Opinion
No. 4:01CV00058
December 11, 2001
OPINION AND ORDER
On January 8, 2001, the plaintiff filed the instant proceeding requesting review of Internal Revenue Service determinations pursuant to 26 U.S.C. § 6330. On June 21, 2001, the United States filed a motion for judgment in the above — captioned proceeding. Plaintiff Herycyk filed a response to this motion on August 6, 2001.
On September 20, 2001, the United States filed a motion to remand the case back to the Appeals Office of the Internal Revenue Service for a Collection Due Process hearing on the underlying merits of the 26 U.S.C. § 6672 assessment made against the plaintiff.
The taxpayer alleged that he did not receive a notice of right to have his claim considered by appeals and therefore alleged that he did not have a prior opportunity to be heard. The parties stipulated that the United States is unable to prove that the notice of right to an appeals conference which was sent to the taxpayer was actually received by him. Thus it appears that this action should be remanded to the Internal Revenue Service so that the Appeals Officer can consider the taxpayer's claim. The United States moved to have the above — captioned case remanded to the Internal Revenue Service Office of Appeals in order to allow an Appeals Officer to perform a Collection Due Process hearing pursuant to Section 6330 of the Internal Revenue Code at which, the merits of the taxpayer's claim that he is not liable for the taxes at issue will be considered.
Section 6330 (Notice and Opportunity for Hearing Before Levy) was added to the Internal Revenue Code (26 U.S.C.) ("Code") by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105-206, 112 Stat. 685 ("IRS Restructuring Act"). This section created new procedures to be followed by the Service before collecting a tax by levy. Prior to January 1, 1983, the IRS was only required to notify a taxpayer of its intent to levy in the case of a proposed levy on salary or wages. As part of the Tax Equity and Responsibility Act of 1982, Section 6331(d) of the Code was amended to require that the IRS give a taxpayer notice of its intention to levy on salary or wages or other property in nonjeopardy situations before any levy was made upon the property of the taxpayer.
As part of the IRS Restructuring Act, new Section 6330 now provides that, except when collection of the tax is in jeopardy or a state tax refund due the taxpayer is being collected, no levy may be made unless the IRS notifies the taxpayer in writing of a right to a Collection Due Process hearing ("CD?") before an IRS Appeals Officer. Except in circumstances not present in the instant case, the IRS is prohibited from levying upon the taxpayer's property until 30 days after notice of a CDP hearing has been provided to the taxpayer. See 26 U.S.C. § 6330(a)(1)(2). If the taxpayer requests a CDP hearing, the IRS is, in the absence of jeopardy, prohibited front levying upon the taxpayer's property until the determination reached by the Appeals Officer becomes final. See 26 U.S.C. § 6330(e)(1).
During a Collection Due Process hearing, a taxpayer may raise any relevant issue relating to the unpaid tax, including the IRS's proposed collection action and collection alternatives. See Treas. Reg. (26 C.F.R.) § 301.6330-1(T)(e)(1). Collection alternatives can include posting a bond, substituting other assets to secure the debt, an offer-in-compromise, or entering into an installment agreement. See 26 C.F.R. § 301.6330-1(T)(c)(3) QA-ES. Taxpayers are expected to provide relevant information, such as financial statements, to substantiate their proposed collection alternatives. See C.F.R.S 301.6330-1(T)(e)(1). In addition, taxpayers are given the opportunity to challenge the underlying liability if the person did not receive any statutory notice of deficiency for such liability or did not otherwise have an opportunity to dispute such tax liability. See 26 U.S.C. § 6330(c)(2)(B). A taxpayer is not allowed to challenge the liability if a sufficient opportunity has already been presented to him for dispute of the underlying determination of liability. This opportunity to dispute such liability includes the opportunity to contest the liability in Appeals. See 26 C.F.R. § 301.6330-1(T)(e)(3) QA-ES.
Following a CD? hearing, the IRS Appeals Officer will send a Notice of Determination to the taxpayer. The Notice summarizes the matters raised during the CDP hearing, and responds to any offers made by the taxpayer or states any agreements reached during the hearing. See 26 C.F.R. § 301.6330-1(T)(e)(3) QA-E7. Within thirty (30) days of the Notice of Determination being issued, the taxpayer may appeal the determination to the Tax Court, or, if the Tax Court does not have jurisdiction of the underlying tax liability, to the United States District Court. See 26 U.S.C. § 6330(d)(1). The reviewing court can only address matters raised by the taxpayer at the CD? hearing. See 26 C.F.R. S 301.6330-1(T)(f)(2) QA-F-5. In cases where the taxpayer has had a prior opportunity to challenge the underlying liability, the determination of the Appeals Officer is subject to an abuse of discretion review.
