Opinion
Case No.: CV-S-02-1411-RLH (PAL)
June 5, 2003
ORDER (Motion for Summary Judgment — #6)
Before the Court is Defendant's Motion for Summary Judgment (#6), filed May 5, 2003.
BACKGROUND
Plaintiff asks this court to: 1) Invalidate a collection due process determination made by the IRS against him; 2) Order Defendant to cease collection activities by the IRS for alleged civil penalties for year 1999; and 3) Order Defendant to reimburse Plaintiff his costs for bringing this action.
Following a four year pattern of behavior the Court has yet to understand, Plaintiff filed Form 1040, U.S. Individual Income Tax Return, for the 1999 tax year containing zeroes on all lines reflecting income earned or taxes due with attached statements explaining that he had no income to report and did not, therefore, owe federal income tax.
Pursuant to Section 6702, the IRS assessed a $500 civil penalty on Plaintiff for filing the stated return. Section 6702 assesses a $500 civil penalty if an individual "files what purports to be a return" but which contains "information that on its face indicates that the self-assessment is substantially incorrect" and is due to "a position which is frivolous."
Upon receipt of Plaintiffs 1040 and attachments for 1999, the Ogden Service Center mailed him a letter explaining the penalty imposed by IRC 6702, and allowing him thirty days in which to file corrected returns, stating that if he did so, the civil penalty for filing a frivolous return would not be assessed. Plaintiff did not file a corrected return and the Service Center subsequently assessed the penalty. Plaintiff then requested from Defendant a collection due process hearing regarding the frivolous return penalties and collection alternatives. The hearing was held on September 9, 2002, a transcript of which is attached to Plaintiff's Complaint (#1).
On September 26, 2002, the IRS sent Plaintiff a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (Notice of Determination) informing Plaintiff that the proposed levy to collect the frivolous return penalty would not be restricted. Attached to the Notice of Determination was a memorandum explaining that the decision was based on the determination that the IRS fully complied with all applicable laws, regulations, and administrative procedures. The Notice of Determination also informed Plaintiff that any dispute of the determination could be made within 30 days in the appropriate United States District Court. Plaintiff timely filed with this Court and Defendant now moves for summary judgment.
DISCUSSION
I. Summary Judgment Standard
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper only "where the record before the court on the motion reveals the absence of any material issue of fact and [where] the moving party is entitled to judgment as a matter of law." Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982) (quoting Portland Retail Druggists Ass'n v. Kaiser Found. Health Plan, 662 F.2d 641, 645 (9th Cir. 1981)), cert. denied, 460 U.S. 1085 (1983). "A material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the parties' differing version of the truth." Sec. Exch. Comm'n v. Seaboard Corp., 677 F.2d 1289, 1293 (9th Cir. 1982) (citation omitted).
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view all facts and draw all inferences in the light most favorable to the responding party. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). See also Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982), cert. denied, 460 U.S. 1085 (1983). Once this burden has been met, "[t]he opposing party must then present specific facts demonstrating that there is a factual dispute about a material issue." Zoslaw, 693 F.2d at 883 (citation and internal quotes omitted).
II. Analysis
Plaintiff first asks that the collection due process determination made against him by the IRS be declared invalid. Since the Tax Court does not have jurisdiction to consider frivolous return penalties, See Van Es v. Commissioner, 115 T.C. 324 (2000), the matter is appropriately before this court. 26 U.S.C. § 6320 (c), 6330(d)(1)(B).
