Opinion
Case No. 00-CV-75149
September 20, 2001
Defendants Department of the Treasury and the Internal Revenue Service ("IRS") move for summary affirmance of an October 26, 2000 IRS Determination denying plaintiff Jon H. Berkey, P.C. relief from collection actions. Oral argument would not significantly aid the decisional process. Pursuant to E.D. Mich. Local R. 7.1(e)(2), it is ORDERED that the motion be resolved without oral argument. For the reasons set forth below, defendants' motion will be GRANTED.
I. Background
Defendants have assessed that plaintiff owes $411,000.00 in unpaid federal unemployment taxes, social security taxes, and income withholding taxes as of April 26, 1999 for the taxable period March 31, 1991 through August 30, 1998. On April 26, 1999, plaintiff was sent a notice of intent to levy against property pursuant to 26 U.S.C. § 6331, which informed plaintiff of the right to a Collection Due Process Hearing ("CDP Hearing") under 26 U.S.C. § 6330. A CDP Hearing was conducted on July 13, 2000 by IRS Settlement Officer Diane Villa. On October 26, 2000, the IRS issued a "NOTICE OF DETERMINATION CONCERNING COLLECTION ACTIONS UNDER IRC SECTION 6320 and/or 6330" ("IRS Determination"):
Our determination is not to grant you relief under IRC Section 6330 from the proposed collection action. The liabilities are correct, you have not shown reasonable cause for abatement of any penalties and you have not met any conditions for abatement of interest. You failed to provide the necessary documents to support consideration of any Installment Agreement as an alternative method of collection. You did not raise any relevant challenges to the appropriateness of the proposed collection action.
Plaintiff's Exhibit A, attached to Complaint. An attachment to the IRS Determination further reads:
Issues relating to the unpaid liability:
• You do not agree with application of designated payments.
• You were asked to provide copies of cancelled checks, along with any cover letters sent with the checks. You did not provide information for any tax periods that are under consideration in Appeals.
You want abatement of penalties and interest.
• You have not shown reasonable cause for abatement of any penalties and you have not met any conditions for abatement of interest. You want an Installment Agreement with $105,000 due August 30, 2000, $200,000 due September 30, 2000, and $300,000 or the total balance due on October 31, 2000.
You failed to provide the financial documents that were necessary to consider an Installment Agreement as an alternative method of collection. Additionally, you did not make any of the payments you proposed.
• You did not raise any other relevant issues.
Plaintiff's Exhibit A, attached to Complaint. Plaintiff filed this lawsuit on November 27, 2000 as a "Complaint for Redetermination." See 26 U.S.C. § 6330(d)(1).
"(d) Proceeding after hearing.—
(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." 26 U.S.C. § 6330(d)(1).
On May 16, 2001, defendants moved for summary affirmance of the IRS Determination. Defendants argue Settlement Officer Villa did not err when denying plaintiff's request for an alternative collection schedule as plaintiff failed to meet the conditions of a previously negotiated payment schedule for 1991-1995 tax liabilities, and failed to demonstrate at the July 13, 2000 hearing that circumstances had changed in a way that would now allow plaintiff to meet a second proposed alternative collection schedule. Defendants continue that the Settlement Officer did not err by denying plaintiff relief from tax penalties on the basis that plaintiff was unable to collect its own accounts receivables because such financial difficulties do not constitute "reasonable cause" for relief from tax penalties under Treasury Regulation § 301.6551-1. Defendants further argue that the Settlement Officer properly concluded that plaintiff failed to demonstrate it was entitled to an abatement of interest due to an IRS error or delay. As to plaintiffs claim that plaintiff did not receive appropriate credit for designated payments, defendants argue that plaintiffs failure to document the claim precludes appellate review.
On July 13, 2001, plaintiff filed its response brief arguing plaintiff has paid $77,719.84 over the past 15 months in satisfaction of tax liabilities owing for the last quarter of 1998, and for all of 1999 and 2000. Plaintiff asserts it challenged the alleged penalty and interest at the July 13, 2000 hearing as excessive. Plaintiff argues it was unable to produce additional documentation requested by the IRS because the IRS failed to provide transcripts for the periods at issue. Plaintiff argues that summary affirmance/summary judgment is inappropriate due to several remaining factual disputes, including: (1) the amount that plaintiff has in fact paid toward its tax liabilities; (2) whether IRS Agent Edward Cipperone properly applied plaintiffs designated payments, and; (3) whether the defendant IRS failed to produce documents relevant to plaintiffs case. Plaintiff argues that, given remaining factual disputes, the IRS could not have properly determined plaintiff's liability for unpaid taxes, penalties or interest. Plaintiff argues it is entitled to de nova review by this court of the amount of taxes due.
