Opinion
11263-22L
03-29-2023
John Landis Heinaman, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Joseph Robert Goeke Judge
Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the trial in this case before Judge Joseph Robert Goeke at Los Angeles, California containing his oral findings of fact and opinion rendered at the trial session at which this case was heard.
In accordance with the oral findings of fact and opinion, decision will be entered for respondent.
John Landis Heinaman
v.
Commissioner of Internal Revenue
Docket No. 11263-22L
March 15, 2023
Bench Opinion
Joseph Robert Goeke, Judge
THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case.
This opinion is rendered pursuant to Tax Court Rule of Practice and Procedure 152 and Internal Revenue Code section 7459(b). Rule references hereinafter are to these same rules and section references are to the Internal Revenue Code as it applies to this case, unless otherwise stated. This is a collection due process case, in which respondent seeks to collect by levy, trust fund recovery penalties under section 6652.
Petitioner had a hearing under 6330 and we have jurisdiction to review the results of that hearing as reflected in the Notice of Determination because the petitioner filed a timely petition with this Court. At the time the petition was filed, the petitioner was a resident of California. Some of the facts have been stipulated and petitioner testified at trial. The stipulations include various exhibits, including the administrative file.
Respondent determined that petitioner is liable as the responsible person under section 6672 for unpaid liabilities for Heinaman Contract Glazing, Inc. for the tax periods ending June 30, 2015, September 30, 2015, December 31st, 2015, and March 31st, 2016. Petitioner protested respondent's determination and requested a hearing with an Appeals officer. On June 8, 2017, petitioner received the hearing with the Appeals officer. Petitioner was represented by Attorney Michael Shaff during the Appeals process.
The Appeals officer concluded that the record established that petitioner met the requirements under section 6672 for finding liability for the unpaid employment tax fund taxes of Heinaman Contract Glazing, Inc. As a result of that earlier hearing, Appeals sustained the assessment against the petitioner.
On July 15, 2019, respondent mailed petitioner a Notice of Intent to Seize Assets and Right to a Hearing for the tax periods in question. On August 5th, 2019, the petitioner submitted a request for a collection due process or equivalent hearing. On that request form, the petitioner selected a collection alternative pursuant to an offer in compromise. Petitioner stated on that request form that he sought a collection due process hearing because he believed he was not personally liable for the taxes in question.
On April 19th, 2022, the Settlement officer assigned to the matter which led to this immediate case, issued a Notice of Determination sustaining the proposed collection action. In that determination, the Settlement officer determined that the underlying liability was not at issue because petitioner had had a previous opportunity to contest to the liability in Appeals. Included in the Stipulations of Fact are statements regarding the approval by the Revenue Officer's question's supervisor JR of the recommendation that petitioner be subject to the trust fund recovery penalty under section 6672.
Revenue Officer Strula made the determination to assert the trust fund recovery penalty against the petitioner for the tax periods in this case. On October 26th, 2016, the Revenue officer's immediate supervisor B. Zachary, signed Form 4183 approving the assertion of the trust fund recovery penalty for the periods in question against the petitioner. We find that these facts meet the obligation respondent had to go forward with evidence supporting the assertion of the penalty pursuant to sections 6751(b). Chadwick v. Commissioner, 154 T.C. 84 (2020).
The Notice of Determination applicable to this case contains many pertinent facts, and in particular, we quote some sections below. We note that in the quoted material, the Settlement officer refers to the petitioner in the second person.
Your case came to Appeals from Cincinnati, Ohio Campus Compliance Office. Compliance mailed Letter 1058 Final Notice/Notice of Intent to Levy and Notice of Your Right to a Collection Due Process (CDP) Hearing to your address of record on July 15, 2019. You timely requested a CDP hearing for the proposed levy with Appeals on August 5, 2019. Your CDP hearing request was assigned to me on January 27, 2020.
