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Tax Preparation
Offer In Compromise
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IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
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D.O.J Criminal Tax Manual
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Penalty
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Statute of Limitations
Frivolous Tax Argument
Interest Abatement
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Tax Reform Legislation
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Levy 

Additional Information:

 

Actions & Restrictions on Levy
Serving & Releasing Levies
Jeopardy Levy
Bank Levies
Levy on Income
Levy in Special Cases
Automated Levy Programs
6331 Code and Regulations
6332 Code and Regulations
6333 Code and Regulations
6334 Code and Regulations
6335 Code and Regulations
6336 Code and Regulations
6337 Code and Regulations
6338 Code and Regulations
6339 Code and Regulations
6340 Code and Regulations
6341 Code and Regulations
6330 Code and Regulations
6331 Court Order
6331 Damages
6331 Debt
6331 Community Property
6331 Effective Levy
6331 Bankruptcy p1
6331 Bankruptcy p2
6331 Bankruptcy p3
6331 Bankruptcy p4
6331 Bankruptcy p5
6331 Bankruptcy p6
6331 Bail Money
6331 Bank Account
6331 Bank Vault
6331 Alimony Funds
6331 Continuous Levy
Publication 4418 - Levy Program
Pre Seizure Considerations Tax Levy
Pre Approval Post Approval
Actions Prior to sale of seized property
IRS Seizure Sale Procedures
How IRS Conducts a Seizure of  Property
Property acquired and disposed by IRS
Judicial Sale of Levied Property
Understanding your IRS Notice
Releasing Levies and Levied Property
7426 Code and Regulations
Amendment to section 6330 Regulations
6320 Proposed Amendments of Regulations
6332 - Seizure of Property Subject to Distraint
6332 - Annotations- Salary
6332 - Annotations- Savings Account Attachment
6332 - Annotations- Summary Judgment
6332 - Annotations- State Auditor
6332 - Annotations- State Funds
6332 - Annotations-Prior Law
6332 - Annotations- Surety
6332 - Annotations- Title in Dispute
6332 - Annotations- Attorney Fees
6332 - Annotations- Attorney's Liability
6332 - Annotations- Bank Accounts p1
6332 - Annotations- Bank Accounts p2
6332 - Annotations- Bank Accounts p3
6332 - Annotations- Bank Accounts p4
6332 - Annotations- Bank Accounts p5
6332 - Annotations- Commissions
6332 - Annotations- Corporations Obligations
6332 - Annotations- Effect of Honoring Levy p1
6332 - Annotations- Effect of Honoring Levy p2
6332 - Annotations- Effect of Honoring Levy p3
6332 - Annotations- Effect of Honoring Levy p4
6332 - Annotations- Effect of Honoring Levy p5
6332 - Annotations- Effect of payment of tax
6332 - Annotations- Embezzled Funds
6332 - Annotations- Partnership Property
6332 - Annotations- Levy and Demand
Property in Custody of County Commissioner
6332 - Annotations- Property of Another
6332 - Annotations- Property in Custody of State Court
6332 - Annotations- Reasonable Cause
6332 - Annotations- Property Unlawfully Obtained
6333 - Annotations- No Levy Pending
6334 - Annotations- Child Support
6334 - Annotations- Amount of Exemption
6334 - Annotations- Books Furniture tools
6334 - Annotations- Homestead p1
6334 - Annotations- Homestead p2
6334 - Annotations- Homestead p3
6334 - Annotations- Clothing
6334 - Annotations- Disability Benefits
6334 - Annotations- Retirement Accounts p1
6334 - Annotations- Retirement Accounts p2
6334 - Annotations- Military Retirement Benifits
6334 - Annotations- Net Pay
6334 - Annotations- State Exemption Law
6334 - Annotations- Seaman's Wage Statute
6334 - Annotations- Social Security Benfits
6334 - Annotations- Prior Law
6334 - Annotations- Subsequently Receieved Wages
6334 - Annotations- Worker's Compensation
6335 - Annotations- Designation of Proceeds
6335 - Annotations- Bailment Lessor
6335 - Annotations- Damage Suit Against Collector p1
6335 - Annotations- Damage Suit Against Collector p2
6335 - Annotations- Husband and Wife
6335 - Annotations- Effect of Vacating Invalid Sale
6335 - Annotations- Homesteads p1
6335 - Annotations- Homesteads p2
6335 - Annotations- Homesteads p3
6335 - Annotations- Jeopardy Assessments
6335 - Annotations- Injunctive Relief
6335 - Annotations- Interest
6335 - Annotations- Minimum Price
6335 - Annotations- Jurisdiction
6335 - Annotations- Late Payment
6335 - Annotations- Place of Sale
6335 - Annotations- Notice of Adjournment
6335 - Annotations- Notice of Sale or Seizure p1
