Opinion
5:01-CV-1478.
March 29, 2004
Michael A. Farenga, Plaintiff Pro se, New Woodstock, New York.
Paula Ryan Conan, Esq., Assistant United States Attorney, Elizabeth Lan, Esq., Trial Attorney, Tax Division, United States Department of Justice, Glenn T. Suddaby, United States Attorney, Northern District of New York, Syracuse, New York.
MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
On September 27, 2001, plaintiff pro se Michael A. Farenga filed a complaint seeking to set aside a "Notice of Determination Concerning Collection Action(s) Under Section 6330" in which the Internal Revenue Service concluded a levy was an appropriate action to collect two, five hundred dollar civil penalties that were assessed against plaintiff, pursuant to 26 U.S.C. § 6702, for filing a both a frivolous income tax return and a Form 843 claim for refund of credits pursuant to 26 U.S.C. § 31(a)(1). Presently before the Court is the government's "Motion to Affirm Determination of the Internal Revenue Service."
According to 26 U.S.C. § 6330, following a determination by the IRS that a levy be imposed, a person "may, within 30 days of a determination under this section, appeal such determination — . . . (B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States."
Form 843, Claim for Refund and Request for Abatement. Bax v. C.I.R., 13 F.3d 54, 57 (2d Cir. 1993).
The government did not specify in its moving papers whether its motion was to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) or for summary judgment pursuant to Fed.R.Civ.P. 12(b)(6). Although the government attached to its motion, papers outside the pleadings, because the government has not provided plaintiff with a notification of the consequences of failing to respond to a motion for summary judgment, and there has been no discovery, the Court construes the instant motion as one to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Thus, the Court disregards the government's evidentiary submissions, and confines its review to the verified complaint and the six exhibits to the complaint. Kramer v. Time Warner, Inc., 937 F.2d 767 (2d Cir. 1991) ("In considering a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), a district court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference.").
III. BACKGROUND
According to the complaint and its exhibits: plaintiff, an Alltel of New York employee, filed a federal income tax return for the year 1999 and claimed zero income and zero taxes due. Plaintiff also claimed that $1,311.21 had been withheld as income tax and requested that amount be refunded to him. Plaintiff also filed a "843 claim form" claiming a "statutory refund of credits pursuant to IRS code Section 31 A-1." See Transcript of CDP Hearing, Complaint, Ex.D. Finding the income tax return and claim form frivolous, the Internal Revenue Service fined plaintiff $500 for each filing. The IRS sent plaintiff a Notice of Intent to Levy and Notice of Your Right to a Hearing. See Complaint, Ex.C. Plaintiff timely requested a Collection Due Process Hearing (CDP) and stated that he would challenge the existence of his underlying tax liability. See Complaint, Ex.B. Along with his request for a hearing, plaintiff attached a list of items the IRS was to "have at the hearing", including the name(s), "Federal ID number", and job description of the IRS employee(s) who imposed the frivolous penalty; "[t]he delegation of authority from the Secretary authorizing such persons to impose a `frivolous' penalty"; the "Treasury regulation that allows IRS employees to impose the `frivolous' penalty, and the regulation that required me to pay it"; the frivolous penalty determination document; and the "specific Code section that makes me `liable' for the income tax at issue". Plaintiff specified that he "will need to see all of the above documents at the IRC 6320 `Due Process Hearing' before I am persuaded that I am legally obligated to pay the (2) $500, frivolous penalties at issue."
26 U.S.C. § 31(a)(1) provides: "(a) Wage withholding for income tax purposes. — (1) In general. — The amount withheld as tax under chapter 24 shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle."
By letter dated July 16, 2001, the IRS informed plaintiff that a hearing had been scheduled. In the letter, Michael Smith, Appeals Settlement Officer, stated that:
IRC section 6012(a) requires the filing of an income tax return by every individual having taxable year gross income exceeding the exemption amount. IRC section 61 defines gross income. The return that you filed showing that you had no income, when you plainly had wages from Alltel, is frivolous on its face. This return resulted in a civil penalty imposed by authority of IRC 6702. While due process permits you the opportunity to object to the underlying assessment, your issue that you are not liable to pay income tax and therefore you are not liable for this civil penalty is unlikely to prevail.
