                       T.C. Memo. 2011-157



                      UNITED STATES TAX COURT



            E.J. HARRISON & SONS, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 29889-09L, 9961-10.     Filed July 5, 2011.



     Philip G. Panitz, for petitioner.

     Aely K. Ullrich, for respondent.



                        MEMORANDUM OPINION


     KROUPA, Judge:   These consolidated cases are before the

Court to address a collection review matter in response to a

Notice of Determination Concerning Collection Action(s) Under

Section 6320 and/or 63301 (determination notice) and to address

     1
      All section references are to the Internal Revenue Code,
                                                   (continued...)
                                - 2 -

an interest abatement action under section 6404(e).2   We are

asked to decide two issues.   The first issue is whether

petitioner is liable for failure to pay additions to tax under

section 6651(a)(3) of $17,8753 for 1995, $15,903 for 1996 and

$6,082 for 1997 (collectively, the failure to pay additions).4

We hold petitioner is liable.   The second issue is whether

respondent’s determination to sustain the proposed levy action

was an abuse of discretion.   We hold it was not.




     1
      (...continued)
and all Rule references are to the Tax Court Rules of Practice
and Procedure, unless otherwise indicated.
     2
      The Court treated petitioner’s separate petition at docket
No. 9961-10 as an interest abatement claim under sec. 6404(e).
The Court consolidated the interest abatement case with the
collection case under Rule 141(a). Petitioner asserts that it is
entitled to abatement of interest on failure to pay additions
under sec. 6404(e). The Commissioner may abate interest
attributable to his unreasonable error or delay. Sec. 6404(e).
We may order interest abatement only if the Commissioner abused
his discretion in denying a request to abate interest. Sec.
6404(h). Petitioner’s only argument is it owes no interest
because respondent erroneously imposed additions to tax. We hold
therefore that respondent did not abuse his discretion in denying
petitioner’s interest abatement request.
     3
      All monetary amounts are rounded to the nearest dollar.
     4
       The determination notice was issued for 1995 and 1996. We
have jurisdiction to consider petitioner’s Federal income tax
liability for 1997, a non-determination year, to the extent that
it affects the collection action for unpaid Federal tax
liabilities for 1995 and 1996. See Freije v. Commissioner, 125
T.C. 14, 28 (2005).
                               - 3 -

                            Background

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioner is a California

corporation with its principal place of business in Ventura,

California, at the time it filed the petitions.

     Petitioner performs waste pickup and disposal services for

various municipalities in Ventura and Santa Barbara Counties in

California.   Respondent audited petitioner’s Federal income tax

returns for 1995, 1996 and 1997.    Respondent disallowed a portion

of petitioner’s deductions for compensation paid, asserting it

was unreasonable and excessive.    Consequently, respondent

determined deficiencies in petitioner’s Federal income tax of

$161,680 for 1995, $152,933 for 1996 and $61,628 for 1997.

Petitioner timely filed a petition with this Court seeking

redetermination of the deficiencies.

     This Court redetermined petitioner’s deficiencies to

$152,537 for 1995, $223,155 for 1996 and $91,306 for 1997 on

October 14, 2003 (First Decision).     E.J. Harrison & Sons, Inc. v.

Commissioner, T.C. Memo. 2003-239.     Petitioner appealed to the

U.S. Court of Appeals for the Ninth Circuit (the Ninth Circuit)

on the same day this Court entered its First Decision.

Petitioner did not file a bond under section 7485, however, to

stay assessment and collection.
                               - 4 -

     Without a bond to stay assessment and collection, respondent

issued petitioner a Statutory Notice of Balance Due on March 1,

2004.   Petitioner did not make the required payment.   The next

year, the Ninth Circuit reversed this Court’s reasonable

compensation findings and remanded the case for further findings.

E.J. Harrison & Sons, Inc. v. Commissioner, 138 Fed. Appx. 994

(9th Cir. 2005), affg. in part, revg. in part and remanding T.C.

Memo. 2003-239.   Respondent assessed failure to pay additions for

1996 and 1997 in April 2006 (over seven months after the First

Decision was remanded) based on the deficiencies determined in

this Court’s First Decision.

     This Court entered its second decision on July 26, 2006,

substantially reducing petitioner’s deficiencies to $72,137 for

1995, $63,612 for 1996 and $24,327 for 1997 (Second Decision).

E.J. Harrison & Sons, Inc. v. Commissioner, T.C. Memo. 2006-133.

Petitioner appealed this Court’s Second Decision to the Ninth

Circuit.   Petitioner again failed to file a bond under section

7485 to stay assessment and collection.   The Ninth Circuit

affirmed this Court’s Second Decision on May 20, 2008.     E.J.

Harrison & Sons, Inc. v. Commissioner, 270 Fed. Appx. 667 (9th

Cir. 2008), affg. T.C. Memo. 2006-133.

