Opinion
Case No.: CV-S-01-1207-RLH(LRL)
July 3, 2002
ORDER (Motion to Dismiss — #4)
Before the Court is Defendant's Motion to Dismiss (#4), filed January 7, 2002. The Court has also considered Plaintiffs Opposition (#8), filed March 15, 2002.
BACKGROUND
For the calendar years 1998 and 1999, Plaintiff attached a statement to each of his returns indicating that he was not required to file a federal income tax return, that he had "zero" income and there was no Code section which made him "liable" for any income tax. For each of these years, the Defendant Internal Revenue Service ("IRS") assessed a penalty for filing a frivolous return.
On November 30, 2000, the IRS sent Plaintiff, via certified mail, a notice informing him of their intent to levy to collect the outstanding civil penalties assessed against him for his 1998 and 1999 tax years pursuant to 26 U.S.C. § 6702. The collection activity with respect to the civil penalty assessments resulted from the federal income tax returns filed by Plaintiff for his 1998 and 1999 tax years. The returns filed by Plaintiff had zeros on all the lines of the returns which reflected income or tax due to the Government. Yet, both the 1998 and 1999 tax returns had a Form W-2 attached to the return which showed that Plaintiff received wages of $64,364.67 for his 1998 tax year and $63,834.51 for his 1999 tax year. On each of the returns, Plaintiff also requested a refund of the tax which had been withheld for that tax year. Plaintiff also attached documentation explaining why he did not believe he owed federal income taxes.
Included with the notice of intent to levy was information notifying Plaintiff of his right to request a Collection Due Process ("CDP") hearing pursuant to 26 U.S.C. § 6330(a). On July 24, 2001, a CDP hearing was held. At the hearing, the appeals officer provided Plaintiff with a Form 4340, Certificate of Assessments and Payments with regard to the civil penalty assessments made against the Plaintiff for his 1998 and 1999 tax years.
On September 13, 2001, pursuant to 26 U.S.C. § 6330, Defendant then sent Plaintiff a Notice of Determination concerning collection actions for the amount of the civil penalties owed. In this Notice, Defendant informed Plaintiff of his right to judicial review of the determination in the appropriate United States District Court. On October 12, 2001, Plaintiff filed a complaint asking, in addition to damages, that this Court set aside the CDP determination as invalid. Defendant requests this Court to dismiss the complaint for failure to state a claim for which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6).
DISCUSSION
I. Motion to Dismiss Standard Under Rule 12(b)(6)
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." "[A] complaint should not be dismissed for failure to state a claim unless 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 also Yamaguchi v. U.S. Dept of the Air Force, 109 F.3d 1475, 1481 (9th Cir. 1997). All factual allegations set forth in the complaint "are taken as true and construed in the light most favorable to [p]laintiffs." Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1999). Dismissal is appropriate "only if it is clear that no relief could be granted under any set of facts that could be proven consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984); see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988).
II. Collection of Fines by the IRS
Under 26 U.S.C. § 6702(a), a civil penalty of $500 may be imposed if any individual files what purports to be a return of the tax imposed by subtitle A but which contains information that on its face indicates that the self-assessment is substantially incorrect and the conduct referred to is due to a position which is frivolous. Title 26 U.S.C. § 6330(a) provides that before proceeding with the collection by way of levy, the IRS must provide the taxpayer notice of the right to a hearing on the matter. 26 U.S.C. § 6303(a) states that notice shall be left at the taxpayer's dwelling or usual place of business or be sent by mail to the taxpayer's last known address. The taxpayer has a right, within 30 days of the Section 6330 notice, to request a hearing with the IRS Office of Appeals. Id. § 6330(a)(3)(B). At the hearing, the taxpayer may raise any issue relevant to the unpaid tax and the proposed levy, including challenges to the propriety of the levy and offers
of collection alternatives. Id. § 6330(c)(2).
The impartial IRS Appeals Officer who conducts the hearing must then formulate his or her determination based on: (1) the verification that the requirements of any applicable law or administrative procedure have been met; (2) the issues raised by the taxpayer; and (3) the proper balance between the need for efficient tax collection and the legitimate concern that any collection action be no more intrusive than necessary. See id. § 6330(c)(3). At the hearing, the taxpayer may address any of the statutorily-specified issues allowed at a collection due process hearing, including spousal defenses, the appropriateness of an intended collection action, and possible alternative means of collection. See 26 U.S.C. § 6330(c); see also Sego, v. Comm'r of Internal Revenue, 114 T.C. 604, 609 (2000). Following the hearing, the Appeals Officer sends a Notice of Determination to the taxpayer that summarizes the matters raised during the hearing and responds to any offers or objections made by the taxpayer. If the taxpayer is dissatisfied with the administrative determination, he may seek judicial review in the United States Tax Court within 30 days of receiving the Notice or, if the Tax Court does not have jurisdiction over the underlying tax liability, the appropriate United States District Court. Id. § 6330(d)(1). Review is limited to matters actually raised at the administrative hearing. Temp. Treas. Reg. § 301.6330-1T(f)(2001).
