Opinion
Case No. 2:02-CV-506 DAK
September 19, 2003
MEMORANDUM ORDER
Plaintiffs filed suit raising claims related to their federal income tax. The case is presently before the court on cross-motions for summary judgment. In considering Plaintiffs' claims, the court is mindful that pro se pleadings should be liberally construed. See Haines v. Kerner, 404 U.S. 519, 520-21 (1972).
In their complaint, Plaintiffs ask the court to (1) invalidate civil penalties imposed by the Internal Revenue Service for filing frivolous tax returns for the years 1996 and 1997; (2) invalidate a collection due process hearing related to the 1996 and 1997 penalties; (3) invalidate an IRS decision letter for tax year 1998; (4) invalidate frivolous filing penalties for tax years 1991-95, and 1998; (5) invalidate a tax court decision regarding tax year 1991; (6) prohibit the collection of income taxes and penalties for the years 1991 through 2002; and (7) allow Plaintiffs to recover alleged overpayments of federal income tax. (2nd compl. at 1, file entry 5.) As discussed below, only the validity of the 1996 and 1997 penalties and the adequacy of the collection due process hearing are properly before the court.
In support of its motion for summary judgment, the Government has provided the Declaration of Anita Machhar, the attorney representing the United States in this case. Attached to Ms. Machhar's declaration are exhibits consisting of copies of documents contained in the files of the Internal Revenue Service and the Department of Justice which relate to this case. In most instances, the facts referred to in this memorandum are derived from those exhibits. The court notes that the Government properly set out the undisputed facts in numbered paragraphs as required by Rule 56 of the Local Rules. See DUCivR. 56-1(b). In opposition, Plaintiffs attempted to contest the Government's undisputed facts in compliance with the rule. See DUCivR. 56-1(c). However, the points raised by Plaintiffs in their disputed facts do not create any genuine issues of material fact, but rather consist of their interpretation of the facts and legal argument. Accordingly, the facts set forth below are deemed undisputed. For ease of analysis, the facts are presented in categories to coincide with the various forms of relief Plaintiffs seek.
1. FACTS
A. Frivolous Tax Return Penalties for 1996 and 1997
Plaintiffs filed income tax returns, Form 1040, for the years 1996 and 1997. Attached to both returns were nearly identical documents containing arguments based upon Plaintiffs' interpretation of various cases, statutes, and regulations to the effect that Plaintiffs had no income and were not liable for federal income taxes. (Ex. 4 5.)'
On their 1996 return, Plaintiffs showed zero income and zero income tax due, but they indicated that $2,495.77 federal income lax had been withheld. Attached to Plaintiffs' return was a Wage and Tax Statement, Form W-2, showing that Plaintiff LaMar Lister earned $25,725.00 and that $2,495.77 federal income tax had been withheld. (Ex. 4.)
On their 1997 return, Plaintiffs indicated that $3,780.86 federal income tax had been withheld, but they again showed zero income and zero income tax due. Attached to Plaintiffs' return was a Wage and Tax Statement, Form W-2, showing that Plaintiff LaMar Lister earned $45,150.00 and that $3,780.86 federal income tax had been withheld. (Ex. 5.)
On February 8, 1999, Plaintiffs were assessed a statutory penalty of $500 pursuant to 26 U.S.C. § 6702 for filing a frivolous income tax return for 1996. A statutory notice of balance due was issued on the same day. (Ex. 6.) On March 20, 2000, Plaintiffs were assessed a penalty of $500 pursuant to 26 U.S.C. § 6702 for filing a frivolous income tax return for 1997. A statutory notice of balance due was issued on the same day. (Ex. 7.)
On October 18, 2001, the IRS issued each Plaintiff a "Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing" with regard to (heir unpaid civil penalty assessments for 1996 and 1997. (Ex. 1; Pls.' ex. C attached to their 2d am. compl, file entry 5.) In response, Plaintiffs timely requested a collection due process ("CDP") hearing. (See ex. 2.)
By letter dated January 16, 2002, IRS Appeals Officer Robert White notified Plaintiffs that their CDP hearing was scheduled to be held by telephone on January 30, 2002. In his letter, Mr. White informed Plaintiffs that he had verified the validity of the assessment by examination of a complete computer transcript. (Ex. 8,)
By letter dated January 23, 2002, Plaintiffs responded that they had other previously scheduled commitments on January 30, 2002, and would not be available for the hearing. They asked that the hearing be rescheduled. In addition, they demanded that the hearing be face-to-face at a location within one hundred miles of Parowan. Utah. (Ex. 9.)
In a letter dated January 29, 2002, Mr. White notified Plaintiffs that he had rescheduled the CDP hearing for February 19, 2002 in Salt Lake City, Utah. He noted that he had scheduled the hearing for 12:00 noon to give Plaintiffs sufficient time to travel to Salt Lake City for a face-to-face hearing. He further informed them that if travel was inconvenient, the hearing could still be held by telephone on the same date and time. (Ex. 10.) By letter dated February 4, 2002, Plaintiffs demanded that their CDP hearing be held at a more convenient location, and requested that the hearing be held at the Iron County Courthouse. (Ex. 11.) Plaintiffs failed to appear at the scheduled CDP hearing on February 19, 2002.
