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rejecting Evseroff's claim under the Taxpayer Bill of Rights
Summary of this case from United States v. EvseroffOpinion
Civil Action No. 03-CV-0317 (DGT).
September 22, 2004
MEMORANDUM AND ORDER
On January 17, 2003, plaintiff Jacob R. Evseroff ("Evseroff") filed this action pursuant to the Taxpayers' Bill of Rights ("TBR"), I.R.C. § 7433, alleging "negligent and/or intentionally tortious conduct that employees and agents of the Internal Revenue Service perpetrated against Mr. Evseroff." (Compl. ¶ 1). In particular, Evseroff's first claim alleges that the IRS referred a collection action against him to the United States Department of Justice ("DOJ") Tax Division while one or more offers to compromise were pending, in violation of Treas. Reg. § 301.7122-1(g)(6). Evseroff's second claim alleges that the omission of the text of what is now Treas. Reg. § 301.7122-1(g)(6) from the temporary regulations promulgated in 1999 constituted failure "to follow the provisions of the TBR and the Internal Revenue Code that authorized such language and regulations." (Compl. ¶ 139). Evseroff requests monetary damages and a "permanent injunction prohibiting the United States from further pursuing the collection litigation and ordering the collection litigation dismissed with prejudice." (Compl. at 26).
The government has moved to dismiss and/or for summary judgment, arguing: (1) the action is barred by res judicata, (2) failure to exhaust administrative remedies, (3) the conduct complained of was not collection activity, (4) the conduct complained of was not committed by the IRS, (6) the IRS did not receive a September 28, 1993 offer in compromise, and (7) no injunctive relief is authorized under I.R.C. § 7433. The government has also moved for sanctions under Rule 11 and/or 28 U.S.C. § 1927.
Background (1)
Evseroff's difficulties with the IRS arose from a series of tax shelter investments he purchased between 1978 and 1982. In December 1990, the IRS sent Evseroff a notice indicating a deficiency in his income taxes for the years 1978-1982. On November 5, 1992, the Tax Court entered a decision for $209,113 in taxes and penalties on consent. See Evseroff v. Commissioner, No. 7381-92 (T.C. Nov. 5, 1992).
In 1993, Evseroff retained James Graves, a public accountant, to represent him before the IRS. (Compl. ¶ 31). Evseroff alleges he authorized Graves to submit an offer in compromise of $110,000 to the IRS as settlement for his tax liability. (Compl. ¶¶ 36-37). Evseroff further alleges that this offer in compromise was submitted on or about September 28, 1993, and was received by the IRS in or around October 1993. (Compl. ¶¶ 38, 40).
Evseroff received documents purportedly from the IRS showing acceptance of this offer in compromise. However, these documents were forgeries, likely committed by Graves; the IRS never actually accepted a September 28, 1993 offer in compromise. The IRS has never rejected or otherwise responded to a September 28, 1993 offer. (Compl. ¶ 76). The government maintains no such offer was ever received by the IRS. ( See Decl. of Tonni Gillis dated 2/6/2003, Decl. of Jeff Powers dated 2/6/2003, Decl. of Mark Newman dated 2/6/2003).
For a discussion of the IRS's evidence proving it had not accepted a September 28, 1993 offer in compromise from Evseroff, see United States v. Evseroff, No. 00-cv-6029, 2001 WL 1571881 at *2, 88 A.F.T.R.2d (RIA) 6926 (E.D.N.Y. Nov. 6, 2001) (Trager, J.) (" Evseroff II").
In 1994, the IRS placed a lien on Evseroff's home in Florida and ordered his checking account seized. Evseroff has claimed it was only then that he learned the IRS had no record of accepting his offer in compromise. (Evseroff Aff. dated 5/30/2001, ¶ 13).
From 1992 to 1997, the IRS assessed Evseroff additional tax liabilities based on his 1991, 1992, and 1996 tax returns. These assessments were not part of the Tax Court decision and were not covered by the September 28, 1993 offer in compromise.
