Attached and below as in-line text is a copy of the famous Shell case on CDPH face-to-face hearings. The brief was written by RBC. This decision applies to all collection hearings and matters, both administrative and judicial.
Add to all CDPH letters, motions and pleadings this sentence: "The Chief Judge of the US Tax Court ruled in Shell v CIR, docket # 20188-05L on May 31, 2006 that IRC 6330 requires an in-person hearing in CDPH cases if Petitioner request."
UNITED STATES TAX COURT
JOHN C. & TRUDY SHELL, Petitioners v. Docket No. 20188-05L
COMMISSIONER OF INTERNAL REVENUE, Respondent
This matter is before the Court on respondent's Motion for Summary Judgment and Motion for penalty· Under I.R.C. Section 6673, filed February 24, 2006. As discussed in detail below, we shall deny both of respondent's motions, without prejudice, and remand this case to respondent's Office of Appeals.
John C. Shell and Trudy Shell (petitioners) filed a joint Form 1040A, U.S. Individual Income Tax Return, for the taxable year 2002 in April 2003. Petitioners listed "0" in the spaces provided, thereby reporting no gross income or taxable income, and no Federal income tax liability for the taxable year 2002. Respondent examined petitioners' 2002 Federal income tax liability. Respondent determined a deficiency of $4,131 for 2002. On August 30, 2004, respondent sent by certified mail duplicate statutory notices of deficiency for the taxable year 2002 to petitioners' last known address. Petitioners did not petition the Tax Court.
On April 30, 2005, respondent issued a Final Notice of Intent to Levy and Notice of Your Right to a Hearing under section 6330.1 Each petitioner timely filed a Form 12153, Request for a Collection Due Process (COP) Hearing, on May 13, 2005 (collectively, petitioners' request). In their request, petitioners (1) requested collection alternatives, including an offer-in-compromise and a payment schedule, (2) requested proof that petitioners received the notices of deficiency, (3) contested the existence and amount of their liability because they did not receive the notices of deficiency, and (4) stated that they intended to make an audio recording of the hearing.
By letter dated August 9, 2005, the Appeals officer informed petitioners that they were not entitled to a face-to-face administrative hearing because the arguments in their COP hearing request were frivolous and groundless. The Appeals officer scheduled a telephone conference for September 13, 2005. He further stated that if petitioners wanted to propose collection alternatives, they would have to file their 2004 tax return and submit financial information on a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. The Appeals officer also stated that if petitioners wanted a face-to-face hearing, they would have to respond within 15 days and present legitimate collection issues for discussion.
Petitioners responded to the letter on August 22, 2005. Petitioners explained that they wanted a face-to-face hearing to discuss (1) collection alternatives, including an offer-in-compromise and a payment schedule, (2) procedural irregularities by the IRS, and (3) spousal relief.
On September 30, 2005, respondent issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Petitioners filed a petition with the Tax Court on October 28, 2005, and an amended petition on December 20, 2005. In their petition, petitioners state that they offered collection alternatives, but respondent nonetheless refused to hold a face-to-face hearing. Respondent filed an Answer to Amended Petition on January 18, 2006, and alleged that petitioners asserted frivolous arguments both in their COP hearing request and in their original petition.
On February 24, 2006, respondent filed a Motion for Summary Judgment and a Motion for Penalty Under I.R.C. Section 6673. On March 20, 2006, petitioners filed oppositions to respondent's motions. This case was heard on May 24, 2006, at the Motions Sessions in
Summary judgment under Rule 121 is appropriate when there is no genuine issue as to any material fact and a decision may be rendered as a matter of law. Krause v. Commissioner, 92 T.C. 1003, 1016 (1989). The moving party bears the burden of proving that there is no genuine issue of material fact. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner, 79 T.C. 340, 344 (1982). In deciding a motion for summary judgment, the Court will construe factual inferences in a manner most favorable to the opposing party. Naftel v. Commissioner, 85 T.C. 527, 529 (1985); Dahlstrom v. Commissioner, supra.
Respondent alleges that petitioners failed to set forth any grounds upon which this Court could find that the Appeals officer abused his discretion in determining that respondent should proceed to collect, their 2002 income taxes by levy. Respondent alleges that petitioners failed to raise any valid issues during the administrative proceedings and that a face-to-face administrative hearing was unwarranted.
A taxpayer may raise at a COP hearing any relevant issue relating to the unpaid tax or proposed levy, including (1) appropriate spousal defenses, (2) challenges to the appropriateness of collection actions, and (3) offers of collection alternatives, which may include an installment agreement or an offer-in-compromise. Sec. 6330 (c) (2) (A). The taxpayer may also raise challenges to the existence or amount of the underlying tax liability if the person did not receive a statutory notice of deficiency. Sec. 6330 (c) (2) (8).
