Opinion
CASE NO. 5:02CV2309
April 9, 2003
REPORT AND RECOMMENDATION ON DEFENDANT'S MOTION TO DISMISS, OR IN THE ALTERNATIVE. MOTION FOR SUMMARY JUDGMENT
Plaintiff Ralph A. Rohner brings the instant action seeking judicial review of a collection due process hearing he had before the Appeals Office of the Internal Revenue Service with respect to frivolous tax return penalties the Internal Revenue Service assessed against him with respect to his 1996 and 1998 tax filings. See ECF Dkt. #5. Before the undersigned is Defendant United States of America's unopposed motion to dismiss the instant action pursuant to FED.R.CIV.P. 12(b)(6) for failing to state a claim upon which relief can be granted, or in the alternative, motion for summary judgment under FED.R.CIV.P. 56, on the grounds that there are no genuine issues of material fact and that Defendant is entitled to judgment as a matter of law. See ECF Dkt. #9.
Even though Defendant has cloaked its dispositive motion as motion to dismiss, or in the alternative, a motion for summary judgment, Defendant basically seeks a judgment affirming the Internal Revenue Service's administrative determination in the instant case. See ECF Dkt. #9. Judge Gwin referred the instant action to the undersigned for a report and recommendation. See ECF Dkt. #11. For the following reasons, the undersigned recommends that the Court GRANT the Defendant's motion to dismiss, or in the alternative, motion for summary judgment. See ECF Dkt. #9.
I. FACTUAL AND PROCEDURAL BACKGROUND
The following facts are not disputed and are derived from the documents Plaintiff filed in the instant case. See ECF Dkt. #10.
Although Plaintiff submitted Forms 1040 to the Internal Revenue Service (IRS) along with copies of Forms W-2 indicating his wage income for the years 1996 and 1998, he reported no income on the returns and attached statements containing frivolous arguments as to why he was not liable for an income tax for those two years. See ECF Dkt. #10, exhibit C. With regards to the 1998 tax return, the IRS then sent Plaintiff a letter dated May 24, 1999, advising him that a frivolous return penalty of $500 under 26 U.S.C. § 6702 would be assessed against him unless he corrected his position within 30 days. See Id. Plaintiff failed to correct the Form 1040 and the IRS assessed § 6702 penalty against him on September 13, 1999, with respect to the 1998 Form 1040. See id. The IRS also accessed Plaintiff a § 6702 penalty on November 13, 2000, with respect to the 1996 Form 1040, because he submitted a Form 1040 for tax year 1996 showing no income with an attached statement containing frivolous arguments on July 21, 2000. See Id.
Plaintiff subsequently received a Notice of Intent to Levy dated September 21, 2001, informing him that the IRS intended to levy against him for civil penalties assessed against him in the amount of $1,134.80. See ECF Dkt. #10, exhibit A. These civil penalties consisted of the two $500 frivolous return penalties for the 1996 and 1998 returns and $134.80 in interest. The Notice of Intent to Levy informed Plaintiff that he had the right to a collection due process hearing if he desired. See id.
Plaintiff requested a collection due process hearing with respect to the Notice of Intent to Levy. See ECF Dkt. #10, exhibit B. On September 4, 2002, an in-person collection due process hearing was held. In addition to the in-person hearing, Plaintiff submitted several written documents to the IRS. See ECF Dkt. #10, exhibits B, F, H-M. In both his written communication and the in-person hearing, Plaintiff raised no relevant issues according to the IRS, but rather proceeded with frivolous tax protester arguments that challenged the IRS' authority to impose a tax liability or penalties and that the notices and demand sent to him were invalid because they were not on the proper form. See id., exhibits B, F, H-M. Plaintiff also demanded that the hearing officer produce certain documents showing (1) that the penalties imposed were done by someone with authority, (2) the delegation of authority, (3) the official job descriptions of the people who imposed the penalty, (4) the regulation that required a person to pay taxes, (5) proof that Notice and Demand was issued, and (6) verification that all legal requirements have been met. See Id., exhibits B, F, H, K L. After the collection due process hearing, the IRS, in a letter dated October 25, 2002, found that it had complied with all applicable procedures and then determined that the levy action was appropriate because Plaintiff raised no relevant issues and did not want to discuss collection alternatives. See id., exhibit C.
