Opinion
02-CV-711 (JMR/FLN)
February 26, 2004
ORDER
Petitioners Edward J. Gnifkowski, Carol N. Gnifkowski, and Rimco Industries, Inc., challenge IRS administrative decisions made as part of the IRS Collection Due Process ("CDP") hearing, pursuant to 26 U.S.C. § 6320 and 6330(d)(1)(B). The parties bring cross-motions for summary judgment. Respondent also moves the Court to dismiss all claims of petitioner Rimco. Industries, Inc. ("Rimco"), for lack of jurisdiction.
All parties agree there are neither unresolved questions of law nor matters of fact requiring resolution by trial. The matter is therefore ripe for summary judgment. The Court finds respondent entitled to judgment as a matter of law. Accordingly, respondent's motion is granted, and petitioners' motions are denied.
The Court further finds it lacks jurisdiction over Rimco's claims, and they are hereby dismissed.
I. Background
The genesis of this case goes back almost 15 years. As may be expected, the facts are lengthy, convoluted, and subject to varying recollection. No material fact remains in dispute, but to the extent any fact is not agreed to, the Court has considered the assertion most favorably to petitioners.
This case began in the late 1980s, when Edward and Carol Gnifkowski owned and operated Watab, Inc., which in turn operated Rimco. and PMC Automatic Sprinkler. The Gnifkowskis failed to withhold and pay taxes for these companies from mid-1987 through mid-1989. At about the same time, the United States began a criminal investigation of Edward Gnifkowski arising out of a contract between Rimco. and the United States Air Force.
On October 18, 1989, Mr. Gnifkowski was charged in a two-count Information with converting government monies to his own use, and aiding and abetting Rimco. in converting government monies, in violation of 18 U.S.C. § 641; and failing to withhold income taxes from his employees, in violation of 26 U.S.C. § 7203. On October 24, 1989, Mr. Gnifkowski and the United States entered into a plea agreement and sentencing stipulation, under which Mr. Gnifkowski pleaded guilty to both counts. As part of the plea agreement, and for sentencing purposes, the unpaid taxes were estimated at "about $500,000." Notwithstanding this estimate, the plea agreement made clear that the "real figure[,]" as determined by the IRS Special Procedures section, would "control the result." (Plea agreement at 3.) The plea agreement did not set any restitutionary sum, but instead provided that Mr. Gnifkowski would "cooperate fully in the assessment and collection and payment of taxes owing . . . as a condition of probation and supervised release."Id.
On January 26, 1990, Mr. Gnifkowski was sentenced to one month's custody in a community confinement facility; two years' robation; a $2,550 fine; restitution to the U.S. Air Force of $4,656; and, as "a condition of the probation imposed as to Count II," to pay as restitution to the IRS "all withheld income and FICA taxes which the IRS shall determine to be due and owing up to the date of sentencing." (Judgment at 6.) No separate order of restitution was issued.
Instead of pursuing restitution, the IRS attempted to collect the unpaid taxes by civil means. Later in 1990, pursuant to 26 U.S.C. § 6672, the IRS imposed statutory Trust Fund Recovery Penalties ("TFRPs") for the last two quarters of 1987, all of 1988, and the first two quarters of 1989. Two of the three TFRPs were assessed against Carol Gnifkowski; the first for the sum of $34,834.98 on October 29, 1990; and the second for the sum of $160,505.50 on November 5, 1990. The third TFRP of $195,390.97 was assessed against Edward on November 19, 1990. It is undisputed that Mr. Gnifkowski's TFRP arises out of the same facts that gave rise to Count 2 of the Information.
While other assessments were imposed, the United States is only attempting to collect the three assessments being considered in this proceeding.
