Opinion
Case No. CV-S-01-0923-LRH (RJJ)
May 15, 2002
ORDER
Before the Court are Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#4), Defendant's Memorandum in Support (#5) of the same, the Declaration of Virginia Cronan Lowe ("Lowe Declaration") (#6) with a copy of Plaintiffs income tax return for 1998 attached as an exhibit, and Plaintiffs Objection to United States' Motion to Dismiss or Summary Judgment (#14). The Court finds that there are no genuine issues of material fact and grants Defendant's alternative motion for summary judgment. Defendant primarily moves to dismiss this action for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). If the Court considers mailers outside the pleading, it must treat this motion as a motion for summary judgment pursuant to Fed.R.Civ.P. 56. Plaintiff did not attach a copy of his 1998 income tax return to his Complaint (#1). Given that Plaintiff is appealing pursuant to 26 U.S.C. § 6330 (d) from a determination that collection of a frivolous return penalty pursuant to 26 U.S.C. § 6702 should proceed, attachment of the relevant tax return was essential. However, Defendant has provided a copy of the tax return. Lowe Decl. (#6), Exhibit 1. Instead of dismissing the Complaint (#1) with leave to amend, the Court will use the copy of the tax return that Defendant provided and consider Defendant's alternative motion for summary judgment.
Counsel for Defendant has properly authenticated this exhibit, Plaintiff has not objected to any event, Plaintiff's statements in the collection due process hearing show that the tax return is his. Compl. (#1), Exhibit C, at p. 6.
In considering a motion for summary judgment, the court performs "the threshold inquiry of determining whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved by a finder of fact because they may be reasonably resolved in favor of either party." Anderson v. Libert Lobby, Inc., 477 U.s. 242, 250 (1986). To succeed on a motion for summary judgment, the moving party must show (1) the lack of a genuine issue of any material fact, and (2) that the court may grant judgment as a matter of law. Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material fact is one required to prove a basic element of a claim. Anderson, 477 U.S. at 248. The failure to show a fact essential to one element "necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323.
"[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 the party's case, and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. "Of course, a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. As such, when the non-moving party bears the initial burden of proving, at trial, the claim or defense that the motion for summary judgment places in issue, the moving party can meet its initial burden on summary judgment merely "by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325.
Once the moving party meets its initial burden on summary judgment, the nonmoving party must submit facts showing a genuine issue of material fact. Fed.R.Civ.P. 56(e). As summary judgment allows a court "to isolate and dispose of factually unsupported claims or defenses," Celotex, 477 U.S. at 323-24, the court construes the evidence before it "in the light most favorable to the opposing party." Adickes v. S. H. Kress Co., 398 U.S. 144, 157 (1970). The allegations or denials of a pleading, however, will not defeat a well-founded motion. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
On April 12, 1999, Plaintiff signed and filed with the Internal Revenue Service on Form 1040 an income tax return for the year 1998. He stated that he had no income from wages, salaries, tips, or other sources, using zeros in the income section of the return. Lowe Decl. (#6), Exhibit I. He attached a Form W-2, showing a total of $52734.05 in wages, tips, or other compensation. Id. He also attached a two page explanation of how he has no income tax liability because his wages were not income. Id. The Internal Revenue Service assessed against Plaintiff a frivolous return penalty. When Plaintiff received a notice of intent to levy, he requested a collection hearing pursuant to 26 U.S.C. § 6330. After the hearing, the Appeals Office of the Internal Revenue Service found that the appropriate collection action should not be restricted. Compl. (#1), Exhibit
Plaintiff then commenced this action pursuant to 26 U.S.C. § 6330(d). The Tax Court does not have jurisdiction to consider frivolous return penalties. Van Es v. Commissioner, 115 T.C. 324 (2000). Therefore, this Court has jurisdiction. 26 U.S.C. § 6330 (d)(1)(B).
A person who files a frivolous tax return is liable for a penalty of five hundred dollars ($500.00). 26 U.S.C. § 6702. The Secretary of the Treasury or his delegate, such as the Internal Revenue Service, assesses this penalty in the same manner as a tax, and any reference to a "tax" in Title 26 also includes this penalty. 26 U.S.C. § 6671. Section 6201 of the Code authorizes the Secretary to make any necessary tax assessments. In the case of a frivolous return penalty, the deficiency procedures of Title 26, Chapter 63, Subchapter B, do not apply. 26 U.S.C. § 6703 (b). If the Secretary wishes to levy the property of the person, he must first send the person a notice of intent to levy no less than thirty (30) days before the levy. 26 U.S.C. § 6331 (d)(2). The Secretary must also inform the person of his right to a hearing at the same time. 26 U.S.C. § 6330 (a). If the person requests a hearing, the hearing officer must "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). At the hearing, the person may raise any relevant issue, including spousal defenses, the appropriateness of the collection action, and any collection alternatives. 26 U.S.C. § 6330 (c)(2)(A). 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).