6335 - Annotations- Notice of Sale or Seizure p2
6335 - Annotations- Notice of Sale or Seizure p3
6335 - Annotations- Notice of Sale or Seizure p4
6335 - Annotations- Third-Party Interest p1
6335 - Annotations- Third-Party Interest p2
6335 - Annotations- Rescission
6335 - Annotations Seized Property Sale Report
6335 - Annotations--Prior Law
6335 - Annotations- Wrongful Sale
6330 Collection Due Process Hearing Requests
6330 - Annotations- Collection Due Process Notice
6330 - Annotations- Forms and Transcripts 1 p1
6330 - Annotations- Forms and Transcripts 1 p2
6330 - Annotations- Forms and Transcripts 1 p3
6330 - Annotations- Froms and Transcripts 1 p4
6330 - Annotations- Forms and Transcripts 1 p5
6330 - Annotations- Froms and Transcripts 2
6330 - Annotations- Hearing Procedures 1 p1
6330 - Annotations- Hearing Procedures 1 p2
6330 - Annotations- Hearing Procedures 1 p3
6330 - Annotations- Hearing Procedures 1 p4
6330 - Annotations- Hearing Procedures 2 p1
6330 - Annotations- Hearing Procedures 2 p2
6330 - Annotations- Hearing Procedures 2 p3
6330 - Annotations- Hearing Procedures 2 p4
6330 - Annotations- Hearing Procedures 3 p1
6330 - Annotations- Hearing Procedures 3 p2
6330 - Annotations- Hearing Procedures 3 p3
6330 - Annotations- Hearing Procedures 3 p4
6330 - Annotations- Hearing Procedures 4 p1
6330 - Annotations- Hearing Procedures 4 p2
6330 - Annotations- Hearing Procedures 4 p3
6330 - Annotations- Hearing Procedures 4 p4
6330 - Annotations- Hearing Procedures 5 p1
6330 - Annotations- Hearing Procedures 5 p2
6330 - Annotations- Hearing Procedures 5 p3
6330 - Annotations- Hearing Procedures 6 p1
6330 - Annotations- Hearing Procedures 6 p2
6330 - Annotations- Hearing Procedures 6 p3
6330 - Annotations- Impartial IRS Appeals Officers p1
6330 - Annotations- Impartial IRS Appeals Officers p2
6330 - Annotations- Issues Raised at Hearings 1 p1
6330 - Annotations- Issues Raised at Hearings 1 p2
6330 - Annotations- Issues Raised at Hearings 1 p3
6330 - Annotations- Issues Raised at Hearings 1 p4
6330 - Annotations- Issues Raised at Hearings 2 p1
6330 - Annotations- Issues Raised at Hearings 2 p2
6330 - Annotations- Issues Raised at Hearings 2 p3
6330 - Annotations- Issues Raised at Hearings 2 p4
6330 - Annotations- Issues Raised at Hearings 2 p5
6330 - Annotations- Issues Raised at Hearings 3 p1
6330 - Annotations- Issues Raised at Hearings 3 p2
6330 - Annotations- Issues Raised at Hearings 3 p3
6330 - Annotations- Issues Raised at Hearings 3 p4
6330 - Annotations- Issues Raised at Hearings 4 p1
6330 - Annotations- Issues Raised at Hearings 4 p2
6330 - Annotations- Issues Raised at Hearings 4 p3
6330 - Annotations- Issues Raised at Hearings 4 p4
Judical Review of Apepeals- Equivalent
Judical Review of Apepeals-District Co (1)
Judicial Review of Appeals-District Court p1
Judicial Review of Appeals-District Court p2
Judicial Review of Appeals-District Court p3
Judicial Review of Appeals-District Court p4
Judical Review of Apepeals-Filed in Wrong
Judicial Review of Appeals-Judicial Rev (1)
Judicial Review of Appeals-Judicial Review p1
Judicial Review of Appeals-Judicial Review p2
Judicial Review of Appeals-Judicial Review p3
Judicial Review of Appeals-Judicial Review p4
Judicial Review of Appeals-Judicial Review p5
Judicial Review of Appeals-Sovereign Immunity
Judicial Review of Appeals-Statute of Limitations
Judicial Review of Appeals-Tax Court 1 p1
Judicial Review of Appeals-Tax Court 1 p2
Judicial Review of Appeals-Tax Court 1 p3
Judicial Review of Appeals-Tax Court 1 p4
Judicial Review of Appeals-Tax Court 1 p5
Judical Review of Apepeals-Tax Court 2 p1
Judicial Review of Appeals-Tax Court 2 p2
Judicial Review of Appeals-Tax Court 2 p3
Judicial Review of Appeals-Timely Filing
6330 - Annotations- Prior Hearings p1
6330 - Annotations- Prior Hearings p2
6336 - Annotations- Injunctive Relief
6336 - Annotations- Value of Property
6337 - Annotations- Assignee
6337 - Annotations- Attempt to Assign
6337 - Annotations- Bankruptcy
6337 - Annotations- Fraud Right of Redemption
6337 - Annotations- Jurisdiction
6337 - Annotations- Periods for Redemption
6337 - Annotations- Proper Party
6337 - Annotations- Property Subject to Redemption
6337 - Annotations- Reaquisition by Prior Owner
6337 - Annotations- Representations
6337 - Annotations- Informal Redemption
6339 - Annotations- Effect of Faulty Transfer
6339 - Annotations- Sale of Taxpayers Real Property p1
6339 - Annotations- Sale of Taxpayers Real Property p2
6340 - Annotations- Purchaser of Property

