The error of petitioner's expert's approach in this regard is illustrated by an example involving Pennsylvania Farmer's Union, and facts that generally postdate January 1, 1987, but that nevertheless illustrate the problem with petitioner's valuation approach. As of January 1988, Pennsylvania Farmer's Union maintained with petitioner three experience-rated, retrospective credit group contracts with a cumulative deficit of approximately $700,000. By early 1994, the cumulative deficit had reached $4 million, and petitioner had proposed a 48-percent rate increase to take effect the following year. Pennsylvania Farmer's Union did not accept the rate increase proposed by petitioner, and its group contracts with petitioner were terminated in 1994. In spite, however, of the millions of dollars in deficits that petitioner had incurred relating to the three Pennsylvania Farmers' Union group contracts (particularly the $568,000 cumulative deficit that had built up in 1988 and prior years), petitioner's expert assigned the three Pennsylvania Farmer's Union contracts a total positive value of $479,000, or nearly 20 percent of the total value attributed to all of petitioner's experience-rated group contracts that were terminated in 1994. Lifing Analysis In establishing the future income stream for the group contracts, petitioner's expert undertook a lifing analysis of petitioner's group contracts in which he, in present value terms, set forth the after tax income he expected petitioner's 23,526 group contracts to generate over the course of 20 years (1987-2006). In his lifing analysis of petitioner's group contracts, in his attempt to account for the reality that not all of petitioner's group contracts would remain in existence for 20 years, petitioner's expert utilized historical lapse rates relating to a sample of petitioner's group contracts that terminated between 1982 and 1986, which indicated that each group contract had a 2.2-percent to 7.5-percent probability of lapsing from year to year, depending on factors such as group size and duration of the contract. The lapse rates utilized by petitioner's expert, however, do not account for foreseeable, as of January 1, 1987, and significant changes in the health insurance marketplace that were imminent and about to impact petitioner's business and that constituted significant factors affecting the life and value of petitioner's health insurance group contracts. As explained, by the mid-1980s, the national health insurance marketplace had become increasingly competitive with escalating health care costs, the emergence of new health care products, and the continued growth of alternative health care product delivery services such as HMOS, PPOS, and plans administered by third party administrators. As evidenced by the following quotation from petitioner's 1985 Annual Report, by the mid-1980s petitioner's management was aware that new health insurance products and new marketing techniques were creating an increasingly competitive health insurance industry: We are witnessing the emergence of a new competitive market in the delivery and financing of health care services. During 1985 the once clear line of demarcation between the financing and the delivery of health care continued to fade. In Central Pennsylvania and the Lehigh Valley new competition emerged-not just from insurance companies and third-party administrators, but from Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and other new delivery and financing schemes. Many of these new competitors are sponsored by or joint ventures with the doctors and hospitals who also provide care. This fading of the line between financing and delivery represents a major turning point for our industry. It creates a challenge to all of the traditional assumptions about our business. Minutes of petitioner's 1986 corporate planning meeting state as follows: The Plan will continue to face competition from new entities, e.g., self insurance, TPA's, HMO's and PPO's. As this competition increases Capital Blue Cross must protect against cost shifting and adverse selection and become responsive to a changed marketplace. *** Greater efforts will be made by commercial carriers to increase their share of the market. These carriers who are able to provide life, health, accident, etc., will be in an advantageous position by being able to provide wide-ranging benefits. By basing the lapse rates for his lifing analysis of petitioner's group contracts on 1982–86 lapse rate information relating to petitioner's group contracts, petitioner's expert largely ignored the industry changes of which petitioner's manage ment, as of January 1, 1987, was aware. Any valuation of petitioner's group contracts should have considered the changes occurring in the insurance marketplace as of January 1, 1987. Further and significantly, because petitioner's group contracts were effectively terminable at will, petitioner's customers could cancel their contracts with petitioner for any number of reasons, making the realistic useful life or duration of petitioner's health insurance group contracts directly impacted by what is referred to as "human elements". These human elements associated with petitioner's group contracts created a significant element of unpredictability with regard to the useful life of petitioner's group contracts. Various courts have commented on the difficulties presented when such human elements are associated with the valuation of intangible assets. In Ithaca Indus., Inc. v. Commissioner, 17 F.3d at 689-690, the Court of Appeals for the Fourth Circuit concluded that the taxpayer was not allowed