Summary
deciding a frivolous return penalty case
Summary of this case from Powers v. Commissioner of Internal Revenue ServiceOpinion
Civil No. 04-2686 (JBS).
April 5, 2005
Mr. David Joseph Gardner, Atco, NJ, Plaintiff pro se.
Christopher J. Christie, United States Attorney, By: Dashiell C. Shapiro, Trial Attorney, Tax Division, United States Department of Justice, Washington, D.C., Attorney for the United States of America.
OPINION
This matter comes before the Court upon the motion for summary judgment of Defendant United States of America as well as Plaintiff pro se's motion to suspend issuing a final ruling until discovery is complete. This case involves Plaintiff's challenge to the results of a collection due process hearing, in which the Internal Revenue Service ("IRS") determined that the imposition of a levy was appropriate in order to collect a $500.00 outstanding penalty assessment for Plaintiff's filing of a frivolous tax return. For the reasons discussed below, Plaintiff's motion will be denied and summary judgment will be granted in favor of Defendant United States of America.
BACKGROUND
On May 26, 2001, Plaintiff pro se David Gardner filed what purported to be a federal income tax return for the 2000 tax year. (Declaration of Bruce Bronstein ¶ 3; Ex. 100.) On his return, Gardner entered zeros on all lines relating to income and reported a zero tax liability as well. (Bronstein Decl. ¶ 4; Ex. 100.) Gardner, however, reported $2,609.63 in withholding taxes and claimed a refund for that amount. (Id.) Attached to the return was his W-2 Form from Interstate Erecting, Inc., which reflected wages in the amount of $91,969.40 and withholding of $2,609.63. (Id.) Plaintiff attached to his 2000 income tax return several pages of "constitutional" arguments asserting, among other things, that he was not voluntarily filing the return and that his earnings were not "income." (Bronstein Decl. ¶ 5; Ex. 100.)
On November 2, 2001, the IRS wrote a letter to Gardner, notifying him that his tax return was incorrect and that he had thirty days to correct the return. (Bronstein Decl. ¶ 6; Ex. 101.) Plaintiff did not file a corrected return within the thirty day period and, instead, wrote a letter to the IRS, raising additional arguments. (Bronstein Decl. ¶ 7; Ex. 102.) On March 18, 2002, the IRS assessed a $500 frivolous return penalty against Gardner and notified him of the same by letter. (Bronstein Decl. ¶ 8; Ex. 103.)
On February 3, 2003, the IRS advised Gardner that it intended to issue a levy to collect the outstanding unpaid $500 penalty. (Bronstein Decl. ¶ 12; Ex. 105.) In response to the notice of levy, Gardner filed Form 12153, a request for a collection due process ("CDP") hearing, as authorized under 26 U.S.C. § 6330, on February 24, 2003. (Bronstein Decl. ¶ 13; Ex. 106.) Plaintiff attached several pages of argumentation to the request and demanded the names of the individuals employed by the IRS who were involved in the imposition of the penalty, as well as the delegation orders permitting them to do so. (Id.) Thereafter, Appeals Officer Bruce Bronstein was assigned to conduct a CDP hearing for Gardner. (Bronstein Decl. ¶ 14.)
On December 22, 2003, Appeals Officer Bronstein wrote a letter to Gardner, asking him to submit specific instances where the IRS failed to follow its rules and procedures in deciding to proceed with the notice of intent to levy. (Bronstein Decl. ¶ 15; Ex. 107.) The letter also informed Gardner that his hearing would be conducted via correspondence, not a face-to-face-hearing, unless he was prepared to discuss alternatives to collection rather than the arguments he had previously made and which the IRS had deemed to be frivolous. (Id.) On January 6, 2004, Bronstein spoke with Gardner on the telephone, at which time Gardner continued to make frivolous constitutional arguments and did not present any alternatives to collection. (Bronstein Decl. ¶ 16.) Throughout the appeal process, Plaintiff apparently never raised any issues relevant to the proposed levy, (Bronstein Decl. ¶ 17), and instead continued to make frivolous constitutional arguments in an attempt to circumvent the tax system. (Id.)
On February 4, 2004, the IRS issued a notice of determination to Gardner regarding the proposed levy for the $500 frivolous return penalty. (Bronstein Decl. ¶ 18; Ex. 108.) Appeals Officer Bronstein prepared an explanation of the determination, which is attached to the notice. (Id.) The IRS determined that the levy was appropriate and that the Plaintiff's appeal should be denied. (Id.)
Plaintiff filed his Complaint in this Court on June 9, 2004, seeking to have the Court set aside the IRS's determination and an award of damages. Defendant United States of America moved for summary judgment on November 10, 2004.
DISCUSSION
The proper standard of review in this case is abuse of discretion. See Allglass Systems v. Commissioner, 330 F. Supp. 2d 540, 543 (E.D. Pa. 2004). The standard of review of a CDP hearing is de novo only when the underlying tax liability is properly raised at the hearing. See Pollack v. United States, 327 F. Supp. 2d 907, 912 (W.D. Tenn. 2004). The underlying tax liability in this case is the $500 frivolous return penalty. This penalty, however, was not at issue in Plaintiff's CDP hearing because he had a prior opportunity to contest the penalty and failed to do so. See 26 U.S.C. § 6330(c) (stating that at a CDP hearing, a taxpayer may raise "challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability"); (Bronstein Decl. ¶ 6; Ex. 101.) The IRS provided Gardner with notice of the $500 frivolous return penalty and an opportunity to file a corrected return and avoid the $500 penalty. (Id.)
