Opinion
Civil No. 01-4300-JLF
July 25, 2002
MEMORANDUM AND ORDER
Before the Court is defendant's motion to dismiss for failure to state a claim (Doc. 10-1). In the alternative, defendant has filed a motion for summary affirmance of a Notice of Determination of the Internal Revenue Service Appeals Office (Doc. 10-2). Plaintiff has filed a response (Doc. 15). At the request of the Court, the parties have supplemented their briefs (Docs. 18,19).
I. Background.
On July 19, 2000, the Internal Revenue Service (IRS) sent plaintiff a Notice of Intent to Levy $590,363.19 of payroll taxes for the quarters ending December 31, 1998, through March 31, 2000 (Doc. 1, Exh. A). Also in this Notice of Intent to Levy, the IRS indicated that it may also file a Notice of Federal Tax Lien (Doc. 1, Exh. A, p. 3).
On August 3, 2000, plaintiff sent IRS Officer H. A. Williamson a letter outlining a proposal to pay the tax liability by installments (Doc. 1, Exh. E). On August 17, 2000, plaintiff appealed the Notice of Intent to Levy by sending another letter to Officer Williamson requesting a Collection Due Process Hearing (Doc. 1, Exh. B). With this letter, plaintiff enclosed Form 12153, which stated plaintiff's reasons for disagreeing with the Notice of Intent to Levy as follows:
Taxpayer has made an offer to make installment payments to bring accounts current. No response to the offer has been received. See attached correspondence. Also notice of intent for tax periods other than 9/30/99 and 12/31/99 was not mailed to the taxpayer's representative.
(Doc. 1, Exh. B).
Plaintiff also stated his reasons for disagreeing with the IRS's indication that it may file a Notice of Federal Tax Lien as follows:
Agent Williamson has advised he intends to file tax lien which will jeopardize taxpayer's ability to make payments if the installment payment offer is accepted.
(Doc. 1, Exh. B).
On September 12, 2000, IRS Appeals Officer Sallie Humble sent plaintiff a letter stating that she had received this case for consideration and that she would write or call to schedule a conference (Doc. 10, Exh. 1). On January 29, 2001, Ms. Humble sent plaintiff another letter stating that plaintiff was entitled to a hearing but that she thought the case could be best handled through correspondence. Ms. Humble's letter further stated that the purpose of the hearing is to "raise alternative collection methods, so that payment is made by the least intrusive method." Ms. Humble's letter told plaintiff that it had the following options:
1. Pay the balance in full.
1. Set up an installment agreement.
2.Request or file an offer in compromise (if certain requirements are met), or
3. Request some other alternative collection method.
(Doc. 10, Exh.2).
Ms. Humble's letter further noted:
Please explain in detail what method you are proposing to pay the liability. Any method must consider paying the entire liability including interest within the collection statute. If you are proposing an installment agreement, it may be necessary to submit an updated financial statement. Because Appeals is not an investigative function of the Service, it may be necessary to refer this information to Compliance for verification.
Please consider the above and respond by February 13, 2001 on how you would like to resolve the issue.
(Doc. 10, Exh. 2).
On February 1, 2001, plaintiff's counsel responded to Ms. Humble as follows:
I am in receipt of your letter dated January 29, 2001 regarding the consideration of the appeal submitted by Cardinal Healthcare. I have forwarded your letter to the appropriate officer at Cardinal Healthcare for review and reply. The purpose of this letter is to advise you that we did make an installment offer to the collections officer, Mr. Williamson, which was rejected. According to your letter, if we are proposing to make an installment payment arrangement, you may submit this proposal back to compliance for verification. However, I believe this would again end up in the hands of Mr. Williamson who previously rejected what I believe to have been a very workable payment arrangement. Therefore, if my client agrees, I would like to submit the proposal directly to your office for consideration. If this is not possible, let me know, otherwise, I expect to submit such an offer to you within the time frame set forth in your letter. Thank you for your attention to this matter.
(Doc. 10, Exh. 3).