Attached to respondent's Motion for Summary Judgment was a Form 3877, Acceptance of Registered, Insured, C.O.D. and Certified Mail, as evidence that notices of deficiency for the taxable year 2002 were properly mailed to petitioners. However, the Form 3877 does not prove that petitioners actually received the notices. In their COP hearing request, petitioners contested the existence and/or amount of their tax liability asserting that they did not receive the notices of deficiency. Viewing the facts most favorably to petitioners, there is a genuine issue of material fact as to whether petitioners received the notices of deficiency.
Petitioners' COP hearing request also included a request to present collection alternatives. In response to petitioners' request, the Appeals officer denied petitioners a face-to-face hearing and scheduled a telephonic hearing because he viewed petitioners' arguments as frivolous or groundless. Petitioners sent a subsequent letter stating they would like a face-to-face hearing to discuss collection alternatives, procedural irregularities, and spousal relief.
The Treasury regulations provide that respondent must offer the taxpayer an opportunity for a face-to-face administrative hearing at the Appeals Office closest to the taxpayer's residence. Sec. 301.6330-1(d) (2), Q & A-D7, Proced. & Admin. Regs. Where the taxpayer raises only frivolous arguments, however, we have held that it is not abuse of discretion to deny the taxpayer a face-to-face hearing. See Lunsford v. Commissioner, 117 T.C. 183, 189 (2001) (declining to remand case to the Appeals Office because the taxpayer raised only frivolous arguments); see also Wriqht v. Commissioner, T.C. Memo. 2005-291 n.4; Kozack v. Commissioner, T.C. Memo. 2005-246. In such cases, a face-to-face hearing is not necessary and would not be productive. See, e.g., Lunsford v. Commissioner, supra.
Where the taxpayer advances both valid and frivolous arguments, we have allowed the taxpayer to pursue the former while cautioning him to abandon the latter. See Keene v. Commissioner, 121 T.C. 8, 19 (2003) (remanding case to Appeals Office but admonishing the taxpayer not to advance frivolous arguments); Bean v. Commissioner, T.C. Memo. 2006-88 (Government's motion for summary judgment was denied because the record "did not foreclose the possibility that [the taxpayer] might have raised valid arguments had a hearing been held."). Respondent's internal operating procedures appear consistent with the Court's approach. See Internal Revenue Manual 126.96.36.199.5(2) (May 13, 2004) ("Face-to-face conferences will no longer be offered to or allowed for taxpayers who only raise frivolous issues") (emphasis added).
Viewing the facts most favorably to petitioners, we conclude that petitioners did not raise only frivolous arguments. Petitioners raised issues properly within the scope of a CDP hearing, such as collection alternatives and a spousal defense. Respondent therefore abused his discretion in denying petitioners a face-to-face hearing. We will deny respondent's motions and remand this case for further administrative proceedings. In doing so, we strongly caution petitioners that (1) they are only permitted to challenge the existence or amount of their underlying tax liability for 2002 if they did not receive the notices of deficiency that respondent mailed to them on August 30, 2004; 2 (2) they must be current in filing their tax returns in order to make an offer-in-compromise or to qualify for an installment agreement; and (3) should the Court subsequently determine that petitioners used these proceedings solely for purposes of delay and/or to advance frivolous and groundless arguments, the Court will consider imposing a penalty upon petitioners pursuant to section 6673(a).
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Summary Judgment, filed February 24, 2006, is denied without prejudice. It is further
ORDERED that respondent's Motion for Penalty Under I.R.C.
Section 6673, filed February 24, 2006, is denied without prejudice. It is further
ORDERED that this case is remanded to respondent's Appeals Office for the purpose of affording petitioners an administrative hearing pursuant to section 6330 for the purpose of discussing any valid issues (as more fully discussed in this Order) that petitioners may present. It is further
ORDERED that respondent shall offer petitioners an administrative hearing at respondent's Appeals Office located closest to petitioners' residence (or at such other place as may be mutually agreed upon) at a reasonable and mutually agreed upon date and time, but no later than July 25, 2006. It is further
ORDERED that each party shall, on or before August 9, 2006, file with the Court and serve on the other party, a report regarding the then present status of this case. It is further
ORDERED that jurisdiction is retained by the undersigned.
Peter J. Panuthos, Chief Special Trial Judge Dated: May 31, 2006,