     Petitioner made three substantial payments toward the

deficiencies determined in this Court’s Second Decision between

May 2008 and April 2009.   Respondent abated tax and related
                                 - 5 -

interest for 1995, 1996 and 1997 pursuant to this Court’s Second

Decision during June of 2009.    Respondent also abated failure to

pay additions for 1996 and 1997 pursuant to this Court’s Second

Decision.   Finally, respondent assessed failure to pay additions

for 1995.   The abatements eliminated petitioner’s 1997 Federal

income tax liability.   Respondent issued petitioner a Final

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

(Levy Notice) after petitioner again failed to pay its tax

liabilities for 1995 and 1996.

     Petitioner timely requested a collection due process (CDP)

hearing.    Settlement Officer Patrick Lin (SO Lin) scheduled a CDP

hearing with petitioner.   Petitioner contested the failure to pay

additions and related interest at the CDP hearing.       SO Lin

sustained the proposed levy action and issued petitioner a

determination notice.   In making his determination, SO Lin

verified that all requirements of applicable law and

administrative procedure had been met.       SO Lin also considered

the issues petitioner raised and whether the proposed collection

action balanced the need for efficient collection with any

legitimate concerns of petitioner.       Petitioner timely filed

petitions with this Court disputing the failure to pay additions

and related interest.
                                - 6 -

                            Discussion

     This case involves when the Commissioner can assess failure

to pay additions if the taxpayer appeals the Court’s deficiency

redetermination without filing a bond but ultimately pays the

deficiency amounts when they are finally determined.   Respondent

first assessed failure to pay additions after the Ninth Circuit

reversed in part and remanded the Court’s First Decision.

Petitioner argues that respondent improperly assessed the failure

to pay additions, as the First Decision had been remanded and it

paid the deficiencies when the amounts were finally determined.

Respondent argues that the failure to pay additions were properly

assessed because petitioner failed to file a bond and petitioner

received valid notice and demand for payment of tax, which

petitioner ignored.   We first begin with the standard of review

in collection review matters.

Standard of Review

     This Court in collection review matters will review an

Appeals Office determination de novo where the underlying tax

liability is at issue.   Goza v. Commissioner, 114 T.C. 176, 181-

182 (2000).   A taxpayer’s underlying tax liability may be at

issue if the taxpayer did not receive a deficiency notice or did

not otherwise have an opportunity to dispute the tax liability.

Sec. 6330(c)(2)(B).   Issues other than the underlying liability

concerning the Appeals Office determination will be reviewed for
                               - 7 -

abuse of discretion.   See Sego v. Commissioner, 114 T.C. 604, 610

(2000); Goza v. Commissioner, supra at 182.   In reviewing an

administrative determination for abuse of discretion, we must

decide whether the Commissioner exercised his discretion

arbitrarily, capriciously or without sound basis in fact or law.

See Woodral v. Commissioner, 112 T.C. 19, 23 (1999).

     Petitioner neither received a deficiency notice for the

failure to pay additions nor was given an opportunity to dispute

the additions before the CDP hearing.   Thus, we review de novo

respondent’s determination that petitioner is liable for the

failure to pay additions.   We review for abuse of discretion all

other issues related to respondent’s determination to proceed

with the proposed levy action against petitioner.

Failure To Pay Additions

     We now address whether petitioner is liable for the failure

to pay additions.   The Commissioner has the burden of production

with respect to additions to tax.   Sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).   To meet this burden, the

Commissioner must produce sufficient evidence establishing that

it is appropriate to impose the additions to tax.   See Higbee v.

Commissioner, supra at 446-447.

     A failure to pay addition may be imposed when a taxpayer

fails to pay any tax required to be shown on a return within 21

calendar days of notice and demand for payment.   Sec. 6651(a)(3).
                               - 8 -

The failure to pay addition, however, is not imposed if a

taxpayer can show that the failure was due to reasonable cause

and not due to willful neglect.   Id.

     Respondent has met the prima facie requirements for imposing

the failure to pay addition.   Respondent, relying on Form 4340,

Certificate of Assessments, Payments, and Other Specified

Matters, showed that he provided notice and demand to petitioner

for payment of assessed tax liabilities.5   Respondent also showed

that petitioner failed to pay its tax liabilities within 21

calendar days of notice and demand.

     Petitioner next argues that the March 1, 2004, notice and

demand was invalid because it was based on a deficiency amount

that was redetermined after appeal of this Court’s First

Decision.   Put simply, petitioner argues respondent can assess

and collect a failure to pay addition only once a deficiency is

finally determined (or this Court’s decision becomes final).

Petitioner’s argument, however, lacks merit.


