Taxpayer Signing Form 4549 Required by Plea Agreement Waives Ability to Contest Merits of Tax Assessment in CDP (4/13/13)

In Hall v. Commissioner, T.C. Memo. 2013-93, here, the taxpayer, a lawyer, pled guilty to a tax crime.  The plea required that she sign a Form 4549, waiving her right to a deficiency notice and permitting the IRS to assess immediately.  She signed the 4549.  The IRS assessed.  The taxpayer did not pay.  The taxpayer then brought a Collections Due Process ("CDP") proceeding to stall IRS collection efforts. In that proceeding, she wanted to contest the underlying tax liability.  The issue was whether she could contest the tax liability after signing a Form 4549.  Generally, a taxpayer may not contest liability in a CDP proceeding if the taxpayer had the opportunity to contest before, and signing a Form 4549, which waives the issuance of a notice of deficiency, presents the taxpayer an opportunity to contest by just not signing the Form 4549.  As described  by the Tax Court, the Form 4949 is:

Form 4549 lists adjustments to taxable income and the corrected tax liability and balance due. Form 4549 reflects a taxpayer's consent to the Commissioner's immediate assessment and collection of the taxes, penalties, and interest included therein. See Urbano v. Commissioner, 122 T.C. 384, 394 (2004); Gilmer v. Commissioner, T.C. Memo. 2009-296, 2009 Tax Ct. Memo LEXIS 299, at *9 n.7. In pertinent part Form 4549 states: 

Consent to Assessment and Collection — I do not wish to exercise my appeal rights with the Internal Revenue Service or to contest in the United States Tax Court the findings in this report. Therefore, I give my consent to the immediate assessment and collection of any increase in tax and penalties, and accept any decrease in tax and penalties shown above, plus additional interest as provided by law. * * *

This foreclosed the taxpayer in this case.  The Court reasoned (one footnote omitted):

A taxpayer may challenge the existence or amount of the underlying tax liabilities [in a CDP] if the taxpayer did not receive any statutory notice of deficiency for such tax liabilities or did not otherwise have an opportunity to dispute such tax liabilities. Sec. 6330(c)(2)(B). A taxpayer who waives her right to challenge the proposed assessments is deemed to have had the opportunity to dispute the underlying tax liabilities and is thereby precluded from challenging those tax liabilities in the CDP hearing or before this Court. See Aguirre v. Commissioner, 117 T.C. 324, 327 (2001); Coleman v. Commissioner, T.C. Memo. 2007-263, 2007 Tax Ct. Memo LEXIS 264, at *3-*4. By signing Form 4549 a taxpayer waives her right to raise the issue of her underlying liabilities in this Court. See Aguirre v. Commissioner, 117 T.C. at 327; Coleman v. Commissioner, 2007 Tax Ct. Memo LEXIS 264, at *3-*4.

Petitioner signed the Form 4549. Consequently, petitioner's challenge to the amounts of her liabilities listed in the Form 4549 will not properly be before the Court unless she signed the Form 4549 under duress. See Shireman v. Commissioner, T.C. Memo. 2004-155, 2004 Tax Ct. Memo LEXIS 160, at *8. Petitioner bears the burden of proving that the Form 4549 is invalid because she signed it under duress. See Rule 142(a); see also Jarvis v. Commissioner, T.C. Memo. 1980-381, 1980 Tax Ct. Memo LEXIS 207, at *9; Robertson v. Commissioner, T.C. Memo. 1973-205, 1973 Tax Ct. Memo LEXIS 81, at *11-*12. 

"It is now well settled that if an act of one party deprives another of his freedom of will to do or not to do a specific act the party so coerced becomes subject to the will of the other, there is duress, and in such a situation no act of the coerced person is voluntary and contracts made in such circumstances are void because there has been no voluntary meeting of the minds of the parties". Diescher v. Commissioner, 18 B.T.A. 353, 358 (1929). "We have defined duress as actions by one party which deprive another of his freedom of will to do or not to do a specific act." Price v. Commissioner, T.C. Memo. 1981-693, 1981 Tax Ct. Memo LEXIS 47, at *12, aff'd without published opinion, 742 F.2d 1460 (7th Cir. 1984). However, actions that deprive another of her freedom of will are distinguishable from legally authorized actions that merely limit another to choose between options that are not desirable. 

"Every person is always legally bound to comply with the law—but is not thereby under duress." George v. Commissioner, 139 T.C.    ,     (slip op. at 12) (Dec. 19, 2012) (The threat of judicial contempt for not complying with a court order to sign Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, does not constitute duress.) "It is not duress on the part of respondent, however,  [**13] to notify the taxpayer that he intends to use all lawful means to assess and collect the tax." Price v. Commissioner, 1981 Tax Ct. Memo LEXIS 47, at *12. The assertion by the Commissioner of an intention to pursue a legal remedy is not ordinarily considered duress, especially when the taxpayer has a lawyer and there is ample time for deliberation. See United States v. Martin, 274 F. Supp. 1002, 1005-1006 (E.D. Mo. 1967), aff'd, 411 F.2d 1164 (8th Cir. 1969). 

We have held that duress does not exist when the Commissioner threatens to take legally authorized actions if a taxpayer does not sign Form 4549. See Shireman v. Commissioner, 2004 Tax Ct. Memo LEXIS 160, at *8 (citing Ballard v. Commissioner, T.C. Memo. 1987-471, 1987 Tax Ct. Memo LEXIS 467, at *8, aff'd without published opinion, 851 F.2d 359 (5th Cir. 1988)). If the Commissioner's actions leading up to the taxpayer signing Form 4549 were authorized by law, then those actions do not give rise to duress or coercion. See Zapara v. Commissioner, 124 T.C. 223, 228 (2005), aff'd, 652 F.3d 1042 (9th Cir. 2011). 

