Opinion
CIVIL ACTION NO. 02-F-553-S
June 9, 2003
RECOMMENDATION OF THE MAGISTRATE JUDGE
Barry Ford (plaintiff) brings this action against the United States (government) under 26 U.S.C. § 6330 (d), challenging the assessment of a $500 frivolous return penalty by the Internal Revenue Service (IRS). The case is now before the court on the defendant's motion for summary judgment (doc. #10, filed Oct. 21, 2002). Upon consideration of the motion and for the following reasons, the court concludes that the defendant's motion is due to be GRANTED.
I. Background
The plaintiff filed a form 1040 income tax return for the year 1997, listing his occupation as "sales agent" but declaring zero income. He attached three pages of objections, stating that he did not consider himself liable to pay income tax (doc. #11, ex. 1). Pursuant to 27 U.S.C. § 6702, the IRS assessed a $500 frivolous return penalty on the basis of this return. On May 11, 2001, Betsy Kinter, "Chief, Automated Collection Branch," sent the plaintiff notice of the Service's intent to levy on the plaintiff's property and of his right to a Collection Due Process (CDP) hearing (compl. ex. B). The plaintiff demanded a hearing (compl. ex. C), and an Appeals Officer for the Internal Revenue Service held the hearing on April 10, 2002 (compl. ex. D). On April 18, 2002, an Appeals Team Manager sent the plaintiff a "Notice of Determination Concerning Collection Actions under Section 6330 of the Internal Revenue Code" (compl. ex. A). The plaintiff filed this action, alleging the following grounds for relief:
In its brief, the government states that two employers and one bank filed forms indicating that the plaintiff had over $50,000 in income in 1997 (doc. #11, p. 1-2). However, as the government has not produced the forms or other evidence of this income, the court may not consider this assertion on a motion for summary judgment.
(1) That the notice of the plaintiff's right to a hearing was not sent by the Secretary of the Treasury or his delegate (compl. ¶¶ 8-19);
(2) That the appeals officer did not at the hearing produce "verification from the Secretary" that the requirements of any applicable law had been met (compl. ¶¶ 20-29);
(3) That the plaintiff is not liable to pay the penalty, and that the appeals officer did not demonstrate at the hearing that any individual is liable to pay income tax (compl. ¶¶ 29-32);
(4) That the appeals officer did not produce at the hearing: (a) a document revealing the names of the IRS employees who imposed the frivolous return penalty, (b) the names and Federal ID numbers of the employees who imposed the penalty, (c) delegation orders giving those employees the power to impose the penalty, (d) the official job description of those employees, or (e) any treasury regulation authorizing IRS employees to impose the penalty or requiring the plaintiff to pay it (compl. ¶¶ 33-39, 53);
(5) That the appeals officer refused a "collection alternative" when she did not produce a regulation imposing the penalty (compl. ¶¶ 40-42, 59);
(6) That the appeals officer did not produce a "statutory notice and demand" at the hearing (compl. ¶¶ 43-52);
(7) That the plaintiff never received a "statutory notice and demand" before the hearing (compl. ¶¶ 55-58); and
(8) That the Notice of Determination contained a number of false statements (compl. ¶¶ 53-60).
II. Jurisdiction
Under 26 U.S.C. § 6330 (d), when an IRS appeals officer makes a determination regarding a levy on a person's property,
[t]he 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 Tax Court does not have jurisdiction to consider frivolous return penalties. 26 U.S.C. § 6672 (c)(2); Van Es v. Commissioner, 115 T.C. 324 (2000); Moore v. Commissioner, 114 T.C. 171, 175 (2000). Therefore, under 26 U.S.C. § 6330 (d) and 28 U.S.C. § 1331, this court has jurisdiction to consider Plaintiff's appeal regarding the levy for his $500 penalty. Danner v. United States, 208 F. Supp.2d 1166, (E.D. Wash. 2002); Foster v. United States, 2002 WL 1396772 at *1 (D.Nev. May 10, 2002); Silver v. Smith, 2002 WL 31367926 at *1 (W.D.N.Y., Sept. 5, 2002).
III. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." This standard can be met by the movant, in a case in which the ultimate burden of persuasion at trial rests on the nonmovant, either by submitting affirmative evidence negating an essential element of the nonmovant's claim, or by demonstrating that the nonmovant's evidence itself is insufficient to establish an essential element of his or her claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 593 (11th Cir. 1995); Edwards v. Wallace Community College, 49 F.3d 1517, 1521 (11th Cir. 1995). The burden then shifts to the nonmovant to make a showing sufficient to establish the existence of an essential element to his claims, and on which he bears the burden of proof at trial. Id. To satisfy this burden, the nonmovant cannot rest on the pleadings, but must, by affidavit or other means, set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e).
IV. Discussion
A. Notice Sent by Delegate
The plaintiff contends that the letter that notified him that the IRS intended to levy on his property and that he was entitled to a CDP hearing was not sent by the Secretary of the Treasury or his delegate (compl. ¶¶ 15-19). Section 6330(a)(1) of the Internal Revenue Code requires that "No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their [sic] right to a hearing under this section before the levy is made." The plaintiff attaches a copy of the letter, dated May 11, 2001, to his complaint as exhibit B; it is signed by "Betsy Kintner, Chief, Automated Collection Branch." Plaintiff does not contend that Kintner was not, in fact, chief of the Automated Collection Branch, only that as such she did not have the authority to send the notice required by § 6330(a)(1). The power to levy on the plaintiff's property and the power to send final notices has been delegated to the Automated Collection Branch Chiefs by Delegation Order 191 (rev. 2), effective October 1, 1999. Craig v. Commissioner, 119 T.C. 252, 263 (2002). The government is therefore due summary judgment on this issue.
B. Verification Not Presented at the Hearing
The plaintiff also alleges that the appeals officer did not produce evidence at the CDP hearing that she had received verification from the secretary that the requirements of applicable law or administrative procedure had been met (compl. ¶¶ 13-14, 20-28). No law requires the appeals officer to produce such evidence at the hearing. Craig v. Commissioner, 119 T.C. 252, 261-62 (2002). Furthermore, the government has produced the relevant form 4340 (doc. #11, ex. 2), which (in the absence of contrary evidence, which the plaintiff has not provided) constitutes sufficient evidence that the requirements of applicable law have been met. Long v. United States, 972 F.2d 1174, 1181 (10th Cir. 1992); Craig, 119 T.C. at 262; Nicklaus v. Commissioner, 117 T.C. 121 (2001); Dean v. United States, 2002 WL 31662299 at *4-5 (N.D. Fla. 2002); see also United States v. Dixon, 672 F. Supp. 503, 506 (M.D. Ala. 1987), aff'd 849 F.2d 1478 (11th Cir. 1998). The government is therefore due summary judgment on this issue.
C. Liability for the Penalty and for Tax
The plaintiff produces four pages of "transaction codes," dated March 19, 2002, and allegedly supplied to him by the appeals officer (compl. ex. G). On each page, half of one line has been redacted. The plaintiff alleges (compl. ¶ 29) that the "concealed areas" of these transaction codes would establish that he was not required to pay the penalty. However, the plaintiff has offered no evidence to support this allegation.
Under 26 U.S.C. § 6702, when an individual files a document that purports to be a tax return, but which "contains information that on its face indicates that the self-assessment is substantially incorrect," and when this conduct is due to "a position which is frivolous," that individual must pay a penalty of $500.
The government has produced the plaintiff's 1997 income tax return, on which he listed his occupation as "sales agent" but reported zero income in all spaces, and to which he attached three pages of explanatory arguments (doc. #11, ex. 1). These arguments indicate that the plaintiff believes that (1) he is not "liable" to pay income taxes because the Internal Revenue Code does not include a section with the words "shall be liable" as do certain other tax statutes; (2) he does not have to file an individual income tax return unless he receives notice under 28 U.S.C. § 6001; (3) any legal requirement that the plaintiff file an individual income tax return violates his Fifth Amendment right against self-incrimination; and (4) individual (as opposed to corporate) income is not "income" for purposes of the income tax statutes.