The parties agreed that plaintiff would have until July 9, 2001 to file a response brief, and that defendants would have until August 10, 2001 to file a reply.
In reply, defendants argue plaintiff was required below to produce documentation showing that plaintiff in fact made designated payments during certain tax periods. Defendants rely on the May 15, 2001 and August 6, 2001 Declarations of IRS Settlement Officer Villa to support their contention that Villa provided plaintiff with all relevant transcripts. Defendants further argue that plaintiffs reliance on its payment of tax liabilities in the last quarter of 1998, and all of 1999 and 2000, is irrelevant because this lawsuit concerns tax liabilities owing for the period March 31, 1991 through August 30, 1998.
II. Jurisdiction
Judicial review of IRS determinations is with the Tax Court unless the Tax Court does not have jurisdiction, in which case jurisdiction lies in a federal district court. 26 U.S.C. § 6330(d)(1). The Tax Court has jurisdiction over income tax issues and liabilities. Diefenbaugh v. Weiss, No. 00-3344, 2000 WL 1679510, *1 (6th Cir. Nov. 3, 2000) (citing Temp. Treas. Reg § 301.6330-1T(f)(2)Q A — F-3; Martin v. Commissioner, 756 F.2d 38, 40 (6th Cir. 1985); Goza v. Commissioner, 114 T.C. 176, 182 (Mar. 17, 2000). The Tax Court does not have jurisdiction over FICA/Social Security tax issues, withholding tax issues, or unemployment tax issues. See Chatterji v. Commissioner, 54 T.C. 1402 (June 14, 1970); Purdy v. Commissioner, Nos. 5870-81, 5910-81, 1982 WL 10945 (Nov. 15, 1982). Pursuant to 26 U.S.C. § 6330(d)(1), this court has jurisdiction over plaintiffs claim for appellate review of the October 26, 2000 IRS Determination involving unemployment taxes, social security taxes, and withholding taxes.
III. Standard of Review
The Internal Revenue Service Restructuring Act of 1998, adding 26 U.S.C. § 6330, provided for a COP Hearing and judicial review of IRS administrative determinations. Goza, 114 T.C. at 179-180.
Although section 6330 does not prescribe the standard of review that the Court is to apply in reviewing the Commissioner's administrative determinations, the subject is addressed in detail in the legislative history of the provision. In particular, H. Conf. Rept. 105-599, at 266 (1998), states in pertinent part:Judicial review
The conferees expect the appeals officer will prepare a written determination addressing the issues presented by the taxpayer and considered at the hearing. * * * Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal, no levy may take place during the pendency of the appeal. The amount of the tax liability will in such cases be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. * * *
Accordingly, where the validity of the underlying tax liability is properly at issue, the Court will review the matter on a de nova basis. However, where the validity of the underlying tax liability is not properly at issue, the Court will review the Commissioner's administrative determination for abuse of discretion.Id., at 179-180. See also MRCA Information Services v. United States, 145 F. Supp.2d 194, No. CIV 3:99CV1360 AVC, 2000 WL 33320199, at **4 (D. Conn. August 1, 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).
26 U.S.C. § 6330(c) provides the vehicle by which a person may contest the validity of an underlying tax liability:
(c) Matters considered at hearing—In the case of any hearing conducted under this section—. . . .
(2) Issues at hearing.—
(B) Underlying liability—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). If a party appealing a § 6330 IRS determination does not allege that he did not receive a notice of deficiency, or that he did not have an opportunity to contest the deficiency determinations, the party's underlying tax liability is not properly before the court, and the court's standard of review is limited to an abuse of agency discretion. Davis v. Commissioner of Internal Revenue, 115 TO. 35, 39 (July 31, 2000).
