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Judicial Review of Appeals - Judicial Review Page 3
Actions & Restrictions on LevyServing & Releasing LeviesJeopardy LevyBank LeviesLevy on IncomeLevy in Special CasesAutomated Levy Programs6331 Code and Regulations6332 Code and Regulations6333 Code and Regulations6334 Code and Regulations6335 Code and Regulations6336 Code and Regulations6337 Code and Regulations6338 Code and Regulations6339 Code and Regulations6340 Code and Regulations6341 Code and Regulations6330 Code and Regulations6331 Court Order6331 Damages6331 Debt6331 Community Property6331 Effective Levy6331 Bankruptcy p16331 Bankruptcy p26331 Bankruptcy p36331 Bankruptcy p46331 Bankruptcy p56331 Bankruptcy p66331 Bail Money6331 Bank Account6331 Bank Vault6331 Alimony Funds6331 Continuous LevyPublication 4418 - Levy ProgramPre Seizure Considerations Tax LevyPre Approval Post ApprovalActions Prior to sale of seized propertyIRS Seizure Sale ProceduresHow IRS Conducts a Seizure of PropertyProperty acquired and disposed by IRSJudicial Sale of Levied PropertyUnderstanding your IRS NoticeReleasing Levies and Levied Property7426 Code and RegulationsAmendment to section 6330 Regulations6320 Proposed Amendments of Regulations6332 - 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Judicial Review of
Appeals-Judicial Review
undisputed facts in this case establish that petitioner received a
notice of deficiency for each of the years 1993 and 1994.
Petitioner did not file any petition in this Court seeking a
redetermination of the proposed deficiencies. As a result, upon
the expiration of the statutory restriction on assessment set
forth in section
6213(a), respondent assessed the disputed liabilities.
taxpayer may contest his or her underlying tax liability in a section
6330 proceeding only if he or she did not receive a
notice of deficiency for the taxes at issue or did not otherwise
have an opportunity to dispute the tax liability. Sec.
6330(c)(2)(B). Petitioner received notices of
deficiency for 1993 and 1994. Consequently, petitioner, as a
matter of law, was not entitled to dispute the existence or amount
of the underlying tax liabilities for those years in a section
6330 proceeding.
The Appropriateness of the Proposed Collection Action
does not allege that the administrative proceeding in this case
was defective. She alleges only that she has no money. We
interpret petitioner's allegation as a contention that the
liabilities are uncollectible due to her inability to pay.
begin by noting that the material facts are not in dispute.
Petitioner has unpaid Federal income tax liabilities for 1993 and
1994. Respondent issued a notice of intent to levy to petitioner
and advised her of her right to request a section
6330 hearing. Because petitioner had received notices
of deficiency for the years at issue, petitioner was not entitled
to contest the underlying liabilities. Sec.
6330(c)(2)(B). Petitioner's only recourse was to
demonstrate that the proposed levy action was inappropriate,
another collection alternative was more appropriate, an
appropriate spousal defense applied, or some other relevant issue
adversely affected respondent's proposed collection activity. Sec.
6330(c)(2). Nevertheless, petitioner's only contentions
before the Appeals Office and before this Court regarding the
appropriateness of respondent's proposed collection action were
that she is disabled and unable to pay any liability and that she
is entitled to a refund of allowances and credits. Petitioner
waived her right to appear personally at the hearing under section
6330 and submitted no information whatsoever to either
the Appeals Office or this Court documenting her assertion that
she is unable to pay the subject liabilities or that she is
entitled to any refunds or credits.
supplied us with no factual record on which we could conclude that
the Appeals Office's determination permitting the levy to proceed
was an abuse of discretion. Consequently, we shall grant
respondent's motion as to the summary adjudication under Rule 121.
Respondent's Request for Section 6673 Penalty
turn now to that part of respondent's motion that seeks a penalty
against petitioner under section
6673. Section
6673(a) authorizes this Court to impose a penalty not
in excess of $25,000 on any taxpayer who institutes or maintains
proceedings in this Court primarily for delay, asserts a position
in such proceeding that is frivolous or groundless, or
unreasonably failed to pursue administrative remedies.
we acknowledge respondent's concerns regarding petitioner's
arguments in this case, we are unable to conclude on this record
that petitioner instituted or maintained these proceedings
primarily for delay or that petitioner unreasonably failed to
pursue available administrative remedies. Petitioner timely filed
her petition in this case and has not taken any steps to unduly
prolong this proceeding. She has responded to this Court's orders
by filing a timely response to respondent's motion, and she has
even prepared and submitted a trial memorandum required by the
Court's standing pretrial order issued on
October 10, 2002
. In addition, at the administrative level, petitioner made
several attempts to communicate with respondent although the
letters that she sent were confused, uninformative, and not
helpful in determining whether a levy was an appropriate
collection activity. The letters reflected a profound confusion on
the part of petitioner regarding her entitlement to refunds and
credits arising from such things as the personal exemption and the
credit for the disabled and elderly. We are not prepared on this
record to equate petitioner's apparent confusion with a deliberate
attempt on her part to delay or obfuscate.
also note that the record fails to establish that all of
petitioner's claims were frivolous or groundless. While
petitioner's filings were confused, often unintelligible, and
sometimes reminiscent of protester rhetoric, not all of the
arguments contained in those filings were frivolous or groundless
on their face. Petitioner's principal claim was that she is
impoverished. In fact, she may well be. Unfortunately, petitioner
did nothing to prove her financial condition at the section
6330 hearing before the Appeals Office. Although we
have no record before us to review for abuse of discretion, that
same lack of a record forecloses any conclusion we might otherwise
have reached that petitioner's claim of poverty was either
frivolous or groundless.3
Consequently, we shall deny that part of respondent's motion that
seeks a penalty under section
6673. We warn petitioner, however, that most of her
arguments in this case were, to the extent that we understood
them, of the type that might justify the imposition of a section
6673 penalty if petitioner were to assert those
arguments again in another judicial proceeding in this Court.
hold that the material facts are not in dispute and that
respondent is entitled to a summary adjudication as a matter of
law. We further hold that respondent correctly determined that
collection by levy should proceed. We shall grant that part of
respondent's motion seeking summary adjudication, deny that part
of respondent's motion requesting the imposition of a penalty
under section
6673, and enter a decision upholding respondent's
proposed collection action.
reflect the foregoing,
appropriate order and decision will be entered.
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
2 The
facts material to the Court's disposition of the motion for
summary judgment are stated solely for purposes of deciding the
motion and are not findings of fact for this case. See Sundstrand
Corp. v. Commissioner [Dec.
48,191], 98 T.C. 518, 520 (1992), affd. [94-1
USTC ¶50,092] 17 F.3d 965 (7th Cir. 1994)
3 We also
note that the administrative record contains no indication that
respondent warned petitioner that her arguments were frivolous or
groundless or that her arguments might result in the imposition of
a sec.
6673 penalty.
[2003-1 USTC ¶50,285] Joseph Tornichio, Plaintiff v.
United States of America
, Defendant.
District Court, No. Dist.
, East. Div.; 5:02-CV-351,
December 11, 2002
[ Code
Sec. 6330]
Collection Due Process: De novo review of determination: Issues
raised: Underlying tax liability: District court jurisdiction. --
taxpayer's challenge to the validity of a Collection Due Process
determination holding him liable for frivolous return penalties
was rejected, and his claim for compensatory and punitive damages
against the government was dismissed. Because the taxpayer, who
had not received a deficiency notice, challenged the validity of
the underlying tax liability, the district court's standard of
review was de novo. However, the taxpayer's failure to
state a claim upon which relief could be granted resulted in the
dismissal of the action.
[ Code
Sec. 6330]
Collection Due Process: District court jurisdiction:
Verification requirements: Production of documents. --
taxpayer's challenge to the validity of a Collection Due Process
(CDP) determination holding him liable for frivolous return
penalties was rejected, and his claim for compensatory and
punitive damages against the government was dismissed. The IRS
officer's failure to present verification that the applicable
statutory and administrative procedures were satisfied did not
invalidate the determination; although the officer was required to
obtain the appropriate verification, he was not required to send
or provide that verification to the taxpayer. Further, the IRS was
not required to provide documents regarding imposition of the
frivolous return penalty before imposing a levy or in connection
with a CDP hearing, nor did it have to publish internal
delegations of administrative authority in order to enforce the
tax laws.
[ Code
Sec. 6702]
Collection Due Process: Penalties, civil: Frivolous returns:
Tax protestor: Zero-income returns. --
taxpayer's challenge to the validity of a Collection Due Process
determination holding him liable for frivolous return penalties
was dismissed. In addition to filing zero-income returns, the
taxpayer persisted in raising meritless tax-protest arguments.
[ Code
Secs. 7402 and 7433]
Collection Due Process: District court jurisdiction: Damages
claims: Exhaustion of administrative remedies: Sovereign immunity:
Federal Tort Claims Act: Compensatory damages. --
taxpayer's challenge to the validity of a Collection Due Process
determination holding him liable for frivolous return penalties
was rejected, and his claim for compensatory and punitive damages
against the government was dismissed. The court lacked
jurisdiction to award damages for purportedly unauthorized
collection actions; the government's immunity from suit was not
waived because the taxpayer failed to exhaust available
administrative remedies before bringing suit. With respect to his
claim for compensatory damages, the taxpayer failed to satisfy the
jurisdictional prerequisite of the Federal Tort Claims Act because
he had not filed administrative tort claims against the
government. His request for additional discovery was denied in
light of the taxpayer's inability to assert a justiciable claim.
GWIN, District Judge: On
October 29, 2002
, Defendant the
United States of America
United States
") moved the Court to dismiss pro se Plaintiff
Tornichio's complaint against it and affirm the Internal Revenue
Service's ("IRS") determination that Tornichio is liable
for filing frivolous income tax returns. In his complaint,
Tornichio asks the Court to invalidate the IRS's determination
because he believes the IRS collection due process
("CDP") hearing was invalid. He also seeks compensatory
and punitive damages against the
United States
United States
alleges that Tornichio fails to state a claim upon which the Court
can grant relief. The
United States
further claims that the Court must dismiss Tornichio's
compensatory and punitive damage claims for lack of subject matter
jurisdiction. Tornichio opposes the motion.
For the reasons that follow, the Court grants the
's motion to dismiss and affirm. Accordingly, the Court dismisses
Tornichio's complaint against the
United States
and affirms the determination of the IRS Appeals Office that
Tornichio is liable for filing frivolous income tax returns.
Tornichio filed tax returns for tax years 1996, 1997, and 1998 in
which he reported his income as "-0-." In support of his
claim that he had zero income and tax liability, Tornichio alleged
that the IRS lacks authority to collect income taxes. After
receiving information documents showing that Tornichio earned
$51,700.00 in 1996, $78,952.00 in 1997 and $45,244.00 in 1998, the
IRS assessed Tornichio a $500 "frivolous return" penalty
on each return. After Tornichio refused to voluntarily pay the
penalties, the IRS sent several notices of intent to levy on each
return assessment. Tornichio still did not pay the penalties.
October 17, 2000
, the IRS sent Tornichio, by certified mail, a final notice of
intent to levy. On
November 3, 2000
, Tornichio requested a CDP hearing pursuant to Internal Revenue
Code ("I.R.C.") §6330.
He asked that the appeals officer furnish the following
information at the hearing:
verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met;
delegation orders from the Secretary delegating authority to those
persons who imposed the `frivolous penalty;'
a listing of Treasury Department regulations that allow IRS
employees to impose `frivolous penalties;' and
documented proof that the Secretary authorized the collection
action and that the Attorney General or his delegate directed that
collection action commence.
Tornichio also advised the appeals officer that he intended to
challenge the "`existence of the underlying liability' of the
tax that generated the `frivolous penalty"' because he never
received a Deficiency Notice regarding the underlying tax
IRS Settlement Officer Dolin responded to Tornichio in a letter
November 28, 2001
. Dolin advised Tornichio that the CDP conference would be
informal, "facts, arguments, and legal authority to support
your position" maybe presented, but "[i]t is the
Service's position that in cases where a taxpayer's request for a
collection due process hearing only states moral, religious,
political, constitutional, conscientious or similar grounds to
support his/her position, Appeals will not consider those
grounds in the Due Process/Equivalent hearing pursuant to IRC Section
6320/6330."(emphasis in original). Dolin noted
further that courts had previously addressed Tornichio's concerns
about the legal authority of the IRS.
Tornichio responded in a letter dated
December 4, 2001
, saying again that he wanted the IRS officer to bring all of the
items listed in his
September 28, 2001
, letter to the hearing. Concerned that he did not receive a reply
from the IRS, Tornichio sent a certified letter dated
December 18, 2001
, requesting several documents, including IRS Document #330 for
tax years 1996, 1997, & 1998.
January 15, 2002
, the IRS Appeals Office held the CDP hearing. The hearing did not
result in any settlement or resolution of the matter. Accordingly,
February 1, 2002
, the IRS sent a "Notice of Determination Concerning
Collection Action(s) Under Section
6320 and/or 6330",
via certified mail, to Tornichio.
The determination letter stated as follows:
has been determined that no relief is to be granted and that the
proposed levy action is sustained. The Internal Revenue Service
has complied with code and procedural requirements in collecting
the tax.
The letter further stated that Tornichio could appeal the IRS
determination by filing a complaint with the Court within thirty
February 26, 2002
, Tornichio timely filed this action. In his complaint, Tornichio
seeks to set aside the IRS determination of liability. In asking
that his liability be set aside, Tornichio says that the IRS
unlawfully issued the determination. Specifically, Tornichio
complains that the appeals officer failed to provide any of the
information he requested in his
September 28, 2001
, letter. Additionally, he claims the IRS officer refused to
accept his "collection alternative" of paying the
penalty immediately "if the appeals officer would merely cite
and produce the statute ... where an income tax `liability' was
established by law." Tornichio also makes claims for
compensatory and punitive damages against the
United States
March 18, 2002
, the Court dismissed the action without prejudice because the Tax
Court appeared to have sole jurisdiction. On
September 17, 2002
, the Court vacated its
March 18, 2002
opinion and order and reopened the case.
October 29, 2002
, the
United States
moved the Court to dismiss the complaint against it and affirm the
IRS Appeals Office's determination. The
United States
also moved the Court to dismiss Tornichio's damage claims against
United States
for lack of subject matter jurisdiction. Tornichio opposes the
Standard & Analysis
United States
alleges that the Court should dismiss the complaint against it and
affirm the determination of the IRS officer for two reasons.
First, the
United States
says that the Court should dismiss the claim that the CDP hearing
was invalid because it fails to state a claim upon which the Court
can grant relief. Second, it asserts that the Court lacks subject
matter jurisdiction over Tornichio's damage claims against the
United States
The Court now presents the standards for the two dismissal
grounds, and then discusses each ground in later sections.
Failure to State a Claim
The Court uses the Fed. R. Civ. P. 12(b)(6) standard to judge the
legal sufficiency of a claim. Under this rule, the Court presumes
that all well pleaded allegations are true, resolves all doubts
and inferences in favor of the pleader, and views the pleading in
the light most favorable to the non-moving party. Cent. States,
Southeast & Southwest Areas Pension Fund v. Mahoning Nat'l
Bank, 112 F.3d 253 (6th Cir. 1997). See also In re Sofamor
Danek Group, Inc., 123 F.3d 394, 400 (6th Cir. 1997) (holding
that when ruling on a motion to dismiss for failure to state a
claim, the court deems as admitted all factual allegations made by
plaintiff, and the court must construe all ambiguous allegations
in plaintiff's favor.) Courts will dismiss a claim under this rule
only if it appears beyond doubt that the pleader can prove no set
of facts in support of the claim that would entitle him to relief.
