Opinion
Case No. 3:01cv486/RV/MD
December 13, 2002
ORDER
Pending is the defendant's motion for summary judgment (doc. 12).
The plaintiffs, David J. Johnson and Jo D. Johnson, bring this action against the United States of America seeking injunctive relief ordering the Government to conduct a Collection Due Process Hearing under the Internal Revenue Code. See 26 U.S.C. § 6330.
I. BACKGROUND
A. The Johnsons' Tax Returns
The Johnsons, residents of Milton, Florida, filed returns for 1994, 1995, and 1996, in which they reported their wages as income. In 1998, the Johnsons filed amended returns for each of those years, and contended that the wages and salary reported as income on their original returns were not taxable. Instead, the Johnsons filled in all the applicable sections of their amended returns with zeros. In attachments to each of those amended returns, the Johnsons stated:
1. No section in the Internal Revenue Code made the Johnsons liable for the income taxes at issue.
2. Income is not defined in the Internal Revenue Code.
3. The Supreme Court defines income as corporate profit.
4. Wages are not corporate profit; thus, the Johnsons have no income.
5. Section 61 is invalid because it defines "gross income" by using the word "income."
6. Section 6702(b) of the Internal Revenue Code states that the penalty imposed by subsection (a) shall be in addition to some other penalty being imposed, thus it cannot be imposed alone.
Upon receiving the Johnsons' amended returns, the Internal Revenue Service ("IRS") imposed frivolous return penalties of $500 for each of the three amended returns filed.
B. The Lien and Levy Proceeding
The Johnsons received a "Final Notice — Notice of Intent to Levy Your Notice of a Right to a Hearing," and they then filed a Request for a Collection Due Process Hearing, dated June 19, 2000. In their request for a hearing, the Johnsons asked that the appeals officer have at the hearing: (1) The names of the government employees who imposed the frivolous return penalty and the employees' Federal ID number; (2) the delegation of authority from the Secretary of the Treasury authorizing persons to impose the frivolous return penalty; (3) official job descriptions of the government employees who imposed the frivolous return penalty; (4) copies of the regulations that allow Internal Revenue Service ("IRS") employees to impose the frivolous return penalty; and (5) copies of the Internal Revenue Code section that made the Johnsons liable for income tax. By letter dated July 7, 2000, IRS appeals officer Gayla L. Owens told the Johnsons that their case had been assigned to her. Owens asked the Johnsons whether they wanted a face-to-face conference in Mobile, Alabama (which is the IRS Appeals Office closest to their residence), or whether they preferred to handle the matter by telephone or correspondence. By letter dated July 19, 2000, the Johnsons requested that a hearing be set no sooner than September 15, 2002, and also asked for copies of the Internal Revenue Code section and implementing regulations that establish liability for the frivolous return penalty.
By letter dated July 26, 2000, Owens scheduled a hearing for September 1 5, 2000, and again asked the John sons whether they preferred a face-to-face conference or to handle the matter by telephone. By letter dated August 18, 2000. David Johnson told Owens that he would not attend a hearing for which he was not allowed to prepare, and that Owens had not responded to his requests raised in earlier letters to her. In that same letter, David Johnson stated, among other things, his views that: (1) the frivolous return penalties were illegal; (2) the Government's employees were subject to punishment under Section 7214(a) of the Internal Revenue Code for violating the Internal Revenue Service Restructuring and Reform Act of 1998; (3) the IRS was required to sue him for payment of the penalty; and (4) the IRS was harassing him. Mr. Johnson also asked for a statement acknowledging that he did not question the constitutionality of the income tax when he filed his amended returns for the years in issue. He wrote in part:
Therefore, I am requesting that you comply with IRS Code Section 6065 and send me a statement which "is verified by a written declaration that is made under the penalties of perjury". Your statement should include the following:
Acknowledgment that you have the following documents in your possession so that I can review them at the hearing:
a. Verification from the Secretary of the Treasury that the requirements of any applicable law or administrative procedure have been met. 6330(c)(1), 6703(a)
b. The Treasury Regulation which allows IRS employees to impose the "frivolous" penalty, and the Treasury Regulation which requires me to pay it. 6703(a)
c. The specific code section that makes me liable for the tax. 6330(c)(2)(B) (I am questioning the underlying liability.)
