Nield and Linda Montgomery v. Commissioner

122 T.C. No. 1

• Court: United States Tax Court
• Decided: January 22, 2004
• Docket: 16864-02L
• Status: Unknown

Opinion

122 T.C. No. 1

UNITED STATES TAX COURT

NIELD AND LINDA MONTGOMERY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16864-02L. Filed January 22, 2004.

Ps filed a joint Federal income tax return for the taxable year 2000 reporting total tax of $2,831,360 and tax due of $196,006. Ps failed to remit the latter amount with their tax return. R accepted Ps’ tax return as filed and assessed the tax reported therein. Sec. 6201(a)(1), I.R.C. R issued to Ps a final notice of intent to levy, and Ps filed with R a request for a collection due process hearing under sec. 6330, I.R.C. In a subsequent telephone conversation between Ps’ counsel and R’s Appeals officer, Ps asserted that they had overstated the total tax on their original return for 2000 and indicated that they intended to submit an amended return showing that they were due a refund for that year. R issued to Ps a final notice of determination in which he determined that Ps were not entitled to challenge the amount of their tax liability in the administrative proceeding, citing sec. 6330(c)(2)(B), I.R.C. Ps filed with the Court a timely petition for review of R’s determination. R filed a Motion for Summary Judgment. Ps opposed R’s motion. - 2 -

Held: R’s Motion for Summary Judgment will be denied. Sec. 6330(c)(2)(B), I.R.C., permits Ps to challenge the existence or amount of the tax liability reported on their original tax return because Ps have not received a notice of deficiency and have not otherwise had an opportunity to dispute the tax liability in question.

Duncan C. Turner and Brian G. Isaacson, for petitioners.

Glenn P. Thomas and Julie L. Payne, for respondent.

OPINION

DAWSON, Judge: This case was assigned to Chief Special

Trial Judge Peter J. Panuthos, pursuant to the provisions of

section 7443A(b)(4) and Rules 180, 181, and 182.1 The Court

agrees with and adopts the opinion of the Special Trial Judge,

which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

PANUTHOS, Chief Special Trial Judge: This matter is before

the Court on respondent’s Motion for Summary Judgment, filed

pursuant to Rule 121. As explained in detail below, we shall

deny respondent’s motion.

Background

On or about October 18, 2001, petitioners filed a timely

1 Section references are to the Internal Revenue Code, as amended. Rule references are to the Tax Court Rules of Practice and Procedure. - 3 -

joint Federal income tax return for the taxable year 2000 on

which they reported total tax of $2,831,360, total payments of

$2,636,723, and tax due of $194,637 plus an estimated tax penalty

of $1,369, interest due on the unpaid balance of $9,704, and a

penalty for failure to pay of $7,785, for a total amount due of

$213,495. Petitioners failed to remit the amount due with their

tax return. Respondent accepted the tax return as filed and

assessed the amount reported therein. Respondent did not audit

petitioners’ tax return for 2000 and did not send petitioners a

notice of deficiency for 2000.

On March 19, 2002, respondent issued to petitioners a Final

Notice-–Notice of Intent to Levy and Notice of Your Right to a

Hearing with regard to their unpaid tax for 2000. The notice

stated that petitioners owed tax, penalties, and interest

totaling $222,315.34.

On April 18, 2002, petitioners submitted to respondent a

Form 12153, Request for a Collection Due Process Hearing.

Petitioners’ request for an administrative hearing stated in

pertinent part:

The taxpayer has a good track record of paying his taxes timely in appropriate amounts, as evidenced by the 1997—1999 tax returns * * *. However, in tax year 2000, the taxpayer had an extraordinary tax liability ($2,831,360) due to his exercise of several incentive and nonqualified stock options and the application of the AMT rates. The taxpayer was able to pay $2,636,723 of the tax liability, but, unfortunately, the value of the stock received plummeted before year-end 2000 and is now essentially worthless. Thus, the remaining tax - 4 -

liability is currently thousands of times higher that the value of the asset received. The taxpayer is working diligently and in good faith with various professional advisors to evaluate the situation and remedy the outstanding tax liability.

Petitioners also stated that (1) they intended to prepare and

submit an amended income tax return for 2000 that would reflect

that they were entitled to a refund for that year; and (2) in any

event, the parties should explore alternatives to the proposed

levy including an installment agreement, an offer in compromise,

posting a bond, or substitution of other assets.

On July 2, 2002, Appeals Officer Jerry L. Johnson wrote to

petitioners to inform them that he had scheduled their Appeals

Office hearing for July 25, 2002. Appeals Officer Johnson’s

letter stated in pertinent part:

As explained in the above mentioned code sections and related documents, a taxpayer may dispute the underlying liability in a collection due process hearing only when a notice of deficiency was not provided to the last known address of the taxpayer, or where the taxpayer did not otherwise have an opportunity to dispute the tax. Since that is the case here, you will have the opportunity to discuss the liability at the hearing. In that regard, if you plan to present or discuss new material, please send me copies at least five days before our meeting.

On July 22, 2002, Appeals Officer Johnson had a telephone

conversation with petitioners’ representative. During the

conversation, petitioners’ representative stated that, through

the misapplication of complex statutory provisions, petitioners

had overstated their tax liability for 2000 on their original - 5 -

return and that they intended to submit an amended income tax

return for 2000. Although the parties agreed that petitioners

would be permitted to submit an amended return, the parties did

not set a deadline for the submission of such amended return.

On September 26, 2002, without any further communication

between the parties, the Appeals Office issued to petitioners a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 6330. The notice of determination, signed by

Appeals Team Manager Debra M. Brush, stated in pertinent part:

“The Taxpayer has indicated he would file amended returns to

mitigate the liability, but such has not been done in a

reasonable time, and the mere filing of such claim does not

guarantee that the claim should be paid. Therefore, the levy

should be allowed to proceed.” As of September 26, 2002,

petitioners had not submitted to respondent an amended income tax

return for 2000. However, on October 11, 2002, petitioners

submitted to respondent an amended income tax return for 2000

which reflects that petitioners are due a refund of $519,087.

On October 28, 2002, petitioners filed with the Court a

Petition for Lien or Levy Action Under Section 6320 and/or 6330.2

The sole issue raised in the petition is a challenge to the

amount of petitioners’ underlying tax liability for 2000.

2 The petition was timely mailed to the Court on Oct. 25, 2002. Secs. 6330(d), 7502(a). - 6 -

After filing an answer to the petition, respondent filed a

Motion for Summary Judgment. Respondent maintains that there is

no dispute as to a material fact and the Court should enter

judgment as a matter of law sustaining the notice of

determination dated September 26, 2002. Respondent argues that

petitioners are barred from challenging the existence or amount

of their underlying tax liability for 2000 in this collection

review proceeding on the ground that the tax liability in

question was “self-assessed” on petitioners’ original tax return

pursuant to section 6201(a)(1). Petitioners filed an Objection

to respondent’s motion.

This matter was called for hearing at the Court’s motions

session held in Washington, D.C. Counsel for both parties

appeared at the hearing and made oral argument.

Discussion

Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials. See Florida Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may

be granted with respect to all or any part of the legal issues in

controversy “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.” Rule 121(b); Sundstrand Corp. v. - 7 -

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

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, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment. See

Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982).

We are satisfied from our review of the record that there is

no genuine issue as to any material fact. However, we conclude,

contrary to respondent’s position, that petitioners may challenge

the amount of their underlying tax liability in this proceeding.

Consequently, we shall deny respondent’s motion.

Section 6331(a) provides that if any person liable to pay

any tax neglects or refuses to pay such tax within 10 days after

notice and demand for payment, the Secretary is authorized to

collect such tax by levy on the person’s property. Section

6331(d) provides that at least 30 days before enforcing

collection by levy on the person’s property, the Secretary is

obliged to provide the person with a final notice of intent to

levy, including notice of the administrative appeals available to

the person.