Conley v. Gibson, 355
41 (1957); Advocacy Org. For Patients & Providers v. Auto
Club Ins. Ass'n, 176 F.3d 315 (6th Cir. 1999). Finally, the
district court must read a pro se plaintiff's allegations
liberally and apply a less stringent standard to the pleadings of
a pro se plaintiff than to a complaint drafted by counsel. Haines
v. Kerner, 404
519, 520-21, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972).
Subject Matter Jurisdiction
When a party challenges subject matter jurisdiction under
Fed.R.Civ.P. 12(b)(1), the plaintiff has the burden of proving
that the Court has jurisdiction over the cause of action. Madison-Hughes
v. Shalala, 80 F.3d 1121, 1130 (6th Cir. 1996);
v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir.
1986). The Court, however, construes the allegations of the
complaint favorably to the pleader. Scheuer v. Rhodes, 416
232, 236 (1974). In ruling on such a motion, the district court
may resolve factual issues when necessary to resolve its
jurisdiction. Madison-Hughes, 80 F.3d at 1130;
, 798 F.2d at 918. Further, when considering a motion to
dismiss for lack of subject matter jurisdiction, this Court may
look beyond jurisdictional allegations in the complaint and the
Court may consider whatever evidence the parties submit. Fairport
Intern. Exploration, Inc. v. Shipwrecked Vessel Known as the
Captain Lawrence, 105 F.3d 1078, 1081 (6th Cir. 1997).
Finally, the district court must read a pro se plaintiff's
allegations liberally and apply a less stringent standard to the
pleadings of a pro se plaintiff than to a complaint drafted
by counsel. Haines, 404
at 520-21.
United States
says that the Court should dismiss Tornichio's claim that the CDP
hearing was invalid because the IRS officer did not abuse his
discretion. Therefore, the
United States
asks the Court to affirm the determination of the appeals officer.
It also moves the Court to dismiss the damage claims against it
because the
United States
has not waived its sovereign immunity. Accordingly, the
United States
argues that the Court lacks subject matter jurisdiction.
The Court now discusses each of these issues.
CDP Hearing and IRS Determination
Appropriate Standard of Review
As an initial matter, the Court determines the appropriate
standard of review for Tornichio's claim that the Court should set
aside the IRS's notice of determination. The
United States
asserts that the Court should apply an abuse of discretion
Although section
6330(d) provides for judicial review of the IRS's
administrative determinations, it is silent as to the standard of
review a district court should apply when a taxpayer appeals a
Notice of Determination by the IRS Appeals Office. 26 U.S.C. §6330(d).
The legislative history, however, shows that the court should
conduct a de novo review "where the validity of the
tax liability was properly at issue at the administrative
hearing." H.R. Conf. Rep. No. 105-599, at 266 (1998). See
also Rennie v. Internal Revenue Serv. [ 2002-2
USTC ¶50,548], 216 F.Supp.2d 1078, 1080 (E.D. Cal.
2002); Geller v. U.S. [ 2001-2
USTC ¶50,703], 2001 WL 1346669 (S.D. Ohio Sept. 26,
But, where the validity of the underlying tax liability is not
properly part of the appeal, the taxpayer may challenge the
determination for abuse of discretion. H.R. Conf. Rep. No.
105-599, at 266 (1998); Rennie [2002-2
USTC ¶50,548], 216 F.Supp.2d at 1080; Goza v.
Comm'r of Internal Revenue [ CCH
Dec. 53,803], 114 T.C. 176, 181-182 (2000) (concluding
that a court must review the IRS officer's determinations using an
abuse of discretion standard when the validity of the tax
liability itself is not at issue); MRCA Info. Servs. v.
United States
[ 2000-2
USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000).
United States
alleges that Tornichio did not challenge the underlying tax
liability at the CDP hearing. Therefore, it argues that the abuse
of discretion standard applies.
The record, however, refutes these claims. First, Tornichio
notified the IRS when he requested the CDP hearing that he was
challenging the underlying tax liability. Then, he also disputed
the underlying liability at the CDP hearing. The IRS officer
refused to hear the challenge because he said that Tornichio had
received the statutory notice of deficiency. The
United States
, however, admits that Tornichio did not receive the statutory
notice of deficiency. Under §6330(c)(2),
one may only raise challenges to the underlying tax liability if
he did not receive "any statutory notice of deficiency."
Accordingly, the validity of the tax liability is properly part of
the appeal and the appropriate standard of review is de novo.
Application of De Novo Standard
Having determined that the appropriate standard of review is de
novo, the Court now applies it to Tornichio's claim that the
CDP hearing violated the law. He bases this claim on four grounds.
First, he says that the appeals officer did not "produce and
present to Plaintiff the `verification from the Secretary' as
required by Section
6330(c)." As part of this argument, he further
claims that the IRS did not "`prior to issuance of the
determination' at issue, send Plaintiff the `verification from the
IRS office collecting the tax that the requirements of any
applicable laws have been met,' as `required' by Treasury
Regulation 301.6330-1(e)."
Next, he alleges that the IRS officer did not produce or identify
the four documents he says it was required to produce: 1)
"any document signed by any Defendant employee that would
have supported the imposition of the `frivolous penalty' at
issue"; 2) "any Delegation of Authority from the
Secretary that authorized any Defendant employee to impose the
`frivolous penalty' at issue"; 3) a "Treasury Department
regulation that authorized Defendant employees to impose the
`frivolous penalty' at issue or required Plaintiff to pay such a
`frivolous penalty"'; and 4) "any statute that
established the `existence ... of the underlying liability' of the
tax for which the `frivolous penalty' had been imposed."
As a third ground, Tornichio asserts that the hearing was unlawful
because the appeals officer refused to accept his proposed
collection alternative that "he would immediately pay the
`frivolous penalty' if the appeals officer would merely cite and
produce the statute that established the `underlying liability'
for the tax." He further says that although the IRS officer
had the I.R.C. in front of him, he refused to point out where the
law establishes an income tax `liability.'
Finally, Tornichio argues that the hearing was invalid because the
IRS did not produce the "documented proof that the Secretary
authorized the instant collection action and that the Attorney
General or his delegate `directed' that this collection action be
For the reasons discussed below, these allegations fail to state a
claim upon which the Court can grant relief. The Court now
examines each argument in turn.
From the Secretary and the IRS Office
Tornichio argues that the CDP hearing was unlawful because the IRS
officer did not present the verification from the Secretary as he
says was required by §6330(c).
He further alleges that the officer unlawfully failed to send
Tornichio verification from the IRS office.
The Court disagrees. Section
6330(c)(1) only requires that the IRS officer
"obtain verification from the Secretary that the requirements
of any applicable law or administrative procedure have been
met." Section 301.6330-1(e) requires the officer to
"obtain verification from the IRS office collecting the tax
that the requirements of any applicable law or administrative
procedure have been met." Nothing in either the statute or
the regulation requires that the officer send or provide the
verification to the taxpayer. Rennie [ 2002-2
USTC ¶50,548], 216 F.Supp.2d at 1080; Nestor v.
Comm'r [ CCH
Dec. 54,896], 2002 WL 236682 (U.S. Tax Ct. 2002).
to Produce Documents
Tornichio also contends the CDP hearing was invalid because the
IRS officer did not produce or identify the following four
documents: 1) "any document signed by any Defendant employee
that would have supported the imposition of the `frivolous
penalty' at issue"; 2) "any Delegation of Authority from
the Secretary that authorized any Defendant employee to impose the
`frivolous penalty' at issue"; 3) a "Treasury Department
regulation that authorized Defendant employees to impose the
`frivolous penalty' at issue or required Plaintiff to pay such a
`frivolous penalty"'; and 4) "any statute that
established the `existence ... of the underlying liability' of the
tax for which the `frivolous penalty' had been imposed."
Again the Court disagrees. The law does not require the IRS to
produce any of these documents or information before imposing a
levy or in connection with a CDP hearing. First, courts have
rejected argument that the IRS must produce evidence of delegated
authority, stating:
statutes and regulations demonstrate ... that the Secretary does
have the power to collect taxes, and that such power can be
delegated to local IRS agents. 26 U.S.C. §6301
provides that `[t]he Secretary shall collect the taxes imposed by
the internal revenue laws.' The actual task of collecting taxes,
however, has been delegated to local IRS directors. `The taxes
imposed by the internal revenue laws shall be collected by
district directors of internal revenue.' 26 C.F.R. §301.6301-1.
District directors in turn are authorized to redelegate the levy
power to lower level officials such as collection officers. See
IRS Delegation Order 191. The delegation of authority down the
chain of command, from the Secretary, to the Commissioner of
Internal Revenue, to local IRS employees constitutes a valid
delegation by the Secretary to the Commissioner, and a
redelegation by the Commissioner to the delegated officers and
employees. See 36 C.F.R. §301.7701-9.
Rennie [ 2002-2
USTC ¶50,548], 216 F.Supp.2d at 1082 (quoting Hughes
v. United States [ 92-1
USTC ¶50,086], 953 F.2d 531, 536 (9th Cir. 1992).
Further, the I.R.C. does not require that the IRS publish the
internal delegations of administrative authority to enforce the
Internal Revenue laws. Hughes, 953 F.2d at 539; Rennie
[ 2002-2
USTC ¶50,548], 216 F.Supp.2d at 1082; Lonsdale v.
United States [ 90-2
USTC ¶50,581], 919 F.2d 1440, 1446 (10th Cir. 1990).
Additionally, as to Tornichio's claim that the IRS officer did not
produce any document supporting the imposition of the frivolous
penalty, 26 U.S.C. §6702
provides for a $500 civil penalty for a frivolous income tax
return if:
any individual files what purports to be a return of the tax
imposed by subtitle A but which --
does not contain information on which the substantial correctness
of the self-assessment may be judged, or
contains information that on its face indicates that the
self-assessment is substantially incorrect; and
the conduct referred to in paragraph (1) is due to --
a position which is frivolous, or
a desire (which appears on the purported return) to delay or
impede the administration of Federal income tax laws.
Here, the record shows that Tornichio filed income tax returns for
tax years 1996, 1997, and 1998 that reported his income as
"zero." Along with reporting his income as
"zero," he made tax protester arguments. Tornichio's
return is unquestionably a "purported return" within the
meaning of Section
6702. See Fuller v. United States [ 86-1
USTC ¶9332], 786 F.2d 1437, 1438-1439 (9th Cir. 1986);
see also
United States
[ 85-2
USTC ¶9575], 766 F.2d 1288 (9th Cir. 1985). Further,
the positions raised in his returns are frivolous within the
meaning of Section
6702. For example, his assertions that the I.R.C. does
not define "income" and that people can only derive
income from corporate activity lack merit. 26 U.S.C. §61(a)
defines gross income as "all income from whatever source
Courts have also consistently fond identical arguments to the ones
here to be frivolous. 1 See,
e.g., Tornichio v. United States [ 98-1
USTC ¶50,299], 1998 WL 381304 (N.D. Ohio 1998), aff'd
[ 99-1
USTC ¶50,394], 1999 WL 191340, 173 F.3d 856 (6th Cir.
1999); Gavigan v. United States, 2000 WL 33187163 (D. Conn. 2000);
Townsend v. United States [ 2000-2
USTC ¶50,749], 2000 WL 1616081 (W.D. Mich. 2000); Perl
v. United States [ 99-2
USTC ¶50,935], 1999 WL 1022186 (D. Mass. 1999); Dose
v. United States [ 86-2
USTC ¶9773], 1986 WL 147 (N.D. Iowa 1986); In re
Bertelt, 184 B.R. 603 (Bkrtcy. M.D. Fla. 1995); Ghalardi Tax Educ.
Found. v. Comm'r [ CCH
Dec. 53,014(M)], 1998 WL 906755 (U.S. Tax Ct. 1998);
Zyglis v. Comm'r [ CCH
Dec. 49,193(M)], 1993 WL 289265 (U.S. Tax Ct. 1993).
Finally, the allegation that the appeals officer erred because he
"did not identify or produce a Treasury Department regulation
that authorized Defendant employees to impose the `frivolous
penalty' at issue or required Plaintiff to pay such a `frivolous
penalty"' is also without merit. See Hudson [ 85-2
USTC ¶9575], 766 F.2d at 1291; Gass v. United
States, 2000 WL 1204575 (D. Colo. 2000).
to Accept Proposed Collection Alternative
Tornichio also asserts that the hearing violated the law because
the IRS officer refused to accept his proposed collection
alternative that "he would immediately pay the `frivolous
penalty' if the appeals officer would merely cite and produce the
statute that established the `underlying liability' for the
This allegation does not state a claim. The purpose of sections
6330(c)(2)(A) and 6330(c)(3)(C) is to allow the taxpayer to
propose a method of payment that resolves the underlying tax
liability by means other than a tax lien by a levy. Tornichio's
allegations do not propose an "alternative" to
collection by levy. Instead they propose a condition to payment of
the underlying liability.
Proof that Attorney General Directed the Collection Action
Finally, Tornichio says that the hearing was invalid because the
IRS did not produce the "documented proof that the Secretary
authorized the instant collection action and that the Attorney
General or his delegate `directed' that this collection action be
This argument fails. The I.R.C. does not require publication of
internal delegations of administrative authority to enforce the
Internal Revenue laws. Hughes [ 85-2
USTC ¶9575], 953 F.2d at 531; Londsdale [ 90-2
USTC ¶50,581], 919 F.2d at 1446.
Subject Matter Jurisdiction Over Damage Claims
Besides contending that Tornichio's allegations about the IRS's
notice of determination fail to state a claim upon which the Court
can grant relief, the
United States
also argues that the Court lacks subject matter jurisdiction over
Tornichio's damage claims. Specifically, it asserts that the
United States
has not waived its sovereign immunity.
§7433 Damage Claim
Although Tornichio cites no legal authority for his damage claim, section
7433 of the I.R.C. provides for taxpayer suits seeking
damages against the United States where, "in connection with
any collection of federal tax with respect to a taxpayer, any
officer or employee of the IRS recklessly or intentionally
disregards any provision of this title, or any regulation
promulgated under this title ..."26 U.S.C. §7433.
The scope of 7433 is limited to unauthorized collection actions
and does not extend to determinations of liability. H.R. Conf.
Rep. No. 1104 at 229, 1988-3 C.B. at 719.
However, section
7433 only provides limited waiver of sovereign
immunity. Specifically, the
United States
has not waived its sovereign immunity unless the taxpayer exhausts
available administrative remedies; the failure to exhaust
available administrative remedies is a jurisdictional bar to suits
under §7433.
Venen v. United States [ 94-2
USTC ¶50,536], 38 F.3d 100, 103 (3d Cir. 1994); Conforte
v. United States [ 93-1
USTC ¶50,274], 979 F.2d 1375, 1377 (9th Cir. 1992).
Here, Tornichio makes no showing that he exhausted his
administrative remedies regarding the alleged collection damages.