to amortize the value of its employee workforce due in large part to the human elements associated with employee behavior. In Globe Life & Accident Ins. Co. v. United States, 54 Fed. Cl. 132, 139 (2002), the Court of Federal Claims held that the claimed value of a group of insurance agents was not subject to amortization due to the many variables involved in attempting to determine the useful life of an intangible asset that is directly tied to human relations. Petitioner's expert did not adequately take into account these human elements. Indeed, there is not a single clear reference in his valuation report relating to the human elements to be taken into account in the valuation of petitioner's health insurance group contracts. One vague reference thereto comments simply that "It is not possible to predict when any particular group contract will lapse." By valuing all 23,526 of petitioner's group contracts based on a useful life of 20 years, petitioner's expert implicitly ignores the human elements associated with the group contracts and whether they will be renewed or terminated by the group sponsors. Conclusion Petitioner is not entitled to the claimed $4 million in loss deductions relating to the 376 health insurance group contracts that were terminated in 1994. Decision will be entered for respondent. DON WEBER II, PETITIONER v. COMMISSIONER OF Docket No. 15169-03L. Filed March 22, 2004. On Dec. 19, 2002, R mailed to P two notices of determination concerning collection action. R issued the first notice with respect to P's liability for unpaid income taxes; R issued the second notice with respect to P's liability for an unpaid civil penalty under sec. 6682, I.R.C. R sent both notices to P by certified mail addressed to him at his last known address. The first notice was returned to R by the U.S. Postal Service marked "unclaimed". By letter dated Aug. 4, 2003, R's settlement officer sent P courtesy copies of the notices of determination. On Sept. 4, 2003, P filed a petition for lien or levy action under sec. 6330(d), I.R.C. Thereafter, R filed a motion to dismiss P's petition for lack of jurisdiction on the ground that it was not timely filed. P opposes the granting of R's motion, contending that he did not receive either of the notices of determination until August 2003, at which time he promptly filed his petition with the Court. Held, the income tax notice of determination that was sent by certified mail to P at P's last known address was sufficient, notwithstanding the fact that P did not receive such notice. Held, further, the courtesy copy of the income tax notice of determination that R's officer sent P in August 2003 was not a notice of determination under sec. 6320, I.R.C., or sec. 6330, I.R.C., nor did the sending of that copy serve to revive the statutory filing period. Held, further, because P did not timely file his petition in respect of the income tax notice of determination, this Court lacks jurisdiction to review R's determination to proceed with collection of P's liability for unpaid income taxes. Held, further, this Court lacks jurisdiction to review R's determination to proceed with collection of P's liability for the unpaid civil penalty under sec. 6682, I.R.C., because it lacks jurisdiction over the underlying liability. Don Weber II, pro se. James E. Cannon and Julie Jebe, for respondent. OPINION DAWSON, Judge: This case was assigned to Special Trial Judge Robert N. Armen, Jr., pursuant to the provisions of section 7443A(b)(4), and Rules 180, 181, and 182.1 The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below. OPINION OF THE SPECIAL TRIAL JUDGE ARMEN, Special Trial Judge: This collection review case is before the Court on respondent's motion to dismiss for lack of jurisdiction. Respondent contends that the Court lacks jurisdiction on the ground the petition for lien or levy action was not timely filed. As discussed in detail below, we shall dismiss the petition for lack of jurisdiction. Background The record reflects and/or the parties do not dispute the following facts. On December 19, 2002, respondent mailed to petitioner a Notice of Determination Concerning Collection Action(s) informing petitioner that respondent would proceed with the collection of petitioner's unpaid Federal income taxes for 1992, 1993, 1994, and 1995 (the income tax notice). On December 19, 2002, respondent also mailed to petitioner a Notice of Determination Concerning Collection Action(s) informing petitioner that respondent would proceed with the collection of petitioner's unpaid liability for a civil penalty imposed under section 6682 for the taxable period ending December 31, 1997 (the civil penalty notice).2 Respondent mailed the income tax notice and the civil penalty notice to petitioner by certified mail addressed to him at 3500 W. 95th St., No. 6638, Shawnee Msn., Kansas 662062052 (the Kansas address).3 On or about January 13, 2003, the envelope bearing the income tax notice was returned to 1 All Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code, as amended. 2 Sec. 6682(a) generally provides that an individual shall be liable for a civil penalty if such individual is found to have made a false statement regarding the correct amount of income tax withholding on wages and/or backup withholding. 3 Respondent proved the mailing of the notice of determination through the introduction of a postmarked copy of a certified mail list. Cf. Magazine v. Commissioner, 89 T.C. 321, 326-327 (1987) (holding that for purposes of sec. 6212, the Commissioner must produce direct evidence to establish the fact that a notice of deficiency was mailed). |