                          T.C. Memo. 2010-135



                        UNITED STATES TAX COURT



   RICHARD MARK SCHMERMAN & AMY LYNN SCHMERMAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 26735-08L.               Filed June 21, 2010.



     Richard Mark Schmerman and Amy Lynn Schmerman, pro sese.

     Heather D. Horton, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:     This case was commenced in response to a

notice of determination concerning collection action.     The issue

for decision is whether the Internal Revenue Service (IRS)

Appeals Office abused its discretion by sustaining the filing of

a Federal tax lien.    All section references are to the Internal

Revenue Code.
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                          FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Arizona at the time their petition was

filed.

     Petitioners filed joint Federal income tax returns for 2002,

2003, and 2004 on October 17, 2003, October 19, 2004, and October

21, 2005, respectively.   For each of these 3 years, petitioners

failed to pay the balance of tax reported as due.

     On December 23, 2006, the IRS sent petitioners a Final

Notice, Notice of Intent to Levy and Notice of Your Right to a

Hearing with respect to the 2002, 2003, and 2004 tax liabilities.

Petitioners did not submit a Form 12153, Request for a Collection

Due Process or Equivalent Hearing, in response.

     On September 18, 2007, the IRS sent petitioners a Notice of

Federal Tax Lien Filing and Your Right to a Hearing Under IRC

6320 informing petitioners that a notice of Federal tax lien was

being filed that same day with the local county recorder’s

office.   The recorded lien reported outstanding amounts owed of

$17,187.49, $43,513.49, and $32,572.52 for 2002, 2003, and 2004,

respectively.

     On October 25, 2007, petitioners responded to the Federal

tax lien filing by submitting a completed Form 12153 and attached

a letter addressed to the IRS.    The letter noted that petitioners
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had filed Form 1045, Application for Tentative Refund, asserting

that their 2005 Federal income tax return “had a large self-

employment loss that would adjust both the 2003 and 2004 tax

years filed.    The business loss from the 2005 tax year would have

adjusted the 2003 and 2004 income tax obligations to zero,

resulting in only self-employment taxes.”   The letter also stated

that on September 7, 2007, petitioners submitted a Form 1045 to

the IRS for the third time and, even with this in process, the

lien was filed.   Petitioners also represented that the office

building where their business was located caught fire on

September 8, 2007, and that without office space they could not

operate the business.   Petitioners claimed that the filing of the

lien damaged their credit, resulting in their inability to lease

office space.

     The IRS acknowledged receipt of the request for a hearing by

letter dated November 15, 2007.   Subsequently, petitioners’ Form

1045 was processed, and on March 17, 2008, the IRS abated income

taxes due from petitioners for 2003 and 2004 to allow net

operating losses from 2005 that were carried back to 2003 and

2004.   The underlying tax liabilities disputed in petitioners’

request for a hearing were thus resolved.   Petitioners still have

outstanding balances for 2002, 2003, and 2004.

     Petitioners filed an application for an extension of time to

file their tax return for 2006, but did not file a tax return by
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the October 15, 2007, deadline.   For 2007, petitioners filed an

application for extension and had until October 19, 2008, to file

their 2007 tax return.

     By letter dated May 19, 2008, an IRS settlement officer

informed petitioners that a face-to-face conference was scheduled

for June 19, 2008, and that this would be their opportunity to

discuss the reasons that they disagreed with the collection

action and/or to discuss alternatives to the collection action.

The settlement officer’s letter noted:

          For me to consider alternative collection methods
     such as an installment agreement or offer-in-
     compromise, you must provide any items listed below.
     In addition, you must have filed all Federal tax
     returns required to be filed.

          Appeals cannot approve an installment agreement or
     accept an offer-in-compromise unless all required
     estimated tax payments for the current year’s income
     tax liability have been made. If you wish to pursue
     one of these alternatives during the * * * [collection
     due process] hearing process, you must arrange for the
     payment of any required estimated tax payments.
     Delinquent estimated tax payments can be included in an
     installment agreement. However, the estimated tax
     payments must be paid in full before an offer-in-
     compromise can be accepted. Our records indicate that
     you have not made estimated tax payments for the
     following period(s): 2007, 2008.

The letter also explained that the settlement officer could not

consider collection alternatives at petitioners’ hearing without

petitioners’ submitting the following information within 14 days

from the date of the letter:   (1) A completed collection

information statement (Form 433-A, Collection Information
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Statement for Wage Earners and Self-Employed Individuals, and

Form 433-B, Collection Information Statement for Businesses); (2)

a signed income tax return for 2006; (3) proof of estimated tax

payments for 2007 and 2008; and (4) Form 12277, Application for

Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.

     On June 19, 2008, the settlement officer conducted a face-

to-face conference with Richard Schmerman (petitioner).   A letter

from Amy Schmerman was presented to the settlement officer

authorizing petitioner to represent her during the hearing.    At

the conference, the settlement officer explained the collection

due process (CDP) procedures, petitioners’ additional judicial

rights, and waiver provisions.    Also, the settlement officer and

petitioner discussed an installment agreement, the unfiled

Federal income tax returns for 2006 and 2007, and the procedures

for penalty abatement and lien withdrawal.   Petitioners had not

supplied the documents listed in the letter dated May 19, 2008,

and at the conclusion of the meeting, the settlement officer gave

petitioners an extension to July 31, 2008, to do so.   The

settlement officer also gave petitioners the same deadline within

which to submit a letter requesting penalty abatement.