Therefore, this failure to exhaust remedies jurisdictionally bars
his suit. Further, his complaint does not allege any collection
activity. A notice of intent to levy is not a collection action.
Instead, it is a predicate to collection action. Therefore, the
Court lacks subject matter jurisdiction over Tornichio's §7433
damage claim.
Compensatory Damage Claim
Tornichio also seeks compensatory damages from the
United States
. Federal courts have jurisdiction pursuant to 28 U.S.C. §1346(b)
over "civil actions on claims against the
United States
, for money damages, accruing on and after January 1, 1945."
28 U.S.C. §1346(b). Further, to bring a tort action against the
government, the plaintiff must first establish that the government
has waived sovereign immunity. See Lundstrum v. Lyng, 954
F.2d 1142, 1145 (6th Cir. 1991) ( per curiam) (citations
omitted). The Federal Torts Claims Act ("FTCA") is the
exclusive waiver of sovereign immunity for tort actions against
United States
, its agencies, and its employees acting within the scope of their
employment. See 28 U.S.C. §2679. See also Arbour v.
Jenkins, 903 F.2d 416, 419 (6th Cir. 1990).
But the government has waived its sovereign immunity to suits
under the Act only insofar as the plaintiff has exhausted his
administrative remedies. 28 U.S.C. §2675(a); Lundstrum,
954 F.2d at 1145 ("A prerequisite to suit under the [Act] ...
is the exhaustion by the plaintiff of administrative
remedies."). Section 2675(a) provides that an "action
shall not be instituted upon a claim against the United States for
money damages ... unless the claimant shall have first presented
the claim to the appropriate Federal agency and his claim shall
have been finally denied by the agency in writing and sent by
certified or registered mail." 28 U.S.C. §2675(a).
The filing of an administrative claim is jurisdictional and is an
absolute, non-waivable prerequisite to maintaining a civil action
against the
United States
for damages arising from the alleged wrongful acts of a federal
employee. McNeil v.
United States
, 508
106 (1993);
United States
, 867 F.2d 916 (6th Cir. 1989).
Tornichio has not filed administrative tort claims against the
United States
. Therefore, he does not satisfy the jurisdictional prerequisite
of the FTCA. Accordingly, the Court has no jurisdiction over
Tornichio's compensatory damage claims against the
United States
. Therefore, the Court grants the
United States
' motion to dismiss the damage claims against it.
Assuming arguendo that Tornichio had exhausted his
administrative remedies, the Court still lacks jurisdiction over
his compensatory damage claims because the FTCA expressly excepts
tax claims. Specifically, §2680(c) states: "The provisions
of this chapter shall not apply to ... (c) Any claim arising in
respect of the assessment or collection of any tax." 28
U.S.C. §2680(c).
In sum, Tornichio failed to exhaust administrative remedies for
both his §7433
and compensatory damage claims against the
United States
. Accordingly, the
United States
has not waived its sovereign immunity and the Court lacks subject
matter jurisdiction over the damage claims against the
United States
for Discovery
As a final argument against the
United States
' motion to dismiss, Tornichio says that the Court should deny the
motion because he has not received an opportunity for discovery.
Tornichio has requested admissions, interrogatories, and
production of documents from the
United States
. He sets forth no adequate explanation, however, of how
additional discovery can rebut the record or case law before the
Court. Further, the Court concludes that Tornichio's complaint
about the invalidity of the IRS determination fails to state a
claim upon which the Court can grant relief. It also finds that
the Court lacks subject matter jurisdiction over the damage
claims. Therefore, as a matter of law, Tornichio cannot make out a
claim, irrespective of any discovery he achieves.
For the reasons discussed above, the Court grants the
United States
' motion to dismiss the complaint against it and affirm the
determination of the IRS Appeals Office. Accordingly, the Court
dismisses Plaintiff Tornichio's complaint against the
United States
and affirms the IRS's determination that Tornichio is liable for
filing frivolous tax returns.
1 The
Court notes that Tornichio was a plaintiff in one of the cases, Tornichio
v. United States [ 98-1
USTC ¶50,299], 1998 WL 381304 (N.D. Ohio 1998).
55,081(M)] Jerome Edward Brown
and Mary L. Smith Brown v. Commissioner.
Docket No. 3685-01L , T.C. Memo. 2003-73, 85 TCM 1015, Filed
March 13, 2003
. [Appealable, barring stipulation to the contrary, to CA-2]
Secs. 6330, 6651, and 6654]
Penalties, civil: Exemptions, claim more than entitled: Failure
to timely file returns: Failure to timely pay taxes: Judicial
review: Collection Due Process hearing. --
IRS Appeals officer's decision to partially reduce past-due taxes,
additions to tax and interest assessed to married taxpayers was
not an abuse of discretion. The husband claimed unjustified
exemptions on his employer's W-4 form, failed to timely file
returns or pay tax and argued that the IRS should accept less than
his assessed tax liability because he could not afford it as the
sole income earner supporting his wife and children. Since the
underlying tax liability was not properly in issue and the
appeal's officer abated the assessed taxes and gave due
consideration to taxpayers' proposed collection alternatives,
there was no abuse of discretion.
Edward Brown, pro se.1 Gerard
Mackey, for the respondent.
Judge: Pursuant to section
petitioners seek review of respondent's determination to proceed
with collection of their 1995, 1996, and 1997 tax liabilities.
of the facts have been stipulated and are so found. The deemed
admissions, the stipulation of facts, and the attached exhibits
are incorporated herein by this reference.3 At the
time they filed the petition, petitioners resided in
New York
1995, 1996, and 1997, on his Form W-4, Employee's Withholding
Allowance Certificate, petitioner Jerome Edward Brown (Mr. Brown)
claimed exemptions exceeding the number petitioners were entitled
to claim on their 1995, 1996, and 1997 tax returns. Accordingly,
insufficient taxes were withheld from his wages. Mr. Brown did
this because he "needed the income" during the years in
issue as he was in school full time, supporting his wife and three
children, and his wife was not working.
did not timely file their 1995, 1996, or 1997 tax returns.
July 8, 1998
, respondent prepared a substitute for return for petitioners'
1996 income taxes.
or about
October 3, 1998
, respondent issued to petitioners a statutory notice of
deficiency with respect to petitioners' 1996 income taxes.
Petitioners received this statutory notice of deficiency.
Petitioners did not petition the Court regarding the deficiency
respondent determined for 1996.
April 12, 1999
, respondent assessed income tax of $7,382 and additions to tax
pursuant to section
6651(a)(1) and (2) and section
6654 for 1996.
to respondent's assessment for 1996, respondent received
petitioners' delinquent tax returns for 1995, 1996, and 1997.
1995 tax return reported $3,064 of tax due. Petitioners were not
entitled to a withholding credit for 1995. Petitioners did not
remit payment when they filed their 1995 tax return.
on petitioners' 1996 tax return, respondent:
Abated $3,831 of petitioners' income tax assessment, a portion of
the additions to tax pursuant to section
6651(a)(1) and (2), and the addition to tax pursuant to
6654 for 1996;
allowed petitioners an additional withholding credit of $806 for
1996; and
abated $808 of assessed interest for 1996.
withholding credit and payment submitted with Petitioners' 1997
tax return fully paid the tax shown on the return.
October 25, 1999
, approximately 1 month after receiving petitioners' 1997 return,
respondent assessed additions to tax pursuant to section
6651(a)(1) and (2) for 1997.
timely requested a hearing pursuant to section
6330 with respect to a notice of intent to levy
regarding petitioners' income tax liabilities for 1995, 1996, and
Appeals officer and Mr. Brown had a section
6330 hearing (hearing) via telephone. At the hearing,
petitioners did not dispute their underlying liabilities. At the
hearing, petitioners requested that interest be abated and
respondent accept less than the full amount owed (i.e., not seek
to collect the additions to tax and interest). Petitioners and the
Appeals officer discussed alternatives to collection by levy.
February 28, 2001
, respondent issued a Notice of Determination Concerning
Collection Action(s) Under Section
6320 and/or 6330 to petitioners regarding their 1995,
1996, and 1997 tax years (notice of determination). In the notice
of determination, respondent determined petitioners were entitled
to a partial abatement of the assessed section
6651(a)(2) addition to tax and the associated interest
for 1996 and 1997. Respondent's determination also provided:
also reclassified the claim from an Equivalent Hearing to a
Collection Due Process Hearing. However, you did not submit an
amended return for 1996, nor did you return the Installment
Agreement form. These were your alternatives to the proposed levy
action. Without your cooperation, the determination of the ACS
function is being upheld. The case file will be returned to them
for all appropriate action.
receiving the notice of determination, on the advice of the
Appeals officer, petitioners made payments on their tax liability
to respondent. Mr. Brown sent respondent seven checks and one
money order totaling $850.
balances for the years in issue were:
Year As of Balance
this case was called for trial, petitioners failed to appear. The
Court set the case for recall during the second week of the
calendar in order to give petitioners an opportunity to have their
day in Court. Mr. Brown appeared at the recall.
do not dispute that the amount of the tax, additions to tax, and
interest assessed are correct. Pursuant to the stipulations and
deemed admissions, petitioners have conceded their claim for
interest abatement.
argue that respondent should accept less than the full amount of
their liabilities because the additions to tax and interest are
too much for petitioners to pay on Mr. Brown's salary as he is the
sole income earner supporting his wife and children. Where the
validity of the underlying tax liability is not properly in issue,
we review respondent's determination for an abuse of discretion. Sego
v. Commissioner [Dec.
on petitioners' late-filed 1996 tax return, respondent abated a
portion of petitioners' income tax, additions to tax, and interest
for 1996. As a result of the hearing, respondent further abated a
portion of the section
6651(a)(2) addition to tax and interest for 1996 and
simply do not want to pay the additions to tax and interest
associated with their failure to timely file and failure to timely
pay. Petitioners did not submit an offer-in-compromise or an
installment agreement to respondent. Respondent gave due
consideration to the collection alternatives raised by petitioners
and accepted them in part (i.e., respondent determined petitioners
were entitled to a partial abatement of the assessed section
6651(a)(2) addition to tax and the associated interest
for 1996 and 1997). We conclude that respondent's determination
was reasonable.
have failed to raise a spousal defense or make a valid challenge
to the appropriateness of respondent's intended collection action.
These issues are now deemed conceded. See Rule 331(b)(4).
Accordingly, we conclude that respondent did not abuse his
discretion, and we sustain respondent's determination.5
will be entered for respondent.
Petitioner Mary L. Smith Brown did not appear at trial.
2 Unless
otherwise indicated, all section references are to the Internal
Revenue Code, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
Petitioners stipulated and are deemed to have admitted: (1) They
are liable for the addition to tax pursuant to sec.
6651(a)(1) for 1995 and 1997; (2) they are liable for
the addition to tax pursuant to sec.
6651(a)(2) for 1995; (3) they are liable for the
unabated amounts of the additions to tax pursuant to sec.
6651(a)(1) and (2) for 1996; (4) they are liable for
the unabated amounts of the addition to tax pursuant to sec.
6651(a)(2) for 1997; (5) they are not entitled to an
abatement of interest for 1995; and (6) they are not entitled to
any additional abatement of interest for 1996 or 1997.
4 Neither
petitioners' request for a hearing nor the notice of intent to
levy was made part of the record because respondent's files were
destroyed along with World Trade Center Building No. 7 in the
Sept. 11, 2001, terrorist attack on the United States.
5 We note
that petitioners claim that their account does not reflect the
$850 of payments Mr. Brown made to respondent after receiving the
notice of determination. Three letters petitioners received from
respondent, dated near to or shortly after the dates on the last
three checks Mr. Brown submitted to respondent, indicate that
respondent applied amounts totaling $850 to reduce petitioners'
outstanding 1995 and 1996 tax liabilities.
[2003-2 USTC ¶50,617] Robert E. Malke, Plaintiff v. Internal Revenue Service, Defendant.
District Court, Mid. Dist. Fla.,
Div.; 8:01-cv-440-T-30TGW,
July 11, 2003
[ Code
Secs. 6330 and 7402]
Bankruptcy: Tax lien: Collection Due Process determination:
Summary judgment: Material issues of fact. --
existence of unresolved issues of material fact regarding a
debtor's liability for taxes under his Chapter 11 bankruptcy plan
barred the entry of summary judgment in a suit in which he
challenged a Collection Due Process determination upholding the
IRS's imposition of a tax lien against his property. The amount
owed under the bankruptcy plan was in dispute because the taxpayer
asserted that he had made payments to the IRS that were not
credited against his tax debt.
MOODY, JR., District Judge: THIS CAUSE comes before the Court upon
the Defendant's Motion for Summary Judgment (Dkt. #34) and
Plaintiff's response thereto (Dkt. #44). Having reviewed the
Motion, the response, and being otherwise advised of the premises
therein, the Court finds that the Motion for Summary Judgment
should be denied.
This action is an appeal of an administrative determination by the
IRS not to withdraw a notice of federal tax lien that was recorded
against Plaintiff on May 5, 2002. Plaintiff in this action
operated two sole proprietorships during the 1980's, West Coast
Auto Salvage and Nostalgic Auto. Plaintiff failed to remit proper
payroll taxes to the IRS. Plaintiff filed a Chapter 11 bankruptcy
petition on February 26, 1990. The IRS filed a proof of claim
dated July 13, 1994, in the bankruptcy action for Plaintiff's
pre-petition taxes which claimed a tax arrearage of $67,031.67.
Plaintiff's Chapter 11 plan established a payment plan by which
Plaintiff was to repay the amount in the IRS proof of claim.
Plaintiff made payments to the IRS under his plan from December
26, 1996, to November 5, 1999. It is undisputed that, despite
numerous payments, Plaintiff did not satisfy his obligations to
the IRS under his Chapter 11 plan in full. Plaintiff claims he was
in a position to pay off the entire amount owed in January 2000,
and that he requested a payoff amount from the IRS. Plaintiff
contends that Wanda Williams, an IRS representative, verbally
indicated the payoff amount was approximately $51,000. Plaintiff
did not receive written verification of the payoff amount, and
satisfaction of the debt was not completed.
On May 5, 2000, the IRS filed a notice of federal tax lien. On
June 8, 2000, Plaintiff requested a Collection Due Process hearing
relating to the recordation of the notice of federal tax lien. A
collection due process hearing occurred and, on January 30, 2001,
the IRS issued a notice of determination indicating that it would
not withdraw the notice of federal tax lien. 1 On March
1, 2001, Plaintiff filed the Complaint in this action, seeking a
review of the findings from the collection due process hearing.
Motions for summary judgment should only be granted when the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, show there is no genuine
issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex
Corp. v. Catrett, 477
317, 322 (1986). The existence of some factual disputes between
the litigants will not defeat an otherwise properly supported
summary judgment motion; "the requirement is that there be no
genuine issue of material fact." Anderson v.
Liberty Lobby, Inc., 477
242, 248 (1986) (emphasis in original). The substantive law
applicable to the claimed causes of action will identify which
facts are material.
Throughout this analysis, the judge must examine the evidence in
the light most favorable to the non-movant and draw all
justifiable inferences in her favor.
at 255.
Once a party properly makes a summary judgment motion by
demonstrating the absence of a genuine issue of material fact,
whether or not accompanied by affidavits, the nonmoving party must
go beyond the pleadings through the use of affidavits,
depositions, answers to interrogatories and admissions on file,
and designate specific facts showing that there is a genuine issue
for trial. Celotex, 477
at 324. The evidence must be significantly probative to support
the claims. Anderson, 477
at 248-49 (1986).
