Opinion
CIVIL ACTION NO: 03-2157, SECTION: "A" (1)
March 3, 2004
MINUTE ENTRY
Before this Court is defendant United States of America's MOTION TO DISMISS (Rec. Doc. #3). This motion is opposed, in part, by plaintiff Desire Community Housing Corporation ( Rec. Doc. #4). This motion, set for hearing on the briefs on November 5, 2003, is hereby GRANTED for the reasons set forth below.
BACKGROUND
On April 1, 2002, the IRS assessed a penalty on plaintiff pursuant to section 6656 of the Internal Revenue Code of 1986 for failure to deposit employment taxes under the Federal Insurance Contribution Act for the tax period ending on December 31, 2001. The IRS also assessed penalties against plaintiff pursuant to section 6652 of the Internal Revenue Code for failure to file annual returns in the tax periods ending on December 31, 1999 and December 31, 2000.
On March 6, 2002, plaintiff filed a request for abatement of the penalties for failure to deposit the employment taxes and failure to file its annual returns. This request for abatement was denied by the revenue officer that was assigned to plaintiff Desire's case.
Plaintiff asserted that the reason it failed to deposit the employment taxes was a delay in Desire's receiving of its federal funding, which had created financial hardship. Plaintiff asserted that it was not aware that Desire's outside accountants had not filed the IRS Forms 990 for the 1999 and 2000 tax period.
On May 28, 2002, the plaintiff requested an appeal of the revenue officer's determination. Stephen Armi was assigned the appeal, which he subsequently denied on February 28, 2003.
On July, 29, 2002, the IRS filed a Notice of Federal Tax Lien against Desire regarding the penalty for failure to deposit employment taxes for the year 2001, which Desire appealed to the IRS Office of Appeals on August 19, 2002, by filing a Request for Due Process Hearing. On September 6, 2002, the IRS filed a Notice of Federal Tax Lien against Desire for the failure to file annual returns penalty for the years 1999 and 2000, which Desire appealed to the IRS Office of Appeals on October 10, 2002, by filing a Request for Due Process Hearing.
On June 9, 2003, Desire submitted, on IRS form 656, an Offer-in-Compromise for the tax periods in which deficiencies had been levied against Desire. On July 1, 2003, the IRS informed Desire that it was not qualified for its Offer-in-Compromise to be considered because (1) Desire did not timely file and/or pay its quarterly federal tax return and/or taxes for the two quarters prior to the quarter it submitted the offer and (2) Desire failed to make current quarter's federal tax deposits timely and/or in sufficient amounts.
lt's conduct violates the specific instructions listed in the Form 656 booklet as requirements which must be met in order for an offer-in-compromise to be considered.
Also on July 1, 2003, an appeals officer conducted a Collection Due Process Hearing and issued a combined Notice of Determination finding that both penalties were properly filed and imposed against Desire. Subsequently, this litigation ensued.
PARTIES' CONTENTIONS
Defendant asserts that this Court should grant its motion to dismiss because the plaintiff has failed to state a claim upon which relief can be granted and that this Court has no subject matter jurisdiction over this claim. First, defendant asserts that this action was brought by the plaintiff to challenge the determination of the appeals officer of the IRS concerning the upholding of the filing of the Notice of Federal Tax Lien relating to the penalties assessed against plaintiff for the tax years 1999 through 2001, for which, according to defendant, this Court has no jurisdiction. Next, defendant asserts that this Court cannot review the issue of Desire's offer in compromise to the IRS because this issue is strictly within the discretion of the IRS. Finally, defendant states that plaintiff's request for the injunctive relief of a writ of mandamus is unavailable because this Court does not have the jurisdiction to do so.
Plaintiff asserts that this Court has subject matter jurisdiction over the penalties assessed against it for the tax periods which are the basis of the two tax liens. Plaintiff also asserts that this Court has jurisdiction over Desire's offer in compromise and can order such to be processed and considered. Plaintiff, however, does not oppose the defendant's objection to the issuance of a writ of mandamus.