26 U.S.C. § 6702 assigns liability in the amount of five hundred dollars ($500) to a person filing a frivolous tax return. The Secretary of the Treasury or his delegate, such as the IRS, 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). The failure to pay the penalty results in a lien on the person's property. 26 U.S.C. § 6321. To ensure the validity of the lien, the Secretary files the lien with, in this case, the Clark County Recorder, 26 U.S.C. § 6323 (f)(1)(A), and sends a notice of filing of the lien to the person, 26 U.S.C. § 6320 (a). The Secretary must also inform the person of his right to a hearing at the same time. 26 U.S.C. § 6320 (a)(3)(B). For the purposes of this Order, the procedures of the collection due process hearing, 26 U.S.C. § 6330 (c), apply to the lien hearing, 26 U.S.C. § 6320 (c). 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 also 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 is the frivolous return penalty. See 26 U.S.C. § 6671; see also 26 C.F.R. § 301.6321-1. Plaintiff properly challenged the validity of the frivolous return penalties at the collection due process hearing because the statutory deficiency procedures do not apply to frivolous return penalties, 26 U.S.C. § 6703 (b), and thus Plaintiff had no prior opportunity to dispute the penalties. The validity of the income taxes that Plaintiff owes for 1999 is not at issue in this action. On the other hand, the tax returns that Plaintiff filed are relevant because they determine whether assessment of the frivolous return penalty was 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. Servs. 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 as to the validity of the penalty. The Form 1040 for 1999 attached to the to the Declaration of Jeffrey D. Snow as Government Ex. I shows the Plaintiff's return with zeros in the income section. Plaintiff also attached an explanation of why no provisions of the Internal Revenue code make him liable for the income tax, how his wages are not income, and other matters. Wages are income, 26 U.S.C. § 61, upon which Plaintiff owes a tax, 26 U.S.C. § 1, and courts — including this one — have found arguments to the contrary to be tired and 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. On its face, Plaintiff's tax returns were substantially incorrect and frivolous, thus making Plaintiff liable for the frivolous return penalty. 26 U.S.C. § 6702. 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 Plaintiff was issued notice and demand letters as required under 26 U.S.C. § 6303. In addition, the Notice of Intent to Levy and Notice of Your Right to a Hearing required under 26 U.S.C. § 6331 (d); 6330 were combined in letter 1058 dated 08/27/2001 which was mailed to Plaintiff's last known address. Since the tax returns are clearly frivolous and the proper notices had been sent to the Plaintiff, the hearing officer did not err in his verification that the requirements of any applicable law and administrative procedures had been met. Therefore, the collection due process determination is valid.
It would have been helpful had Defense counsel included copies of such documents as exhibits.
Plaintiff alleges that the settlement Officer was not impartial as required by the statute. 26 U.S.C. § 6330. An "impartial officer" is an employee or officer of appeals who "has had no prior involvement with respect to the unpaid tax specified" before the collection determination hearing. 26 U.S.C. § 6330 (b)(3). The settlement officer, Mike Freitag, had no prior involvement with respect to the Plaintiff's tax liabilities. Compl. Ex. A at p. 3 (bottom). Therefore, the settlement officer was an impartial officer per the statute and Plaintiff's contention to the contrary is without merit.
Further, Plaintiff's assertion that the collection due process determination is invalid because he was not permitted to record the appeal proceedings is unfounded. With a proper advance request a taxpayer is permitted to make an audio recording "in connection with any in-person interview . . . relating to the determination or collection of any tax." 26 U.S.C. § 7521 (a)(1). However, the purpose of the collection due process hearing is not to determine or collect a tax, but to insure that "the requirements of any applicable law or administrative procedure have been met." 26 U.S.C. § 6330 (c)(1). While it is true that the IRS has permitted recording in the past, the May 2, 2002, Department of the Treasury memorandum explicitly revokes that practice. Compl. Ex. C. The IRS does not presently permit the recording of appeals proceedings and there is no statutory provision entitling the Plaintiff to do so. Accordingly, the proceedings were not "in violation of law" and the determination of the collection due process hearing is valid.
Since Defendant's collection due process determination is valid, the court has no reason to reach Plaintiff's requests for damages or injunctive relief.
CONCLUSION
Accordingly, and for good cause appearing,
IT IS HEREBY ORDERED that Defendant's Motion for Summary Judgment (#4) is GRANTED.