This Court may not decide a genuine factual dispute at the summary
judgment stage. Fernandez v. Bankers Nat'l Life Ins. Co.,
906 F.2d 559, 564 (11th Cir. 1990). "[I]f factual issues are
present, the Court must deny the motion and proceed to
trial." Warrior Tombigbee Transp. Co. v. M/V
Fung, 695 F.2d 1294, 1296 (11th Cir. 1983). A dispute about a
material fact is genuine and summary judgment is inappropriate if
the evidence is such that a reasonable jury could return a verdict
for the nonmoving party. Anderson, 477
at 248; Hoffman v. Allied Corp., 912 F.2d 1379 (11th Cir.
1990). However, there must exist a conflict in substantial
evidence to pose a jury question. Verbraeken v. Westinghouse
Elec. Corp., 881 F.2d 1041, 1045 (11th Cir. 1989).
Defendant in this action argues that the material facts are
undisputed, and that summary judgment in Defendant's favor is
appropriate. Defendant argues that Plaintiff owes $123,032.20 as
of January 29, 2003, and the Federal Tax Lien was properly
imposed. Defendant divides Plaintiff's liabilities into four
categories. First, in addition to the original $67,031.67 set
forth in the proof of claim, the government argues that Plaintiff
owes interest and penalties on those taxes at the statutory
interest rate computed to February 26, 1990, and interest on the
proof of claim amounts computed at simple interest rate of eight
percent (8%) from August 23, 1994. According to the IRS, after
accounting for Malke's plan payment and the accrual of interest on
unpaid amounts at the rate established by the Bankruptcy Court,
Plaintiff remains indebted for the proof of claim component of his
liabilities in the amount of $55,524.51.
Additionally, the government argues that it is entitled to
"gap interest," the interest which had not matured by
the petition date but continued to accrue on the pre-petition
taxes, penalties and interest during the "gap" between
the petition date and the confirmation date in the bankruptcy
proceeding. Having reviewed the case of In Re: Tuttle, 291
F. 3d 1238, 1240-41 (10th Cir. 2002), the Court agrees that
Plaintiff is personally liable for the gap interest on
non-dischargeable debts. The Defendant claims that Plaintiff owes
gap interest in the amount of $31,412.61. Defendant also argues
that it is entitled to interest on gap interest for the time
periods between August 23, 1994, to January 29, 2003, totaling
Finally, Defendant argues that Plaintiff owes taxes arising after
the petition date. Specifically, Defendant claims that Plaintiff
owes taxes which were an administrative expense of the bankruptcy
for tax periods after December 31, 1989. As of January 29, 2003,
the government argues that Plaintiff's liability for this category
of debt amounted to $4,889.14.
In response, Plaintiff argues that he was not given an opportunity
to dispute the liability underlying the notice of federal tax lien
and that, as a result of the tax lien encumbering his property, he
was prevented from securing a loan or disposing of his property.
He argues that the filing of the notice of tax lien was premature,
and hindered his ability to satisfy the tax obligations. Plaintiff
argues that the IRS never notified him of its claim for gap
interest and that he was not made aware of that claim until after
commencement of this case, in the year 2003, and that the
Defendant should be precluded from collecting interest on the gap
interest because of its delay in advising Plaintiff of the amount
allegedly due. Finally, Plaintiff argues that his account has not
been credited for payments under the Chapter 11 plan of $1,111.60
and $1,050.00, copies of which are attached to Plaintiff's
response to the Motion for Summary Judgment.
Having reviewed the documents filed in support of and in
opposition to summary judgment, the Court finds that material
issues of fact preclude summary judgment in favor of Defendant.
The amount owed under the original Chapter 11 bankruptcy plan is
in dispute, since Plaintiff asserts that he made payments which
were not recorded by the Defendant. The total amount due to the
Defendant as set forth in the Federal Tax Lien is a material issue
of fact in this action, and the appropriate amount owed remains in
dispute. Accordingly, the Court finds that material issues of fact
preclude summary judgment as to Plaintiff's claim.
It is therefore ORDERED AND ADJUDGED that:
Defendant's Motion for Summary Judgment (Dkt. #34) is DENIED.
DONE and ORDERED.
Plaintiff tried to reopen his bankruptcy case for the purpose of
resolving his dispute with the IRS, but was unsuccessful.
[2004-1 USTC ¶50,225] Living Care Alternatives of Utica, Inc., Plaintiff v.
United States of America
, Internal Revenue Service, Defendants.
District Court, So. Dist.
, East. Div.; C2-02-717,
March 22, 2004
Related case at 2004-1
[ Code
Sec. 6320]
Hearing upon filing of notice of lien: Equivalent hearing:
Jurisdiction to review. --
district court did not have subject matter jurisdiction to review
the adverse results of an equivalent hearing in which the IRS
upheld the validity of the filing of Notices of Federal Tax Liens.
The results of an equivalent hearing are not judicially
appealable. Although a Collection Due Process (CDP) hearing is
subject to judicial review, undisputed documentation established
that the taxpayer did not request a CDP hearing within the 30-day
period required by Code
Sec. 6320(a)(3)(B). The actual status of the hearing
conducted was, therefore, an equivalent hearing.
[ Code
Sec. 6330]
Notice of levy and right to hearing: Collection Due Process
hearing: Jurisdiction: Standard of review. --
district court had jurisdiction to review the results of a
Collection Due Process hearing conducted with respect to Notices
of Intent to Levy. The taxpayer's appeal was filed within the
30-day period required by Code
Sec. 6330(d)(1). Applying an abuse of discretion
standard, the court sustained the hearing officer's determination
that the Notice of Intent of Levy was proper in light of the
taxpayer's failure to provide the IRS with any alternative
collection methods. Although a de novo standard may have
been appropriate if the taxpayer was challenging a finding with
respect to its underlying tax liability, the record clearly showed
that the validity of the underlying taxes which the taxpayer
failed to withhold was never at issue in the hearing.
SARGUS, District Judge: This case was initiated by Plaintiff
(Living Care) filing a document entitled "Complaint for
Redetermination of Notice of Intent to Levy and Appeal of
Defendant's Sustaining of Levy and Appeal of Liability." Doc.
1, Comp., Title. Asserting this Court's jurisdiction pursuant to
26 U.S.C. §6330(d)(1)(B),
Living Care says in effect that it is appealing "an adverse
determination by the Internal Revenue Service ... at a due process
hearing under Sec.
6320 of the Internal Revenue Code [IRC] ... as to the
appropriateness of a filed Notice of Federal Tax Lien ... and
under IRC
Sec. 6330 as to the appropriateness of the Notice of
Levy." Doc. 1, Comp., ¶ ¶1, 5, and Attachment One. The
liens and levies in question relate to Living Care's failure to
pay or pay timely all its federal withholding taxes 1 due for
various periods between 1995 and 2001. Id. Living Care says it
seeks to have its subject tax liabilities "removed," to
have the subject "determination of the due process hearing be
reversed," that the liens and levies "not be
sustained," and that the "collection effort cease."
Doc. 1, Comp., p. 8.
Defendant IRS has moved under Rule 12(b), Fed. R. Civ. P., for
dismissal of that portion of Living Care's Complaint respecting
the filing of the subject tax liens, essentially on the grounds
that the Court lacks subject matter jurisdiction because that
portion its ruling is not subject to appeal under the statutes
relied on and the Defendant otherwise enjoys sovereign immunity.
Doc. 8, pp. 1, 7-10. At the same time, the IRS has also moved
under Rule 56, Fed. R. Civ. P., for summary judgment as to the
remainder of the Complaint, asserting that there is no genuine
issue of material fact and that it, the IRS, is entitled to
judgment as a matter of law.
, pp. 1, 10-13. The case is now before the Court on this dual
motion, Plaintiff Living Care's memorandum contra (Doc. 9.), and
Defendant's reply memorandum (Doc. 10), together with the
pleadings and other undisputed materials submitted by one or the
other of the parties.
Request for Oral Argument
Relative to the above motions the Court has also received Living
Care's Request for Oral Hearing (Doc. 17). Southern District of
Ohio Civ. R. 7.1(a) provides that motions such as the above,
expressly including those under Rule 56, shall be decided based on
memoranda "and without oral hearings unless ordered by the
Court." From the content of Living Care's request, it appears
that what it seeks is an opportunity for oral argument rather than
an evidentiary hearing. In such case, Rule 7.1(b)(2) provides for
scheduling the same upon request if deemed by the Court
"essential to the fair resolution of the case because of its
public importance or the complexity of the factual or legal issues
In this case, the Court does not consider that any of the above
factors are present in such degree as to warrant departure from
the normal procedure. The Rule 12(b) issue appears clear and not
difficult to resolve on the pleadings and written arguments of the
parties, in large part because Plaintiff does not assert or argue
that this Court has jurisdiction other than under 26 U.S.C. §6330(d)(1)(B).
Further, the Rule 56 motion for summary judgment issues have
already been fully considered and decided against this same
Plaintiff by another branch of the court in a separate case 2 on
pleadings virtually identical to those in this case except for the
dates of the IRS's levies and lien actions involved. This Court
will therefore decline Plaintiff's request and proceed to decide
Defendant's combined motions without scheduling oral argument.
The Motion to Dismiss
Defendant IRS does not specify whether its motion to dismiss is
made under Rule 12(b)(1), lack of subject matter jurisdiction, or
Rule 12(b)(6), failure to state a claim upon which relief can be
granted. It is generally recognized, however, that Rule 12(b)(1)
is the appropriate vehicle for a court's consideration of claims
that are asserted to be untimely or barred by sovereign immunity. See
Gervasio v. United States [ 86-1
USTC ¶9212], 627 F.Supp. 428, 430 (N.D. Ill. 1986); Cleveland
v. Secretary of Health and Human Services, 1993 WL 321755 *2
(N.D. Ill. Aug. 19, 1993) (noting also that where lack of subject
matter jurisdiction is asserted along with other grounds for
dismissal, the Rule 12(b)(1) challenge is properly considered
first); Porter v. Board of Trustees of Manhattan Beach, 123
F.Supp.2d 1187, 1194 (C.D. Cal. 2000) rev'd on other grounds,
307 F.3d 1064. Furthermore, the Court is bound to examine the
question of its subject matter jurisdiction, in any event. See
Morrison v. Morrison, 408 F.Supp. 315, 316 (N.D.
1976); Lacy v.
Board of Education, 550 F.Supp. 835, 843 (S.D. Oh. 1982).
Sixth Circuit recognizes two types of 12(b)(1) motions: a
"facial" attack challenging the sufficiency of the
plaintiff's factual allegations, in which all well-pleaded factual
allegations in the complaint are taken to be true; and a
"factual" attack challenging the actual fact of
subject-matter jurisdiction, which is analyzed under Fed. R. Civ.
P. 56 standards.... The difference is often significant, because
under a factual challenge the district court is empowered to weigh
evidence, and no presumptions apply as to the truthfulness of
plaintiff's allegations.... The Sixth Circuit has clearly
recognized that a district court is empowered [to] consider
evidence beyond the pleadings and to resolve factual disputes when
necessary to resolve challenges to subject-matter jurisdiction
under Rule 12(b)(1).
Gillett v. United States [ 2002-2
USTC ¶50,742], 233 F.Supp.2d 874, 877 (W.D. Mich.
2002) (citations omitted).
United States
and its agencies are immune from suit under the doctrine of
sovereign immunity and may be sued only to the extent that such
immunity has been waived. See United States v. Mitchell,
535, 538 (1980); United States v. Dalm [ 90-1
USTC ¶60,012], 494 U.S. 596, 608 (1990). Further,
waiver of the Federal Government's sovereign immunity must be
unequivocally expressed in statutory text, see, e.g.
United States v. Nordic Village, Inc. [ 92-1
USTC ¶50,109], 503 U.S. 30, 33-34, 37 (1992), and will
not be implied, Irwin v. Department of Veterans Affairs,
[498 U.S. 89] at 95. Moreover, a waiver of the Government's
sovereign immunity will be strictly construed, in terms of its
scope, in favor of the sovereign. See, e.g., United
States v. Williams [ 95-1
USTC ¶50,218], 514 U.S. 527, 431 (1995) (when
confronted with a purported waiver of the Federal Government's
sovereign immunity, the Court will "constru[e] ambiguities in
favor of immunity."); Library of Congress v. Shaw, 478
U.S. 310, 318 (1986); Lehman v. Nakshian, 453 U.S. 156, 161
(1981) ("[L]imitations and conditions upon which the
Government consents to be sued must be strictly observed and
exceptions thereto are not to be implied").
Lane v. Pena, 518
187, 192 (1996) (parallel citations omitted); See also Department
of the Army v. Blue Fox, Inc., 525
255, 261 (1999).
In this case, the Court need look no further than the pleadings,
Defendant's motion with its exhibits, and Plaintiff's response to
determine that in fact it does not have subject matter
jurisdiction to review the ruling of the IRS with respect to the
notice of tax liens dated May 24, 2001. The dates and nature of
various documents relative to the tax liens and the levies thereon
that are the subject of this case are set out and supported in
numbered paragraphs 1 through 8 and referenced exhibits in the
Facts statement of Defendant's memorandum. Doc. 8, pp. 2-3. In
addition, Plaintiff's response memorandum expressly concedes:
"The factual outline by Defendant in items 1 through 8
(Memorandum, p. 2) is accurate in its recitation of the dates of
the notices of the filings etc." With respect to the
May 2001 Notice of Federal Tax Liens, the above establish that
Plaintiff did not request a Collection Due Process hearing from
the IRS, as provided for in 26 U.S.C. §6320(a)(3)(B)
and 26 C.F.R. §301.6320-1(b), until late September, well past the
30 days permitted by the statute and regulation for such a
request. Plaintiff's September request for hearing (Doc. 8, Ex. C)
thus resulted in what is termed an "equivalent hearing"
( see 26 C.F.R. §301.6320-1(i)) respecting the May liens
notice; but that is a hearing provided only by the IRS
regulations, not the statute. Hence, the results of such an
equivalent hearing ( see Decision Letter dated June 21,
2002, Doc. 8, Ex. E) are not within the statute's limited waiver
of sovereign immunity that permits the results of a statutory
Collection Due Process hearing to be appealed. 26 U.S.C. §§6320(c)
and 6330(d)(1);
see Johnson v. Commissioner of Internal Revenue [ 2000-2
USTC ¶50,592], 2000 WL 1041191 *2 (D. Or. June 21,
2000); Fabricius v. United States [ 2002-2
Oct. 18, 2002).
The Court therefore concludes that it does not have subject matter
jurisdiction to review the results of Plaintiff's equivalent
hearing respecting Notice of Federal Tax Liens against Living Care
dated May 21, 2001 (Doc. 8, Ex. A), as expressed in Defendant
IRS's Decision Letter dated June 21, 2002. Doc. 8, Ex. E.
Consequently, the Defendant's motion to dismiss that portion of
the Complaint seeking such review and/or other action by the Court
respecting the filing of those liens will be granted.
The Motion for Summary Judgment
In contrast to the situation discussed above respecting filing of
the tax liens against Living Care in May 2001, the Court finds
that it does have subject matter jurisdiction to review the
results of the statutory Collection Due Process hearing granted
with respect to the IRS's Notices of Intent to Levy dated August
22 and September 5, 2001. Notice of Determination, Doc. 8, Ex. G.
