Opinion
CASE NO. 02-60857-CIV-HURLEY/LYNCH
December 14, 2003
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Plaintiff Michael Mendez seeks judicial review of a 26 U.S.C. § 6330 decision by the Internal Revenue Service ("IRS") holding that he was not entitled to a redetermination of his underlying liability for a trust fund recovery penalty ("TFRP"). Mr. Mendez contends that the IRS appeals officer abused his discretion by failing to consider a claim that Revenue Officer Herman Hooker sub-optimally allocated previous tax payments to liabilities other than the TFRP Mr. Mendez argues that the IRS appeals officer was required to consider this claim because it fell under the legal classification of "offers of collection alternatives."
Mr. Mendez alternatively contends that the IRS should be equitably estopped into reconsidering his underlying tax liability. Mr. Mendez bases this argument on Officer Hooker's alleged misrepresentations regarding: 1) the necessity of being represented by counsel when dealing with the IRS; 2) the necessity of filing an appeal to the IRS's "notice of proposed tax assessment" to properly contest any underlying tax liability; and 3) the necessity of instructing Officer Hooker about allocating payments to ensure they were credited to the TFRP liability and not to other tax liabilities.
The government claims that Mr. Mendez could not seek to redetermine his underlying tax liability in his Section 6330 hearing because he was procedurally barred due to his failure to file a timely appeal to the "proposed assessment of Trust Fund Recovery Penalty and Right to Appeal" notice sent to him on May 6, 1997. The government also claims that the IRS appeals officer did not abuse his discretion by failing to address Mr. Mendez's payment allocation argument because it was not an "offer of collection alternative" as defined by 26 U.S.C. § 6330.
Alternatively, Mr. Mendez argues that even if equitable estoppel is inappropriate, the court should equitably toll the 60-day statute of limitations for appealing proposed tax assessments to allow Mr. Mendez to file an appeal with the IRS. Mr. Mendez argues that the misrepresentations outlined above provide a basis for equitably tolling the statute of limitations. The government argues that equitable tolling is not available in this case because Mr. Mendez has never sought to file an appeal to his proposed assessment. The government also contends that equitable rolling is not necessary because Mr. Mendez has another available avenue of relief — filing a tax refund action in Federal District Court.
The court holds that the IRS appeals officer did not abuse his discretion by failing to consider Mr. Mendez payment allocation argument during the Section 6360 bearing Mr. Mendez's payment allocation argument does not fall within the definition of "offers of collection alternatives" as outlined in Section 6330. The court also holds that equitable estoppel is inappropriate in this case because Officer Hooker's conduct does not rise to the level of misconduct required by the Supreme Court's equitable estoppel jurisprudence. Finally, the court holds that equitable tolling is also inappropriate because Mr. Mendez has not attempted to appeal his underlying tax liability and also has an alternative avenue of relief — a Federal District Court tax refund suit. Accordingly, the court grants summary judgment in favor of the government for the reasons detailed below.
BACKGROUND
Mr. Mendez was an officer of two corporations: Aviation Professional Services (APS) and International Aerospace, Inc. (IAI). Each of these corporations has ceased doing business, and each had employment tax liabilities at the time of closure. The IRS initiated an investigation and assigned Officer Hooker to collect the employment taxes of APS and IAI. Mr. Mendez repeatedly asked Officer Hooker if he should seek the advice of tax counsel and Officer Hooker replied that tax counsel would provide no better result and that Mr. Mendez would save money by not hiring a lawyer.Between 1996 and 1999, Mr. Mendez and his colleague made six separate payments for deposit with the IRS, totaling approximately $200,000. Mr. Mendez asserts that had he retained counsel, the payments would have been applied to the trust fund tax liability of APS and IAI. Additionally. Officer Hooker recommended an assessment of trust fund recovery penalties against Mr. Mendez. A proposed assessment of Trust Fund Recovery Penalty and Right to Appeal for APS for the period ending December 31, 1996 was filed against Mr. Mendez on May 6, 1997. On the same date, a. proposed assessment of trust fund recovery penalty and right to appeal for the period ending March 31, 1995 was filed.
