Opinion
Case No. 4:02 CV 1391
September 10, 2002
MEMORANDUM OF OPINION AND ORDER
On July 18, 2002, pro se plaintiffs Gregg and Rose Bentley ("the Bentleys") filed this in forma pauperis action against the Internal Revenue Service (IRS), United States Attorney General, United States Attorney and the United States of America. The Bentleys are seeking to set aside a Notice of Determination issued by the Internal Revenue Service (IRS) Appeals Office. Plaintiffs assert they are entitled to relief pursuant to 26 U.S.C. § 6330 because the Determination was issued in violation of law.
In 1999, the Bentleys filed an income tax return with the IRS wherein no income or expenses were claimed. The IRS subsequently determined that the Bentleys' income tax return was frivolous and assessed a return penalty of $500.00 pursuant to 26 U.S.C. § 6702.
Section 6702 provides that an individual shall pay a $500 penalty for filing a tax return that does not contain information on which the substantial correctness of the self-assessment may be judged.
The plaintiffs attached to their complaint a copy of the "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" from the IRS, dated January 2, 2002, as Exhibit 2. In response to the Notice, they prepared a letter, dated January 24, 2001, to IRS agent Philip Hovanic requesting a Collection Due Process (CDP) hearing before an IRS Appeals Officer pursuant to 26 U.S.C. § 6330 (b). The Bentleys requested the hearing to determine whether the United States "could legally seize Plaintiff's property pursuant to Internal Revenue Code Section 6331, in connection with a $500 frivolous `penalty' which had been imposed by employees of the United States . . . even though no court order, writ of garnishment or writ of attachment had ever been issued by any court of law with respect to Plaintiff's property." (Compl. at 2.) In the letter, the Bentleys requested that the IRS appeals officer provide the following information at the CDP hearing:
Section 6330 provides, in relevant part, that the IRS may not place a levy on any property of any person unless the Secretary of Treasury ("the Secretary") notifies the person in writing that he is entitled to a hearing before the levy is issued. 26 U.S.C. § 6330(a)(1).
a. verification from the Secretary that the requirements of any applicable law or administrative procedure have been met as required by 6330(c)(1).
b. The documents which support imposition of the penalty or the signed document referenced in 26 U.S.C. § 6751 (b) which would reveal the names of the employees who imposed the `frivolous' penalty.
c. The federal identification numbers of the employees who imposed the `frivolous' penalty.
d. delegation orders from the Secretary delegating authority to those persons who imposed the `frivolous penalty'.
e. The official job descriptions of the IRS employees who imposed the `frivolous' penalty.
f. a listing of Treasury Department regulations that allow IRS employees to impose `frivolous penalties'.
(Compl. at 3.) The Bentleys also advised the hearing officer that they would challenge the "`existence of the underlying liability' of the tax that generated the `frivolous penalty'" during the hearing (Compl. at 4.) In addition, the plaintiffs advised that they intended to audio record the entire hearing "to make an accurate record of what took place." (Compl. at 4.) They were advised by the appeals officer that they would not be permitted to audio record the hearing. The Bentleys then inquired whether this requirement was enacted into law by Congress or entered into the Federal Register.
The requested CDP hearing was conducted before an IRS Appeals Officer on January 15, 2002. Plaintiffs complain that the appeals officer failed to provide any of the information they requested in their January 24, 2001 letter. In addition, they claim the appeals officer refused to accept their "`collection alternative' to pay the frivolous penalty if the officer would cite and produce the statute that established the "underlying liability" for the tax." (Compl. at 5.) While the Bentleys contend that they furnished a copy of the Internal Revenue Code for the appeals officer to use, she refused to point out where "an income tax `liability' was established by law." (Compl. at 6.)
The Bentleys assert that the appeals officer violated the law by failing to:
i. allow an audio recording or a transcript made by a court reporter
ii. provide proof that the notice sent to them regarding the CDP hearing was sent by someone delegated authority to do so by the Secretary
iii. provide verification from the Secretary as required by § 6330(c)(1) (c)(3)(A)
iv. provide a Notice and Demand for payment with regard to the taxes and penalties at issue
v. produce any statute requiring plaintiffs to pay a penalty or establishing an underlying income tax liability.
