Opinion
02-CV-2063 (CIS A)(LB)
October 14, 2003
REPORT AND RECOMMENDATION
The Honorable Carol B. Amon, United States District Judge, referred this matter to the undersigned for a Report and Recommendation in accordance with 28 U.S.C. § 636(b) (1994). For the following reasons, it is respectfully recommended that defendant's motion for summary judgment pursuant to Fed.R.Civ.P. 56 be granted.
BACKGROUND
The following facts are taken from plaintiff complaint or are not disputed by him. Plaintiff, a Bell Atlantic employee, filed federal income tax returns for the years 1997 and 1999, in which plaintiff entered "0.00" on every line, thus claiming zero income and zero taxes due. See Notice of Determination, dated March 11, 2002, annexed as Exhibit A to Complaint ("Notice of Determination"); Transcript Collection Due Process Hearing ("Tr.") at p. 3, 7, annexed as Exhibit D to Complaint. Finding these returns frivolous, the Internal Revenue Service ("government" or "IRS") fined plaintiff $500 for each return. The IRS sent plaintiff a Notice and Demand for Payment and subsequently a Notice of Intent to Levy and Notice of Your Right to a Hearing. See Defendant's Motion for Summary Judgment ("Defendant's Motion") at Exhibit A and B; Complaint at Exhibit C. Plaintiff timely requested a Collection Due Process ("CDP") hearing. Plaintiff did not specify his objections on his application for a CDP hearing; instead, he wrote, "I will explain all reasons at the hearing." See Request for a Due Process Hearing, annexed as Exhibit B to Complaint.
On December 20, 2001, Appeals Officer Phyllis Cayenne presided over plaintiff's CDP hearing. The Appeals Officer gave plaintiff a literal transcript reflecting "the assessment of the penalties at issue which identified the taxpayer, the type of penalty, the tax period, the date of assessment, and the amount of the assessment." Tr. at 3; Attachment to Determination Letter 3194, annexed as Exhibit F to Defendant's Motion. Plaintiff argued that (1) the Appeals Officer was required to provide verification from the Secretary that the requirements of any applicable law and administrative procedure have been met, (2) his notice of demand was not signed by the Secretary and was therefore invalid, (3) the Appeals Officer could not show him the law establishing his tax liability, and (4) he had no income since his wages were not derived from corporate activity. Tr. at 2, 10, 8, and 13. He stated he had $10,000 in his pocket to pay the fine if the Appeals Officer could point to the law establishing his liability for income taxes. Tr. 18. The Appeals Officer immediately refused this "offer" and after plaintiff repeated his arguments in response to her request for other objections, ended the hearing. Tr. at 10, 11, 14.
The IRS codes and inputs any activity on a taxpayer's account into a database. A "literal transcript" is the print-out from the database that contains both the transaction codes for the activity and a verbal description of each transaction. Malkin v. United States, 243 F.3d 120, 122 (2d Cir. 2001).
On March 11, 2002, the IRS issued a determination that a levy was proper for the frivolous tax return penalties. On April 4, 2002, plaintiff filed the instant complaint under 26 U.S.C. § 6330(d)(1)(B) to "set aside the 'Determination' at issue and award . . . costs and damagesas a result of . . . bringing this unnecessary action." Complaint at page 1. Plaintiff alleges that the Appeals Officer's determination was defective because she did not produce (1) verification from the Secretary that; the applicable laws were met, (2) assessment certificates signed by assessment officers, (3) returns or other documents showing the assessment, (4) any statute that established liability for the taxes and penalties at issue, and (5) a statutory notice and demand. Complaint at ¶ 61(a)-(f). Plaintiff argues the A peals Officer's refusal to produce the documents shows that she is "lacking in impartiality," Complain ¶ 61(g), and that due to her abrupt termination of the hearing, plaintiff could not present all of his oh actions.