Mr. Gnifkowski served his confinement and probation and paid the fine and restitution to the U.S. Air Force. He never paid the IRS the taxes he owed, either as restitution or via the civil TFRP assessed against him, nor was there any agreement between Mr. Gnifkowski and the IRS to compromise the tax liability. On October 22, 1992, the United States entered a "Satisfaction of Judgment" in the criminal case. This one-page document stated, in its entirety:
The judgment in the above-entitled action has been paid in full or otherwise settled through compromise, and therefore, the Clerk of the United States District Court for the District of Minnesota may satisfy and cancel said judgment of record.
(Satisfaction of Judgment at 1.)
Based on this document, Mr. Gnifkowski claims his civil tax liability is extinguished and argues it bars the IRS from collecting its TFRP.
At the time the Satisfaction was filed, however, both Edward and Carol Gnifkowski acted as though their previously-imposed civil tax liabilities remained in effect. In doing so, each submitted a Form 656 to the IRS on February 8, 1993, constituting an offer in compromise of the TFRP liabilities. As part of this submission, both the Form 656 and IRS regulations obliged petitioners to waive any statute of limitations defense for a specified but disputed time period. On February 16, 1993, the IRS accepted the Form 656 waiver for limitations purposes. The Gnifkowskis' offers in compromise were pending for 80 days, after which they were withdrawn on May 7, 1993. Also in May, 1993, the IRS filed Notices of Federal Tax Liens against petitioners' property located in Benton County, Minnesota.
The three liens were originally self-releasing, expiring on November 28, December 5, and December 19, 2000. The IRS acknowledges its failure to refile the liens prior to their expiration dates. On January 10, 2001, the IRS provided petitioners with Notices of Revocation of Lien Release, after which it refiled the liens on January 17, 2001.
In September, 1993, the U.S. Air Force released payments due to Rimco/Watab under a contract. These funds were subsequently paid to the IRS pursuant to levy and applied against certain Rimco. tax liabilities unrelated to the TFRPs. In July, 1998, the IRS imposed a continuing levy on Mr. Gnifkowski's wages resulting in weekly payments through January, 2001.
On November 9, 2000, the IRS issued Carol Gnifkowski a Notice of Intent to Levy. She timely requested a CDP hearing on December 11, 2000. The IRS also issued Notice of Federal Tax Lien letters to petitioners on January 17, 2001. Petitioners timely requested a CDP hearing on February 1, 2001. The IRS Appeals Division held conferences with petitioners and their attorney on April 6, 2001, and February 11, 2002. On March 6, 2002, the IRS Appeals Office issued separate letters to petitioners sustaining the IRS proposed levy and lien actions. Petitioners timely sought review of this action in this Court.
Petitioners seek a determination as to whether the TFRP civil tax liabilities at issue in this action:
(a) were previously satisfied as part of the criminal case against Edward Gnifkowski, either by the Satisfaction of Judgment, the Plea Agreement and Sentencing Stipulation, and/or the entry of judgment in the criminal case;
(b) are no longer subject to collection by the IRS due to the running of the statute of limitations; and
(c) may be appropriately reduced by application of previous payments petitioners have made toward related obligations.
Petitioners also ask the Court to determine whether the federal tax lien refiled on January 17, 2001, is effective against them.
These issues were raised in the IRS administrative proceeding, where they were decided adversely to petitioners. The Court finds the administrative determinations to be correct.
II. Analysis
A. Motion to Dismiss Rimco
Respondent moves to dismiss Rimco's claims for lack of jurisdiction, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure (" Fed.R.Civ.P."). Petitioners did not respond to this motion.
Petitioners have premised their case on 26 U.S.C. § 6330(d), which allows review of IRS CDP administrative determinations. The issuance of a § 6330(a) Notice, review of that notice under §§ 6330(b) (c), and a determination under § 6330(c) are prerequisites to such review. 26 U.S.C. § 6330; see Offiler v. Commr., 114 T.C. 492, 498 (2000); Kennedy v. Commr., 116 T.C. 255, 263 (2001).
The fact that there has been no IRS determination relating to Rimco bars it from a § 6330(d) review. The Court, therefore, has nothing to review, and no statutory authority to do so.
