Frey v. Comm'r

¶2MEMORANDUM FINDINGS OF FACT AND OPINION

¶3CHIECHI, Judge : Petitioners filed the petition in this case in response to a notice of determination concerning collection action(s) under section 6320 and/or 6330 (notice of determination).

¶4We must decide whether respondent abused respondent's discretion in determining to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999. We hold that respondent did not abuse respondent's discretion.

¶5             FINDINGS OF FACT

¶6Many of the facts have been stipulated and are so found.

¶7Petitioners resided in Newport News, Virginia, at the time they filed the petition in this case.

¶8During 1996, petitioner Gerald L. Frey (Mr. Frey) received wages of $ 37,849.88 from Blackhawk Industries, Inc. (Blackhawk Industries), and petitioner Jessica P. Frey (Ms. Frey) received wages totaling $ 20,799.48 from Smithfield Apartments Corp. (Smithfield Apartments) and Bailey Enterprises, Inc. *90 (Bailey Enterprises). During 1997, Mr. Frey received wages of $ 45,961 from Blackhawk Industries, and Ms. Frey received wages totaling $ 21,998 from Smithfield Apartments and Bailey Enterprises. During 1999, Mr. Frey received wages totaling $ 35,630.92 from the Virginia Department of Transportation (Virginia Transportation Department), Employment Services, Inc. (ESI), and ECPI College of Technology (ECPI College) and unemployment compensation of $ 1,596.

¶9Although Mr. Frey received wages during the years at issue as well as unemployment compensation during 1999 and Ms. Frey received wages during 1996 and 1997, petitioners did not report such wages and unemployment compensation in any Federal income tax return (return) that they submitted to the Internal Revenue Service (IRS).

¶10On or about August 17, 1998, respondent prepared a substitute for return for petitioners' taxable year 1996.

¶11On October 30, 1998, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1996. In that notice, respondent determined that for 1996 petitioners had a deficiency of $ 6,332, an addition to Federal income tax (tax) under section 6651(a)(1)¹ of $ 729.22, an addition*91 to tax under section 6651(a)(1) and (2) of $ 421.33, and an addition to tax under section 6654 of $ 156. Petitioners did not file a petition in the Court with respect to the notice of deficiency relating to their taxable year 1996.

¶12On June 7, 1999, respondent assessed petitioners' tax of $ 6,332, as well as additions to tax under sections 6651(a)(1) and (2) and 6654 totaling $ 1,306.55 and interest as provided by law of $ 751.08, for their taxable year 1996. (We shall refer to those assessed amounts, as well as any interest as provided by law accrued after June 7, 1999, as petitioners' unpaid liability for 1996.)

¶13On June 7, 1999, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1996.

¶14On November 22, 1999, respondent received from petitioners Form 1040, U.S. Individual Income Tax Return, for their taxable year 1996 (1996 Form 1040). The 1996 Form 1040 that petitioners*92 submitted to the IRS did not contain petitioners' original signatures but contained copies of petitioners' signatures dated November 1, 1999. In their 1996 Form 1040, petitioners reported total income of $ 0, total tax of $ 0, and claimed a refund of $ 3,839.28 of tax withheld. Petitioners attached to their 1996 Form 1040 respective Forms W-2, Wage and Tax Statements (Forms W-2), issued by Blackhawk Industries, Smithfield Apartments, and Bailey Enterprises showing wages, tips, and other compensation totaling $ 58,649.36. Petitioners also attached to their 1996 Form 1040 a document (petitioners' attachment to their 1996 Form 1040), which stated in pertinent part:

¶15   I, Gerald L and Jessica P Frey, am submitting this as part of my

¶16   1996 income tax return, even though I know that no section of

¶17   the Internal Revenue Code:

¶18     1) Establishes an income tax "liability" as, for

¶19     example, Code Sections 4401, 5005, and 5703 due with

¶20     respect to wagering, alcohol, and tobacco taxes;

¶21     2) Provides that income taxes "have to be paid on the

¶22     basis of a return" -- as, for example, Code Sections

¶23*934374, 4401(c), 5061(a) and 5703(b) do with respect to other

¶24     taxes; I am filing anyway because I know the government has

¶25     prosecuted others for failing to file income tax returns by

¶26     (erroneously) invoking Code Sections 7201 and 7203.

¶27     Therefore, this return is not being filed voluntarily but

¶28     is being filed out of fear that if I did not file this

¶29     return I could also be (illegally) prosecuted for failure

¶30     to file an income return for the year 1996.

¶31     3) In addition to the above, I am filing even though the

¶32     "Privacy Act Notice" as contained in a 1040 booklet

¶33     clearly informs me that I am not required to file. It does

¶34     so in at least two places.

¶35       a) In one place, it states that I need only file a

        return for "any tax" I may be "liable"



        for. Since no Code Section makes me "liable"



        for income taxes, this provision notifies me that I do



        not have to file an income tax return.

*94     b) In another place, it directs me to

Code Section 6001. This section provides, in relevant part, that

        "Whenever in the judgment of the Secretary it is



        necessary, he may require any person by notice served



        on such person; or by regulations, to make such



        returns, render such statements, or keep such records,



        as the Secretary deems sufficient to show whether or



        not such person is liable for the tax under this



        title." Since the Secretary of the Treasury did



        not "serve" me with any such "notice"



        and since no legislative regulation exists requiring



        anyone to file an income tax return, I am again

        informed by the "Privacy Act Notice" that I am

        not required to file an income tax return.



     4) With respect to the information I included in my return,



     I wish to point out that the courts have ruled that: "A

     (1040) form with 'zeros' inserted in*95 the space provided . .

     . qualified as a return." See

U.S. v. Long, 618 F 2d 74 (9th Cir. 1980),

U.S. v. Kimball, 896 F.2d 1218 (9th Cir. 1990)

U.S. v. Moore, 627 F.2d 830 (7th Cir. 1980), and a Las

     Vegas bankruptcy court held that "Zeroes entered on a

     Form 1040 constitutes a return." Cross v. United States (In re Cross), 71 A.F.T.R.2d (RIA) 4822, 91-2 U.S. Tax Cas. (CCH) P50318.

     5) Please note that my 1996 return also constitutes a claim

     for refund pursuant to Code Section 6402.

     6) It should also be noted that I had "zero" income

     according to the Supreme Court's definition of income (See

     Note #1) … since I had no earnings in 1996, that would



     have been taxable as "income" under the



     Corporation Excise Tax Act of 1909, I can only swear to having

     "zero" income in 1996. Obviously, since I know the

¶36     legal definition of "income", if I were to swear to

¶37     having received any other amount of "income," I

¶38     would be*96 committing perjury under both 18 U.S.C. 1621 and

¶3926 U.S.C. 7206. Therefore, not wishing to commit perjury under

     either statute, I can only swear to have "zero"



     income for 1996.



     7) I am also putting the IRS on notice that my 1996 tax



     return and claim for refund can not be considered



     "frivolous" on any basis -- pursuant to

Code Section 6702. For one thing, there is no statute that

     requires me to make a "self-assessment."



     Therefore, how can I be charged with a penalty for not



     doing something -- allegedly incorrectly -- that no



     statute requires me do at all? …



           *   *   *   *   *   *   *



     11) Should the Service disagree with the figures and



     amounts shown on my tax return and claim for refund, then I



     demand an office or field audit to discuss these



     differences …. In addition, if any



     "determination" is made that changes in my return

     are warranted, *97 I demand to be notified as to where and

     when I may "inspect" the "text of any



     written determination and any background file documents

     relating to such a determination" as provided by 26 USC 6110            *   *   *   *   *   *   *

   *Note #1: The word "income is not defined in

   the Internal Revenue Code. U.S. v. Ballard, 535 F.2d 400, 404

   . But, as stated above, it can only be a

¶40   derivative of corporate activity. The Supreme Court has held

¶41   this numerous times. … [Reproduced literally.]