Plaintiff submitted three separate requests for collection due process hearings. One of these was with respect to the frivolous return penalties assessed against him for his 1996 1998 taxable years, one was related to his 1996 federal income tax liability and one was for his 1997 federal income tax liability. The action before this Court is with respect to the collection due process hearing for the § 6702 frivolous return penalties assessed against him for his 1996 1998 taxable years only. However, in correspondence with the IRS, both Plaintiff and the IRS frequently discussed both the income tax liabilities and the § 6702 penalties in the same document. As such, though many of the documents refer to both the income tax liabilities and the penalties, only the penalties are at issue in this suit. With respect to any determination made as a result of the collection due process hearing on the income tax liabilities, if Plaintiff sought a review of the determination, he would have to file the action in the United States Tax Court. 26 U.S.C. § 6330 (d) of the Internal Revenue Code provides that judicial review of the IRS Appeals' Office determination may be appealed to the Tax Court, or if the Tax Court does not have jurisdiction over the underlying tax liability, to a district court of the United States. See 26 U.S.C. § 6330(d); see also Treas. Reg. § 301.6330-1T(f), Q-F3/A-F3. The Tax Court has jurisdiction over the redetermination of income, estate, and gift taxes. See 26 U.S.C. § 6211, 6213(a); see also Treas. Reg. § 301.6330-1T(f)(2), Q-F3/A-F3; Diefenbaugh v. Weiss, 2000 WL 1679510 *1, 86 AFTR 2d 2000-6805, 2000-2 USTC ¶ 50,839 (6th Cir. 2000). Thus, this district court does not have jurisdiction to entertain any challenge Plaintiff makes to his underlying income tax liability.
Plaintiff now brings the instant action seeking judicial review of the determination of the IRS to levy for $1,134.80, which consists of the two $500 frivolous return penalties for the 1996 and 1998 tax return and interest. In addition to challenging the IRS's determination to levy, Plaintiff complains that he did not receive an adequate collection due process hearing because (1) he was not allowed to record the collection due process hearing, (2) he was not allowed to have a court reporter transcribe the hearing, (3) he was denied the right to have one hearing for each taxable period, (4) at the hearing the hearing officer refused to produce the documents he demanded, (5) he did not receive statutory notice and demand, (6) he was not presented with verification that the IRS had followed all laws and procedures, (7) an impartial Appeals Officer was not present, and (8) the Appeals Officer who conducted the hearing did not sign the determination letter. See ECF Dkt. #5.
Defendant has responded and avers that Plaintiff's allegations fail to state a claim upon which relief can be granted, and further, that because Plaintiff raised no relevant argument and the IRS followed all applicable laws and procedures, the determination of the IRS must be sustained. See ECF Dkt. #9. Because Defendant asks this Court to affirm the IRS's administrative determination in the instant case, the undersigned finds that the instant dispositive motion is better termed a motion for judgment affirming the IRS's administrative determination. See Id.
II. LAW AND ANALYSIS
A. Judicial Review of the IRS' Levy Determination
Sections 6320 and 6330 of the Internal Revenue Code require the IRS to provide a taxpayer an opportunity to request a hearing, known as a collection due process hearing upon the filing of a notice of federal tax lien or before the issuance of an IRS levy. See 26 U.S.C. § 6320, 6330. These sections also provide for a limited judicial review of the collection due process hearing. See 26 U.S.C. § 6320 (c) and § 6330(d). The Court's review jurisdiction under § 6330(d) is limited to issues properly raised and considered during the collection due process hearing. See 26 C.F.R. § 301.6330-1(f)(2), Q-F5 A-F5; Konkel v. Commissioner of Internal Revenue, 2000 WL 1819417, *4, 86 A.F.T.R.2d 2000-6939, 2001-2 USTC P 50, 520 (M.D. Fla. Nov. 6, 2000).
Section 6330(c) provides that a person may raise at the collection due process hearing any relevant issue relating to the unpaid tax or the proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise. See 26 U.S.C. § 6330 (c)(2)(A). The taxpayer may also raise challenges to the existence or amount of the underlying tax liability for any tax period if the taxpayer did not receive any statutory notice of deficiency or did not otherwise have an opportunity to dispute the tax liability. See 26 U.S.C. § 6330 (c)(2)(B). During the appeals hearing before the IRS, however, the hearing officer is not required to consider moral, religious, political, and Constitutional issues. See 26 C.F.R. § 601.106(b). In seeking district court review of the determination of the collection due process hearing, the taxpayer can only ask the court to consider an issue that was raised by the taxpayer in the collection due process hearing. See 26 C.F.R. § 301.6330-1 (f)(2), Q-F5 A-F5.