Mr. Mendez claims Officer Hooker advised him that appealing the proposed assessments was unnecessary since the proposed assessments were merely a formality. Relying on this alleged advice, Mr. Mendez did not file an appeal of either proposed assessment. Between 1999 and 2001, Mr. Mendez filed Form 656, Offer in Compromise, requesting a compromise of the TFRP liability on the basis of "doubt as to collectibility" and later amended his offer to also include "doubt as to liability." On June 4, 2001, Revenue Officer Freeman returned the amended offer to Mr. Mendez, finding that there was no doubt as to liability.
Meanwhile, on May 25, 2001, the IRS filed a Notice of Federal Tax Lien Filing and Right to Hearing under IRC § 6320. On June 11, 2001, Mr. Mendez filed a Collection Due Process (CDP) Appeal. A CDP appeal hearing was held before ERS appeals Officer Frank A. Andreacchi on June 30, 2002. Officer Andreacchi determined that Officer Hooker's statements to Mr. Mendez did not deprive him of his right to appeal the proposed assessments. Officer Andreacchi also noted that he had the discretion to consider Mr. Mendez's challenge to the underlying tax liability, but he declined (without explanation) to do so.
Mr. Mendez seeks judicial review of Officer Andreacchi's decision pursuant to 26 U.S.C. § 6330(d)(1)(B). Specifically, he asks the court to either order the IRS to redetermine his liability by applying the $200,000 in payments to the trust fund liability of APS and IAI, or remand the case to the appeals officer for reconsideration of his underlying tax liability. The government moved to dismiss the case based upon principles of sovereign immunity. United States District Judge Wilkie D. Ferguson denied the motion to dismiss on the theory that Mr. Mendez might have a claim against the government under a theory of equitable estoppel based upon Officer Hooker's alleged statements. Alternatively, Judge Ferguson also held that Mr. Mendez might have a claim for equitable tolling of the statute of limitations for appealing a proposed assessment of trust fund recovery penalty. The government has now moved for summary judgment in its favor claiming that Mr. Mendez's evidence regarding the nature of Officer Hooker's statements is insufficient to allow either equitable estoppel or equitable tolling in this case.
JURISDICTION AND VENUE
This court has federal question jurisdiction over Mr. Mendez's action pursuant to 28 U.S.C. § 1331 because this action is brought under 26 U.S.C. § 6330(d)(1)(B).
Venue is proper in this district pursuant to 28 U.S.C. § 1391(e)(3) because this is a civil action brought against the United States, Mr. Mendez resides in the Southern District of Florida, and no real property is involved in the action.
DISCUSSION
A. Legal Standards 1. Summary Judgment
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of meeting this exacting standard. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). In determining whether summary judgment is appropriate, the facts and inferences from the facts arc viewed in the light most favorable to the non-moving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. See Matsushita Elec. Indus, v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
The non-moving party, however, bears the burden of coming forward with evidence of each essential element of her claims, such that a reasonable jury could find in her favor. See Earley v. Champion Int'l Corp., 907 F.2d 1077, 1080 (11th Cir. 1990). In response to a properly-supported motion for summary judgment, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).
"The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial and requires the court to grant the motion for summary judgment. See Celotex, 477 U.S. at 322. If the non-moving party fails to "make a sufficient showing on an essential element of [his] case with respect to which [he] has the burden of proof," then the court must enter summary judgment for the moving party. Gonzalez v. Lee County Hous. Auth., 161 F.3d 1290, 1294 (11th Cir. 1998).
2. Collections Due Process Proceedings 26 U.S.C. § 6320 allows taxpayers who have been served with a notice of federal tax lien the right to a Collections Due Process or "CDP" hearing before an independent IRS appeals Officer. Section 6330 of the same title sets forth the matters that can be reviewed at a CDP hearing In general, these include: (1) appropriate spousal defenses to collection; (2) challenges to the appropriateness of collection actions: and (3) offers of collection alternatives. 26 U.S.C. § 6330(c)(2)(A).Katz v. Commissioner, 115 T.C. 329, 339 (2000). Administrative decisions of the IRS are subject to judicial review under an abuse of discretion standard. Sego v. Commissioner, 114 T.C. 604 610 (2000) In addition, the taxpayer may challenge the existence or amount of his underlying tax liability, but only"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); Katz, 115 T.C. at 339; Sego, 114 T.C. at 609-10. The parties do not dispute the applicable legal standard in this case, rather, they dispute whether Mr. Mendez was denied an opportunity to dispute his tax liability through Officer Hooker's alleged assertions that an appeal was unnecessary in this case.