Accordingly, Rimco's petition is dismissed.
B. Summary Judgment
Summary judgment is appropriate when the evidence, viewed in the light most favorable to the nonmoving party, presents no genuine issue of material fact. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 246 (1986). The party opposing summary judgment may not rest upon the allegations set forth in its pleadings, but must produce significant probative evidence demonstrating a genuine issue for trial.See Anderson, 477 U.S. at 248-49; see also Hartnaael v. Norman, 953 F.2d 394, 395-96 (8th Cir. 1992). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis omitted). If the opposing party fails to carry that burden, or fails to establish the existence of an essential element of its case on which that party will bear the burden of proof at trial, summary judgment should be granted. See Celotex, 477 U.S. at 322.
1. Does Edward Gnifkowski's criminal prosecution and resolution extinguish his civil tax liabilities?
The parties recognize that the government may pursue both civil and criminal tax penalties arising out of the same conduct, see Helvering v. Mitchell, 303 U.S. 391, 397 (1938). Similarly, the government need not litigate civil tax liability as part of a criminal prosecution. See In Re Minkoff, 1999 WL 1424987, *3 (Bankr. D. Kan., Dec. 16, 1999). Even having recognized these principles, Mr. Gnifkowski argues that, although not required to do so, the United States elected to conclude his civil tax penalty as part of his criminal judgment. He therefore claims this liability was extinguished when the United States entered its criminal Satisfaction of Judgment. Mr. Gnifkowski is incorrect.
It is well established that restitution and civil proceedings are two means by which unpaid taxes may be collected. If restitution is ordered, "any amounts paid to the IRS as restitution must be deducted from any civil judgment IRS obtains to collect the same tax deficiency." See United States v. Tucker, 217 F.3d 960, 962 (8th Cir. 2000), citingUnited States v. Helmsley, 941 F.2d 71, 102 (2d Cir. 1991),cert. denied, 502 U.S. 1091 (1992). Under the statute in effect at the time of Mr. Gnifkowski's conviction, restitution is appropriate when the victim and amount are known, and only to the extent of the loss caused by the specific conduct underlying the crime. See United States v. Daniel, 956 F.2d 540, 544 (6th Cir. 1992), citing Huahey v. United States. 495 U.S. 411, 413 (1990); see also United States v. McKnight. 771 F.2d 388, 391 (8th Cir. 1985), cert. denied, 475 U.S. 1014 (1986). The restitution order must inform the defendant "with definiteness what he must do to avoid imprisonment." United States v. Seest, 631 F.2d 107, 110 (8th Cir. 1980).
The Victim and Witness Protection Act of 1982, codified at 18 U.S.C. § 3663, includes the restitution statute which was in effect on the date of Mr. Gnifkowski's conviction.
This statute was amended by the Crime Control Act of 1990, effective November, 1990. The amended statute specifically allows additional restitution, where called for in the plea agreement or where a scheme or pattern of activity was established. The amendment superseded the Supreme Court's holding in Huahey v. United States, 495 U.S. 411 (1990). This provision was later supplemented by the Mandatory Victims Restitution Act, codified at 18 U.S.C. § 3663A-3664, effective April, 1996.
In Mr. Gnifkowski's case, the precise amount due was not an element of the criminal offense. See 18 U.S.C. § 641 and 26 U.S.C. § 7203. Because that sum was not "actually and necessarily" resolved as part of the criminal case, neither side is precluded from relitigating the amount in a civil proceeding. See Posnanski v. Commr., T.C. Memo 2001-026, 2001 WL 101453 (Tax Court, Feb. 7, 2001) (unpublished); M.J. Wood Assocs., Inc. v. Commr., T.C. Memo 1998-375, 1998 WL 719504 (Tax Court, Oct. 15, 1998) (unpublished).