 

Judicial Review of Appeals-Judicial Review Page3


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The 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.

 

A 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.

2. The Appropriateness of the Proposed Collection Action

Petitioner 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.

We 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.

Petitioner 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.

B. Respondent's Request for Section 6673 Penalty

We 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.

While 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.

 

We 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.

Conclusion

We 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.

To reflect the foregoing,

An appropriate order and decision will be entered.

1 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 Procedure.

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.

U.S. District Court, No. Dist. Ohio , 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. --

A 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. --

A 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. --

A 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. --

A 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.

ORDER AND OPINION


GWIN, District Judge: On October 29, 2002 , Defendant the United States of America ("the 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 .

The 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 United State '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.

I. Background


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.

On 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:

i. verification from the Secretary that the requirements of any applicable law or administrative procedure have been met;

ii. delegation orders from the Secretary delegating authority to those persons who imposed the `frivolous penalty;'

iii. a listing of Treasury Department regulations that allow IRS employees to impose `frivolous penalties;' and

iv. 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 liability.

IRS Settlement Officer Dolin responded to Tornichio in a letter dated 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.

On 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, on 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:

It 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 days.

On 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 .

On 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.

On 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 the United States for lack of subject matter jurisdiction. Tornichio opposes the motion.

II. Standard & Analysis

A. Standard


The 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.

1. 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 U.S. 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 U.S. 519, 520-21, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972).

2. 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); Rogers 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 U.S. 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; Rogers , 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 U.S. at 520-21.

B. Analysis


The 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.

1. CDP Hearing and IRS Determination

a. 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 standard.

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, 2001).

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).

The 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.

b. 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 commenced."