When the amount of the tax liability is not at issue in the COP hearing, Congress intended that the Court will review the Appeals determination under an "abuse of discretion" standard. See H. Rep. No. 105-299, at 266 (1998). This report provides, in relevant part:
Where the validity of the tax Liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of collection activity will be reviewed using an abuse of discretion standard of review.
H. Rep. No. 105-299, at 266. This standard is consistent with other statutes that charge the Commissioner with the fair administration of the Internal Revenue Code. For example, the IRS's determination as to whether interest charged a taxpayer should be abated under certain circumstances is also reviewed for abuse of discretion. See 26 U.S.C. § 6404(i) (Review of Denial of Request for Abatement of Interest). The same standard of review also applies with respect to an IRS determination (pursuant to 26 U.S.C. § 446) regarding whether a taxpayer's accounting method accurately reflects income, or to a reallocation by the IRS (pursuant to 26 U.S.C. § 482) of Income or deductions among commonly controlled businesses. See Foster v. Commissioner, 756 F.2d 1430, 1432 (9th Cir. 1985); RCA Corp. v. United States. 664 F.2d 881, 886 (2nd Cir. 1981). The abuse of discretion standard has been adopted by the courts reviewing IRS determinations under Section 6330. See Sego v. Commissioner, 114 T.C. 604, 610 (2000); MRCA Information Services v. United States, 2000-2 U.S.T.C. 50,683,2000 WL 1737861, *5 (D. Conn. 2000) ("abuse of discretion standard of review is appropriate when a district court reviews a determination of an IRS Appeals officer's determination pursuant to 26 U.S.C. § 6330").
Plaintiff Ludwick Herycyk commenced this action under 26 U.S.C. § 6330(d)(1)(B), seeking a review of the Notice of Determination Concerning Collection Actions Under (I.R.C.) Sections 6320 and 6330, issued by the Internal Revenue Service on December 8, 2000. The Internal Revenue Service issued the Notice of Determination after an IRS appeals officer determined, inter alia, that the plaintiff had a previous opportunity to contest the underlying liability at issue in this case, and that the taxpayer offered no viable collection alternatives during the Collection Due Process hearing.
As grounds for the complaint, the plaintiff alleged that he had not received a statutory notice of deficiency, and that the appeals officer had not appropriately balanced "the need for the efficient collection of taxes with the Plaintiff's concern for the intrusiveness of the proposed assessment."
Defendant United States responded and filed a motion for judgment, arguing that the plaintiff had been sent a notice of the proposed assessment which gave him an opportunity to combat the underlying liability and that Appeals Officer had not abused his discretion in sustaining the proposed levy action. In this motion, the United States argued that the Internal Revenue Service is not required to give "Statutory Notice of Deficiency" for liabilities accrued under Section 6672 of the Internal Revenue Code (26 U.S.C.). In addition, the United States argued that the Appeals Officer had adequately considered all collection alternatives. The taxpayer responded to this motion and stated, under oath, that he had not received any notice of the proposed assessment, thereby negating any argument that he had in fact had a prior opportunity to contest the underlying liability pursuant to Section 6330(c)(2)(B).
The Internal Revenue Code does not require the issuance of a Statutory Notice of Deficiency prior to assessing a Trust Fund Recovery Penalty. Instead, Section 6672(b) requires that notice of a pending Trust Fund Recovery Penalty assessment be accomplished pursuant to the requirements of Section 6212(b). To fulfill this requirement, the Service uses Letter 1153(DO), which informs the taxpayer of the proposed TFRP assessment and offers him a right to contest the assessments In Appeals.
Prior to this pleading, the taxpayer had only alleged that he had not received a "Statutory Notice of Deficiency," a term of art in tax law referring to a Notice of Deficiency required by Section 6212(a) for income, estate, and certain excise taxes.