This left Mr. Gnifkowski with the right to dispute the amount to be paid. No precise sum was established by the sentencing court. Mr. Gnifkowski could not, therefore, make restitution to the IRS until the exact amount was either agreed to or formally adjudicated in a criminal or civil proceeding. See United States v. Franks, 723 F.2d 1482, 1487 (10th Cir. 1983), cert. denied, 469 U.S. 817 (1984); United States v. Touchet, 658 F.2d 1074, 1076 (5th Cir. 1981); United States v. White, 417 F.2d 89, 94 (2d Cir. 1969), cert. denied, 397 U.S. 912 (1970);see also Helmsley, 941 F.2d at 102 (defendant's failure to object to findings in presentence investigation conceded amount).
The plea agreement did not establish the tax liability. (Plea agreement at 3.) No formal adjudication of the amount due was ever made. Therefore, the Court finds, as a matter of law, that neither Mr. Gnifkowski's plea agreement nor his sentencing definitively established the amount due. While the IRS and the taxpayer may be bound by the restitution stipulated in a plea agreement, see In re Knopf, 190 B.R. 647, 652 (Bankr. D. Mont. 1995), see also United States v. Osborn, 58 F.3d 387, 388 (8th Cir. 1995), the IRS is not bound where the plea agreement is silent as to the exact amount of restitution, or explicitly contemplates future calculations. See Minkoff, 1999 WL 1424987, *4;Schwener v. Commr., T.C. Memo 1987-87594, 1987 WL 49183 (Tax Court December 3, 1987) (unpublished).
The Eighth Circuit Court of Appeals has subsequently held that a district court may not leave open until a future date the amount of restitution to be paid. United States v. Prendergast, 979 F.2d 1289, 1293 (8th Cir. 1992); Marx v. United States, 77 F.3d 486 (table), 1996 WL 78174, **1 (8th Cir.) (unpublished), cert. denied. 519 U.S. 899 (1996).
Here, the precise tax loss sum was unknown in the plea and sentence, and remained undetermined for several months thereafter. Mr. Gnifkowski's plea agreement estimated a tax liability of "about $500,000" for the limited purpose of establishing an applicable sentencing guideline range. The plea agreement only called upon Mr. Gnifkowski to "cooperate" in the assessment and payment of his civil liabilities.
When the IRS finally determined Mr. Gnifkowski's obligation, it had two options: to return to court to seek an amended criminal judgment, a prerequisite to enforcing payment of restitution; or to pursue a civil remedy. The IRS chose the latter, issuing the assessment of November 19, 1990. The Court finds as a matter of law that the civil TFRP was not incorporated in, or affected by, Mr. Gnifkowski's criminal sentence or Satisfaction of Judgment.
2. Does a Statute of Limitations bar the IRS from collecting the TFRPs?
Petitioners claim a statute of limitations bars the IRS from collecting the liens at issue here. The IRS replies that any limitations period was tolled by petitioners' offers in compromise, and accordingly, the period to collect has not expired. Petitioners raised this argument before the IRS Appeal Board, which ruled in the government's favor.
The United States has ten years within which to collect a tax liability by levy or court proceeding. 26 U.S.C. § 6502; Remington v. United States, 210 F.3d 281, 284 (5th Cir. 2000) (limitations period starts on date of assessment). This ten-year limitations period may be tolled when a taxpayer makes an offer in compromise or seeks CDP review. 26 U.S.C. § 6503 and 6330(e)(1). The tolling starts the date the IRS receives and accepts the taxpayer's request. 26 C.F.R. § 301.7122-1 and 301.6330-1(g)(1).
The present TFRP assessments were made against Carol on October 29 and November 5, 1990, and against Edward on November 19, 1990. Absent an extension, the United States would have been barred from collecting the liens against Carol after October 29 and November 5, 2000, and from Edward after November 19, 2000. Both sides recognize that the limitations statute has been tolled twice; the first time in 1993, when plaintiffs submitted offers in compromise, and more recently, as part of the current CDP review process.