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.

Verification 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).

Failure 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:

Relevant 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:

(1) any individual files what purports to be a return of the tax imposed by subtitle A but which --

(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or

(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and

 

(2) the conduct referred to in paragraph (1) is due to --

(A) a position which is frivolous, or

(B) 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 Hudson v. 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 derived...."

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).

Refusal 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 tax."

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.

No 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 commenced."

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.

2. 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.

a. 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.

b. 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 the 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 U.S. 106 (1993); Conn v. 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 .

3. No Opportunity 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.

III. Conclusion


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.

IT IS SO ORDERED.

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).

 

 

 

 

 

 

[Dec. 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]

[Code 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. --

An 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.

Jerome Edward Brown, pro se.1 Gerard Mackey, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: Pursuant to section 6330(d),2 petitioners seek review of respondent's determination to proceed with collection of their 1995, 1996, and 1997 tax liabilities.

FINDINGS OF FACT

Some 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 Pelham , New York .

During 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.

Petitioners did not timely file their 1995, 1996, or 1997 tax returns.

On July 8, 1998 , respondent prepared a substitute for return for petitioners' 1996 income taxes.

On 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.

On 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.

Subsequent to respondent's assessment for 1996, respondent received petitioners' delinquent tax returns for 1995, 1996, and 1997.

Petitioners' 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.

Based on petitioners' 1996 tax return, respondent:

(1) 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 section 6654 for 1996;

 

(2) allowed petitioners an additional withholding credit of $806 for 1996; and

(3) abated $808 of assessed interest for 1996.

A withholding credit and payment submitted with Petitioners' 1997 tax return fully paid the tax shown on the return.

On 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.

Petitioners 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 1997.4

An 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.

On 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:

I 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.

After 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.

Petitioners' balances for the years in issue were:

                                                        Outstanding  
  Year                                  As of             Balance     
                                                                     
  1995..........................     
8/13/2001
          $4,127.50
  1996..........................    
10/22/2001
           2,773.44
  1997..........................      
6/4/2001
             108.17

When 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.

OPINION

 

Petitioners 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.

Petitioners 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. 53,938], 114 T.C. 604, 610 (2000).

Based 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 1997.

Petitioners 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.

Petitioners 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

To reflect the foregoing,

Decision will be entered for respondent.

1 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.

3 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.

U.S. District Court, Mid. Dist. Fla., Tampa 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. --

The 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.

ORDER


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.

STATEMENT OF FACTS


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.

SUMMARY JUDGMENT STANDARD


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 U.S. 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 U.S. 242, 248 (1986) (emphasis in original). The substantive law applicable to the claimed causes of action will identify which facts are material. Id. 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. Id. 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 U.S. at 324. The evidence must be significantly probative to support the claims. Anderson, 477 U.S. 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 Nan 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 U.S. 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).

LEGAL ANALYSIS


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 $31,205.95.

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.

1 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.

U.S. District Court, So. Dist. Ohio , East. Div.; C2-02-717, March 22, 2004 .

Related case at 2004-1 USTC 50,167.

[ Code Sec. 6320]

Hearing upon filing of notice of lien: Equivalent hearing: Jurisdiction to review. --

The 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. --

A 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.

OPINION AND ORDER


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. Id. , 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 presented."

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. Tex. 1976); Lacy v. Dayton Board of Education, 550 F.Supp. 835, 843 (S.D. Oh. 1982).

...The 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).

The 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, 445 U.S. 535, 538 (1980); United States v. Dalm [ 90-1 USTC 50,154; 90-1 USTC 60,012], 494 U.S. 596, 608 (1990). Further,

....[a] 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 U.S. 187, 192 (1996) (parallel citations omitted); See also Department of the Army v. Blue Fox, Inc., 525 U.S. 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 USTC 50,772], 2002 WL 31662301 *2 (E.D. Cal. 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:

The 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." Lodge Tower Condominium Ass'n v. Lodge Properties, Inc. 880 F.Supp. 1370, 1374 (D. Colo. 1995). As pointed out by Chief Judge Covello of the District of Connecticut:

"[A] 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 action." Lodge Tower 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 (D. D.C. 1995).