Mr. Smith further informed plaintiff:
Your request for the names, job descriptions and delegation authority of the individual involved in imposing the penalty under IRC section 6702 is not relevant to this proceeding. Appeals is not required to produce this documentation before making a determination in your case. Courts have consistently held that a written transcript of your account is presumptive evidence of the validity of the assessment i.e. that the Service complied with the requirements of the law in making the assessment.
Complaint, Ex.F.
On July 31, 2001, Appeals Officer Michael Smith presided over plaintiff's CDP hearing. See Transcript of CDP Hearing, Complaint, Ex.D. At the hearing, plaintiff: (1) argued that the Appeals Officer was required to provide verification from the Secretary that the requirements of any applicable law and administrative procedure have been met; (2) requested the "assessment of [his] account"; (3) requested the identity of the employee who determined the frivolous penalties were appropriate and his or her job description showing that he or she was authorized to assess a penalty; (4) requested that the Appeals Officer show him the regulation authorizing the frivolous penalty; (5) argued that because wages are not income, his income tax return was not frivolous; and (6) requested that the Appeals Officer show him the law establishing his liability for income taxes. Plaintiff stated that he would pay the amount due in full if the Appeals Officer could point to the law establishing his liability for income taxes. The Appeals Officer listened to plaintiff's arguments, refused to answer some of plaintiff's requests, informed plaintiff that he would issue a determination, and terminated the hearing.
On August 29, 2001, the IRS issued a determination that plaintiff did not raise a valid issue concerning the use of a levy action to collect the frivolous tax return penalties. On September 27, 2001 plaintiff filed the instant complaint pursuant to 26 U.S.C. § 6330(d)(1)(A) seeking damages and to "set aside an invalid collection due process `determination'". In the complaint, which is redundant and quite lengthy, the Court surmises that plaintiff alleges that he did not receive a proper CDP hearing and that the Appeals Officer's determination was defective because: (1) the penalties are not supported by any testimony or documentary evidence; (2) at the CDP hearing, the Appeals Officer did not produce the "verification from the Secretary" as required by § 6330(c) or send plaintiff the "verification from the IRS office collecting the tax that the requirements of any applicable have been met' as `required' by Treasury Regulation 301.6330-1(c)" prior to the issuance of the Notice of Determination; (3) the Appeals Officer did not produce the relevant regulations or statutes including a Treasury Department regulation authorizing IRS employees to impose a "frivolous penalty" or requiring plaintiff to pay such a penalty, a statute that established the existence of the underlying liability for the tax for which the frivolous penalty was imposed, and a provision of the Internal Revenue Code which establishes "income tax `liability'"; (4) the Appeals Officer did not produce proof that the Secretary authorized the instant collection action, proof that the "Attorney General or his delegate `directed' that this collection action be commenced", or a document signed by an IRS employee supporting the imposition of the "frivolous penalty"; and (5) the Appeals Officer refused to accept plaintiff's proposed collection alternative, i.e., that plaintiff would pay the amount at issue if the Appeals Officer could show him the regulation establishing his liability. Based on the above, plaintiff claims that no valid CDP hearing was held, and that the determination at issue "is a fraud and a mockery".
The Court construes the complaint as brought pursuant to § 6330(d)(1)(B), and assumes that plaintiff's assertion of § 6330(d)(1)(A) as the basis for the Court's jurisdiction is a typo because (d)(1)(A) concerns the jurisdiction of the Tax Court, while (d)(1)(B) provides this Court with jurisdiction "if the Tax Court does not have jurisdiction of the underlying tax liability".
Defendant moved to affirm the determination of the IRS on the basis that there was no abuse of discretion and that the Court lacks jurisdiction over plaintiff's claim for damages. Defendant argues plaintiff failed to raise any relevant challenges to the tax penalties and did not challenge the underlying tax liability.
Plaintiff has not opposed dismissal of his claim for damages.
