Opinion
CIVIL ACTION NO. MJG-00-1092.
February 15, 2002.
JUDGMENT
This action came on for trial before the Court without a jury, Honorable Marvin J. Garbis, United States District Judge presiding. On this date, the Court has issued its Memorandum of Decision in this case.
In view of the foregoing:
1. Judgment shall be, and hereby is, entered in favor of Defendant Commissioner of Internal Revenue against Plaintiff Compucel Service Corporation dismissing all claims with prejudice, with all assessable costs.
2. The Court holds that the Appeals Officer has not abused his discretion in making the determination set forth in the Notice of Determination at issue.
3. This Order shall be deemed to be a final judgment within the meaning of Rule 58 of the Federal Rules of Civil Procedure.
MEMORANDUM OF DECISION
The instant case has been submitted for decision on the record, including the parties respective papers and attached exhibits. The Court hereby issues its findings of fact and conclusion of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.I. BACKGROUND
At all times relevant hereto, Petitioner Compucel Service Corporation ("Compucel") has been engaged in a data processing related businessfn1 with its principal offices in Laurel, Maryland. By not later than the Fourth Quarter of 1994 ("4Q94"), Compucel fell behind in regard to its Form 941 federal employment tax and withholding obligations.
In 1Q95, Compucel fell further behind so that by the end of that Quarter, it was more than $300,000 in arrears on its Form 941 liabilities. Despite its Form 941 tax deficit, Compucel continued in operation, but did not comply with its then-current Form 941 obligations. By the end of 3Q98, Compucel's total Form 941 deficit was in excess of $650,000.
On March 4, 1999, the IRS sent Compucel two notices of Intent to Levy to collect unpaid Form 941 liabilities as follows:
4Q94 — 1Q95 $377,757.07
1Q98 — 3Q98 321,460.84
TOTAL $699,217.91
On April 5, 1999, Compucel requested a "collection due process hearing" under § 6330 of the Internal Revenue Code. On February 7, 2000, a hearing was held by Appeals Officer Chris Neighbor ("the Appeals Officer"). On March 17, 2000, the Appeals Officer issued to Compucel a Notice of Determination Concerning Collection Action determining that the Notice of Intent to Levy dated March 4, 1999 was appropriate and should not be withdrawn. Compucel was advised that it had 30 days from the date of the Notice to file a complaint in a United States District Court to dispute the IRS determination. On April 17, 2000, Compucel timely filed the instant lawsuit.
All statutory references herein are to the Internal Revenue Code, Title 26, United States Code.
The 30th day after March 17, 2000 fell on April 16, 2000, a Sunday, so that filing on Monday, April 17, 2000 was timely.
II. RELEVANT STATUTORY FRAMEWORK
The instant case arises under Internal Revenue Code Amendments enacted in the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L.105-206, 112 Stat. 685 (1998).
With exceptions not here relevant, the IRS cannot levy on a persons' property unless the Service has adequately given notice of the right to a hearing before the levy is made § 6330(a)(1). If the person given notice timely requests a hearing, the hearing, sometimes referred to as a "Due Process Hearing", is to be conducted by the IRS Office of Appeals. § 6330(b)(1).
At the Due Process Hearing, the person given notice may raise any relevant issue including offers of collection alternatives, an installment agreement or an offer in compromise. § 6330(c)(2)(A) (iii).
The statute provides that:
[t]he determination by an appeals officer under this subsection shall take into consideration . . . whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.
§ 6330(c)(3).
If a Due Process Hearing is requested, the subject levy actions are suspended while the hearing and any appeals therein are pending. § 6330(e).
As well as the running of certain periods of limitations.
Subject to exceptions not here relevant.
If not satisfied with the Appeals Office determination, the person given notice may appeal the determination to the Tax Court or, for taxes such as Form 941 taxes or over which there is no Tax Court jurisdiction, to a district court. § 6330(d)(1)(A), (B).
III. DISCUSSION
In brief and stark terms, the statute permits a taxpayer who does not deny that he owes a tax liability to block IRS collection by levy for so long as it may take to provide a Due Process Hearing and for the judicial process to be completed. In the instant case, Compucel, with substantial and increasing withholding and employment tax obligations in default since 1994, has been able to block IRS levy actions into the year 2002. In practical terms, the Court must decide how much longer Compucel can continue to avoid paying its Form 941 tax liabilities, which are now approaching $1,000,000. In other words, this Court must decide how much longer Compucel can use its unpaid tax liabilities effectively as "working capital". In the opinion of this Court, seven years of tax deficit financing has been more than enough. The IRS should be free to proceed with vigorous collection action.