¶42Respondent did not process and file petitioners' 1996 Form 1040 as a tax return. That was because respondent determined that that document was frivolous.

¶43On or about November 13, 2000, respondent prepared a substitute for return for petitioners' taxable year 1997.

¶44On a date not disclosed by the record, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1997. Petitioners did not file a petition in the Court with respect to that notice.

¶45On June 5, 2001, respondent received from petitioners Form 1040A, U. *98 S. Individual Income Tax Return, for their taxable year 1997 (1997 Form 1040A). The 1997 Form 1040A that petitioners submitted to the IRS contained petitioners' original signatures dated May 30, 2001, and copies of petitioners' signatures dated November 1, 1999. In their 1997 Form 1040A, petitioners reported total income of $ 0, total tax of $ 0, and claimed a refund of $ 5,122.83 of tax withheld. Petitioners did not attach to their 1997 Form 1040A any Forms W-2. Petitioners attached to their 1997 Form 1040A a document (petitioners' attachment to their 1997 Form 1040A), which was identical to petitioners' attachment to their 1996 Form 1040 except that petitioners' attachment to their 1997 Form 1040A made references to their taxable year 1997 while petitioners' attachment to their 1996 Form 1040 made references to their taxable year 1996.

¶46Respondent did not process and file petitioners' 1997 Form 1040A as a tax return. That was because respondent determined that that document was frivolous.

¶47On August 13, 2001, respondent assessed petitioners' tax of $ 8,035, as well as additions to tax under sections 6651(a)(1) and (2) and 6654 totaling $ 1,509.43 and interest as provided by law of*99 $ 1,117.83, for their taxable year 1997. (We shall refer to those assessed amounts, as well as any interest as provided by law accrued after August 13, 2001, as petitioners' unpaid liability for 1997.)

¶48On August 13, 2001, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1997.

¶49On or about April 15, 2000, respondent received from petitioners Form 1040 for their taxable year 1999 (1999 Form 1040). In their 1999 Form 1040, petitioners reported total income of $ 0 and total tax of $ 0. Petitioners attached to their 1999 Form 1040 (1) respective Forms W-2 issued by the Virginia Transportation Department, ESI, and ECPI College showing wages, tips, and other compensation paid to Mr. Frey totaling $ 35,630.92 and (2) Form 1099- G, Statement for Recipients of Certain Government Payments, showing unemployment compensation paid to him of $ 1,596. Respondent processed and filed petitioners' 1999 Form 1040 as a tax return.

¶50On June 15, 2001, respondent issued a notice of deficiency to petitioners with respect to their taxable year 1999. In that notice, respondent determined that for 1999 petitioners had a deficiency of $ 3,356. Petitioners*100 did not file a petition in the Court with respect to the notice of deficiency relating to their taxable year 1999.

¶51Instead, on September 1, 2001, in response to that notice, petitioners sent a letter to Gwen A. Krauss, Director, IRS Service Center. That letter stated in pertinent part:

¶52          Your Deficiency Notice dated 6/15/01

¶53   According to your "Deficiency Notice" of above date

¶54   (Attachment 1), there is an alleged deficiency with respect to

¶55   my 1999 income tax of $ 3,356.00, and if I wanted to "contest

¶56   this deficiency before making payment," I must "file a

¶57   petition with the United States Tax Court." Before I file,

¶58   pay, or do anything with respect to your "Notice," I

¶59   must first establish whether or not it was sent pursuant to law,

¶60   whether or not it has the "force and effect of law," and

¶61   whether you had any authority to send me the notice in the first

¶62   place.

¶63           *   *   *   *   *   *   *

¶64   Let me further point out that IR Code Sections 6001 and 6011 (as

¶65   identified in the 1040 Privacy Act) notify me that I need only

¶66*101    "comply with regulations." Nothing in the Privacy Act    Notice or in the above statutes informs me that I have to

¶67   "comply" with, or pay attention to, letters and/or

¶68   alleged "determinations" sent to me by various and

¶69   sundry employees of the IRS.

¶70   Please note that Section 6212 states that "If the Secretary

¶71   determines that there is a deficiency in respect of any tax

¶72   . . . he is authorized to send notice of such deficiency, etc.,

¶73   etc., etc." However, the "Notice" I received was not

¶74   sent by the Secretary, but by Gwen A Krauss, who is identified

¶75   as being the Director of the IRS Service Center in Chamblee,

¶76   Georgia, and I have no way of knowing whether she has been

¶77   delegated by the Secretary to send out such notices on the

¶78   Secretary's behalf. So before I do anything at all with respect

¶79   to your "Notice," I would have to see a Delegation Order

¶80   from the Secretary of the Treasury delegating to Gwen A Krauss

¶81   the authority to send out Deficiency Notices.

¶82   In addition, I would also like you to send me (or identify for

¶83   me) the legislative regulations*102 that you claim implement

¶84Code Sections 6212 and 6213. I have also attached an excerpt

¶85   from the IRS Procedures Manual (MT 1218-196, and page P-6-40),

¶86   which points out that the IRS is required to "make available

¶87   to all taxpayers comprehensive, accurate, and timely information

¶88   on the requirements of tax law and regulations." So,

¶89   pursuant to this provision from your Procedures Manual, I am

¶90   asking that you identify (" make available") for me the

¶91   legislative regulations that you claim implement both

¶92Code Sections 6212 and 6213, since I have not been able to locate

¶93   them.

¶94   Without your furnishing me with these documents and information,

¶95   I will be unable to "ascertain" (pursuant to the

¶96   Federal Crop decision) whether the individual who sent me

¶97   the Deficiency Notice was authorized to do so, and whether I am

¶98   legally required to take any notice of it. I am obviously

¶99   unwilling to "take the risk" referred to by the Supreme

¶100   Court in the above cited case. [Reproduced literally.]

¶101On February 4, 2002, respondent assessed petitioners' tax of $ 3,356, as well as*103 interest as provided by law of $ 520.25, for their taxable year 1999. (We shall refer to those assessed amounts, as well as interest as provided by law accrued after February 4, 2002, as petitioners' unpaid liability for 1999.)

¶102On February 4, 2002, respondent issued to petitioners a notice of balance due with respect to petitioners' unpaid liability for 1999.

¶103On June 21, 2002, respondent issued to petitioners a final notice of intent to levy and notice of your right to a hearing (notice of intent to levy) with respect to their taxable year 1996 and a separate notice of intent to levy with respect to their taxable years 1997 and 1999.

¶104On or about July 20, 2002, in response to the notice of intent to levy with respect to their taxable year 1996, petitioners filed Form 12153, Request for a Collection Due Process Hearing (Form 12153), and requested a hearing with respondent's Appeals Office (Appeals Office). On the same date, in response to the notice of intent to levy with respect to their taxable years 1997 and 1999, petitioners filed Form 12153 and requested a hearing with the Appeals Office. Petitioners attached, inter alia, a document to their Form 12153 with respect to their taxable*104 year 1996 (petitioners' attachment to their 1996 Form 12153) and a document to their Form 12153 with respect to their taxable years 1997 and 1999 (petitioners' attachment to their 1997 and 1999 Form 12153). Petitioners' attachment to their 1996 Form 12153 and petitioners' attachment to their 1997 and 1999 Form 12153 were identical and set forth, inter alia, the same types of statements, contentions, arguments, requests, and questions that petitioners set forth in petitioners' attachment to their 1996 Form 1040 and petitioners' attachment to their 1997 Form 1040A. In addition, petitioners' attachment to their 1996 Form 12153 and petitioners' attachment to their 1997 and 1999 Form 12153 stated in pertinent part:

¶105   1) … at my CDP hearing I demand that the appeals officer

¶106   have at the hearing the delegation order from the

¶107   Secretary of the Treasury delegating to the

¶108   Operations Manager, Automated Collection System the authority to

¶109   notify me to my right for a CDP hearing ….