During the CDP hearing, you indicated that you did not agree with the assessed liability. I explained that you cannot raise a liability issue in the current CDP hearing, as you had a prior opportunity to do so with Appeals. You filed a protest for the proposed trust fund recovery penalty. Appeals heard your arguments and sustained the proposed assessment. On August 23rd, 2020, I received and reviewed the financial information mailed by you. The review of that information revealed the following: (1) you claimed that your gross monthly income is only $7,800; however, the average monthly deposit in your bank accounts, which are under the name of Heinaman Family Trust, is $33,000; (2) you have two related corporations, Heinaman Advisors, LLC with 100 percent ownership, and HKA Partnership with 50 percent ownership; (3) HKA Partnership owns a real property with no encumbrances on it; (4) review of the corporation bank statements revealed significant comingling between the Heinaman Advisors, LLC, HKA Partnership, and personal assets - numerous transfers from business accounts to the Family Trust bank account; (5) I could not make a determination as to your ability to pay because the information provided by you was not consistent and transparent.
On September 5, 2020, I received the copy of the Form 656, Offer in Compromise, which was sent to the Offer in Compromise Unit. You offered $1,000 payable in nine months after the OIC acceptance, plus a waiver to claim the net operating loss deduction for $100,000. Your CDP hearing request was put on a suspense status while the IRS Compliance Office was investigating your offer.
On November 27, 2020, I was notified that the original OIC dated September 5, 2020 was returned to you as not processable as the OIC fee was not corrected. You sent me a new Form 656 with the correct OIC fees on November 25th, 2020. That new Form 656 was sent to the IRS OIC Compliance Office for investigation. On March 31st, 2022, your OIC case was reassigned back to me, as you did not reach an agreement with the Compliance Office. On February 7th, 2022, the Compliance Unit mailed a preliminary rejection letter to your address of record advising you that your OIC for $1,000 had been rejected.
Per the Compliance calculation, your reasonable collection potential equals $90,835.89. Compliance calculated that your future income potential was zero. However, your equity in assets equals $90,835.89.
The Revenue officer failed to include the cash balance of $14,983 of the bank account of Heinaman Family Trust. You did not disclose to the Revenue officer that you have a 50 percent interest in a partnership named HKA Partners. The partnership has a real property at 26981 Vista Terrace, Suite A, Lake Forest, California 92630. Per the information provided by you to me, the fair market value of that property is $1,217,634. There is no mortgage on that property.
Per the Revenue officer calculation, your monthly income is $4,586.68 consisting of $2,732 for a Social Security benefit for you, $1,126 from the pension from PPG, and $728.68 from K-1 from a related partnership. Per the Revenue officer, you're living expenses add up to $6,687, leaving you with a negative $2,100 monthly income.
I noticed numerous math errors in the Revenue officer's calculation. The Revenue officer failed to include the $1,314 Social Security income received by your spouse on a monthly basis. The Revenue officer failed to include $3,455 K-1 income received by your related corporation, Heinaman Advisors, LLC and $774 wage income received, by you, from Heinaman Advisors, LLC.
I reviewed the information in the CDP file and the OIC file. The following information was revealed through that review. There is significant comingling between your personal funds and the funds of Heinaman Advisors, LLC. There is significant comingling between your personal funds and funds of HKA Partners. The bank deposits in your bank accounts did not match the amount reported on your income. HKA Partners has not filed Form 1065 returns for the years ending December 31st, 2019 and 2020. You did not disclose to the Compliance that you have a 50 percent ownership of an asset owned by HKA Partnership. This information was revealed to me directly by you. You did not disclose to the Compliance that you have a K-1 income from HKA Partnership. That information was disclosed to me while working on your CDP request.
I prepared a corrected Revenue collection potential calculation, which showed that you can full pay the outstanding tax liability based upon your assets and future income potential. The Appeals administrative file reflects that JRGthe Settlement officer reviewed the Heinaman Family Trust documents, which include a Power of Revocation in clause 3.1, which power was exercisable by petitioner.
The legal analysis in this case begins with the basic question, whether we may consider the underlying tax liability under section 6330. Section 6630(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 respondent's intended collection action, and possible alternative means of collection. Sego v. Commissioner, 114 T.C. 604, 609 (2000).
Section 6330(c)(2)(B) establishes circumstances under which a person may challenge the existence or amount of his or her underlying tax liability. Lewis v. Commissioner, 128 T.C. 48, 52 (2007). Section 6330(c)(2)(B) provides that a 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.