Section 6330 generally provides that the Commissioner cannot

proceed with collection by levy until the person has been given - 8 -

notice and the opportunity for an administrative review of the

matter (in the form of an Appeals Office hearing) and, if

dissatisfied, with judicial review of the administrative

determination. See Davis v. Commissioner, 115 T.C. 35, 37

(2000); Goza v. Commissioner, 114 T.C. 176, 179 (2000). Section

6330(d) provides for judicial review of the administrative

determination in the Tax Court or a Federal District Court, as

may be appropriate.

Section 6330(c) prescribes the matters that a person may

raise at an Appeals Office hearing. Section 6330(c)(2)(A)

provides that a person may raise collection issues such as

spousal defenses, the appropriateness of the Commissioner’s

intended collection action, and possible alternative means of

collection. See Sego v. Commissioner, 114 T.C. 604, 609 (2000);

Goza v. Commissioner, supra. In addition, section 6330(c)(2)(B)

establishes the circumstances under which a person may challenge

the existence or amount of his or her underlying tax liability.

Section 6330(c)(2)(B) provides:

SEC. 6330(c)(2). Issues at Hearing.--

* * * * * * *

(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. - 9 -

Respondent has promulgated interpretative regulations

related to section 6330(c)(2)(B). Section 301.6330-1(e), Proced.

& Admin. Regs., provides in pertinent part:

(e) Matters considered at CDP hearing--(1) In general. * * * The taxpayer also may raise challenges to the existence or amount of the tax liability specified on the CDP Notice for any tax period shown on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability.

Section 301.6330-1(e)(3), Proced. & Admin. Regs., provides in

(3) Questions and answers. The questions and answers illustrate the provisions of this paragraph (e) as follows: * * *

Q-E2. When is a taxpayer entitled to challenge the existence or amount of the tax liability specified in the CDP Notice?

A-E2. A taxpayer is entitled to challenge the existence or amount of the tax liability specified in the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such liability.

Notably, respondent’s regulations do not expressly bar a person

from challenging the existence or amount of tax previously

reported due on a tax return.

In any event, respondent’s position in this case is

articulated in his motion as follows:

Respondent interprets section 6330(c)(2)(B) to mean that a taxpayer can challenge only those liabilities asserted by respondent that differ in amount from the taxpayer’s self-determination. By - 10 -

granting taxpayers a right to contest the existence or amount of an underlying tax liability, Congress was concerned with tax liabilities asserted by respondent, rather than those originally computed and reported by the taxpayers themselves. This concern is evident in the phrasing of section 6330(c)(2)(B), which permits a taxpayer to contest an underlying tax liability in the event that he or she has been denied a prior opportunity to contest that liability in the form of a “statutory notice of deficiency” or “otherwise.” It is nonsensical to permit taxpayers whose tax liabilities are self-determined to contest under section 6330 the liabilities they computed, voluntarily reported and declared to be correct under penalty of perjury.

Respondent further asserts that there is no suggestion in the

legislative history underlying section 6330 that Congress

intended to permit taxpayers to challenge taxes that were “self-

assessed” on a tax return. Finally, respondent maintains that,

inasmuch as section 6330 constitutes a waiver of sovereign

immunity, the provision should be narrowly construed in the

Commissioner’s favor.

Before proceeding, we briefly review the principles of

statutory construction that guide our analysis. It is well

settled that in interpreting a statute, we start with the

language of the statute itself. Consumer Prod. Safety Commn. v.

GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). If the language of

the statute is plain, clear, and unambiguous, we generally apply

it according to its terms. United States v. Ron Pair Enters.,

Inc., 489 U.S. 235, 241 (1989); Burke v. Commissioner, 105 T.C.

41, 59 (1995). In Huntsberry v. Commissioner, 83 T.C. 742, 747-

748 (1984), we stated that “where a statute is clear on its face, - 11 -

we would require unequivocal evidence of legislative purpose

before construing the statute so as to override the plain meaning

of the words used therein.” However, if a statute “is ambiguous

or silent, we may look to the statute’s legislative history to

determine congressional intent.” Ewing v. Commissioner, 118 T.C.

494, 503 (2002) (citing Burlington N. R.R. v. Okla. Tax Commn.,

481 U.S. 454, 461 (1987)); see Wells Fargo & Co. v. Commissioner,

120 T.C. 69, 89 (2003); Allen v. Commissioner, 118 T.C. 1, 7

(2002).

Turning to section 6330(c)(2)(B), the provision plainly

states that a person may challenge “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.” The term “underlying tax liability” is not

defined in section 6320 or 6330, nor is there any specific

reference to that term in the legislative history of the

provisions. Taken in context, it is reasonable to interpret the

term “underlying tax liability” as a reference to the amounts

that the Commissioner assessed for a particular tax period. In

this regard, the term “underlying tax liability” may encompass an

amount assessed following the issuance of a notice of deficiency - 12 -

under section 6213(a), an amount “self-assessed” under section

6201(a), or a combination of such amounts.

Consistent with the foregoing, the plain language of section

6330(c)(2)(B) bars a person who has received a notice of

deficiency from challenging his or her underlying tax liability

for that year (whether the liability was self-assessed or

assessed as a deficiency) in a collection review proceeding

inasmuch as the person was afforded a prior opportunity to

challenge such liability under the deficiency procedures.3 In

contrast, where a person has not received a notice of deficiency

and has not had a prior administrative or judicial opportunity to

challenge the amounts the Commissioner assessed, section

6330(c)(2)(B) provides that such person may challenge the

liability as part of the collection review procedure.

In the present case, petitioners’ underlying tax liability

consists of the amount that petitioners reported due on their tax

return along with statutory interest and penalties. It is clear

that petitioners did not receive a notice of deficiency for 2000.

Indeed, respondent was not obliged to issue a notice of

deficiency to petitioners because the assessment in question was

3 See Naftel v. Commissioner, 85 T.C. 527, 531 (1985), where we observed that in a deficiency proceeding brought under sec. 6213(a), the Court may also consider the taxpayer’s claim of an overpayment for the year(s) in issue under sec. 6512(b)(1). - 13 -

entered under section 6201(a)(1).4 Moreover, the tax that

petitioners reported due on their return is excluded from the

definition of a deficiency under section 6211(a).

The question that remains under section 6330(c)(2)(B) is

whether petitioners “did not otherwise have an opportunity to

dispute such tax liability” for 2000. Respondent contends that

the phrase quoted above should be interpreted to exclude persons,

such as petitioners, who have reported their tax liability on a

duly filed tax return. However, respondent’s proposed

interpretation would have the effect of adding terms and

conditions to section 6330(c)(2)(B) that are inconsistent with

the plain language of the provision. As we see it, if Congress

had intended to preclude taxpayers from challenging in a

collection review proceeding taxes that were assessed pursuant to

section 6201(a)(1), the statute would have been drafted to

clearly so provide. Simply put, the plain language of the

statute as enacted, with an emphasis on whether there was an

earlier opportunity to dispute the tax liability, provides a

broader remedy than respondent’s interpretation would allow.