¶110           *   *   *   *   *   *   *

¶111     b) … I am requesting that you have at the CDP hearing *

¶112     … *105 a "delegation" order, emitting directly from

¶113     the Secretary, authorizing the IRS employee who signed for

¶114     him (them), the authority to impose and file such notices

¶115     of liens against us.

¶116     c) In lieu of having such a "delegation order," I

¶117     am requesting that you have the job description of IRS

¶118     employee(s) and the individual who signed the notice at

¶119     issue for him to see if any such authority is included in

¶120     their job description.

¶121           *   *   *   *   *   *   *

¶122   2) The document also says that "We have made a demand

¶123   for payment of this liability." (Emphasis added)

¶124     a) Please note (as explained in paragraph 4 herein), we

¶125     claim we never received such a "demand" for

¶126     payment.

¶127        1) If you claim otherwise, than I demand that you have

¶128        at the CDP hearing the Form Number of the document

¶129        that you claim was sent to us as constituting the

¶130        "demand" referred to in paragraph 2) *106 above.

¶131        2) Since the Code Section establishing the

¶132        "liability" referred to above is also not

¶133        identified, I am requesting that you specifically

¶134        identify the Code Section establishing …

¶135   3) VERIFICATION FROM THE SECRETARY

¶136     I also expect you to have at the CDP hearing

¶137   "verification from the Secretary that the requirements of

¶138   any applicable law or administrative procedure have been

¶139   met." That is the specific statement from the Secretary (or

¶140   his delegate) that THE LAW requires you to have. PLEASE BE

¶141   ADVISED THAT SECTION 6330(c)(3)(A) REQUIRES THAT THIS

¶142   VERIFICATION BE "PRESENTED" TO US. Please don't

¶143   tell us at the CDP hearing that in lieu of having that specific

¶144   document from the Secretary as required by law to be

¶145   "presented" to us, that you have some unsigned, IRS

¶146   transcript. … I will not accept any claim of yours that

¶147   "the courts have held that an unsigned, computer printout

¶148   satisfies the legal requirements of Code Sections 6320 &

¶1496330," in lieu of "presenting" *107 us with

¶150   "verification (from the Secretary) . . . that the

¶151   requirements of any applicable law or administrative procedure

¶152   have been met," stated in the law. …

¶153     4) Also, pursuant to Code Section 6201(1), before I can owe

¶154   any income taxes there has to be an assessment based on a

¶155   "return or list." I filed a return showing no taxes due.

¶156   Therefore, I don't see how the IRS could have made a lawful

¶157   assessment from a return showing no income taxes due and

¶158   owing, unless the IRS prepared another 1040 showing a

¶159   different amount due. Therefore, at my CDP hearing, I am

¶160   demanding that the following items be produced and made

¶161   available to us:

¶162     a) Proof of assessment. … Please have a form 4340 at

¶163     my CDP hearing certifying that such an assessment has been

¶164     made.

¶165           *   *   *   *   *   *   *

¶166   6) We claim there is no underlying, statutory liability in

¶167   connection with the income taxes at issue.

¶168     a) In addition, we are challenging the "existence"

¶169     of*108 the underlying tax liability as the law (

¶170Sec. 6330(c)(2)(B)) and regulation (301.6330-1T-(e))

¶171     specifically permit us to do. If the appeals officer

¶172     believes otherwise, he need only identify for us the Code

¶173     Section that establishes such a liability …. The …

¶174     IR Code … that we will bring to the CDP hearing lists

¶175     some 40 taxes under the caption "Liability for

¶176     tax"; however, I cannot find an entry for "income

¶177     taxes." …

¶178           *   *   *   *   *   *   *

¶179     b) The issue of the "existence" of the

¶180     "underlying tax liability" is certainly relevant as

¶181     to whether or not we owe the income taxes at issue. Since

¶182     the legal "existence" of an income tax liability is

¶183     such an easy thing to establish … why wouldn't the

¶184     appeals officer simply identify such a Code section if it

¶185     exists? The only possible reason for him not doing so,

¶186     is if that no such Code section does exist.

¶187     c) One*109 (nonsensical) excuse the appeals officer might offer

¶188     … is to claim that he is not going to get into this

¶189     issue because we allegedly got a notice of deficiency and

¶190     so we had an "opportunity to dispute such a tax

¶191     liability" as mentioned in Section 6330(c)(2)(B).

¶192     However, we never had such an opportunity. Attached, as

¶193     Exhibit D, is a copy of the "deficiency notice"

¶194     [1999] we received. It was prepared and sent out by Gwen

¶195     Krauss who is identified as Director of the Customer

¶196     Service Center, Chamblee Georgia. However, Code Section

¶1976212 provides that it is "the Secretary" who

¶198     "determines that there is a deficiency" and that

¶199     "he is authorized to send such notice." …

¶200     Therefore, after receiving those Deficiency Notices from

¶201     Gwen Krauss … we wrote her … asking her to supply

¶202     us with her delegation of authority from the Secretary to

¶203     send out such Notices (pursuant to Code Sections

¶2047701(a)(11)(B) & 7701(a)(12)(A)(i)), *110 and she never answered our

¶205     letter. We have since received proof that Gwen Krauss

     has no such delegation of authority. Therefore, the



     Deficiency Notices we received from her were invalid -- and



     we are barred from petitioning Tax Court from invalid



     Deficiency Notices. Beside, we are not challenging the



     "amount" of the alleged "deficiency": we



     are challenging its "existence," as a matter of



     law. However, since Tax Court is not a court of law (See

Freytag v. C.I.R., 501 U.S. 868, 111 S. Ct. 2631, 115 L. Ed. 2d 764 … the Tax

     Court would have no jurisdiction to consider the legal

     question of whether or not the Internal Revenue Code

     establishes an income tax "liability" as a matter



     of law.



           *   *   *   *   *   *   *



   7) We claim there is no statute requiring us "to pay"



   the income taxes at issue.

 Another relevant issue is "Whether or not there is a

¶206   statute requiring us 'to pay' the income taxes at issue?"

¶207*111   Code Section 6321 provides that only when one fails "to pay

¶208   any tax" can there be "a lien in favor of the United

¶209   States." Therefore, before there can be a "lien in favor

¶210   of the United States" there must be a statutory requirement

¶211   "to pay" the income taxes at issue. The Index of the

¶212   Code we will bring to our CDP hearing contains a Section

¶213   entitled "Payment of tax." (Attached as Exhibit H) It

¶214   contains over 60 entries. … however, there is no entry we

¶215   can find for "income taxes." It is therefore our

¶216   belief that there is no law requiring us "to pay" income

¶217   taxes, and this certainly is a "relevant issue" that is

¶218   appropriately raised at a CDP hearing -- since, if the appeals

¶219   officer can not identify any statute that requires us "to

¶220   pay" income taxes, how can he approve an IRS lien on

¶221   our property in connection with a tax the payment for which he

¶222   can not find shown in any law?

