Dudley Joseph Callahan and Myrna Dupuy Callahan - Page 10




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               (2)  Issues at hearing.--                                              
                        *     *     *     *     *     *     *                         
                    (B) Underlying liability.-– 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.  [Emphasis added.]                                          
               We have interpreted the phrase “underlying tax liability” as           
          including any amounts a taxpayer owes pursuant to the tax laws              
          that are the subject of the Commissioner’s collection activities.           
          Katz v. Commissioner, 115 T.C. 329, 338-339 (2000); Van Es v.               
          Commissioner, supra.  In Van Es, we determined that the                     
          “underlying tax liability” was the frivolous return penalties.              
          Id. at 328; see also Wagenknecht v. United States, supra (section           
          6702 penalties are the “underlying tax liability”; Yuen v. United           
          States, supra at 1224 (the “underlying tax liability” as used in            
          section 6330(c)(2)(B) was the frivolous return penalties).  The             
          frivolous return penalties in this case are owed by petitioners             
          pursuant to section 6702 and are the subject of respondent’s                
          collection activities.  Therefore, petitioners may challenge the            
          existence or the amount of the frivolous return penalties at the            
          hearing if they did not receive a statutory notice of deficiency            
          or otherwise have an opportunity to dispute the liability.  Lewis           
          v. Commissioner, 128 T.C. 48 (2007); sec. 301.6330-1(e)(3), Q&A-            
          E2, Proced. & Admin. Regs.                                                  







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