Treas. Reg. section 301.6330-1(e), Proced. and Admin. Regs, provides in pertinent part, the taxpayer also may raise challenges to the existence or amount of the tax liability specified in the CDP notice for any tax periods shown in the CDP notice if the taxpayer did not receive a Statutory Notice of Deficiency for that tax did not, otherwise, have an opportunity to dispute that tax liability.
Section 301.6330-1(e)(3), Q&A-E2 Procedural and Admin. Regs gives an illustration of the questions and answers to the provisions of this paragraph C 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. Receipt of a Statutory Notice of Deficiency for this purpose means receipt in time to petition the Tax Court for a redetermination of the deficiency asserted in the Notice of Deficiency. 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.
We have previously applied this regulation. Lander v. Commissioner, 154 T.C. 104, 123 (2020). Section 6330(c)(2)(B) strikes a balance between giving taxpayers at least one opportunity to dispute their tax liability and ensuring that prepayment liability challenges do not frustrate the process of Revenue collection. James v. Commissioner, 850 F.3d 160, 166 (4th Cir. 2017).
Based upon the prior opportunity which petitioner had, which is consistent with prior opportunities we have previously found to preclude consideration of the underlying liability in the 6330 hearings before our Court, we find that the underlying liability is not properly before the Court in this case.
We allowed petitioner to testify at trial in support of his claim that the underlying liability was not properly determined by Appeals, previously. Petitioner's rationale for his argument was that he did not willfully fail to pay the underlying liability. Section 6672 imposes a trust fund recovery penalty against any responsible person required to collect, account for and pay over taxes held in trust who willfully fails to do so.
In the context of section 6672, the term "willful" does not mean "a criminal or other bad motive, but simply, a voluntary, conscious and intentional failure to collect, truthfully account for and pay over the taxes withheld from the employees." Newsome v. United States, 431 F.2d 742, 745 (5th Cir. 1970); Mason v. Commissioner, 132 T.C. 301, 324-25 (2009).
Willfulness is established where the "responsible person acts with a reckless disregard of a known or obvious risk that trust funds may not be remitted to the Government." Mazo v. United States, 591 F.2d 1151, 1154 (5th Cir. 1979). Willfulness is typically proven by evidence that a responsible person paid other creditors when withholding tax that was due to the Government was not paid. Gustin v. United States, 876 F.2d 485, 492 (5th Cir. 1989); Mason v. Commissioner, 132 T.C. at 325.
Petitioner made a point of arguing that he was not willful in failing to pay over the trust fund recovery taxes because he chose to pay other creditors to continue his business operations. We find those facts directly support the application of the trust fund recovery penalty pursuant to the law cited above. So despite the fact that the underlying liability is not before this Court, we note that petitioner's position regarding the underlying liability is flawed.
We now turn to the final issue in this case, which is whether the Settlement officer abused discretion in not allowing an offer in compromise or in any other respect. Because the existence or amount of the underlying tax liability is not properly at issue, the Court will review the determination made by the Settlement officer for abuse of discretion. Goza v. Commissioner, 114 T.C. 176, 182 (2000). An abuse of discretion occurs if the determination was made "arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Here, the taxpayer made two offers in compromise. The first offer was for $1 for doubt as to liability. The OIC was rejected by Compliance and petitioner filed a protest for that rejection. A separate Appeals officer reviewed the OIC rejection and sustained the rejection. The second OIC was filed for doubt as a collectability for $1,000 and the collateral agreement to give up on petitioner's joint Federal income tax return a net operating loss carryforward of $100,000. This OIC was also rejected by the Settlement officer because the Settlement officer concluded, petitioner had the assets and income to pay the liability in full.
We find that the Settlement officer's conclusion in this regard did not result in abuse of discretion, but rather, was fully supported by the administrative record. The petitioner did not raise any other issues at the CDP hearing, nor in the petition before this Court, nor at trial. We note that the assessment of the trust fund recovery penalty was valid based upon the stipulated facts in the administrative record and that assessment was unchallenged regarding its compliance with proper administrative procedures.
This concludes the Court's legal analysis. Based upon that legal analysis, we find that a decision should be entered for respondent. This ends the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:37 a.m., the above-entitled matter was concluded.)