4 Sec. 6201(a)(1) provides:

(1) Taxes shown on return.-–The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title. - 14 -

To date petitioners have not had an opportunity to “dispute”

their tax liability for the taxable year 2000 in any sense of the

term. Although petitioners reported the tax liability that is

the subject of respondent’s proposed levy on their original tax

return, they now contend (and would like the opportunity to show)

that they erred in computing the tax attributable to certain

stock options that Mr. Montgomery exercised in 2000. The record

does not reflect whether respondent has given consideration to

petitioners’ amended tax return for 2000 and their claim that

their original return contained an error. In sum, we hold that

section 6330(c)(2)(B) permits petitioners to challenge the

existence or amount of the tax liability reported on their

original income tax return because they have not received a

notice of deficiency for 2000 and they have not otherwise had an

opportunity to dispute the tax liability in question.5

5 We also observe that carving out self-assessed amounts from the term “underlying tax liability” under sec. 6330(c)(2)(B), as respondent would have us do, does not comport with the use of that term in sec. 6311 which deals with the payment of tax by commercially acceptable means. Like sec. 6330, it is another provision of the Code relating to collection. Specifically, sec. 6311(d)(3)(A) provides in relevant part that “a payment of internal revenue taxes * * * by use of a credit card shall not be subject to section 161 of the Truth in Lending Act * * * if the error alleged by the person is an error relating to the underlying tax liability”. Similarly, sec. 6311(d)(3)(C) provides in relevant part that “a payment of internal revenue taxes * * * by use of a debit card shall not be subject to section 908 of the Electronic Fund Transfer Act * * * if the error alleged by the person is an error relating to the underlying tax liability”. In both instances, use of the term (continued...) - 15 -

Respondent asserts that it is nonsensical to permit

petitioners to challenge in a collection review proceeding the

very tax that they reported to be due (or “self-determined”) on

their original income tax return. We would not characterize an

opportunity for respondent to review the correct amount of

petitioners’ tax liability as nonsensical. As discussed above,

the controlling statutory language focuses on whether the person

had a prior opportunity to dispute the tax liability--and

petitioners have not had any such opportunity. Read in context,

and as applied in this case, section 6330(c)(2)(B) extends the

substantive and procedural protections of sections 6320 and 6330

to taxpayers who may have erred (in the Government’s favor) in

preparing and filing their tax returns. Given the complexity of

the Federal income tax laws, such taxpayer errors may well be

common. We conclude that section 6330(c)(2)(B) is fairly read as

providing a remedy to such taxpayers.

Respondent also urges that the legislative history of

section 6330(c)(2)(B) and principles of sovereign immunity

require that the provision be construed narrowly in the

Commissioner’s favor. We disagree. We see no ambiguity in the

plain language of section 6330(c)(2)(B) that would justify resort

to the legislative history for guidance in interpreting the

5 (...continued) “underlying tax liability” in sec. 6311 patently includes self- assessed amounts. - 16 -

provision. Moreover, we are not aware of any specific expression

of congressional intent in the legislative history that would bar

persons, such as petitioners, from raising a valid challenge to

the existence or amount of tax previously reported due on a tax

return. See Huntsberry v. Commissioner, 83 T.C. at 747-748.

Considering the plain language of the statute, we find

respondent’s reliance on principles of sovereign immunity equally

unavailing.

Our holding in this case advances the policies underlying

sections 6320 and 6330. Those sections were enacted to provide

taxpayers who have been notified that the Commissioner has filed

a lien or intends to collect unpaid taxes by levy with a final

opportunity to raise a spousal defense, offer an alternative

means of collection, and/or challenge the appropriateness of the

proposed collection action. Moreover, as pertinent herein,

Congress provided taxpayers who are confronted with a lien or

proposed levy, but who have not had a prior opportunity to

challenge the existence or amount of the tax liability in

question, with the opportunity to do so. In view of the

statutory scheme as a whole, we think the substantive and

procedural protections contained in sections 6320 and 6330

reflect congressional intent that the Commissioner should collect

the correct amount of tax, and do so by observing all applicable

laws and administrative procedures. - 17 -

To reflect the foregoing,

An order will be issued

denying respondent’s motion for

summary judgment.

Reviewed by the Court.

WELLS, COHEN, SWIFT, LARO, FOLEY, VASQUEZ, THORNTON, HAINES, WHERRY, and KROUPA, JJ., agree with this majority opinion. - 18 -

WELLS, C.J., concurring: Respectfully, I write separately

to respond to the suggestion, raised by Judge Chiechi in her

opinion dissenting and concurring in part, that respondent’s

Motion for Summary Judgment should be denied on the narrow ground

that section 301.6330-1(e), Proced. & Admin. Regs., 67 Fed. Reg.

2555 (Jan. 18, 2002), is dispositive of the issue in the instant

case. The issue before us is whether section 6330(c)(2)(B)

permits a taxpayer to challenge in a lien and levy action in this

Court the existence or amount of tax that the taxpayer previously

reported due on his or her income tax return. The majority

concludes, and I believe correctly so, that the plain language of

section 6330(c)(2)(B) permits a taxpayer to raise such a

challenge.

Judge Chiechi, however, agrees with the result reached by

the majority only insofar as petitioners may challenge the

existence or amount of the tax liability specified in the “final

notice”. I believe the majority, based on its interpretation of

section 6330(c)(2)(B), correctly holds that petitioners may

challenge the entire amount of tax, penalties, and interest that

respondent assessed against them for the taxable year 2000.1

Section 301.6330-1(e), Proced. & Admin. Regs., quoted in

1 Petitioners not only challenge the $222,315.34 amount specified in respondent’s final notice of intent to levy, but they also contend that they overpaid their taxes in the amount of $519,087. - 19 -

full in the majority opinion, is an interpretative regulation

that does nothing more than state a general proposition, to wit:

A taxpayer may challenge in a collection review proceeding the

existence or amount of the tax liability set forth in a final

lien or levy notice if the taxpayer did not receive a notice of

deficiency for such liability or did not otherwise have an

opportunity to dispute such liability. The regulation largely

tracks the language of section 6330(c)(2)(B), with the exception

that the term “underlying tax liability” contained in the statute

is in the regulation replaced by the phrase “the tax liability

specified on the CDP Notice”.

Nowhere in the parties' motion or opposition or written and

oral arguments have they cited or relied upon section 301.6330-

1(e), Proced. & Admin. Regs. I suggest that the reason for the

parties' failure to cite that regulation is that the proper

disposition of respondent’s motion depends upon the Court’s

statutory construction of section 6330(c)(2)(B).

In any event, the general rule espoused in the regulation is

in no way dispositive of the specific question whether section

6330(c)(2)(B) permits a taxpayer to challenge the existence or

amount of tax that was reported due on the taxpayer’s return. It

is respondent’s position in the instant case that tax reported

due on a return and assessed by respondent under section 6201

represents a unique assessment that Congress never intended to be - 20 -

subject to challenge under section 6330(c)(2)(B) (and by

implication section 301.6330-1(e), Proced. & Admin. Regs.).

Under the circumstances, I believe that it is incumbent upon this

Court to resolve the question the parties raised and argued by

analyzing the controlling statutory provision, as opposed to

relying upon a general statement appearing in an interpretative

regulation.

FOLEY, THORNTON, and KROUPA, JJ., agree with this concurring opinion. - 21 -

LARO, J., concurring: I agree with the majority opinion.

I write separately to emphasize two points underlying that

opinion.

1. The Term “Underlying Tax Liability” Is Unambiguous

The relevant term, “underlying tax liability”, is clear and

unambiguous and is read easily to mean the tax liability

underlying the proposed levy. The beginning and end of our

inquiry, therefore, must be the statutory text, and we must apply

the plain meaning of that text. TVA v. Hill, 437 U.S. 153, 185

n.29 (1978); United States v. Am. Trucking Associations, 310 U.S.

534, 543 (1940). Only when text is “inescapably ambiguous” may

we resort to the legislative history to discern its meaning.

Garcia v. United States, 469 U.S. 70, 76 n.3 (1984). The meaning

of the relevant term is not inescapably ambiguous. Whereas

respondent essentially reads the relevant term to mean

“underlying tax deficiency”, Congress obviously knew how to use

the word “deficiency” and presumably would have used that word in

the relevant term had it intended the reading advocated by

respondent.

2. Legislative History Supports the Majority Opinion

Even if we were permitted to consult the legislative history

of section 6330(c)(2) to discern the meaning of the relevant

term, the legislative history supports interpreting the term in

accordance with its plain meaning. The history to section 6330, - 22 -

as stated in the committee reports and as discerned from the

setting in which that section was enacted, reveals that Congress

intended that a taxpayer be allowed under that section to dispute

a tax liability underlying a proposed levy whenever the taxpayer

did not have a prior opportunity to dispute that liability either

through the receipt of a notice of deficiency or otherwise.

The enactment of section 6330 followed more than a year of

Congressional investigations and hearings over the future of the

Internal Revenue Service (IRS), resulting in highly publicized

criticisms of the agency’s collection methods. Mesa Oil, Inc. v.