¶223           *   *   *   *   *   *   *

¶224   8) We maintain that there is no law that authorizes the IRS

¶225   to claim that we owe more in income taxes*112 … than the

¶226   "zeros" we reported on our income tax returns for those

¶227   years [1996, 1997, and 1999].

¶228     … Section 6201(a)(2)(A) further provides that with

¶229   respect to taxes "payable by stamp," the Secretary is

¶230   authorized "to estimate the amount of tax which has been

¶231   omitted to be paid" by stamp. However, we cannot find

¶232   any provision in Code Section 6201 or any other Code

¶233   Section that authorizes the Secretary (let alone the IRS) to

¶234   similarly "estimate the amount of tax" which we

¶235   allegedly omitted from our 1996[, 1997, and 1999] tax returns.

¶236   Therefore it is our contention that no law authorizes the

¶237   Secretary (let alone any IRS agent) to determine that we owe

¶238   more in income taxes than the "zeros" we reported on our

¶239   1996[, 1997, and 1999] income tax returns. …

¶240           *   *   *   *   *   *   *

¶241     This is also to remind you that I will be tape recording

¶242   the CDP hearing and I will have a court reporter present. I will

¶243   also have a witness present. [Reproduced literally; fn. refs.

¶244*113 omitted.]

¶245On October 21, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

¶246   Your Collection Due process appeal request has been assigned to

¶247   me for consideration.

¶248   I will contact you as soon as I am able to review your file and

¶249   determine if we can resolve your case by correspondence or phone

¶250   in lieu of a personal conference. If a personal conference is

¶251   needed, I will schedule a meeting with you or your

¶252   representative.

¶253           *   *   *   *   *   *   *

¶254   In order for your appeal to be considered, you must be in [sic]

¶255   current in filing tax returns. If you have not done so, please

¶256   file the delinquent return(s) immediately. …

¶257On October 23, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

¶258   HEARING IN PERSON OR BY TELEPHONE

¶259     o IN PERSON should you prefer to discuss the

¶260      case in person, I have scheduled*114 a conference for

¶261      November 6, 2002 at 10:00 AM …

¶262     o TELEPHONE HEARING If you prefer a telephone

¶263      hearing, please call me at …

¶264     o CONFIRM WITHIN 7 DAYS please call me within

¶265      7 days of the date of this letter to confirm whether you

¶266      will appear. If the date is not convenient, I will be

¶267      happy to reschedule the hearing.

¶268           *   *   *   *   *   *   *

¶269   Please see the tax transcripts and important

¶270   information enclosed concerning your hearing.

¶271On October 31, 2002, the settlement officer sent a letter to petitioners with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

¶272   This letter is to confirm that your hearing date is changed to

¶273   November 20 at 10:00 AM. per your request.

¶274     … Our records also indicate that you have not filed

¶275   your 1998 and 2001 income tax returns. If you have filed them,

¶276   please provide your copy of the returns.

¶277On November 13, 2002, petitioners sent the settlement officer a letter. *115 That letter stated in pertinent part:

¶278     We have requested a Collection Due Process Hearing as

¶279   provided for in Code sections 6320 & 6330 …, which is

¶280   scheduled for November 20, 2002. We are writing to make clear

¶281   our position as relates to the harassment, threats of seizures

¶282   and liens by the IRS.

¶283     Based on these omissions we are contacting the Taxpayer

¶284   Advocate for resolution of these options.

¶285     Further, we are requesting an impartial officer, for the up

¶286   coming Due Process Hearing. This request in based on the

¶287   partiality of the current officer in indicating that we must be

¶288   current in filing tax returns for our appeal to be considered.

¶289   This is blatantly false. …

¶290     We intend to record the hearing and have a witness in

¶291   attendance.

¶292           *   *   *   *   *   *   *

¶293     It is clear that before any appeals officer can recommend

¶294   the seizure of any property pursuant to Code Section 6331    certain elements have to be present. For one thing (pursuant to

¶295   that statute) *116 that person has to be statutorily "liable to

¶296   pay" the taxes at issue, and only after he "neglects or

¶297   refuses to pay the same within 10 days after notice and

¶298   demand," can his property be subject to seizure. Therefore,

¶299   apart from the appeals officer having to identify the statute

¶300   that makes me "liable to pay" the taxes at issue, he

¶301   needs to have a copy of the statutory "notice

¶302   and demand" which I "neglected" and

¶303   "refused" to pay. In addition, we can't be

¶304   "liable" to pay an income tax, if the tax in question

¶305   has never been assessed against me as required by Code Sections

¶306 6201 and 6203. So we will need to see a copy of the record of

¶307   our assessments. And since (as provided by Code Section

¶3086201(a)(1) and IRS Transaction Code 150) all assessments have to

¶309   be based on filed returns, I will have to see a copy of

¶310   the return from which any claimed assessment is based.

¶311   In lieu of producing these specific documents "verification

¶312   from the Secretary (of the Treasury) that the requirements of

¶313   any applicable law or administrative procedure have been

¶314*117 met," will be acceptable. But the appeals officer better

¶315   have either the specific documents as identified above, or

¶316   "verification from the Secretary." If the appeals

¶317   officer cannot produce neither document, than no Due Process

¶318   Hearing should be scheduled until he has those documents in

¶319   hand. If the appeals officer recommends "enforcement of

¶320   collection action including levy," without having produced

¶321   these specific documents, then it will be obvious that the

¶322   appeals officer is simply attempting to thwart and

¶323   circumvent the Code Section 6330 in order to enable the IRS to

¶324   continue its practice of making the illegal seizures uncovered

¶325   by the Senate Finance Committee … which

¶326   THE "DUE PROCESS HEARING" was designed to

¶327   eliminate.

¶328     Summarizing: We requested a "Due Process Hearing"

¶329   as outlined in Form 12153. We are "challenging the

¶330   appropriateness of (the) collection action" as specified in

¶3316330(c)(2)(A)(ii) since the IRS denied all of our requests for

¶332   the initial "examinations" and "interviews" as

¶333   provided for in Publications 1*118 & 5. In addition, no lien for

¶334   taxes pursuant to Code Sections 6321 and 6322 is possible

¶335   because no valid, underlying assessment was ever made. In

¶336   addition, we never received the statutory "notice and

¶337   demand" for payment of the taxes at issue as required by

¶338Code Sections 6203, 6321, and 6331. If the appeals officer is

¶339   going to claim that a particular document sent to me by the IRS

¶340   was a "Notice and Demand" for payment, then I am

¶341   requesting that he also provide me with a T. D. or Treas. Reg.

¶342   which identifies that specific document as being the official,

¶343   statutory "Notice and Demand" for payment.

¶344     In addition, we are "challenging the existence of the

¶345   underlying tax liability" as we are authorized to do in Code

¶346Section 6330(c)(2)(B). In addition, we did not receive a (valid)

¶347   notice of deficiency in connection with any of the years at

¶348   issue. We are also requesting that the appeals officer have at

¶349   the "Due Process Hearing" a copy of the "Summary

¶350   Record of Assessment" (Form 22 C) together with the

¶351   "pertinent parts of the assessment which*119 set forth the name

¶352   of the taxpayer, the date of the assessment, the character of

¶353   the liability assessed, the taxable period, and the amount

¶354   assessed" as provided for in Treas. Reg. 301.6203-1.

¶355     Also you are reminded that the Section 6330(c)(1)    REQUIRES you to have "verification from the

¶356   Secretary (or someone with delegated authority from him)

¶357   that the requirements of any applicable law or administrative

¶358   procedures have been met." So unless you have, at the very

¶359   least, that document, you should not even schedule a Due Process

¶360   Hearing. … [Reproduced literally; fn. ref. omitted.]