III. JURISDICTION
Pursuant to 26 U.S.C. § 6330(d)(1):
(d) Proceeding after hearing. —
(1) Judicial review of determination. — The person may, within 30 days of a determination under this section, appeal such determination —
(A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter); or
(B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States.
The United States Tax Court has exclusive jurisdiction to review the Commissioner of Internal Revenue's deficiency assessments, but not to review penalties that can be assessed without a notice of deficiency. See Follum v. United States, 98 CV 0126, 1999 WL 250746 (W.D.N.Y. March 5, 1999); Danner v. United States, 208 F. Supp.2d 1166, 1171 (E.D.Wash. 2002). Deficiency procedures do not apply to the assessment of collection of frivolous tax return penalties. 26 U.S.C. § 6703. Thus, this Court has subject matter jurisdiction to review plaintiff's challenges to the two $500 penalties, but not to review plaintiff's income tax liability for the year 1999. Cipolla, 2003 WL 22952617 at *3.
IV. DISCUSSION
A. Standard
In addressing a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court accepts as true all of the factual allegations in the complaint and draws inferences from those allegations in the light most favorable to the plaintiff. See Albright v. Oliver, 510 U.S. 266, 268 (1994); McEvoy v. Spencer, 124 F.3d 92, 95 (2d Cir. 1997). Dismissal is proper only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see Valmonte v. Bane, 18 F.3d 992, 998 (2d Cir. 1994). Plaintiff brings this action pro se, thus his submissions should be held "`to less stringent standards than formal pleadings drafted by lawyers . . .". Hughes v. Rowe, 449 U.S. 5, 9 (1980) (per curiam) (quoting Haines v. Kerner, 404 U.S. 519, 520 (1972)).
B. The Allegations in the Complaint
The method of collection of a penalty, i.e., a levy, is reviewed for abuse of discretion. See Cipolla v. Internal Revenue Service, CV-02-2063, 2003 WL 22952617, *3 (E.D.N.Y. Nov. 5, 2003). The underlying tax liability for the penalty, including allegations of procedural and evidentiary defects are subject to a de novo standard of review. Id. Verification
The complaint alleges that the Appeals Officer "[d]id not produce and present to Plaintiff the `verification from the Secretary' as required by Section 6330(c)" and that the Appeals Officer "[d]id not `Prior to issuance of' the `determination' at issue, send Plaintiff the `verification from the IRS office collecting the tax that the requirements of any applicable [sic] have been met,' as `required' by Treasury Regulation 301.6330-1(e)".
These allegations fail to state a claim upon which relief can be granted. Section 6330(c) of Title 26 of the United States Code, provides that "[t]he appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." Section 301.6330-1(c) of the Treasury Regulations states that the Appeals Officer must "obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met." There is no requirement that Appeals Officer "produce and present" the verification to the taxpayer. Furthermore, according to the hearing transcript, which is attached to the complaint as Exhibit D, at the hearing the Appeals Officer specifically relied on, and discussed with plaintiff, plaintiff's 1999 tax return and a "transcript" of plaintiff's account which showed two assessments made against plaintiff in August 2000 and October 2000. "[T]he literal transcript [i.e. Form 4340] is considered a valid verification that the requirements of any applicable law or administrative procedure is met". Cipolla, 2003 WL 22952617 at * 5 (citing Dean v. United States, 01 CV 430, 2002 WL 31662299 (N.D.Fla. Oct. 23, 2002)). Thus, plaintiff's allegation that the Appeals Officer failed to obtain or send to him a "verification" is not a violation of the statute and cannot state a claim upon which relief can be granted.