A Notice of Determination, dated June 20, 2002, was issued by the IRS Appeals Team Manager, Joseph Weiss, concluding that "[a] levy should be filed, since you have failed to pay penalty and interest due for the year 1999." (Ex. 1.) As an attachment to the Notice, Mr. Weiss provided a Discussion and Analysis that included "Relevant Issues Presented by the Taxpayer." In summarizing the issues raised by plaintiffs at the CDP hearing, Mr. Weiss noted "[y]ou questioned the validity of the underlying assessment based upon a perceived lack of a valid summary record of assessment." (Ex. 1 at 4.) Mr. Weiss noted that a Certified Transcript (Form 4340) was sent to the Bentleys for year 1999. The transcripts identify the taxpayer, type of tax, the tax periods, date of assessment, and the amount of assessment. He further noted that the five enumerated items fulfill the taxpayer information requirements set forth in Treasury Regulation section 301.6203-1. With regard to the plaintiffs' claim that they never received a notice and demand for payment of the $500 frivolous penalty, he added that a transcript of account for 1999 indicated that letters requesting payment were sent to the Bentleys.
Based on the issuance of the Notice of Determination, the Bentleys now seek to declare the IRS Determination of June 20, 2002 invalid, order the government to reimburse them all of the costs in bringing this action and award them punitive damages for the "needless time, effort and money Defendant's lawless actions compelled Plaintiff's [sic] to expend." (Compl. at 8.)
Although pro se pleadings are liberally construed, Boag v. MacDougall, 454 U.S. 364, 365 (1982) (per curiam); Haines v. Kerner, 404 U.S. 519, 520 (1972), the district court is required to dismiss an action under 28 U.S.C. § 1915 (e) if it fails to state a claim upon which relief can be granted, or if it lacks an arguable basis in law or fact. Neitzke v. Williams, 490 U.S. 319 (1989); Lawler v. Marshall, 898 F.2d 1196 (6th Cir. 1990); Sistrunk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir. 1996). For the reasons stated below, this action is dismissed pursuant to section 1915(e).
A claim may be dismissed sua sponte, without prior notice to the plaintiff and without service of process on the defendant, if the court explicitly states that it is invoking section 1915(e) [formerly 28 U.S.C. § 1915 (d)] and is dismissing the claim for one of the reasons set forth in the statute. McGore v. Wrigglesworth, 114 F.3d 601, 608-09 (6th Cir. 1997); Spruytte v. Walters, 753 F.2d 498, 500 (6th Cir. 1985), cert. denied, 474 U.S. 1054 (1986); Harris v. Johnson, 784 F.2d 222, 224 (6th Cir. 1986); Brooks v. Seiter, 779 F.2d 1177, 1179 (6th Cir. 1985).
Under the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), Pub.L. 105-206, § 3401, 112 Stat. 685, 746, Congress enacted section 6330 (pertaining to levies) to provide due process protection for taxpayers in tax collection matters. The relevant section addresses instances wherein the Secretary is authorized to collect taxes by levy upon property belonging to a person who is liable to pay a tax, but who neglects or refuses to pay such tax within 10 days after notice and demand for payment. 26 U.S.C. § 6331 (a). Before proceeding with the collection by way of levy, however, the IRS must provide notice to the person of his or her right to a hearing on the matter. Id. § 6330(a). The individual has a right, within 30 days of the section 6330 notice, to request a collection due process hearing with the IRS Office of Appeals. Id. § 6330(a)(3)(B). During the due process hearing, the taxpayer may raise any issue relevant to the unpaid tax and the proposed levy, including challenges to the propriety of the levy and offers of collection alternatives. Id. § 6330(c)(2).