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.

Section 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:

....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. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard.


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, 2002).

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...." Id. , 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:

An 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.

....Under 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).

Bonfante [ 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, 2002).

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:

....In 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.

IT IS SO ORDERED.

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, respectively.

2 Living Care Alternatives of Utica , 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." Id. , 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.

U.S. Court of Appeals, 6th Circuit; 04-3194/3554, June 2, 2005 .

Affirming DC Ohio, 2004-1 USTC 50,167 and 2004-1 USTC 50,225.

[ Code Sec. 6330]

Hearing before levy: Collection Due Process hearing: Standard of review: Adequacy of record: Offer-in-compromise.

Federal 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.

Carla I. Struble, for plaintiff-appellant. Robert J. Branman, Rachel I. Wollitzer, Jonathan S. Cohen, Department of Justice, for defendant-appellee.


Before: Keith, Merritt and Clay, Circuit Judges.


OPINION


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 affirm.

SUMMARY OF FACTS


Living Care owns and operates a nursing home facility in Licking County , Ohio , 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.

ANALYSIS

I. 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), Q-F5 & A-F5.

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).


II. 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.

These 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 liability.

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. Ga. Sept. 29, 2004). One notable exception to this pattern is found in Mesa 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 (N.D. Tex. 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:

Appeals 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.

Unlike 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." Id. at 54. On page 6, in a section discussing the option of an offer in compromise, it states,

The 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.


Id. 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 difficulties.

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 ..." Id. at 18.

 

 

 

 

 

[2004-1 USTC 50,241] Paul J. Hudson, as personal representative of the Estate of Eleanor Hudson, Plaintiff v. Internal Revenue Service, Defendant.

U.S. District Court, No. Dist. N.Y. ; 03-CV-172, March 25, 2004 .

[ Code Sec. 6330]

Liens and levy: Collection Due Process: Issues raised at hearing: Judicial review. --

A 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. --

The 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.

DECISION & ORDER


I. INTRODUCTION

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.

II. BACKGROUND 2

The IRS issued tax assessments against Plaintiff

as 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.

Compl. 5.

As a result of this trust fund penalty, the IRS filed tax liens against Plaintiff's property "in the amount of approximately $500,000." Id. 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. Id. 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...." Id. Paragraph "A" of the Agreement deals with the "total tax liability of Kent and Haroldsen." Id. 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." Id.

Paragraph B of the Agreement, which deals with the Hudsons , states in its entirety:

B. 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 portion.

Id.

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." Id. The signatures are dated 12/28/99 , 2/29/99, 3 and 12/20/99 , respectively. Id. 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

IRS 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.

Id. at 9.

In December 2001, the IRS levied against Plaintiff's bank account and "otherwise engaged in collection actions" against her. Id. 10. She requested an administrative appeal hearing in December 2001 "before the IRS Appeals office in Philadelphia , Pennsylvania , and [her] bank account that had been wrongfully levied against was unfrozen by the IRS." Id. 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 stipulation." Id. 12. Plaintiff asserts that when she

provided 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.

Id. 13.

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:

The taxpayer requested a hearing before Appeals under the provisions of Internal Revenue Code section 6320 for the tax period. As of the transcript dated 4/23/02 , the taxpayer owed approximately $58,433 for the tax period ending 12/31/90 .

The taxpayer writes that she is not liable for this liability. She also sent a claim for Innocent Spouse and an Offer in Compromise.

It is recommended that the case be returned to the Collection Function for appropriate action.

Compl., 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:

A taxpayer may not be allowed innocent spouse status for a trust fund penalty.

 

The taxpayer has withdrawn her request for an offer in compromise.

The Collection Division's position is that levy action is necessary because the taxpayer will not pay the amount owed.

Id.

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. Id. 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." Id. 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 paid." Id. at 8.

These motions followed.