A Form 4340 together with the Notice of Determination is attached to the complaint. See Complaint, Ex.A. Form 4340 is a "Certificate of Assessments, Payment, and Other Specified Matters", and is a "transcript" reflecting the assessment of the penalties, the date of assessment, the amount of assessment, and the identity of the taxpayer. See Complaint, Ex.A. Thus, there is no allegation that plaintiff did not receive a copy of his transcript. A Form 4340 is considered "presumptive proof of a valid assessment on the date indicated." Cipolla, 2003 WL 22952617 at * 5. According to plaintiff's exhibits to the complaint, namely, the Notice of Determination, the Appeals Officer relied on the Form 4340 in determining the penalties were validly assessed. Thus, plaintiff's allegation that the penalties are not supported by evidence is without merit. For the same reason, plaintiff's assertion that the Appeals Officer did not provide proof that the statutory "Notice and Demand" was sent out with respect to the penalties, is also without merit. The Form 4340 indicates the statutory notices were sent out each time a penalty was assessed. See Complaint, Ex. A.
Delegation, Regulations, and Statutory Authority
Plaintiff alleges the CDP hearing, which was conducted pursuant to 26 U.S.C. § 6330(c), was unlawful and the determination invalid because the Appeals Officer failed to: "produce any document signed by any Defendant employee that would have supported the imposition of the `frivolous penalty' at issue"; "produce any Delegation of Authority from the Secretary that authorized any Defendant employee to impose the `frivolous penalty' at issue"; "identify or produce a Treasury Department regulation that authorized Defendant employees to impose the `frivolous penalty' at issue or required Plaintiff to pay such a `frivolous penalty'"; "produce any statute that established the `existence . . . of the underlying liability' of the tax for which the `frivolous penalty' had been imposed"; and "produce the documented proof that the Secretary authorized the instant collection action and that the Attorney General or his delegate `directed' that this collection action be commenced as they are required to do pursuant to Code Section 7401".
26 U.S.C. § 6330(c) provides:
(c) Matters considered at hearing. — In the case of any hearing conducted under this section —
(1) Requirement of investigation. — The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.(2) Issues at hearing. —
(A) In general. — The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including —(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) 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.
(B) Underlying liability. — The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.
To the extent plaintiff contends the CDP hearing and determination are invalid because the Appeals Officer failed to produce the above referenced regulations or statutory authority, such claim is without merit, in that any regulations or statutory provisions are public information. Cipolla, 2003 WL 22952617 at * 5 (" 26 U.S.C. § 6702(a) authorizes the penalty for frivolous returns. The failure to produce this publicly available information does not render the hearing defective or demonstrate any error in the determination.") (citing Kelly v. United States, 209 F. Supp.2d 981, 989 (E.D.Mo. 2002); Hoffman v. United States, 209 F. Supp.2d 1089, 1094 (W.D. Wash. 2002) (internal citation omitted)). Thus, there is no requirement that the IRS produce this information.
Continuing, with respect to plaintiff's allegation that the Appeals Officer failed to produce evidence of delegated authority from the Secretary of the Treasury to various agents involved or evidence of internal delegations of administrative authority, the Court finds that allegation is also without merit. "There is no requirement that the IRS produce `evidence of any delegated authority from the Secretary of the Treasury' or evidence of `internal delegations of administrative authority'". Rennie v. Internal Revenue Service, 216 F. Supp.2d 1078, 1082 (E.D.Ca. 2002) (citing Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1992)). Identity and Authority of Individuals who Authorized the Penalties
In Hughes, the Ninth Circuit explained:
Relevant statutes and regulations demonstrate, however, that the Secretary does have the power to collect taxes, and that such power can be delegated to local IRS agents. 26 U.S.C. § 6301 provides that "[t]he Secretary shall collect the taxes imposed by the internal revenue laws." The actual task of collecting the taxes, however, has been delegated to local IRS directors. "The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue." 26 C.F.R. § 301.6301-1. District directors in turn are authorized to redelegate the levy power to lower level officials such as collection officers. See IRS Delegation Order 191. The delegation of authority down the chain of command, from the Secretary, to the Commissioner of Internal Revenue, to local IRS employees constitutes a valid delegation by the Secretary to the Commissioner, and a redelegation by the Commissioner to the delegated officers and employees. See 26 C.F.R. § 301.7701-9.953 F.2d at 536.