On April 24, 2002, the IRS issued Notices of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 ("Notices of Determination"), stating the matters considered by the IRS with respect to the proposed collection action and its conclusions that the proposed collection action should proceed. (Ex. 3.) Plaintiffs timely appealed the determination by filing the instant lawsuit.
B. Income Tax Liability for 1998
On September 13, 2001, the IRS issued a "Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing" to Plaintiff LaMar Lister for his 1998 income tax liability. (Ex. 12.) Pursuant to 26 U.S.C. § 6330(a), and as stated in the notice, Mr. Lister was required to request a CDP hearing within thirty days of the date of the notice. Although Mr. Lister requested a CDP hearing, the request for hearing was postmarked October 16, 2001. (Ex. 13, last page of exhibit.) October 13, 2001 fell on a Saturday, but October 15, 2001 was a Monday which was not a federal holiday.
Even though Mr. Lister's request for a hearing was untimely, Mr. White scheduled an informal telephone conference for January 7, 2002 to give Mr. Lister an opportunity to present facts, arguments, and legal authority to support his position concerning his 1998 income tax liability. (Ex. 14.) In a responsive letter dated December 20, 2001, Mr. Lister demanded a CDP hearing, and stated Mr. White should cancel the scheduled telephone conference. In addition, he demanded that the CDP hearing be face-to-face at a location within one hundred miles of Parowan, Utah. (Ex. 15.)
By letter dated January 16, 2002, Mr. White informed Mr. Lister that the January 7, 2002 hearing was intended to be a CDP hearing. Mr. White rescheduled the hearing for January 30, 2002 to be held by telephone. (Ex. 16.) This was the same date and time set for the hearing on the frivolous filing penalties imposed for 1996 and 1997. As previously discussed, Mr. Lister responded by sending a letter dated January 23, 2002 stating that he had prior commitments, and demanding a face-to-face hearing to be held within one hundred miles of Parowan, Utah. (Ex. 17.) Mr. White then rescheduled the CDP hearing for February 19, 2002, to be held either by telephone or in person at the Salt Lake City Appeals Office. (Ex. 18.)
As discussed above, Mr. Lister did not appear at the scheduled February 19, 2002 hearing. On May 7, 2002, the IRS issued a Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code, stating the matters considered and its conclusion that the service should proceed with the proposed collection action concerning Mr. Lister's 1998 income tax liability. (Ex. 19.)
In the instant litigation, Mr. Lister seeks to have this determination invalidated. However. as discussed below, the court lacks subject matter jurisdiction over this claim.
C. Frivolous Filing Penalties for 1991-1995. 1998
By order dated September 23, 2002, the United States District Court for the District of Utah granted the Government's motion for summary judgment in case 2:01-CV-690 BSJ. The court found that "the frivolous filing penalties assessed against plaintiff, LaMar Lister, pursuant to 26 U.S.C. § 6702, for tax years 1991 through 1995, and 1998, are valid, and the IRS' determination that the filed Notice of Federal Tax Lien pertaining to these assessments should not be withdrawn is appropriate." (Ex. 20.) This matter is currently on appeal to the Tenth Circuit. Although Plaintiffs attempt to relitigate this decision in the case now before the court, it is barred by the doctrine of claim preclusion as discussed below.
D. Tax Court Decision Upholding Proposed Collection Action for 1991
In an order dated May 21, 2002, the Tax Court upheld the proposed collection action for the tax year 1991 and imposed a $6,000 penalty against Mr. Lister pursuant to 26 U.S.C. § 6673(a)(1). (Pl.'s ex. F, attached to 2nd am. compl., file entry 5.) Again, Plaintiffs improperly attempt to relitigate a claim that already has been decided by another court and is now barred by the doctrine of claim preclusion.
II. DISCUSSION
A. Standard for Summary JudgmentSummary judgment should be entered if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A party moving for summary judgment bears the initial burden of informing the court of the basis of its motion. It may do so by identifying portions of the record that demonstrate that there is no genuine issue of material fact. Celotex Corp. v. Catrett 477 U.S. 317, 323 (1986). In response, the nonmoving party must go beyond the pleadings and by affidavits or other evidence in the record "designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324. If the nonmoving party fails to meet this burden, summary judgment is mandated. See id. at 322-24. In deciding whether summary judgment is appropriate the court determines "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.' Anderson v. Liberty Lobby. Inc. 477 U.S. 242, 251-52 (1986).
Plaintiffs incorrectly state that the standard for summary judgment is that a complaint "may not be dismissed on motion if it states some sort of claim, baseless though it may prove to be." (Pls.' Reply at 1, file entry 23.) In support of this proposition, Plaintiffs cite Brooks v. Pennsylvania. R. Co., 91 F. Supp. 101 (S.D.N.Y. 1950). However, the Brooks court was deciding a motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b), not a motion for summary judgment. Id. at 103. In fact, the Brooks court suggested that the defendant in that case would prevail if it were to file a motion for summary judgment.Id.