From 1994 to 1996, Evseroff submitted at least six other offers in compromise to the IRS. (Compl. ¶ 75). All of these were rejected or returned as "unprocessable." ( See Compl. ¶¶ 52-75; Evseroff Dep. at 205 ("[A]ll of the [offers in compromise] that [Mr. Ragusa] submitted he always got a response, unprocessable or rejected. . . . The one that Graves submitted, there was never a response.")). In particular, a June 27, 1996 offer in compromise, covering the years 1978-1982, 1991, and 1992, was stamped "unprocessable," and returned to Evseroff. (Compl. ¶ 70). Evseroff alleges that since he did not receive written notice advising him the June 27, 1996 offer had been rejected (Compl. ¶ 80), the offer is still "pending" with the IRS (Compl. ¶ 95).
In 1997, Evseroff brought a lawsuit under I.R.C. § 7433 alleging the IRS had improperly attempted to collect taxes from him. The complaint in the present action includes a recitation of many of the same alleged wrongs complained of in 1997, including the IRS's failure to respond to Evseroff's correspondence, their failure to grant an appeal of a rejection of an offer in compromise, and their deposit of checks Evseroff submitted in compliance with the offer in compromise he believed had been accepted. The 1997 action was dismissed. Evseroff v. Internal Revenue Service, No. 97-cv-2317, 2000 WL 1728112, 86 A.F.T.R.2d 2000-6711 (E.D.N.Y. Sept. 28, 2000) (Hurley, J.) (" Evseroff I"), aff'd, Evseroff v. Internal Revenue Service, No. 00-6331, 2001 WL 668528 (2d Cir. June 12, 2001). The court noted that Graves had forged the letters purportedly showing the IRS's acceptance of the offer. Evseroff I at *1 ( citing Martin Aff. Supp. Appl. for Arrest Warrant, United States v. Graves, No. 96-0594M (E.D.N.Y. Apr. 23, 1996)).
(2) The Collection Action
On June 25, 1997, the Office of Chief Counsel for the IRS referred Evseroff's case to the DOJ Tax Division in a letter sent to Loretta C. Argrett, which stated in relevant part: "[W]e hereby request and authorize you to take any legal action necessary to defend the Internal Revenue Service . . . and collect the taxes owed in the above-entitled case, including moving to reduce the tax claim to judgment." (Def't Reply Mem. of Law, Ex. 1).
On October 5, 2000, the United States commenced a collection action against Evseroff ("the collection action"), seeking to reduce to judgment federal tax assessments against Evseroff, establish the validity of liens on his property, foreclose on those liens, and determine the interests of various parties in some of that property. Evseroff II at *1. On November 6, 2001, the government's motion to reduce to judgment federal tax assessments against Evseroff for the tax years 1978-82, 1991-92 and 1996 was granted. Id. At that time, a final judgment was entered under Rule 54(b). On July 8, 2002, an amended judgment was issued against Evseroff in the amount of $1,546,682.08 plus statutory interest from May 31, 2000. United States v. Evseroff, No. 00-cv-6029, 2002 WL 1973196, 90 A.F.T.R.2d (RIA) 5541 (E.D.N.Y. July 8, 2002) (Trager, J.) (" Evseroff III").
On January 3, 2003, the government brought a motion for summary judgment in the collection action, seeking a ruling that Evseroff retained beneficial ownership of the property he had transferred to an irrevocable trust, that the transfers to the trust were fraudulent conveyances, and requesting a judgment foreclosing the federal tax liens on the property transferred to the trust. In response, Evseroff argued that the government was estopped from pursuing the collection action because it had been commenced in violation of Treas. Reg. § 301.7122-1(g)(6). Evseroff also commenced this lawsuit, on January 17, 2003, alleging the same violation of IRS regulations.
On September 30, 2003, the government's motion for summary judgment was denied. United States v. Evseroff, No. 00-cv-6029, 2003 WL 22872522, 92 A.F.T.R.2d (RIA) 6987 (E.D.N.Y. Sept. 30, 2003) (" Evseroff IV"). However, the estoppel argument was held to be barred by res judicata, because it was not raised prior to the final judgment on the question of Evseroff's tax liability. Id. at *8. Evseroff's contention that the estoppel argument could not have been raised prior to the enactment of the permanent regulations in July 2002 was rejected. Id.
Discussion
a. The Taxpayers' Bill of RightsThis action was brought under the TBR, which states in relevant part:
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.