To the extent that plaintiff claims he was entitled to the names, job descriptions, and "Federal ID" numbers of those individuals involved in assessing and/or processing the penalties, his allegation fails to state a claim upon which relief can be granted. "The Appeals Officer is not required to prove who determined and authorized the penalties. Such information is irrelevant to whether the penalty was proper." Cipolla, 2003 WL 22952617 at *6 (internal citation omitted).
Collection Alternative
The complaint alleges that the CDP hearing and determination are invalid because the Appeals Officer did not accept his offer to pay the amount in issue in full if the Appeals Officer could identify the regulation establishing his liability. Such an offer, however, "is not a recognized collection alternative." Id. (citing Dean, 2002 WL 31662299 at *7); see also Rennie, 216 F. Supp.2d at 1084 ("The purpose of the provision for the consideration of the collection alternatives described in Sections 6330(c)(2)(A) and 6330(c)(3)(C) clearly is intended to allow the taxpayer to propose a method of payment that will [dispose] of the underlying tax liability instead of a tax lien by a levy."). Thus, plaintiff fails to state a claim upon which relief can be granted.
Underlying Tax Liability
Plaintiff alleges that the Appeals Officer failed to "produce any document signed by any Defendant employee that would have supported the imposition of the `frivolous penalty' at issue". Pursuant to 26 U.S.C. § 6702, the IRS is authorized to impose a civil penalty for a frivolous tax return if:
(1) any individual files what purports to be a return of the tax imposed by subtitle A but which —
(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
(2) the conduct referred to in paragraph (1) is due to —
(A) a position which is frivolous, or
(B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500.26 U.S.C. § 6702(a).
In this case, according to the allegations in the complaint and the attachments thereto, plaintiff filed an income tax return and claim for refund for the year 1999 claiming that he had zero income and owed zero income tax and ought a refund of federal income tax withheld in the amount of $1,311.21. Plaintiff was, according to the hearing transcript, an employee of Alltel of New York and had earned wages of approximately $57,000 in 1999. Plaintiff asserted at the CDP hearing and in his papers that wages are not income and therefore argues that he did not file a frivolous tax return. The argument that wages are not income "has been rejected so frequently that the very raising of it justifies the imposition of sanctions". Connor v. Commissioner of Internal Revenue, 770 F.2d 17, 19 (2d Cir. 1985). Thus, even according to the facts alleged in the complaint and the attachments thereto, plaintiff filed a frivolous tax return and claim for refund by filing his return with zeros even though he earned wages.
Appropriate Collection Activity
Finally, insofar as plaintiff alleges that a levy was inappropriate, plaintiff has failed to allege facts which would entitle him to relief. In determining whether a collection activity is appropriate, the Appeals Officer is required to consider: (a) the verification presented; (b) the issues plaintiff raised at the CDP hearing; and (c) 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." 26 U.S.C. § 6330(c)(3).
In this case, according to the Notice of Determination, which is attached to the complaint as Exhibit A, the Appeals Officer relied on the "Form 4340" "transcript", which is "considered a valid verification that the requirements of any applicable law or administrative procedure have been met." Cipolla, 2003 WL 22952617 at *5. The Appeals Officer also addressed the issues plaintiff raised at the CDP hearing, including plaintiff's concern that the assessment was not properly made. Finally, the Appeals Officer reviewed plaintiff's offer to pay the assessment but concluded that it was not "an acceptable alternative to levy" and that "the levy action properly balances the need for efficient collection with your concerns because they are without legal merit." See Notice of Determination, Complaint Ex. A. Thus, plaintiff has failed to allege any facts upon which this Court could find the Appeals Officer erred in concluding that a levy action was appropriate.
In this case, plaintiff has failed to allege facts upon which this Court could find there were any procedural and evidentiary defects in the administrative action below, that the underlying tax liability was without merit, or that the levy collection activity was inappropriate. Thus, the complaint fails to state a claim under 26 U.S.C. § 6330 upon which relief can be granted. Accordingly, defendant's motion to dismiss is granted.
V. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that defendant's motion to dismiss is GRANTED; and it is further
ORDERED that the complaint is dismissed without prejudice.
IT IS SO ORDERED.