Opinion
No. C 02-2573 EDL
November 1, 2002
JUDGMENT IN A CIVIL CASE
(X) Decision by Court. This action came to trial or hearing before the Court. The issued have been tried or heard and a decision has been rendered.
IT IS SO ORDERED AND ADJUDGED pursuant to the order granting defendant's motion to dismiss and motion for summary judgment filed November 1, 2002, judgment is entered in favor of defendant and against plaintiff
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT I. INTRODUCTION
On May 10, 1999, plaintiff filed individual income tax returns for 1997 and 1998, upon which he reported that he had no wages, other income, or any tax liabilities, and in which he claimed refunds consisting of the amount of taxes withheld from his wages during such years. (Kingston Dec. in support of Motion for Summary Judgment ("SJ Dec."), Exs. A, B, C, and D.) On April 15, 2000, plaintiff filed a individual income tax return for taxable year 1999, upon which he reported that he had no wages, other income, or any tax liabilities for such year. (SJ Dec., Exs. E and F.) Plaintiff attached a document to each of these returns in which he explained that he reported zero income on his tax returns because he had no earnings that would have been taxable as income. (SJ Dec., Exs. A, B, and E.) However, the W-2 and 1099 Forms submitted by plaintiff's employers reflected that plaintiff received taxable income of $25,266 in 1997, $7,788 in 1998, and $15,627.18 in 1999. (SJ Dec., Exs. G, H and I.) The IRS assessed frivolous return penalties under 26 U.S.C. § 6702 against plaintiff in the amount of $500 for each taxable year. (SJ Dec., Exs. J, K and L.)
On March 7, 2000, the IRS issued statutory notices of deficiency to plaintiff for taxable years 1997 and 1998, determining tax deficiencies of $2,771 and $126 respectively; penalties of $100 for each year under § 6651(a)(1); penalties of $26.26 and $508 respectively under § 6651(a)(2); and penalties of $82.02 and $22.56 respectively under § 6662(a). (Kingston Dec. in support of Motion to Partially Dismiss ("Dismiss Dec."), Exs. G and H.) The notices advised plaintiff that, if he wanted to contest the deficiencies in court before making payment, he had to file a petition with the United States Tax Court on or before June 5, 2000, for a redetermination of the deficiencies. (Dismiss Dec., Exs. G and H.) On July 3, 2000, the IRS assessed a false information penalty against plaintiff for taxable year 1999 under 26 U.S.C. § 6682 in the amount of $500. (SJ Dec., Ex. L.) On September 4, 2000, the IRS made assessments of the above-mentioned income tax deficiencies and penalties, including interest thereon. (Dismiss Dec., Exs. C and D.)
On November 24, 2000, the IRS issued to plaintiff a notice of intent to levy pursuant to 26 U.S.C. § 6331, which requested full payment of the penalties assessed against him for taxable year 12 1999, advised him that the IRS would levy upon his property if he did not pay, and informed him of his right to a Collection Due Process ("CDP") hearing. (SJ Dec., Ex. M.) In a letter dated December 18, 2000, and postmarked Dec. 22, 2000, plaintiff sent the IRS a request for a CDP hearing for taxable year 1999. (SJ Dec., Ex. N.)
On March 9, 2001, the IRS issued a notice of intent to levy with respect to the penalties assessed against plaintiff for 1997 and 1998. (SJ Dec., Ex. O.) In a letter dated April 4, 2001, and postmarked April 9, 2001, plaintiff sent the IRS a request for a CDP hearing for taxable years 1997 and 1998. (SJ Dec., Ex. P.)
On April 5, 2002, a CDP hearing occurred. On April 30, 2002, the Appeals Officer sent plaintiff two "Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330," in which he upheld the proposed levy actions to collect plaintiff's unpaid tax liabilities. (SJ Dec., Exs. R and S.)
One of the Notices of Determination pertains to taxable years 1997 and 1998, (SJ Dec., Ex. R) and the other pertains to taxable year 1999. (SJ Dec., Ex. S.)