In its efforts to delay tax collection further, Compucel presents a number of arguments and proposals that it claims might support an exercise of discretion to forego collection action by levy and claims that the Appeals Officer did not consider, or did not adequately consider, them. In response, the Government contends that any arguments and proposals (whatever these may have been) made by Compucel were considered by the Appeals Officer. The IRS further takes issue with whether certain of the arguments or proposals Compucel says it presented were, in fact, presented to the Appeals Officer.
Although the matter has not yet been addressed by the Fourth Circuit, it appears that in a § 6330(d) appeal, the district court should review the Appeals Officer's determination as to the appropriateness of the collection activity on an abuse of discretion standard. H.R. Rep. No. 105-599, at 266. See Goza v. Comm'r, 114 T.C. 176, 182 (2000).
In many administrative appeal contexts, review on an abuse of discretion standard can be accomplished through a review of a comprehensive formal record, complete with pleadings and transcripts of administrative hearings. In an Internal Revenue Service Appeals Office context, there is no such record. Hearings "at the Appeals level have historically been conducted in an informal setting." Katz v. Comm'r, 115 T.C. 329, 337 (2000). As stated in the leading treatise on federal tax procedures:
Appeals Office conferences are informal. No stenographer is present to record the discussions of the facts and the law relating to the issue involved. Testimony under oath is not taken.
Michael I. Saltzman, IRS Practice and Procedure ¶ 9.05[3] (1991).
The absence of a comprehensive administrative record of the IRS Appeals Office Due Process Hearings has led one district court to hold that the IRS had failed to make a record adequate to permit judicial review. Mesa Oil, Inc. v. United States, No. 00-B-851 (D.Col. Nov. 21, 2000) (Order remanding case to IRS Comm'r). As stated in Mesa Oil by Judge Babcock:
While a full stenographic record is not required, 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 abused his or her discretion.Id. at *7.
In Mesa Oil, the court remanded the case to the IRS with directions to have a new Appeals Officer conduct a collection Due Process Hearing with "an adequate record", including: some form of a recording of the evidence or arguments presented; the making of finding of fact and conclusions of law; a review of the arguments raised; the factors taken into consideration in the final conclusion; and citations to supporting authority. Id.
It is no doubt true, as Judge Babcock found and ruled in Mesa Oil, that there can be cases in which the Appeals Officers' administrative record is inadequate to permit judicial review of the collection due process hearing. However, the instant case does not present such a situation.
The Court finds the record, including the Appeals Case Memorandum and the evidence submitted by the parties, adequate to warrant the conclusion that the Appeals Officer took into consideration the requisite balancing of the need for efficient collection of taxes with the legitimate concern of Compucel that the collection action be no more intrusive than necessary. See § 6330(c)(3). Even taking the facts as presented by the Compucel, Petitioner made no proposal to the Appeals Officer that would have required, or even justified, a deferral of collection by levy. Indeed, Compucel has not even suggested to this Court a reasonable basis for delaying collection by levy. By no means has Compucel established that the Appeals Officer abused his discretion by "failing" to accept Compucel's proposals to "write off" the majority of its tax debts through an offer in compromise or to enter into a payment plan that, even if complied with, would effectively defer the payment of Compucel's obligations for a long long time, if not forever.
The Appeals Case Memorandum was not a mere pro forma conclusory statement. Rather, it adequately demonstrated that the Appeals Officer had considered Compucel's proposals, which amounted to efforts to "compromise" the tax liability for a fraction of the amount due and less than the Government could reasonably expect to collect, and to get on an installment payment schedule that would not even satisfy the interest that was accruing. If, as alleged, Compucel offered a combination of a very substantial write off of the liability and an installment payment, the absence of an express reference to this patently inadequate proposal is not significant.
Finally, Compucel seeks to gain further delay by alleging "changed circumstances" warranting yet another round of negotiations. The Court finds the so called "changed circumstances" presented by Compucel to be of insubstantial weight and to in no way to justify further collection delay. Moreover, as noted in AJP Mgmt. v. United States, 2000 WL 33122693, *3 (C.D.Cal. 2000), there is no "indication in the Internal Revenue Code or its legislative history that a district court can or should order the IRS to reconsider a Notice of Determination in light of `changed circumstances' . . .".
In sum, Compucel has not made a showing justifying any further delay in IRS collection efforts.
IV. CONCLUSION
For the foregoing reasons:
1. The Appeals Officer did not abuse his discretion in making the Notice of Determination at issue.
2. The IRS may proceed to collect, by levy and all other legally proper means, the tax liabilities at issue.
3. Judgment shall be entered by separate Order.