United States, 86 AFTR 2d 2000-7312, 2001-1 USTC par. 50,130 (D.

Colo. 2000). We know from the Senate report that the Senate

Finance Committee intended that section 6330 would establish

“formal procedures designed to insure due process where the IRS

seeks to collect taxes by levy”. S. Rept. 105-174, at 67 (1998),

1998-3 C.B. 537, 603. We also know from that report that the

committee believed that the addition of section 6330 would afford

to taxpayers in dealing with the IRS rights which were similar to

the rights afforded to all persons in dealing with any other

creditor. S. Rept. 105-174, supra at 67, 1998-3 C.B. at 603. To

this end, the committee declared, the Commissioner would by

virtue of section 6330 need henceforth to “afford taxpayers

adequate notice of collection activity and a meaningful hearing - 23 -

before the IRS deprives them of their property.” Id. The

committee believed that these procedures would “increase fairness

to taxpayers.” Id.

The history of section 6330(c)(2) also reveals that the

Administration had during the legislative process voiced its

concern to two Members of Congress that the relevant term

included self-assessed liabilities and that those liabilities

should not be included within the breadth of that section. See

letter from L. Anthony Sutin, Acting Assistant Attorney General,

to the Hon. William V. Roth, Jr., Chairman, Committee on Finance,

U.S. Senate, and the Hon. William Archer, Chairman, Committee on

Ways and Means, U.S. House of Representatives (June 8, 1998),

reprinted in Tax Notes Today, 98 TNT 112-41 (June 11, 1998);

letter from Robert E. Rubin, Secretary of the Treasury, to the

Hon. William Archer, Chairman, Committee on Ways and Means, U.S.

House of Representatives (June 2, 1998), reprinted in Tax Notes

Today, 98 TNT 112-40 (June 11, 1998); cf. Statement of

Administration Policy, Office of Management and Budget (May 5,

1998), reprinted in Tax Notes Today, 98 TNT 87-18 (May 6, 1998).

The Administration wrote those letters after the Senate passed

the Senate’s version of section 6330, H.R. 2676, sec. 3401(b),

105th Cong., 2d Sess. (May 5, 1998), but before the conference

committee amended that version to read as enacted. The

conferees, however, opted not to change the relevant term to - 24 -

address the Administration’s stated concern. The Senate version

of section 6330(c)(2), see id., 144 Cong. Rec. S4163 (daily ed.

May 4, 1998), provided (emphasis added):

SEC. 6330(c)(2). Issues at hearing.--The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including--

(A) challenges to the underlying tax liability as to existence and amount.

(B) appropriate spousal defenses,

(C) challenges to the appropriateness of collection actions, and

(D) 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.

Section 6330 as enacted provided (emphasis added):

SEC. 6330(c)(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. - 25 -

As to the emphasized language, the conference report states:

The conference agreement includes a modified form of the Senate amendment. The IRS would be required to provide the taxpayer with a “Notice of Intent to Levy,” formally stating its intention to collect a tax liability by levy against the taxpayer’s property or rights to property. * * *

* * * In general, any issue that is relevant to the appropriateness of the proposed collection against the taxpayer can be raised at the pre-levy hearing. For example, the taxpayer can request innocent spouse status, make an offer-in-compromise, request an installment agreement or suggest which assets should be used to satisfy the tax liability. However, the validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had an opportunity to dispute the liability. [H. Conf. Rept. 105-599, at 265 (1998), 1998-3 C.B. 1019; emphasis added.]

The conferees’ use of the term “tax liability” in both places is

consistent with a plain meaning application and is inconsistent

with the position taken by respondent in this case.

FOLEY, J., agrees with this concurring opinion. - 26 -

GALE, J., concurring: I agree with result reached by the

majority. I write separately to address respondent’s contention

that the legislative history supports an interpretation of

section 6330(c)(2)(B) that precludes a taxpayer’s ability to

dispute a tax liability reported on the return (a self-reported

or “self-assessed” liability) in a section 6330 proceeding.

Assuming that the language of section 6330(c)(2)(B) contains

sufficient ambiguity to justify resort to the legislative

history, that history offers little support for respondent’s

position and indeed suggests the contrary.

Section 6330 originated in section 3401 of the Senate

version of H.R. 2676, the bill that, after amendment, was enacted

as the Internal Revenue Service Restructuring and Reform Act of

1998, Pub. L. 105-206, 112 Stat. 747. The predecessor of section

6330(c)(2)(B) in the Senate version provided without limitation

that a taxpayer could raise in a section 6330 proceeding

“challenges to the underlying tax liability as to existence or

amount”. H.R. 2676, sec. 3401(b), 105th Cong., 2d Sess. (1998),

144 Cong. Rec. S4163 (daily ed. May 4, 1998).

The expansive Senate version provoked a critical response

from the Treasury Department and other representatives of the

executive branch concerned with its overbreadth. An OMB

Statement of Administration Policy issued after the Senate

Finance Committee reported the Senate version, and a letter from - 27 -

the Treasury Secretary sent to the Chairman of the House Ways &

Means Committee (after Senate passage, with respect to the House-

Senate conference on the legislation), both identified two

principal concerns of overbreadth; namely, that under the Senate

version a taxpayer could dispute, in a section 6330 proceeding,

(i) tax liabilities that had been previously litigated or (ii)

tax liabilities that had been self-assessed. See Statement of

Administration Policy, Executive Office of the President (Office

of Management and Budget), on H.R. 2676 – Internal Revenue

Service Restructuring and Reform Act (Reported by the Senate

Committee on Finance)(May 5, 1998),1 reprinted in Tax Notes

Today, 98 TNT 87-18 (May 6, 1998); letter from Robert E. Rubin,

Secretary of the Treasury to William Archer, Chairman, Committee

1 The OMB Statement of Administration Policy states:

However, some of the new procedural provisions in the reported bill may unintentionally make it easier for noncompliant taxpayers to avoid paying their fair share of taxes. For example, the bill would allow additional appeals and court challenges before the IRS can collect tax from a taxpayer who refuses to pay, even if the taxpayer has voluntarily self-assessed the amount due or a court has held that the taxpayer owes the tax. [Emphasis added.] - 28 -

on Ways & Means, U.S. House of Representatives (June 2, 1998),2

reprinted in Tax Notes Today, 98 TNT 112-40 (June 11, 1998).

The final version of the legislation devised by the

conference committee added the following (emphasized) limiting

language in section 6330(c)(2)(B):

(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. [Emphasis added.]

I would submit that it is clear that the conferees, in adding

this limiting language to the statute, intended to address the

expressed concern about a taxpayer’s ability to dispute

previously litigated tax liabilities in a section 6330

proceeding. The new language is directed specifically at a

taxpayer’s previous opportunities for dispute, either by having

been afforded an opportunity for a deficiency proceeding or

2 Treasury Secretary Rubin’s letter states:

The Senate bill provides taxpayers with additional advance notification and appeal rights prior to levy * * *. * * * The appeal right in levy cases would enable taxpayers to litigate the same tax liability repeatedly * * *. The provision would change the entire collections process, including the process for many taxpayers who have self-assessed their tax liability but not paid in full * * *. [Emphasis added.] - 29 -

otherwise (as, for example, in the case of taxes not eligible for

deficiency proceedings). But one cannot as readily infer from

the statutory modifications an intention to foreclose

consideration of self-assessed liabilities in a section 6330

proceeding. The report of the conference committee is similarly

opaque, lacking any specific indication that the conferees

intended to address the concern expressed about allowing

taxpayers to dispute self-assessed liabilities in a section 6330

proceeding. The only reference in the report to the newly added

limiting language of the statute is a single sentence that

closely tracks the statute.

In general, any issue that is relevant to the appropriateness of the proposed collection against the taxpayer can be raised at the pre-levy hearing. * * * However, the validity of the tax liability can be challenged only if the taxpayer did not actually receive the statutory notice of deficiency or has not otherwise had an opportunity to dispute the liability. [H. Conf. Rept. 105-599, at 265 (1998), 1998-3 C.B. 747, 1019; emphasis added.]