ANALYSIS
The authority to compromise a tax liability is stated in 26 U.S.C. § 7122. The statute provides "the Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense." Section (c) further states that "the Secretary shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute."
26 U.S.C.A. § 7122(a) (West 2002).
26 U.S.C.A. § 7122(c) (West 2002).
Under Treasury Regulation § 301.7122-1(b), the Secretary may only compromise a tax liability on one of three grounds. They include (1) doubt as to liability; (2) doubt as to collectibility; and (3) the promotion of effective tax administration. There are two types of situations which fall under the third category for the promotion of effective tax administration. The first occurs "when the Secretary determines that, although collection in full could be achieved, collection of full liability would cause the taxpayer economic hardship within the meaning of § 301.6343-1." Second, "the IRS may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability."
26 C.F.R. § 301.7122-1(b)(3)(ii) (West 2003)." Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this paragraph (b)(3)(ii) will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full." Id.
The Treasury Regulation goes further on to state that "once a basis for compromise under paragraph (b) of this section has been identified, the decision to compromise, as well as the terms and conditions agreed to, is left to the discretion of the Secretary." Procedures for the submission of an offer to compromise require that an offer to compromise under this section must be in writing, must be signed by the tax payer under penalty of perjury, and must contain all the information requested. However, an offer to compromise only becomes pending when it is accepted for processing. When an offer to compromise is returned following a determination that the offer was nonprocessable the taxpayer is not entitled to an appeal on the matter. Even if the IRS' rejection of Desire's offer to compromise was appealable, which it is not due to the IRS determination that it was nonprocessable, this Court can find no grounds in which it would have jurisdiction over that appeal. Desire has offered no basis on which this Court could exercise jurisdiction over this claim. The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction. Ramming v. United States. 281 F.3d 158, 161 (5th Cir. 2001) ( citing McDaniel v. United States, 899 F. Supp. 305, 307 (E.D. Tex. 1995)). Plaintiff Desire has not met this burden.
ld. at (d)(2).
"The taxpayer may administratively appeal a rejection of an offer to compromise to the IRS Office of Appeals if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary." 26 C.F.R. § 301.7122-1 (f). "Where a determination is made to return offer documents because the offer to compromise was nonprocessable, because the taxpayer failed to provide requested information, or because the IRS determined that the offer to compromise was submitted solely for purposes of delay under paragraph (d)(2) of this section, the return of the offer does not constitute a rejection of the offer for purposes of this provision and does not entitle the taxpayer to appeal the matter to the IRS Office of Appeals under the provisions of this paragraph (f)(5)." id.
As to the underlying penalty and the subsequent issues involving the appeals hearing, this Court does not have subject matter jurisdiction to hear these claims. 26 U.S.C. § 6330 states the process by which deficiencies are levied and the manner in which they can be appealed. 26 U.S.C. § 6330 (d) specifies the procedures required for judicial review to take place after an appeals hearing. This section states:
(1) Judicial review of determination. — The person may, within 30 days of a determination under this section, appeal such determination —
(A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to 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.
If a court determines that the appeal was to an incorrect court, a person shall have 30 days after the court determination to file such appeal with the correct court.
"No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made" 26 U.S.C. § 6330 (a)(1).
The United States Tax Courts have jurisdiction over the two issues that are the underlying tax liabilities in this case, which are the deficiency determinations by the IRS for failure to deposit employment taxes for the year 2001 and failure to file annual returns penalty for the years 1999 and 2000. This Court does not.
See 26 U.S.C. § 6211-6215 (West 2003). 26 U.S.C. § 6213 states that a taxpayer may file a petition with the Tax Court for a redetermination of the deficiency within 90 days of the Notice of Deficiency authorized in Section 6212.
ACCORDINGLY;
IT IS ORDERED that defendant's MOTION TO DISMISS(Rec. Doc. # 3) is GRANTED. Plaintiff shall have 30 days to re-file its appeal in the United States Tax Court in compliance with 26 U.S.C. § 6330(d).