Opinion
Docket Nos. 5621-89 5622-89.
1990-12-12
FRANK W. STAMOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentLORNA D. STAMOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Frank W. Stamos and Lorna D. Stamos, pro se. Bridgette M. Gibson, for the respondent.
Before trial Ps moved to dismiss on the ground that the statutory notices of deficiency sent to them were invalid, because neither respondent, nor the District Director had authority to issue them under Treasury Department Order 150-10, secs. 301.7805-1, 301.7701-9, and 301.6212-1, Proced. & Admin. Regs. HELD, Treasury Department Orders need not be published Administrative Procedure Act to be effective. HELD FURTHER, sec. 301.7805-1, Proced. & Admin. Regs., is Procedure Act. HELD FURTHER, secs. 301.7701-9 and 301.6212-1, Proced. & Admin. Regs., were proposed and promulgated in accordance with the Administrative Procedure Act. Frank W. Stamos and Lorna D. Stamos, pro se. Bridgette M. Gibson, for the respondent.
OPINION
PARR, Judge:
Respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
+--------------------+ ¦Frank W. Stamos ¦ +--------------------¦ ¦docket No. 5621-89 ¦ +--------------------¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ +--------------------+
Additions to tax Sec. Sec. Sec. Sec. Sec. Year Deficiency 6651(a)(1) 6653(a)(1) 6653(a)(2) 6654 6661 1981 $27,259 $6,815 $1,363 1 $2,088 --- 1982 15,471 3,868 774 1 1,506 $3,868 1983 8,496 2,124 425 1 520 2,124 1984 8,324 2,081 416 1 523 2,081
Lorna D. Stamos docket No. 5622-89
Additions to tax Sec. Sec. Sec. Sec. Sec. Year Deficiency 6651(a)(1) 6653(a)(1) 6653(a)(2) 6654 6661 1981 $24,497 $6,124 $1,225 1 $1,877 --- 1982 12,442 3,111 622 1 1,211 $3,110 1983 5,158 1,290 258 1 315 1,289 1984 4,053 1,013 203 1 255
1. The authority granted to the Commissioner of Internal Revenue and District Directors, by 26 CFR 301.7701-9, 26 U.S.C. 6212, 26 CFR 301.6212-1, Treasury Order 150-10, and 26 CFR 301.6861-1 to sign and send to the taxpayer by registered or certified mail any notice of deficiency is hereby delegated to the officials listed below. * * *
4. Delegation Order No. 77 (Rev. 23) effective June 16, 1988, superseded.
SECTION 1. Transfer of functions to the Secretary. (a) Except as otherwise provided in subsection (b) of this section, * * * there are hereby transferred to the Secretary of the Treasury all functions of all other officers of the Department of the Treasury and all functions of all agencies and employees of such Department.
* * *
SEC. 2. Performance of functions of Secretary. The Secretary of the Treasury may from time to time make such provisions as he shall deem appropriate authorizing the performance by any other officer, or by any agency or employee, of the Department of the Treasury of any function of the Secretary, including any function transferred to the Secretary by the provisions of this reorganization plan.
BY virtue of the authority vested in me as Secretary of the Treasury, including the authority in the Internal Revenue Code of 1954 and Reorganization Plan No. 26 of 1950, it is ordered as follows:
1. The Commissioner of Internal Revenue shall be responsible for the administration and enforcement of the Internal Revenue Laws.
2. An Assistant General Counsel of the Department of the Treasury shall serve as Chief Counsel of the Internal Revenue Service and as counsel and legal advisor to the Commissioner in all matters pertaining to the administration and enforcement of the Internal Revenue laws. The Chief Counsel shall serve as a member of the Commissioner's executive staff.
* * *
5. All outstanding orders and delegations of authority relating to the above subjects are modified accordingly.
5. U.S. Territories and Insular Possessions. The Commissioner shall, to the extent of authority otherwise vested in him, provide for the administration of the United States internal revenue laws in the U.S. territories and insular possessions and other authorized areas of the world.
Delegation of functions created by the Internal Revenue Code of 1954.
1. By virtue of the authority vested in me by Reorganization Plan No. 26 of 1950 and section 7804(a) of the Internal Revenue Code of 1954, each delegation of authority, and each redelegation of authority made pursuant to such Delegation, which:
(1) Was in effect immediately preceding the enactment of the Internal Revenue Code of 1954, and
(2) Was continued in effect upon the enactment of the Internal Revenue Code of 1954 pursuant to the provisions of section 7851(b)(3) of such Code,
is hereby amended to include any additional or revised functions created or authorized by the Internal Revenue Code of 1954 which are essential to the performance of, or are directly related to, any function included in such delegation or redelegation of authority. Each delegation or redelegation of authority so amended shall be subject to amendment, modification, or revocation to the same extent, and in the same manner, as authorized immediately preceding this amendment by this Order.
2. The preceding paragraph shall not be construed as delegating to any officer or employee of the Internal Revenue Service any function existing under the Internal Revenue Code of 1954 which corresponds to any function which existed under the Internal Revenue Code of 1939 and which immediately preceding the enactment of the Internal Revenue Code of 1954 had not been delegated by the Secretary.