Plaintiff does not allege in its Complaint that it did not receive a notice of deficiency for the subject taxable period of March 31, 1991 through August 30, 1998, nor does plaintiff allege that it did not have a prior opportunity to contest the deficiency determinations. Indeed, plaintiff alleges that it "failed to meet certain monthly and/or quarterly deposit requirements arising out of its 941 tax liability" and, as a result, the IRS issued its October 20, 2000 IRS Determination concerning collection actions. Complaint, ¶¶ 11-12, at 1. Plaintiff challenges the October 20, 2000 IRS Determination on the basis that: (1) the IRS Determination asserts taxes owed that have been previously paid; (2) the IRS improperly allocated past payments made by plaintiff; (3) the amount of assessed interest is excessive; (4) the amount of penalty is excessive, and; (5) the IRS failed to consider collection alternatives, offers of compromise, and/or installment agreement proposals. Id. ¶¶ 13-17, at 2-3. In that the validity of plaintiffs underlying tax liability is not properly before this court, the subject October 20, 2000 IRS Determination will be reviewed for an abuse of discretion. Goza, 114 T.C. at 179-180; MRCA Information Services, 2000 WL 33320199, at **4; Davis, 115 T.C. at 41 (holding that IRS's assessment of the amount of tax remaining unpaid is reviewed for abuse of discretion); Kitchen Cabinets, Inc. v. United States, No. Civ.A.3:000V0599M, 2001 WL 237384, *2 (N.D. Tex. Mar. 6, 2001) (holding that IRS's determination regarding proposed compromises and/or installment plans is reviewed for abuse of discretion); TTK Management v. United States, No. SA CV 99-1542 AHS ANX, 2000 WL 33122706, *2 (C.D. Cal. Nov. 21, 2000) (same); ATP Management v. United States, No. SA CV 1541 AHS ANX, 2000 WL 33122693 (C.D. Cal. Nov. 27, 2000) (same). 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).
IV. Analysis A. Assessed Tax Liability, Interest and Penalties
Plaintiffs five page response brief is dedicated almost exclusively to challenging the assessed remaining tax liability, penalties and interest on the basis that IRS Settlement Officer Diane Villa did not comply with plaintiffs request to produce transcripts until after the July 13, 2000 CDP Hearing:
. . . . The first issue of disputed fact is found in the Plaintiff's allegation that certain of the periods for which tax is alleged due by Defendant were in fact paid by Plaintiff, and that certain other payments made by Plaintiff, which were properly designated, were not applied by Defendant consistent with said designations . . . . Based on the various notices of taxes due issued by Defendant, and Plaintiff's belief certain payments were misapplied, Plaintiff requested transcripts for the applicable periods to determine where and how many of its payments were applied. By way of example, Plaintiff discovered a $50,000.00 payment was improperly allocated to an alleged 1120S corporate liability, which plaintiff disputed and which issue the U.S. Tax Court has now ruled upon in Plaintiff's favor. As indicated above, Plaintiff, prior to, and again after the CDP Hearing requested such transcripts be produced. Agent Villa, notwithstanding her agreements to produce same, failed to produce all transcripts until after she issued her final notice of determination, effectively precluding Plaintiff from providing the information requested by the Defendant. Accordingly, Defendant could not make an appropriate final determination of tax liability without the information the Defendant itself deemed germane. At minimum, the failure of Defendant to produce relevant documents, its impact on Plaintiff's ability to properly respond, and the misapplication of payments constitute factual issues that must serve to defeat Defendant's motion.
In light of the fact that the defendant was unable to properly determine the tax liability of Plaintiff, the effort to identify the appropriate amount of coordinate penalty and accrued interest is rendered impossible. In addition to Plaintiff's request for abatement to penalty and interest for reasons due to economic hardship, Plaintiff also challenged as excessive the assertion of penalty and accrued interest alleged to be due for periods Plaintiff properly designated payments.
[P]laintiff produced a host of correspondence, copies of checks and other financial information to Defendant's Villa. Defendant, by it's conduct in failing to timely produce transcripts covering the applicable periods, created the very situation which it now seeks to utilize as a basis for its contention that plaintiff is not entitled to a re-determination hearing.
Plaintiff's July 13, 2001 Response Brief, at 3-5.