On January 21, 2003, defendant moved to affirm the determination concerning its collection action because there was no abuse of discretion. Defendant argues that plaintiff failed to raise any relevant challenges to the tax penalty and thus any challenges cannot be raise: before this Court. Reply at 2. In the alternative, defendant asserts that if plaintiff did challenge the tax penalty during the hearing, there was no error in the determination. Id. at 2 et seq. Since both plaintiff and defendant attached documents outside the pleadings, the Court construed defendant's submission as a motion for summary judgment, provided plaintiff with the requisite Local Rule 56.2. notice, and granted plaintiff leave to refile his opposition in accordance with Fed.R.Civ.P. 56. Plaintiff filed his opposition to defendant's motion for summary judgment on March 20, 2003, and defendant filed a reply on April 24, 2003.
DISCUSSION
I. Standard for Summary Judgment
Summary judgment is appropriate if there is no genuine material issue of fact requiring a trial and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). "A dispute regarding a material fact is genuine 'if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531,1535 (2d Cir. 2002) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). All reasonable inferences are to be drawn in favor of the nonmoving party, id., and the moving party bears the burden of establishing the absence of a genuine factual dispute. Celotex Corp. v. Catrett, 477 U.S. 31 325 (1986). However, "[w]hen a motion for summary judgment is made and supported . . ., an advers party may not rest upon the mere allegations or denial 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); see Mats shita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,586-87 (1986). Where, as here, a party is pro needing pro se, the Court is obliged to "read his supporting papers liberally, and will interpret them to raise the strongest arguments they suggest." Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994).
II. Jurisdiction
Pursuant to the IRS Restructuring and Reform Act of 1998, an individual may appeal an IRS ruling to a federal district court if the United States Tax Court does not have jurisdiction over the tax liability. 26 U.S.C. § 6330(d)(1). The United States Tax Court has exclusive jurisdiction to review deficiency assessments made by the Commissioner of Internal Revenue. See Folium v. United States, 98 CV 0126, 1999 WL 250746 (W.D.N.Y. March 5, 1999) (citing Enochs v. Williams Packing Navigation Co. 370 U.S. 1, 7 (1962)). However, the Tax Court does not have jurisdiction to review penalties which the government can assess without a notice of deficiency. Danner v. United States, 208 F. Supp.2d 1166, 1171 (E.D. Wash. 2002). Under the Internal Revenue Code, deficiency procedures do not apply to the assessment or collection of frivolous tax return penalties. 26 U.S.C. § 6703. Accordingly, the Court may review plaintiff's challenges to the $500 penalty for filing a frivolous return, but lacks subject matter jurisdiction to review plaintiffs income tax liability fo the years 1997 and 1999. Silver v. Smith, 01 CV 6193, 2002 WL 31367926, at * 2 (W.D.N.Y. Sept. 5. 2002); Gillett v. United States, 233 F. Supp.2d 874, 884 (W.D.Mich. 2002);Danner, 208 F. Supp.2d at 1171.
26 U.S.C. § 6330(d)(1) states that: "the person may, within 30 days of a determination under this section, appeal such a determination — (A) to the Tax Court (and that Tax Court shall have jurisdiction to hear such a matter); or (B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States."
III. Standard of Review
The Internal Revenue Code is silent as to the proper standard of review for appeals from an administrative determination. 26 U.S.C. § 6330(d). However, the legislative history sets forth the following standards of review. MRCA Info. Serv. v. United States, 145 F. Supp.2d 194 (D. Conn. 2000). "Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal. . . . [t]he amount of tax liability will be reviewed by the appropriate court on a de novo basis." Id at 199 (quoting the conference report accompanying the IRS Restructuring and Reform Act of 1998, H.Rep. No. 105-599 at 266 (1998)). However "[w]here the validity of the tax liability is not properly part of the appeal, . . . the appeals officer's determination as to the appropriateness of the collection activity will be reviewed using an abuse of discretion standard." Id. A penalty for a frivolous return is considered a "tax liability" under the Internal Revenue Code. 26 U.S.C. § 6671(a).
26 U.S.C. § 6671 (a) states, in relevant part that: "Except as otherwise provided, any reference in this title to 'tax' imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter."