On May 29, 2002, plaintiff filed a complaint alleging that the two DCP hearing determinations were illegally issued pursuant to 26 U.S.C. § 6330, and requesting the Court to set the determinations aside. On September 17, 2002, the United States moved to dismiss that portion of plaintiff's Complaint that seeks judicial review of the Internal Revenue Service ("IRS") Appeals Officer's CDP determination on the basis of lack of subject matter jurisdiction ("Motion to Dismiss"). In the alternative, the United States seeks summary judgment pursuant to Fed.R.Civ.P. 56(c) ("Motion for SJ"). On October 8, 2002, plaintiff filed an Opposition to defendant's motions. ("Opposition.") On October 15, 2002, the United States filed a Reply to plaintiff's Opposition ("Reply").
II. DISCUSSION
1. Legal Standard
A. MOTION TO DISMISS
A motion to dismiss for lack of subject matter jurisdiction may be brought as a speaking motion, attacking the existence of jurisdiction rather than the allegations of the complaint. Thornhill Pub. v. General Tel. Elec. Corp., 594 F.2d 730, 733 (9th Cir. 1979). Because the court's power to hear the case is at issue, the court may weigh extrinsic evidence and determine the facts in order to satisfy itself as to its power to hear the case. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). "It is to be presumed that a cause lies outside [the federal court's] limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).
2. Collection Due Process Hearing
If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.26 U.S.C. § 6331(d). Before proceeding with collection by levy, however, the Secretary must provide the taxpayer with notice of his right to request a CDP hearing before the IRS Office of Appeals. 26 U.S.C. § 6330(a)(1). A taxpayer must request a CDP hearing within thirty days of the date notice of the right to a hearing is given. 26 U.S.C. § 6330(a)(2) and (a)(3)(B).
If the taxpayer does not request a CDP hearing with Appeals within the 30-day period commencing the day after the date of the CDP Notice, the taxpayer will forego the right to a CDP hearing under section 6330 with respect to the unpaid tax and tax periods shown on the CDP Notice. The taxpayer may, however, request an equivalent hearing.
Treas. Reg. § 301.6330-1(c)(2), A-C7.
The "equivalent hearing" is provided for by regulation, but is not mandated by section 6330. While the same issues can be considered by the IRS at the equivalent hearing, a taxpayer's request for such a hearing does not suspend the proposed levy. Moreover, there is no statutory provision for judicial review of an equivalent hearing. Accordingly, a taxpayer generally cannot challenge the IRS equivalent hearing Decision Letter in court.Johnson v. Commissioner of Internal Revenue and Teresa Kelley, 2000 WL 1041191, * 2 (D.Or. 2000) (citing Treasury Regs. § 301.6330-1T(I), Q-13/A-13; Q-15/A-15).
As discussed above, the IRS issued a notice of intent to levy on March 9, 2001, advising plaintiff that he must submit a request for a CDP hearing within thirty days. (Dismiss Dec., Ex. I.) Plaintiff's request for a CDP hearing was dated April 4, 2001, but postmarked April 9, 2001, and thus plaintiff mailed the letter one day after the thirty-day period had expired. (Dismiss Dec., Ex. J.)
Defendant argues that, having failed to timely file a request for a CDP hearing, plaintiff was only entitled to an equivalent hearing. In Offiler v. Commissioner, 114 T.C. 492, 498 (2000), the court held that jurisdiction "under section 6330(d) is dependent on the issuance of a valid notice of determination and a timely petition for review. It therefore follows that the absence of an Appeals determination under section 6330 is grounds for dismissal of a petition that purports to be based on section 6330." See also Kennedy v. Commissioner, 116 T.C. 255, 263 (2001); Lopez v. Commissioner, T.C. Memo 2001-228. In Offiler, Kennedy, and Lopez, however, the IRS did not issue letters of determination pursuant to section 6330. Offiler, 114 T.C. at 495;Kennedy, 116 T.C. at 261; Lopez, T.C. Memo 2001-228.