3. Equitable Estoppel
Estoppel is an equitable doctrine invoked to avoid injustice in particular cases. Heckler v. Community Health Serv. of Crawford, 467 U.S. 51, 59 (1984). "A party asserting estoppel must establish the following three elements of a traditional equitable-estoppel claim: (1) `words, acts, conduct or acquiescence causing another to believe in the existence of a certain state of things' (2) `wilfulness or negligence with regard to the acts, conduct or acquiescence' and (3) `detrimental reliance by the other party upon the state of things so indicated.' Tefel v. Reno, 180 F.3d 1286, 1302 (11th Cir. 1999) (citing Federal Deposit Ins. Corp. v., Harrison, 735 F.2d 408, 413 (11th Cir. 1984)). A party seeking to estop the government must also establish that the government acted in its private or proprietary capacity, as opposed to its public or sovereign capacity, and that the government's agent acted within the scope of his or her authority. United States v. Walcott, 972 F.2d 323, 325 (11th Cir. 1992).
The Eleventh Circuit has adopted the U.S. Supreme Court's equitable estoppel jurisprudence in Sanz v. U.S. Security Insurance Co., 328 F.3d 1314. 1320 (11th Cir. 2003). In Sanz, the court noted that "the Supreme Court consistently has denied efforts by litigants to estop the Government from raising defenses based on claimants' failures to comply with governmental procedures due to misinformation from government agents." Id. The legal principle behind denying equitable estoppel claims against the government is that Judicial enforcement of unauthorized contracts would "expand the power of federal officials beyond specific legislative limits," thereby raising serious separation of powers concerns. Hachikian v. FDIC, 96 F.3d 502, 506 (1st Cir. 1996).
The Eleventh Circuit in Sanz cited three Supreme Court cases denying equitable estoppel claims against the government. Sanz, 328 F.3d at 1320. These cases included: 1) Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 434 (1990) (holding that plaintiff who was misinformed about his qualification to collect disability benefits could not estop the Government from collecting overpayments caused by the erroneous advice of a government employee); 2) Schweiker v. Hansen, 450 U.S. 785, 786 (1981) (holding that government agent's advice that misinformed plaintiff that she was not eligible for social security benefits did not rise to level of affirmative misconduct that might reach a serious question as to whether the government might be estopped from insisting on compliance with a valid regulation required to receive benefits); and 3) Federal Crop Ins. Corp. v. Merrill 332 U.S. 380, 384-85 (1947) (concluding that farmer could not recover under crop insurance on a lost crop even though the government agency misinformed the farmer that his re-seeded wheat crop was covered by government-provided insurance when, in fact, a statute forbade such coverage).
The Eleventh Circuit, however, also recognized that "the Supreme Court has yet to announce a per se rule that equitable estoppel is never available against the Government." Sanz, 328 F.3d at 1319. The Supreme Court and the Eleventh Circuit have held that "if estoppel is available against the Government, it is warranted only if affirmative and egregious misconduct by a government agents exists." Id. (citing INS v. Hibi, 414 U.S. 5, 8 (1973)). Courts have interpreted "affirmative and egregious misconduct" to mean that "unprofessional and misleading conduct . . . does not rise to a level to justify estoppel against the government." Dawkins v. Witt, 318 F.3d 606, 612 (4th Cir 2003); See Sanz 328 F.3d. at 1320
4. Equitable Tolling
In contrast to estoppel, "equitable tolling" is the doctrine under which plaintiffs may file an action after the statutory time period has expired if they have been prevented from doing so due to inequitable circumstances. Ellis v. GMAC, 160 F.3d 703, 706 (11th Cir. 1998). Equitable tolling is not based solely on misconduct by the adverse party but also on broader equitable concerns that might justify a late filing. Id. Equitable tolling focuses on the plaintiff's excusable ignorance of the limitations period and on the lack of prejudice to the defendant. Scoop-Gonzalez v. INS, 272 F.3d 1176, 1184 (9th Cir. 2001). Unless Congress states otherwise, equitable tolling should be read into every federal statute of limitations. Ellis, 160 F.3d at 706.