Petitioner and her husband pled guilty to willful failure to file tax returns pursuant to a plea agreement before the District Court. Petitioner agreed to sign the Form 4549 for the taxable years 1997 through 2005 because it was a condition of the plea agreement offered by the Government and accepted by petitioner. The requirement that petitioner sign the Form 4549 stems from the Government's efforts to prosecute her for admittedly criminal conduct and to collect taxes and penalties. No doubt, given the circumstances, these efforts were zealous and disadvantageous to petitioner. However, every criminal defendant who is offered a plea agreement faces an equally unpalatable decision—accept a legally authorized plea agreement that will include terms disadvantageous to the criminal defendant or go to trial which may result in significantly worse consequences for the criminal defendant. This unpalatable decision does not constitute duress or involuntariness. See Brady v. United States, 397 U.S. 742, 755 (1970) (a plea of guilty is not involuntary merely because it was entered to avoid the possibility of a death penalty). 

Petitioner has not presented any evidence that the Government's efforts went beyond what the law prescribes. In fact there is substantial evidence that petitioner's decision to sign the Form 4549 as part of her plea agreement was in fact voluntary. Rule 11(b)(2) of the Federal Rules of Criminal Procedure requires that before a court can accept "a plea of guilty or nolo contendere, the court must address the defendant personally in open court and determine that the plea is voluntary and did not result from force, threats, or promises (other than promises in a plea agreement)." On May 16, 2006, Judge Diamond held a plea hearing and extensively questioned petitioner before he concluded that her "plea of guilty is voluntary, and not the result of force, or threats, or promises, apart from the plea agreement disclosed on this record". Petitioner's attorney, Nicholas Nastasi, Sr., who represented her in the criminal proceeding, confirmed to Judge Diamond that petitioner's willingness to plead guilty was voluntary.  Judge Diamond noted that petitioner and her husband "did not wish to lose the benefits of their plea agreement and so were most willing to plead guilty." Hall, 515 F.3d at 196 n.2. We note that petitioner, unlike her husband, did not appeal her conviction or sentence. 

Petitioner's husband appealed his guilty plea to the Court of Appeals for the Third Circuit, arguing that the District Court did not exercise special care in determining whether his plea, which was tied to petitioner's plea, was voluntary. Id. at 194. In his appeal, petitioner's husband argued that his plea agreement was involuntary because his plea agreement benefited petitioner more than him. Id. at 196-197. The Court rejected petitioner husband's argument and held that there was no error in the District Court's acceptance of his plea. Id. at 197 ("We, however, reject as a matter of law a conclusion that a defendant who pleads guilty with his or her jointly charged defendant, whether or not his or her spouse, merely by entering that plea no matter how much it benefits the other defendant and how little it benefits the defendant challenging the plea has acted involuntarily."). 

Petitioner relies on Robertson v. Commissioner, 1973 Tax Ct. Memo LEXIS 81, to argue that she was under duress. However, petitioner's factual situation is different. In Robertson, the Court noted that the taxpayers were "honest, forthright and candid witnesses" who had employed an attorney to file their Federal income tax return, which was filed early. Id. at *13. Additionally, the Court found that the Commissioner had harassed the taxpayers. Id. at *19. On the other hand, we find that petitioner did not file Federal income tax returns for the taxable years 1998, 1999, 2000, and 2001. We also find that petitioner's testimony that she was under duress is directly contradicted by her more contemporaneous testimony in the District Court. Furthermore, petitioner consulted with her criminal defense attorney prior to signing the Form 4549. See Martin, 274 F. Supp. at 1005-1006. In short, we find that petitioner's testimony regarding duress lacks credibility.\ 

In Larson v. Commissioner, T.C. Memo. 1994-302, 1994 Tax Ct. Memo LEXIS 305, aff'd without published opinion, 60 F.3d 830 (8th Cir. 1995), the taxpayer entered into a plea agreement in which he pled guilty to criminal tax evasion under section 7201. Id. at *9. The taxpayer argued that he was under duress when he pled guilty and that the plea agreement should not be used against him. Id. at *35. The Court noted that the "criminal judgment, transcript, and related documents do not reflect duress and are regular on their face." Id. at *35-*36. As a result, the Court declined to find that the taxpayer was under duress when he agreed to plead guilty. Id. at *36. Similarly, petitioner's plea hearing, sentencing hearing, and related documents reflect that she was not under duress and in fact voluntarily entered into the plea agreement because she benefited from the plea agreement. n4 Accordingly, we hold that petitioner was not under duress when she signed the Form 4549. Consequently, petitioner may not dispute the amounts of the underlying liabilities reflected in the Form 4549.
   n4 In Larson v. Commissioner, T.C. Memo. 1994-302, 1994 Tax Ct. Memo LEXIS 305, at *36, aff'd without published opinion, 60 F.3d 830 (8th Cir. 1995), the Court also noted that "if * * * [the taxpayer] did not plead guilty of his own free will, that could constitute a fraud upon the U.S. District Court, a matter which * * * [the taxpayer] should attempt to remedy in that forum." In the plea hearing petitioner was under oath when she confirmed to Judge Diamond that no one had made any threat or promise or assurance to her, other than the plea agreement, and that she was entering her guilty plea voluntarily. 

Because of the terms of the plea agreement voluntarily entered by the taxpayer, she was foreclosed in this CDP proceeding.  Criminal convictions, whether by plea or otherwise, have collateral civil consequences that must be recognized.