Defendant is correct that plaintiff did not challenge the underlying tax liability for the penalty at the CDP Hearing. However, to the extent that, liberally construed, plaintiff argues he is not liable for the penalty because of alleged procedural and evidentiary defects, the Court should apply a de novo standard of review. See generally, Silver, 2002 WL 31367926, at * 2. ("courts have consistently interpreted [the phrase 'underlying tax liability'] as including not only substansive issues of tax liability but procedural ones as well."). Additionally, even though the scope of review is limited to those issues properly raised at the hearing, the Court should apply a de novo standard of review to all of plaintiffs objections in light of his claim that the Appeals Officer "abruptly" terminate: the hearing, except for his challenge to the method of collection, here a levy, which should be reviewed under an abuse of discretion standard. MRCA Info. Serv., 145 F. Supp.2d at 199.
IV. Application
Section 6702(a) of Title 26 of the United States Code authorizes a frivolous tax return penalty where:
(1) any individual files what purports to be a return of the tax imposed by subtitle A but which—
(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and,
(2) the conduct referred to in paragraph (1) is due to —
(A) a position which is frivolous
(B) a desire . . . to delay or impede the administration of Federal income tax laws. . . .
Plaintiff filed tax returns claiming zero income and zero taxes due even though he earned wages from Bell Atlantic Telephone Company for the years at issue. At the CDP hearing, plaintiff asserted that he does not have any income because he is not engaged in corporate activity. The Court finds that as a matter of law, plaintiff filed a frivolous tax return by filing his return with zeroes even though he earned wages. Rennie v. Internal Revenue Serv., 216 F. Supp.2d 1078,1083 (E.D. Cal. 2002) (plaintiff's "zero" return was frivolous when based on his argument that his wages were not derived from corporate activity). See also United States v. Connor, 898 F.2d 942, 943 (3d Cir. 1990) ("every court which has ever considered the issue has unequivocally rejected the argument that wages are not income.");Connor v. Comm'r of Internal Revenue, 770 F.2d 17, 19 (2d Cir. 1985) (the argument that wages are not income "has been rejected so frequently that the very raising of it justifies the imposition of sanctions"); United States v. Francisco. 614 F.2d 617, 619 (8th Cir. 1980) (an appeal of this issue is itself frivolous).
Plaintiff raises the following four grounds to challenge this determination. He asserts that (1) the hearing and determination of the penalty were procedurally defective because the Appeals Officer did not produce documents to show that the assessment was verified by the Secretary, supported by certificates or returns, authorized by regulation, and made by an identified and duly authorized employee. He further alleges that (2) he did not receive the appropriate notice and demand and (3) he had an exemption certificate on file with his employer. Finally, plaintiff claims (4) he offered to pay the assessment to avoid a levy.
1. Failure to Produce Documents
A. Verification
Pursuant to the 26 U.S.C. § 6330 "in the case of any [CDP] hearing . . . (1) the Hearing officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." Here, the Appeals Officer produced the literal transcript to plaintiff and repeatedly directed plaintiff to the literal transcript during the hearing. Plaintiff argues that the Appeals Officer was required to show him "verification from the Secretary," instead of the literal transcript.
First, there is no requirement under the law that the IRS produce verification from the Secretary of the Treasury to plaintiff.Rennie, 216 F. Supp.2d at 1080 (plaintiff failed to state a claim when he alleged the IRS failed to provide verification from Secretary to him); accord Gillett, 233 F. Supp.2d at 883. Since there is no right to discovery in a CDP hearing, plaintiff was not denied the right to a fair or meaningful hearing where the Appeals Officer failed to provide him with "verified" documents. Kelly v. United States, 209 F. Supp.2d 981,989 (E.D. Mo. 2002). Moreover, the literal transcript is considered a valid verification that the requirements of any applicable law or administrative procedure have been met, see Dean v. United States, 01 CV 430, 2002 WL 31662299 (N.D. F)i. Oct. 23, 2002) (citing Standifird v. Comm'r of Internal Revenue, T.C. Memo.2002-245, 2002 WL, 31151194 (U.S. Tax Ct. 2002)), and an Appeals Officer is entitled to rely on the literal transcript, rather than the actual returns, when making her decision. Standifird v. Wilcox, 00 CV 1954, 2001 WL 7 8711 (D. Ariz. Jun. 12, 2001). Accordingly, the Appeals Officer, who produced and relied on the literal transcript, complied with the verification requirements under 26 U.S.C. § 6330.