In any case in which a function is vested by the Internal Revenue Code of 1954 in the Secretary or his delegate, and Treasury regulations or Treasury decisions (including this Treasury decision) provide that such function may be performed by a District Director of Internal Revenue, * * * or employee in the office of a District Director * * *
(a) Such provision in the regulations or a Treasury Decision shall constitute a delegation by the Secretary to the Commissioner of the authority to perform such function and a redelegation thereof by the Commissioner to the designated officer or employee, and
(b) An officer or employee authorized by regulations or a Treasury Decision or perform a function shall have authority to redelegate the performance or such function to any officer or employee performing services under his supervision and control, unless such power to so redelegate is prohibited or restricted by proper order or directive, and
(c) The Commissioner may also redelegate authority to perform such function to other officers or employees of the Internal Revenue Service and, to the extent he deems proper, may authorize further redelegation of such authority, * * * 1955-1 C.B. at 718-719. Tax Court, 1990.
Stamos v. C.I.R.95 T.C. No. 44, 95 T.C. 624, Tax Ct. Rep. (CCH) 47,023, Tax Ct. Rep. Dec. (P-H) 95.44
50 percent of the interest payable on the portion of the underpayment attributable to negligence or intentional disregard of rules or regulations.
allege that neither respondent, nor the District Director had authority to send the notices of deficiency here in issue for the following reasons:
(1) Treasury Department Order No. 150-10,
Delegation Order (DO) No. 77 (Rev. 24), 54 Fed. Reg. 10612 (Mar. 14, 1989), effective March 9, 1989, states in relevant part the following:
150 percent of the interest payable on the portion of the underpayment attributable to negligence or intentional disregard of rules or regulations.
Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended and in effect for the taxable years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
These cases were consolidated for trial, briefing, and opinion. Shortly before the scheduled trial date, petitioners filed a motion to dismiss pursuant to Rule 53 alleging that the statutory notices of deficiency were invalid, because they were issued by a person who lacked delegated authority. At the hearing on petitioners' motions and trial of these cases respondent filed a cross-motion to dismiss for failure to properly prosecute and a motion for damages under section 6673. The motions were taken under advisement and trial of the consolidated cases proceeded.
The issues presented for decision are:
(1) In regard to petitioners' motion to dismiss whether the notices of deficiency issued to the petitioners herein are invalid; if not,
(2) in regard to respondent's motions, whether petitioners failed to properly prosecute their case and whether respondent is entitled to an award for damages pursuant to section 6673; and
(3) whether petitioners are liable for the deficiencies and additions to tax as determined by respondent.
Petitioners resided in Lodi, California, at the time they filed their petitions. Petitioner Lorna Stamos appeared at trial but did not offer evidence. She indicated she agreed with her husband.
Unless otherwise indicated, all references to petitioner refer to Frank W. Stamos.
For taxable years ending December 31, 1979, and December 31, 1980, petitioners filed joint Federal income tax returns. However, they failed to file returns for taxable years 1981 through 1984. Pursuant to section 6020(b) respondent prepared 1988, respondent sent petitioners the notices of deficiency here in issue. All notices were signed on behalf of respondent by the District Director, Sacramento, California, Office of the Internal Revenue Service (IRS).
Petitioners timely invoked the jurisdiction of the Court by filing their respective petitions seeking redetermination of the deficiencies.
During informal pretrial discovery, petitioners failed to provide documentation to support their income amount or entitlement to any credits of deductions, even though respondent made several attempts to ascertain the information. Instead, petitioner made ‘informal discovery requests‘ to respondent asking a battery of standard tax protester questions, including: ‘Do the respondents [sic] records indicate that the petitioner is a citizen‘ or ‘a resident of the United States,‘ ‘Do the respondents contend that the State of California is included in the term 'United States' as used in section 6012-1(a)(1)(i) & (ii),[sic]‘ and ‘Do the respondents contend that the petitioner is an individual required to make returns of income pursuant to 26 U.S.C. 6012 and 26 C.F .R.1.6012-1.‘ On January 16, 1990, petitioner filed a motion to compel response to those requests, which was denied.
Additionally, petitioner requested information under the Freedom of Information Act and information on the authority of revenue officers to determine deficiencies. Respondent's agents provided some of the information requested, and advised petitioner to seek other information through respondent's counsel, since the petitions for redetermination had been filed in this Court.
Three weeks before trial respondent's counsel sent petitioners a proposed stipulation of facts. One week before trial petitioner met with respondent's counsel. However, petitioner again failed to produce any documents, and failed to sign the stipulation of facts.
After the hearing on the motions, the Court, asked petitioners whether they wanted to discuss the substantive issues raised in the notices of deficiency. Petitioner replied
No. * * * I believe that there is no notice of deficiency before the Court. Because the Secretary of the Treasury did not determine them, as the code section requires, and the Secretary of the Treasury himself did not sign or send them.
THE COURT: All right. Well, I just want you to know this is the only chance you're going to have to raise this issue. If I should * * * rule in favor of the government, and you have not put on any substantive evidence about the matters raised in the notice of deficiency, you will lose for failing to carry you burden of proof. Do you understand that? Thereafter, petitioners offered evidence only on the addition under section 6654.
