Opinion
CASE NO. CV 98-0137-N-EJL
August 11, 2000
William W. Nixon, Attorney At Law, Coeur D'Alene, ID.
Robert E. Kovacevich, Attorney At Law, Spokane, WA.
Charles M. Duffy, U.S. Dept. Of Justice, Tax Divn., Washington, DC.
REPORT AND RECOMMENDATION
Currently before the Court for its consideration is Defendant's motion for summary judgment (docket # 39), filed December 27, 1999. Having reviewed all briefing submitted, as well as other pertinent documents in the Court's file, and having heard oral arguments, the Court submits its Report and Recommendation as follows.
I. Background.
Plaintiffs are husband and wife, Frank Chapin and Sydney Gutierrez Chapin, (hereafter the "Chapins") and Frank L. Chapin, P.A. (hereafter the "corporation") The Defendant is the United States. Plaintiffs' first complaint was addressed when the Defendant filed a motion to dismiss, which was granted in part and denied in part. (Order Adopting Report and Recommendation, docket # 38.) Plaintiffs filed an amended complaint between the time the Report and Recommendation (docket # 25) and the Order adopting it (docket # 38) were issued. The Order adopting the Recommendation addressed the amended complaint. The claims which remain to be addressed are: a) Plaintiffs' claim for injunctive relief; and b) Plaintiffs' claim for wrongful levy under 26 U.S.C. § 7426.
The First Amended Complaint is somewhat confusing as the allegations do not provide a lot of details. Plaintiffs appear to allege that monies paid for the 1992 tax year were wrongfully credited and the tax collection procedures employed, in the form of levy, were unlawful, that their remedies are inadequate and irreparable, and they seek equitable relief and an accounting from the Defendants.
Plaintiffs state that they originally owed $7832 for the 1992 tax year, but that the Defendants have alleged that they owe $9,444 for the 1992 tax year due to a "reclassification" of the individual Plaintiffs. Levies which occurred on December 10, 1997, and on January 5, 1998, resulted in the amounts of $4,054 and $1,068 being applied toward the 1992 liability and Plaintiffs state that "all other payroll taxes for 1992 were paid with the returns." (Plaintiffs' complaint, ¶ 9.) Plaintiffs further allege that, for the tax period ending on December 31, 1997, the amount of $4,100 is due to the IRS for "actual payroll taxes due by the corporation for legitimately classified employees of the corporation." ( Id.) Plaintiffs allege that the amounts that were erroneously applied to the 1992 tax year should instead be applied to the 1997 liability. ( Id.)
In 1997, IRS Revenue Officer Jeff Siebrecht was assigned to collect the tax liabilities that the IRS alleged were owed by the corporation and by the Chapins. The Chapins reportedly owed income taxes (1040s), and the corporation owed FICA (941) and corporate income taxes (1120s). Over a period of time the IRS sought to collect the taxes and on occasion the Plaintiffs paid some of the taxes owed.
On April 22, 1997, the IRS issued five notices of levy to the Panhandle State Bank and New York Life Insurance to collect 1040, 1120 and 941 taxes that the Plaintiffs owed as individuals and as a corporation. At a meeting on April 28, 1997, between Siebrecht and the Plaintiffs, the Plaintiffs paid their outstanding individual income tax assessments for 1990, 1991, and 1992. However, their attorney, Robert Kovacevich, disputed that the Plaintiff corporation owed a tax liability for the period ending December 31, 1992, and stated that he would provide a written explanation of their position prior to May 9, 1997. As a result of the meeting though, the IRS released all five of the notices of levy.
On June 30, 1997, Plaintiffs' attorney sent Revenue Officer Siebrecht a position letter. Siebrecht disagreed with the arguments set forth and sent a response to the corporation on September 26, 1997, including a final notice of levy for the quarters ending December 31, 1992, and March 31, 1997, and the corporation's outstanding Form 1120 income tax liability for the periods ending December 31, 1993, and December 31, 1994, was also included in the letter.
In response, the corporation sent a letter, dated October 24, 1997, to Revenue Officer Siebrecht. Enclosed with the letter were checks that fully paid the referenced Form 1120 liabilities owed by the corporation. No levy to collect the Form 1120 liabilities was ever issued.
On November 17, 1997, Officer Siebrecht did issue notices of levy to the Panhandle State Bank to collect the delinquent Form 941 tax assessments owed by the corporation for the quarters ending December 31, 1992, ($14,145.90) and March 31, 1997 ($404.55), for an aggregate balance of $14,550.45. (Exhibit K to affidavit of Siebrecht) On December II, 1997, the Panhandle Bank sent $4,039.10 to the IRS, which was applied to the outstanding Form 941 liability for the quarter ending December 31, 1992.