II. [III.] RULE 12(c)

A. 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.

B. 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. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 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 v. 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.").

IV. DISCUSSION

A. Jurisdiction


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. Fla. 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.

B. 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 [ 2003-2 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.

C. 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.

D. Plaintiff's Cross-Motion


Turning to Plaintiff's cross-motion, the main thrust of the motion is not susceptible to resolution on a Rule 12(c) motion. Whether, and to what extent, Plaintiff and her husband paid the IRS monies toward the settlement after January 2, 2000 is a factual issue that cannot be resolved on the pleadings. Therefore, to the extent that the cross-motion can be read as seeking complete relief on the pleadings, the motion is denied. However, the Court will address the threshold issue presented in this case --that is, whether the Agreement bars Defendant from collecting "accrued interest on the Trust Fund Recovery Tax Penalty from the date of assessment." Ans. 8.

Defendant admits that the IRS entered the Agreement, although it does not agree with Plaintiff's interpretation of the Agreement. Ans. 7-8. Essentially, Defendant contends that the Agreement represents a settlement of the amount of the penalties, but that the Agreement's silence on the issue of interest should be construed as the lack of any agreement on this issue and, therefore, accrued interest remained payable even after the Agreement was entered. Plaintiff argues that the Agreement determined her obligation for penalties and interest. This dispute, in this case, is an issue of law that can be determined on the pleadings. See Anthony v. United States [ 93-1 USTC 50,140], 987 F.2d 670, 673 (10th Cir. 1993) ("A settlement document is a contract and is construed using ordinary principles of contract interpretation.") (citing United States v. ITT Continental Baking Co., 420 U.S. 223, 235-38 (1975)); Hurt v. United States, 70 F.3d 1261, 1995 WL 703540, at *3 (4th Cir. Nov. 30, 1995) (Table) ("If the meaning of a contract is unambiguous, then the intent of the parties is a question of law solely for the court and should be determined only by looking within the four corners of the document."); Midwest Fin'l Acceptance Corp. v. FDIC, 93 F.Supp.2d 327, 330 (W.D. N.Y. 2000) ("When a case involves the interpretation of a contract and the contract is unambiguous, summary judgment is appropriate.") (citation omitted). 13

"The interpretation of waivers and agreements between taxpayers and the IRS must be in accordance with general principles of contract law." Toker v. United States [ 97-1 USTC 50,427], 982 F.Supp. 197, 202 (S.D. N.Y. 1997) (citing Goldman v. Comm'r of Internal Revenue [ 94-2 USTC 50,577], 39 F.3d 402, 405 (2d Cir. 1994)); see Buesing v. United States [ 2000-2 USTC 50,724], 47 Fed.Cl. 621, 630 (Fed. Ct. Cl. 2000) (same); Hurt, 1995 WL 703540, at *3 (same); Anthony [ 93-1 USTC 50,140], 987 F.2d at 673 (same). In interpreting contracts, the Court is guided by "common-sense canons of contract interpretation," including the canon that unambiguous terms are given their plain and natural meaning. Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 178 (1st Cir. 1995). A contract should be construed to give meaning to every word or phrase contained in it. United States v. Brye, 146 F.3d 1207, 1211 (10th Cir. 1998). If the terms of the contract are not ambiguous, the Court determines the parties' intent from the language of the agreement itself. Goldman [ 94-2 USTC 50,577], 39 F.3d at 406; Anthony [ 93-1 USTC 50,140], 987 F.2d at 673 (same).

Whether a written contract is ambiguous is a question of law for the court. Duse v. IBM [ 2001-2 USTC 50,473], 252 F.3d 151, 158 (2d Cir. 2001). As Defendant correctly argues, a contract is ambiguous if it is capable of more than one reasonable interpretation. United States v. Gebbie, 294 F.3d 540, 551 (3rd Cir. 2002); Kennewick Irrig. Dist. v. United States , 880 F.2d 1018, 1032 (9th Cir. 1989). On the contrary, a contract is unambiguous if the language contained in it "can be given a definite or certain meaning as a matter of law." Midwest Fin'l Acceptance Corp., 93 F.Supp.2d at 330.

