Bernhard F. and Cynthia G. Manko - Page 6

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                                     Discussion                                       
               We are asked to decide for the first time whether the                  
          Commissioner is required to issue a deficiency notice before                
          assessing taxes for years subject to a closing agreement that               
          covers the treatment of only certain items.  Petitioners argue              
          that respondent may not proceed with collection because                     
          respondent did not issue them a deficiency notice before                    
          respondent assessed their taxes.  This failure, petitioners                 
          argue, precluded them from challenging their income tax                     
          liabilities before the assessment and before this levy                      
          proceeding.  Respondent, on the other hand, argues that a                   
          deficiency notice is not required before assessment in all                  
          situations.  Rather, respondent argues no deficiency notice is              
          required if the changes to a taxpayer’s return arise solely from            
          computational adjustments made by applying a closing agreement              
          covering specific matters to the taxpayer’s return.  We find for            
          petitioners.                                                                
               We first address our jurisdiction in this case as well as              
          the standard of review.                                                     
          I.   Jurisdiction and Standard of Review                                    
               We have jurisdiction to review a hearing officer’s                     
          determination in a collection action where the underlying tax               
          liability is of a type over which this Court normally has                   
          jurisdiction.  Sec. 6330(d)(1)(B); Katz v. Commissioner, 115 T.C.           






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