B. Standard of Review of the IRS Determinations with Regard to the 1996 and 1997 Penalties
Two separate standards of review apply to the IRS determinations regarding the 1996 and 1997 penalties. Where the validity of the tax liability was properly at issue at the administrative hearing, the court conducts a de novo review. Where the underlying tax liability was not properly at issue, the court applies an abuse of discretion standard.Gillett v. United States. 233 F. Supp.2d 874, 882 (W.D. Mich. 2002); Danner v. United States. 208 F. Supp.2d 1166, 1171 (E.D. Wash. 2002). In addition, the court reviews the appeals officer's determination regarding the appropriateness of the collection activity for an abuse of discretion. Dean v. United States. 2002 WL 31662299, at *4 (N.D. Fla. Oct. 23, 2002); Muhammad v. United States . 2003 WL 21152978, at *3 (D.S.C. July 15, 2003).
Under 26 U.S.C. § 6330(c)(2)(B), the taxpayer may raise at the hearing "challenges to the existence or amount of the underlying tax liability for any tax period 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 states that because deficiency procedures do not apply to the assessment or collection of a penalty under 26 U.S.C. § 6702, and Plaintiffs did not have a prior opportunity to dispute those liabilities, the validity of the section 6702 penalties should be reviewed on a de novo basis.
If the court finds that the penalties are valid, it then must review the appeals officer's determination to uphold the proposed collection action for an abuse of discretion. The Tenth Circuit has defined abuse of discretion as "an arbitrary, capricious, whimsical, or manifestly unreasonable judgment." Coletti v. Cudd Pressure Control. 165 F.3d 767, 777 (10th Cir. 1999 (quoting FDIC v. Oldenburg. 34 F.3d 1529, 1555 (10th Cir. 1994)).
C. Validity of the Frivolous Return Penalties for 1996 and 1997
The Internal Revenue Code provides that an individual must pay a civil penalty of $500 for riling a frivolous income tax return. This penalty applies when two elements are satisfied: (1) The individual files what purports to be a return, but which "does not contain information on which the substantial correctness of the self-assessment may be judged, . . . or contains information that on its face indicates that the self-assessment is substantially incorrect;" and (2) his conduct in filing the return is the result of a position which is frivolous or "a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws." 26 U.S.C. § 6702.
As discussed above, Plaintiffs filed income tax returns for the years 1996 and 1997 with zeros in the spaces for income and tax owed. Attached to those returns were two pages of arguments as to why plaintiffs believed they owed no federal income taxes. (Ex. 4 5.) As evidenced by the returns, Plaintiffs apparently made a self-assessment that they owed no federal income tax. However, by filing the "zero" returns. Plaintiffs failed to provide information upon which the substantial correctness of their self assessment could be judged, since the returns contained no financial information. Further, the W-2 forms attached to the returns show that Plaintiffs did, in fact, have income for the years 1996 and 1997. Thus, the returns contained information on their face indicating that Plaintiffs' self-assessment of zero income was incorrect. In addition, Plaintiffs' position in filing the zero income returns was frivolous as evidenced by their two-page attachment to the returns.
The test for frivolousness is wholly objective. A position taken in a tax return is frivolous if it has no basis in fact or law. Bradley v. United States. 817 F.2d 1400, 1404 (9th Cir. 1987); see Hudson v. United States. 766 F.2d 1288, 1291 (9th Cir. 1985):Kahn v. United States, 753 F.2d 1208, 1214 (3d Cir. 1985).
In Bradley, the plaintiff filed a Form 1040 that contained his name, address, and social security number, but no financial information. The plaintiff signed and dated the return and wrote his objections to paying taxes on the form. The Ninth Circuit upheld the assessment of a penalty for filing a frivolous return even though the plaintiff was not legally required to file a return because he did not have sufficient income and did not owe any tax. In upholding the penalty, the court stated as follows:
Although Bradley had a legal justification for not filling out his Form 1040 or paying tax, there is no legal justification for the position he actually takes on his Form 1040. . . .
To hold otherwise would frustrate Congress's intent to reduce the administrative burden on the IRS from handling forms which "are clearly not designed to inform the [IRS] of the filer's taxable income and are not in processible form." Tax forms such as Bradley's, filed by taxpayers who are not required to file returns, necessarily impose an administrative burden because the IRS has no way of knowing from the form itself whether the taxpayer is required to file a return.Bradley, 817 F.2d at 1404 (alteration in original) (citations omitted).
Numerous other courts have upheld penalties for filing a frivolous return under facts similar to those in the instant case where the lax form shows no income, but attached W-2 forms show wages or other forms of compensation. See. e.g., Gillett, 233 F. Supp.2d 874 (taxpayer entered zeros on return in spaces provided for wages, total income, and adjusted gross income, out his W-2's showed payment of wages, tips, and other compensation); Hoffman v. United States. 209 F. Supp.2d 1089 (W.D. Wash. 2002); Danner. 208 F. Supp.2d 1166.
Plaintiffs argue that before a penalty may be imposed under section 6702, the government must show their liability for a tax under Subtitle A. (Pls.' Mem. Supp. Mot. Summ. F. at 2, attached to Pls.' Mot. Summ. J., file entry 13.) However, this argument is directly refuted by theBradley case discussed above. Section 67Q2 is satisfied when an individual tiles what purports to be a return of the tax imposed by subtitle A, but which does not contain information upon which the substantial correctness of the self-assessment may be judged or which contains information which indicates that the self-assessment is substantially incorrect, and the individual's conduct in filing the return is based upon a position which is frivolous. It does not require that the individual actually owe any tax. See Bradley. 817 F.2d at 1404 (holding that the penalty was appropriate even though the taxpayer did not owe any tax and was not required to lie a return).