It is not disputed that Plaintiff filed this appeal within the
time permitted by 26 U.S.C. §6330(d),
and because social security and withholding taxes are involved
here, this Court rather than the Tax Court has jurisdiction of an
appeal under that section. See Berkey v. Department of
the Treasury [ 2001-2
USTC ¶50,708], 2001 WL 1397680 *2 (E.D. Mich. 2001).
The Court thus concludes that it may proceed to consideration of
the remainder Defendant IRS's motion.
The procedure for considering whether summary judgment is
appropriate is set forth in Federal Rule of Civil Procedure 56(c)
as follows:
judgment sought shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.
Although useful in resolving many cases without the necessity of
trial, it has also been recognized that the above rules provision
is not well suited to carrying out the review of agency action
required in this type of case. "Such a motion is designed to
isolate factual issues on which there is no genuine dispute ...
[a]gency action, however, is reviewed not tried."
Condominium Ass'n v. Lodge Properties, Inc. 880 F.Supp.
1995). As pointed out by Chief Judge Covello of the District of
motion for summary judgment under rule 56 of the Federal Rules of
Civil Procedure ... makes no procedural sense when a district
court is asked to undertake judicial review of agency
Condominium Ass'n v. Lodge Properties, Inc. 880 F.Supp.
1370, 1374 (D. Colo. 1995); see also Olenhausen v. Commodity
Credit Corp., 42 F.3d 1560, 1579-80 (10th Cir. 1994)
(expressly disapproving use of summary judgment procedure in cases
where a court is reviewing an administrative action); CDI
Information Services, Inc. v. Reno, 101 F.Supp.2d 546, 547
(E.D. Mich. 2000) (construing the parties summary judgment
memoranda as a motion and a cross-motion for judgment); Orfanos
v. Department of Health and Human Services, 896 F.Supp. 23, 26
MRCA Information Services v. United States [ 2000-2
USTC ¶50,683], 145 F.Supp.2d 194, 195 (D. Conn. 2000).
This Court will therefore follow the procedure employed by the
Eastern District of Michigan in CDI Information Services,
cited above, and treat the summary judgment memoranda here as
cross-motions for judgment on the pleadings seeking either
reversal or affirmance of the administrative agency's decision.
6330 does not establish a standard of review for the
appeals to court it authorizes from IRS Collection Due Process
rulings. In this situation, courts have generally been guided by a
portion of that section's legislative history that states:
the validity of the tax liability is not properly part of the
appeal, the taxpayer may challenge the determination of the
appeals officer for abuse of discretion. In such cases, the
appeals officer's determination as to the appropriateness of
collection activity will be reviewed using an abuse of discretion
H. Rep. No. 105-599 at 266 (1988); see Stop-26
Riverbend, Inc. v.
United States of America
[ 2003-1
USTC ¶50,360], 2003 WL 1908747 *1 (S.D. Oh. March 12,
2003) and cases there cited; see also Dudley's
Commercial and Industrial Coating, Inc. v. U. S. Internal Revenue
Service [ 2003-1
USTC ¶50,397], 292 F.Supp.2d 976, 985 (M.D. Tenn.
2003); Bonfante v. United States [ 2002-1
USTC ¶50,266], 2002 WL 373407 *5 (S.D. Oh. Jan. 29,
In this case, Living Care contends that it did challenge the
underlying tax liability and, therefore, this Court's review
should be de novo (Doc. 9, p. 12), citing Dogwood
Forrest Rest Home v. United States [ 2002-1
USTC ¶50,194], 181 F.Supp.2d 554 (M.D. N.C. 2001),
among others. Conceding for the purposes of this argument that de
novo would be the appropriate standard of review for an
administrative determination respecting the validity of the
underlying tax liability, the Court finds that is not the
situation in this case. Living Care argues otherwise and points
out that its Complaint asks for the underlying tax liability to be
removed. For reasons discussed above, however, the Complaint does
not determine the nature or extent of this appeal. "The scope
of th[e] court's review under §6330(d)
is limited to issues properly raised and considered during the
collection due process hearing." Jewett v. Commissioner of
Internal Revenue, 292 F.Supp.2d 962, 966 (N.D. Oh. 2003).
"In its review of the agency's exercise of discretion, the
Court is limited to a review of the administrative record" 3 (
Dudley's Commercial and Industrial Coating, Inc. [ 2003-1
USTC ¶50,397], at 985 (citing Camp v. Pitts, 411 U.S.
138, 142 (1973)), and the record here shows clearly that the
validity of the underlying taxes was not at issue before the IRS
appeals officer (AO) below.
As it was in the companion to this case noted above (Case No.
C2-03-359 decided by Judge Frost), the Complaint here in effect
makes clear that the underlying tax liability was not being
challenged in the proceedings below. "Plaintiff was unable to
pay or pay timely all federal withholding taxes." Comp., Doc.
1, ¶5. "Plaintiff presented its explanation for its
inability to pay taxes...."
, ¶7. Further, as Defendant points out, a central point of both
Plaintiff's complaint here and its request for the collection due
process hearing below (Doc. 8, Exs. C, H) is an explanation of why
it has been, and in part continues to be, unable to pay all its
withholding tax liabilities. There is no attack on the validity of
any of those liabilities. Nor does the Notice of Determination
respecting the IRS's intent to file tax levies, which is the
ruling actually under appeal here, or any other part of the record
this Court has found mention a challenge to the validity of the
underlying tax liability.
Abuse of discretion, the standard that the Court is thus to employ
in conducting its review here, has been described in various ways
by our circuit. As noted by some of our district courts:
abuse of discretion is an arbitrary action not justifiable in
light of the facts and circumstances presented in the record. Gonzalez
v. INS, 996 F.2d 808, 808 (6th Cir. 1993); Balani v. INS,
669 F.2d 1157, 1161 (6th Cir. 1982); NLRB v. Guernsey-Muskingum
Electric Coop., Inc., 285 F.2d 8, 11 (6th Cir. 1960). The
Sixth Circuit has held that an agency abuses its discretion if its
decision "was made without a rational explanation,
inexplicably departed from established policies, or rested on an
impermissible basis...." Gonzalez, 996 F.2d at 808; Balani,
669 F.2d at 1161.
Dudley's Commercial and Industrial Coating, Inc. [ 2003-1
USTC ¶50,397], at 985.
the abuse of discretion standard, a determination will be affirmed
unless the Court determines with a "definite and firm
conviction" that a clear error of judgment has been
committed. Cincinnati Ins. Co. v. Byers, 151 F.3d 574, 578
(6th Cir. 1998).
[ 2002-1
USTC ¶50,266], 2002 WL 373407 *6. In applying any
formulation of the test, however, it is well settled that the
court is not free to substitute its judgment for that of the
administrative agency. See generally, Citizens to
Preserve Overton Park v. Volpe, 401 U.S. 402 (1971); Cellnet
Communications, Inc. v. Federal Communications Comm'r, 149
F.3d 429 (6th Cir. 1998).
Plaintiff also argues in effect that even if de novo review
is not required, the case should be remanded for a new Collection
Due Process hearing because the record is inadequate to show that
applicable statutory and regulatory requirements for
administrative review have been met, citing Mesa Oil, Inc. v.
United States [ 2001-1
USTC ¶50,130], 2000 WL 1745280 (D.C. Colo. Nov. 21,
2000). Doc. 9, pp. 13-14. The Court, however, finds the record in
this case distinguishable from that which apparently confronted
the court in Mesa Oil and, perhaps more important, a
sufficient record to conduct the review of administrative action
authorized by the statute and called for by the applicable
regulations in this case.
In Mesa Oil, the court ordered remand for a new hearing in
part because it found that "the [AO's] sparse Determination
gives every indication that the `proposed collection action [was]
approved solely because the IRS show[ed] that it ha[d] followed
the appropriate procedures"' and "[t]here is no
indication that the AO actually engaged in the required analysis
prior to making her Determination." 4 [ 2001-1
USTC ¶50,130], 2000 WL 1745280 *4, *5. In this case,
Living Care concedes that it was given a due process hearing at
which the company's president spoke on its behalf. Doc. 9, p. 9.
It is true the hearing was conducted by telephone and without
sworn testimony or recording, but that is permissible under the
statute and applicable regulations. See 26 CFR §301.6330-1(d);
Jewett at 966-67. Further, the AO's Determination in this case is
clearly more through and appropriate in its factual review and
analysis than was the one which apparently confronted the court in
Mesa Oil. Compare Compucel Service Corporation v. Commissioner of
Internal Revenue [ 2002-1
USTC ¶50,284], 2002 WL 442254 at *3 (D. Md. Feb. 15,
For example, the Mesa Oil court states that the AO's
Determination in that case "gives no statement of facts, no
legal analysis, and no explanation of how or why the proposed levy
balanced the need for collection with Mesa's interests" ([ 2001-1
USTC ¶50,130], 2000 WL 1745280 *5), none of which can
truthfully be said of the AO's Determination in this case. Here,
in nearly five, primarily single-spaced, pages the history and
present status of Living Care's withholding tax problems 5 that led
to its due process hearing are set out, discussed, and analyzed in
the context of the applicable statutes and regulations. Further,
and contrary to Living Care's assertion, the Court believes it is
clear that the AO considered more than just what he knew prior to
Living Care's hearing. 6 Finally,
here there is an explanation of why the proposed levy represents a
reasonable balance of the need for efficient collection of taxes
with the taxpayers legitimate concern that such action be no more
intrusive than necessary. See 26 U.S.C. §6330(c)(3).
After reviewing Living Care's continuing tax liability situation,
the failure of its past efforts to correct that situation, and its
current and prospective inability to correct the situation or even
sell its business, the AO concludes:
balancing the need for efficient tax collection with alternative
collection methods you have failed to provide us with an
alternative collection that would satisfy your liability. On that
basis, we conclude that a Levy is the next reasonable step the
Service must take in its efforts to collect the tax liability....
In the absence of a reasonable collection alternative, the intent
to levy should be sustained, albeit more intrusive than other
collection alternatives.
Notice of
Determination, Doc. 8, Ex. G attch., p. 5. In light of the facts
and circumstances disclosed by the record, this Court can not
conclude that sustaining of the levies in this case is an
unjustifiable and arbitrary action or one that has been made
without rational explanation or in departure from established
policies, and it is nowhere suggested that the decision rests on
some impermissible basis. This conclusion that the levies should
be sustained might, or might not, be the one reached by this Court
if it had conducted Living Care's due process review and hearing,
but even if it were not, the Court would not be free in this
appeal to substitute its judgment for that of the Defendant IRS.
Consistent with the foregoing, Defendant IRS's motion (Doc. 8) to
dismiss that portion of the Complaint (Doc. 1) seeking review
and/or other action by the Court respecting the results of
Plaintiff's equivalent hearing (Decision Letter, Doc. 8, Ex. E) on
Notice of Federal Tax Lien against Defendant Living Care dated May
21, 2001 (Doc. 8, Ex. A) is GRANTED. Further, treating Defendant
IRS's motion and memorandum for summary judgment (Doc. 8) as a
motion for judgment on the pleadings seeking to have the Court
affirm the results of Plaintiff's Collection Due Process hearing
(Notice of Determination, Doc. 8, Ex. G) on the Notices of Intent
to Levy against Defendant Living Care dated August 22 and
September 5, 2001 (Doc. 8, Exs. B, D), such motion is GRANTED.
Whereupon, the Clerk shall enter JUDGMENT for Defendant United
States of America Internal Revenue Service dismissing Plaintiff's
Complaint with prejudice insofar as it seeks review of Defendant's
June 21, 2001 Decision Letter respecting the tax liens against
Plaintiff listed therein and affirming Defendant's June 21, 2002
Notice of Determination respecting the tax levies against
Plaintiff listed therein.
1 These
appear to involve either or both employee F.I.C.A. and/or income
tax withholding, both of which Living Care, as an employer, is
bound to collect and pay over pursuant to 26 U.S.C. §§3102
and 3403,
2 Living
Care Alternatives of
, Inc. v.
United States of America
Internal Revenue Service [ 2004-1
USTC ¶50,167], Case No. C2-03-359, Opinion and Order
by Hon. Gregory L. Frost, Jan. 12, 2004.
3 This
limitation on the scope of review prevents this Court's
consideration of any claimed change circumstances since Living
Care's due process hearing. See Doc. 9, p. 7. The Court
notes, however, that it does not appear Plaintiff is completely
without recourse if there are in fact changed circumstances that
warrant a change in the IRS's earlier determination. See 26
C.F.R. §301.6330-1(h).
4 The Mesa
Oil court also found that the AO who had conducted the due
process hearing there violated the statute's requirement of no
prior involvement with the case ([ 2001-1
USTC ¶50,130], 2000 WL 1745280 at *5), a situation
that is not suggested to exist here.
5 Problems
going back to mid-1993 and continuing to accrue intermittently and
without complete resolution through the very quarter in which
Living Care's due process hearing in this case was held. See
Notice of Determination, Doc. 8, Ex. G attch. p.2.
6 There
are two different references in the Notice of Determination to
things that Living Care's president agreed to or admitted during
"our conference."
, pp. 4, 5.
[2005-1 USTC ¶50,395] Living Care Alternatives of Utica, Inc., Plaintiff-Appellant v.
United States of America
, Internal Revenue Service, Defendant-Appellee.
Court of Appeals, 6th Circuit; 04-3194/3554,
June 2, 2005
Affirming DC Ohio, 2004-1
USTC ¶50,167 and 2004-1
[ Code
Sec. 6330]
Hearing before levy: Collection Due Process hearing: Standard
of review: Adequacy of record: Offer-in-compromise.
district courts, which reviewed Collection Due Process (CDP)
determinations issued by IRS Appeals officers using an abuse of
discretion standard, were not required to use a de novo
standard because the taxpayer, a nursing home, did not challenge
the underlying tax liabilities in the CDP hearings. The nursing
home's argument that it was bad public policy to require it to pay
taxes when it lacked the financial ability to meet federal
regulatory standards governing the care of patients and its
request to "remove" the tax liability were not
challenges to the validity of the underlying liability. The
reports issued by the Appeals officers in connection with their
determinations included sufficient information to provide a basis
for an abuse of discretion review. Furthermore, the refusal of the
IRS to accept the nursing home's offers in compromise was not an
abuse of discretion for numerous reasons, including the apparent
failure to file the proper forms and financial information, its
financial difficulties, and a previous default on an installment
payment plan. It was also not necessary for the Appeals officers
to consider whether the IRS would receive any revenue from the
levy and sale of the nursing home's property due to existing liens
of superior creditors, or whether the nursing home would have to
close down due to the levy and sale. These considerations are
properly made after the determination of the Appeals officer in a
CDP hearing when the decision to actually levy upon the property
is made.
I. Struble, for plaintiff-appellant. Robert J. Branman, Rachel I.
Wollitzer, Jonathan S. Cohen, Department of Justice, for
Before: Keith, Merritt and Clay, Circuit Judges.