In cases where the validity of the underlying tax liability was properly at issue in the collection due process hearing, the administrative determination will be reviewed by the appropriate court on a de novo basis. However, where the validity of the underlying tax liability is not properly part of the appeal, the taxpayer may only challenge the determination for an abuse of discretion. See Geller v. United States, 2001 WL 1346669 at **23, 88 AFTR 2d 2001-6494, 2001-2 USTC ¶ 50,703 (S.D. Ohio Sept. 26, 2001) (citing H.R. conf. Rep. No. 105-599 at 266 (1998)). The abuse of discretion standard of review is appropriate when a district court reviews an Internal Revenue Service appeals officer's determination following a collection due process hearing to permit a levy to issue against a taxpayer's property. See MRCA Info. Servs. v. United States, 145 F. Supp.2d 194, 199 (D.Conn. 2000).
Because Plaintiff was not issued a notice of deficiency with respect to the frivolous return penalties assessed against him, and was not given an earlier opportunity to dispute the underlying tax liabilities, Plaintiff could have raised challenges to the existence or amount of the underlying tax liability as set forth in § 6330(c)(2)(B). However, Plaintiff failed to do so. Instead, Plaintiff persisted in asserting arguments which have been consistently rejected by the courts as frivolous, and did not set forth any of the relevant issues enumerated in § 6330(c)(2)(A) or § 6330(c)(2)(B) during the collection due process hearing. As such, the determination of the IRS should be reviewed for an abuse of discretion.
As discussed in § B. infra, there is no requirement that a notice of deficiency be issued with respect to the § 6702 frivolous return penalty.
Under the abuse of discretion standard, the Court cannot substitute its judgment for that of the appeals officer. See Cellnet Communications, Inc. v. Federal Communications Commissioner, 149 F.3d 429 (6th Cir. 1998). Rather, the issue is whether there is an adequate basis in law or fact for the hearing officer's decision to uphold the Internal Revenue Service's proposed collection action; the Court is not to determine what collection action would best serve both the interests of Plaintiff and the Internal Revenue Service. See MRCA Info. Servs, supra. Put another way, ". . . a determination will be affirmed unless the Court is left with a `definite and firm conviction' that a clear error of judgment has occurred." Geller, 2001 WL 1346669, *3 (quoting Cincinnati Insurance Company v. Byers, 151 F.3d 574, 578 (6th Cir. 1998)).
Nevertheless, to the extent that Plaintiff's arguments are considered a challenge to the underlying liability such that this Court must review the determination of the IRS on a de novo basis, the IRS determination still must be upheld. Although Plaintiff submitted Forms 1040 to the Internal Revenue Service along with copies of Forms W-2 indicating his wage income for the years 1996 and 1998, Plaintiff reported no income on the returns and attached a statement containing frivolous arguments as to why he was not liable for an income tax. See ECF Dkt. #10, exhibit C. The IRS then sent Plaintiff a letter advising him that a frivolous return penalty would be assessed unless he corrected his returns. See id. Plaintiff, though, was steadfast and failed to correct the Form 1040s and penalties assessed against him for tax years 1996 and 1998. See id. 26 U.S.C. § 6702 provides for a $500 frivolous return penalty if a taxpayer files what purports to be a return, but fails to contain information on which the substantial correctness of the self-assessment may be judged, or contains information that on its face indicates that the self-assessment is substantially incorrect, and is due to a frivolous position taken by the taxpayer. In the case at bar throughout the administrative review process, Plaintiff has not raised any relevant issues relating to the unpaid tax or the proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, or offers of collection alternatives, and he has not challenged the existence or amount of the underlying tax liability. See ECF Dkt. #10, exhibit C and 26 U.S.C. § 6330 (c)(2)(A). Instead Plaintiff complains, inter alia, that he was not allowed to record the collection due process hearing with a court reporter, that he was denied the "right" to have a hearing for each taxable period, that the hearing officer refused to produce the documents he demanded, that he did not receive a statutory notice and demand or verification that the IRS had followed all law and procedures, and that an impartial Appeals Officer was not present and did not sign the determination letter. See ECF Dkt. # 5.
As shown infra, Plaintiff did not raise a relevant issue during the collection due process hearing; further, the arguments presented to the hearing officer, and this Court, have consistently been determined to be frivolous. See Tornichio v. United States, 1998 WL 381304, 81 A.F.T.R.2d 98-1377, 98-1 USTC P 50,299 (ND. Ohio March 12, 1998), aff'd, 173 F.3d 856 (6th Cir. 1999); Gavigan v. United States, 2000 WL 33187163, 87 A.F.T.R.2d 2001-808 (D. Conn. Nov.30, 2000); Danner v. United States, 208 F. Supp.2d 1166, 1172 (E.D. Wash. 2002); Kelly v. United States, 209 F. Supp.2d 981 (E.D.Mo. 2002).
