed collection action appropriately balances the need for efficient collection of taxes with the taxpayer's concerns regarding the intrusiveness of the proposed collection action.
Pursuant to
Questions of jurisdiction may be raised by either party or the Court at any stage of a proceeding.
Although the IRS had sent petitioner a Letter 3172(DO), and petitioner had requested a
In
Normally a notice of determination includes these key pieces of information and our jurisdiction to review a collection action for a particular taxable period*21 and liability is soundly established. When a notice of determination does not clearly set forth this information, we must determine whether the notice is valid. An invalid notice cannot form the basis for our jurisdiction, and the Commissioner may proceed with the collection action only if he subsequently issues a valid notice with attendant appeal rights.
In certain circumstances we have held that a flaw in a jurisdictional notice is not fatal if the notice, along with any attachments, is sufficient to apprise the taxpayer of the Commissioner's determination and the taxpayer was not prejudiced or misled by the flaw.15
However, the instant case is distinguishable from cases where the jurisdictional notice contained a typographical or other minor error but still revealed on its face that the Commissioner had made a determination with respect to a particular period. The tables within the original notices of determination listed all periods and collection activities for which the Appeals Office had made determinations. They did not include the NFTL filing for petitioner's December 31, 2010, Form 941 liability. Nothing in the remainder of the notices hints that the Appeals Office made a determination with respect to the NFTL filing for that liability. The references to the taxable period December 2010 on the first pages of the original notices of determination do not provide *31 clarification because*24 the notices address other collection activities with respect to that period.16
In short, the original notices of determination were devoid of any information from which a reasonable person could conclude that the Appeals Office had made a determination with respect to the NFTL filing for the December 31, 2010, Form 941 liability. The fundamental purpose of a notice of determination, i.e., to notify the taxpayer of the Appeals Office's determination to sustain a collection action for a particular taxable period, was not fulfilled. We also do not look behind the notice, as respondent urges us to do, to determine whether petitioner "substantively received a hearing with respect to" the December 31, 2010, Form 941 liability. It is the Appeals Office's written determination, not the fact that a
After petitioner filed its petition, we remanded this case to the Appeals Office, and the Appeals Office issued a supplemental notice of determination. The notice stated that "[t]his Supplemental Notice of Determination includes the period ending 12/31/2010 for both the levy and the lien as the taxpayer requested." We must therefore determine whether a supplemental notice may form the basis for our jurisdiction under
We considered whether a supplemental notice of determination can form the basis for our jurisdiction under
In holding that we lacked jurisdiction over the supplemental notice, we noted that a taxpayer is entitled to only one
Respondent contends that
The original notices of determination were insufficient to confer jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability. A supplemental notice of determination cannot cure this jurisdictional defect. Therefore, we do not have jurisdiction to review the NFTL filing for petitioner's December 31, 2010, Form 941 liability.
We next review whether petitioner may challenge the underlying liabilities with respect to the taxable periods over which we have jurisdiction. Petitioner has continuously maintained that it does not owe the underlying employment taxes because (1) the IRS has the burden of proving that petitioner paid employees for the periods at issue*29 and (2) the IRS did not meet this burden because it may not rely on documentary evidence obtained after the issuance of the original notices of determination to sustain the assessed taxes. Respondent contends that petitioner may not challenge the underlying liabilities because the Letter 1085(DO) constituted a prior opportunity to dispute the liabilities and because petitioner did not properly raise the issue with the Appeals Office. Because we find that petitioner did not properly raise the underlying liabilities with the Appeals Office after a reasonable opportunity to do so, we do not address whether the Letter 1085(DO) provided petitioner with a prior opportunity to challenge the liabilities.