On February 7, 2001, plaintiff's counsel sent another letter:
I spoke with the representatives of Cardinal Healthcare with respect to your letter dated January 29, 2001 . . . My client desires to enter into an installment agreement with the Internal Revenue Service regarding its outstanding payroll tax liabilities. As I indicated in my prior letter, such an offer was made on August 3, 2000, to the Revenue Officer collecting on behalf of the Internal Revenue Service but the offer was rejected.
Despite the rejected offer and the appeal of the collection process, Cardinal Healthcare, Inc. has made many payments to be applied to its past due payroll tax liability. In addition, I believe it has remained current on its payroll tax liabilities since September 2000. My client again proposes to pay $15,000 per month, beginning this month, to be applied toward its past due payroll tax liability until such time as the past due tax liability is satisfied. In addition to making this monthly payment on its past due liability, Cardinal Healthcare will continue to remain current on its tax liabilities for all future months and quarters. Please consider this proposal and advise us whether it is acceptable and how it will be implemented.
(Doc. 10, Exh. 4).
On March 7, 2001, Ms. Humble responded:
I have reviewed your letter. The taxpayer requested Appeals consideration. Because Appeals is not an investigative function of the Service, it is necessary to refer financial statements to Compliance (Collection) for verification. The decision of whether to accept or reject the installment agreement is made by the appeals officer. The appeals officer will also consider based on the financial information whether the taxpayer should be granted an installment agreement based on past history.
If the taxpayer would like to propose an installment agreement as a collection alternative, an updated Form 433B should be submitted. If no proposal is submitted or the offer is unacceptable, it will be recommended that Collection proceed with enforcement action. The taxpayer should be current in filing federal tax returns.
Please respond within 15 days of the above date of this letter. Any method must consider applying the entire liability including interest within the collection statute.
If you have questions, I can be contacted at the above telephone number or address.
(Doc. 10, Exh. 5).
There is nothing in the record to suggest that plaintiff responded to this letter. There is also no indication that plaintiff sent in an updated Form 433B or that plaintiff submitted a proposal to the Appeals Officer.
On March 19, 2001, the IRS issued another Notice of Intent to Levy an additional $45,926.87 in payroll taxes for the quarter ending June 30, 2000 (Doc. 1, Exh. B). On April 18, 2001, plaintiff appealed this second Notice of Intent to Levy by sending a letter to Officer Williamson requesting a Collection Due Process Hearing. Plaintiff's letter also stated:
Please find enclosed Cardinal HealthCare's request for a collection due process hearing related to the Notice of Intent to Levy dated March 19, 2001. As you recall my client made an installment payment proposal some time ago which remains open at this time. Cardinal HealthCare is willing to pay according to its offer. In addition Cardinal HealthCare has made substantial payments on its past liabilities. On behalf of my client I respectfully ask that you reconsider its installment offer. If you believe another meeting with Mr. Hunter will be helpful we are available to meet. Finally I ask that you provide me with a transcript of Cardinal HealthCare's payroll accounts for all quarters beginning with the 4th quarter of 1998 up to and including the 2nd quarter of 2000. If you have any questions regarding this request please call me at your convenience.
(Doc. 1, Exh. D).
With this letter, plaintiff enclosed Form 12153, which stated plaintiff's reasons for disagreeing with the Notice of Intent to Levy as follows:
Taxpayer has made an offer to make installment payments to bring its account current. The taxpayer has made substantial payments on its past due liabilities while awaiting a response to the installment offer. Taxpayer respectfully request reconsider [sic] the offer a copy of which is enclosed.
(Doc. 1, Exh. D).
On May 8, 2001, Ms. Humble sent another letter to plaintiff that is similar to the January 29, 2001 letter (but pertaining to the tax period ending June 30, 2000). It explained that plaintiff was entitled to a hearing and identified the four options set forth above:
1. Pay the balance in full.
4. Set up an installment agreement.
5. Request or file an offer in compromise (if certain requirements are met), or
6. Request some other alternative collection method.
(Doc. 10, Exh. 7).
This letter further stated:
If you are proposing an installment agreement, an updated Form 433B should be submitted. . . .
Please consider the above and respond by May 25, 2001 with your proposal.
(Doc. 10, Exh. 7) (emphasis added).