B. Frivolous Contentions
Plaintiff puts forth several arguments to contest the IRS's imposition of and intent to levy on the delineated frivolous return penalties and interest. See ECF Dkt. #5. The undersigned finds that these arguments are indeed frivolous themselves, and therefore recommends that the IRS's administrative determination to levy against Plaintiff in the instant case be affirmed under the abuse of discretion standard of review.
Plaintiff makes eight specific arguments; however, the undersigned divides these contentions into six categories for purposes of their review.
1. Notice and Demand of Frivolous Tax Return Penalties
Plaintiff contends that he is entitled to notice and demand with respect to the frivolous tax return penalties. However, Plaintiff's argument that he did not receive a notice of deficiency with respect to the § 6702 frivolous return penalties is without merit because there is no requirement that a notice of deficiency be issued with respect to these penalties. Deficiency procedures do not apply to the assessment or collection of frivolous tax return penalties. See 26 U.S.C. § 6703; Danner, 208 F. Supp.2d at 1171; Reinhart v. Internal Revenue Service, 2002 WL 1095351 *5, 89 A.F.T.R.2d 2002-2517, 90 A.F.T.R.2d 2002-5506 (E.D. Cal May 24, 2002). The IRS can assess the penalty for filing a frivolous tax return without issuing a notice of deficiency. See id. The penalty is immediately assessable when the IRS receives a frivolous return. See 26 U.S.C. § 6703. Thus, Plaintiff's failure to receive notice and demand of the frivolous return penalties in the instant case does not effect the IRS's ability to recover the frivolous return penalties themselves. Any arguments to the contrary are non-starters under the law.
2. Document Production
Next, Plaintiff argues that the hearing officer was required to produce the documents that Plaintiff had demanded for his collection due process hearing. Plaintiff claims he did not receive a fair hearing because the IRS failed to comply with his requests for documents. Nevertheless, Plaintiff's contention regarding the IRS's failure to produce documents is baseless. Section 6330 does not provide authorization for production of documents or other investigative demands in connection with a collections due process hearing. See Danner, 208 F. Supp.2d at 1172. In Kelly, supra, the court, in reviewing a collection due process hearing with respect to a frivolous return penalty, found that the taxpayer had no right to the production of documents. Like Kelly, as here, most of the documents Plaintiff requested were regulations, statutes, and other sources of public information. The IRS does not have to produce these public statutes and regulations. See Kelly, 209 F. Supp.2d at 989; Katz v. C.I.R. 115 T.C. 329 (U.S. Tax Ct. Oct. 13, 2000) (holding that a meaningful hearing under § 6330 does not include the right to subpoena witnesses and documents); Hughes v. United States, 953 F.2d 531, 539 (9th Cir. 1992). Based upon the cited case law, Plaintiff's argument that his collection due process hearing was inadequate because the IRS did not provide him with the requested documents fails.
3. Right to Record the Hearing or Have Court Reporter Transcribe
Plaintiff also contends that he had the right to record the collection due process hearing or have a court reporter transcribe the hearing. Plaintiff misstates the law; he clearly does not have the right to have the collection due process hearing recorded or to have a court reporter transcribe the hearing. CDP hearings are informal and do not require the Appeals officer or employee and the taxpayer, or his representative, to hold a face-to-face meeting. A CDP hearing may, but is not required to consist of a face-to-face meeting. See 26 C.F.R. § 301.6330-1(d)(2) QA-D6. It may also include written and oral communications and some combination of written and oral communications. See id. However, if a taxpayer requests a face-to-face meeting, it must be offered. See 26 C.F.R. § 301.6330-1(d)(2) QA-D7. The hearings before the Appeals Office are informal and a stenorgraphic record is not required; rather what is required is that "there must be enough information contained in the documentation created by the IRS for a court to draw conclusions about statutory compliance and whether the AO [IRS Appeals Office] abused his or her discretion." Mesa Oil, Inc. v. United States, 2000 WL 1745280, **67, 86 A.F.T.R.2d 2000-73 12, 2001-1 USTC P 50,130 (D. Colo. Nov. 21, 2000). In the instant case, the documentation, including the detailed summary, prepared by the hearing officer shows that all procedures were complied with and the determination was correct. See ECF Dkt. #10, exhibit C. Further, it is of no consequence that Plaintiff was neither allowed to record the collection due process hearing nor allowed a court reporter as Plaintiff does not contend that anything in the detailed summary prepared by the IRS is incorrect or incomplete. Because Plaintiff raised no relevant argument at the appeals hearing and only continued his frivolous tax protestor position that he had no obligation to pay income tax, the lack of a recording or transcription of this proceeding is immaterial and would not change the outcome of the collection due process hearing. As such, this argument lacks merit and relevancy.