With respect to the first argument, 26 U.S.C. § 6155 (a) provides that
Upon receipt of notice and demand from the Secretary, there shall be paid at the place and time stated in such notice the amount of any tax (including any interest, additional amounts, additions to tax, and assessable penalties) stated in such notice and demand.
Furthermore, 26 U.S.C. § 1 provides that a tax "is hereby imposed" on individual incomes and 26 U.S.C. § 6151 requires all persons required to file income tax returns to pay income tax. The fact that the words "shall be liable" do not appear in these statutes does not change the fact that the plaintiff must pay the taxes. In re Busch, 213 B.R. 390, 394 (Bankr. M.D. Fla. 1997); see also United States v. Bowers, 920 F.2d 220, 222 (4th Cir. 1990).
With respect to the second argument, 26 U.S.C. § 6012 requires the plaintiff to file an income tax return without receiving notice or demand from the Secretary of the Treasury. Bowers, 920 F.2d at 222; Busch, 213 B.R. at 394-95.
With respect to the third argument, the Fifth Amendment does not shield a taxpayer desiring to file no return, absent a showing of "real danger" that the information required in the return would subject him to criminal prosecution. Stubbs v. Commissioner, 797 F.2d 936, 937 n. 2 (11th Cir. 1986), citing United States v. Sullivan, 274 U.S. 259, 263-64 (1927).
With respect to the fourth argument, the case the plaintiff cites ( Merchant's Loan Trust Co. v. Smietanka, 255 U.S. 509, 518 (1921)) indicates that "income" includes income "from capital, from labor, or from both combined" (emphasis added). The restricted definition of "income" he prefers finds no basis in federal law. See Perkins v. Commissioner, 746 F.2d 1187 (6th Cir. 1984); Tornichio v. United States, 1998 WL 381304 at *3 (N.D. Ohio 1998).
Federal courts have often been faced with similar "tax protestor" arguments, and have repeatedly rejected them. See Cheek v. United States, 498 U.S. 192, 195 (1991); Kile v. Commissioner, 739 F.2d 265, 267 (7th Cir. 1984); Craig v. Commissioner, 119 T.C. 252, 263-64 (2002); Dean v. United States, 2002 WL 31662299 at *4-5 (N.D. Fla. 2002). The information on the return and its attachments indicates that the plaintiff's self-assessment of zero income tax due is substantially incorrect, and the arguments contained in the attachments indicate that the plaintiff filed this return based on a frivolous position. The plaintiff has offered no contrary evidence. Accordingly, the court is satisfied that the plaintiff's tax return was "frivolous" within the meaning of 26 U.S.C. § 6702. See Ricket v. United States, 773 F.2d 1214, 1215 (11th Cir. 1985). Under 26 U.S.C. § 6702 and 6155(a), the plaintiff was and is liable to pay the penalty. The plaintiff has not supported his allegation that the redacted areas of the "transaction codes" he received contain information that would show he is not liable to pay the penalty. The government has offered uncontroverted evidence establishing that he is liable to pay the penalty. The government is due summary judgment on this issue.
The language of the plaintiff's arguments and the form of the objections attached to his 1040 form (preprinted documents in which the year was filled in by hand) raise the possibility that the plaintiff has been the victim of a "frivolous tax argument" scheme, in which promoters sell worthless, shopworn arguments to would-be non-taxpayers. See United States v. Marsh, 144 F.3d 1329 (9th Cir. 1998); Burke v. Commissioner, 1983 WL 1650 at *2 (D. Kan. 1983); IRS Warns of Frivolous Tax Arguments — Nonfiler Enforcement, http://www.irs.gov/irs/article/0, id=106377,00.html. In deciding whether to appeal this case or to pursue any related case in the Tax Court, the plaintiff is advised to consider carefully the monetary penalties assessed by federal courts against those who pursue frivolous tax appeals using arguments of the kind he presents here. See 26 U.S.C. § 6673 (a)(1); Fed.R.App.P. 38; Stubbs v. Commissioner, 797 F.2d 936, 939-40 (11th Cir. 1986); Ricket v. United States, 773 F.2d 1214, 1215-16 (11th Cir. 1985); Craig v. Commissioner, 119 T.C. 252, 264-65 (2002); Pierson v. Commissioner, 115 T.C. 576 (2000).