By contrast, here, the Appeals Officer sent plaintiff "Notice[s] of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330," dated April 30, 2002, which state that plaintiff "was granted a [CDP] Hearing." (SJ Dec., Exs. R and S) (emphasis added). Moreover, Officer Lawrence Dorr started out the hearing by stating, "[t]his is a Collection Due Process Hearing for taxpayer Scott McCandless." (Opposition, Ex. H.) Lastly, the notices of determination provide plaintiff with the option of disputing the determination in court (SJ Dec., Exs. R and S), a challenge that is only allowed when a CDP hearing has occurred. Johnson, 2000 WL 1041191 at * 2 (holding that "a taxpayer generally cannot challenge the IRS equivalent hearing Decision Letter in court.") Thus, while defendant is correct that plaintiff was only entitled to an equivalent hearing, plaintiff was in fact given a CDP hearing. Thus, plaintiff is not barred by his one day delay in requesting the hearing. Nonetheless, as discussed below, the Tax Court is the correct forum for plaintiff's challenge to the CDP hearing determination.
2. The Tax Court has Exclusive Jurisdiction
Section 6330(d) provides for the following judicial review of CDP determinations:
(1) The 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.26 U.S.C. § 6330(d). Thus, "when the IRS's proposed levy involves an underlying tax liability, judicial review over any determination made in a Collection Due Process hearing lies in the United States Tax Court, not the district court." Johnson, 2000 WL 1041191 at * 3. "Only if the Tax Court does not have jurisdiction over the underlying tax liability does a United States District Court have jurisdiction." Hickey v. United States, 2002 WL 4717189 at * 2 (D.Nev. 2002). Here, like in Hickey, "plaintiff's claims involve a dispute over a proposed levy by the Internal Revenue Service in response to an alleged income tax liability. This is precisely the kind of claim over which the Tax Court has jurisdiction."Hickey, 2002 WL 471789 at * 2.
Plaintiff failed to file a petition for redetermination with the Tax Court, and thus that court would not have jurisdiction to redetermine the existence or amount of the underlying tax liabilities. Goza v. Commissioner, 115 T.C. 176, 182 (2000). However, actual jurisdiction over the underlying tax is unnecessary for the Tax Court to exercise jurisdiction over the CDP determination. Id. (holding that "despite the fact that petitioner failed to invoke the Court's deficiency jurisdiction by filing a petition for redetermination contesting the notice of deficiency . . . we hold that section 6330(d) vests the Court with jurisdiction to review respondent's administrative determination to proceed with a levy to effect the collection of the taxes due from petitioner for those years.")
The Tax Court has jurisdiction over plaintiff's request for review of the CDP determination with respect to the collection of the income tax deficiencies, interest, and penalties, and therefore this Court cannot hear those claims and they must be dismissed. Under section 6330(d)(1), plaintiff will have thirty days from the date of the dismissal in which to bring his claim in the Tax Court. True v. Commissioner, 109 F. Supp.2d 1361, 1364 (M.D. Fla. 2000).
3. Validity of the Statutory Deficiency Notices
Plaintiff argues that this Court has jurisdiction to review the CDP determination because the notices of deficiency he received were invalid, and, thus, he was deprived of the opportunity to challenge the underlying tax liabilities in Tax Court. According to plaintiff, the deficiency notices were invalid because they were sent by the Director of the Service Center, and not the Secretary. 26 U.S.C. § 6212 states that: "If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail." However, 26 U.S.C. § 7701(a)(11)(B) defines the term "Secretary" as the Secretary of the Treasury or his delegate. 26 U.S.C. § 7701(a)(12)(A)(I) defines the term "delegate," when used with reference to the Secretary of the Treasury, to mean "any officer, employee, or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of authority, to perform the function mentioned or described in the context." Here, the Secretary's authority to issue notices of deficiency was delegated to the Director of the Service Center. (Dismiss Dec., Ex. M.) Thus, plaintiff received valid, statutory deficiency notices.
B. SUMMARY JUDGMENT MOTION
1. Legal Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute as to a material fact is "genuine" if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The nonmoving party's evidence must be believed and "all justifiable inferences must be drawn in [the nonmovant's] favor." United Steelworkers of America v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir. 1989) (en banc) (citing Liberty Lobby, 477 U.S. at 255.)
The moving party bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, interrogatory answers, admissions, and affidavits, if any, that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the nonmoving party will bear the burden of proof at trial, the moving party's burden is discharged when it shows the court that there is an absence of evidence to support the nonmoving party's case. Id. at 325. A party opposing a properly supported motion for summary judgment "may not rest upon the mere allegations or denials of [that] party's pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Liberty Lobby, 477 U.S. at 250.