At the conclusion of a CDP hearing the Appeals Officer is asked to formulate a determination based on: (1) the verification that the requirements of any applicable law or administrative procedure have been met; (2) the issues raised by the taxpayer; and (3) the proper balance between the need for efficient tax collection and the legitimate concern that any collection action be no more intrusive than necessary. See id. § 6330(c)(3). Following the hearing, the Appeals Officer sends a Notice of Determination to the complainant that summarizes the matters raised during the hearing and responds to any offers or objections made by the complainant. If the individual is dissatisfied with the administrative determination, he or she has 30 days within which to appeal to "the Tax Court (and the Tax Court shall have jurisdiction to hear such matter); or (B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States." 26 U.S.C. § 6330(d)(1). Any review of a determination is limited to matters actually raised at the administrative hearing. Temp. Treas. Reg. § 301.6330-IT(f) (2001).
Although section 6330 does not prescribe the standard of review a district court must apply in reviewing the Commissioner's administrative determinations, the legislative history indicates that the court should conduct a de novo review only "where the validity of the tax liabilitywas properly at issue at the administrative hearing." H.R. CONF. REP. NO. 105-599, at 266 (1998) (emphasis added).
An individual may raise any relevant issues relating to unpaid taxes or a proposed levy during the course of a CDP hearing, including spousal defenses to collection, challenges to the appropriateness of the Commissioner's intended collection action, and offers of alternative means of collection. 26 U.S.C. § 6330(c)(2)(A). The statute does, however, bar a person from contesting the existence or amount of the underlying taxes unless that individual did not receive a notice of deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute such tax liability. 26 U.S.C. § 6330(c)(2)(B).
While the Bentleys imply that they are challenging the validity of an underlying tax liability, a close analysis of the facts reveals that de novo review is not appropriate in this context. Clearly, the court is obligated to engage in a de novo review where the validity of the tax liability was properly at issue during the administrative hearing; however, the facts alleged indicate that the matter was not properly at issue during the CDP hearing. The statute is clear and unequivocal: a person is barred from contesting the existence or amount of the underlying taxes unless he or she did not receive a notice of deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute such tax liability. 26 U.S.C. § 6330(c)(2)(B).
In their January 24, 2001 letter to IRS Officer Phillip Hovanic, the Bentleys repeatedly maintained that they did not receive a "statutory Notice and Demand for payment of taxes at issue as required by Code Sections 6203, 6321 and 6331." (Ex. 2, Bentley ltr. to Hovanic). This contention that they did not receive a particular form, which they deem "the statutory form," is unavailing. The particular form on which a notice of assessment and demand for payment is made is irrelevant as long as it provides the taxpayer with all the information required under 26 U.S.C. § 6303 (a). Elias v. Connett, 908 F.2d 521, 525 (9th Cir. 1990). The Final Notice which plaintiffs attached to their complaint satisfies those requirements. Therefore, plaintiffs had no statutory basis for presenting a challenge to the underlying tax liability at the CDP.
Where the amount of the underlying tax liability is not properly part of the appeal, the court reviews a Notice of Determination for abuse of discretion. See Sego v. Comm'r of Internal Revenue, 114 T.C. 604, 609-10 (2000); Goza v. Comm'r of Internal Revenue, 114 T.C. 176, 179-80 (2000);see also MRCA Information Services v. United States, 145 F. Supp.2d 194, 199 (D.Conn. 2000) (holding that district court applies an abuse of discretion standard when reviewing an IRS Settlement Officer's determination under 26 U.S.C. § 6330). The Sixth Circuit has held that an administrative agency abuses its discretion where there is no evidence to support its decision, or the agency misapplies the law. See National Engineering Contracting Co. v. Occupational Safety Health Administration, 928 F.2d 762, 768 (6th Cir. 1991).
The IRS hearing officer did not abuse his discretion when he determined that the requirements of applicable law had been met and that plaintiffs had been afforded statutorily-required administrative procedures. 26 U.S.C. § 6330(c)(1). The Bentleys did not address any of the statutorily-specified issues that may be raised at a collection due process hearing, such as spousal defenses, the appropriateness of an intended collection action, and possible alternative means of collection. 26 U.S.C. § 6330(c). Finally, the arguments that plaintiffs now raise in this court have been considered and rejected by other courts.