These aspects of the legislative history, rather than

offering any support for respondent’s position, give rise to a

negative inference concerning Congress’s intention to foreclose

review of self-assessed liabilities in section 6330 proceedings.

Having been advised of the executive branch’s concern about

allowing taxpayers to dispute self-assessed liabilities in

section 6330 proceedings, the conferees’ failure to refer to

self-assessed amounts when modifying the provision at issue, in - 30 -

either the statute itself or the conference report, suggests that

they chose not to address this particular concern.

SWIFT, LARO, FOLEY, MARVEL, and WHERRY, JJ., agree with this concurring opinion. - 31 -

MARVEL, J., concurring: I agree with the majority that

respondent’s motion for summary judgment must be denied in this

case. There are several reasons for doing so, including the

reasons set forth in the majority opinion. I believe, however,

that the facts of this case raise a serious factual issue as to

whether the taxpayers received the hearing mandated by section

6330, and on this ground alone, I would deny respondent’s motion.

The majority opinion states that, on April 18, 2002,

petitioners submitted a request for an administrative hearing.

In the letter accompanying the request, petitioners’

representative advised the Internal Revenue Service that

petitioners intended to file an amended income tax return to

“more appropriately report the exercise of the incentive and

nonqualified stock options” that gave rise to petitioners’ unpaid

tax liability for 2000. Petitioners’ representative also

challenged the appropriateness of the proposed levy, indicated

that the levy would cause irreparable harm to petititoners, and

stated that there were reasonable collection alternatives.

Appeals Officer Johnson had a conversation with petitioners’

representative on July 22, 2002, in which he agreed that

petitioners would be permitted to submit the amended return, but

he did not set any deadline for doing so. On September 26, 2002,

without any further notice to petitioners and apparently without

holding the required hearing, the Appeals Office issued to - 32 -

petitioners a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330.

These facts raise a material issue of fact regarding whether

or not petitioners received the hearing to which they were

entitled under section 6330. Section 6330 requires that a

taxpayer who timely requests a hearing receive a hearing. In

this case, petitioners were not only challenging the underlying

tax liability, but they were also challenging the reasonableness

of the proposed levy and had clearly stated their desire to

explore collection alternatives at the section 6330 hearing. The

issuance of the notice of determination without any warning to

petitioners and without any hearing deprived petitioners of the

opportunity to present, and receive a determination on, all

relevant issues as required by section 6330(c)(2) and (3).

If, instead of precipitously issuing the notice of

determination, the Appeals Office had notified petitioners that

it was rescheduling the hearing that was originally scheduled for

July 25, 2002, petitioners would have had fair warning and could

have prepared to present all of their issues at the hearing,

including those related to the underlying tax liability. As it

turned out, petitioners submitted their amended return,

reflecting that they were due a refund of $519,087, on October

11, 2002.

Taxpayers who assert that they intend to file an amended - 33 -

return for the first time in connection with a hearing under

section 6320 or 6330 should not take solace from the majority

opinion. The majority opinion addresses a case in which the

petitioners apparently demonstrated to the Appeals Office that

they were serious about filing an amended return and that they

had substantial reasons for doing so, because the Appeals Office

agreed to give petitioners time to file their amended return. A

taxpayer who procrastinates and seeks to rely solely on his

announced intention to file an amended return as a defense to a

proposed levy or lien in a section 6320/6330 hearing or in a

section 6320/6330 proceeding before this Court proceeds at his

peril as his undocumented intention is not likely to be viewed as

a credible challenge to the underlying tax liability.

HAINES, GOEKE, and WHERRY, JJ., agree with this concurring opinion. - 34 -

GOEKE, J., concurring in result: I agree with the result

reached by the majority and its interpretation of the term

“underlying tax liability”. I write separately to clarify the

significance of petitioners’ amended return.

Under section 6330(c)(2)(B), petitioners were permitted to

raise at the hearing challenges to the existence or amount of

their underlying tax liability. Petitioners raised a challenge

to the amount of their underlying liability and the parties

agreed that petitioners would be permitted to submit an amended

return reflecting their position. The Appeals officer abruptly

issued the notice of determination. Petitioners subsequently

submitted an amended return. I believe that if petitioners had

been given a reasonable opportunity to challenge the amount of

their underlying liability during the hearing process (e.g., by

filing an amended return) and they had failed to do so, then we

should not review the underlying tax liability because it was not

properly raised at the hearing, but in this case they were not

given the opportunity to challenge their underlying liability, so

the hearing was inadequate.

This situation is analogous to offers in compromise (OIC).

Before an OIC can be considered, the taxpayer must submit current

financial information. Moorhous v. Commissioner, T.C. Memo.

2003-183; see also Rodriguez v. Commissioner, T.C. Memo. 2003-153

(finding that the Appeals officer did not abuse his discretion in - 35 -

not considering OIC where all required returns had not been

filed). Without this information, the Appeals officer cannot

properly consider the OIC. Likewise, a taxpayer desiring to

challenge the existence or amount of the underlying tax liability

who has not previously filed an amended return should generally

be required to file an amended return in conjunction with the

hearing if such amended return is requested by the Appeals

officer in order to satisfy the requirement that the liability be

at issue at the hearing.

Although petitioners’ amended return reflects that they are

due a refund of $519,087, I do not interpret the majority as

implying that we have the authority to order a refund if

petitioners establish that they have overpaid their 2000 taxes.

Our jurisdiction under section 6330 is limited to deciding

whether respondent can proceed with the proposed collection

action. Accordingly, we would need only decide whether

petitioners’ 2000 tax liability is equal to or less than the

amount they previously paid for the year.

HAINES and WHERRY, JJ., agree with this concurring opinion. - 36 -

GERBER, J., dissenting: With due respect, I dissent from

the holding of the majority. I agree that the majority’s literal

reading of the phrase, “underlying tax liability”, is one

possible way to interpret that phrase. It is my view, however,

that the phrase “underlying tax liability”, when considered in

the context of section 6330 and specifically in context of

section 6330(c)(2)(B), could also be read to not include a tax

liability that a taxpayer has reported and admitted was owing.

The intent of the statute was to give a taxpayer the right

to challenge the “underlying tax liability * * * if the

[taxpayer] * * * did not otherwise have an opportunity to

dispute such tax liability.” Sec. 6330(c)(2)(B)(emphasis added).

That phrase should not be interpreted to mean that a person could

contest their own judgment as to the correct tax. The

opportunity to contest tax liabilities is, without exception,

granted by statute.1 If a person files a tax return and self-

assesses or admits to owing a tax liability, but fails to pay the

admitted liability, the statutory opportunity to contest such

liability has traditionally been through a refund suit.2

1 It is well established that the United States is immune from suit except where Congress by specific statute has waived its sovereign immunity. See, e.g., United States v. Sherwood, 312 U.S. 584, 586 (1941). 2 We must distinguish the circumstances we consider from deficiency proceedings where we have authority to consider overpayments. See sec. 6512(b). A proceeding under section 6330 (continued...) - 37 -

Normally, with respect to an income tax liability, the right to

sue for a refund requires full payment of the disputed liability.

Under the majority’s reading of section 6330(c)(2)(B), there

would be no such requirement for payment prior to being able to

contest the underlying merits of a self-assessed amount in the

context of a section 6330 hearing before this Court.

The majority’s interpretation results in a dramatic and

improbable change from more than 75 years of established tax

litigation procedure and precedent. If Congress had intended

such a dramatic change, it certainly would have made some

reference or modification to the existing statutory framework for

refund claims and/or suits.

Finally, I find it inconceivable that Congress intended that

taxpayers who filed returns admitting that they owed tax are to

be given the opportunity to contest their own “assessment” of the

tax due, when the respondent seeks to collect it. It is my view

that Congress intended to ensure that taxpayers had certain

rights with respect to the collection process and to permit them

to contest any changes respondent proposed,3 if they had not

already had the opportunity to do so.

CHIECHI, J., agrees with this dissenting opinion.