Petitioners were subsequently granted additional extensions, with

a final deadline of August 31, 2008, for the documentation to be

submitted.
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                               OPINION

     Section 6321 imposes a lien in favor of the United States on

all property and property rights of a taxpayer liable for taxes

after a demand for the payment of the taxes has been made and the

taxpayer fails to pay.    The lien arises when the assessment is

made.   Sec. 6322.   The IRS files a notice of Federal tax lien to

preserve priority and put other creditors on notice.    See sec.

6323.   Section 6320(a) requires the Secretary to send written

notice to the taxpayer of the filing of a notice of lien and of

the taxpayer’s right to an administrative hearing on the matter.

     The hearing generally shall be conducted consistent with

procedures set forth in section 6330(c), (d), (e), and (g).      Sec.

6320(c).   At the hearing a taxpayer may raise any relevant issue,

including challenges to the appropriateness of the collection

action and possible collection alternatives.    Sec. 6330(c)(2)(A).

     Following the hearing the Appeals Office must make a

determination whether the lien filing was appropriate and is

required to consider:    (1) Whether the Secretary has met the

requirements of applicable law and administrative procedure; (2)

the relevant issues raised by the taxpayer; and (3) whether the

proposed collection action appropriately balances the need for

efficient collection of taxes with the taxpayer’s concerns that

the collection action be no more intrusive than necessary.    Sec.

6330(c)(3).
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     Petitioners’ underlying tax liability is not in dispute;

thus the Court reviews the IRS’ determination for abuse of

discretion.    See Sego v. Commissioner, 114 T.C. 604, 610 (2000);

Goza v. Commissioner, 114 T.C. 176, 182 (2000).   To establish an

abuse of discretion, the taxpayer must show that the decision

complained of is arbitrary, capricious, or without sound basis in

fact or law.    Giamelli v. Commissioner, 129 T.C. 107, 111 (2007)

(citing Woodral v. Commissioner, 112 T.C. 19, 23 (1999)); see

Keller v. Commissioner, T.C. Memo. 2006-166, affd. 568 F.3d 710

(9th Cir. 2009).   In reviewing for abuse of discretion, we

generally consider only the arguments, issues, and other matters

that were raised at the CDP hearing or otherwise brought to the

attention of the IRS Appeals Office.    Giamelli v. Commissioner,

supra at 115; Magana v. Commissioner, 118 T.C. 488, 493 (2002).

     Petitioners assert that the settlement officer abused her

discretion by not releasing the lien and not considering an

installment agreement and that the Appeals Office abused its

discretion by determining that the filing of the Federal tax lien

was appropriate.

     Before, during, and after the conference on June 19, 2008,

the settlement officer informed petitioners that they needed to

submit a completed and signed Federal income tax return for 2006,

among other items, for her to consider collection alternatives

and whether to release the recorded lien.
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     At trial, petitioner testified that petitioners had not

filed their 2006 Federal income tax return because the office

building fire in 2007 destroyed their business records and that

they were going to different banks, vendors, and credit card

companies to determine the deductions to report on their 2006 and

2007 Federal income tax returns.    At the June 19, 2008,

conference the settlement officer suggested that petitioners use

the income figures from the IRS tax transcript records to

complete a 2006 tax return and then file an amended return once

they were able to compute the appropriate deductions.    Petitioner

stated at trial that “we just chose not to do that” because it

would have “resulted in a perjury” to file a tax return that was

not true, complete, and accurate, and that without having the

figures to claim deductions, the return would be incomplete and

inaccurate.

     Lack of access to records does not constitute reasonable

cause for failing to timely file a tax return.     Estate of

Vriniotis v. Commissioner, 79 T.C. 298, 311 (1982) (taxpayers who

do not have access to their records must nevertheless file their

tax returns timely using the most accurate estimates available).

If necessary, the taxpayer may file an amended return once the

records are available or when more accurate information is

available.    Id.   Petitioners’ claim that returns based on

estimates would be “perjury” has no merit.    Perjury involves
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deliberately making material false or misleading statements while

under oath.   Petitioners did not have reasonable cause for

failing to file their 2006 tax return.   Further, it was not an

abuse of discretion for the settlement officer to suggest that

petitioners file a 2006 tax return so that a collection

alternative and a release of the recorded Federal tax lien could

be considered.

     In addition to failing to supply the settlement officer with

a signed tax return for 2006, petitioners did not submit the

additional requested documentation, including collection

information statements (Forms 433-A and 433-B) and a formal

written request for penalty abatement.   The settlement officer

warned petitioners that she could not consider their request for

an installment agreement without the requested documents.     It is

not an abuse of discretion for an IRS Appeals conferee to reject

collection alternatives and sustain the proposed collection

action on the basis of the taxpayer’s failure to submit requested

financial information.   Kendricks v. Commissioner, 124 T.C. 69,

79 (2005); see Cavazos v. Commissioner, T.C. Memo. 2008-257.

Accordingly, the settlement officer did not abuse her discretion

by not considering an installment agreement.

     In sum, nothing in the record justifies a conclusion that

the settlement officer abused her discretion, and petitioners

have not shown that the IRS Appeals Office’s determination to
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sustain the filing of the tax lien was arbitrary, capricious, or

without sound basis in fact or law.    See Giamelli v.

Commissioner, supra at 111.

     In reaching our decision, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

     To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.
