Israel v. Comm'r

COHEN, Judge: This case was commenced in response to a notice of determination concerning collection action that declined to consider the underlying liability but approved an installment agreement with respect to petitioner's unpaid Federal income tax for 2007. The underlying deficiency resulted from disallowance of claimed exemptions for petitioner's children and related adjustments. The deficiency was assessed after petitioner failed to petition this Court in response to a notice of deficiency that he received. The issue for decision is whether the refusal to consider the underlying liability was an abuse of discretion. All section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioner resided in Massachusetts at the time he filed his petition.

Petitioner was divorced from his former wife *188 in 2000. The divorce decree granted the parties joint custody of their three children, designated petitioner's former wife the "parent of primary residence", and directed that petitioner had the right to claim exemptions for all three children on his income tax returns for all odd years commencing in 2001.

Petitioner claimed exemptions for the three children on his 2007 Federal income tax return in accordance with the divorce decree. He attached to his tax return a copy of the divorce decree. He did not, however, attach to his return a written declaration signed by his former wife that she would not claim the children, or any one of them, as dependents for 2007. He was contacted by the Internal Revenue Service (IRS) and advised that he needed to obtain a Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents. Subsequent efforts by petitioner to obtain the required form or other declaration were unsuccessful, even though pursued in part through actions in the court in Massachusetts that granted the decree and in a court in Arizona, where his former wife had moved.

In a notice of deficiency sent March 13, 2009, the IRS disallowed the claimed dependency exemptions *189 and made related adjustments. The notice of deficiency sent by certified mail was returned unclaimed and had not been received as of April 13, 2009, when petitioner requested that a copy be mailed by regular mail. Petitioner was then working with the Taxpayer Advocate Service in an attempt to resolve the issue and missed the deadline for filing a petition in this Court. A petition that he filed on March 4, 2010, was dismissed for lack of jurisdiction on June 17, 2010.

The deficiency was assessed after the time for filing a petition in this Court had passed. On February 22, 2010, the IRS sent to petitioner a final notice of intent to levy and notice of his right to a hearing under section 6330. Petitioner requested a hearing, stating as his reason that he was "not liable for the taxes indicated, due to legal reasons." After a hearing in which the settlement officer determined that petitioner could not challenge the liability because of the prior opportunity to do so, a collection alternative in the form of an installment agreement was reached.

In the petition in this case and at trial, petitioner continued to dispute the underlying liability, contending that he is entitled to the *190 dependency exemptions claimed for his three children in 2007. However, that challenge to the underlying liability is precluded by section 6330(c)(2)(B), which provides: "The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability."

The statutory preclusion just quoted might end the matter, as suggested by respondent's two summary judgment motions filed in this case but denied because respondent failed to establish that there were no genuine issues of material fact in dispute and that judgment could be rendered as a matter of law. Because petitioner's efforts have been consistent and in good faith, we believe he is entitled to an explanation of why those exemptions were disallowed. So far as the record reflects, he has not been given an adequate explanation.

The historic explanation appears in Miller v. Commissioner, 114 T.C. 184, 187-189 (2000), aff'd on another ground sub nom. Lovejoy v. Commissioner, 293 F.3d 1208 (10th Cir. 2002), as follows:

Prior to 1985, *191 the definition of dependent led to substantial controversy in cases involving divorced or separated taxpayers because determining which parent provided over one-half of a child's support presented difficult issues of proof and substantiation. See H. Rept. 98-432 (Part 2), at 1498 (1984). In 1984, Congress amended section 152(e) to simplify the rules for determining which parent properly may claim the dependency exemption(s) for Federal income tax purposes. See Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 423(a), 98 Stat. 799.

The pertinent parts of section 152(e) as amended provide:

"SEC. 152(e). Support Test in Case of Child of Divorced Parents, Etc.—