Opinion
Case No. CV-S-01-1187-RLH (RJJ)
May 10, 2002
ORDER
Before the Court are Defendant's Motion to Dismiss and for Summary Judgment (#6) and Plaintiffs Reply to Defendant's Motion to Dismiss (#9). The Court finds that there are no genuine issues of material fact and grants Defendant's Motion (#6).
In considering a motion for summary judgment, the court performs "the threshold inquiry of determining whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved by a finder of fact because they may be reasonably resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). To succeed on a motion for summary judgment, the moving party must show (1) the lack of a genuine issue of any material fact, and (2) that the court may grant judgment as a matter of law. Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A material fact is one required to prove a basic element of a claim. Anderson, 477 U.S. at 248. The failure to show a fact essential to one element "necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323.
"[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. "Of course, a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. As such, when the non-moving party bears the initial burden of proving, at trial, the claim or defense that the motion for summary judgment places in issue, the moving party can meet its initial burden on summary judgment merely "by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325.
Once the moving party meets its initial burden on summary judgment, the non-moving party must submit facts showing a genuine issue of material fact. Fed.R.Civ.P. 56(e). As summary judgment allows a court "to isolate and dispose of factually unsupported claims or defenses," Celotex, 477 U.S. at 323-24, the court construes the evidence before it "in the light most favorable to the opposing party." Adickes v. S. H. Kress Co., 398 U.S. 144, 157 (1970). The allegations or denials of a pleading, however, will not defeat a well-founded motion. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
This action concerns tax returns on Forms 1040EZ for the years 1996, 1997, and 1998 that Plaintiff filed with the Internal Revenue Service. Motion (#6), Exhibit B. On each return Plaintiff stated that he had no income. With each return Plaintiff attached one or more Forms W-2 showing wages, tips, or other compensation more than zero. Id. He also attached a two page explanation of how he has no income tax liability because his wages were not income. Id. The Internal Revenue Service assessed against Plaintiff frivolous return penalties for these years. The Internal Revenue Service also assessed income tax deficiencies, along with associated penalties and interest, against Plaintiff for the years 1997 and 1998. When Plaintiff received a notice of a federal tax lien filing concerning these penalties and deficiencies, he requested a collection hearing pursuant 26 U.S.C. § 6320. Compl. (#1), Exhibit B. After the hearing, the Appeals Office of the Internal Revenue Service found that the lien was not more intrusive than necessary. Id., Exhibit A.
Plaintiff then commenced this action pursuant to 26 U.S.C. § 6330(d), apparently challenging both the frivolous return penalties and the income tax deficiencies. A jurisdictional problem immediately arises. The Tax Court does not have jurisdiction to consider frivolous return penalties. Van Es v. Commissioner, 115 T.C. 324 (2000). Therefore, this Court has jurisdiction with respect to those penalties. 26 U.S.C. § 6320(c), 6330(d)(1)(B). However, the Tax Court does have jurisdiction to consider income tax deficiencies. 26 U.S.C. § 6213(a); see also Moore v. Commissioner, 114 T.C. 171, 175 (2000). The Tax Court thus has jurisdiction over the liens placed on Plaintiffs property for non-payment of income taxes, and this Court lacks jurisdiction. 26 U.S.C. § 6320(c), 6330(d)(1). The Court will dismiss the portion of the Complaint concerning the income tax liens for the years 1997 and 1998, and Plaintiff may file an appeal concerning those matters with the Tax Court within thirty (30) days. Id.
A person who files a frivolous tax return is liable for a penalty of five hundred dollars ($500.00). 26 U.S.C. § 6702. The Secretary of the Treasury or his delegate, such as the Internal Revenue Service, assesses this penalty in the same manner as a tax, and any reference to a "tax" in Title 26 also includes this penalty. 26 U.S.C. § 6671. Section 6201 of the Code authorizes the Secretary to make any necessary tax assessments. In the case of a frivolous return penalty, the deficiency procedures of Title 26, Chapter 63, Subchapter B, do not apply. 26 U.S.C. § 6703(b). The failure to pay the penalty results in a lien on the person's property. 26 U.S.C. § 6321. To ensure the validity of the lien, the Secretary files the lien with, in this case, the Clark County Recorder, 26 U.S.C. § 6323(f)(1)(A), and sends a notice of filing of the lien to the person, 26 U.S.C. § 6320(a). The Secretary must also inform the person of his right to a hearing at the same time. 26 U.S.C. § 6320(a)(3)(B). For the purposes of this Order, the procedures of the collection due process hearing, 26 U.S.C. § 6330(c), apply to the lien hearing, 26 U.S.C. § 6320(c). If the person requests a hearing, the hearing officer must "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." 26 U.S.C. § 6330(c)(1). At the hearing, the person may raise any relevant issue, including spousal defenses, the appropriateness of the collection action, and any collection alternatives. 26 U.S.C. § 6330(c)(2)(A). The person "may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." 26 U.S.C. § 6330(c)(2)(B).
The Court will use the collective term "Secretary" to refer to the Secretary of the Treasury and any delegates. See 26 U.S.C. § 7701(a)(11)(B). The Secretary of the Treasury may delegate much of his authority and responsibilities to others by prescribing rules and regulations, among other methods. 26 U.S.C. § 7805(a); see also 26 C.F.R. §§ 301.7701-9, 301.7701-10.