PETITIONERS' MOTIONS
Petitioners' motions to dismiss are predicated upon allegations that the notices of deficiency are invalid, because they were issued by a person not duly authorized to do so. Petitioners, relying on the language contained in Commissioner's Delegation Order (DO) No. 77 (Rev. 24),
TREASURY DEPARTMENT ORDERS
We must decide whether the failure to publish Treasury Department Order No. 150-10 renders the delegation of authority to respondent invalid. Petitioners allege that (1) all orders affecting the rights and obligations of United States citizens must be published in accordance with the FRA (see 44 U.S.C. 1505(a)(1)) (1988); (2) section 552 of 5 U.S.C.. is an Act of Congress that REQUIRES Treasury Department Orders to be published (see 44 U.S.C. sec. 1505(a)(3) (1988)); and (3) no citizen can be adversely affected or bound by an unpublished order, and ‘may safely ignore such order with impunity‘ (see 5 U.S.C. sec. 552(a)(1) (1988) and 44 U.S.C. sec. 1507 (1988)). Petitioners conclude that the plain terms of section 552, and its predecessor, require that Treasury Department Orders be published in the Federal Register. We do not agree.
The authority to determine and issue statutory notices of deficiency is vested by statute in the Secretary. See sec. 6212(a). The term ‘Secretary‘ is defined in section 7701(a)(11)(B) as ‘the Secretary for the Treasury or his delegate. ‘ The phrase ‘or his delegate‘ is defined in section 7701(a)(12)(A)(i) as ‘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.‘
The method which the Secretary uses most often to delegate authority to department heads, including the Commissioner, is the issuance of a Treasury Department Order. See HATCHER V. UNITED STATES, 733 F. Supp. 218 (M.D. Pa. 1990); Treasury Department Order No. 150-36,
AUTHORITY OF COMMISSIONER TO PROPOSE REGULATIONS
We must now decide whether respondent, with the approval of the Secretary, had authority to propose regulations delegating to the District Director authority to send statutory notices of deficiency. If so, whether those regulations were properly proposed in accordance with the APA.
Petitioners contend that section 301.7805-1, Proced. & Admin. Regs., was not properly proposed as a rule or regulation in accordance with sections 552 and 553 of the APA, and therefore, respondent lacked authority to propose sections 301.7701-9 and 301.6212-1, Proced. & Admin. Regs.
These contentions are without merit.
1. SEC. 301.7805-1, PROCED. & ADMIN. REGS.
Under section 553 of the APA, only ‘substantive‘ rules must meet the notice, comment, and publication requirements before final implementation. GUADAMUZ V. BOWEN 859 F.2d 762, 771 (9th Cir. 1988); 5 U.S.C. sec. 553(b) (1988). ‘Interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice‘ are excepted from this provision. 5 U.S.C. sec. 553(b)(A) (1988). See ZAHARAKIS V. HECKLER, 744 F.2d 711 (9th Cir. 1984); WING V. COMMISSIONER, 81 T.C. 17, 27 (1983); UNITED STATES V. MOWAT, 582 F.2d at 1199.
Substantive rules are ones ‘affecting individual rights and obligations,‘ CHRYSLER CORP. V. BROWN, 441, U.S. 281, 302 (1979), ‘effect a change in existing law or policy,‘ POWDERLY V. SCHWEIKER, 704 F.2d 1092, 1098 (9th Cir. 1983), and which are ‘issued by an agency pursuant to statutory authority and... implement the statute.‘ CHRYSLER CORP. V. BROWN, 441 U.S. at 302-303. See GUADAMUZ V. BROWN, SUPRA; ZAHARAKIS V. HECKLER, 744 F.2d 711, 713 (9th Cir. 1984), citing BATTERTON V. MARSHALL, 648 F.2d 694, 701-702 (D.C. Cir. 1980).
Section 301.7805-1, Proced. & Admin. Regs., added by T.D. 6489 and published in the Federal Register, 25 Fed. Reg. 10154 (Oct. 25, 1960), provides in relevant part, the following:
(a) Issuance. The Commissioner, with the approval of the Secretary, shall prescribe all needful rules and regulation for the enforcement of the Code (except where this authority is expressly given by the Code to any person other than an officer or employee of the Treasury Department), including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue. It is not a substantive rule, but rather a rule of agency organization, procedure, or practice. Accordingly, it falls within the exception under section 553(b)(A) of the APA.
Moreover, because section 301.7805-1(a), Proced. & Admin. Regs., was published in the Federal Register, section 522(a)(1)(D) of the APA is satisfied. Thus, we need not decide whether it has general applicability
2. SEC. 301.7701-9, PROCED. & ADMIN. REGS.
Petitioner contends that paragraph 22
3. SEC. 301.6212-1, PROCED. & ADMIN. REGS.
Petitioners contend that section 301.6212-1, Proced. & Admin. Regs., is invalid because it was not published at least 30 days before it became effective. See U.S.C. sec. 553(d) (1988). We do not agree.
After notice and public comment, final regulations were published in the Federal Register