Plaintiff's argument fails on two grounds. First, Settlement Officer Villa owed no duty to produce the subject transcripts. See Wylie v. Commissioner of Internal Revenue, No. 6949-OOL, 2001 T.C. Memo. 2001-65, 2001 WL 273800 (March 20, 2001) (citing Davis, 115 T.C. 35, and holding that asserted error in IRS determination could not be based on petitioner's claim that the IRS appeals officer failed to furnish requested documentation prior to the CDP Hearing). Congress envisioned that CDP Hearings conducted under § 6330 would be an informal administrative process. Davis, 115 T.C. at 41. Second, plaintiff has failed to cite or proffer any part of the transcripts to support a finding that Settlement Officer Villa abused her discretion in assessing the amount of taxes, penalties and interest that remain unpaid. In responding to defendant's motion, plaintiff was required to do more than make conclusory allegations and arguments as to how the transcripts might establish that Settlement Officer Villa erred. See Pan American Pharmaceuticals, Inc. v. Shelin, Nos. 91-1837, 91-1839, 1992 WL 358481, **5 (6th Cir. Dec. 3, 1992). Plaintiff has not produced affidavits or other documentary evidence to dispute that plaintiff was in fact provided with all relevant transcripts by October 6, 2000, more than a month before this appeal was filed. See August 6, 2001 Second Declaration of Diane Villa, ¶¶ 4-5, at 1-2, attached to Defendants' August 10, 2001 Reply. In addition, plaintiff has not proffered authority to dispute that its alleged financial difficulties are insufficient as a matter of law to support an abatement of interest or penalties. See Brewery, Inc. v. United States, 33 F.3d 589, 592-593 (6th Cir. 1994).
Construing the pleadings and evidence in a light most favorable to plaintiff, plaintiff has not raised a genuine material issue to dispute that Settlement Officer Villa did not abuse her discretion in finding that: (1) plaintiff did not provide appropriate documentation to support its challenge to the assessed tax liability for the subject tax periods; (2) plaintiff did not show reasonable cause for an abatement of penalties, and; (3) plaintiff did not meet any conditions for an abatement of interest. See May 15, 2001 Declaration of Diane Villa, ¶¶ 7-12, at 1-2, attached to Defendants' May 16, 2001 Motion; August 6, 2001 Second Declaration of Diane Villa, ¶¶ 4-5, at 1-2, attached to Defendants' August 10, 2001 Reply. There was ample evidence before Settlement Officer Villa to support these determinations, which were supported by applicable law. Consequently, there was no abuse of discretion. National Engineering Contracting Co., 928 F.2d at 768.
B. Proposed Collection Alternatives/Installment Agreements
In the five page response brief, plaintiff has offered no argument or documentary evidence that might support a conclusion that Settlement Officer Villa abused her discretion in determining that plaintiff failed to provide necessary financial documentation for consideration of a proposed installment agreement, and failed to make any of the proposed payments. A proposed installment agreement may properly be rejected by the IRS where the taxpayer cannot establish its ability to make the proposed payments and/or the taxpayer has a history of non-compliance with payroll tax laws. Kitchen Cabinets, Inc., 2001 WL 237384, at **3; ATP Management, 2000 WL 33122693, at *2; TTK Management, 2000 WL 33122706, at *2. Plaintiff simply has not disputed that it has failed and continues to fail to make scheduled payments, and continues to be in non-compliance with federal tax laws. See May 15, 2001 Declaration of Diane Villa, ¶¶ 7-12, at 1-2, attached to Defendants' Ma 16, 2001 Motion; August 6, 2001 Second Declaration of Diane Villa, ¶¶ 7, at 2, attached to Defendants' August 10, 2001 Reply. There was ample evidence and law to support Settlement Officer Villa's denial of plaintiff's requests for collection alternatives in the form of proposed installment agreements and, consequently, no abuse of discretion. See National Engineering Contracting Co., 928 F.2d at 768.
V. Conclusion
Construing the pleadings and evidence in a light most favorable to plaintiff, and absent any indication of an abuse of discretion, the October 26, 2000 IRS Determination to proceed with collection against plaintiff will be AFFIRMED. Accordingly,
Defendants' motion for summary affirmance is hereby GRANTED, and the October 26, 2000 IRS Determination is AFFIRMED. Plaintiff's Complaint is hereby DISMISSED with prejudice.
SO ORDERED.
JUDGMENT
Pursuant to the court's order of even date granting defendants' motion for summary affirmance,IT IS ORDERED AND ADJUDGED that judgment hereby is GRANTED in favor of the defendants and against plaintiff Jon H. Berkey, P.C.. The October 26, 2000 IRS Determination is AFFIRMED. Plaintiffs Complaint is hereby DISMISSED with prejudice.