* * *
By letter dated September 6, 2000, Owens told the Johnsons that their claim that wages were not taxable income has been rejected by courts and is frivolous, and, thus, a return based on that theory is subject to the frivolous return penalty. Owens also told the Johnsons she would consider other items such as arranging for the payment of the penalty and asked the Johnsons to provide those items to her by September 21, 2000.By letter to Owens dated September 22, 2000, the Johnsons stated, among other things, that Section 6330(c)(3) of the Internal Revenue Code required verification from the Secretary that requirements of applicable law and procedure had been met, and that the Johnsons would not attend a hearing unless (1) Owens told the Johnsons in writing before the hearing, under penalty of perjury, that Owens had all of the documents they had requested, and (2) Owens arranged for the attendance at the hearing by the person who declared the Johnsons' amended tax returns to be frivolous and by the person who made the decision to levy the Johnsons' property without a court order.
C. The Government's Notice of Determination
On November 2, 2000, the Government sent the Johnsons a notice of determination concerning collection actions in which the Government determined to proceed with collection from the Johnsons of the frivolous return penalty for 1994, 1995, and 1996, and told the Johnsons that they had 30 days to file a complaint in the appropriate United States District Court for a redetermination. Instead, the Johnsons timely filed a petition in the United States Tax Court, appealing the Government's determination. The Tax Court determined that it did not have jurisdiction to decide the plaintiffs' case. Johnson v. Commissioner, 117 T.C. 204 (2001). The plaintiffs then filed this action seeking injunctive relief (1) vacating the notice of determination, (2) ordering the IRS to conduct a Collection Due Process Hearing, and (3) ordering the IRS to produce all of the documents the plaintiffs requested at the hearing. After several months, and apparently with little or no discovery by either side, the Government has moved for summary judgment.
II. STANDARD OF REVIEW
In appeals from Collection Due Process determinations, courts review the validity of the tax assessments de novo other determinations are reviewed for abuse of discretion. See e.g., Konkel v. Commissioner, 2000 WL 1819417, 3 (M.D. Fla. 2000); MRCA Information Serv. v. United States, 145 F. Supp.2d 194 (D. Conn. 2000); Davis v. Commissioner, 115 T.C. 35, 39 (2000). Although the plaintiffs' complaint merely seeks review of the IRS's failure to provide them with an appropriate Collection Due Process hearing, the plaintiffs' motion for summary judgment also appears to challenge the validity of the imposition of the frivolous filing penalty against them. Accordingly, I will review the imposition of the frivolous filing penalty de novo and will review the determinations surrounding the Collection Due Process Hearing for abuse of discretion.
II. DISCUSSION
A. Summary Judament Standard
A motion for summary judgment should be granted when "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." Rule 56(c), Fed.R.Civ.P. "[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 that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265, 273 (1986); see also Morisky v. Broward County, 80 F.3d 445, 447 (11th Cir. 1996).
However, summary judgment is improper "if a reasonable fact finder evaluating the evidence could draw more than one inference from the facts, and if that inference introduces a genuine issue of material fact." Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 594 (11th Cir. 1995). An issue of fact is "material" if it might affect the outcome of the case under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986). It is "genuine" if the record taken as a whole could lead a rational trier of fact to find for the non-moving party. See Id.; see also Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538, 552 (1986).
Conclusory allegations based on subjective beliefs are insufficient to create a genuine issue of material fact. See Leigh v. Warner Bros., Inc., 212 F.3d 1210, 1217 (llth Cir. 2000); Ramsey v. Leath, 706 F.2d 1166, 1170 (11th Cir. 1983). On the other hand, if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party, then the issue of fact is genuine. See Matsushita Elec. Indus. Co., supra, 475 U.S. at 586, 106 S.Ct. at 1356. On a summary judgment motion, the record and all reasonable inferences that can be drawn from it must be viewed in the light most favorable to the non-moving party. Whatley v. CNA Ins. Cos., 189 F.3d 1310, 1313 (11th Cir. 1999).