2 (...continued) is not a deficiency proceeding. 3 Including respondent’s proposed changes from a taxpayer’s self-assessed tax liability. - 38 -

HALPERN, J., dissenting:

I. Introduction

I cannot agree with the majority that the term “underlying

tax liability”, as used in section 6330(c)(2)(B), is to be

interpreted “as a reference to the amounts that the Commissioner

assessed for a particular tax period.” Majority op. p. 11. What

I believe to be a mistaken interpretation of the term leads the

majority to a “plain language” reading of section 6330(c)(2)(B)

that would allow a taxpayer, at a section 6330 hearing, to

challenge the Government’s right to collect from her the portion

of any tax that she had reported but failed to pay.

The meaning of the term “underlying tax liability” in

section 6330(c)(2)(B) is ambiguous. Because it is ambiguous, we

are entitled to examine extrinsic evidence to discern its

meaning. The legislative history of section 6330(c)(2)(B) leads

me to agree with respondent that, as used in that section, the

term “underlying tax liability” refers to liabilities asserted by

the Commissioner that differ in amount from liabilities self-

assessed by the taxpayer.1 I conclude, therefore, that, at a

section 6330 hearing, a taxpayer may not challenge the

Government’s right to collect from her any reported but unpaid

tax. For the reasons stated, I dissent.

1 The term “self-assessed” is somewhat of a misnomer in that tax reported on a return is actually assessed by the Commissioner. See sec. 6201(a)(1). I use the term in the colloquial sense. - 39 -

II. Section 301.6330-1(e), Proced. & Admin. Regs.

Before proceeding, it is necessary to comment on the

majority’s disposition of section 301.6330-1(e), Proced. & Admin.

Regs., set forth in pertinent part on page 9 of the majority’s

opinion. Subsection (e)(1) of that regulation states quite

clearly that, at a section 6330 (Collection Due Process (CDP)

hearing), the taxpayer “may raise challenges to the existence or

amount of the tax liability specified on the CDP Notice * * * if

the taxpayer did not receive a statutory notice of deficiency for

that tax liability or did not otherwise have an opportunity to

dispute that tax liability.” (Emphasis added.) See also

subsection (e)(3), Q&A-E2 (similar).2 The pertinent language of

subsection (e)(1) of the regulation is essentially the same as

the language of section 6330(c)(2)(B) except that, in the

regulation, the term “tax liability specified on the CDP Notice”

is substituted for the term “underlying tax liability”. Thus,

the drafters of the regulation fixed the meaning of the term

“underlying tax liability” as “the tax liability specified on the

CDP Notice”.

As the majority recites, on March 19, 2002, respondent

issued to petitioners a final notice (CDP notice) stating that

petitioners owed tax, penalties, and interest (for 2002) totaling

2 Sec. 301.6320-1(e)(1), (3), Q&A-E2, Proced. & Admin. Regs., is similar but relates to liens rather than levies. - 40 -

$222,315.34. Majority op. p. 3. The dispute here is over

whether petitioners could challenge respondent’s right to collect

that debt (or at least the tax portion of it) at the section 6330

hearing they subsequently requested. The regulations under

section 6330(c)(2)(B) cited above appear to be dispositive of

that issue in petitioners’ favor. Surprisingly, however, neither

party mentioned those provisions in their papers or oral argument

with respect to respondent’s motion for summary judgment, and the

majority treats the provisions almost as an afterthought,

proceeding to consider whether the term “underlying tax

liability” means something quite different than the meaning given

the term in the regulations. If respondent’s position in this

case is that the term “underlying tax liability” means

liabilities in excess of self-assessed liabilities, then that

position is directly contradicted by the meaning fixed for that

term in the regulations; i.e., “the tax liability specified on

the CDP Notice”. The majority has not even asked respondent to

explain that contradiction. To me, the best course would be to

ask respondent to explain the contradiction and, perhaps, say:

“Oops!”3 As a matter of judicial economy, we should attempt to

3 Recently, by Chief Counsel Notice (CC-2002-043), reprinted in Tax Notes Today, 2002 TNT 206-13, attorneys working in the Office of Chief Counsel, Internal Revenue Service, were reminded that the office does not take positions in litigation that are inconsistent with positions that the Commissioner has taken in published guidance, including regulations. - 41 -

resolve the dispute in front of us on the basis of section

301.6330-1(e), Proced. & Admin. Regs., if at all possible.

I continue with my dissent because the ambiguity that

afflicts the statute also afflicts the regulation, and respondent

may say “Oops!” only because the regulation does not say what he

wants it to say, and the Secretary may try to amend it, in which

case the majority’s analysis becomes relevant.

III. Section 6330

A. Introduction

The majority adequately describes the general operation of

section 6330. Majority op. pp. 7-8. Putting aside section

301.6330-1(e), Proced. & Admin. Regs., the question presented is

whether respondent’s Appeals Office could, pursuant to section

6330(c)(2)(B), refuse to allow petitioners to challenge their

obligation to pay the amount of tax that they had reported but

not paid (the unpaid tax).4 It is clear (and respondent does not

suggest otherwise) that petitioners did not receive a statutory

notice of deficiency with respect to the unpaid tax.5 Nor does

4 Generally, when a return of tax is made and an amount of tax is shown on the return, the person making the return shall, without assessment or notice and demand, pay such tax at the time and place the return is filed. Sec. 6151(a). 5 As used in sec. 6330(c)(2)(B), the term “statutory notice of deficiency” refers to the means by which, in the case of certain taxes (including the income tax), the IRS notifies a person that it has determined a deficiency in that person’s tax. See sec. 6212. In the context of those taxes, the term (continued...) - 42 -

respondent argue that petitioners otherwise had an opportunity to

dispute the unpaid tax within the meaning of section

6330(c)(2)(B).6 Rather, respondent’s contention that

petitioners’ obligation to pay the unpaid tax is not properly at

issue is based on his position that, as used in section

6330(c)(2)(B), the term “underlying tax liability” is properly

interpreted to refer only to amounts asserted by the Internal

Revenue Service (IRS) in excess of the amount of tax reported by

the taxpayer on her return. In the context of the income tax,

that amount would generally correspond to the amount of any

deficiency assessed by the Commissioner and would exclude any

amount of self-assessed tax (such as the unpaid tax here in

issue). As previously discussed, the majority interprets the

term “underlying tax liability” in section 6330(c)(2)(B) to mean

“the amounts that the Commissioner assessed for a particular tax

5 (...continued) “deficiency” essentially means the amount by which a person’s tax liability exceeds the tax shown on the person’s return. See sec. 6211(a). 6 Respondent’s regulations provide: “An opportunity to dispute a liability includes a prior opportunity for a conference with Appeals that was offered either before or after the assessment of the liability.” Sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. Without regard to sec. 6330(c)(2)(B), a taxpayer’s subsequent disavowal of a reported and assessed, but unpaid, income tax liability amounts to an informal claim for abatement. See Fayeghi v. Commissioner, T.C. Memo. 1998-297, affd. 211 F.3d 504 (9th Cir. 2000). Because such a claim has no formal procedural significance, see sec. 6404(b), presumably it is not subject to the Appeals process. - 43 -

period” (sometimes, simply, assessed amounts). Thus, for the

majority, in the context of a tax that is subject to the

deficiency procedures (such as the income tax), the term

“underlying tax liability” means the sum of (1) any self-assessed

tax plus (2) any deficiency assessment. Id. pp. 11-12.7

I agree with the majority that the term “underlying tax

liability” must be interpreted “in context”, Id. p. 11, and only

add, as stated by the Court of Appeals for the Fifth Circuit:

However, even apparently plain words, divorced from the context in which they arise and in which their creators intended them to function, may not accurately convey the meaning the creators intended to impart. It is only, therefore, within a context that a word, any word, can communicate an idea.

Leach v. FDIC, 860 F.2d 1266, 1270 (5th Cir. 1988).

