Opinion
No. 04 C 4232.
June 16, 2005
ORDER
Plaintiff BE Wholesale Meats, Inc. (BE) filed a complaint appealing an adverse collection due process ("CDP") determination against plaintiff by defendant Commissioner of Internal Revenue Service ("IRS") under § 6320 and § 6330 of the Internal Revenue Code ("IRC"), 26 U.S.C. § 6101 et al., and alleging breach of a settlement agreement by the IRS. Defendant filed a motion for summary judgment under Fed.R.Civ.P. 56, based on the fact that plaintiff is a dissolved corporation and the claims from which it appeals did not arise prior to its dissolution.
Jurisdiction is under § 7402(a) of the IRC, 26 U.S.C. § 6330(d)(1)(B), which provides that a taxpayer may appeal a collective due process ("CDP") determination to the district court if, as here, the Tax Court has determined that it does not have jurisdiction of the underlying tax liability.
Plaintiff states that the instant case was filed "within 30 days of an order of dismissal by the Tax Court case No. 13538-03 for Want of Jurisdiction," but does not provide a full citation or the date of that dismissal.
FACTS
Under L.R. 56.1(b), "each party opposing a motion for summary judgment pursuant to Fed.R.Civ.P. 56 shall serve and file (1) any opposing affidavits and other material referred to in Fed.R.Civ.P. 56(e); (2) a supporting memorandum of law; and (3) a concise response to the movant's statement of facts that shall contain: (A) a response to each numbered paragraph in the moving party's statement. . . . and, (B) a statement, consisting of short numbered paragraphs of any length, of any additional facts that require denial of summary judgment . . ." Plaintiff states in its response to the motion for summary judgment that, "some of the [statements of uncontested facts] are presented in a manner that can be misleading or at least that needs clarification." Plaintiff, however, did not file a response to defendant's 56. 1 statement. Accordingly, the court treats the facts stated by defendant as admitted. See L.R. 56.1(a) (b)(3)(B); McGuire v. United Parcel Service, 152 F.3d 673, 675 (7th Cir. 1998) ("An answer that does not deny the allegations in the numbered paragraph with citations to supporting evidence in the record constitutes an admission."). Moreover, the court notes that Leonard Rubin, the only lawyer who has appeared on behalf of plaintiff, is the primary witness for plaintiff and filed an affidavit attesting to the facts asserted by plaintiff. Under L.R. 83.53.7(a), Mr. Rubin would be barred from representing plaintiff advocate at trial or evidentiary hearing.
On June 23, 1997, the IRS contacted plaintiff and requested that it file its Form 941 returns for the four quarters of 1993 and pay the taxes due thereon. In early 1999, plaintiff ceased doing business, and on November 1, 1999, plaintiff was involuntarily dissolved. On September 13, 1999, the IRS again requested that plaintiff file its 941 returns for 1993. On September 26, 1999, the IRS received the requested returns. In December 1999, the IRS demanded payment of the taxes due, $11,000, plus interest and penalties as allowed by law, for a total of $26,000. Wlasak offered to pay the tax if the IRS would waive interest and penalties, which the IRS refused to do. The IRS requested time to look into the matter, and transferred the case to its Milwaukee, Wisconsin office.
Form 941 is an Employer's Quarterly Federal Tax Return.
On January 17, 2001, the IRS sent plaintiff notices of intent to levy for the last three quarters of 1993, and on February 21, 2001, the IRS sent notices of intent to levy for the first quarter of 1993. On November 28, 2001, the IRS sent plaintiff a notice of federal tax lien filing, and filed a tax lien against plaintiff with the Recorder of Deeds, Cook County, Illinois. On December 11, 2001, plaintiff requested a CDP hearing on both the levy and lien actions.
On May 8, 2002, the IRS and plaintiff's attorney participated in a telephone conference. Plaintiff maintained that it did not owe the taxes because it had timely paid them, and the IRS maintained that the taxes were not properly paid because they were made as estimated tax payments containing Wlasak's personal social security number. On July 6, 2002, an oral agreement was reached between plaintiff and an IRS revenue officer and a supervisor from the Morton Grove, Illinois office of the IRS. Pursuant to the agreement, plaintiff tendered a check in the amount of $7,779. Six months later plaintiff received a phone call from the Milwaukee, Wisconsin IRS office advising plaintiff that the matter was still pending in Wisconsin, and that plaintiff had not settled the non-trust fund portion of the tax. Plaintiff maintained that the $7,779 had settled its entire corporate liability. The IRS said it would investigate the matter.
Plaintiff did not hear from the IRS again until it received a Notice of Determination, dated July 17, 2003, from the IRS in Milwaukee. The Notice of Determination advised plaintiff that the case had not been settled because no offer in compromise had been signed by either party, that the lien was proper and would not be withdrawn, and that the corporate portion of the tax liability remained unpaid. The Notice of Determination also advised plaintiff that defendant "could place the account in the uncollectable, defunct corporation status."
