Opinion
Case No. CV-S-01-1003-RLH (LRL)
May 10, 2002
ORDER
Before the Court are Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#3), Defendant's Memorandum in Support (#4) of the same, the Declaration of Virginia Cronan Lowe ("Lowe Declaration") (#5) with a copy of Plaintiffs' relevant tax documents attached as exhibits, and Plaintiffs Objection to United States' Motion to Dismiss or Summary Judgment (#9). The Court finds that there are no genuine issues of material fact and grants Defendant's motion.
Plaintiffs do not want to pay their income taxes. In 1997 and 1998, Plaintiffs filed tax returns on Forms 1040, stating that they had no income. Lowe Decl. (#5), Exhibits 3, 4. They also attached explanations of how they have no income tax liability because wages and money that they receive from the United States Government were not income. Id. They refused to attach copies of Forms 1099 and W-2. The Internal Revenue Service assessed against Plaintiffs frivolous return penalties for these years. Lowe Decl. (#5), Exhibit 1. The Internal Revenue Service also assessed income tax deficiencies, along with associated penalties and interest, and filed a tax lien against Plaintiffs for 1993, 1995, 1996, and 1998. Amended Compl. (#2), Exhibit X. After Plaintiffs received a notice of an intent to levy and a notice of a tax lien filing, they requested a collection hearing pursuant to 26 U.S.C. § 6330. Compl. (#1), Exhibit C, D. Plaintiff Dallas B. Foster was ill and could not attend the hearing, and Plaintiff Everett J. Foster thus represented his wife. Compl. (#2), Exhibit B. After the hearing, the Appeals Office of the Internal Revenue Service determined that collection actions should not be restricted, Compl (#1), Exhibits A, B, and that the lien should not be withdrawn or released, Amended Compl. (#2), Exhibits P, Q, R.
Counsel for Defendant has properly authenticated these exhibits, Plaintiffs have not objected to them, and, in any event, Plaintiff Everett J. Foster's statements in the collection due process hearing show that these are their tax returns. Compl. (#1), Exhibit G.
The original Complaint (#2) concerns the Appeals Office's determinations about the proposed levy. The Amended Complaint (#2) concerns the Appeals Office's tax lien determinations, which were issued later. The Court construes the Amended Complaint (#2) as a supplemental pleading pursuant to Fed.R.Civ.P. 15(d).
Plaintiffs then commenced this action pursuant to 26 U.S.C. § 6330(d), apparently challenging both the frivolous return penalties and the income tax deficiencies. A jurisdictional problem immediately arises. The Tax Court does not have jurisdiction to consider frivolous return penalties. Van Es v. Commissioner, 115 T.C. 324 (2000). Therefore, this Court has jurisdiction with respect to the collection actions and liens concerning those penalties. 26 U.S.C. § 6320(c), 6330(d)(1)(B). However, the Tax Court does have jurisdiction to consider income tax deficiencies. 26 U.S.C. § 6213(a); see also Moore v. Commissioner, 114 T.C. 171, 175 (2000). The Tax Court thus has jurisdiction over the liens placed on Plaintiffs' property for non-payment of income taxes, and this Court lacks jurisdiction. 26 U.S.C. § 6320(c), 6330(d)(1). The Court will consider only the frivolous return penalties for the years 1997 and 1998 and dismiss the rest of this action without prejudice to filing an appeal concerning those matters with the Tax Court within thirty (30) days. Id.
Defendant primarily moves to dismiss this action for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). If the Court considers matters outside the pleading, it must treat this motion as a motion for summary judgment pursuant to Fed.R.Civ.P. 56. Plaintiffs did not attach a copy of their 1998 income tax return to their Complaint (#1). Given that Plaintiffs are appealing pursuant to 26 U.S.C. § 6330(d) from a determination that collection of a frivolous return penalty pursuant to 26 U.S.C. § 6702 should proceed, attachment of the relevant tax return was essential. However, Defendant has provided a copy of the tax return. Lowe Decl. (#6), Exhibit 1. Additionally, the Lowe Declaration contains other useful exhibits. Instead of dismissing the Complaint (#1) with leave to amend, the Court will use the copy of the tax return that Defendant provided and consider Defendant's alternative motion for summary judgment.
In considering a motion for summary judgment, the court performs "the threshold inquiry of determining whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved by a finder of fact because they may be reasonably resolved in favor of either party." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 250 (1986). To succeed on a motion for summary judgment, the moving party must show (1) the lack of a genuine issue of any material fact, and (2) that the court may grant judgment as a matter of law. Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A material fact is one required to prove a basic element of a claim. Anderson, 477 U.S. at 248. The failure to show a fact essential to one element "necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323.