The timeliness of an action for collection is to be determined on the basis of the specific assessment which is the subject matter of the action. United States v. Turk, 290 F. Supp. 588, 589-90 (E.D. Ohio 1968). Within the limitations period and absent a binding settlement, the Commissioner may reexamine and redetermine the petitioners' tax liability. Blackhawk-Perry Corp. v. Commr., 182 F.2d 319, 322 (8th Cir.), cert. denied. 340 U.S. 875 (1950).
The IRS received Carol's first request for a CDP hearing on December 11, 2000, and her second request together with Edward's on February 1, 2001. The CDP review is ongoing, pending a determination by this Court. The Court must therefore determine whether the limitations period had run as of December 11 for Carol and February 1 for Edward.
While in some cases this can be a difficult question, here it is easy; the parties agree there was a 1993 offer in compromise, which essentially concludes the analysis. The offer tolled the statute for at least 80 days, which is sufficient to render the IRS actions timely. Carol's first request was received 36 days after the statute would have run on the November 5 assessment, and 43 days after it would have run on the October 29 assessment.
Edward's was received 74 days after the statute would have run on the November 19 assessment. As the 1993 offer tolled the limitations period by 80 days, the IRS right to proceed has not been extinguished. The IRS actions are not barred by limitations.
3. May the TFRPs be reduced by applying previous payments toward related obligations?
While petitioners' summary judgment motion appears to abandon this claim, the Court briefly addresses the question.
A taxpayer is not entitled to determine the obligation to which an involuntary payment is applied. This principle applies to levies, such as those at issue here. Norwalk Liquidating, Inc. v. United States, 159 F. Supp.2d 684, 691 (N.D. Ohio 2001), citing In re Technical Knockout Graphics, Inc. 833 F.2d 797, 799 (9th Cir. 1987);Amos v. Commr., 47 T.C. 65, 69 (Tax Court 1966) (levies are involuntary payments to be applied at discretion of IRS). Here, the IRS properly exercised its discretion when it applied the funds collected via levy from Rimco. and Edward Gnifkowski to non-TFRP tax liabilities. Accordingly, petitioners have no right to direct that the funds levied be directed to their personal liability on the TFRPs, or to offset those payments against their personal liability.
4. Are the IRS liens effective?
The IRS holds an automatic tax lien against a taxpayer who fails to pay an assessed tax after notice and demand. 26 U.S.C. § 6321. Its lien is valid until the debt is satisfied or becomes unenforceable by reason of lapse of time. 26 U.S.C. § 6322; In re Nerland Oil, 303 F.3d 911, 916 (8th Cir. 2002). If a lien expires but the collection period remains, the IRS may revoke release of the lien. 26 U.S.C. § 6325(f)(2); 26 C.F.R. § 301.6325-1(f)(2); Markham v. Fay, 74 F.3d 1347, 1353 (1st Cir. 1996); In re Cole, 205 B.R. 668, 673 (Bankr. D. Mass. 1997).
Here, petitioners' debts have neither been satisfied, nor has the limitations period expired. As noted above, the CDP review process tolls the limitations period. Assuming that petitioners' interpretation of the law is correct, the limitations period will run as to Edward 6 days after the judgment in this action becomes final. As to Carol, the limitations periods will run 37 days (on the October 29 assessment) and 44 days (on the November 5 assessment) after the judgment in this action becomes final.
The Court expressly declines to decide whether petitioners' interpretation, or the IRS's interpretation, of the limitations statute is correct.
As these dates have not passed, the IRS properly revoked the release of its liens in January, 2001. The Notices of Revocation of Release may affect only the priority of the IRS claims as against other creditors. The liens remain effective against petitioners.
III. Conclusion
For all of the foregoing reasons, petitioners' motion for summary judgment [Docket No. 22] is denied, and respondent's motion [Docket No. 19] is granted.
IT IS SO ORDERED.
LET JUDGMENT BE ENTERED ACCORDINGLY.