SUMMARY JUDGMENT STANDARD
A movant is entitled to summary judgment under Rule 56 when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving party has met its burden, the nonmoving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. See Fed.R.Civ.P. 56(e); Becker v. Tenenbaum-Hill Associates, Inc., 914 F.2d 107, 110 (7th Cir. 1990). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. See Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992).
DISCUSSION
I. Claims under §§ 6320 and 6330Sections 6320 and 6330 of the IRC both give taxpayers rights to a CDP hearing and rights to appeal any adverse decision from such a hearing. 26 U.S.C. §§ 6320 and 6330. Defendant argues that plaintiff cannot sue for claims that arose after its dissolution, which plaintiff concedes took place on October 1, 1999. Pursuant to Fed.R.Civ.P. 17(b), "[t]he capacity of a corporation to sue or be sued shall be determined by the law under which it was organized." Plaintiff was organized under Illinois law, and the court looks to Illinois law to determine its capacity to sue.See Citizens Elec. Corp. v. Bituminous Fire Marine Ins., Co., 68 F. 3d 1016, 1019 (7th Cir. 1995). Under Illinois law, a corporation may commence a suit within five years after dissolution on any claim that arose prior to its dissolution. 805 ILCS 5/12.80 provides that "the dissolution of a corporation . . . shall not take away nor impair any civil remedy available to or against such corporation, its directors or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within five years after the date of such dissolution." In the instant case, it is undisputed that the action was commenced within the five year period. The question, then, is whether plaintiff's claims arose prior to its dissolution.
Section 6320 of the IRC gives a taxpayer rights to a CDP hearing after a notice of a federal tax lien filing is mailed. Defendant argues that no claim arises under this section until the notice of lien filing is mailed. In the instant case, the notice of lien filing is dated November 28, 2001, after plaintiff was dissolved. Thus, plaintiff lacked capacity to sue under Illinois law.
II. Breach of settlement agreement
Plaintiff's complaint also alleges that defendant breached its settlement agreement reached with a supervisor in the Morton Grove, Illinois IRS office to settle its tax liabilities from 1993. Defendant argues that there was no valid settlement contract because it was not in writing, as required by § 7121 of the IRC, and that the alleged breach occurred post-dissolution, and is thus barred by Illinois statute of limitations.
The settlement or closure of a civil tax dispute with the IRS is an matter controlled by statute. See 26 U.S.C. § 7721 (closing agreements), 7122 (compromises). The Seventh Circuit has held that these provisions provide the exclusive method for settling civil tax disputes with finality. Section 7121 of the IRC provides, "The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period." The Seventh Circuit has held that absent a closing agreement signed by an authorized signatory, the IRS is not bound by any alleged settlement made by one of its agents. See Reynolds v. Commissioner, 296 F.3d 607, 613 (7th Cir. 2002) (section 7121 is the exclusive method to settle a tax dispute with finality); Urso v. United States; 72 F.3d 59, 60 (7th Cir. 1996); Kelley v. United States, 1998 WL 325219, at *4 (N.D. Ill. June 10, 1998). The Urso court rejected the taxpayers' argument that a tax examiner had entered into a binding agreement with them, holding, "Only a closing agreement signed by a person authorized to ink such pacts, the expiration of the statute of limitations, or the disposition of litigation brings the process to a guaranteed end. Apparent authority is not enough to bind the federal government to a contract; unless the agent has actual authority, any agreement is ineffectual. 72 F.3d at 60.
The court notes that plaintiff alleges that he reached a "settlement" with defendant, and does not challenge defendant's argument that § 7121 applies.
In the instant case, plaintiff alleges that after "settlement negotiations" at Morton Grove, the IRS supervisor made a final offer of $7,779. Plaintiff tendered a check in that amount, and asserts the "IRS agent assured [plaintiff and its counsel] that the matter was now settled once and for all and that there would be no further claims by the IRS for this matter." Plaintiff does not allege that his agreement with defendant was reduced to writing, or attach any documents reflecting the settlement to his complaint. Plaintiff does not address defendant's argument that an settlement agreement with the IRS must be in writing to be enforceable, and fails to identify any case law questioning the cases cited by defendant, which support defendant's position that a writing is required by statute. Accordingly, defendant's motion for summary judgment on plaintiff's breach of contract claim is granted.
III. Case or controversy
Finally, it is worth noting that there appears to be no case or controversy over which this court has jurisdiction under Article III to the Constitution. Plaintiff is a defunct corporation against which the IRS, through its counsel, has stated it is not pursuing any tax claim. Plaintiff's counsel's fear of potential further claim activity by the IRS against plaintiff or its principal, Mr. Wlasak, is insufficient to create a justiciable controversy.