Because the Internal Revenue Service was unable to prove that the taxpayer actually received notice of the proposed liability in the form of a Letter 1153 (DO), the Defendant has conceded that the taxpayer is entitled to a remand to the Appeals Office to afford the taxpayer a Collection Due Process hearing in which he may challenge the merits of the underlying tax liability. The taxpayer was not allowed to challenge the merits at his CDP hearing because the Appeals Officer believed that the taxpayer had already had an adequate opportunity to contest the liability, based on the information before the Appeals Officer. This Court's order of remand will allow the Appeals Officer, the person charged by statute with the responsibility for making the determination in the first instance, to make an initial determination as to the allegations made by the taxpayer that he was not a responsible person pursuant to 26 U.S.C. § 6672. In the event that the taxpayer is dissatisfied with the Appeals Officer's decision, he can appeal to this court.
This appears to be among the first cases in which the government has conceded that the taxpayer is entitled to a remand. Because of the relative adolescence of this statutory provision, this Court must look to other courts for a determination as to the best treatment of efforts by federal agencies to voluntarily remand cases for decision. By statutory edict, Congress has charged the United States Court of Appeals for the District of Columbia Circuit with oversight of most of the agency determinations made by the federal government. In Ethyl Corp. v. Browner, 989 F.2d 522, 524 (D.C. Cir. 1993), the D.C. Circuit Court of Appeals explained that its inclination toward grant of motions for voluntary remand was premised on the theory that agencies should be allowed to "cure their own mistakes rather than wasting the courts' and the parties' resources reviewing a record that both sides acknowledge to be incorrect or incomplete." To grant the Defendant's request for remand allows the entrusted agency to review its procedural mechanisms and compensate for possible oversights made in the initial analysis.
In a recently reported decision by the United States District Court for the District of Oregon, the judge adopted the report and recommendation of the magistrate judge and determined that the Internal Revenue Service's motion for remand should be granted in order to allow the taxpayer to challenge penalties assessed against the taxpayer. See Joling v. United States of America, 2001 U.S. Dist. LEXIS 11546, *1 (D.Or. 2001).
In the "Handbook of Practice and Internal Procedures of the United States Court of Appeals for the District of Columbia Circuit," the court specifically discusses the concept of "voluntary remand," and states that "parties may file a motion to remand either the case or the record for a number of reasons, including to have the district court or agency reconsider a matter, to adduce additional evidence, to clarify a ruling or to obtain a statement of reasons." Handbook of Practice and Internal Procedures of the United States Court of Appeals for the District of Columbia Circuit, p. 34 (1993).
In this case, a determination must be made as to whether the taxpayer was a responsible person pursuant to Section 6672 of the Internal Revenue Code, and the entity best equipped to make that decision in the first instance is the Internal Revenue Service. The Internal Revenue Service, charged with the fair and equitable execution of the Internal Revenue Code, is unquestionably in the best position to review the facts as presented in a new CD? hearing and make a determination as to the liability of this taxpayer pursuant 26 U.S.C. § 6672. Remanding the case will also give the taxpayer the two possible bites at the apple that Congress intended. For these reasons, the case is remanded to the Appeals Office of the Internal Revenue Service to allow the taxpayer a Collection Due Process hearing in which he may challenge the merits of the underlying tax liability.
Ultimately, if the taxpayer is unhappy with the IRS' determination in this matter, he remains entitled to bring another action pursuant to 26 U.S.C. § 6330.
Some question may be raised as to whether this court would retain jurisdiction over the instant proceeding if the case were remanded to the Internal Revenue Service. Most courts appear to believe that jurisdiction is retained where the "record" is remanded for further development, and the court expressly retains jurisdiction over the underlying proceeding. Jurisdiction is not retained in proceedings where the "case" is remanded. See. e.g., Rule 41(b) of the united States Court of Appeals for the District of Columbia Circuit (U.S.Ct. of App. D.C. Cir. Rule 41(b), 28 U.S.C.A. In this case, because agency reconsideration of its determination will be focused on entirely different grounds than were considered at the first hearing, the court should remand the "case" to the Internal Revenue Service. If, after the hearing, the taxpayer has a statutory basis to contest the resulting determination, he may bring another action as provided for in Section 6330. In addition, if this court chooses, it can waive the payment of court filing fees on any new appeal. we note that the Joling decision dismissed the action "without prejudice to reinstate after the due process hearing without payment of court filing fees." Joling, 2001 U.S. Mat. LEXIS 11546 at *1. Since this would be a remand of the case, and would require a new appeal, theJoling solution may not be appropriate here.