On or about December 31, 1997, Revenue Officer Siebrecht issued a notice of levy to the Panhandle State Bank, again trying to collect money for the balance left on the December 31, 1992 and March 31, 1997 Form 941 tax assessments. After applying the money received earlier from the Panhandle Bank and with additional interest, the amounts now due for the most recent levy was $10,254.99 for the quarter ending December 31, 1992 and $409.06 for the quarter ending March 31, 1997. (Exhibit L to affidavit of Siebrecht).
On January 27, 1998, the IRS received $1,053.45 from the Panhandle State Bank in response the most recent levy, which was applied to the December 31, 1992 Form 941 quarter. With this background, the Court will now analyze Plaintiffs' remaining claims as set forth in the First Amended Complaint.
II. Standard of review.
Motions for summary judgment are governed by Fed.R.Civ.P. 56. Rule 56, which provides in pertinent part, that judgment "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 a judgment as a matter of law."
Fed, R. Civ. P. 56(c).
The United States Supreme Court has made it clear that under Rule 56, summary judgment is required if the nonmoving party fails to make a showing sufficient to establish the existence of an element which is essential to his case and upon which he/she will bear the burden of proof at trial. If the nonmoving party fails to make such a showing on any essential element of his case, "there can be "no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial."
See Celotex Corp. v. Citrate, 477 U.S. 317, 322 (1986).
Id. at 323. See also Rule 56(e).
Under Rule 56 it is clear that an issue, in order to preclude entry of summary judgment, must be both "material" and "genuine." An issue is "material" if it affects the outcome of the litigation. An issue is "genuine" when there is "sufficient evidence supporting the claimed factual dispute . . . to require a jury or judge to resolve the parties' differing versions of the truth at trial, or when the "evidence is such that a reasonable jury could return a verdict for the nonmoving party. The Ninth Circuit cases are in accord.
Hahn v. Sargent, 523 F.2d 461, 463 (1st Cir. 1975) (quoting First Na'l Bank v. Cities Serv. Co., Inc., 391 U.S. 253, 289 (1968)), cert. denied, 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754 (1976).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 212 (1986).
See British Motor Car Distributors, Ltd. v. San Francisco Automotive Industries Welfare Fund, 882 F.2d 371 (9th Cir. 1989).
III. Defendant's motion for summary judgment.
Defendant moves for summary judgment on the two remaining claims alleged in the amended complaint based on a failure to state a claim upon which relief can be granted. Defendant argues that: 1) the claims for wrongful levy must fail, and 2) Plaintiffs' do not qualify for the wrongful levy exception to the Anti-Injunction Act.I. Wrongful levy.
Under 26 U.S.C. § 6331(a), the IRS may levy on all property and rights to property of a taxpayer after an assessment is made. See United States v. National Bank of Commerce, 472, U.S. 713, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). 26 U.S.C. § 7426 (a) provides a limited waiver of sovereign immunity allowing a third-party to sue the United States when an IRS levy is alleged to have interfered with their property rights. See Allied/Royal Parking L.P. v. United States, 166 F.3d 1000, 1004 (9th Cir. 1999). The waiver does not apply, however, to the taxpayer against whom the tax has been assessed. Id.
Under this framework, the Court will address the points the Defendant raises in the motion. Beginning with paragraph 5 of the amended complaint (docket # 30), Plaintiffs allege that the corporation was levied upon for the individual taxes owed by Plaintiff Sydney Gutierrez for the years 1989, 1990, and 1991, pursuant to a notice of levy issued on April 6, 1997. Defendant argues that the corporation did not pay any amounts under the April 6, 1997, levy after it was released by Officer Siebrecht on April 28, 1997, so the Plaintiffs do not have the requisite property interest to assert a Section 7326 claim. See Allied/Royal Parking L.P. v. United States, 166 F.3d 1000, 1005 (9th Cir. 1999). Therefore, because the claim alleged in paragraph 5 of the amended complaint is without merit, the Defendant argues it is entitled to summary judgment. The Court agrees. Since the levy was released there can be no "wrongful" levy because the IRS never received any money.
If this point was not dispositive, the Defendant also point out that the levy was directed at the corporation, requesting that the corporation pay over any wages or salary that might be due Ms. Chapin to satisfy her individual tax liability. In any event the levy was released on April 28, 1997, without any money having been paid over, so again no wrongful levy can be found to have occurred.