¶361On November 16, 2002, petitioners sent a letter to "Internal Revenue Service Appeals Office Supervisor". In that letter, petitioners stated in pertinent part:

¶362   This is to indicate irregularities in our requested Due Process

¶363   Hearing. According to title 26 sections 6320 and 6330 only a

¶364   single year is at issue for each hearing/appeal. Yet we are

¶365   confronted with a partial (prejudiced) appeals officer for the

¶366   following reasons:

¶367     1. *120 Multiple years of [sic] combined into a single session,

¶368     we are only allotted one hearing/appeal per year in

¶369     question.

¶370     2. The hearing/appeals officer is making demands outside of

¶371sections 6320 and 6330 regarding "filings must be

¶372     current". Which is blatantly incorrect and harassing.

¶373On November 20, 2002, respondent's settlement officer held an Appeals Office hearing with petitioners regarding the respective notices of intent to levy with respect to their taxable year 1996 and their taxable years 1997 and 1999. James Cain accompanied petitioners to the Appeals Office hearing. The settlement officer did not allow petitioners to make an audio recording of the Appeals Office hearing.

¶374On November 26, 2002, the settlement officer sent a letter to petitioners (settlement officer's November 26, 2002 letter) with respect to their taxable years 1996, 1997, and 1999. That letter stated in pertinent part:

¶375   This letter is pertaining to your letter dated 11-13-2002 and

¶376   the hearing on 11-20-2002. I will attempt here to address the

¶377   points raised in your appeals request and also discuss*121 those

¶378   matters that can be considered under this process.

¶379Section 601.106(b)) of the Regulations and Internal Revenue

¶380   Manual Section 8122.5 provide that the Appeals Division of the

¶381   Internal Revenue Service cannot consider arguments based on

¶382   moral, religious, political, constitutional, conscientious or

¶383   similar grounds. Formal appeal procedures do not extend to these

¶384   types of arguments.

¶385   On the issue of impartiality, the statute defines impartiality

¶386   as "prior involvement with respect to the same unpaid

¶387   tax." You have not alledged [sic], and I, the Settlement

¶388   Officer have had no such prior involvement with your unpaid tax

¶389   liability. With regards to your request of the delegation

¶390   authority of an IRS official, please see the attachment listing

¶391   court cases showing the courts presume that the IRS official(s)

¶392   have properly discharged their official duties if there is no

¶393   clear evidence to the contrary. The burden of proof is upon you

¶394   to prove that I am not an impartial officer.

¶395   Your 1996 and 1997 taxes have not been discharged by the

¶396*122   Bankruptcy Court. You can contact your bankruptcy attorney for

¶397   more information.

¶398   Your request for appeal on form 12153 is a Collection Due

¶399   Process (CDP) Appeals. The three key points that Appeals can

¶400   consider in a CDP hearing involve items such as those listed

¶401   below:

¶402     1. Applicable administrative procedures

¶403     2. Relevant issues such as innocent spouse, collection

¶404     alternatives and underlying liability.

¶405     3. Efficient collection measures versus intrusiveness.

¶406   Based upon a review of your case file, I find no error in the

¶407   part of the Service in sending you the proper notices of an

¶408   outstanding liability. The records indicated that notices were

¶409   issued for all of the years reflecting a balance due and asking

¶410   you either pay in full or call the IRS to discuss payment

¶411   arrangements. To date, no agreement has been instituted.

¶412   The underlying liability appears to be correct. The assessments

¶413   were based on your income and withholdings. You have not pointed

¶414   to any errors and you have been unwilling to discuss*123 collection

¶415   alternatives which include full payment, monthly payment, offer

¶416   in compromise etc.

¶417   Please respond within 2 weeks of the date of this letter if you

¶418   have valid issues or want to propose a payment resolution. If I

¶419   do not receive a timely response, I will proceed with the

¶420   issuance of a decision letter that will sustain the levy action.

¶421On November 27, 2002, the IRS Team Manager for Area 2, General Appeals, wrote a letter to petitioners. That letter stated in pertinent part:

¶422   This is in response to your letter dated November 16, 2002 that

¶423   was addressed to this office. I apologize for not responding

¶424   earlier but I have been away from the office.

¶425   In your letter you are concerned about the fact that the

¶426   Settlement Officer who met with you considered more than one

¶427   year (return) at the meeting and that she asked about subsequent

¶428   filings of Federal tax returns. You also ask that this matter be

¶429   reassigned. There is nothing wrong with the Settlement Officer's

¶430   handling of either of these items. I, therefore, will not

¶431   reassign this matter to another*124 Appeals or Settlement Officer.

¶432   There is nothing wrong with the Settlement Officer considering

¶433   all of the tax periods before Appeals at one hearing. In

¶434   addition, taxpayers must be current in the filing of their

¶435   Federal tax returns before we can offer collection alternatives

¶436   to help them. Thus, the Settlement Officer was merely asking

¶437   about subsequent filings to see if she could offer collection

¶438   alternatives to you for the amounts owed in the periods under

¶439   our jurisdiction. Both actions are appropriate.

¶440   In addition, I would urge you to "step back and look at the

¶441   course of action" you are taking. The returns you have filed

¶442   showing nothing but zeros, and the arguments you have made, have

¶443   no merit whatsoever. The arguments you are making are frivolous

¶444   and make no sense. In fact, if you pursue these arguments in the

¶445   courts, the Court will, in all probability, and should, assert

¶446   it's own penalty for filing a frivolous lawsuit. The court cases

¶447   clearly support the Service's position on the issues you raise

¶448   and indicate that the courts are tired of these*125 types of

¶449   illogical issues.

¶450   I strongly urge you to move away from the destructive path you

¶451   are following, file proper tax returns as required by law, and

¶452   make arrangements to pay the taxes you owe for the schools you

¶453   attend, the roads you ride on, the military that defends you,

¶454   the courts that protect your legitimate rights, and the freedoms

¶455   you enjoy. Please look at the arguments you are making and ask

¶456   yourself if they make any sense. Read the court cases cited by

¶457   the Settlement Officer in the attachment (copy attached) to her

¶458   letter to you dated November 26, 2002 and evaluate the merits of

¶459   the arguments you are making. If you do not take steps to

¶460   correct the situation, it will become more and more burdensome

¶461   with larger, unpaid liabilities increased by interest and

¶462   penalties.

¶463   I cannot recommend that you seek the advice of an expert.

¶464   However, if you go to any reputable Attorney or Certified Public

¶465   Accountant in your area, I am confident that they will tell you

¶466   that your arguments are not correct and they will recommend that

¶467*126 you quickly take corrective action. Neither the IRS, nor the

¶468   Courts, nor the Congress, nor any reputable professional will

¶469   support the arguments you are making.

¶470   My comments are not intended to offend you in any way. They are

¶471   made out of my concern for individuals and intended to provide

¶472   you with assistance. I hope this addresses the concerns

¶473   contained in your letter dated November 16, 2002.

¶474   Finally, I have enclosed a copy of a relatively new court case

¶475   (Steven R. Smith, United States District Court of Nevada,

¶4762002 TNT 223-17) in which the taxpayer makes arguments similar

¶477   to those you have made about Delegation Orders, etc. As you can

¶478   see, the Court decides the case in favor of the Government.

¶479On December 10, 2002, in response to the settlement officer's November 26, 2002 letter to petitioners, petitioners sent a letter to the settlement officer (petitioners' December 10, 2002 letter). Petitioners' December 10, 2002 letter stated in pertinent part:

¶480   In response to your letter of November 26, 2002, and based upon

¶481   your invitation to do so, we raise these valid issues in*127 regard

¶482   to your statements and exhibits:

¶483     1. We did not raise any arguments based on moral,

¶484     religious, political, constitutional, conscientious or

¶485     similar grounds, so we will not help you to pretend that we

¶486     did.