In reviewing a determination under
On remand petitioner had ample opportunity to file its delinquent tax returns and present any other information that it wanted Settlement Officer Mares to consider with respect to the employment tax liabilities. In the letter dated August 22, 2013, Settlement Officer Mares stated that, because petitioner may not have been aware of the opportunity to submit its own returns upon receipt of the Letter 1085(DO), the IRS would process the delinquent returns for the periods at issue if petitioner submitted them by August 31, 2013. Even though petitioner responded to this request with generally unhelpful and irrelevant information, Settlement Officer Mares allowed petitioner an extension of time to file the returns until September 13, 2013. She told petitioner that it could use the documents that respondent had provided or any additional information to prepare the returns. Instead of filing returns or producing any relevant information, petitioner continued to assert that it was not liable for the underlying liabilities because respondent could not prove, using only information available during the original hearing, the existence*31 of any employees.
Petitioner, rejecting the documentary evidence that respondent obtained during the trial as untimely and therefore irrelevant, quotes
On remand the Appeals Office provided petitioner with documentary evidence of petitioner's employees, including copies of checks, summaries of petitioner's own bank records, documents showing employment tax payments to the State of New Mexico, and bills and renewal notifications from the workers' compensation insurance policy, and petitioner still did not produce its own evidence tending to refute the Appeals Office's determinations. Petitioner contends that the documentary evidence is insufficient because it includes references to taxable periods not at issue. Although the record contains references to taxable periods other than the ones at issue here, it also contains documentary evidence related*32 to the periods at issue.
Petitioner also invokes the
Petitioner is correct in stating that we uphold the Appeals Office's determination only on grounds upon which the Appeals Office actually relied in the notice of determination.
On remand Settlement Officer Mares had access to and relied upon documentation unavailable during the original hearing. Respondent provided these documents, subpoenaed in preparation*34 for trial, to petitioner upon receipt and incorporated them into the administrative record on remand. We remanded this case in part for the Appeals Office to clarify whether petitioner had had a prior opportunity to challenge the underlying liabilities and to explain to petitioner the basis of the underlying assessments. Settlement Officer Mares appropriately relied on the additional documents to carry out the Court's remand order and did not violate the
We also do not consider the validity of the
Pursuant to
Because petitioner may not challenge the underlying liabilities, we review the Appeals Office's determinations for abuse of discretion.
We have considered the parties' remaining arguments, and to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit.
To reflect the foregoing,
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2.
See infra pp. 17-24 regarding the NFTL filing for petitioner's December 31, 2010, Form 941 liability. We holdinfra↩ that the IRS did not make a written determination with respect to this liability.3. Petitioner's Form 940 liability with respect to the 2009 taxable year is prorated because petitioner was formed during 2009.
See infra p. 5. Employment tax liabilities for periods before petitioner's formation are the subject of the opinion inLunnon v. Commissioner , T.C. Memo 2015-156See sec. 301.7701-2(c)(2)(iv)↩ , Proced. & Admin. Regs. The trust fund recovery penalties that the IRS proposed to assess against Mr. Lunnon with respect to the Form 941 liabilities for the periods at issue are not before the Court.4. For the remainder of this report we use the term "employment tax" to refer to taxes under FICA,
secs. 3101-3128 , FUTA,secs. 3301-3311 , and income tax withholding,secs. 3401-3406 and3509↩ .5. Petitioner objected to Exhibit 3-J, respondent's request for admissions, because it was not part of the administrative record. When this case was recalled at the June 2, 2014, Albuquerque, New Mexico, trial session, we reserved ruling on petitioner's objection. We decide this case without regard to deemed admissions under
Rule 90(c)↩ , and we treat petitioner's objection as moot.6. The IRS revenue officer's case notes suggest that Mr. Lunnon at one point represented that the Michael Lunnon Revocable Trust was at least a partial owner of petitioner. However, the case notes also state that Mr. Lunnon is the only member listed on petitioner's articles of organization, and the record does not contain any information about the Michael Lunnon Revocable Trust.↩
7. Mr. Lunnon, not petitioner, is the named insured on the insurance policy for the periods at issue even though Mr. Lunnon operated his business through petitioner during that time.↩
8. This figure does not include the amount that petitioner paid to Mr. Lunnon as a wage.↩
9. The taxable period for Form 940 liabilities is often identified as the last day of the calendar year,
see, e.g., J&S Auto Painting, Inc. v. Commissioner , T.C. Memo. 2013-232, at *5Everett Assocs., Inc. v. Commissioner , T.C. Memo. 2012-143↩, slip op. at 210. The letter erroneously referenced taxable periods not at issue, and although the recipient of the letter was LG Kendrick, LLC, the salutation read: "Dear Mr. Lunnon". Settlement Officer Mares later clarified in a subsequent letter that the August 22, 2013, letter in fact related to petitioner's employment tax liabilities for the periods at issue.↩
11. The term "Secretary" means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B)↩ .12. On June 10, 2015, the Court ordered respondent to file a memorandum brief explaining his position with respect to this jurisdictional issue. The Court permitted but did not require petitioner to file an answering brief by August 14, 2015, and petitioner did not do so.↩
13. Similarly, we and several U.S. Courts of Appeals have stated that a valid notice of deficiency must at a minimum (1) advise the taxpayer that the IRS has made a determination and (2) specify the amount of the deficiency and the tax year involved.