Second, the Defendant asserts that it is entitled to summary judgment on paragraph 8 of the amended complaint which appears to allege that the IRS levied the corporation's bank account and applied the funds received from it to the personal taxes owed by the Chapins. The Defendant asserts that the allegation is unequivocally untrue because the notice of levy issued to the Panhandle State Bank on November 17, 1997, was to collect the outstanding balance owed by the corporation for the quarters ending December 31, 1992, and March 31, 1997. The IRS states that a total of $4,039.10 was paid to the IRS on December 11, 1997. This amount was applied to the corporation's outstanding tax liabilities.
The Court finds that there is no disputed issue of material fact on this point and the IRS is entitled to summary judgment on this claim. The November 17, 1997, levy to Panhandle State Bank was to collect money to be applied to the corporation's outstanding tax liability, not the individual liability of the Chapins. The money received was applied to the corporations 941 tax liability.
A second notice of levy issued on December 31, 1997, to the Panhandle State Bank resulted in an additional $1,053.45 being sent to the IRS which was also applied to the corporation's 941 liability. Defendant asserts that the notice was not issued in connection with personal tax liabilities, nor were the proceeds applied as such.
Defendant argues that the Plaintiffs' insistence that the amounts received from the levies were applied to personal tax liabilities is "inconsistent with all known facts, " and because it is factually groundless, the United States is entitled to summary judgment with regard to paragraph 8 of the amended complaint.
The Plaintiffs have failed to come forward with evidence that would create a disputed issue of material fact on this point. The corporation was the taxpayer in question and money received was applied to the corporation's outstanding 941 tax liability. If the corporation had a problem with this assessment or a concern about the matter, then it could have paid a tax and applied for a refund. The case law is clear that the taxpayer can not raise under Section 7426 a refund type of claim by trying to argue that the levy was wrongful when it is the taxpayer's property that is being levied on.
Finally, Defendant argues that the other allegations in the amended complaint regarding IRS levies are vague and non-specific, and therefore fail to state a claim, Defendant cites by way of example that, in paragraph 9, Plaintiffs alleged that the Defendant "negligently or intentionally continues to levy even though the law is clear on the definition of employer, " and points out that Plaintiffs do not state what levies have occurred which support the allegation.
Defendant goes on to argue that the remaining allegations regarding the determination of a tax liability or the application of credits cannot support a claim under 26 U.S.C. § 7426 because the allegations do not involve the property rights of a third person. Defendant asserts that the Plaintiffs' remedy, if any, would more appropriately lie in a claim for refund and/or a suit for refund, citing Brown v. United States, 743 F. Supp. 742, 743 (D. Nev. 1990), aff'd., 951 F.2d 358 (9th Cir. 1991) ("the remedy of a taxpayer wrongfully assessed has been payment of the tax followed by a rejected claim for refund and a suit for refund").
The Court finds that the Defendant's argument is supported by the record in this case and, therefore, that the claim for wrongful levy fails to state a claim upon which relief can be granted.
2. Anti-Injunction Act.
The Anti-Injunction Act, 26 U.S.C. § 7421, provides that suits may not be maintained for the purposes of restraining the collection or assessment of taxes. There is an exception to this restriction if the plaintiff can prove that the IRS initiated a wrongful levy. 26 U.S.C. § 7426. Defendant argues that the Plaintiffs do not qualify for the exception because the levy was not wrongful.
Defendant further argues that the Plaintiffs do not qualify to avail themselves of the exception based on the failure of the IRS to issue a notice of deficiency, a/k/a "90-day letter," 26 U.S.C. § 6212(a), for the reason that such notices are not required to be provided to corporations for tax liabilities owed under Subtitle C, Chapter 21 of the Code.
The Court agrees with the Defendant's position on the Anti-Injunction Act. Plaintiffs could only conceivably fall under the exception to the Act if there was a "wrongful" levy. Since the Court has determined that the levy was not wrongful, Plaintiffs have failed to state a claim upon which relief can be granted.
RECOMMENDATION
Based upon the foregoing, the Court being otherwise fully advised in the premises, the Court hereby RECOMMENDS that:
1) Defendant's motion for summary judgment (docket # 39), filed December 27, 1999, be GRANTED.
Written objections to this Report and Recommendation must be filed within ten (10) days pursuant to 28 U.S.C. § 636(b)(1) and Local Rule 72.1(d), or as a result of failing to do so, that party may waive the right to raise factual and/or legal objections to the United States Court of Appeals for the Ninth Circuit.