¶487     2. On the issue of impartiality, your letter of November

¶488     26th proves that you are NOT impartial to the proposed

¶489     collection action:

¶490        a.) We did not raise any arguments whatsoever. We

¶491        asked for the documents that the laws describe, which

¶492        must be present before a determination can be made by

¶493        you to proceed with collection by distraint.

¶494        We cite as a valid issue: The Statute, IR Code

¶4956330(c)(3) entitled " Basis for the

¶496     determination. The determination by an appeals

¶497     officer under this subsection shall take into

¶498     consideration-A.) the verification presented under

¶499     paragraph (1),; B.) the issues raised under paragraph (2),

¶500     which is "any relevant*128 issue relating to the

¶501     unpaid tax or proposed levy" . . .

¶502        b.) You state … "Based upon a review of your

¶503        case file, I find no error in the part of the Service

¶504        in sending you the proper notices of an outstanding

¶505        liability", yet, you do not name by what Statute

¶506        we are made liable and you do not present for us the

¶507        documents which support the assessments with the

¶508        authority of the Service employees that were involved

¶509        in making such assessments. You state that notices of

¶510        balance due were issued . . . Well, IR Code Section

¶511 6331 cannot apply to us until we have neglected or

¶512        refused to pay 10 days following the Notice and Demand

¶513        for Payment. Seven Statutes and various IRS

¶514        Publications refer to the requirement for the Notice

¶515        and demand for payment. We find no authority referring

¶516        to a "notice of balance due". We did not

¶517*129     receive a statutory Notice and Demand for payment.

¶518        c.) You state in your letter … "The underlying

¶519        liability appears to be correct. The assessments were

¶520        based on your income and withholdings." The

¶521        underlying liability is based upon what statute? Where

¶522        did you find a liability for the income tax in the

¶523        Internal Revenue Code? … we are contesting not

¶524        only the existence and the amount of the underlying

¶525        liability for the taxes and penalties at issue, but,

¶526        also the authority of the Revenue Officers who changed

¶527        our returns and who sent out the Final Notice giving

¶528        rise to our opportunity to a Collection Due Process

¶529        Hearing -- our right to a fair and impartial hearing

¶530        conducted by an impartial appeals officer who has

¶531        fulfilled the requirement of the investigation as

¶532        provided for in IR Code Section 6330(c)(1). If you did

¶533*130     indeed conduct that impartial investigation, you

¶534        should be able to provide us with the documents you

¶535        inspected to verify the validity and accuracy of the

¶536        assessments. … We have requested the documentation

¶537        that the law provides that we may see.

¶538        d.) Further, the exhibits attached to your letter are

¶539        totally irrelevant to our case. They, too, point to

¶540        your bias toward the government. First of all, the

¶541        definition of Gross Income does not make one liable

¶542        for the tax. The issue of the Sixteenth Amendment of

¶543        the Constitution is not a relevant issue to be raised

¶544        when all we are asking for is proof that the

¶545        verification from the Secretary requirement has been

¶546        fulfilled; that the Notice and Demand for payment

¶547        requirement as been met; that the assessments are

¶548        valid and accurately determined and recorded pursuant

¶549        to*131 some statute by authorized Internal Revenue Service

¶550        personnel; and, that you have personally acquired

¶551        verification from somebody other than yourself that

¶552        all of the administrative procedures and applicable

¶553        laws have been met. Verification means, a formal

¶554        written statement. … We are in the dark as to what

¶555        happened on our case, as all of the notices came

¶556        without reference to any delegation orders or other

¶557        legal basis for their issuance. Many of them were not

¶558        even signed! Why wouldn't you want us to see the

¶559        authority for these notices if indeed they are

¶560        "Statutory", as you claim them to be?

¶561     3. Finally, you stated in your letter that we have not

¶562     pointed to any errors and that we have been unwilling to

¶563     discuss collection alternatives . . . and, then you

¶564     threatened to proceed with an issuance of a letter that

¶565     will sustain the levy action. We cannot fathom*132 what premise

¶566     you found to base those statements on. It is absurd! You

¶567     have not provided one document required of you by the law,

¶568     and, until you do, you have nothing more than a

¶569     wish for our property. Here are the errors you

¶570     have ignored thus far that we have clearly outlined in

¶571     previous correspondences and at our "Collection Due

¶572     Process Hearing":

¶573        A.) The FINAL NOTICE we received was not sent out by

¶574        the Secretary or his delegate. …

¶575        B.) We did not receive the Statutory Notice and demand

¶576        for the unpaid tax from the Secretary or his delegate.

¶577        …

¶578        C.) The assessments were not made by authorized IRS

¶579        personnel. We know this because no where in the Code

¶580        is there any mention of IRS agents having the

¶581        authority to make a return for income taxes, and no

¶582        where in the Internal Revenue Manual does it speak of

¶583        the authority*133 of IRS agents to make 1040 Forms or to

¶584        do anything with respect to returns of income tax.

¶585        …

¶586        D.) Another very relevant issue we have raised and

¶587        that goes to prove the fact that you have not been

¶588        impartial to the proceedings thus far is that we have

¶589        asked for you to cite the Statute in the Internal

¶590        Revenue Code that provides for the payment of the

¶591        income tax. Now, whether or not there is a law that

¶592        requires the payment of the income tax cannot be

¶593        deemed frivolous or merit less. … [Reproduced

¶594        literally.]

¶595On November 5, 2002, John W. Raymond (Mr. Raymond), an attorney, sent a letter (Mr. Raymond's November 5, 2002 letter) to the settlement officer with respect to petitioners' chapter 7 bankruptcy case. That letter stated in pertinent part:

¶596     Reference the attached letter dated October 21, 2002 which

¶597   you sent to Gerald and Jessica Frey. Be advised that Gerald and

¶598   Jessica Frey filed a Chapter*134 7 Bankruptcy, Case No. 02-51961-

¶599   DHA, in the United States Bankruptcy Court, Eastern District of

¶600   Virginia, Newport News Division, on July 3, 2002. Internal

¶601   Revenue Service was a listed creditor and was sent Notice of the

¶602   bankruptcy filing by the bankruptcy court.

¶603     Debtors received their bankruptcy Discharge on October 10

¶604   [sic], 2002. (copy of Order attached) Their liability for tax

¶605   debts for calendar year 1996 and 1997 were discharged in the

¶606   bankruptcy.

¶607The "bankruptcy discharge" referred to in Mr. Raymond's November 5, 2002 letter is an order dated October 12, 2002 (U.S. Bankruptcy Court's October 12, 2002 order) of the United States Bankruptcy Court, Eastern District of Virginia (U.S. Bankruptcy Court). That order stated as follows:

¶608     It appearing that the debtor(s) is/are entitled to a

¶609   discharge,

¶610   IT IS ORDERED:

¶611     The debtor(s) is/are granted a discharge under section 727    of title 11, United States Code ….

¶612The U.S. Bankruptcy Court's October 12, 2002 order further stated: " SEE BACK SIDE OF THIS ORDER FOR IMPORTANT INFORMATION ". The*135 back side of that order stated in pertinent part:

¶613   Debts that are Not Discharged

¶614     Some of the common types of debts which are not discharged

¶615   in a chapter 7 bankruptcy case are:

¶616     a. Debts for most taxes;

¶617On December 9, 2002, Mr. Raymond sent a letter to an IRS bankruptcy specialist (Mr. Raymond's December 9, 2002 letter). That letter stated in pertinent part:

¶618     You and I discussed the above matter on November 19, 2002.