B. Language of Section 6330(c)(2)(B)

(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

7 On p. 12, the majority states: “In the present case, petitioners’ underlying tax liability consists of the amount that petitioners reported due on their tax return along with statutory interest and penalties.” Since petitioners paid a portion of the amount they reported due on their return, it would seem that, for the majority, the term “underlying tax liability” includes both paid and unpaid assessments of tax. The majority does not say whether, under sec. 6330(d)(1), we have the authority to order a refund. I do not see how we do, since our jurisdiction under that section is to review the Commissioner’s determination to proceed with collection of a given amount. To the extent that Chief Judge Wells, in his concurring opinion, suggests to the contrary, I disagree. - 44 -

notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

Having determined as a first step that the term “underlying

tax liability” means assessed amounts, the majority proceeds as a

second step to find the plain meaning of section 6330(c)(2)(B)

without adequately considering whether the phrasing of that

provision contradicts such meaning. Thus, consider the meaning

of section 6330(c)(2)(B) with respect to the following

hypothetical taxpayer if, as the majority would have it, the term

“underlying tax liability” means assessed amounts. The taxpayer

files a return but fails to pay the $100 tax shown on that

return, which tax is assessed by the Commissioner (the return

assessment). Subsequently, the Commissioner determines that

additional tax of $50 is due and sends the taxpayer a notice of

deficiency in that amount, which the taxpayer receives and

ignores, resulting in a subsequent assessment of $50 (the notice

assessment). The taxpayer’s total (composite) liability is

$150.8 If, at a section 6330 hearing, the taxpayer attempts to

challenge the Commissioner’s right to collect the $150 liability,

and if the taxpayer’s underlying tax liability equates to the

assessed amounts, then does not the plain language of section

6330(c)(2)(B) dictate that the taxpayer can challenge both the

8 For an example of a composite liability where the taxpayer did not ignore the notice of deficiency, see Fayeghi v. Commissioner, supra. - 45 -

return assessment and the notice assessment ($150) (i.e., because

the taxpayer did not receive a notice of deficiency “for” the

composite liability of $150)? Yet the majority would reach the

opposite conclusion, i.e., the hypothetical taxpayer could

challenge neither assessment, on the basis that the hypothetical

taxpayer “was afforded a prior opportunity to challenge such [the

composite] liability under the deficiency procedures.” Majority

op. p. 12. It is not clear to me how, under the deficiency

procedures, a taxpayer can challenge a return assessment that she

has not paid. See, e.g., O’Connor v. Commissioner, T.C. Memo.

1992-410 (Tax Court cannot enter a decision determining an

overpayment of assessed tax where the assessed tax has not been

paid; section 6404(b) forestalls forced abatement of any assessed

income tax, and “we know of no basis upon which we could hold

that petitioner is entitled to credits for any amounts assessed

but not paid”).

Alternatively, the majority could stick with its

interpretation of the term “underlying tax liability” as assessed

amounts and interpret the term “if” in section 6330(c)(2)(B) to

mean “to the extent”.9 That, however, would be an abandonment of

9 Viz, “The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period to the extent [as opposed to “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.” - 46 -

its “plain language” claim.

Finally, the majority might decide that the meaning of the

term “underlying tax liability” is not fixed; i.e., it does not

always mean all assessed amounts. Thus, e.g., in the case of a

composite liability, the underlying tax liability might be

exclusive of the deficiency if the deficiency was the subject of

a notice assessment (or the taxpayer otherwise had an opportunity

to dispute the deficiency10) and inclusive of the deficiency in

all other instances. Under that argument, in the example used

above, the underlying tax liability would be $100, since the

deficiency of $50 was the subject of a notice assessment. If,

instead, the taxpayer had not received the notice of deficiency

and did not otherwise have an opportunity to dispute the

deficiency, then the underlying tax liability would be $150. The

result under that alternative approach is similar to the result

reached under respondent’s interpretation in that (at least in

some circumstances) the term “underlying tax liability” means

something other than the total assessments made by the

10 A taxpayer would have “otherwise had an opportunity to dispute” (and would therefore be precluded from challenging at a sec. 6330 hearing) such amount without having received a notice of deficiency if, for example, following the Commissioner’s examination of her income tax return and determination of a deficiency in tax, the taxpayer had executed a waiver of restrictions on assessment and collection, thus making it unnecessary for the Commissioner to mail to her a notice of deficiency. See Aguirre v. Commissioner, 117 T.C. 324, 327 (2001). - 47 -

Commissioner for the taxable period. From a “plain meaning”

standpoint, such a reading of the statute would seem to be no

more preferable than respondent’s interpretation. Indeed, the

benefit of respondent’s interpretation (i.e., that the term

“underlying tax liability” in section 6330(c)(2)(B) refers only

to that portion of the underlying tax liability that the taxpayer

failed to report) is that it does not in most cases require

mental gymnastics to square such term with the remaining language

of the section.11

Based on the foregoing, I am satisfied that the term

“underlying tax liability”, as used in section 6330(c)(2)(B), is

susceptible to more than one reasonable interpretation.12 We may

therefore look beyond the language of the provision in our

endeavor to discern Congress’s purpose.

11 Of course, if it turns out that respondent’s interpretation is actually that the term equates to “the tax liability specified on the CDP Notice” (which is the term used in sec. 301.6330-1(e)(1), (3), Proced. & Admin. Regs.), then such interpretation presents similar ambiguities to those discussed in the text. 12 In Washington v. Commissioner, 120 T.C. 114, 127 (2003) (Halpern, J., concurring), without benefit of a consideration of the legislative history discussed below, I concluded that the term “underlying tax liability”, as used in sec. 6330(c)(2)(B), means the tax on which the Commissioner based his assessment (whether shown on the return or determined by the Commissioner). I have since changed my mind. - 48 -

C. Extrinsic Interpretive Aids

1. Use of the Term Elsewhere in the Section

Besides appearing in section 6330(c)(2)(B), the term

“underlying tax liability” appears in section 6330(d)(1).13

Section 6330(d)(1) provides:

SEC. 6330(d)(1). Judicial Review of Determination. –- The person [the subject of a section 6330 determination] may, within 30 days of a determination under this section, appeal such determination --

(A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter); or

(B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States.

We have interpreted section 6330(d)(1) to mean that we have

jurisdiction in section 6330 cases involving the types of taxes,

e.g., income, estate, and gift taxes, that we normally may

consider, regardless of whether the section 6330 case in front of

us involves a deficiency in such taxes. See Landry v.

Commissioner, 116 T.C. 60, 62 (2001). Under that interpretation,

the term “underlying tax liability” means “the type of tax at

issue”.14 Neither petitioner nor respondent argues for that

13 As pertinent to this proceeding, both provisions originated with the addition of sec. 6330 to the Internal Revenue Code by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, sec. 3401(b), 112 Stat. 747. 14 In Katz v. Commissioner, 115 T.C. 329, 339 (2000), we interpreted the term “underlying tax liability” in sec. 6330(d)(1)(B) as including “any amounts owed by a taxpayer (continued...) - 49 -

meaning in this case; indeed, such interpretation makes little

sense in the context of section 6330(c)(2)(B). Accordingly, we

cannot resolve this case on the basis of the meaning of the term

“underlying tax liability” as used in section 6330(d)(1)(B)

(which, in any event, the majority does not mention).15

2. Legislative History of Section 6330(c)(2)(B)

Section 6330 was added to the Internal Revenue Code by the

Internal Revenue Service Restructuring and Reform Act of 1998

(the Act), Pub. L. 105-206, sec. 3401(b), 112 Stat. 747. H.R.