MERRITT, Circuit Judge: This opinion addresses separate appeals
from two district court cases involving the same parties and
almost identical issues. Plaintiff, Living Care Alternatives of
Utica, Inc. ("Living Care"), appeals district court
decisions affirming the Internal Revenue Service's Appeals Office
decisions to allow tax liens and levies on Living Care's property
for unpaid employment taxes for various periods between 1995 and
2001. These appeals require an interpretation of the new Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L. No.
105-206, 112 Stat. 685. For the reasons set forth below, we
Living Care owns and operates a nursing home facility in
Licking County
, which has approximately thirty-five beds and forty employees and
receives ninety percent of its revenue from Medicare and Medicaid
billing. This revenue totals approximately $100,000 per month.
Since the mid-1990's, Living Care has struggled to comply with its
tax obligations. The taxes at issue in the instant cases are
payroll taxes withheld from employees' paychecks and held in trust
by the employer until payments are made to the government. From
1995 to 2001, Living Care has intermittently failed to forward the
required taxes to the IRS. (Living Care I, Case No. 04-3194
involves annual payments for tax year 1999 and quarterly payments
in 1999 and 2001; Living Care II, Case No. 04-3554 involves annual
payments for tax years 1995, 1998 and 2000 and quarterly taxes for
various quarters in 1995, 1996, 1999, 2000 and 2001). 1 Under a
previous levy around 1996 or 1997, Living Care entered into an
installment agreement with the IRS, but defaulted in 1999. The
total current liability (including interest and penalties) is
approximately $450,000, although Living Care points out it has
paid its newly accrued taxes since July 2002.
In May 2001 and May 2002, the government sent Notices of Federal
Tax Liens and Notices of Intent to Levy to Living Care, along with
a notice of the taxpayer's right to request a hearing before the
IRS Appeals Office, which the taxpayer timely invoked. Collection
due process hearings were conducted by phone in March 2002 (Living
Care II, Case No. 04-3554) and December 2002 (Living Care I, Case
No. 04-3194). Notice of Determination letters denying Living
Care's claims were mailed June 2002 and March 2003, respectively.
Living Care appealed these decisions separately to the District
Court for the Southern District of Ohio. In both cases, which were
heard by different judges, the courts affirmed the IRS. 2 See
Living Care Alternatives of Utica, Inc. v. United States ( Living
Care I), No. 02:03-CV-0359, 2003 WL 23311523 (S.D. Ohio Dec. 12,
2003); Living Care Alternatives of Utica, Inc. v. United States
(Living Care II) [ 2004-1
USTC ¶50,225], 312 F.Supp.2d 929 (S.D. Ohio 2004).
Living Care now appeals these decisions.
Judicial Review of Collection Due Process Proceedings
Collection due process hearings were created by the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L. No.
105-206, 112 Stat. 685 ("the Restructuring and Reform
Act"). 3 The
method or standards for judicial review of these hearings is not
yet settled, hence the problems in these cases. Prior to this Act,
the IRS had the right to levy on taxpayer property without any
prior opportunity for a hearing or procedural due process, so long
as post-deprivation procedures were provided. The Supreme Court
sustained this approach almost seventy-five years ago. See
Phillips v. Commissioner [ 2
USTC ¶743], 283 U.S. 589, 595 (1931). While passage of
the Restructuring and Reform Act does indicate Congress's intent
to provide taxpayers with additional protection in the form of
procedures prior to IRS action, it must be interpreted in this
historical context. Tax liens and levies are not typical
collection actions; the IRS has much greater latitude and leeway
than a normal creditor. See generally Leslie Book, The Collection
Due Process Rights: A Misstep or a Step in the Right Direction? 41
Hous. L. Rev. 1145 (2004) (discussing the history of due process
in tax collection proceedings).
The Tax Code grants taxpayers the right to a hearing both on
notice of lien and on notice of levy. See 26 U.S.C. §6320(b);
26 U.S.C. §6330(b).
Proceedings are informal and may be conducted via correspondence,
over the phone or face to face. See Treas. Reg. §601.106(c)
& §301.6330-1, Q&A-D6. No transcript, recording, or other
direct documentation of the proceeding is required. See id.
§301.6330-1, Q&A-D6. Taxpayers do have a right to an
impartial hearing officer "who has had no prior involvement
with respect to the unpaid tax ... before the first hearing."
26 U.S.C. §6320(b)(3).
A taxpayer may challenge his underlying tax liability at the
collection due process hearing, only if he "did not receive
any statutory notice of deficiency for such tax liability or did
not otherwise have an opportunity to dispute such tax
liability." 26 U.S.C. §6330(c)(2)(B).
Any other relevant issue relating to the unpaid tax may be raised
during the hearing, including spousal defenses, challenges to the
appropriateness of collection actions, and alternative collection
options (such as posting of a bond, installment agreements, or
offers in compromise). 26 U.S.C. §6330(c)(2)(A).
By statute, the IRS Appeals Officer must: 1) conduct a
verification that the IRS has met all legal requirements and
fulfilled its procedural obligations to move forward with the lien
or levy, 2) consider defenses and collection alternatives
proffered by the taxpayer and, 3) make a determination that the
"proposed collection action balances the need for the
efficient collection of taxes with the legitimate concern of the
person that any collection action be no more intrusive than
necessary." 26 U.S.C. §6330(c)(3)
(emphasis added). This final balancing factor is novel in American
tax law and injects into the calculus an equitable consideration
for the taxpayer and his concerns. Not surprisingly, the taxpayer
in the instant cases relies quite heavily on this factor in its
arguments for relief.
On completion of his review, the Appeals Officer sends his final
decision to the taxpayer in a Notice of Determination letter. The
statutes then allow for judicial review of this determination by
whatever federal court has jurisdiction over the underlying tax
(either the Tax Court or the District Courts).
We review a district court's grant of summary judgment de novo.
4 Both the
parties and the district court judges in these cases agreed that
it was proper to review the IRS Appeals Office de novo with
respect to decisions about the underlying tax liability and for
abuse of discretion with respect to all other decisions, see
Bartley v.
United States
, 343 F.Supp.2d. 649, 652 (N.D. Ohio 2004), but the parties
disagreed about whether the underlying liability was actually
challenged in these cases. See Part II.A., infra. Finally, the
district court may only review issues that were originally raised
in the collection due process hearing. See Treas. Reg. §301.6330-1(f)(2),
Judicial review of collection due process hearings presents a real
problem for reviewing courts. Congress overlaid the Restructuring
and Reform Act on a previous system that involved very little
judicial oversight. The result is a surprisingly scant record,
comprised almost exclusively of the parties' appellate briefs and
the Notice of Determination letter. No transcript or official
record of the hearing is required and, accordingly, one rarely
exists. Since normal review of administrative decisions requires
the existence of a record, see Citizens to Preserve Overton
Park, Inc. v. Volpe, 401 U.S. 402 (1971), overruled on
unrelated grounds by Califino v. Sanders, 430 U.S. 99, 105
(1977), Congress must have been contemplating a more deferential
review of these tax appeals than of more formal agency decisions.
This might explain why, of six collection due process cases
reviewed by the Sixth Circuit, five have been disposed of under
our Court's Rule 34 and all six have been unpublished. None has
overturned the IRS decision or required a remand. See Herip v.
United States [ 2005-1
USTC ¶50,354], No. 02-4078, 2004 WL 1987302 (6th Cir.
Sept. 2, 2004) (unpublished); Minion v. Commissioner [ 2004-1
USTC ¶50,161], No. 03-1337, 2003 WL 22434751 (6th Cir.
Oct. 24, 2003) (unpublished); Wasson v. Commissioner [ 2003-1
USTC ¶50,337], No. 02-2134, 2003 WL 1516288 (6th Cir.
Mar. 21, 2003) (unpublished); Hauck v. Commissioner [ 2003-1
USTC ¶50,445], No. 02-2301, 2003 WL 21005238 (6th Cir.
May 2, 2003) (unpublished); Brown v. Commissioner [ 2003-1
USTC ¶50,148], No. 02-1630, 2002 WL 31863695 (6th Cir.
Dec. 19, 2002) (unpublished); Diefenbaugh v. Weiss [ 2000-2
USTC ¶50,839], No. 00-3344, 2000 WL 1679510 (6th Cir.
Nov. 3, 2000) (unpublished).
Living Care's Claims
Living Care raises four identical claims in each case. They will
therefore be analyzed together.
A. District Court Applied an Incorrect Standard of Review
Living Care agrees with the government that, in order to receive a
de novo review of the Appeals Officers' decisions, it had
to have challenged the validity of the underlying tax liability at
the collection due process hearings. Otherwise, the Appeals
Officers' decisions are reviewed for abuse of discretion. 5
Living Care's evidence that it challenged the validity of the
underlying liability is exceptionally weak. One of the Notice of
Determination letters does not mention this issue at all and the
other states "The underlying tax was not challenged."
Living Care therefore argues that the Appeals Officers
misconstrued and misunderstood its attempts to challenge the tax.
In large part, its argument is based on the premise that
"nursing homes are different." Living Care's facility
receives almost all of its income from government programs
(Medicare and Medicaid) that require strict compliance with
comprehensive regulatory regimes. These regimes limit the
possibility for profit, control and limit admission of new
patients, and mandate high standards in the areas of staffing,
food, and medical care. Living Care argues that the regulatory
regime became particularly oppressive starting in the mid 1990's.
government mandated changes resulted in Living Care not being able
to pay all its withholding obligations. The government required
that Living Care meet the increased mandated care requirements and
staffing requirements. Living Care did this and when the decision
had to be made between paying for resident care and taxes, Living
Care paid for the food, utilities, medications, staffing etc [sic]
and delayed the payment of taxes --taxes were not simply refused
or neglected.
Living Care Proof Br. (Case No. 04-3554) at 18. Living Care
maintains that it relied on the above argument during the
collection due process hearings and that this argument was
equivalent to challenging the underlying liability itself. 6
Furthermore, it argues that the identical requests in its
Complaints to the District Courts that the "tax liability be
removed" also constituted a challenge to the validity of the
The plain meaning of "challenging validity of the underlying
tax liability" requires more than the taxpayer's actions in
these cases. Passionately arguing that it is bad public policy to
tax a nursing home that was trying in good faith to comply with a
comprehensive regulatory scheme is not the same as challenging the
validity of the tax. Similarly, requesting that a district court
"remove" a tax liability does not constitute a claim at
the IRS hearing and is not an assertion that the liability was not
valid in the first place; to the contrary, it seems to be
admitting it was valid and then requesting that payment be
excused. Therefore, all aspects of the Appeals Officers' decisions
are reviewed for abuse of discretion.
B. Abuse of Discretion in the Balancing Analysis
The Tax Code requires that an IRS Appeals Officer, in making a
final determination after a collection due process hearing, decide
"whether any proposed collection action balances the need for
the efficient collection of taxes with the legitimate concern of
the [taxpayer] that any collection action be no more intrusive
than necessary." 26 U.S.C. §6330(c)(3)(C).
7 There is
little discussion or guidance about this requirement in legal
scholarship or case law. But see, Book, The Collection Due Process
Rights, supra, at 1185-93. In most cases, reviewing courts have
merely affirmed the Appeals Officer's determination that he
conducted the balancing test and that he found the results to be
consistent with the decision to proceed with levying the property.
See e.g., Jackling v. IRS[ 2005-1
USTC ¶50,159], 352 F.Supp.2d 129 (D. N.H. 2004);
Elkins v.
United States
, No. 4:03-CV-97-1 (CDL), 2004 WL 3187094 (M.D.
Sept. 29, 2004). One notable exception to this pattern is found in
Oil, Inc. v.
United States
[ 2001-1
USTC ¶50,130], No. Civ.A. 00-B-851, 2000 WL 1745280
(D. Colo. Nov. 21, 2000) (unpublished), where an oil company fell
behind in its payroll tax deposits over a six quarter period,
totaling about $425,000. There the district court, reviewing an
IRS Appeals Officer's collection due process hearing and Notice of
Determination, remanded the case to the IRS for development of a
more complete record and clarification of the reasoning behind the
determination that the balancing test was met. The court was
especially concerned that the Notice of Determination included
"no statement of facts, no legal analysis, and no explanation
of how or why the proposed levy balanced the need for collection
with [the taxpayer's] interests" but merely a "blank
recitation of the statute." Id. at *4; accord Cox v. United
States [ 2004-2
USTC ¶50,404], 345 F.Supp.2d 1218 (W.D. Okla. 2004)
(citing positively Mesa Oil's remand for further development of
the record and ruling that balancing did not occur because the IRS
erroneously believed taxpayer was ineligible for installment
agreement). Mesa Oil's remand is an exception to the general
practice of reviewing courts showing deference to Appeals
Officers' conclusions regarding the balancing analysis.
In the instant appeals, Living Care presents three related
arguments to support its claim that the balancing test was not
met, or more accurately, that the Appeals Officers abused their
discretion in conducting the balancing test. First, Living Care
claims the Appeals Officers failed to include the existence of
senior lienholders in their balancing analyses, in spite of the
discussion of this fact during the hearings. 8 Second,
the Officers failed to consider that, because of these senior
lienholders, the net effect of an IRS levy would be to shut down
the business without generating any tax revenue for the
government. Since the IRS liens would be junior to existing
creditors and the existing debt exceeded the value of the
property, the IRS would collect nothing. Finally, in its Reply
Brief in the Living Care II case (Case No. 04-3554), Living Care
correctly alleges, albeit for the first time, that the IRS has a
statutory duty to investigate, prior to executing a levy, the
existence of liens on the property and determine "that the
equity in such property is sufficient to yield net proceeds from
the sale of such property to apply to [taxpayer's]
liability." 26 U.S.C. §6331(j)(2)(C).
The government first responds that the Appeals Officers were aware
of the other lienholders, as evidenced by the statement in the
Notice of Determination from Living Care I that "[i]f the
business sells, proceeds will be distributed according to priority
of claims. (Lien priority)." In Living Care II, the
government argues that Living Care's Request for Hearing makes no
mention of these senior liens and that there is no evidence they
were mentioned during the hearing. The lack of evidence from the
hearing is potentially misleading since there is no formal record
of the hearing and the government itself prepared the only account
of what was discussed. The government's stronger argument, made in
the alternative, is that even if the senior liens were raised and
ignored, there is no requirement that the government consider in
its balancing analysis whether it will receive any revenue from a
levy and sale, or whether the business will have to close down due
to the levy and sale. It cites several cases for these
propositions. See Medlock v. United States, 325 F.Supp.2d
1064 (C.D. Cal. 2003); Cardinal Healthcare, Inc. v. United
States [ 2002-2
USTC ¶50,582], No. 01-4300-JLF, 2002 WL 31002880 (S.D.
Ill. July 25, 2002); Kitchen Cabinets, Inc. v.
United States
[ 2001-1
USTC ¶50,287], No. Civ.A.3:00CV0599M, 2001 WL 237384
Mar. 6, 2001). The case law supports the proposition that the
government is not required to continue subsidizing failing
businesses by foregoing tax collection. Any other conclusion would
create a bizarre tax system with perverse incentives for
businesses to maintain themselves on the edge of insolvency in
order to enjoy immunity from tax enforcement.
The government's response to Living Care's statutory argument
(which the government first offered at oral argument since Living
Care first raised the statute in its Reply Brief) is that the
statutory duty has not yet arisen. All that the statute requires
is that the IRS investigate the equity in a property prior to
levying on it, not prior to the collection due process hearing.