¶619   You informed me that the 1996 and 1997 taxes had not been

¶620   discharged in the Freys' bankruptcy as a substitute return had

¶621   been filed by the IRS for the Freys and the Freys did not file

¶622   the returns until November 13, 2000. The Freys state that they

¶623   filed the returns prior to November 2000.

¶624     The Freys inform me that they received the 09-20-1999

¶625   Notice Number CP 504 on September 30, 1999. The Notice had been

¶626   mailed to a prior address so the Freys did not get it for ten

¶627   days. Mr. Frey called Mrs. Lee (as noted on page two of exhibit

¶628   A) of the IRS and was informed by Mrs. Lee that the IRS had no

¶629   returns*136 for 1996 and 1997. Mrs. Lee advised the Freys to mail

¶630   the returns to IRS, Attn: ASFR, Philadelphia, PA 19255.

¶631     The Freys had previously filed the returns but complied

¶632   with Mrs. Lee's directions. The returns were still packed with

¶633   their household goods because of the Freys' move. The Freys

¶634   found the returns (copies attached) dated them 11-1-99 and

¶635   mailed the returns to the ASFR address given by Mrs. Lee.

¶636     The Freys received nothing further from the IRS until 2001

¶637   when the Freys were advised that the IRS had not received the

¶638   1997 return. The Freys dated the 1997 returns 5-30-01 and mailed

¶639   them to the IRS.

¶640     It appears to me that the taxes should have been discharged

¶641   in the bankruptcy based on the 1999 filing date.

¶642On January 14, 2003, the IRS bankruptcy specialist to whom Mr. Raymond had sent Mr. Raymond's December 9, 2002 letter sent a letter to Mr. Raymond. That letter stated in pertinent part:

¶643     This is in regards to correspondence we received on

¶644   December 11, 2002. In your correspondence you provided copies of

¶645   tax returns*137 for years 1996 and 1997. I have reviewed the

¶646   information you have provided and have made these determinations

¶647  base[d] on the information. Tax year 1996 will be processed as

¶648   the original filed return and if excepted [sic] as filed, there

¶649   will not be any balance due. The tax return 1996 that you

¶650   provided shows and [sic] overpayment of $ 3,839.28. The Refund

¶651   Expiration Date for 1996 is April 15, 2000, therefore, the

¶652   above-mentioned debtor's will not receive the overpayment. The

¶653   information provided for tax year 1997, I could find no evidence

¶654   that the return was filed or received prior to the date that

¶655   Internal Revenue Service made the assessment of August 13, 2001.

¶656   Tax year 1997 still remains to be nondischargeable as we had

¶657   determined at discharge.

¶658On January 23, 2003, the Appeals Office issued to petitioners a notice of determination with respect to their taxable years 1996, 1997, and 1999. That notice of determination stated in pertinent part:

¶659   Summary of Determination

¶660   The determination of the Appeals Office is to sustain the

¶661   decision to issue the Final*138 Notice of Intent To Levy/Seizure.

¶662   The assessment is valid and the actions were appropriate.

¶663   You did not respond to this office's request for information and

¶664   made no proposals to resolve the delinquent liability. The case

¶665   is being returned to the Compliance Office for appropriate

¶666   collection actions.

¶667An attachment to the notice of determination stated in pertinent part:

¶668   Summary of the issues and brief back ground:

¶669   … You filed a timely request for a hearing with Appeals

¶670   under the provisions of IRC 6630 concerning the appropriateness

¶671   of propsong a levy action to secure payment for the above listed

¶672   tax liabilities [with respect to petitioners' taxable years

¶673   1996, 1997, and 1999]. You claimed your gross income was not

¶674   taxable and your tax assessments were illegal and not valid. A

¶675   hearing was held with you on 11-20-2002. The hearing was

¶676   terminated when you claimed the Settlement Officer had no

¶677   authority to conduct the hearing. The issues you raised were

¶678   later responded by correspondence from the Settlement Officer

¶679*139 and the Appeals Team Manager

¶680   Verification of Applicable Law and Administrative

¶681   Procedures

¶682   With the best information available, the requirements of various

¶683   applicable law or administrative procedures have been met.

¶684   Internal Revenue Code (IRC) Section 6331(d) requires that the

¶685   Internal Revenue Service (IRS) notify a taxpayer at least 30

¶686   days before a Notice of Levy can be issued. The tax transcript

¶687   shows that this notice was mailed to you …

¶688           *   *   *   *   *   *   *

¶689   You were given the opportunity to raise any relevant issue

¶690   related to the unpaid tax of the proposed levy at the hearing *

¶691   …

¶692   This Settlement Officer has had no prior involvement with

¶693   respect to this tax liability.

¶694   Relevant Issues Presented by the Taxpayer

¶695   Records show you filed the 1996, 1997 and 1999 tax returns

¶696   claiming zero income even though you attached forms W-2 with the

¶697   returns showing your gross income …. The tax assessments

¶698   were made based on these incomes. The Final*140 Notice pertaining to

¶699   the unpaid balance of these tax periods was sent to you on 06-

¶700   20-2002. You were also advised by the Settlement Officer that

¶701   the 1996 and 1997 tax liabilities were not discharged by the

¶702   bankruptcy court. You made frivolous claims such as the IRS

¶703   agents had no authority to make income tax assessments, the

¶704   gross income were not taxable and the assessments were illegal.

¶705   You were provided with the tax transcripts demonstrating the

¶706   fact of assessment. The transcripts show the same essential

¶707   information found on a Form 4340, Certificate of Assessments and

¶708   Payments. …

¶709           *   *   *   *   *   *   *

¶710   Under Section 6330(c)(2)(B), neither the existence nor the

¶711   amount of the underlying tax liability can be contested at an

¶712   Appeals Office hearing unless the taxpayer did not receive a

¶713   notice of deficiency for the tax in question or did not

¶714   otherwise have an earlier opportunity to dispute such tax

¶715   liability. Records indicated the notices of deficiency were

¶716   mailed to you …. You received a notice*141 of deficiency, but

¶717   yet failed to file a petition for redetermination with the

¶718   Court. Therefore, your issue of the underlying tax liability

¶719   cannot be considered by the Appeals Office under the CDP appeal.

¶720   Balancing Efficient Tax Collection with Concern Regarding

¶721   Intrusiveness

¶722   Appeals has verified, or received verification, that applicable

¶723   laws and administrative procedures have been met; has considered

¶724   the issues raised; and has balanced the proposed collection with

¶725   legitimate concern that such action be no more intrusive than

¶726   necessary by IRC Section 6330(c)(3).

¶727   Collection alternatives include full payment, installment

¶728   agreement, offer in compromise and currently uncollectible due

¶729   to financial hardship. At the hearing and subsequent

¶730   correspondence, you did not raise a spousal defense or challenge

¶731   the Compliance's proposed levy action by offering a less

¶732   instrusive collection alternative. As of this date, you have not

¶733   provided the information for us to determine your ability to pay

¶734   and submitted no resolution*142 to your tax liability.

¶735   The Appeals Office believes that the Compliance Office's

¶736   decision to issue the Final Notice was appropriate and sustains

¶737   the action in full. The case is being returned to Compliance for

¶738   appropriate collection actions. [Reproduced literally.]