     5
      Petitioner argues that respondent may not rely on the
Statutory Notice of Balance Due entry in Form 4340 to establish
that he sent petitioner notice and demand. We disagree. A
Statutory Notice of Balance Due entry on Form 4340 is sufficient
to presumptively establish that notice and demand was sent on the
date corresponding to the Statutory Notice of Balance Due entry.
See United States v. Scott, 290 F. Supp. 2d 1201, 1207 & n.4
(S.D. Cal. 2003) (holding that a Statutory Notice of Balance Due
entry on Form 4340 provides evidence that notice and demand was
given). Moreover, petitioner has failed to provide any credible
evidence to rebut the presumption that respondent provided it
notice and demand. We find therefore that respondent issued
petitioner notice and demand on March 1, 2004.
                                - 9 -

     Respondent has met the prima facie requirements for imposing

the failure to pay addition.    Respondent properly issued notice

and demand to petitioner for payment of assessed tax liabilities.

Respondent also showed that petitioner failed to pay its tax

liabilities within 21 calendar days of that notice and demand.

     The Commissioner need not await a final deficiency

determination to assess and collect a failure to pay addition.

See Burke v. Commissoner, T.C. Memo. 2009-282.     He can assess and

collect a failure to pay addition after issuing proper notice and

demand for payment of tax.    Sec. 6651(a)(3).   Notice and demand

may be issued once an assessment of tax has been made.    Sec.

6303.

     Where a taxpayer appeals a decision of this Court and files

a bond, assessment is stayed until the deficiency is finally

determined.   Sec. 7485.   Here, petitioner did not file a bond

when it appealed this Court’s First Decision.    Consequently,

respondent was not stayed from assessing tax and issuing notice

and demand for payment of tax on March 1, 2004.    We therefore

hold that the notice and demand was valid and petitioner is

liable for the failure to pay additions unless petitioner can

prove its failure to pay was due to reasonable cause and not

willful neglect.

     We now consider whether petitioner’s failure to pay tax was

due to reasonable cause and not due to willful neglect.    The
                                - 10 -

taxpayer has the burden of proving reasonable cause and the

absence of willful neglect.     Rule 142(a); Higbee v. Commissioner,

supra at 447.    Petitioner argues its failure to pay was due to

reasonable cause because the tax deficiency stated in the notice

and demand was “incorrect.”

     Reasonable cause may be found where a taxpayer shows that he

or she was unable to pay the tax or would suffer an undue

hardship, despite exercising ordinary care and prudence in

providing for payment.     See sec. 301.6651-1(c)(1), Proced. &

Admin. Regs.     Petitioner has not alleged or argued that it was

unable to pay or would suffer an undue hardship by timely paying

its tax liabilities.     Moreover, petitioner has failed to

establish reasonable cause.     In fact, petitioner argues it paid

the correct amount after the deficiency amount was finally

determined.     We decided this argument lacks merit.    Petitioner

has not met its burden, and we find petitioner is liable for the

failure to pay additions.

Abuse of Discretion Regarding Collection Activities

     We now review whether respondent abused his discretion in

deciding to sustain the proposed levy action against petitioner

to collect unpaid tax liabilities for 1995 and 1996.       We begin

with general rules that apply to collection actions.

     The Secretary is required to furnish the taxpayer with

written notice of a proposed levy.       Sec. 6330.   The taxpayer is
                              - 11 -

entitled, upon request, to a hearing before the Appeals Office.

Sec. 6330(b)(1).   The taxpayer may raise at that hearing any

relevant issues relating to the unpaid tax or the proposed

collection action.   Sec. 6330(c)(2).   Relevant issues include any

appropriate spousal defenses, challenges to the appropriateness

of collection and possible alternative means of collection such

as an installment agreement or an offer-in-compromise.   Sec.

6330(c)(2)(A).

     After the hearing, the Appeals officer is required to make a

determination that addresses issues the taxpayer raised, verify

that all requirements of applicable law and administrative

procedure have been met and balance the need for the efficient

collection of taxes with the legitimate concern of the person

that any collection action be no more intrusive than necessary.

Sec. 6330(c)(3).   Petitioner may prove abuse of discretion by

showing that respondent exercised his discretion arbitrarily,

capriciously or without sound basis in fact or law.   See

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

     The record reflects that SO Lin properly verified that

respondent followed the applicable law and administrative

procedure.   He reviewed respondent’s account transcript and

concluded that petitioner received all notices and was accorded

all rights to which it was entitled regarding the assessments.

Additionally, SO Lin considered all relevant issues and defenses.
                              - 12 -

Petitioner did not provide any collection alternatives for SO

Lin’s consideration.   Finally, the record reflects that SO Lin

properly balanced the need for efficient collection of taxes with

petitioner’s legitimate concern that any collection be no more

intrusive than necessary.

     Petitioner argues that respondent abused his discretion

because respondent improperly assessed the failure to pay

additions.   We have already found that respondent properly

assessed them.   We therefore conclude that SO Lin did not abuse

his discretion in sustaining the levy action to collect

petitioner’s 1995 and 1996 tax.

     We have considered all arguments made in reaching our

decision, and, to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

     To reflect the foregoing,



                                      Decisions will be entered for

                                 respondent.