The only court that has apparently addressed this issue did so in
the context of the collection due process verification requirement
and agreed that the statutory investigation was not required prior
to a collection due process hearing. In Medlock, 325
F.Supp.2d at 1079, the district court said:
Officer Rich was not required, during the [Collection Due Process]
Appeal process, to determine whether the equity in Medlock's
property was sufficient to yield net proceeds ... or investigate
the status of Medlock's property .... According to the plain
language of the relevant statutory sections, [6331(f) and 6331(j)]
these actions must be taken before a taxpayer's property may be
levied upon by the IRS but are prematurely raised at this stage of
the collection process. Appeals Officer Rich's alleged failure to
perform those actions therefore does not constitute a violation of
[the collection due process statutes].
We agree with this reasoning and find no statutory violation
arising from the IRS's failure to investigate at this time the
available equity in the taxpayer's property. This failure cannot,
therefore, provide the basis for overturning the Appeals Officers'
balancing analyses or final decisions.
C. Insufficient Record for Review
Living Care includes this issue in its request for a de novo
review by this court, "with a hearing that more closely
resembles an evidentiary hearing and gives the taxpayer the
opportunity to have what he presents actually recorded for future
review." Living Care Proof Br. (Case No. 04-3554) at 37.
Since it would be inappropriate for this Court to hold an
evidentiary hearing under these circumstances, we consider this
claim as a request to remand the cases either to the district
courts or to the IRS for development of a more thorough record.
Not surprisingly, Living Care cites Mesa Oil in support of
its request. Only the court in Mesa Oil has gone so far as
to remand to the IRS in a collection due process case with an
order that the new hearing have a record "made either through
audio tape recording, video tape recording, or stenographer."
Mesa Oil [ 2001-1
USTC ¶50,130], 2000 WL 1745280 at *7. The court there
expressed concern that the Notice of Determination's lack of
analysis amounted to no record whatsoever and therefore did not
allow for a meaningful review. While this is a conventional remedy
in administrative law cases, it was extraordinary in the area of
tax collection. As discussed earlier, the notion of due process in
tax collection is not the same as in other areas of the law. The
IRS has historically had broad discretion and the right to levy on
property without any pre-seizure process. The 1998 reform did
provide for additional procedural protections, but it still does
not require the creation of a formal record and conventional
administrative review. Admittedly, this makes application of the
abuse of discretion standard quite difficult, but at the very
least, in order to overturn the IRS decisions, we must be
convinced that the type of taxpayer abuse that Congress sought to
remedy has occurred in the case. Neither of these cases presents
such egregious facts.
In both cases below, the District Courts distinguished the Notices
of Determination they were reviewing from the one in Mesa Oil.
the court in Mesa Oil, this court has before it a report
from the collection due process hearing which sets forth the
issues raised by Living Care, as well as a discussion of those
issues. The [Appeals Officer's] report explains the collection
alternatives raised by Plaintiff and why those collection
alternatives were impracticable and unreasonable. In the instant
case the [Officer] enumerated specific reasons why the IRS's levy
action and lien filing balanced the [needs of both parties.]
Living Care I, 2003 WL 23311523 at *3. And similarly, in
Living Care II, "the [Appeals Officer's] Determination in
this case is clearly more through [sic] and appropriate in its
factual review and analysis than was the one which apparently
confronted the court in Mesa Oil." Living Care II [ 2004-1
USTC ¶50,225], 312 F.Supp.2d at 935.
The Notices of Determination in these cases satisfy due process
and provide a sufficient basis for an abuse of discretion review,
as that standard is applied in tax levy and lien appeals.
D. Abuse of Discretion Not to Allow Offer in Compromise
While Living Care raises this claim in both cases, only the Notice
of Determination in Living Care I contains problematic language,
meaning the Living Care II claim is without merit.
One of the three areas that Appeals Officers must consider in
making their final Determination is offers of collection
alternatives made by the taxpayer. At both hearings, Living Care
presented plans to either sell the business as a going concern and
use the proceeds to pay its tax liabilities or to present an offer
in compromise. Living Care rejected the possibility of an
installment agreement, since such an agreement would have to be
funded from company profits and Medicare and Medicaid billing
generally do not allow for profit. Also, under a previous levy
around 1996 or 1997, Living Care had entered into an installment
agreement with the IRS, and then defaulted in 1999.
The Living Care II Notice of Determination (dated June 21, 2002), see
J.A. (Case No. 04-3554) at 12, rejected these plans because the
business had currently been on the market for over a year without
generating a sale or contract and Living Care was not, at that
time, current on its tax payments. The taxpayer must be current on
payments for the previous two quarters to be eligible to submit an
offer in compromise. These facts, coupled with Living Care's prior
default in 1999 on its installment agreement, fully support the
decision to reject the alternatives offered.
The Living Care I Notice of Determination (dated March 25, 2003), see
J.A. (Case No. 04-3194) at 51, however, contains contradictory
statements. On page 2, the Notice states, "Tax deposits are
being made and the taxpayer appears to be current for both the 3rd
and 4th quarters of 2002."
at 54. On page 6, in a section discussing the option of an offer
in compromise, it states,
two quarters preceding the current quarter are the 2nd and 3rd.
The taxpayer owes tax for the 2nd; consequently, the taxpayer will
not be eligible until the 1st quarter of 2003.... Therefore, as
of the date of this report, the taxpayer is not eligible for
an offer in compromise.
at 58 (emphasis added). The hearing date in Living Care I was
December 12, 2002. The date on the Notice of Determination was
March 25, 2003. Either the Appeals Officer intended to express his
eligibility determination in terms of the date of the hearing
and simply made a typographical error, or he erroneously
determined that Living Care was not eligible as of the date of
the report, even though his statements on page 2 express
recognition that Living Care had made the last two quarter's
payments on time.
The government offers several valid responses. First, and most
simply, that it was a mere typographical error that does not reach
the level of abuse of discretion. This interpretation would have
the Court focus on the date of the hearing, since both sides agree
that at that time Living Care was not eligible to submit an offer
in compromise. In the alternative, the government argues even if
the Appeals Officer did misapply the law, Living Care still had an
obligation to actually file an offer in compromise, which it
failed to do. Therefore, even if it was eligible, its failure to
file the proper financial paperwork and IRS forms led to the same
result --a rejection of its collection alternatives. Finally, the
government presents a litany of additional bases on which the
Appeals Officer could have validly rejected Living Care's
alternative collection option. These include Living Care's failure
to meet the two quarters requirement as of the time of the
hearing, its default under the previous installment payment plan
in the late 1990's, the escalating amount of unpaid tax liability
due to accruing interest and penalties, and the government's need
to collect the taxes quickly because of Living Care's financial
There is no need to rely on any one of these explanations alone.
It is clear that the IRS was well within its discretion to reject
Living Care's plan to present an offer in compromise. If the
Appeals Officer mistakenly felt his hands were tied because of the
two quarters requirement, there are administrative remedies
available to point out such mistakes and allow the IRS an
opportunity to re-examine its earlier decision. Treas. Reg. §301-6330-1(h)(1)
("The Appeals office that makes a determination under section
6330 retains jurisdiction over that determination,
including any subsequent administrative hearings that may be
requested by the taxpayer regarding levies and any collection
action taken or proposed with respect to Appeals'
determination."). But for this Court, reviewing the Appeals
Officers' decisions for abuse of discretion, Living Care has
failed to present sufficient evidence to justify a remand.
Otherwise, without a clear abuse of discretion in the sense of
clear taxpayer abuse and unfairness by the IRS, as contemplated by
Congress, the judiciary will inevitably become involved on a daily
basis with tax enforcement details that judges are neither
qualified, nor have the time, to administer.
For the reasons discussed above, we affirm the decision of the
District Courts in these cases.
1 Although
the administrative hearing for Living Care II was held
first, the District Court decided the case second. It will
therefore be referred to as Living Care II.
2 Other
tax periods were the subject of other collection due process
hearings and at least three other district court appeals.
According to Living Care's Briefs, these cases are awaiting
various decisions in the district courts. See Living Care
Proof Br. (Case No. 04-3554) at 21 n.7.
3 The
Commissioner of Internal Revenue shall develop and implement a
plan to reorganize the Internal Revenue Service. The plan shall
... eliminate or substantially modify the existing organization of
the Internal Revenue Service which is based on a national,
regional, and district structure; ... establish organizational
units serving particular groups of taxpayers with similar needs;
and ... ensure an independent appeals function within the Internal
Revenue Service, including the prohibition of ex parte
communications between appeals officers and other Internal Revenue
Service employees to the extent that such communications appear to
compromise the independence of the appeals officers.
The Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. No. 105-206, §1001, 112 Stat. 685, 689 (1998).
4 The
District Court in Living Care II [ 2004-1
USTC ¶50,225], 312 F.Supp.2d at 933, determined that
motions for summary judgment make no sense in the context of
judicial review of agency decisions. Therefore, the court treated
the motions for summary judgment as cross-motions for judgment on
the pleadings. Many courts, including this one, have allowed
motions for summary judgment when reviewing collection due process
hearings. See e.g., Herip v. United States [ 2005-1
USTC ¶50,354], No. 02-4078, 2004 WL 1987302 (6th Cir.
Sept. 2, 2004) (unpublished).
5 Since
the statute itself is silent as to the appropriate standard, the
legislative history of the Restructuring and Reform Act is often
cited for establishing this two-tiered approach.
Where the validity of the tax liability was properly at issue in
the hearing, and where the determination with regard to the tax
liability is part of the appeal, no levy may take place during the
pendency of the appeal. The amount of the tax liability will in
such cases be reviewed by the appropriate court on a de novo
basis. Where the validity of the tax liability is not properly
part of the appeal, the taxpayer may challenge the determination
of the appeals officer for abuse of discretion.
Goza v. Commissioner [ CCH
Dec. 53,803], 114 T.C. 176, 181 (2000) (quoting with
approval H.R. Conf. Rept. No. 105-599, at 266 (1998)).
6 In
another section of its Brief, Living Care presents the argument
this way:
Here Living Care submits that the District Court erred in
concluding that Living Care did not challenge the underlying tax
liability. Living Care may not have talked "tax code"
language, but it did talk the normal language of the nursing home
business. Living Care explained the Catch 22 of government funding
and mndates, [sic] where the government gives on the one hand and
takes with the other. Government requirements ruled all aspects of
operation and mandated that Living Care do and provide certain
things, while at the same time kept out new residents and
decreased occupancy, penalized the nursing home for low occupancy
and decreased funding. Yet the government required the payment of
taxes timely and then the payment of interest and penalties (but
which Medicaid will not allowed to be reimbursed [sic]). This
challenge was made by Living Care in language that has meaning to
a nursing home operator. It may not be how an accountant, attorney
or IRS agent would phrase such a challenge. But the taxpayer did
challenge it in the Request for Hearing and at the hearing.
Living Care Proof Br. (Case No. 04-3554) at 32.
7 The
other two issues that must be addressed are verification that
applicable law and procedures were followed and other relevant
issues raised at the hearing (such as defenses and collection
alternatives). See 26 U.S.C. §6330(c).
8 Living
Care also attempts to argue that the Appeals Officers disregarded all
additional information provided during the hearing, instead
relying only on the information in its Request for Hearing. This
argument is undermined, at least in Living Care II, by statements
in the Notice of Determination such as "During our conference
you agreed that..." J.A. Living Care II (Case No. 04-3554) at
17, and "... you admitted during our conference that
at 18.
USTC ¶50,241] Paul J. Hudson, as personal
representative of the Estate of Eleanor Hudson, Plaintiff v.
Internal Revenue Service, Defendant.
District Court, No.
March 25, 2004
[ Code
Sec. 6330]
Liens and levy: Collection Due Process: Issues raised at
hearing: Judicial review. --
taxpayer was not barred from contesting her liability for interest
on the penalty at her Collection Due Process (CDP) hearing. The
IRS's attempt to collect amounts after settling the taxpayer's
trust fund obligation and payment of the liability constituted an
attempt to collect on a new tax that had not been assessed.
Because the tax was not previously assessed and she did not have a
chance to contest the liability prior to the CDP hearing, she
could raise her objections in litigation. The IRS's erroneously
argued that the Appeals officer's refusal to consider the
taxpayer's liability for the interest was not an abuse of
discretion. Because the taxpayer could properly argue her
liability for the interest, the proper standard of review was a de
novo review. However, even if the abuse of discretion standard
had applied, the Appeals officer's summary dismissal of the
taxpayer's contention was improper.
[ Code
Sec. 6672]
Penalties, civil: Trust fund recovery penalty: Interest:
Settlement agreement. --
IRS could not collect interest that had accrued from the time the
trust fund recovery penalty was assessed against a taxpayer until
the time it was paid because it had settled the taxpayer's
"total liability" with respect to her trust fund
obligation. The settlement agreement was unambiguous and,
therefore, binding on the IRS. Since the agreement stated the
"total liability" of the taxpayer and failed to mention
interest or penalties, the IRS was barred from collecting accrued
interest on the trust fund penalty.
MCAVOY, Senior District Judge: This tax case arises from an
assessment of trust fund recovery penalties pursuant to 26 U.S.C. §6672
against Plaintiff Eleanor Hudson, 1 and the
Internal Revenue Service's ("Defendant" or
"IRS") attempt to collect these penalties and accrued
interest. Plaintiff filed this action seeking judicial review of
the IRS's Notice of Determination issued in the collection
proceeding. This case is now before the Court on the parties'
cross-motions that, for the reasons discussed infra, are treated
as motions for judgment on the pleadings pursuant to Rule 12(c) of
the Federal Rules of Civil Procedure. For the reasons stated
below, Defendant's motion is denied, and Plaintiff's cross-motion
is granted in part and denied in part.
The IRS issued tax assessments against Plaintiff
a responsible person for a trust fund penalty arising from an
audit for 1989 and 1990 of a corporation known as Kent &
Haroldsen Associates, Inc., which filed for bankruptcy in 1995 in
U.S. Bankruptcy Court in Albany, New York in a case known as In
re Kent & Haroldsen Associates, Inc., Case No. 95-10607.
As a result of this trust fund penalty, the IRS filed tax liens
against Plaintiff's property "in the amount of approximately
at ¶6. Plaintiff "duly appealed the IRS assessment
administratively to the IRS" and, in December of 1999 in the
context of In re Kent & Haroldsen Associates, Inc., she
and her husband "entered into a written stipulation of
settlement agreement with" the IRS that limited her total
liability to $30,838.49.
at ¶7. This "Stipulation of Settlement Agreement"
("the Agreement") is attached to the Complaint as
Exhibit A and bears the caption of In re: Kent & Haroldsen,
Debtor, Case No. 95-10607. See Compl., Ex. A. It
begins: "The parties Paul Hudson, Eleanor Hudson, Marc
Ehrlich and chapter 7 trustee for Kent and Haroldsen, Inc., and
the Internal Revenue Service by its representative as set forth
below do hereby agree and stipulate as follows...."
Paragraph "A" of the Agreement deals with the
"total tax liability of Kent and Haroldsen."
Following several tax calculations set forth in the document,
paragraph A concludes with a "Summary" which provides, inter
alia: "$30,838.49 --Trust Fund Portion of the $43,348.58
`Full Rate' tax."