2. The Appeals Officer Complied with 26 U.S.C. § 6330
If a taxpayer requests a CDP Hearing, the Appeals Officer must: (1) verify that the requirements of any applicable law or administrative procedure with respect to the underlying taxes have been met, 26 U.S.C. § 6330(c)(1); (2) consider any issues raised by the taxpayer at the hearing, including appropriate spousal defenses, challenges to the appropriateness of the collection actions, offers of collection alternatives, and challenges to the existence or amount of the underlying tax liability (if appropriate), 26 U.S.C. § 6330(c)(2); and (3) determine whether the proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary, 26 U.S.C. § 6330(c)(3)(C).
a. Adequate Verification that the Legal and Administrative Requirements were Met
Plaintiff alleges that the Appeals Officer conducting the hearing failed to provide him with documents verifying that the legal and administrative requirements of section 6330(c)(1) had been met. Specifically, plaintiff contends that the Appeals Officer did not provide him with a Summary Record of Assessment (Form 23C), produce a return from which the assessments were made, or identify a statute that establishes the underlying liability. The Appeals Officer, however, is not required to provide the plaintiff with documentation or testimony under oath.Reinhert v. Internal Revenue Service, 2002 WL 1095351, * 5 (E.D. Cal. 2002); Davis v. Commissioner, 115 T.C. 35, 41-42 (2000); Katz v. Commissioner, 115 T.C. 329 (2000).
The Appeals Officer provided plaintiff with Certificates of Assessments and Payments, (Forms 4340) for each of the penalties assessed against him. (SJ Dec., Ex. Q at H-1:26-27; H-2:1.) These forms verify the dates of the assessments, that statutory notices of the assessments and demands for payment were made on the dates of the assessments, and the dates that statutory notices of intent to levy were issued to plaintiff. (SJ Dec., Ex. L.) The Appeals Officer advised plaintiff that he believed that such certificates established the legal validity of the assessments and that the proper notices and demands were issued. (SJ Dec., Ex. Q at H-23:13-14.)
"Generally, courts have held that Form 4340 provides at least presumptive evidence that a tax has been validly assessed under section 6203." Davis, 115 T.C. at 40. Unless the taxpayer can point to evidence of an irregularity in the assessment process, the presumption of a valid assessment remains intact. Nicklaus v. Commissioner, 117 T.C. 117, 121 (2001); Davis, 115 T.C. at 41 (holding that "it was not an abuse of discretion for Appeals to rely on a Form 4340 . . . for the purpose of complying with section 6330(c)(1)."); Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992) (explaining that "[c]ertificates of Assessments and Payments are `routinely used to prove that tax assessment has in fact been made.' They are `presumptive proof of a valid assessment.'") (quoting Geiselman v. United States, 961 F.2d 1, 6 (1st Cir. 1992)). Plaintiff has not rebutted this presumption. Thus, the 4340 Forms constitute legal evidence of plaintiff's liability for the penalties assessed against him.
Plaintiff argues that, by failing to provide him with documentation or testimony under oath to establish verification, the Appeals Officer has violated plaintiff's Fourth Amendment rights. However, "it is well established that the IRS may collect an assessment of tax liability by levy without a prior judicial hearing, and that the seizure of property pursuant to a valid administrative levy does not violate the Fourth Amendment." Pursell v. United States, 1995 WL 273175, * 6 (E.D. Cal. 1995) (citing Maisano v. United States, 940 F.2d 499, 501-02 (9th Cir. 1991), cert. denied 112 S.Ct. 1957 (1992)).
Plaintiff asserts that his returns were not frivolous and that the frivolous return penalties were improperly imposed. However, plaintiff submitted tax returns for the years 1997, 1998, and 1999 with zeros in the income section, despite the fact that he received taxable income during such years. (SJ Dec., Exs. G, H, and I.) The Ninth Circuit "has repeatedly rejected the argument that wages are not income as frivolous."Olsen v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985). A person who files a frivolous tax return is liable for a penalty of five hundred dollars ($500.00). 26 U.S.C. § 6702. "[Such] . . . penalties and liabilities . . . shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as taxes." 26 U.S.C. § 6671. Plaintiff does not demonstrate any irregularity in the Appeals Officer's assessment procedure, and thus the presumption of a valid assessment remains intact. Because plaintiff filed frivolous returns, he is liable for the frivolous return penalties assessed against him. 26 U.S.C. § 6702.