The Supreme Court has held that § 6331 authorizes the collection of federal taxes by levy on the property of any person who refuses or neglects to pay any tax. G.M. Leasing Corp. v. United States, 429 U.S. 338 (1977). Further, any the claim that an IRS employee is not a "delegate" of the Secretary of the Treasury has been flatly rejected. Browder v. Commissioner, T.C. Memo 1990-408, 1990 WL 108316.
In Hughes v. United States, 953 F.2d 531 (9th Cir. 1993), an action brought by the taxpayers to enjoin the collection of income taxes, the Ninth Circuit rejected the argument that the IRS could not prevail because there was no evidence of any delegated authority from the Secretary of the Treasury to the various agents involved. The circuit court noted:
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.Id. at 536.
To the extent the Bentleys are challenging the adequacy of the notice they received regarding the frivolous penalty, they have not set forth an adequate claim for relief. The appeals officer presented a Certified Transcript of Assessments and Payments for the plaintiffs' 1999 tax year reflecting, in part, the date and amount of assessment. In the absence of evidence to the contrary, these transcripts are sufficient evidence to establish compliance with Internal Revenue Code notice requirements.McCarty v. United States, 929 F.2d 1085, 1089 (5th Cir. 1991) (per curiam); see also United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984) (in the absence of contrary evidence, IRS certificates are sufficient to establish that notices were properly made), cert. denied, 469 U.S. 830 (1984). Plaintiffs have not alleged any legal basis upon which they base their claim that the notice sent was insufficient. The statute only requires that the notice be "sent by mail." Courts have interpreted other provisions of the Internal Revenue Code requiring that a notice be mailed as not requiring that the taxpayer actually receive the notice. See, e.g., 26 U.S.C. § 6212 (a) 6213(a); Wiley v. U.S., 20 F.3d 222, 224 (6th Cir. 1994) (IRS is required to send notice of tax deficiency by certified or registered mail to taxpayer's last-known address before making assessment for delinquent taxes, but actual receipt of deficiency notice is not necessary); Guillen v. Barnes, 819 F.2d 975, 977 (10th Cir. 1987) (IRS must timely mail a deficiency notice to the taxpayer's last known address; it is not a requirement that the taxpayer actually receive that notice).
The Bentleys further alleges that the hearing officer erred because she refused to accept the `collection alternative' they proposed which was that they 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 do not state a claim. The purpose of the provision for the consideration of collection alternatives described in Sections 6330(c)(2)(A) and 6330(c)(3)(C) is clearly intended to allow the taxpayer to propose a method of payment that will address payment of the underlying tax liability instead of satisfaction of a tax lien by a levy. The Bentleys allegation does not propose an "alternative" to collection by levy but rather proposes a condition to payment of the underlying liability. Therefore, this allegation does not state a claim upon which relief can be granted.
If the Bentleys are also seeking to assert a procedural due process claim, this court lacks jurisdiction. District courts have no jurisdiction over civil claims challenging taxes unless litigants first pay the assessed tax and then raise these claims in a refund suit. See 26 U.S.C. § 7421 (a) (prohibiting suits to restrain assessment or collection of taxes); see also Flora v. United States, 362 U.S. 145, 148 (1960) (holding 28 U.S.C. § 1346 (a), which gives district courts jurisdiction over civil suits challenging tax assessments, requires fall payment of assessed tax prior to suit).
Based on the foregoing, the court find that the IRS appeals officer did not abuse his discretion in determining that a levy should be filed against plaintiffs for failing to pay penalties and interest due for the year 1999. Accordingly, plaintiffs' request to proceed in forma pauperis is granted and the complaint is dismissed pursuant § 1915(e). Further, the court certifies pursuant to 28 U.S.C. § 1915(a)(3) that an appeal from this decision could not be taken in good faith.
ORDER
This court having contemporaneously filed its Memorandum of Opinion in this case, it is therefore ORDERED that this action is dismissed pursuant to 28 U.S.C. § 1915 (e). Further, the Court CERTIFIES pursuant to 28 U.S.C. § 1915(a)(3) that an appeal from this decision could not be taken in good faith.