Plaintiffs' 1996 and 1997 returns do not contain the necessary information upon which judgment concerning the correctness of their self-assessment may be made and indicate on their ace that they are substantially incorrect. Furthermore, Plaintiffs take a frivolous position as evidenced by their statements accompanying the returns, which are discussed below along with other frivolous arguments Plaintiffs have made in the course of this litigation. Accordingly, the frivolous filing penalties are valid.
1. Statutory Requirement to Pay Income Tax and File a Tax Return
Plaintiffs state that the Privacy Act Notice contained in a Form 1040 booklet informs hem that they are not required to file a tax return for two reasons. First, the notice states that hey need only file a return for any tax for which they may be "liable. Plaintiffs claim that no section of the Internal Revenue Code (IRC) establishes a liability for income taxes, as for example, certain code sections do for wagering, alcohol, and tobacco taxes. Plaintiffs state that since no section of the Internal Revenue Code makes them liable for income taxes, they do not lave to file a return.
Unless otherwise specified, all exhibits are attached to the Declaration of Anita Machhar which is attached to the Government's memorandum in support of its motion for summary judgment. (File entry 17.)
Second, Plaintiffs state that the Privacy Act Notice directs them to section 6001 which states in part as follows:
Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.26 U.S.C. § 6001. Plaintiffs assert that since the Secretary did not "serve" them with any such "notice" and no legislative regulation exists requiring anyone to file an income tax return, they are not required to file a return.
This argument is clearly frivolous. The duty to pay income tax is imposed by section 1 of the code. 26 U.S.C. § 1. Further, the code also makes it a requirement to file an income tax return. 26 U.S.C. § 6012. Finally, the code expressly states that an individual must pay taxes owed without assessment, notice, or demand. Section 6151 provides as follows;
Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).26 U.S.C. § 6151 (emphasis added); see also Holland v. Louisiana Sec'y of Revenue Taxation, 208 B.R. 26, 28 (W.D. La. 1997);Moran v. United States. 63 F.3d 663, 666 (7th Cir. 1995) (stating that "an assessment is not a prerequisite to tax liability"), overruled in part on other grounds by Malachinski v. Commissioner, 268 F.3d 497 (7th Cir. 2001). Moreover, the Tenth Circuit has held that arguments that "no statutory authority exists for imposing an income tax on individuals," and that "`individuals are not required to file tax returns fully reporting their income" are "completely lacking in legal merit and patently frivolous." Lonsdale v. United States. 919 F.2d 1440, 1448 (10th Cir. 1990).
2. Paperwork Reduction Act (PRA) and Form 1040
Plaintiffs appear to argue that they were not required to report their income based upon a provision of the Code of Federal Regulations, 26 C.F.R. § 602.101, which "`collects and displays the control numbers assigned to collections of information in Internal Revenue Service regulations by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1980." 26 C.F.R. § 602.101 (a) (2003). Plaintiffs' argument in this regard is as follows:
26 C.F.R. § 602.101 docs not list a 1040 (OMB#1545-0074) as even being applicable to the income tax imposed in Section 1 of the Code. This regulation refers the public to a document carrying the OMB number 1545-0067, which is for reporting "Foreign Earned Income." Since I have no foreign earned income to report, there seems to be no other document or return that 26 C.F.R. § 602.101 makes applicable to the income tax imposed in Section 1 of the Internal Revenue Code.
(Attachment to Pls.' 1996 income tax return, ex. 4.)
Plaintiffs' argument regarding Form 1040 is frivolous on its face. The Code of Federal Regulations, 26 C.F.R. § 1.6012-1(a)(6), requires taxpayers to tile a Form 1040. Further, the Tenth Circuit has explicitly stated that "the 1040 form has the necessary numbers and expiration date for any necessary compliance with the [PRA]." United States v. Dawes. 951 F.2d 1189, 1193(10th Cir. 1991).
In Dawes. the defendants challenged their criminal convictions for failure to file income tax returns arguing that they could not be penalized "`because the tax regulations and instructions to which they would have referred had they filed tax returns did not contain OMB numbers." Id. at 3191. The Tenth Circuit observed that this argument, or some permutation thereof, has been raised in numerous courts around the country, but no court has excused the failure to file a return on those grounds. Id. See also Lonsdale. 919 F.2d at 1448 (holding that the contention that IRS officials lack authority to administer the tax laws because of violations of the PRA is a meritless tax protester argument); United States v. Hicks. 947 F.2d 1356, 1359 (9th Cir. 1991)("Congress enacted the PRA to keep agencies, including the IRS, from deluging the public with needless paperwork. It did not do so to create a loophole in the tax code.");United States v. Saunders, 951 F.2d 1065 (9th Cir. 3991).
3. Fifth Amendment Privilege Against Self-Incrimination
Plaintiffs assert the Fifth Amendment privilege against self-incrimination as a basis for failure to complete the information on a tax return. In Garner v. United States. 424 U.S. 648 (1976), the Supreme Court held that a taxpayer may invoke the Fifth Amendment with regard to tax returns where the return would incriminate the taxpayer for specific non-tax crimes, provided that the privilege was claimed on the return. However, the court reiterated the long-standing principle that the Fifth Amendment is not a defense to filing a return at all. Id. at 650.