On May 25, 2001, plaintiff sent a letter to Ms. Humble requesting an extension of time (Doc. 10, Exh. 8). On July 10, 2001, plaintiff sent to Ms. Humble a letter and copies of corporate tax returns for the years ended 9/30/99 and 9/30/00 (Doc. 10, Exh. 9). Plaintiff did not, however, send a proposal for installment payments nor did plaintiff send a Form 433B.
On July 11, 2001, Ms. Humble sent a letter to plaintiff that stated:
I received the copies of the corporate tax returns. To date, you have not submitted a proposal to Appeals to resolve the liability. You have not requested a hearing to discuss collection alternatives. You indicated you are interested in an installment agreement. I have previously mailed you Form 433B, which has not been returned. Current financial information is needed. Please provide the following information:
Complete Form 433-B, Collection Information Statement for Businesses;
Explain your proposal in detail to resolve the liability
Have you started making payments?
. . . Please respond by July 23, 2001. If no response is received from you, a Determination Letter will be issued. You may then petition the U.S. Tax or District Court.
(Doc. 10, Exh. 10).
There is no indication in the record that plaintiff responded to this letter.
On November 8, 2001, the Illinois Appeals Office of the IRS issued a Notice of Determination which stated that:
Based on all information available, the Collection enforcement action, notice of intent to levy, is the appropriate action in this case. You were contacted by the Appeals Office but did not respond to our inquiry to finalize alternative collection methods. Therefore, we recommend that the collection action be pursued.
(Doc. 1, Exh. F).
Attached to this Notice was a list of "Matters Considered at the Appeals Hearing." This list stated that the matters presented by the plaintiff included the fact that it had "made an offer to make installment payments to bring the account current," and that "the revenue officer determined the taxpayer could full pay and rejected the installment agreement." (Doc. 1, Exh. F).
On December 4, 2001, plaintiff filed this lawsuit seeking a de novo review of the Notice of Determination regarding the IRS's Notices of Intent to Levy (Doc. 1, Exh. F). Plaintiff also asks the Court to compel the IRS to accept plaintiff's payment proposal. Defendant has filed a motion to dismiss for failure to state a claim, or in the alternative, a motion for summary affirmance of the Notice of Determination. Defendant's motions are discussed below.
II. Jurisdiction.
Initially, the Court notes that under Title 26 U.S.C. § 6330(d)(1), 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 does not, however, have jurisdiction over payroll tax issues, such as 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). Accordingly, this Court has jurisdiction over plaintiff's claim for appellate review of the Notice of Determination regarding the IRS's Notice of Intent to Levy payroll taxes. 26 U.S.C. § 6330(d)(1).
III. Motion to Dismiss (Doc. 10-1).
As noted, defendant has moved to dismiss plaintiff's complaint for failure to state a claim. Specifically, defendant argues that plaintiff's complaint does not ask the court to review either: 1) the issues raised during the collection due process hearing, or 2) the grounds for the Determinations of the Appeals Officer. Defendant also notes that plaintiff's complaint fails to allege that the August 3, 2000 installment payment proposal was raised during the collection due process hearing.
The Federal Rules of Civil Procedure require notice pleading, not fact pleading Fed.R.Civ.Proc. 8. A plaintiff is required only to provide a short and plain statement of the claim "that will give the defendant fair notice of the claim and the grounds upon which it rests." Leatherman v. Tarrant County Narcotics Intelligence Unit, 113 S.Ct. 1160 (1993) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (footnote omitted)). When reviewing a motion to dismiss, the sole issue is whether relief is possible under any set of facts that could be established consistent with the allegations in the complaint. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992) (citing Conley, 355 U.S. at 45-46 (1957)).
Contrary to defendant's assertions, plaintiff's complaint clearly asks for a "review of plaintiff's appeal of Defendant's Notices of Intent to Levy" and a "redetermination of the Notice of Determination issued by Defendant." (Doc. 1, p. 3). In addition, plaintiff has attached the Notice of Determination to his complaint which show that the installment payment proposal was raised during the collection due process hearing. (Doc. 1, Exh. F). Accordingly, defendant's motion to dismiss for failure to state a claim (Doc. 10-1) is denied.