I.R.C. § 7433(a) (1998). This section does not provide an exception to the anti-injunction provisions of I.R.C. § 7421 (2000). The taxpayer is not entitled to any injunctive relief under I.R.C. § 7433, and Evseroff's request for injunctive relief is denied.
Moreover, Evseroff cannot relitigate his claim that the government is estopped from pursuing the collection action when that claim has already been rejected in the collection action.
The legislative history of the TBR clearly demonstrates that actions undertaken for assessing and determining the amount of tax liability are not actionable collection activities under I.R.C. § 7433. See, e.g., Miller v. United States, 66 F.3d 220, 223 (9th Cir. 1995) ( citing H.R.Conf.Rep. No. 1104, 100th Cong., 2d Sess. 229 (1988), reprinted in 1988 U.S.C.C.A.N. 5048, 5289). Similarly, the IRS's conduct in drafting temporary regulations is not an activity undertaken "in connection with any collection of Federal tax with respect to a taxpayer" for purposes of I.R.C. § 7433. Accordingly, the IRS's failure to include, in the temporary regulations promulgated in 1999, a provision barring the referral of a case to the DOJ while an offer in compromise is pending is not actionable under the TBR.
Evseroff alleges that the referral of his case to the DOJ occurred while one or more offers in compromise were pending, violating Treas. Reg. § 301.7122-1(g)(6) (2002). Evseroff takes the remarkable position that IRS employees "recklessly or intentionally, or by reason of negligence disregard[ed]" a regulation promulgated after the employees' actions took place. Evseroff argues that the government was obligated to behave in accordance with what the "content of the temporary regulations was supposed to be" in 1999, while maintaining that the temporary regulations did not put him on notice of the government's obligation to behave in this manner. (Pl. Mem. of Law in Opp. at 5 n. 3). In making this dubious argument, he seems to conflate the date of referral with the date the collection action was commenced. In reply, the government offers conclusive evidence that the referral complained of occurred in 1997, and not in 2000. (Def't Reply Mem. of Law, Ex. 1). Because the timing of the relevant regulations is crucial to both parties' legal arguments, a review of the history of Treas. Reg. § 301.7122-1(g)(6) is in order.
The only support Evseroff cites for his contention that Treas. Reg. § 301.7122-1(g)(6) should be applied retroactively is I.R.C. § 7805(b)(1). However, Evseroff ignores the rest of the provision, which specifies "[t]he limitation of paragraph (1) shall not apply to any regulation relating to internal Treasury Department policies, practices, or procedures." I.R.C. § 7805(b)(5).
Plaintiff's brief states that his first TBR lawsuit "was dismissed on September 28, 2000 — i.e., before the conduct complained of here, the referral by the IRS to DOJ, had even occurred." (Pl. Mem. of Law in Opp. at 7). The DOJ began the collection action on October 5, 2000.
Prior to the government's submission of this evidence, Evseroff could not have known the precise date on which the referral occurred, and his belief that the referral occurred closer in time to the filing of the collection action was not unreasonable.
b. The Restructuring and Reform Act of 1998
On July 21, 1999, the IRS promulgated temporary regulations regarding procedures for handling offers to compromise, reflecting changes to the Internal Revenue Code made by the Internal Revenue Service Restructuring and Reform Act of 1998 ("RRA 1998") and the Taxpayer Bill of Rights II. Temp. Treas. Reg. § 301.7122-1T, 64 Fed. Reg. 39020 (July 21, 1999). RRA 1998 amended I.R.C. § 6331 to add, in relevant part:
(k) NO LEVY WHILE CERTAIN OFFERS PENDING OR INSTALLMENT AGREEMENT PENDING OR IN EFFECT. —
(1) OFFER-IN-COMPROMISE PENDING. — No levy may be made under subsection (a) on the property or rights to property of any person with respect to any unpaid tax —
(A) during the period that an offer-in-compromise by such person under section 7122 of such unpaid tax is pending with the Secretary; . . .
For purposes of subparagraph (A), an offer is pending beginning on the date the Secretary accepts such offer for processing . . .
(3) CERTAIN RULES TO APPLY. — Rules similar to the rules of paragraphs (3), (4), and (5) of subsection (i) shall apply for purposes of this subsection.