Paragraph B of the Agreement, which deals with the
, states in its entirety:
The total Trust Fund portion of said tax will be $30,838.49. The
total liability of Eleanor and Paul Hudson shall be the trust fund
Under the statement "So Agreed" are the dated signatures
of "Diane Cagino, AUSA, For Internal Revenue Service,"
"Richard Croak, Attorney for Eleanor and Paul Hudson,"
and "Marc Ehrlich, Chapter 7 Trustee."
The signatures are dated
, 2/29/99, 3 and
, respectively.
The Agreement was approved by the "the bankruptcy court, and
duly filed with the bankruptcy court clerk on
January 3, 2000
." Compl. ¶8. However, the
unlawfully and wrongfully added interest and penalties and other
charges to the settlement amount subsequent to the settlement
date, in the amount of approximately $30,000. The settlement makes
no mention of the such interest or penalty and such was unknown to
[Plaintiff] or [she] would not have agreed to the settlement. The
IRS has ignored [Plaintiff's] requests that they eliminate such
interest and penalties and comply with the settlement.
at ¶9.
In December 2001, the IRS levied against Plaintiff's bank account
and "otherwise engaged in collection actions" against
¶10. She requested an administrative appeal hearing in December
2001 "before the IRS Appeals office in
, and [her] bank account that had been wrongfully levied against
was unfrozen by the IRS."
at ¶11. Nonetheless, in December 2002 "while waiting for the
IRS to schedule a hearing," Plaintiff learned that "the
IRS had received overpayments from [her] and Paul S. Hudson as
well as taking certain New York State tax refunds that were owed
to [her] of approximately $37,000, which far exceeded the total
amount owed to the IRS under the December 1999 settlement
¶12. Plaintiff asserts that when she
this information [to the] IRS appeals office and to the Albany IRS
office with a detailed schedule of overpayments and requested 60
days to have this matter resolved by the insolvency section of the
Albany IRS office in December 2002, the IRS appeals officer
instead summarily denied [Plaintiff's] appeal without ever holding
a hearing and gave [Plaintiff] notice dated
January 13, 2003
that she was returning the matter to the IRS Collections branch to
begin a new collection activity against [Plaintiff] for $58,433,
unless [Plaintiff] filed a petition with the U.S. District Court
within 30 days.
A copy of the IRS'
January 13, 2003
"Notice of Determination" is attached as Exhibit B to
the Complaint. 4 It
provides the following under the "Summary and
Recommendation" section:
taxpayer requested a hearing before Appeals under the provisions
of Internal Revenue Code
section 6320 for the tax period. As of the transcript
, the taxpayer owed approximately $58,433 for the tax period
taxpayer writes that she is not liable for this liability. She
also sent a claim for Innocent Spouse and an Offer in Compromise.
is recommended that the case be returned to the Collection
Function for appropriate action.
Ex. B.
As is evident, the "Summary and Recommendation" section
provides no elaboration as to the basis that Plaintiff asserted
that she was not "liable for this liability," and the
"Discussion and Analysis" section of this document
provides nothing further in this regard. This section provides:
taxpayer may not be allowed innocent spouse status for a trust
fund penalty.
taxpayer has withdrawn her request for an offer in compromise.
Collection Division's position is that levy action is necessary
because the taxpayer will not pay the amount owed.
Plaintiff further contends in the Complaint that her husband had
requested the IRS to apply his tax overpayments to the
"outstanding principal in the settlement agreement," but
the IRS refused to do so.
at ¶14. 5
Plaintiff requests that this Court (1) declare that the claims of
the IRS against Eleanor R. Hudson are paid in full; (2) discharge
and release any IRS liens against Eleanor R. Hudson's property;
(3) order the IRS to refund any overpayments and refunds, plus
interest, that should have been paid to Eleanor R. Hudson for tax
years 1997 through 2001; (4) order the IRS to provide the Court
and the Plaintiff a detailed accounting of all charges and
assessments against Eleanor R. Hudson, and of the application of
any overpayments and tax payments made by Eleanor R. Hudson and
Paul S. Hudson for tax years 1994 through 2001; (5) order the IRS
to suspend collection activity against the property of Eleanor R.
Hudson; and (6) to enter a judgment for costs and expenses as
allowed by law.
The IRS has answered the Complaint asserting certain defenses
which are addressed more fully below. See Ans., dkt. #4;
IV(c), infra. Nonetheless, the IRS "admits that a
Stipulation of Settlement of Claims was entered in connection with
the bankruptcy case of debtor Kent and Haroldsen ... but denies
plaintiff's interpretation of such stipulation."
¶7. Defendant further "[a]dmits that the subject stipulation
was executed by an Assistant U.S. Attorney for the Northern
District of New York, but denies that such stipulation is binding
as against the United States as to the issue of whether plaintiff
Eleanor Hudson is responsible for accrued interest on the Trust
Fund Recovery Tax Penalty from the date of assessment until fully
at ¶8.
These motions followed.
II. [III.] RULE 12(c)
Treatment of Cross-Motions Pursuant to Rule 12(c)
On September 4, 2003, Defendant filed a motion "for an order
Affirming the Determination of the IRS Appeals Office concerning
collection action." Dkt. #12. In support of this motion,
Defendant filed a Memorandum of Law (dkt. #13) and an Attorney
Declaration with two exhibits attached thereto. See Cirenza
Decl. (attached to Def.'s Mem. of Law. dkt. #13). There is no
foundation for the admission of the documents attached to the
Government's attorney's declaration. 6
Given that Defendant's moving Memorandum of Law makes legal
arguments based upon the facts as Defendant deems them to be, the
motion is in the nature of one seeking summary judgment. See
Mem. of Law, pp. 1-4 (setting forth "Statement of
Facts."); 7 FED. R.
CIV. P. 12(b) ("If on a motion ... to dismiss for failure of
the pleading to state a claim upon which relief can be granted,
matters outside the pleading are presented and not excluded by the
court, the motion shall be treated as one for summary
judgment."); Johnson v. United States [ 2003-2
USTC ¶50,721], 2003 WL 22989550, at *1 (N.D. Ga. Oct.
8, 2003) ("In support of its motion, defendant presented, and
the court considered, two declarations from IRS employees as well
as copies of the claims register and docket sheet from
[plaintiffs' bankruptcy proceeding]. Therefore, the court will
consider defendant's motion as one for summary judgment.").
However, there is no affidavit supplied to support many of
Defendant's factual contentions, see FED. R. CIV. P. 56(e), and
Defendant did not submit a Local Rule 7.1 Statement of Material
Facts as required by Local Rule 7.1(a)(3).
The absence of a Local Rule 7.1 Statement of Material Facts is
fatal to any motion asking the Court to grant summary judgment. See
N.D.N.Y.L.R. 7.1(a)(3) ("Failure of the moving party to
submit an accurate and complete Statement of Material Facts shall
result in a denial of the motion. ") (underscoring in
original, bold emphasis added); Meaney v. CHS Acquisitions
Corp., 103 F. Supp.2d 104, 111 (N.D. N.Y. 2000); Grassi v.
Lockheed Martin Fed. Sys., Inc., 186 F.R.D. 277, 278-79 (N.D.
N.Y. 1999). This rule is especially important in this case because
Defendant sought leave of Court some five months after the return
date of the motion to correct what now appears to be a factual
misstatement in its original submissions. 8 See
Meaney, 103 F.Supp.2d at 108-09. 9
Inasmuch as Defendant has not specified the procedural mechanism
in which it moves for "an order affirming the Determination
of the IRS Appeals Office concerning collection action," and
given the absence of competent evidence in support of many of the
facts upon which the motion is based, the Court will treat the
motion as one for judgment on the pleadings pursuant to Rule
12(c). All matters beyond the pleadings will be ignored. See
II(b), infra.
Plaintiff's cross-motion fares no better. While Plaintiff's
counsel correctly captioned the cross-motion as one for summary
judgment, he too fails to present a Local Rule 7.1(a)(3) Statement
of Material Facts, or competent factual evidence in support of
most of the contentions made in this motion. See Paul S.
Hudson Amend. Affirm., dkt. #15. 10
Therefore, the Court will similarly treat Plaintiff's motion as a
motion for judgment on the pleadings.
Rule 12(c) Standard
"Judgment on the pleadings is appropriate where material
facts are undisputed and where a judgment on the merits is
possible merely by considering the contents of the
pleadings." Sellers v. M.C. Floor Crafters, Inc., 842
F.2d 639, 642 (2d Cir. 1988). In applying Rule 12(c), the Court
must utilize the same standard as that applicable to a motion
under Rule 12(b)(6). Lesbian and Gay Org. v. Giuliani, 143
F.3d 638, 644 (2d Cir. 1998); Sheppard v. Beerman, 18 F.3d
147, 150 (2d Cir. 1994). On a motion to dismiss pursuant to Rule
12(b)(6), the Court accepts as true all factual allegations in the
complaint. See Leatherman v.
Narcotics Intelligence & Coordination Unit, 507
163, 164 (1993). Further, "the court should construe the
complaint liberally and draw inferences from the plaintiff's
allegations in the light most favorable to the plaintiff." Tomayo
v. City of N.Y., 2004 WL 137198, at * 5 (S.D. N.Y. Jan. 27,
2004) (citing Desiderio v. National Ass'n of Sec. Dealers, Inc.,
191 F.3d 198, 202 (2d Cir. 1999)). The Court need not credit
conclusory statements unsupported by assertions of facts or legal
conclusions and characterizations presented as factual
allegations, see Papasan v. Allain, 478 U.S. 265,
286 (1986), and must limit itself to facts stated in the
complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint. See Dangler
New York City
Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999).
Dismissal is appropriate only where "it appears beyond doubt
that the plaintiff can prove no set of facts in support of [her]
claim which would entitle [her] to relief," Phillip v.
Univ. of Rochester, 316 F.3d 291, 293 (2d Cir. 2003) (quoting Conley
v. Gibson, 355 U.S. 41, 45-46 (1957)), or where the complaint
fails as a matter of law. Phelps v. Kapnolas, 308 F.3d 180,
187 (2d Cir. 2002); see Smith v. City of New York,
290 F.Supp.2d 317, 319 (S.D. N.Y. 2003) ("The appropriate
inquiry is not whether the plaintiff might ultimately prevail on
her claim, but whether she is even entitled to offer any evidence
in support of the allegations in the complaint.").
This Court has jurisdiction pursuant to 26 U.S.C. §6330(d)(1)
of the Internal Revenue Code "to review a notice of
determination relating to trust fund recovery penalties; however,
judicial review is limited to those issues properly raised during
the collection due process hearing." Konkel v. Comm'r of
Internal Revenue [ 2001-2
USTC ¶50,520], 2000 WL 1819417, at *3 (M.D.
Nov. 6, 2000
) (citation omitted); Lietner [Leiter] v.
United States
[ 2004-1
USTC ¶50,162], 2004 WL 303210, at *2 (D. Kan.
Jan. 22, 2004
). Inasmuch as Plaintiff asserts in the Complaint that: (1) after
entering the Agreement which ostensibly reduced her and her
husband's total tax liability for the trust fund recovery
penalties and accrued interest to $30,838.49, (2) she and her
husband paid more that $30,838.49 to the IRS, and (3) she brought
these facts to the IRS' Appeals Officer's attention in the due
process collection process, see Compl., Ex. B ("The
taxpayer writes that she is not liable for this liability.") 11 , this
matter is properly before this Court.
Standard of Review
"[W]here the validity of the underlying tax liability is
properly at issue, the Court will review the matter on a de
novo basis. However, where the validity of the underlying tax
liability is not properly at issue, the Court will review the
Commissioner's administrative determination for abuse of
discretion." Sego v. Comm'r of Internal Revenue [ CCH
Dec. 53,938], 114 T.C. 604, 610, 2000 WL 889754 (2000);
Lietner [Leiter] [ 2004-1
USTC ¶50,162], 2004 WL 303210, at *2; Johnson [
USTC ¶50,721], 2003 WL 22989550, at *3; MRCA Info.
Servs. v.
United States
[ 2000-2
USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000).
Here, for the reasons discussed below, the validity of the
underlying tax liability was properly at issue in the collection
due process hearing and, therefore, review in this matter is de
novo. Lietner [Leiter] [ 2004-1
USTC ¶50,162], 2004 WL 303210, at *2.
Defendant's Motion
Defendant's motion is based on its first two defenses asserted in
the Answer. Defendant asserts as its "First Defense"
that Plaintiff's claim in this Court is barred because Plaintiff's
tax liability arose in 1990 and therefore she was barred from
challenging that liability in the 2001 collection action. Ans., p.
1. This defense, on this record, is without merit.
"If any person liable to pay any tax neglects or refuses to
pay the same within 10 days after notice of demand, it shall be
lawful for the [IRS] to collect such tax ... by levy." 26
U.S.C. §6331(a).
Before a levy can be assessed, the IRS must notify the taxpayer of
his or her right to a hearing. Johnson [ 2003-2
USTC ¶50,721], 2003 WL 22989550, at *3 (citing 26
U.S.C. §6330(a)).
At the hearing, the taxpayer may raise "any relevant issue
relating to the unpaid tax or the proposed levy, including
appropriate spousal defenses; challenges to the appropriateness of
the collection actions; and offers of collection
alternatives." 26 U.S.C. §6330(c)(2).
The taxpayer may challenge the "existence or amount of the
underlying tax liability" only if the taxpayer "did not
otherwise have an opportunity to dispute such tax liability."
26 U.S.C. §6330(c)(2)(B).
"An issue may not be raised at the hearing if the issue was
raised ... in any other previous administrative or judicial
proceeding; and the person seeking to raise the issue participated
meaningfully in such hearing or proceeding." 26 U.S.C. §6330(c)(4)(A)-(B).
In the instant case, while the trust fund recovery penalty was
initially assessed against Plaintiff in 1990, any liability
arising therefrom (including interest that might have accrued up
to that point) was compromised by the IRS in December of 1999 when
the Agreement was entered in the context of In re: Kent &
Haroldsen, Debtor, Case No. 95-10607 (Bank. N.D. N.Y.).
Further, assuming arguendo that Plaintiff and her husband
thereafter paid the IRS more than the agreed upon amount, any
effort by the IRS to collect $58,433 by levy constitutes the
attempt to collect on a new tax obligation. Thus, accepting the
allegations in the Complaint as true, Plaintiff "did not
otherwise have an opportunity to dispute such tax liability"
before the collection hearing. 26 U.S.C. §6330(c)(2)(B).
Accordingly, Plaintiff had every right to assert that she
"was not liable for this liability" during the
collection hearing process, see Notice of Determination,
Compl. Ex. B, and, therefore, Defendant's motion based on its
"First Defense" is denied.
In its "Second Defense," Defendant asserts that the
determination by the Appeals Officer in the collection due process
hearing did not constitute an abuse of discretion and therefore
should be affirmed. The Court disagrees. As stated above, the
standard is for de novo review, not abuse of discretion.
Further, assuming arguendo that the Court applied the more
deferential abuse of discretion standard, and assuming further
that Appeals Officer Hornstein was advised that the IRS
compromised its claim and that the compromised amount was
satisfied, the summary dismissal of Plaintiff's contention that
she "was not liable for this liability" would constitute
an abuse of discretion. See Anthony v. United States
[ 93-1
USTC ¶50,140], 987 F.2d 670, 674 (10th Cir. 1993). 12
Consequently, Defendant's motion on this "Second
Defense" is denied.
Plaintiff's Cross-Motion
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