Gardner did not file a corrected return and thus was not permitted to challenge the $500 penalty at the CDP hearing, as that hearing's scope was limited to the question of whether there were any viable alternatives to the levy. Plaintiff is similarly precluded from challenging his liability for the $500 frivolous return penalty in this forum and this Court reviews the IRS's determination only for an abuse of discretion. In its review of the agency's exercise of that discretion, the Court is limited to the administrative case history of the hearing. See Camp v. Pitts, 441 U.S. 138, 142 (1973).
Pursuant to 26 U.S.C. § 6330(b), a plaintiff is entitled to a hearing held by the IRS Office of Appeals before an impartial officer, defined as "an officer or employee who has had no prior involvement with respect to the unpaid tax." The plaintiff may raise relevant issues at the hearing, and "the conducting officer will receive verification from the Secretary that the requirements of applicable law and administrative procedure have been met." Allglass, 330 F. Supp. 2d at 544. Here, all requirements have been met. Plaintiff's hearing was conducted by an impartial officer, as Appeals Officer Bronstein had no prior involvement with Plaintiff. (Bronstein Decl. ¶ 3.) Officer Bronstein also obtained verification from the Secretary that all requirements of applicable law and administrative procedure had been met. (Bronstein Decl. ¶ 18; Ex. 108.)
Plaintiff contends that his CDP hearing was inadequate because he did not receive a face-to-face hearing. (Compl.) Generally, the IRS will offer face-to-face hearings upon a taxpayer's request. See 26 C.F.R. § 301.6330-1(d)(2). QA-D7. However, there is no requirement that CDP hearings be conducted in this manner. Indeed, the regulations plainly state that CDP hearings are "informal in nature" and "do not require the Appeals officer . . . to hold a face-to-face meeting." 26 C.F.R. § 301.6330-1(d)(2). QA-D6. The purpose of CDP hearings is to allow taxpayers to raise relevant issues regarding their tax liability.See 26 U.S.C. § 6330(c)(2)(A) (a taxpayer may raise "anyrelevant issue" at the hearing) (emphasis added). As Gardner was not prepared to discuss issues relevant to paying his tax liability, he was not entitled to the indulgence of a face-to-face hearing. See 26 C.F.R. § 601.106(b) ("[A]ppeal procedures do not extend to cases involving solely the failure or refusal to comply with the tax laws because of moral, religious, political, constitutional, conscientious, or similar grounds") (emphasis added).
Plaintiff's failure to raise issues relevant to paying his tax liability precludes him from seriously contending that he was not provided a hearing. See Lunsford v. Commissioner, 117 T.C. 183, 189 (2001) (noting that it is neither "necessary or productive" to remand the case to give a taxpayer another opportunity for a fruitless hearing). Gardner was offered opportunities to discuss relevant issues, both in writing and on the telephone, yet he chose only to repeat frivolous arguments. Here, both the written correspondence and telephone conversation constituted the hearing, and Officer Bronstein was justified in approving the levy based on his review of the case file and accompanying correspondence. See Allglass, 330 F. Supp. 2d at 545 ("[A] series of communications . . . can collectively satisfy the CDP hearing requirement"); Loofbourrow v. Commissioner, 208 F. Supp. 2d 698, 707 (S.D. Tex. 2002) (holding that written communications between the taxpayer and the Appeals Office fulfilled the hearing requirement).
In opposing the United States of America's motion for summary judgment, Plaintiff has filed a motion to suspend the issuing of a final ruling in this case until Plaintiff has completed discovery. However, in a case involving only limited judicial review of an administrative record, Plaintiff is not entitled to any further discovery beyond the certified record. See Hart v. United States, 291 F. Supp. 2d 635, 640 (N.D. Ohio 2003) ("In reviewing the Service's exercise of discretion in a CDP hearing, the court is limited to the administrative record; the parties are not entitled to discovery or jury trial."); see also Camp, 411 U.S. at 142-43.
Plaintiff also maintains that the Appeals Officer did not provide "verification" from the Secretary. The law only requires the Appeals Officer to obtain verification that the tax assessment was proper by reviewing the IRS's files. See Nestor v. Commissioner, 118 T.C. 162 (U.S. Tax. Ct. 2002); see also 26 U.S.C. § 6330(d)(1); 26 C.F.R. § 301.6330-1(e). Appeals Officer Bronstein's declaration demonstrates that he satisfied this requirement. (Bronstein Decl. ¶ 18; Ex. 108.)
Finally, Plaintiff argues that he never received his "notice and demand" for payment. However, the record reveals that the IRS sent Plaintiff a letter on November 2, 2001, warning him about the consequences of filing a frivolous tax return and offered him a chance to correct his filing. (Bronstein Decl. ¶ 6; Ex. 101.) This letter demonstrates that the IRS considered Plaintiff's arguments attached to his patently frivolous tax return and determined that they were meritless. (Id.) Moreover, Plaintiff clearly received this letter, as he responded to it on November 28, 2001. (Bronstein Decl. ¶ 7; Ex. 102.) Also, after the IRS assessed the $500 penalty, it sent Plaintiff a notice of penalty and demand for payment. (Bronstein Decl. ¶ 8; Ex. 103.) Plaintiff has thus had several opportunities to raise his arguments, all of which have been considered and rejected by the IRS.
Finally, the Court notes that Gardner asserts a claim for punitive damages and reimbursement of costs. (Compl.) Such a claim is properly brought under 26 U.S.C. § 7433(a). However, for Gardner to bring such a claim, he must first exhaust his administrative remedies before bringing a damage suit in federal court. See 26 C.F.R. § 301.7433-1(e). This, however, Plaintiff has not done. Gardner has not filed an administrative claim or otherwise exhausted his administrative remedies. Therefore, the Court lacks subject matter jurisdiction over this damages claim.