See Geiselman v. United States , 961 F.2d 1 (1st Cir. 1992)Portillo v. Commissioner , 932 F.2d 1128, 1132 (5th Cir. 1991)aff'g in part, rev'g in part, and remanding T.C. Memo. 1990-68 ;Abrams v. Commissioner , 814 F.2d 1356, 1357 (9th Cir. 1987)aff'g 84 T.C. 1308 (1985) ;Alford v. Commissioner , 800 F.2d 987, 988 (10th Cir. 1986)aff'g 84 T.C. 1308 (1985) ;Benzvi v. Commissioner , 787 F.2d 1541, 1542 (11th Cir. 1986)Commissioner v. Stewart , 186 F.2d 239, 242 (6th Cir. 1951)Kellogg v. Commissioner , 88 T.C. 167, 172 (1987)see also Olsen v. Helvering , 88 F.2d 650, 651↩ (2d Cir. 1937)14. The Appeals Office's determination must also take into consideration the items listed in
sec. 6330(c)(3)↩ .15. Because a notice of determination under
secs. 6320 /6330 is the jurisdictional equivalent to a notice of deficiency, caselaw regarding the validity of a notice of deficiency pursuant tosec. 6212 also informs our holding.See Offiler v. Commissioner , 114 T.C. 492, 498↩ (2000)16. Although
sec. 6320 andsec. 6330 hearings are often held jointly when the Commissioner has proposed to levy and has filed an NFTL with respect to the same taxable period, a proposed levy and an NFTL filing are distinct collection activities for which the Commissioner must make separate determinations, even if those determinations are embodied in the same notice of determination.See secs. 6320 ,6321 ,6330 ,6331↩ .17. To the extent it is practicable, a
sec. 6330 hearing will be held in conjunction with asec. 6320 hearing.Sec. 301.6330-1(d)(2), Q&A-D3↩ , Proced. & Admin. Regs.18. Because we review the determination as supplemented, the remand cured misstatements of fact in the original notices of determination, such as the incorrect assertion that petitioner voluntarily filed employment tax returns.
See Kelby v. Commissioner , 130 T.C. 79, 86 (2008)Langley v. Commissioner , T.C. Memo 2015-11sec. 6330↩ hearing was remanded because the notice of determination relied upon misstatements in the administrative record).19. Moreover, petitioner did not allege any facts or produce any credible evidence regarding the underlying liabilities in the stipulation of facts or otherwise that would permit us to conclude that it properly raised the issue before the Court.
See Rule 331(b)(5) ;Goza v. Commissioner , 114 T.C. 176, 183↩ (2000)
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Cite This Page — Counsel Stack
146 T.C. No. 2, 146 T.C. 17, 2016 U.S. Tax Ct. LEXIS 2, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lg-kendrick-llc-v-commr-tax-2016.