Abstract
Case Name: Rickey B. Barnhill v. Commissioner, 155 T.C. No. 1 (July 21, 2020).
Jurisdiction: U.S.T.C.
Petitioner: Rickey B. Barnhill.
Respondent: Commissioner of the Internal Revenue Service.
Concepts: Penalties and Addition Tax; Collections; Summary Judgment; Levy or Distraint; Judicial Remedies and Review.
Nature of Case: Whether a taxpayer can be precluded by summary judgement from disputing tax liability under section 6330(c)(2)(B) when allegedly afforded an opportunity to dispute tax liability and did not?
Introduction
In 2018, Rickey Barnhill, director of Iron Cross, Inc. (Iron Cross) received a Notice of Determination Letter for collection of employment taxes against Iron Cross for failure to pay 10 calendar quarters of employment taxes.1 Also, $160,000 worth of civil penalties, trust fund recovery penalty (TFRP), were assessed against him.2 The unpaid employment taxes and TFRP were assessed as a tax lien against his personal property under sections 6331(a) of the Internal Revenue Code (Code).3 Mr. Barnhill requested a collection due process (CDP) hearing before the IRS Independent Office of Appeals, but was denied because he allegedly had a prior opportunity to challenge the liability in his TFRP appeal.4
On the contrary, the Tax Court held that Mr. Barnhill did not have a prior opportunity to make such a challenge for purposes of summary judgement because of a genuine dispute of fact.5 First, Mr. Barnhill contends that he did not receive Letter 5157, which provided a specific conference to dispute facts, identify new facts, and arrange for possible settlement.6 Secondly, the IRS stated that Letter 5157 dated April 5, 2017, was sent to Mr. Barnhill.7 The IRS further contended that since Mr. Barnhill received their pervious letter (Letter 1153) then he “had an opportunity to dispute the TFRP proposed in the Letter 1153.”8
The primary issue in this case relates to Mr. Barnhill’s contention that he is not liable for the TFRPs for two reasons: (1) because he was not a “responsible person” at Iron Cross and (2) because the TFRPs were overstated since the proposed penalty assessed substantially exceeded the actual amount of the trust fund taxes.9 However, the IRS Appeals office refused to allow Mr. Barnhill the opportunity to challenge his liability at the hearing, even though, he provided evidence of his role at Iron Cross to convince the IRS Appeals Office that he should not be held liable.10
Background
An employer is required to pay the IRS income taxes along with the employee’s share of Social Security and Medicare taxes by withholding a portion of the employee’s wages as a special fund in trust for the United States.11 Under section 6672, officers or employees of employers responsible for ensuring the collection and payment of these special trust funds “who willfully fail to do so are made personally liable to a penalty equal to the amount of the delinquent taxes.”2 The liability at issue is this penalty imposed by section 6672 that the IRS assessed against Mr. Barnhill for Iron Cross’s failure to play employment taxes.2 Before the IRS can impose a section 6672 penalty, it must mail Letter 1153 (a preliminary notice) to the last known address of the responsible person advising of the proposed assessment of section 6672 penalties.3 Alternatively, the IRS may deliver the notice in person.2
Under section 6672(b)(1), the Commissioner may issue notice and demand sixty days after notification for penalties. Id. at 6. Subsequently, the taxpayer may appeal.2 The Appeals officer determines that the taxpayer is liable for the penalty as a responsible person then the matter is returned to the Commissioner for assessment and collection.2 The Commissioner initiates the collection process pursuant to section 6303 by issuing a notice and demand for payment.2
Under section 6331(a), the IRS is authorized to collect tax levied on the taxpayer for failure to pay any Federal tax liabilities after notice and demand.3 However, under section 6330(c)(2)(B), the taxpayer can contest the amount and existence of the underlying tax liability only if he claims that he did not receive a notice of deficiency or have an opportunity to dispute the tax liability.12
This matter was before the Tax Court as a motion for summary judgement by the Commissioner.4 Under Rule 121, the Tax Court “may grant summary judgement where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law.”10 The Court assumed that the facts which Mr. Barnhill presented were correct as pursuant to Rule 121, stating that “the Court will view any factual material and inferences in the light most favorable to the nonmoving party.”2
Case Description
The Commissioner contended that since Mr. Barnhill received Letter 1153, he had an opportunity to dispute the taxpayer’s liability.13 Thus, taxpayers are precluded from disputing liability in Collection Due Process hearing because Letter 1153 creates a prior opportunity to dispute the liability.2 However, the Tax Court states that “Letter 1153 itself does not ‘constitute” the opportunity but rather enables, makes available, or provides the means for, or give rise to the opportunity to challenge the TFRP liability.2 Specifically, “it is the hearing that ‘constitutes’ the opportunity.”2
“Someone who has received a Letter 1153 but is waiting for his scheduled hearing is still awaiting his opportunity and has not yet gotten it[;]” because, “the opportunity referenced in section 6330(c)(2)(B) is different from the receipt of the notice that triggers the opportunity.”2 Therefore, in determining whether a TFRP liability can be properly challenged in a Collection Due Processing hearing, the court does not give weight to whether the taxpayer received Letter 1153 but whether the taxpayer had an opportunity to dispute the TFRP anticipated in Letter 1153.8 For purposes of summary judgement, the Tax Court held that Mr. Barnhill timely submitted his initial protest, but due to no fault of his own, was not informed of the scheduled conference, thereby, was deprived of his opportunity to appeal.2
Conclusion
A taxpayer cannot be precluded by summary judgement from disputing tax liabilities under section 6330(c)(2)(B) by merely receiving Letter 1153 from the IRS. Instead, the taxpayer must forgo an actual opportunity to dispute such tax liability by not appearing to a known and scheduled hearing. Because, the opportunity referenced in section 6330(c)(2)(B) is different from the receipt of the notice that triggers the opportunity. Furthermore, a party’s motion for summary judgement requires the court to view any factual material and inferences in the light most favorable to the nonmoving party.