B. Merits of Plaintiff's Claim 1. Abuse of Discretion
In oral argument on this motion, Mr. Mendez's main argument was that Officer Andreacchi abused his discretion during the Section 6330 hearing by failing to consider Mr. Mendez's claim that his payments to Officer Hooker were sub-optimally allocated to Mendez's non-TFRP liability. Mr. Mendez argues that Officer Andreacchi was required to consider his argument because 26 U.S.C. § 6330(c)(2)(A) states that "the person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including . . . (iii) offers of collection alternatives." Mr. Mendez claims that his payment allocation argument falls within the definition of "offers of collection alternatives" because the IRS could collect the TFRP liability by reallocating payments credited to non-TFRP liabilities.
The government, however, argues that Mr. Mendez's payment allocation argument does not fall within the definition of ""offers of collection alternatives" as contemplated by Congress in writing the statute. The government states that the statute provides examples of offers of collection alternatives, which include "the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise." 26 U.S.C. § 6330(c)(2)(A)(iii).
Courts have defined offers of collection alternatives as "any actual plan or arrangements for satisfying one's tax liabilities," Wilborn v. Commissioner, T.C. Summary Opinion 2003-152 at *14 (T.C. 2003). No court has considered whether a proposal to reallocate tax payments originally credited to other tax liabilities could be deemed as an offer of collection alternative. This court holds that seeking a refund from payments credited to other tax liabilities does not fall within the definition of "offers of collection alternatives" as contemplated by Congress. An examination of the examples of "offers of collection alternatives" given in 26 U.S.C. § 6330(c)(2)(A)(iii) supports the argument that a "collection alternative" does not include the refunding of prior tax payments that had been properly credited according to I.R.S. regulations. Def's. Mot. Summ. J. at 9.
The court holds that Mr. Mendez's attempt to reallocate prior tax payments is appropriately classified as a challenge to his underlying tax liability. Mr. Mendez is trying to decrease his TFRP tax liabilities and increase his non-TFRP tax liabilities. Officer Andreacchi, however, did not abuse his discretion by refusing to consider this argument. Section 6330(c)(2)(B) states that underlying liability must only be considered at a Section 6330 hearing "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." The government argues that since Mr. Mendez did not appeal his underlying tax liability when he received his "proposed assessments of trust fund recovery penalty," Compl. Ex. B, the appeals officer was not required to consider his challenge to his underlying tax liability. Mr. Mendez does not deny receiving the proposed assessment and notices of rights to appeal Mendez claims however that Officer Hooker misled him about the necessity of filing an appeal to the proposed assessments. Therefore, Mr. Mendez argues that the government should be estopped from preventing an appeal of his underlying tax liability.
2. Equitable Estoppel
Mr. Mendez argues that Officer Hooker's affirmative and egregious conduct occurred in several communications during the IRS proceedings. First, Mr. Mendez claims that every time he asked Officer Hooker whether he should hire an attorney, Officer Hooker replied that it was unnecessary to retain an attorney for these proceedings. See Deposition of Michael Mendez (August 12, 2003) at 80-81. The government does not deny that Officer Hooker made these statements. The government, however, has introduced undisputed evidence showing that these conversations took place shortly after Officer Hooker began working with Mendez and that Mr. Mendez told Hooker of his intent to satisfy his tax obligations in full. Id. at 127-28, 160-61. The government argues that Hooker's statements were not misleading because if Mendez sincerely intended to pay his tax liability in full, he did not need a lawyer to help him accomplish that.
The court agrees with the government's contention that, viewed in its proper context, Hooker's statements — that a tax attorney would not do anything for Mendez that Hooker would not do (i.e. receive and apply Mendez's payment in full) — is correct. Mr. Mendez specifically admitted in his deposition that when Officer Hooker made his statements regarding the lack of necessity of legal representation "he would have had a reasonable expectation up to that point that there was going to be full payment of the arrearage." Id. at 128. Even, if Officer Hooker's statements were misleading to Mr Mendez, Hooker's statements regarding representation do not rise to the level of affirmative and egregious misconduct necessary to find equitable estoppel against the government.