Section 3462(b) of Pub.L. 105-206, 112 Stat. 685 (1998). Paragraph (4) of subsection (i) was also changed by RRA 1998 to read, in relevant part:
(4) LIMITATION ON COLLECTION ACTIVITY; AUTHORITY TO ENJOIN COLLECTION. —
(A) LIMITATION ON COLLECTION. — No proceeding in court for the collection of any unpaid tax to which paragraph (1) applies shall be begun by the Secretary during the pendency of a proceeding under such paragraph.
Section 3433(a) of Pub.L. 105-206, 112 Stat. 685 (1998). The temporary regulations included a provision stating that the IRS would not "make any levies to collect the liability that is the subject of the compromise during the period the IRS is evaluating whether such offer will be accepted or rejected . . ." Temp. Treas. Reg. § 301.7122-1T(f)(2). However, the temporary regulations did not contain a provision limiting court proceedings while offers were pending.
On July 23, 2002, the IRS promulgated permanent regulations which, as explained in the "Supplementary Information" printed in the Federal Register, reflected the amendment of the I.R.C. by section 3462 of RRA 1998, and "correct[ed] for an omission in the temporary regulations by providing that the IRS may not refer a case to the Department of Justice to collect an unpaid tax through a judicial proceeding while an offer to compromise that tax is pending." 67 Fed. Reg. 48025, 48028 (July 23, 2002); see Treas. Reg. § 301.7122-1(g)(6).
(1) The Referral Did Not Disregard Any Statute or Regulation
No amount of discovery would enable Evseroff to show the referral of his case to the DOJ occurred after July 21, 1999, the date temporary regulations were promulgated, or, for that matter, after the effective date of RRA 1998. Although the government partially redacts the June 25, 1997 letter to Ms. Argrett in the DOJ Tax Division, the first page clearly authorizes, and asks, the DOJ to commence a proceeding in court against Evseroff for collection of his taxes. (Def't Reply Mem. of Law, Ex. 1). Prior to RRA 1998, there was no statute or regulation preventing the referral of a case to the DOJ for commencement of a court proceeding while an offer in compromise is pending. Since there was no relevant provision of the I.R.C. or temporary treasury regulation in effect on June 25, 1997, the IRS could not have "disregard[ed]" one. Accordingly, the referral of Evseroff's case to the DOJ was proper.
Although the government concedes that an action for a violation of Treas. Reg. § 301.7122-1 could not have been commenced prior to the promulgation of Treas. Reg. § 301.7122-1 (Def't Reply Mem. of Law at 15), note that any claim that the referral to the DOJ disregarded a provision of the I.R.C. or regulation in existence at the time the referral took place would be untimely.
(2) No Offers in Compromise are Pending
Even if the referral of Evseroff's case had not predated the regulations barring referrals while offers in compromise are pending, the government would still be entitled to summary judgment because Evseroff has not shown any offer in compromise was pending when his case was referred to the DOJ.Under the 1999 temporary regulations and the 2002 permanent regulations, "[a]n offer to compromise becomes pending when it is accepted for processing. . . . The IRS may also return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer." Temp. Treas. Reg. § 301.7122-1T(c)(2) (July 21, 1999); Treas. Reg. § 301.7122-1(d)(2) (2002).
As acknowledged in the complaint, the June 27, 1996 offer in compromise was returned to Evseroff, stamped as "unprocessable." (Compl. ¶ 70). Accordingly, this offer in compromise was not "pending," as defined in Treas. Reg. § 301.7122-1, when the IRS referred Evseroff's case to the Department of Justice for the commencement of the collection action.
In order for the September 28, 1993 offer in compromise to be pending at the time the IRS referred Evseroff's case to the Department of Justice, the IRS would have had to receive the offer and accept it for processing. However, no reasonable juror could conclude on the basis of the current record that the offer was accepted for processing. Evseroff's insistence that Graves actually submitted a September 28, 1993 offer in compromise to the IRS defies common sense. Although the complaint alleges "on or about September 28, 1993, Mr. Evseroff authorized Graves to submit another [offer]" (Compl. ¶ 36 (emphasis added)), Evseroff's belief that the offer was submitted rests on the word of Graves, the very person who admitted to forging the letters Evseroff received regarding the offer. Whatever Graves's motivations for delivering the forged documents to Evseroff, properly submitting the September 28, 1993 offer to the IRS would only have increased the likelihood that his criminal activities were discovered. If Evseroff had received both fake and genuine responses to the offer, he would have known something was amiss. It was only because the IRS did not respond to any offer, and did not refund his checks as submitted pursuant to a rejected offer, that Evseroff failed to realize he had been duped.