The plaintiff asserts that the appeals officer did not demonstrate that the Internal Revenue Code imposed "liability" for income taxes (compl. ¶¶ 30-32). The hearing concerned the plaintiff's frivolous return penalty, not his liability to pay income taxes, and nothing in the Internal Revenue Code or other law required the appeals officer to make this demonstration. Furthermore, as noted above, the Internal Revenue Code does impose this liability, even though Congress did not use the word "liable" in the relevant code sections. In re Busch, 213 B.R. 390, 394 (Bankr. M.D. Fla. 1997); see also United States v. Bowers, 920 F.2d 220, 222 (4th Cir. 1990). The government is due summary judgment on this issue.
D. Documents Not Produced at the Hearing
The plaintiff alleges (compl. ¶¶ 33-39) that the appeals officer did not produce at the hearing: (a) a document revealing the names of the IRS employees who imposed the frivolous return penalty, (b) the names and Federal ID numbers of the employees who imposed the penalty, (c) delegation orders giving those employees the power to impose the penalty, (d) the official job description of those employees, or (e) any treasury regulation authorizing IRS employees to impose the penalty or requiring the plaintiff to pay it (compl. ¶¶ 33-39, 53-54). No statute or regulation requires the appeals officer to provide any of these things to the plaintiff. Furthermore, no implementing regulation is required when, as here, the statutes themselves empower the Internal Revenue Service to impose the penalty and require the plaintiff to pay it. See 26 U.S.C. § 6702, 6155(a); United States v. Bowers, 920 F.2d 220, 222 (4th Cir. 1990). The government is due summary judgment on this issue.
E. Denial of Collection Alternatives
The plaintiff alleges (compl. ¶¶ 40-42) that the appeals officer "refused" collection alternatives because she did not produce a regulation imposing the frivolous return penalty. As noted above, 26 U.S.C. § 6155 (a) requires the plaintiff to pay the penalty; no regulation is required. In any case, a refusal to pay a penalty absent a regulation is not a "collection alternative," and no statute or regulation would require the government to accept any particular "collection alternative" offered by the plaintiff even if he had offered any. The government is due summary judgment on this issue.
F. Statutory Notice and Demand
The plaintiff alleges (compl. ¶¶ 55-58) that he never received a "statutory notice and demand" before his CDP hearing. However, it is uncontroverted that the plaintiff received letters notifying him of the penalty and demanding that he pay it (compl. ¶ 57, ex. B, N, O). No other "notice and demand" is required by law, and the IRS is not required to use any particular form to provide notice and demand. Craig v. Commissioner, 119 T.C. 252, 262-63 (2002); Hoffman v. United States, 209 F. Supp.2d 1089, 1094 (W.D. Wash. 2002). The government is due summary judgment on this issue.
The plaintiff alleges (compl. ¶¶ 43-52) that the appeals officer did not produce the "statutory notice and demand" at his CDP hearing. No law requires the officer to do so, and in any case uncontroverted evidence shows that the plaintiff received such notice and demand. The government is due summary judgment on this issue.
G. False Statements in the Notice of Determination
The plaintiff alleges (compl. ¶¶ 53-60) that the notice of determination he received after the CDP hearing (compl. ex. A) contained a number of false statements. Because uncontroverted evidence shows that the plaintiff is liable to pay the penalty, false statements in the notice of determination would not serve as a basis for vacating the penalty. The government is due summary judgment on this issue.
Independent review of the record reveals that the alleged statements were, in any case, true.
V. Conclusion
Accordingly, it is the RECOMMENDATION of the Magistrate Judge that the government's motion for summary judgment be GRANTED.