Section 6330(d) does not specify the standard of review a district court should apply to an appeal of a Notice of Determination. However, the legislative history indicates that the court should conduct a de novo review only "where the validity of the tax liability was properly at issue at the administrative hearing." H.R. Conf. Rep. No. 105-599, at Sess. 266 (1998). Where the amount of the underlying tax liability is not properly part of the appeal, the court reviews a Notice of Determination for abuse of discretion. See Sego 114 T.C. at 609-10; Goza v. Comm'r of Internal Revenue, 114 T.C. 176, 179-80 (2000). An administrator abuses its discretion if it relies on clearly erroneous findings of fact in its determinations. Taft v. Equitable Life Assurance. Soc'y, 9 F.3d 1469, 1473 (9th Cir. 1993).
Here, the issue before the Court is related to the collection action regarding the penalties incurred by Plaintiff for filing frivolous tax returns for the calendar years 1998 and 1999. This Court is not reviewing the underlying income tax liability which, pursuant to 26 U.S.C. § 6330 (b)(1)(A), is reviewable by a United States Tax Court. Therefore, since the underlying income tax liability is not at issue, this Court has jurisdiction and applies an abuse of discretion standard in its review.
In his opposition to the Motion to Dismiss, Plaintiff raises several issues regarding the authority of the IRS to assess and issue the determination that the collection action is based upon. Plaintiff specifically questions the authority of the IRS Appeals Officer as well as his reliance on Form 4340 and computer generated records provided to Plaintiffs during his Collection Due Process hearing that indicated assessments were actually made and issued.
First, Plaintiffs argument that there is no evidence of any delegated authority from the Secretary of Treasury cannot prevail. Relevant statues and regulations demonstrate 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. See Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1992); 26 C.F.R. § 301.6301-1 ("[t]he taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue"). District directors in turn are authorized to redelegate the levy power to lower level officials such as collection officers. Hughes, at 536. 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 Commissioner to the delegated officers and employees. See C.F.R. § 301.7701-9. Therefore, the agents involved in the instant case were acting within their authority when they made and sent a Notice of Determination regarding the collection action.
Second, the IRS hearing officer did not abuse his discretion when he determined that the requirements of applicable law had been met and that Plaintiffs had been afforded statutorily-required administrative procedures. The hearings officer attempted to address the issues raised by Plaintiff however, Plaintiff did not address any of the statutorily-specified issues that may be raised at a collection due process hearing, such as spousal defenses, the appropriateness of an intended collection action, and possible alternative means of collection. Instead Plaintiff attempted to revisit the issue of his underlying tax liability at the collection hearing at issue.
Appeals of the underlying claims are only appropriate at a collection due process hearing if the plaintiff did not receive notice of tax liability, Goza, 114 T.C. at 182, or "had no previous opportunity to contest the validity of those claims." Kintzler v. Internal Revenue Serv., 2001 WL 1137294, at *2 (D. Nev. 2001). The Hughes court and other circuit courts have held that Form 4340 Certificate of Assessments and Payments provided to the plaintiffs as well as the IRS' reliance on computer generated information indicating that notice of assessment was made and demand for payment was issued on a certain date were sufficient to establish that assessments were actually made and issued. Hughes, at 535; see also U.S. v. Chila, 871 F.2d 1015 (11th Cir. 1989) (finding that Certificate of Assessments and Payments (4340) is presumptive proof of a valid assessment).
The IRS Hearings Officer did not abuse his discretion by relying on computer generated records and a Form 4340, which he provided to Plaintiff, that indicated that an assessment was made and issued to Plaintiff.
Plaintiff has not, and cannot, prove any set of facts in support of his claim which would entitle him to relief. Defendant's Motion to Dismiss will therefore be granted. See Goza, 114 T.C. at 183 (dismissing tax protester's appeal of IRS Notice of Determination for failure to state a claim).
CONCLUSION
Accordingly, and for good cause appearing,
IT IS HEREBY ORDERED that Defendant's Motion to Dismiss (#4) is GRANTED.