The Tenth Circuit has upheld a frivolous return penalty against an assertion of the Fifth Amendment right stating that a "generalized Fifth Amendment claim with respect to self-incrimination is not a valid assertion of the privilege which must be made with respect to specific items of information." Borgeson v. United States. 757 F.2d 1071, 1073 (10th Cir. 1985). Accord Betz v. United States. 753 F.2d 834, 835 (10th Cir. 1985); Martinez v. IRS. 744 F.2d 71, 72 (10th Cir. 1984). Thus, Plaintiffs' reliance on the Fifth Amendment as a justification for filing an essentially blank return is a "frivolous position." See Brennan v. Commissioner. 752 F.2d 187, 189(6th Cir. 1984).
4. Plaintiffs' Claim that "Zero" Returns Qualify as Tax Returns
Plaintiffs assert that courts have held that tax forms with zeros in the spaces qualify as income tax returns. However, the cases cited by Plaintiffs address the adequacy of returns with regard to a criminal charge of failure to file an income tax return in violation of 26 U.S.C. § 7203. The question whether such a return is frivolous in a non-criminal context is a different issue. United States v. Kimball. 925 F.2d 356, 358 (9th Cir. 1991) (en banc). As discussed above, many courts have held that returns similar to the ones at issue here constitute frivolous returns.
5. Definition of Income
Plaintiffs state that they had zero income according to the Supreme Court's definition of income. In support of this statement, they rely upon cases that define the scope of corporate income. Plaintiffs contend that since they had no income that falls within this definition, they had no income. This is another frivolous argument.
The cases cited by Plaintiffs do not stand for the proposition that only corporate income is taxable. On the contrary, the Internal Revenue Code defines "gross income," from which taxable income is computed, as "all income from whatever source derived," including compensation for services, i.e., wages. 26 U.S.C. § 61 (a); Charezuk v. Commissioner, 771 F.2d 471, 473 (10th Cir. 1985). Courts have interpreted "income" to mean "gain derived from capital, from labor, or from both combined." See. e.g., Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174(1926); Merchants' Loan Trust Co. v. Smietanka, 255 U.S. 509, 518 (1921). Further, as Defendant points out, one of the cases cited by Plaintiffs. Southern. Pac. Co. v. Lowe. 247 U.S. 330 (1918), makes clear that taxable income is not limited to corporate income. In that case, the Supreme Court stated that the income tax statute imposed a tax on "every person residing in the United States . . . upon the entire net income arising or accruing from all sources." Id. at 333-34. See also Lonsdale. 919 F.2d at 1448 (noting that arguments that the Sixteenth Amendment applies only to corporations or that no statutory authority exists to impose income tax on individuals "are completely lacking in legal merit and patently frivolous.").
6. Authority to Impose a Penalty Under Section 6702
Plaintiffs argue that they cannot be assessed a penalty for filing a frivolous return because no IRS employee has been delegated authority to assess such a penalty and there is no regulation implementing section 6702. Plaintiffs raise the delegation argument throughout their filings in this case. As Defendant suggests, it appears that Plaintiffs contend that each IRS employee who signs a notice, lien, or levy, or takes any other action must produce a delegation order; otherwise the action taken is null and void. This is another frivolous argument which has been rejected by many courts. See. e.g., Lonsdale, 919 F.2d at 1448 (stating that the argument that "the Commissioner of Internal Revenue and employees of the Internal Revenue Service have no power or authority to administer the Internal Revenue laws, including power to issue summons, liens and levies, because of invalid or nonexistent delegations of authority" is a meritless tax protester argument); Hughes v. United States. 953 F.2d 531, 536 (9th Cir. 1992) (stating that delegation of authority from the Secretary down the chain of command to local IRS officials constitutes a valid delegation of authority). Other courts have noted that delegation orders have "no legal impact on, or significance for, the general public. They simply effect a shifting of responsibilities wholly internal to the Treasury Department."Saunders. 951 F.2d at 1068; Stamos v. Commissioner. 95 T.C. 624, 631 (1990).
Regarding Plaintiffs' assertion that there arc no regulations implementing section 6702, no such regulations are necessary. Section 6702 itself provides statutory authority for the imposition of the penalty. Gillett, 233 F. Supp.2d at 883; Hoffman. 209 F. Supp.2d at 1094.
In a related argument, Plaintiffs assert in several of their filings that 26 U.S.C. § 6702 "has no force and effect in Title 26." (Pls.' Mem. Supp. Mot. Summ. J. at 2, attached to Pls.' Mot. Summ. J., file entry 13.) In support of this assertion, they provide a partial copy of a parallel table of authorities showing the statutory source for various regulations in the Code of Federal Regulations. (Ex. B to Pls.' Mem. Supp. Mot. Summ. J.) This argument is totally frivolous since section 6702 is part of Title 26. Thus, there is no need for regulations to give it "force and effect."