¶739On February 20, 2003, petitioners filed with the Court a petition for review of the notice of determination with respect to their taxable years 1996, 1997, and 1999 and attached to the petition certain exhibits. The petition and most of those exhibits contained the same types of statements, contentions, arguments, and questions that petitioners set forth in petitioners' attachment to their 1996 Form 1040, petitioners' attachment to their 1997 Form 1040A, petitioners' attachment to their 1996 Form 12153, petitioners' attachment to their 1997 and 1999 Form 12153, and the various letters described above that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999.

¶740On May 29, 2003, the Court issued an Order (Court's May 29, 2003 Order) in which, inter alia, the Court indicated that it had reviewed the petition and the exhibits attached thereto and found the*143 petition and certain of those exhibits to contain statements, contentions, arguments, and questions that the Court found to be frivolous and/or groundless. In that Order, the Court reminded petitioners about section 6673(a)(1).

¶741                OPINION

¶742A taxpayer may raise challenges to the existence or the amount of a taxpayer's underlying tax liability if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B). Where the validity of the underlying tax liability is properly placed at issue, the Court will review the matter on a de novo basis. Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

¶743The record establishes that respondent issued to petitioners respective notices of deficiency relating to their taxable years 1996, 1997, 1999 ² and that they did not file a petition with the Court with respect to any of such notices. On the instant record, we find that petitioners may not challenge the existence or the amount of petitioners' unpaid liability for 1996, petitioners' unpaid liability for 1997, and petitioners' unpaid liability for 1999. See sec. 6330(c)(2)(B); Sego v. Commissioner, supra; Goza v. Commissioner, supra.

¶744Where, as is the case here, the validity of the underlying tax liability for each of the years 1996, 1997, and 1999 is not properly placed at issue, the Court will review the determination of the Commissioner for abuse of discretion. Sego v. Commissioner, supra;*144Goza v. Commissioner, supra.

¶745We turn to the issues that petitioners raised in petitioners' attachment to their 1996 Form 12153, in petitioners' attachment to their 1997 and 1999 Form 12153, in the letters that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999, at their Appeals Office hearing, and in the petition and the exhibits attached to the petition, which we shall review for abuse of discretion. We find petitioners' attachment to their 1996 Form 12153, petitioners' attachment to their 1997 and 1999 Form 12153, the various letters that petitioners sent to the IRS with respect to their taxable years 1996, 1997, and 1999, and the matters that petitioners raised at their Appeals Office hearing to be frivolous and/or groundless. ³ In the Court's May 29, 2003 Order, we found that petitioners' petition and certain exhibits attached thereto contained statements, contentions, arguments, and questions that were frivolous and/or groundless. We conclude that the following allegations in petitioners' petition raise valid issues that we shall address: Petitioners' allegation that the Appeals Office improperly refused to allow them to make an*145 audio recording of their Appeals Office hearing, as required by section 7521(a)(1), and petitioners' allegation that petitioners' unpaid liability for 1996 and petitioners' unpaid liability for 1997 were discharged in petitioners' bankruptcy proceeding.

¶746We consider first petitioners' position that the refusal by the Appeals Office to permit them to make an audio recording of the Appeals Office hearing held on November 20, 2002, was improper under section 7521(a)(1). Throughout the period commencing with petitioners' sending to the IRS their 1996 Form 1040 reporting total income of $ 0 and total tax of $ 0 and ending with their filing briefs with the Court, petitioners have made statements, contentions, arguments, and requests and raised questions that the Court finds to be frivolous and/or groundless. Consequently, even though we held in Keene v. Comm'r, 121 T.C. 8 (2003),*146 that section 7521(a)(1) requires the Appeals Office to allow a taxpayer to make an audio recording of an Appeals Office hearing held pursuant to section 6330(b), we conclude that (1) it is not necessary and will not be productive to remand this case to the Appeals Office for another hearing under section 6330(b) in order to allow petitioners to make such an audio recording, see Lunsford v. Comm'r, 117 T.C. 183, 189 (2001), and (2) it is not necessary or appropriate to reject respondent's determination to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999, see id.⁴

¶747We next consider petitioners' position that the U.S. Bankruptcy Court discharged petitioners' unpaid liability for 1996 and petitioners' unpaid liability for 1997. ⁵An individual debtor is not to be discharged in a bankruptcy proceeding from certain specified categories of*147 debt. 11 U.S.C. sec. 523(a)(2000). The first such category is described in pertinent part in 11 U.S.C. sec. 523(a)(1) as follows:

¶748

¶749section 523. Exceptions to discharge

¶750     (a) A discharge under section 727, 1141, 1228(a), 1228(b),

¶751or 1328(b) of this title [title 11] does not discharge an

¶752   individual debtor from any debt --

¶753     (1) for a tax … --

¶754           *   *   *   *   *   *   *

¶755(B) with respect to which a return, if required --

¶756(i) was not filed; …

¶757In the instant case, respondent did not process and file as tax returns the 1996 Form 1040 and the 1997 Form 1040A which respondent received from petitioners and in which petitioners reported total income of $ 0 and total tax of $ 0. That was because respondent determined that*148 those documents were frivolous. ⁶An individual debtor is not discharged in a bankruptcy proceeding from a debt for tax with respect to which a return is not filed. 11 U.S.C. sec. 523(a)(1)(B)(i). On the record before us, we find that pursuant to 11 U.S.C. sec. 523(a)(1)(B)(i) the U.S. Bankruptcy Court did not discharge petitioners from their unpaid liability for 1996 and petitioners' unpaid liability for 1997.

¶758Based upon our examination of the entire record before us, we find that respondent did not abuse respondent's discretion in determining to proceed with the collection action as determined in the notice of determination with respect to petitioners' taxable years 1996, 1997, and 1999.

¶759Although respondent does not ask the Court to impose a*149 penalty on petitioners under section 6673(a)(1), the Court will sua sponte determine whether to impose such a penalty. Section 6673(a)(1) authorizes the Court to require a taxpayer to pay to the United States a penalty in an amount not to exceed $ 25,000 whenever it appears to the Court, inter alia, that a proceeding before it was instituted or maintained primarily for delay, sec. 6673(a)(1)(A), or that the taxpayers' position in such a proceeding is frivolous or groundless, sec. 6673(a)(1)(B).

¶760In Pierson v. Commissioner, 115 T.C. 576, 581 (2000), we issued an unequivocal warning to taxpayers concerning the imposition of a penalty under section 6673(a)(1) on those taxpayers who abuse the protections afforded by sections 6320 and 6330 by instituting or maintaining actions under those sections primarily for delay or by taking frivolous or groundless positions in such actions. The Court's May 29, 2003 Order reminded petitioners about section 6673(a)(1). Before the trial in this case began, the Court again reminded petitioners about section 6673(a)(1) and indicated that if petitioners advanced frivolous and/or groundless arguments at trial, the Court would impose a penalty*150 on them under that section. During the trial, upon questioning by the Court, Mr. Frey indicated that petitioners continue to adhere to the statements, contentions, arguments, requests, and questions set forth in petitioners' attachment to petitioners' 1996 Form 1040 and petitioners attachment to petitioners' 1997 Form 1040A.

¶761On the record before us, we find that petitioners have advanced, we believe primarily for delay, frivolous and/or groundless statements, contentions, arguments, requests, and questions with respect to their taxable years 1996, 1997, and 1999, thereby causing the Court to waste its limited resources in addressing such matters. As a result of petitioners' position and actions in the instant case with respect to those taxable years, we shall impose a penalty on them pursuant to section 6673(a)(1) in the amount of $ 4,000.

¶762We have considered all of petitioners' statements, contentions, arguments, requests, and questions that are not discussed herein, and we find them to be without merit and/or irrelevant.

¶763To reflect the foregoing,

¶764Decision will be entered for respondent.