Plaintiff nonetheless argues that there is an issue of fact because defendant has not produced any certificates, return, or form to show an assessment was made. However, the government has submitted a Certificate of Assessments and Payment, Form 4340, which includes the date of the assessment. See Defendant's Motion at Exhibits A and B. Absent contradictory evidence, a Certificate of Assessments and Payments is presumptive proof of a valid assessment on the date indicated.United States v. Lorson Electric Co., Inc., 480 F.2d 554 (2d Cir. 1973); accord Hughes v. United States, 953 F.2d 531 (9th Cir. 1992). Petitioner has riot presented any argument or evidence to counter that the assessment was made. Although petitioner alleges that the "Legal/Bankruptcy Suit Pending" notation on the Form 4340 is an error, defendant asserts that this entry corresponds with plaintiffs request for a CDP hearing and was used to suspend any collection action during the pendency of the hearing and appeal. Defendant's Reply at 3. Moreover, even if the notation is in error/this would not raise a material issue of fact as to the correctness of the assessment. Accordingly, the Court finds that plaintiff has failed to rebut defendant's proof of a valid assessment and there is no material issue of fact in dispute t in assessment was made.
B. Regulatory Authority
Plaintiff asserts that he was entitled to be advised as to the regulatory authority for the penalty at issue. There is no requirement that the Appeals Officer produce any regular is or statutory provisions because such information is public information. Kelly, 209 F. Supp.2d at 98 Even when construed as an argument that the IRS has no authority to assess the penalty, plaintiff's argument is without merit: 26 U.S.C. § 6702(a) authorizes the penalty for frivolous returns. Hoffman v. United States, 209 F. Supp.2d 1089, 1094 (W.D.Wash. 2002). The failure to produce this publicly available information does not render the hearing defective or demonstrate any error in the determination,
C. Identity and Authority of Individuals who Authorized the Penalties
Plaintiff further argues he was entitled to the names, job titles, job descriptions, and employee numbers of those involved in processing his penalty. The Appeals Officer is not required to prove who determined and authorized the penalties. Hoffman, 209 F. Supp.2d at 1094. Such information is irrelevant to whether the penalty was proper.Gillett, 233 F. Supp.2d at 883 (quoting Reinhart v. IRS, 01 CV 1286, 2002 WL 1095351, at * 5 (E.D. Cal. May 24, 2002)).
2. Insufficient Notice of Demand and Intent to Levy
Plaintiff also alleges that he did not receive legally sufficient notice of the demand and intent to levy pursuant to 26 U.S.C. § 6303 and 6331. The notice and demand for tax required by 26 U.S.C. § 6303 may be sent in any form so long as the requisite information, the amount of tax due and demand for payment thereof, is included. Hughes, 953 F.2d at 536. Additional information pursuant to 26 U.S.C. § 6331(d), the notice of intent to levy must include:
Although plaintiff also asserts he was entitled to notice pursuant to 26 U.S.C. § 6321, this section of the code is not applicable to CDP hearings for penalties imposed for filing frivolous returns. Kelly, 209 F. Supp.2d at 991.
(A) the provisions of this title relating to levy and sale of property;
(B) the procedures applicable to the levy and sale of property under this title;
(Ci) the administrative appeals available to the taxpayer . . .;
(D) the alternatives available [to prevent a levy];
(E) the provisions of this title and procedures relating to redemption of property and release of liens on property;
(F) the procedures applicable to the redemption of property and [Illeigble Text] of a lien. . . .