7. Bill of Attainder
Plaintiffs also assert in various filings that imposition of the penalty constitutes an unlawful bill of attainder. (Pls.' Mem. Supp. Mot. Summ. J. at 1-2, attached to Pls.' Mot. Summ. J., file entry 13.) Again, this is a frivolous argument. The prohibition on bills of attainder pertains to legislative acts which "apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial." United States v. Lovett, 328 U.S. 303, 315 (1946). The penalty imposed by section 6702 is not directed at specific individuals or groups, but instead punishes those whose acts interfere with enforcement of the tax laws by filing frivolous returns. A number of courts have so held. See, e.g., Hudson. 766 F.2d at 1292 (stating that section 6702 "is not a bill of attainder because it penalizes conduct rather than membership in a group."); Bearden v. Commissioner. 575 F. Supp. 1459, 1462 (D. Utah 1983).
8. Uniform Commercial Code
Plaintiffs attempt to exercise their "rights" under the Uniform Commercial Code, UCC § 1-207. However, the Uniform Commercial Code has no relevance to the federal income tax in this context. See Saunders. 951 F.2d at 1068 (rejecting tax protester argument based upon Uniform Commercial Code).
9. Separation of Powers
Plaintiffs argue that by promulgating regulations to enforce the Internal Revenue Code, the Secretary has violated the separation of powers doctrine by taking legislative action. This argument is closely related to their delegation argument in that they also contend that as Congress wrote the law, the Secretary himself is required to sign various notices and documents. Again, Plaintiffs' argument is totally frivolous.
Congress has the implied power under the necessary and proper clause of art. I, § 8 of the Constitution to delegate authority to the executive branch sufficient to effect its purposes. See Lichter v. United Stales. 334 U.S. 742, 778 (1948);Mistretta v. United States. 488 U.S. 361, 372 (1989) (stating that the separation of powers doctrine does not prevent Congress from obtaining the assistance of its coordinate branches); J.W. Hampton. Jr., Co. v. United States, 276 U.S. 394, 406 (1928) (noting that Congress has frequently found it necessary to use officers of the executive branch to secure the effect intended by its legislation, and to promulgate regulations). Such a delegation of authority does not violate the separation of powers doctrine so long as it is "accompanied by sufficient guidelines and standards for the exercise of the authority."United States v. Davis. 564 F.2d 840, 844 (9th Cir. 1977);see Mistretta, 488 U.S. at 372. In the instant case, the Internal Revenue Code contains sufficient standards to guide the executive branch, through the Internal Revenue Service, in performance of its constitutional duties in enforcing the legislation enacted by Congress. Plaintiffs' arguments to the contrary or frivolous.Matheson v. Commissioner, No. 91-70634, 1993 WL 169070, at **3-4 (9th Cir. May 19, 1993) (unpublished opinion).
10. Freedom of Expression
In their Memorandum in Support of Reply to Defendant's Motion for Summary Judgment (file entry 24), Plaintiffs argue that the frivolous filing penalties were imposed solely because of the letters they attached to their income tax returns. Plaintiffs claim that this is a violation of their First Amendment right to freedom of expression. This is another tired tax protester argument that has been rejected by many courts. As the Ninth Circuit has explained, "Section 6702 does not violate the right to free speech because it penalizes a taxpayer's conduct of filing a return based on a frivolous position, not the expression of views." Bradley. 817 F.2d 1400, 1404 (9th Cir. 1987). See also Collett v. United States, 781 F.2d 53, 55 (6th Cir. 1985) (stating that section 6702 does not penalize protest communication because there are many other ways to express the protest); Eicher v. United States, 774 F.2d 27, 29 (1st Cir. 1985) (stating that section 6702 does not implicate the First Amendment since it penalizes only failure to comply with the tax laws, not the taxpayer's freedom of expression). As one court has observed, the taxpayer is free to express his views on the tax laws or any other topic, so long as he does not file a frivolous return. Eicher, 774 F.2d at 29-30.
D. Adequacy of Collection Due Process Hearing for the 1996 and 1997 Penalties
Plaintiffs allege that they did receive a valid collection due process hearing with regard to the 1996 and 1997 frivolous filing penalties.
1. Statutory Procedure for CDP Hearing
Section 6330 provides the following procedures for administrative collection actions: (1) The IRS must give the taxpayer written notice of his right to request a CDP hearing within thirty days; (2) the hearing must be conducted by an officer with no prior involvement in the subject tax liability; (3) the appeals officer must obtain verification that the requirements of any applicable law or procedure have been met; (4) the taxpayer may raise any relevant issues relating to the unpaid tax or the proposed levy including spousal defenses, challenges to the appropriateness of the collection action, and offers of collection alternatives such as posting a bond, substitution of other assets, or an installment agreement; (5) the taxpayer may challenge the amount or existence of the underlying tax in certain circumstances; and (6) the appeals officer's final determination must take into consideration (a) the verification that applicable law and administrative procedures have been met, (b) the issues raised by the taxpayer, and (c) whether the proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary. 26 U.S.C. § 6330; Hoffman. 209 F. Supp.2d at 1092-93.
The taxpayer may appeal the determination of the appeals officer to the Tax Court or the United States District Court, whichever has jurisdiction. 26 U.S.C. § 6330(d). In the case of a frivolous return penalty, the district court has jurisdiction. Hoffman. 209 F. Supp.2d at 1093; see 26 C.F.R. § 301.6330-1(f)(2)(A-F3). As discussed, the court reviews for an abuse of discretion the hearing officer's determination that the IRS may proceed with the collection action. Dean. 2002 WL 31662299, at *4; Muhammad. 2003 WL 21152978, at *3.