4. Separate Collection Due Process Hearings
In the case at bar, Plaintiff is solely appealing the collection due process determination with respect to the frivolous return penalties imposed for tax years 1996 and 1998. See ECF Dkt. #10, exhibit C. However, he does complain that the hearing officer would not give him a separate hearing with respect to the frivolous return penalties for each of the two different tax years. The evidence does not support Plaintiff's contention. The hearing officer in fact offered Plaintiff the opportunity to present his issues by each tax period. A collection due process hearing consists of more than just the face to face meeting between the taxpayer and the officer. Written communications, telephone conversations and face-to-face meetings all suffice for an adequate hearing. See Loofbourrow v. Commissioner, 208 F. Supp.2d 698, 707 (S.D. Texas 2002). "To the extent practicable, a CDP hearing with respect to one tax period shown on a CDP Notice will be combined with any and all other CDP hearings which the taxpayer has requested." 26 C.F.R. § 301.6330-1(d)(2) QA-D2. Here, the hearing officer did offer Plaintiff the opportunity to present his issues by each tax period. See ECF Dkt. #10, exhibits E G. In addition, the hearing officer offered Plaintiff as much time as he needed to present his case and provided him with various dates and time frames she was available. See id., exhibit G. Thus, Plaintiff misconstrues the facts. Additionally, this course of argument is similarly irrelevant because Plaintiff failed to present any relevant evidence at the appeals conference and does not contend how having hearings on separate days would change the outcome.
5. Proof that Laws and Applicable Procedures were Met
Plaintiff's assertion that he was not given proof that the laws and applicable procedures were followed is also without merit. There is no requirement that Plaintiff be given proof that all laws and applicable procedures were followed by the IRS. "The form summarizing the hearing process demonstrates that the hearing officer considered these facts. [T]here is not a requirement that the appeals officer of the IRS provide verification to the taxpayer of these facts." Reinhart, 2002 WL 1095351 at *5; Nestor v. Commissioner, 118 T.C. 162, 2002 WL 236682 (U.S. Tax Ct. 2002). Further, "[t]here is no requirement that the hearing officer identify the regulations in which the penalty is based", Reinhart, 2002 WL 1095351 at *5. Here, in fact, the hearing officer verified that all applicable laws and administrative procedures were followed. See ECF Dkt. #10, exhibit C. As such, Plaintiff's argument is groundless.
6. Hearing Conducted by an Employee of the Appeals Office
Plaintiff's contention that the hearing was not conducted by an appeals officer is also baseless. The law requires that "[t]he CDP hearing will be conducted by an employee or officer of Appeals who, prior to the first CDP hearing under § 6320 or § 6330, has had no involvement with respect to the tax for the tax periods to be covered by the hearing, unless the taxpayer waives this requirement." 26 C.F.R. § 301.6330-1(d)(1). As such, there is no requirement that the hearing be conduct by an appeals officer; rather, the hearing can be conducted by an employee of the IRS Appeals Office.
Plaintiff also complains about the impartiality of the person conducting the hearing. The only other requirement though is that the person conducting the collection due process hearing not have had involvement with respect to the tax for the tax periods to be covered by the hearing. Here, the settlement officers stated that she had no prior involvement with respect to the liabilities at issue. Plaintiff has not disputed the hearing officer's lack of involvement. Thus, Plaintiff's complaints about the employment status and impartiality of the person conducting the hearing have no merit.
Lastly, Plaintiff also appears to complain that his decision letter was signed by the Appeals Team Manager, and not by the settlement officer that conducted the hearing. Again, Plaintiff does not state that anything in the decision document is incorrect or incomplete and therefore the signature on the letter is not relevant. Similarly, there is no requirement that the letter informing the taxpayer of the decision of the IRS be signed by the employee making the determination.
IV. CONCLUSION
Based upon an abuse of discretion standard of review, the undersigned recommends that the Internal Revenue Service's administrative determination in the instant case be AFFIRMED. Plaintiff's argument to contrary lack merit and are frivolous. Therefore, the undersigned recommends that the Court GRANT the Defendant's motion to dismiss, or in the alternative, motion for summary judgment. See ECF Dkt. #9.
ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of Court within (10) days of service of this notice. Failure to file objections within the specified time WAIVES the right to appeal the Magistrate Judge's recommendation. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).