"[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which the party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. "Of course, a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. As such, when the non-moving party bears the initial burden of proving, at trial, the claim or defense that the motion for summary judgment places in issue, the moving party can meet its initial burden on summary judgment merely "by `showing'— that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325.
Once the moving party meets its initial burden on summary judgment, the non-moving party must submit facts showing a genuine issue of material fact. Fed.R.Civ.P. 56(e). As summary judgment allows a court "to isolate and dispose of factually unsupported claims or defenses," Celotex, 477 U.S. at 323-24, the court construes the evidence before it "in the light most favorable to the opposing party." Adickes v. S. H. Kress Co., 398 U.S. 144, 157 (1970). The allegations or denials of a pleading, however, will not defeat a well-founded motion. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
A person who files a frivolous tax return is liable for a penalty of five hundred dollars ($500.00). 26 U.S.C. § 6702. The Secretary of the Treasury or his delegate, such as the Internal Revenue Service, assesses this penalty in the same manner as a tax, and any reference to a "tax" in Title 26 also includes this penalty. 26 U.S.C. § 6671. Section 6201 of the Code authorizes the Secretary to make any necessary tax assessments. In the case of a frivolous return penalty, the deficiency procedures of Title 26, Chapter 63, Subchapter B, do not apply. 26 U.S.C. § 6703(b). If the Secretary wishes to levy the property of the person, he must first send the person a notice of intent to levy no less than thirty (30) days before the levy. 26 U.S.C. § 6331(d)(2). The Secretary must also inform the person of his right to a hearing at the same time. 26 U.S.C. § 6330(a). If the person requests a hearing, the hearing officer must "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." 26 U.S.C. § 6330(c)(1). At the hearing, the person may raise any relevant issue, including spousal defenses, the appropriateness of the collection action, and any collection alternatives. 26 U.S.C. § 6330(c)(2)(A). 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." 26 U.S.C. § 6330(c)(2)(B).
The Court will use the collective term "Secretary" to refer to the Secretary of the Treasury and any delegates. See 26 U.S.C. § 7701(a)(11)(B). The Secretary of the Treasury may delegate much of his authority and responsibilities to others by prescribing rules and regulations, among other methods. 26 U.S.C. § 7805(a); see also 26 C.F.R. §§ 301.7701-9, 301.7701-10.
The "underlying tax liability" in this case are the frivolous return penalties. See 26 U.S.C. § 6671; see also 26 C.F.R. § 301.6321-1. Plaintiffs properly challenged the validity of the frivolous return penalties at the collection due process hearing because the statutory deficiency procedures to not apply to frivolous return penalties, 26 U.S.C. § 6703(b), and thus Plaintiffs had no prior opportunity to dispute the penalties. The validity of the income taxes which Plaintiffs owe for 1997 and 1998 is not at issue in this action. On the other hand, the tax returns that Plaintiffs filed for 1997 and 1998 are relevant because they determine whether assessment of the frivolous return penalties were proper.
Section 6330(d) is silent on the standard that the Court should use to review the determination of the collection hearing. However, the legislative history indicates that if the validity of the underlying tax liability was properly at issue, then review is de novo. H. Conf Rep. 105-599 (1998); see also Dogwood Forest Rest Home, Inc. v. United States, 181 F. Supp.2d 554, 559 (M.D.N.C. 2001); MRCA Info. Serv's. v. United States, 145 F. Supp.2d 194, 198-99 (D. Conn. 2000); Sego v. Commissioner, 114 T.C. 604, 610 (2000). The Court will use that standard of review.
There is no doubt about the validity of the penalties. Plaintiffs submitted Forms 1040 for 1997 and 1998 with zeros in the income section. Lowe Decl. (#5), Exhibits 3, 4. They also attached an explanations of how no provisions of the Internal Revenue Code make them liable for the income tax, how their benefits from the United States Government and their wages are not income, and other matters. Id. Wages, 26 U.S.C. § 61, and Federal retirement benefits, 26 U.S.C. § 86, are income, upon which Plaintiffs owe a tax, 26 U.S.C. § 1, and courts — including this one — have found arguments to the contrary to be frivolous long before Plaintiff filed the tax returns at issue. See e.g., Sisemore v. United States, 797 F.2d 268, 270 (6th Cir. 1986); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986); Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985); In re Hopkins, 192 B.R. 760, 762-63 (D. Nev. 1995); and other cases too numerous to cite. Based upon the statements of earning wages and receiving Federal benefits in Plaintiffs' explanations, their tax returns were substantially incorrect on their face. 26 U.S.C. § 6702(a)(1)(B). Also, by refusing to attach Forms W-2 and any required Forms 1099, their returns lacked information upon which the IRS could judge the correctness of Plaintiffs' self-assessment. 26 U.S.C. § 6702(a)(1)(A). Their conduct was due to a frivolous position, thus making Plaintiffs liable for the frivolous return penalty. 26 U.S.C. § 6702(a)(2)(A). The assessments of the frivolous return penalties are valid.