2. Adequacy of Hearing Afforded Plaintiffs
Plaintiffs make several claims regarding the adequacy of the CDP hearing, including lack of proper notification, failure of the IRS to provide them with a face-to-face hearing, and failure to provide proper verification that applicable statutory and administrative requirements were followed. First, Plaintiffs assert that they did not receive proper notification of their right to a hearing because the notice they received was sent by an IRS employee rather than the Secretary. Based on language in the statute indicating that the Secretary will notify the taxpayer in writing of the right to a hearing, see 26 U.S.C. § 6330(a), Plaintiffs appear to argue that the notification was improper because there was no proof of the delegation of authority from the Secretary to the IRS employee who sent the notice. They also appear to argue that delegation of such authority would violate the separation of powers doctrine since the statute, as written by Congress, indicates that the Secretary will send the notice. They claim that unless they were notified of their right to a hearing by the Secretary or his delegate, the appeals officer had no authority to conduct the hearing. As discussed above, this is a frivolous argument previously rejected by many courts.See. e.g., Lonsdale, 919 F.2d at 1448; Hoffman, 209 F. Supp.2d at 1093-94. It is undisputed that Plaintiffs received notice of their right to a hearing and exercised that right.
Plaintiffs also claim they were entitled to a hearing in which they were allowed to face and cross-examine their accuser under oath. Contrary to Plaintiffs' assertions, there is no requirement that taxpayers receive a face-to-face hearing. Loofbourrow v. Commissioner, 208 F. Supp.2d 698, 707 (S.D. Tex. 2002); Muhammad. 2003 WL 21152978, at *3. The regulations implementing 26 U.S.C. § 6330 which govern CDP hearings provide that the formal hearing procedures of the Administrative Procedure Act (APA) do not apply. Rather, the CDP hearing is informal in nature and does not require a face-to-face meeting. Although the hearing may consist of a face-to-face meeting, it may be satisfied by one or more written or oral communications between the appeals officer or employee and the taxpayer or the taxpayer's representative. 26 C.F.R. § 301.6330-1(d)(2)(A-D6). If a taxpayer wants a face-to-face meeting, he must be offered a hearing at the appeals office closest to his residence. If that is not satisfactory to the taxpayer, he will be offered a hearing by telephone or by correspondence. If that still is not satisfactory to the taxpayer, the hearing officer will review the case file, all written communications with the taxpayer, and any notes of oral communications with the taxpayer. Review of those documents shall constitute the hearing for purposes of 26 U.S.C. § 6330(b). 26 C.F.R. § 301.6330-1(d)(2)(A-D7).
In the instant case, Plaintiffs received a valid CDP hearing under 26 U.S.C. § 6330. As discussed, they clearly received notice and an opportunity for a hearing prior to the levy as required by section 6330(a). Although a telephonic hearing was initially scheduled, Plaintiffs requested a face-to-face meeting. In response, the hearing officer scheduled a hearing to be held either in person at the Salt Lake City office or by telephone. Plaintiffs did not appear at the hearing either by telephone or in person. In his initial letter, dated January 16, 2002, Mr. White explained that pursuant to 26 C.F.R. § 601.106, he would not discuss the frivolous positions that Plaintiffs had advanced. (Ex. 8.) Subsequently, in his determination letter, Mr. White noted that he had scheduled one face-to-face hearing and one telephone conference, but they were not held because Plaintiffs would only raise frivolous questions and arguments and demanded answers before the hearing could proceed. Consequently, all communications were by mail. (See ex. 3.)
Other courts have held that a hearing officer has no obligation to respond to tax protesters' "well-worn, frivolous arguments."Gillett. 233 F. Supp.2d at 883; see also 26 C.F.R. § 601.106(b) (stating that "appeal 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."). Plaintiffs' arguments that they did not owe any taxes were legally frivolous, and thus were not relevant to the matters to be considered at the CDP hearing. Reinhart v. IRS, 2002 WL 1095351, at *6 (E.D. Cal. May 24, 2002). Accordingly, the hearing officer's refusal to consider these matters was proper.
Plaintiffs exchanged correspondence with the hearing officer in which they presented facts, argument, and legal authority to support their position. The hearing officer considered this correspondence in making his determination. This constituted Plaintiffs' collection due process hearing for purposes of 26 U.S.C. § 6330. There was no requirement that the officer conduct a face-to-face hearing. 26 C.F.R. § 301.6330-1(d)(2)(A-D7); Loofbourrow. 208 F. Supp.2d at 707; Muhammad. 2003 WL 21152978, at *3.
In his January 16, 2002 letter, Mr. White informed Plaintiffs that he had verified the validity of the assessment through examination of a complete computer transcript. (Ex. 8.) Although Plaintiffs contend this verification was insufficient, several courts have held that an appeals officer may rely on computer transcripts containing the required information to verify that an assessment is correct. See e.g., Hoffman. 209 F. Supp.2d at 1094. Further, Plaintiffs have not shown that the computer printout was in error. Plaintiffs also complain that the hearing officer clearly violated the law by failing to provide them with a copy of the verification. However, several courts have held that the hearing officer has no obligation to present the taxpayer with a copy of the verification. See. e.g., Gillett. 233 F. Supp.2d at 883-84; Reinhart 2002 WL 1095351. at *5: see Hoffman. 209 F. Supp.2d at 1095.