IV. Motion for Summary Affirmance (Doc. 10-2).
As noted, defendant has filed a motion for summary affirmance of the determinations of the Appeals Office of the Internal Revenue Service.
1. The Internal Revenue Service Restructuring and Reform Act of 1998.
By way of background, in July 1998, the Internal Revenue Service Restructuring and Reform Act of 1998 was enacted. Title 26 U.S.C. § 6331 provides that:
(a) Authority of Secretary — If any person liable to pay any tax neglects or refuses to do so within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy upon all property and rights to property . . . belonging to such person.26 U.S.C. § 6331.
Before proceeding with the levy, however, the IRS must provide the taxpayer notice of the right to a hearing on the matter. 26 U.S.C. § 6331. The taxpayer then has a right to request a "Collection Due Process" hearing with the IRS Office of Appeals, but must do so within 30 days of the notice. 26 U.S.C. § 6330(a)(3)(B). At the hearing, the taxpayer may raise any issue relevant to the unpaid tax and the proposed levy, including challenges to the propriety of the levy and offers of collection alternatives. 26 U.S.C. § 6330(c)(2). After the hearing, the IRS Appeals Officer must send a Notice of Determination to the taxpayer that summarizes the matters raised during the hearing and that responds to any offers or objections made by the taxpayer. If the taxpayer is dissatisfied with the administrative determination, he may seek judicial review within 30 days of the Notice being issued either in the Tax Court or the appropriate United States District Court, if the Tax Court does not have jurisdiction over the underlying tax liability. 26 U.S.C. § 6330(d)(1). Judicial review must be limited to matters actually raised at the administrative hearing. 26 C.F.R. § 301.6330-1T(f).
B. Standard of Judicial Review.
Title 26 U.S.C. § 6330(d) provides for judicial review of the IRS's administrative determinations, however, the statute is silent with respect to the standard of review that the reviewing court must apply. A conference report accompanying the IRS Restructuring Act, however, does discuss the issue. Specifically, this conference report states that in cases where the validity of the underlying tax liability itself is properly at issue, the administrative determination will be reviewed de novo. Where the validity of the underlying tax liability is not properly part of the appeal, the taxpayer may challenge the determination for abuse of discretion. H.R. Conf. Rep. No. 105-599, at 266 (1998); Goza v. Commission of Internal Revenue, 114 T.C. 176, 181-182 (2000) (concluding that a court must review the IRS officer's determinations using an abuse of discretion standard when the validity of the tax liability itself is not at issue); MRCA Information Services v. United States, 145 F. Supp.2d 194, 199 (D.Conn. 2000) (same); Geller v. United States, 88 A.F.T.R.2d 6494, 2001 WL 1346669, at *2 (S.D.Ohio Sept. 25, 2001) (same).
Here, plaintiff does not challenge the validity of the underlying tax liability, thus, the appropriate standard of review to apply is "abuse of discretion." Goza, 114 T.C. at 181-182. In the United States Court of Appeals for the Seventh Circuit, the "abuse of discretion" standard means something more than a belief that the reviewing court would have acted differently if placed in the circumstance confronting the lower tribunal, rather, the decision of the lower tribunal decision must strike the reviewing court as "fundamentally wrong." Johnson v. J.B. Hunt Transport, Inc., 280 F.3d 1125, 1131 (7th Cir. 2002); Cooper v. Eagle River Memorial Hosp., Inc., 270 F.3d 456, 459-60 (7th Cir. 2001).
C. Analysis.
Under 26 U.S.C. § 6330(c)(3), the IRS Appeals Officer who conducts the Collection Due Process hearing must formulate his or her determination based on: (1) the verification that the requirements of any applicable law or administrative procedure have been met; (2) the issues raised by the taxpayer; and (3) the proper balance between the need for efficient tax collection and the legitimate concern that any collection action be no more intrusive than necessary. 26 U.S.C. § 6330(c)(3).