Second, Mr. Mendez argues that when he received his proposed assessment of trust fund recovery penalty and right to appeal, Officer Hooker told him that the notices were a mere formality and that he would work with Mendez. Id. at 112-13. The 1RS Appeals Officer held that Mr. Mendez's failure to appeal these proposed assessments barred his Section 6330 appeal. Therefore, Mr. Mendez's equitable estoppel claim is dependent upon his ability to prove that Officer Hooker affirmatively misled him about the necessity of appealing his proposed assessments.
Mr. Mendez's own deposition discredits his claim that Officer Hooker's statements regarding "mere formality" involved the proposed assessments. Mr. Mendez specifically testified in his deposition that Officer Hooker's statements about mere formality concerned "a notice of Federal Tax lien we received." Id. at 114. Mr. Mendez even admitted that Officer Hooker said "this is just a formality to let people know that there is a tax lien . . . [t]he minute you get your tax issues resolved, this will all be released." Id. at 116. When the government's counsel asked Mendez whether "it was a notice of Federal Tax Lien filing that prompted [him] to call Mr. Hooker and ask him what do I do," Mr. Mendez confirmed that indeed it was. Id. Mr. Mendez was even shown a notice of federal tax lien during his deposition and confirmed that it was that type of notice that led him to call Officer Hooker. Id. at 114
The court agrees with the government's argument that since it was Mendez's failure to appeal his notice of proposed assessment, and not his notice of Federal Tax Lien, that caused the barring of his Section 6330 appeal, he cannot now claim that Officer Hooker's statements about the federal tax lien equitably estop the government regarding its notice of proposed assessment. The Eleventh Circuit has held that summary judgment may be granted "when a party has given clear answers to unambiguous questions which negate the existence of any genuine issue of material fact." Tippens v. Celotex Corp., 805 F.2d 949, 954 (11th Cir. 1986), In this case, Mr. Mendez admitted during his own deposition on multiple occasions that Officer Hooker's comments about "mere formality" referred to a notice of tax lien and not to a notice of proposed assessment. Therefore, Mr. Mendez does not raise a genuine issue of material fact that Officer Hooker made affirmative or egregious misrepresentations to him regarding the necessity to appeal the notices of proposed assessments.
Finally, Mendez argues that a payment of $45,000 was applied to his non-trust fund tax liability even though Officer Hooker's conversations with Mendez primarily concerned his trust fund tax liability. The court agrees with the Government that, in light of Mendez's assurances to Hooker about paying his entire tax liability and his lack of instructions to Hooker about how to allocate his payments, Officer Hooker had no reason to believe that he should apply Mendez's payments in a manner other than that authorized by the tax code.
3. Equitable Tolling
Given the nature of Mr. Mendez's conversations with Officer Hooker, the court also finds that there is no basis to toll the statute of limitations for appealing the notices of proposed assessments. Since Mendez offers no evidence that he ever spoke to Officer Hooker about these proposed assessments, there is no evidence of wrongdoing by Officer Hooker that would warrant equitable tolling of the statute of limitations. Taking all other equitable factors into account, the court finds that Mr. Mendez's involvement in numerous prior legal matters in both his personal life and in his businesses should have prompted him to inquire with his lawyers or accountants about how to proceed when receiving a notice of proposed assessment. Finally, both sides agreed during oral argument that Mr. Mendez is not foreclosed from obtaining relief in this matter by filing a tax refund action in a Federal District Court.
CONCLUSION
Mr. Mendez has tailed to establish, as a matter of law, that the IRS appeals officer abused his discretion by failing to consider Mr. Mendez's underlying tax liability during his Section 6330 hearing. Neither equitable estoppel nor equitable tolling is appropriate in this case. Accordingly, it is hereby ORDERED and ADJUDGED that:
1. Defendant's motion for summary judgment [DE # 38] is GRANTED. A final judgment will be issued in a separate order.
2. All pending motions are DENIED as MOOT.DONE and SIGNED.