Plaintiff argues that the only legally valid assessment made was his original Form 1040, in which he inserted zeros as his income for 1997, 1998, and 1999. However, as reflected in plaintiff's W-2 and 1099 Forms, he earned taxable income during each of those years. (SJ Dec., Exs. G, H, and I.) Plaintiff contends that his place of work inaccurately described the money he was paid as "wages," when in fact the money he received in exchange for his work was "compensation." He argues further that, under Eisner v. Macomber, 252 U.S. 189, 207 (1920). his "compensation" does not constitute income under the Supreme Court's definition of income as "a gain derived from property." The Eisner Court observed that "[i]ncome may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets." Id. The statutory definition of income includes, "all income from whatever source derived, including (but not limited to) . . . [c]ompensation for services." 26 U.S.C. § 61(a). Treasury Regulation § 1.61-2(a) provides that compensation for services constitutes income to the recipient. Thus, whether the money Plaintiff received is called "wages" or "compensation," as "gain derived from . . . labor," it constitutes income.
26 U.S.C. § 6065 provides that "any return, declaration, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under the penalties of perjury." Plaintiff argues that none of the correspondence, forms, or letters he has received from the IRS have had any such oath by an IRS employee. (Opposition at 2.) However, "the verification requirement in 26 U.S.C. § 6065 applies to taxpayers, not the IRS." Pursell, 1995 WL 273175 * 6 (citing Borgeson v. United States, 757 F.2d 1071, 1073 (10th Cir. 1985.)
b. Consideration of Issues Raised by Taxpayer
Plaintiff repeated throughout the hearing that there are no provisions that establish that wages are income or that individuals are required to pay taxes and that the payment of taxes is voluntary. (SJ Dec., Ex. Q at H.6:8-11; H.7:25-26; H.81-5, 7-9; H.10:11-14; H.14:13-21; H.22:1-4.) The Appeals Officer advised plaintiff that such issues were not proper issues to raise at a CDP hearing. (SJ Dec., Ex. Q at H.6:18-20; H.8:11-12; H.10:15-18.) "[P]laintiff's argument regarding why he is not obligated to pay taxes, i.e. taxes are voluntary, is legally frivolous. Therefore, this argument was not relevant to the matters discussed at the CDP hearing. The hearing officer's alleged refusal to permit plaintiff to raise this argument was proper." Reinhert, 2002 WL 1095351 at * 6.
A "person may [only] 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). As discussed above, plaintiff received valid notices of deficiency issued by the Director of the Service Center who was delegated the authority to issue such notices, and thus plaintiff did not have the right to raise challenges to the existence or amount of the underlying tax liability at the CDP hearing. Thus, plaintiff failed to raise any non-frivolous issues at the CDP hearing.
c. Efficient, yet Unintrusive Collection of Taxes
Defendant contends that plaintiff has never offered to pay the penalties or provided alternatives to the levy. Instead, plaintiff insists that his returns are not frivolous. Thus, according to defendant, the Appeals Officer had no alternative but to conclude that the imposition of a levy to collect the outstanding penalties from Plaintiff was the only method by which payment could be obtained.
Defendant has demonstrated that there is no genuine issue as to any material fact regarding the CDP Appeals Officer's compliance with the requirements of 26 U.S.C. § 6330. Thus, defendant is entitled to judgment as a matter of law.
III. CONCLUSION
Defendant's motion to dismiss that portion of plaintiff's complaint that seeks judicial review of the Internal Revenue Service Appeals Officer's CDP hearing determination with respect to proposed collection of income tax deficiencies, interest, and penalties for taxable years 1997 and 1998 (docket number 14) is GRANTED.
Defendant's motion for summary judgment (docket number 12) is GRANTED.
The clerk shall close the file.