2676, 105th Cong., 2d Sess. (1998) (H.R. 2676), is the bill that,

when enacted, became the Act. As passed by the House of

Representatives, H.R. 2676 did not contain any version of section

6330. Section 6330 was added by a Senate amendment to H.R. 2676

(the Senate amendment). See H.R. 2676, sec. 3401(b), 105th

14 (...continued) pursuant to the tax laws”. As that statement was not necessary to resolve the case (the case did not involve self-assessed amounts), it is dicta that does not control this case. 15 The term “underlying tax liability” also appears in sec. 6311, which deals with the payment of taxes by commercially acceptable means. In relevant part, sec. 6311(d)(3)(A) provides that “a payment of internal revenue taxes * * * by use of a credit card shall not be subject to section 161 of the Truth in Lending Act * * * if the error alleged by the person is an error relating to the underlying tax liability”. Sec. 6311(d)(3)(B) provides a similar rule with respect to payments made by debit cards. Those provisions were added to the Internal Revenue Code by the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 1205(a), 111 Stat. 995. It is by no means apparent that Congress intended the same meaning to apply for purposes of sec. 6311(d)(3) and sec. 6330(c)(2)(B). - 50 -

Cong., 2d Sess. (1998), 144 Cong. Rec. S4163 (daily ed. May 4,

1998). The Senate amendment provides without qualification that,

at a CDP hearing, taxpayers can raise “challenges to the

underlying tax liability as to existence or amount”. Id. In

response to the Senate amendment, Administration officials

expressed concern over the breadth of the proposed appeal rights,

noting, among other concerns, that, under the Senate amendment,

taxpayers could challenge even self-assessed (i.e., reported)

amounts at CDP hearings. See Statement of Administration Policy,

Office of Management and Budget (May 5, 1998), reprinted in Tax

Notes Today, 98 TNT 87-18 (May 6, 1998); letter from the Hon.

Robert E. Rubin, Secretary of the Treasury, to the Hon. William

Archer, Chairman, Committee on Ways and Means, U.S. House of

Representatives (June 2, 1998), reprinted in Daily Tax Report,

112 DTR at L-3 (June 11, 1998) (Department of Treasury views).16

The limiting language found in section 6330(c)(2)(B)

originated in the conference agreement on H.R. 2676. While the

accompanying committee report (the conference report), H. Conf.

Rept. 105-599, at 265-266 (1998), 1998-3 C.B. 747, 1019-1020,

reveals neither the impetus for, nor the intended effect of, the

16 See also letter from L. Anthony Sutin, Acting Assistant Attorney General, to the Hon. William V. Roth, Jr., Chairman, Committee on Finance, U.S. Senate, and the Hon. William Archer, Chairman, Committee on Ways and Means, U.S. House of Representatives (June 8, 1998), reprinted in Daily Tax Report, 112 DTR at L-7 (June 11, 1998) (Department of Justice views). - 51 -

change to the Senate amendment reflected in section

6330(c)(2)(B), it is reasonable to infer that the conferees were

responding, at least in part, to the stated concerns of

Administration officials and did not intend the result reached by

the majority.

The foregoing inference is supported by other language in

the conference report. Regarding the scope of the section 6330

hearing, the report provides: “However, the validity of the tax

liability can be challenged only if the taxpayer did not actually

receive the statutory notice of deficiency or has not otherwise

had an opportunity to dispute the liability.” Id. at 265, 1998-3

C.B. at 1019 (emphasis added). That language suggests that

Congress did not intend to allow challenges to the Commissioner’s

right to collect the unpaid tax liability in those instances in

which the taxpayer’s nonreceipt of a statutory notice of

deficiency is solely attributable to the fact that the

Commissioner did not determine a deficiency in the first place.

Rather, the reference to “actual” receipt of “the” notice of

deficiency suggests that, in the case of taxes subject to the

deficiency procedures, such as the income tax, Congress was

targeting the situation in which, although the Commissioner

determined a deficiency and properly issued a statutory notice of

deficiency, the taxpayer did not actually (or constructively, see

Sego v. Commissioner, 114 T.C. 604, 611 (2000)) receive that - 52 -

notice17 and therefore did not have a realistic opportunity to

challenge the proposed deficiency in the Tax Court.18 That

interpretation is consistent with respondent’s position that the

term “underlying tax liability”, as used in section

6330(c)(2)(B), does not include self-assessed amounts.

IV. Conclusion

I conclude that section 6330(c)(2)(B), describing the

limited circumstances in which a taxpayer may challenge the

existence or amount of the underlying tax liability at a section

6330 hearing, does not allow the taxpayer to challenge her

obligation to pay any reported but unpaid tax.19 Accordingly,

17 In informal remarks, one Treasury official specifically identified that situation as the proper focus of any expanded appeal rights. See Holmes, “Proposed Taxpayer Rights Changes Questioned by Treasury Attorney Rizek”, 74 Daily Tax Rept. at G-3 (Apr. 17, 1998); see also Donmoyer, “Treasury Still Ignoring IRS Reform Bill’s Controversial Elements,” 78 Tax Notes 411 (describing Associate Tax Legislative Counsel Rizek as “one of Treasury’s chief negotiators during the drafting of the IRS reform bill”). 18 A notice of deficiency mailed to a taxpayer’s “last known address” is sufficient to commence the usual 90-day period during which the taxpayer may petition the Tax Court for a redetermination of the deficiency, regardless of whether the taxpayer actually receives the notice. See, e.g., Frieling v. Commissioner, 81 T.C. 42, 52 (1983); Tatum v. Commissioner, T.C. Memo. 2003-115 n.4; see also sec. 6212(b); sec. 301.6212-2, Proced. & Admin. Regs. 19 I acknowledge that such conclusion is at odds with dicta appearing in prior reports of the Court, which reflect concessions made by the Commissioner. See Craig v. Commissioner, 119 T.C. 252, 261 (2002) (Commissioner conceded that taxpayer was entitled to dispute self-assessed liability at CDP hearing); (continued...) - 53 -

putting aside section 301.6330-1(e)(1), (3), Proced. & Admin.

Regs., the reported but unpaid tax here in question is not

properly at issue.20

19 (...continued) Hoffman v. Commissioner, 119 T.C. 140, 145 (2002) (same in the context of interest and penalties attributable to a self-assessed liability). 20 That is not to say that, at a sec. 6330 hearing, a taxpayer may not show that she has no liability (or a reduced liability) for a deficiency properly before the Appeals Office pursuant to sec. 6330(c)(2)(B) on account of erroneous items on her return (or, indeed, items, e.g., overlooked deductions, not on her return). The question is whether, during a sec. 6330 hearing, a taxpayer has the right to challenge her obligation to pay any amount shown on her return but remaining unpaid (she does not). The absence of such a right, however, does not foreclose the taxpayer from submitting an amended return or, upon payment, filing a claim for refund. - 54 -

CHIECHI, J., dissenting in part and concurring in part: I

dissent from the holding and rationale of the majority opinion.

I concur with the majority opinion only to the extent that the

majority opinion results in allowing petitioners to challenge the

existence or the amount of the tax liability specified in the

final notice--notice of intent to levy and notice of your right

to a hearing (notice of intent to levy) with respect to their

taxable year 2000.1 The foregoing result is the only proper

result in the instant case because the following regulations,

which bind respondent, require it:

(e) Matters considered at CDP hearing--(1) In general. * * * The taxpayer also may raise challenges to the existence or amount of the tax liability specified on the CDP Notice for any tax period shown on the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability. * * *

(3) Questions and answers. The questions and answers illustrate the provisions of this paragraph (e) as follows:

1 The notice of intent to levy specified that petitioners had a total tax liability for 2000 of $222,315.34. That liability consisted of the tax due, penalties, and interest thereon, totaling $213,495, which petitioners reported in their Federal income tax return for 2000 that they filed on or about Oct. 18, 2001, and which respondent assessed, plus any penalties as well as interest on the total liability accruing after Oct. 18, 2001, and before Mar. 19, 2002, the date on which respondent issued the notice of intent to levy with respect to petitioners’ taxable year 2000. - 55 -

Q-E2. When is a taxpayer entitled to challenge the existence or amount of the tax liability specified in the CDP Notice?

A-E2. A taxpayer is entitled to challenge the existence or amount of the tax liability specified in the CDP Notice if the taxpayer did not receive a statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such liability. * * * [Sec. 301.6330-1(e)(1), (3) Q&A-E2, Proced. & Admin. Regs.; emphasis added.]

HOLMES, J., agrees with this dissenting in part and concurring in part opinion.