Here, there is nothing ambiguous about the terms of the Agreement as it relates to the Hudsons . In the simplest terms, the Agreement provides that "[t]he total liability of Eleanor and Paul Hudson shall be the trust fund portion." Compl. Ex. A. The OXFORD ENGLISH DICTIONARY, 2d ed. (1989) defines the adjective "total" to mean: "(1) of, pertaining, or relating to the whole of something; (2) constituting or comprising a whole; whole, entire; or (3) complete in extent or degree; absolute, utter." The same dictionary defines "liability" to mean: "(1) The condition of being liable or answerable by law or equity; (2) The condition of being liable or subject to something, apt or likely to do something; (3) That for which one is liable ..., the debts or pecuniary obligations of a person or company." Id. Thus, giving these words their plain meaning, it is clear that the Agreement limits the Hudsons ' pecuniary obligations to the IRS in December 1999 for penalties and interest from the trust fund penalties assessed for tax years 1989 and 1990 to "the trust fund portion."

The sentence that precedes the "total liability" sentence states: "The total Trust Fund portion of said tax will be $30,838.49." Accordingly, the unambiguous terms of the Agreement limit the Hudsons ' entire obligation to the IRS for penalties and interest from the trust fund penalties assessed for tax years 1989 and 1990, as of the date of the agreement, to $30,838.49.

Unlike settlement agreements with the IRS that use the term "taxes" (and which are open to varying interpretations as to whether the word "taxes" includes interests and penalties, see Tolve v. Comm'r Internal Revenue [ 2002-1 USTC 50,325], 31 Fed.Appx. 73, 2002 WL 449278, at * 3 (3rd Cir. March 22, 2002) (Table) (citing cases); Anthony [ 93-1 USTC 50,140], 987 F.2d at 672) 14 , here the parties used a more encompassing term that, by its plain meaning, includes both the penalty and any accrued interest. See Hurt, 1995 WL 703540, at *3-4. 15 It must be assumed that when the Agreement was entered into, interests had already accrued on the trust fund penalties and, therefore, the parties' agreement as to Plaintiff's "total liability" on this date must be deemed to include the trust fund penalties and accrued interest. Because there is no ambiguity in the terms of the Agreement, the Court finds no reason to resort to extrinsic evidence to ascertain the meaning of the terms used (or not used) in the Agreement. Goldman [ 94-2 USTC 50,577], 39 F.3d at 406; see Greco v. Department of the Army, 852 F.2d 558, 560 (Fed. Cir. 1988) ("Only if there is ambiguity should parole evidence be considered"); Toker [ 97-1 USTC 50,427], 982 F.Supp. at 202 ("According to [] general [contract] principles, `[p]arole evidence may be admitted to explain a writing only when the terms of the writing are ambiguous."') (quoting Investors Ins. Co. of America v. Dorinco Reinsurance, 917 F.2d 100, 104 (2d Cir. 1990)).

It is also important that the Agreement was entered into by attorneys representing all parties to the contract. Certainly, had there been an intention to exclude accrued interest from the Hudson 's "total liability," a provision to this extent should have been specifically included in the Agreement. Hurt, 1995 WL 703540, at *3. The absence of such an exclusionary clause in the part of the Agreement pertaining to the Hudsons , especially in light of the fact that such an exclusionary clause is present in other portions of the Agreement, see Compl, Ex. A, p. 2 ("$24,815.11 --Total 941 Employment Tax due from Kent & Haroldsen for 1990, not counting penalty or interest. ") (emphasis added), indicates that it was intentionally left out with regard to the Hudsons . See In re Ore Cargo, Inc., 544 F.2d 80, 82 (2d Cir. 1976) ("While the contract also granted the bank certain rights not conferred by the U.C.C., notably a right of set-off, this factor is of little aid to the Bank. Applying the maxim, expressio unius est exclusio alterius, the failure of Israel Discount, a sophisticated commercial lender, to include a similar specific reference to tort claims precludes our divining or implying such a right on the basis of the general language of the agreement."); U.S. v. Local 6A, Cement and Concrete Workers, Laborers Intern. Union of North America , 832 F.Supp. 674 (S.D. N.Y. 1993) ("The doctrine of expressio unius est exclusio alterius is available as one tool for seeking to ascertain the intention of drafters of documents or the probable interpretation of readers....").