The "underlying tax liability" in this case is the frivolous return penalty. See 26 U.S.C. § 6671; see also 26 C.F.R. § 301.6321-1. Plaintiff properly challenged the validity of the frivolous return penalties at the collection due process hearing because the statutory deficiency procedures to not apply to frivolous return penalties, 26 U.S.C. § 6703(b), and thus Plaintiff had no prior opportunity to dispute the penalties. The validity of the income taxes that Plaintiff owes for 1996, 1997, and 1998 is not at issue in this action. On the other hand, the tax returns that Plaintiff filed for 1996, 1997, and 1998 are relevant because they determine whether assessment of the frivolous return penalty was proper.
Section 6330(d) is silent on the standard that the Court should use to review the determination of the collection hearing. However, the legislative history indicates that if the validity of the underlying tax liability was properly at issue, then review is de novo. H. Conf Rep. 105-599 (1998); see also Dogwood Forest Rest Home, Inc. v. United States, 181 F. Supp.2d 554, 559 (M.D.N.C. 2001); MRCA Info. Servs. v. United States, 145 F. Supp.2d 194, 198-99 (D. Conn. 2000); Sego v. Commissioner, 114 T.C. 604, 610 (2000). The Court will use that standard of review.
There is no doubt about the validity of the penalty. Plaintiff submitted Forms 1040EZ for 1996, 1997, and 1998 with zeros in the income section and Forms W-2 showing income considerably more than zero. Motion (#6), Exhibit A. He also attached an explanation of how no provisions of the Internal Revenue Code make him liable for the income tax, how his wages are not income, and other matters. Id. Wages are income, 26 U.S.C. § 61, upon which Plaintiff owes a tax, 26 U.S.C. § 1, and courts — including this one — have found arguments to the contrary to be frivolous long before Plaintiff filed the tax returns at issue. See, e.g., Sisemore v. United States, 797 F.2d 268, 270 (6th Cir. 1986); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985); In re Hopkins, 192 BR. 760, 762-63 (D. Nev. 1995); and other cases too numerous to cite. On its face, Plaintiffs tax returns were substantially incorrect, due to a frivolous position, thus making Plaintiff liable for the frivolous return penalty. 26 U.S.C. § 6702. The assessments of the frivolous return penalties are valid.
Counsel for Defendant has properly authenticated this exhibit, Plaintiff has not objected to it, and, in any event, Plaintiffs allegations in the Complaint (#1) and statements in the hearing show that the tax returns are his.
No genuine issue of material fact exists over the verification of all legal and administrative requirements. Plaintiff states that the "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC § 6320," Compl. (#1), Exhibit B, was sent by the Compliance Technical Support Manager. This official had the authority to send such a notice. See D.O. No. 196, 1982-2 C.B. 748 (1982). The Secretary of the Treasury delegated to the local Internal Revenue Service office collecting the penalty the responsibility of providing the verification to the hearing officer. 26 C.F.R. § 301.6320-1(e)(1). The hearing officer properly relied on Forms 4340, attached to Plaintiffs Complaint (#1), for such verification. See Huff v. United States, 10 F.3d 1440, 1446-47 (9th Cir. 1993), cert. denied, 512 U.S. 1219 (1994); Hughes v. United States, 953 F.2d 531, 538-40 (9th Cir. 1992); see also Davis v. Commissioner, 115 T.C. 35, 41 (2000). The Forms 4340 show that the frivolous return penalty had been assessed, that notices had been mailed to Plaintiff, and that Plaintiff had requested a hearing. As noted above, the tax returns are clearly frivolous. The hearing officer did not err in his verification that the requirements of any applicable law and administrative procedures had been met.
Plaintiff's repeated insistence that he see documents signed by the Secretary of the Treasury or by a person with a delegation order signed by the Secretary of the Treasury, Reply (#8), at pp. 3-6, is frivolous.
According to Plaintiff, he "never received a valid Deficiency Notice — that is one signed by the Secretary or someone with delegated authority from him," Compl. (#1), at ¶ 13, and "that he never received the statutory `Notice and Demand' for payment in connection with the alleged taxes due," Id. at ¶ 15. Plaintiff verified his Complaint (#1), and thus it serves as an affidavit. Schroeder v. McDonald, 55 F.3d 454, 460 (9th Cir. 1995). His allegations are defective for three reasons. First, ¶ 13 is irrelevant. Because deficiency procedures do not apply to frivolous return penalties, the Internal Revenue Service need not send a notice of deficiency. 26 U.S.C. § 6703(b); Colton v. Gibbs, 902 F.2d 1462, 1464 (9th Cir. 1990). Second, ¶ 15 is untrue. Plaintiff obviously received the notice of the tax lien filing because he attached it to his verified Complaint (#1) as Exhibit B. Third, Plaintiff might be arguing that he did not receive a notice and demand pursuant to 26 U.S.C. § 6303. However, § 6303 only requires the Internal Revenue Service to mail a notice and demand to Plaintiffs last known address, and, as noted above, the hearing officer could rely on the Forms 4340 to verify that the notice was sent. The failure to receive such notice and demand, and Plaintiffs affidavit to that effect, are immaterial. Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993).
Plaintiffs other arguments are also frivolous and irrelevant to 26 U.S.C. § 6330(c)(2)(A). The hearing officer's decision on this point is correct.
Because there are no genuine issues of material fact, Defendants are entitled to judgment as a matter of law.
IT IS THEREFORE ORDERED that Defendant's Motion to Dismiss and for Summary Judgment (#6) is GRANTED. Plaintiffs claims concerning income tax deficiencies for the years 1997 and 1998 are DISMISSED for lack of subject matter jurisdiction. Plaintiff shall have thirty (30) days from the date that this Order is entered to file an appeal concerning these claims in the United States Tax Court. The Court GRANTS summary judgment in Defendant's favor with respect to the remaining claims. The Clerk of the Court shall enter judgment accordingly.