The Court will use the collective term "Secretary" to refer to the Secretary of the Treasury and any delegates. See 26 U.S.C. § 770 1 (a)(11)(B). The Secretary of the Treasury may delegate much of his authority and responsibilities to others by prescribing rules and regulations, among other methods. 26 U.S.C. § 7805 (a); see also 26 C.F.R. §§ 301.7701-9, 301.7701-10.
The "underlying tax liability" in this case is the frivolous return penalty. See 26 U.S.C. § 6671; see also 26 C.F.R. § 301.6331-1 (a)(1). Plaintiff properly challenged the validity of the frivolous return penalty at the collection due process hearing because the statutory deficiency procedures to not apply to a frivolous return penalty, 26 U.S.C. § 6703 (b), and thus Plaintiff had no prior opportunity to dispute the penalty. The validity of the income tax that Plaintiff owes for 1998 is not at issue in this action. On the other hand, the tax return that Plaintiff filed for 1998 is relevant because it determines whether assessment of the frivolous return penalty was proper.
Section 6330(d) is silent on the standard that the Court should use to review the determination of the collection hearing. However, the legislative history indicates that if the validity of the underlying tax liability was properly at issue, then review is de novo. H. Conf. Rep. 105-599 (1998); see also Dogwood Forest Rest Home, Inc. v. United States, 181 F. Supp.2d 554, 559 (M.D.N.C. 2001); MRCA Info. Servs. v. United States, 145 F. Supp.2d 194, 198-99 (D. Conn. 2000); Sego v. Commissioner, 114 T.C. 604, 610 (2000). The Court will use that standard of review.
There is no doubt about the validity of the penalty. Plaintiff submitted a Form 1040 tax return for 1998 with zeros in the income section and a Form W-2 showing income considerably more than zero. Lowe Decl. (#6), Exhibit 1. He also attached an explanation of how no provisions of the Internal Revenue Code make him liable for the income tax, how his wages are not income, and other matters. Id. Wages are income, 26 U.S.C. § 61, upon which Plaintiff owes a tax, 26 U.S.C. § 1, and courts — including this one — have found arguments to the contrary to be frivolous long before Plaintiff filed his 1998 tax return. See, e.g., Sisemore v. United States, 797 F.2d 268, 270 (6th Cir. 1986); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985); In re Hopkins, 192 B.R. 760, 762-63 (D. Nev. 1995); and other cases too numerous to cite. On its face, Plaintiffs tax return was substantially incorrect, and it was due to a frivolous position; thus making Plaintiff liable for the frivolous return penalty. 26 U.S.C. § 6702. The assessment of the frivolous return penalty is valid.
No genuine issue of material fact exists over the verification of all legal and administrative requirements. The Chief of the Automated Collection Branch sent Plaintiff Letter 1058, "Final Notice — Notice of Intent to Levy and Notice of Your Right to a Hearing," which is the notice that §§ 6330 and 6331 require. Compl. (#1), Exhibit C. This official had the authority to send such a notice. See D.O. No. 191, 1982-1 C.B. 352 (1982). The Secretary of the Treasury delegated to the local Internal Revenue Service office collecting the penalty the responsibility of providing the verification to the hearing officer. 26 C.F.R. § 301.6330-1(e)(1). The local IRS office provided the hearing officer with a transcript of Plaintiffs account. Compl. (#1), Exhibit F. The hearing officer could rely on such a transcript for § 6330(c)(1) verification. See Huff v. United States, 10 F.3d 1440, 1446-47 (9th Cir. 1993), cert. denied, 512 U.S. 1219 (1994); Hughes v. United States, 953 F.2d 531, 538-40 (9th Cir. 1992); see also Davis v. Commissioner, 115 T.C. 35, 41 (2000). The transcript shows that the frivolous return penalty had been assessed and that Plaintiff had requested a collection due process hearing. As noted above, the 1998 tax return is clearly frivolous. The hearing officer did not err in his verification that the requirements of any applicable law and administrative procedures had been met.
Plaintiffs insistence that he see documents signed by the Secretary of the Treasury or by a person with a delegation order signed by the Secretary of the Treasury, Objection (#14), at pp. 1-5. is frivolous.
Plaintiffs other arguments are also frivolous and irrelevant to 26 U.S.C. § 6330 (c)(2)(A). The hearing officer's decision on this point is correct.
Because there are no genuine issues of material fact, Defendants are entitled to judgment as a matter of law.
IT IS THEREFORE ORDERED that Defendant's alternative Motion for Summary Judgment (#4) is GRANTED. The Clerk of the Court shall enter judgment accordingly.