Further, while Defendant may be correct that this Court lacks the authority to relieve Plaintiff of an interest assessment, see Def. Suppl. Mem. L., p. 7 (citing Carlson v. United States [ 97-2 USTC 50,702], 126 F.3d 915, 920 (7th Cir. 1997)), in this case it was the IRS that relieved Plaintiff of her interest obligation, not this Court. The IRS has always been empowered with the discretion to grant an abatement of interest. See Carlson [ 97-2 USTC 50,702], 126 F.3d at 920 (holding that under 6404(e)(1), an abatement of interest is within the sole authority of the Secretary of the Treasury); Speers v. United States [ 97-2 USTC 50,575], 38 Fed.Cl. 197, 202 (Fed. Ct. Cl. 1997) (holding that the IRS' decision whether to abate interest on employment taxes is solely within the agency's discretion and is therefore nonjusticiable); Brahms v. United States [ 89-2 USTC 9601], 18 Cl.Ct. 471, 475-76 (Fed. Ct. Cl. 1989) (holding that 6404(e)(1) does not permit judicial review because the IRS' decision to abate interest is purely discretionary). This Court is asked only to interpret the contract between the parties. Simply because this Court determines that the clear and unambiguous terms of the Agreement demonstrate the parties' agreement to abate statutory interest (thus signifying that the IRS exercised this discretion) does not mean that the Court has somehow overridden the IRS' authority. See Miller v. Comm. of Internal Revenue [ 2002-2 USTC 50,759], 310 F.3d 640, 642 (9th Cir. 2002) ("In 1996, however, Congress amended the statute, adding what is now 6404(h), granting the tax court jurisdiction to determine whether the Secretary's failure to abate interest constituted an abuse of discretion.").

Finally, there is no merit to Defendant's contention that an waiver of interest in the agreement is void because A.U.S.A. Cagino had not been given authority to waive accrued interest. The relevant question is whether she had the authority "to bind the United States in contract," not whether she was specifically authorized to enter certain terms of an agreement. Total Med. Management, Inc. v. United States , 104 F.3d 1314, 1319 (Fed. Cir. 1997), cert. denied, 522 U.S. 857 (1997). Because there is no dispute that the Government's attorney had authority to bind the Government in contact, the entire agreement is enforceable.

Thus, given the clear and unambiguous terms of the Agreement, the Court finds that the parties agreed to limit Plaintiff's total liability to the IRS on January 3, 2000 for the trust fund penalties and any accrued interest to $30,838.49. Based upon the present record, however, questions of fact exist as to whether, and in what amount, Plaintiff and/or her husband satisfied this $30,838.49 obligation. Further, because the issue has not been squarely raised and addressed by the parties, the Court expresses no opinion as to whether Defendant can collect interest that may have accrued on the $30,838.49 after January 3, 2000. Accordingly, Plaintiff's motion is granted in part and denied in part.

V. CONCLUSION

Based upon the above, defendant's motion [dkt #12-1] is denied . Plaintiff's cross-motion [dkt. #14-1] is granted in part and denied in part. The motion is granted inasmuch as the Court finds and concludes that, pursuant to the terms of the Stipulation of Settlement Agreement attached as Exhibit A to the Complaint, Plaintiff ELEANOR HUDSON'S total liability to Defendant INTERNAL REVENUE SERVICE as of January 2, 2000 for the trust fund penalties assessed for tax years 1989 and 1990, and for any interest on those penalties that accrued up to January 2, 2000, is $30,838.49. The motion is denied in all other respects. Both parties are granted leave to file a properly supported motion for summary judgment following the conclusion for discovery.
 

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