Here, the Notice of Determination indicates that the IRS Appeals Officer complied with all of the applicable law and procedures. Specifically, the Notice of Determination reflects that the requirements regarding notice to the taxpayer, the taxpayer's opportunity to raise all relevant issues at a hearing, and the absence of any prior involvement by the appeals officer were all considered and found in compliance with 26 U.S.C. § 6330. Furthermore, the Notice of Determination reflects that the issues raised by plaintiff were duly considered. Plaintiff does not dispute that it was afforded an opportunity to raise issues or that its claims were fairly considered. See Geller, 2001 WL 1346669 at *4.
Plaintiff argues that the Court does not have all of the documents necessary to perform an adequate review, such as Form 433B, the Collection Information Statement for Businesses and attachments, or other financial information and tax returns. As noted, however, the Court's review is limited to determining whether the appeals officer abused her discretion and failed to meet the requirements of 26 U.S.C. § 6330 (c)(3). The Court has found that the requirements of 26 U.S.C. § 6330 (c)(3) were met and finds that no additional documents are needed for this Court's review.
Plaintiff also argues that the Notice of Determination does not contain sufficient recitation of the facts for the Court to make a proper review. For example, plaintiff argues that the Appeals Officer stated that the revenue officer "rejected" plaintiff's installment proposal, but plaintiff asserts that no response to the installment proposal had been received. Plaintiff's argument is belied by the fact that as of February 1, 2001, plaintiff knew that the collections officer had rejected its installment proposal. On February 1, 2001, plaintiff wrote a letter to Ms. Humble which stated that, "The purpose of this letter is to advise you that we did make an installment offer to the collections officer, Mr. Williamson, which was rejected." As another example, plaintiff argues that the Appeals Officer references her request for financial statements but fails to note that plaintiff provided a financial statement on July 26, 2000. What plaintiff fails to admit, however, is that the financial statement that plaintiff provided was to the revenue officer. Plaintiff ignores the fact that once the case was before the appeals officer, the appeals officer requested updated financial information which plaintiff failed to provide.
Finally, plaintiff argues that the Notice of Determination fails to provide a factual basis to allow the Court to summarily affirm it, and fails to take into account all of the relevant facts. For example, plaintiff states that its August 3, 2000 letter informed the IRS that the levy would force plaintiff to close its facility, require the removal of all of the current residents, and cause 140 individuals to lose their jobs. It is clear, however, from a review of the Notice of Determination, that the appeals officer considered the fact that the revenue officer had determined, based on the information provided by plaintiff, that the taxpayer corporation could pay in full. The appeals officer gave plaintiff an opportunity to contest this determination by asking plaintiff to provide to the appeals officer updated financial information and an updated installment proposal. This request was reasonable, and there is no indication that plaintiff complied.
In summary, although a levy upon property may arguably be an intrusive collection tactic, the appeals officer considered the issues raised by plaintiff and balanced plaintiffs's interests and concerns against the need for efficient tax collection. The Notice of Determination states that although plaintiff made an offer to make installment payments to bring the account current, the revenue officer determined that the taxpayer could pay in full and rejected the installment agreement. The Notice of Determination further states that plaintiff was afforded an second opportunity to present another installment proposal but failed to send in the documents that were required to enable the appeals officer to evaluate the proposal. The Court finds that the decision of the IRS Appeals Officer is reasonable and is not fundamentally wrong. There is no evidence of error by the appeals officer, nor any specific allegation by plaintiff, that would support a finding of abuse of discretion. Accordingly, defendant's motion for summary affirmance (Doc.10-2) is granted. The Notice of Determination of the IRS Appeals Officer regarding the IRS's Notice of Intent to Levy (Doc. 1, Exh. F) is AFFIRMED.
V. Summary.
Based on the foregoing, defendant's motion to dismiss for failure to state a claim (Doc. 10-1) is DENIED. Defendant's motion for summary affirmance (Doc. 10-2) is GRANTED. The November 8, 2001 Notice of Determination of the IRS Appeals Officer regarding the IRS's Notice of Intent to Levy (Doc. 1, Exh. F) is AFFIRMED. This action is DISMISSED with prejudice. A separate Judgment shall accompany this Memorandum and Order.
IT IS SO ORDERED.