Evseroff also cites the following circumstantial evidence in support of his contention that the September 28, 1993 offer in compromise was pending before the IRS: a telephone conversation in November 1994 with James Martin, an IRS investigator, who reportedly said, "We have not been able to verify that your offer has been accepted," and a fax from Joseph Tawquina of the IRS's Taxpayer Assistance Office, requesting "a copy of your copy of the original acceptance letter re: your offer in compromise of $110,000." See Evseroff IV at *4 ( quoting Evseroff Decl. Ex. F and Ex. H). Contrary to Evseroff's interpretation, these statements do not indicate that the IRS employees had knowledge of a pending offer independently from Evseroff having informed them of such an offer.
Moreover, even if Graves had mailed the offer to the IRS, that alone is insufficient to show an offer in compromise was "pending" within the meaning of Treas. Reg. § 301.7122-1. Evseroff must show, at a minimum, that the September 28, 1993 offer in compromise had been "accepted for processing." The IRS has no record of having received any offer from Evseroff in the amount of $110,000. ( See Decl. of Tonni Gillis dated 2/6/2003, Decl. of Jeff Powers dated 2/6/2003, Decl. of Mark Newman dated 2/6/2003). It is highly speculative that the IRS computer records would show no indication of an offer accepted for processing, even if the IRS sometimes loses documents.
Evseroff submits no affidavit pursuant to Rule 56(f) requesting further discovery, other than alleging "the issue of whether the September 28, 1993 offer in compromise was received by the IRS cannot be decided without discovery." (Pl. Mem. of Law in Opp. at 14). In particular, Evseroff cites internal reports prepared by the IRS noting that the agency loses millions of documents every year, claiming "the Court could take judicial notice of the possibility, or even the likelihood that the [September 28, 1993 offer] was lost. Certainly, this area is fair game for discovery and the Court should reserve decision on the factual issue of whether the Government received his 1993 offer-in-compromise until such discovery is completed." ( Id. at 15).
Evseroff's failure to submit a Rule 56(f) affidavit is fatal to his claim that he is entitled to further discovery, particularly in light of the decision in the collection action specifically explaining the necessity of such an affidavit. Evseroff II at *5. Evseroff has not shown what specific discovery he would take and what evidence he thinks it would produce. Furthermore, he has not shown what effort he has made to obtain the facts sought, and why he was previously unsuccessful. In the collection action, he was denied any further discovery he alleged was needed to demonstrate that the IRS accepted the September 28, 1993 offer in compromise, in part because he had a "fully adequate opportunity for discovery." Evseroff II at *7.
(3) Sanctions
The government has also moved for sanctions, repeating the arguments it made in a previous motion for sanctions brought in the collection action, and also arguing that the September 30, 2003 decision on the motion for summary judgment in the collection action made it clear that Evseroff's estoppel argument was barred by res judicata. The previous motion for sanctions was denied. Evseroff IV at *8 n. 7. As previously noted, "it is obvious that neither side has been pleasant to each other," Evseroff III at *7, which has thus far made a settlement in the collection action all but impossible. Still, "the efforts of Evseroff's representatives are perilously close to improper." Id. In particular, the claim that an offer in compromise remains pending after it is returned as unprocessable is clearly meritless. Moreover, there is no question that counsel cannot use the TBR to launch a collateral attack on the judgment in the collection action. The TBR might provide some relief to a taxpayer against whom judgment has been entered, but cannot extricate him from liability for the amount of the judgment, which seems to be what Evseroff is really seeking. Nonetheless, it is not clear that the action as a whole was brought in bad faith, and neither Evseroff nor his attorneys will be sanctioned at this time.
Conclusion
For the foregoing reasons, the government's motion for summary judgment is granted. The Clerk of the Court is directed to close the case.
SO ORDERED.