The requisite notice can be given in the form of "a notice of balance; i e." Jones v. Comm'r of Internal Revenue, 338 F.3d 463,466 (5th Cir. 2003), or a Form 1058, Notice 1 Intent to Levy and Right to a Hearing. Kelly, 209 F. Supp.2d at 991. In this case, the Certificate of Aassessment which shows that a notice of balance due was issued, is presumptively valid. Plaintiff does not refute he received this notice of balance due Further, plaintiff attaches the Form 1058, or Notice of Intent to Levy and Notice of Your Right to a Hearing, dated January 18, 2001 to his complaint. See Exhibit C.
In fact, plaintiff concedes he received a notice and demand but argues it is defective because it was not signed by the Secretary. See Tr. at 9 (plaintiff stated "I got a piece of paper . . . that said Notice of Demand on it . . . which wasn't verified by the Secretary."). The law does not require the demand be signed by the Secretary of the Treasury. See 26 U.S.C. § 7701(a)(11)(A) ("the term 'Secretary' means the Secretary of the Treasury or his delegate"). Pursuant to statute and regulation, the Secretary of Treasury has properly delegated notification authority to ERS employees.See 26 U.S.C. § 7701(a)(12)(A)(i); Hoffman, 209 F. Supp.2d at 1093-4 (citing 26 C.F.R. § 301.701-9). Accord Hughes, 953 F.2d at 536; Rennie, 216 F. Supp.2d at 1082. Where as here, an IRS employee acting as a delegate of the Secretary, signed the notice, plaintiff received the notice required by law. Therefore, plaintiff's challenge to the form of notice and authority of the signatory are without merit.
3. Exemption Certificate
Plaintiff contends that he was not liable for the income tax be certificate on file with his employer. The Court lacks jurisdiction over this c the penalty, but his liability for the underlying income tax.
4. Appropriateness of the Collection Activity
To the extent that plaintiff argues the levy was an inappropriate collection activity, the Court should review this claim under an abuse of discretion standard. In making termination, the Appeals Officer must take into consideration the (a) verification presented; (b) the is raised by plaintiff; and (c) whether any proposed collection action balances the need for the efficiente collection of taxes with the legitimate concern of the person that any collection action be more intrusive an necessary 26 U.S.C. § 6330(c)(3). During the hearing, the Appeals Officer attempted to review the literal transcript with plaintiff, pointing him to the literal transcript. Tr. at 8, 11, 12. She request d further objections and terminated the hearing only when it was clear that plaintiff was repeating arguments he had already raised. Although plaintiff "offered" to pay the fine if the Appeals Officer could identify the regulation establishing his liability, plaintiff's offer is not a recognized collection alternative.Dean, 2002 WL 31662299 at * 7. The Notice of Determination and Attachment to the Determination Letter demonstrates that the literal transcript was used to verify that all applicable laws and procedures were met and the officer considered plaintiffs objections. There is no evidence that the Appeals Officer was partial or that she abused her discretion.
In accordance with 26 U.S.C. § 6330(c)(3), the Appeals Officer's determination also analyzed whether the proposed collection action balances the need for efficient collection of taxes with the intrusiveness of the collection action. See Notice of Determination.
CONCLUSION
The uncontroverted facts establish that plaintiff's tax return was frivolous. His arguments that the CDP hearing and determination were procedurally defective should be deniedd. There is no material issue of fact in dispute. Under either a de novo or abuse of discretionary standard of review, the determination should be affirmed. Accordingly, it is respectfully recommended that the government's motion for summary judgment be granted.
FILING OF OBJECTIONS TO THIS REPORT AND REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rue of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections (and any responses to objections) shall be filed within the Clerk of the Court. Any request for an extension of time to file objections must be made to the District Judge within the ten day period. Failure to file a timely objection to this Report generally waives any further judicial review. Marcella v. Capital District Physician's Health Plan, Inc., 293 F.3d 42 (2d Cir. 2002);Small v. Secretary of Health and Human Services, 892 F.2d 15 (2d Cir. 1989); see Thomas v. Am. 474 U.S. 140 (1985).
SO ORDERED.