B. Collection Due Process Hearings under 26 U.S.C. § 6330
In the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. 105-206, section 3401, 112 Stat. 685, 746, Congress enacted new sections 6320 (pertaining to liens) and 6330 (pertaining to levies) to provide due process protections for taxpayers in collection matters. Title 26, United States Code, Section 6330 generally provides that the IRS cannot proceed with the collection of taxes by levy on a taxpayer's property until the taxpayer has been given notice of and the opportunity for an administrative review of the matter in the form of an IRS Office of Appeals due process hearing. The notices must be provided at least thirty days before levy, and the taxpayer has thirty days from the receipt of the notice to request a hearing. 26
The hearing is to be conducted by an IRS officer or employee who has had no prior involvement with respect to the unpaid tax that is subject to levy. 26 U.S.C. § 6330(b)(3). At the hearing, the appeals officer is required to 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). The taxpayer is permitted to raise "any relevant issue relating to the unpaid tax," including challenges to the appropriateness of IRS collection actions and offers of means of collection other than levy. 26 U.S.C. § 6330(c)(2). The taxpayer may also raise a challenge to "the existence or amount of the underlying tax liability for an 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). From the record, it appears that the Johnsons did not technically receive a "notice of deficiency" regarding the assessed frivolous return penalties, since there was no deficiency regarding the underlying tax, but only with respect to the assessed frivolous return penalties. Therefore, it was appropriate for them to challenge their liability for the penalties at the hearing. If the taxpayer is dissatisfied with the administrative determination as a result of the hearing, the taxpayer may seek judicial review. 26 U.S.C. § 6330(d).
The Treasury Regulations state that collection due process hearings are informal in nature and do not require the appeals officer to hold a face-to-face meeting with the taxpayer. 26 C.F.R. § 301.6330-1(d) A-D6 (2002); see also Guy v. United States, 2002 WL 1732850 (E.D.N.Y. July 24, 2002). The collection due process hearing may merely consist of written communications between the appeals officer and the taxpayer. 26 C.F.R. § 301.6330-1(d) A-D6 (2002). A taxpayer does not have the right to subpoena and examine witnesses at the hearing. Id.; see also Davis v. Commissioner, 115 T.C. 35, 41-42 (2000). However, upon demand for a face-to-face collection due process hearing by the taxpayer, the Treasury Regulations require that the taxpayer be offered a face-to-face meeting at the IRS Office of Appeals closest to the taxpayer's residence. 26 C.F.R. § 301.6330-1(d) A-D7. If this offer is not satisfactory to the taxpayer, the taxpayer is then given an opportunity for a hearing by telephone or by written correspondence. Id. If that procedure is not satisfactory, the appeals officer may make the determination by reviewing the case file. Id.
There is no requirement that the IRS provide taxpayers with any documentation or produce any witnesses as part of the collection due process hearing. The requirement in Section 6330(c)(1) that the appeals officer obtain verification from the Secretary of the Treasury at the hearing that all applicable law and administrative procedures have been complied with does not require the IRS to provide the taxpayer with documentation of the verification. See Herip v. United States, 2002 WL 31002855 (N.D. Ohio July 25, 2002); Lindsey v. Commissioner of Internal Revenue, T.C. Memo 2002-87, 2002 WL 487164 (T.C. Apr. 2, 2002); Nestor v. Commissioner of Internal Revenue, 118 T.C. 162, 166 (2002). Rather, the verification requirement is merely imposed to ensure that IRS officials review the file prior to the hearing to ensure the proper procedures have been followed. See, e.g., Lindsey, supra, 2002 WL 487164. Likewise, the IRS is not required to provide the taxpayer with either a copy of the delegation of authority from the Secretary of the Treasury to the person who signed the verification or a copy of the statutes or regulations relating to the imposition of the tax. See Nestor, supra, 118 T.C. at 166; Rennie v. Internal Revenue Serv., 216 F. Supp.2d 1078 (E.D. Cal. 2002). Further, because the identity of IRS employees who determined a taxpayer's return to be frivolous is not relevant to whether the imposition of the frivolous filing penalty was proper, the Government is not required to produce either the employees or their identities. Id.
In this case, I find that there is no material issue of disputed fact. The IRS did not abuse its discretion in the manner in which it conducted the collection due process hearing. The Johnsons were offered an opportunity to meet face-to-face or by telephone with IRS officials, but they refused this opportunity after the IRS did not respond to their demands to produce documents and information which the Johnsons had no legal right to receive. Collection Due Process hearings are an opportunity for taxpayers to discuss proposed collection methods with IRS officials prior to levy. Taxpayers are not permitted to dictate the terms or set preconditions under which the hearing will occur, as the Johnsons attempted to do. That the IRS made its determination based on the written correspondence and the case file after the Johnsons refused to participate was not an abuse of discretion. The Johnsons have also waived their opportunity for a face-to-face hearing by their refusal to participate in the hearing offered to them.