No genuine issue of material fact exists over the verification of all legal and administrative requirements. The Secretary of the Treasury delegated to the local Internal Revenue Service office collecting the penalty the responsibility of providing the verification to the hearing officer. 26 C.F.R. § 301.6330-1(e)(1). The local IRS office provided the hearing officer with a transcript of Plaintiffs account. Compl. (#1), Exhibit H. The hearing officer could rely on such a transcript for § 6330(c)(1) verification. See Huff v. United States, 10 F.3d 1440, 1446-47 (9th Cir. 1993), cert. denied, 512 U.S. 1219 (1994); Hughes v. United States, 953 F.2d 531, 538-40 (9th Cir. 1992); see also Davis v. Commissioner, 115 T.C. 35, 41 (2000). Plaintiffs did not attach the transcripts concerning the frivolous return penalties to his Complaint (#1). They state that they never received them from the hearing officer, Compl. (#1), at ¶ 61, but they had the right, and the hearing officer informed them of that right, Compl. (#1), Exhibit H, to request documents pertinent to the assessment of the penalties through the Freedom of Information Act. What would be on those documents is unknown, but in their absence, nothing contradicts the documents attached to the Complaint (#1) and the Lowe Declaration (#5), which show that the requirements of any applicable law and administrative procedures had been met. As noted above, the 1997 and 1998 tax returns are clearly frivolous. The Court cannot conclude that the hearing officer erred in his verification.
Plaintiffs insistence that he see documents signed by the Secretary of the Treasury or by a person with a delegation order signed by the Secretary of the Treasury, Objection (#14), at pp. 1-5, is frivolous.
According to Plaintiffs, they "never received a valid Deficiency Notice — that is one signed by the Secretary or someone with delegated authority from him," Compl. (#1), at ¶ 13, and "that he never received the statutory `Notice and Demand' for payment in connection with the alleged taxes due," 14. at ¶ 15. Plaintiff Everett J. Foster verified his Complaint (#1), and thus it serves as an affidavit at least with respect to him. Schroeder v. McDonald, 55 F.3d 454, 460 (9th Cir. 1995). His allegations are defective for three reasons. First, ¶ 13 is irrelevant. Because deficiency procedures do not apply to frivolous return penalties, the Internal Revenue Service need not send a notice of deficiency. 26 U.S.C. § 6703(b); Colton v. Gibbs, 902 F.2d 1462, 1464 (9th Cir. 1990). Second, ¶ 15 is untrue. Plaintiffs obviously received the notice of intent to levy and notice of their right to a hearing because they returned a copy of it with their request for a hearing. Lowe Decl. (#5), Exhibit 2. Third, Plaintiff might be arguing that he did not receive a notice and demand pursuant to 26 U.S.C. § 6303. However, § 6303 only requires the Internal Revenue Service to mail a notice and demand to Plaintiffs last known address. Plaintiff did not provide any evidence that the Internal Revenue Service did not send such a notice. The failure to receive such notice and demand, and Plaintiffs' affidavit to that effect, are immaterial. Hansen v. United States, 7 F.3d 137. 138 (9th Cir. 1993).
Plaintiffs other arguments are also frivolous and irrelevant to 26 U.S.C. § 6330(c)(2)(A). The hearing officer's decision on this point is correct.
Because there are no genuine issues of material fact, Defendants are entitled to judgment as a matter of law.
IT IS THEREFORE ORDERED that Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#3) is GRANTED. The Plaintiffs claims concerning income tax deficiencies and tax liens for the years 1993, 1995, 1996, and 1998 are DISMISSED for lack of subject matter jurisdiction. Plaintiff shall have thirty (30) days from the date that this Order is entered to file an appeal concerning these claims in the United States Tax Court. The Court GRANTS summary judgment in Defendant's favor with respect to the remaining claims. The Clerk of the Court shall enter judgment accordingly.