C. Imposition of the Frivolous Return Penalty
To the extent the Johnsons seek to challenge the validity of the assessment of the frivolous return penalty, I also conclude the imposition of the penalty was proper. Title 26, United States Code, Section 6702 provides:
(a) Civil Penalty. 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 that 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, then such individual shall pay a penalty of $500.
(b) Penalty in addition to other penalties. — The penalty imposed by subsection (a) shall be in addition to any other penalty provided by law.
The Tax Court has determined that it does not have jurisdiction to review the assessment of frivolous return penalties. Johnson v. Commissioner, 117 T.C. 204, 206 (2001). Jurisdiction of appeals of frivolous return penalties properly lies in district courts. See Loofbourrow v. Commissioner of Internal Revenue, 208 F. Supp.2d 698, 706 (S.D. Tex. 2002). Because the Johnsons properly raised the issue of the validity of the assessment of the frivolous return penalty in their written correspondence, which constituted the collection due process hearing in this case, the issue is properly considered on appeal. See Konkel v. Commissioner, 2000 WL 1819417 (M.D. Fla. 2000) (judicial review limited to those issues properly raised during collection due process hearing). Any dispute about whether the Johnsons actually owe income tax for the years 1994, 1995, and 1996 is not properly before this Court, and thus is not considered.
Tax assessments are presumptively valid. Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933); Oldster v. Commissioner, 751 F.2d 1168, 1174 (11th Cir. 1985). The taxpayer has the burden of overcoming this presumption of correctness by showing that the method of computing the assessment is arbitrary and without foundation.Oldster, supra, 751 F.2d at 1174. The assessment of $500 penalties against the Johnsons for the frivolous filing of their amended returns for 1994, 1995, and 1996 is presumptively valid.
Courts have routinely upheld frivolous filing penalties where the taxpayer has filed returns with each line item zeroed out or where the taxpayer blatantly misrepresented their income tax liability. See, e.g.,Hyslep v. United States, 765 F.2d 1083, 1084 (11th Cir. 1985) (putting litigants in the Eleventh Circuit on notice that argument that wages received as compensation for labor were not taxable income was frivolous and would subject future litigants to judicially-imposed sanctions);Madison v. United States, 752 F.2d 607, 609 (11th Cir. 1985); Rennie v. Internal Revenue Serv., supra, 216 F. Supp.2d 1078, 1083 (E.D. Cal. 2002) (holding return was frivolous where all line items were zeroed and attached W-2 forms clearly demonstrated taxable income was earned);Tickel v. United States, 633 F. Supp. 833, 836 (E.D. Tenn. 1986), aff'd, 815 F.2d 706 (6th Cir. 1987) (taxpayer's filing of amended return claiming wages were not income was frivolous return). In Rennie, the taxpayer's zeroed return and attachment were nearly identical to those filed by the Johnsons. Rennie, supra, 216 F. Supp.2d at 1082-83. The Johnsons' zeroed amended returns for 1994, 1995, and 1996, when construed together with their W-2 forms which clearly demonstrate they earned wages in those years, do not contain "information that on its face indicates that the self-assessment is substantially correct." 26 U.S.C. § 6702(a)(1)(B). It is also apparent that the Johnsons' reasons for filing their amended return, as explained in the letter attached to their return, were that their wages did not constitute taxable income, and this position is frivolous. The Johnsons' filing of a zeroed amended return also evidences "a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws." 26 U.S.C. § 6702(a)(2)(B). Accordingly, the imposition of the frivolous filing penalty for the amended returns for 1994, 1995, and 1996 was appropriate.
Title 26, United States Code, Section 61(a) defines gross income to include "alI income from whatever source derived, including . . . compensation for services." The Supreme Court of the United States has held that this section is intended to exert the full measure of congressional taxing power. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429, 75 S.Ct. 473, 476, 99 L.Ed. 483 (1955). Congress intended to tax all gains unless specifically exempted. Id. In Glenshaw Glass Co., the Supreme Court broadly defined income to include "instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Id. at 431, 75 S.Ct. at 477, 99 L.Ed. 483. It is obvious that the Johnsons' wages fall within this broad definition.
IV. CONCLUSION
For the reasons set forth above, the defendants' motion for summary judgment (doc. 12) is GRANTED. The Clerk is directed to enter judgment accordingly.