Mr. White gave plaintiffs the opportunity to present alternatives to the proposed levy action which they failed to do. Given that Mr. White received and considered Plaintiffs' written arguments, and the Notices of Determination reveal a full review of the matter, Plaintiffs' claim that they did not receive a valid CDP hearing is without merit. Accordingly, the hearings officer did not abuse his discretion in concluding that the collection action should proceed.
3. Other Claims Related to the Collection Process
a. Necessity of Filing a Tax Lien
Plaintiffs contend that without the proper filing of a tax lien, no lien is legal and no tax collection can be made. This is simply incorrect. As Defendant points out, a federal tax lien is not a necessary prerequisite to levy. Under 26 U.S.C. § 6321, 6322, a federal tax lien arises upon all the property of a taxpayer at the time of assessment. Guthrie v. Sawyer. 970 F.2d 733, 735 (10th Cir. 1992). There is no need to file a tax lien in order to collect the tax. Rather, the purpose of filing the lien is simply to give notice to other creditors of the taxpayer that the IRS has a superior claim to the property. Further, Plaintiffs' argument that any tax lien is invalid because it was signed by an IRS employee, and not the Secretary, is frivolous as discussed above.
b. Notice and Demand
Plaintiffs also assert that they did not receive proper notice of assessment and demand for payment. According to Plaintiffs, notice and demand must be made on Form 17 or 17A. Plaintiffs assert that they never received a From 17 or 17A. This is another frivolous argument that has been rejected by many courts. See. e.g., Hughes. 953 F.2d at 536 (stating that the form on which notice and demand is sent is irrelevant so long as the requisite information is included);Gillett. 233 F. Supp.2d at 883 n. 1; (stating that the particular form upon which a taxpayer receives notice of an assessment and demand for payment is irrelevant so long as it contains all the information required under section 6303(a)); Carroll v. United States. 217 F. Supp.2d 852, 856 (W.D. Tenn. 2002)(same);Hoffman. 209 F. Supp.2d at 1994 (notice and demand for payment is not required to be sent on any particular form so long as the requisite information is included, specifically noting that it is not required to be sent on a Form 17 or Form 17A); Danner. 208 F. Supp.2d at 1168, 1172 (rejecting claims that statutory notice and demand was defective because not on Form 17). Thus, Plaintiffs are not entitled to relief on this claim.
E. The Court Lacks Subject Matter Jurisdiction over Plaintiff LaMar Lister's Claims Regarding His 1998 Income Tax Liability
Plaintiff LaMar Lister makes several claims concerning his tax liability for 1998. Defendant responds that this court does not have subject matter jurisdiction over claims relating to the 1998 tax year.
Under 26 U.S.C. § 6330(a), a taxpayer has thirty days to request a CDP hearing from the date the IRS sends written notification to the taxpayer of its intent to levy. As discussed, Plaintiff LaMar Lister failed to make a timely request for a CDP hearing with respect to his 1998 tax deficiency. Although a CDP hearing was not required under section 6330, the IRS provided him an "equivalent hearing" to give him the opportunity to present evidence to challenge his liability and to present alternative collection proposals. The IRS then issued a "Decision Letter" as a result of the "equivalent hearing." At least one court has observed that the statute does not provide for judicial review of an "equivalent hearing." Therefore, a taxpayer generally cannot challenge the equivalent hearing decision in court. Johnson v. Commissioner. 2000 WL 1041191, at **2-3 (D. Ore. June 21, 2000). Further, as Defendant points out, even if Plaintiff had filed a timely request for a CDP hearing, any appeal of Plaintiffs 1998 income tax liability would be to the Tax Court, not to the district court. 26 U.S.C. § 6330(d); Danner. 208 F. Supp.2d at 1170; see Sherod v. Commissioner, 2001 WL 584305, at *2 (D. Utah Apr. 4, 2001); Johnson. 2000 WL 1041191, at *3. Accordingly, Plaintiffs claims regarding his 1998 income tax liability should be dismissed for lack of subject matter jurisdiction.
F. Claims Relating to Other Frivolous Filing Penalties and for Release of Federal Tax Lien are Barred by the Doctrine of Res Judicata or Claim Preclusion
Plaintiffs request that the court invalidate the determination of the tax court for the year 1991, and the determinations of the IRS appeals office regarding frivolous filing penalties for the years 1991 through 1995, and 1998. They also request that the court order the release of a federal tax lien. (2d am. compl. at 9, file entry 5.) As discussed above, on September 23, 2002, this court granted the Government's motion for summary judgment in case no. 2:01-CV-690 BSJ, finding that `the frivolous filing penalties assessed against Plaintiff, LaMar Lister, pursuant to 26 U.S.C. § 6702, for tax years 1991 through 1995. and 1998, are valid, and that the IRS' determination that the filed Notice of Federal Tax Lien pertaining to these assessments should not be withdrawn is appropriate." (Ex. 20.) This matter is currently on appeal to the Tenth Circuit.
In an order dated May 21, 2002, the Tax Court upheld the proposed collection action for the tax year 1991 and imposed a $6,000 penalty against Mr. Lister pursuant to 26 U.S.C. § 6673(a)(1). (PL's ex. F, attached to 2nd am. compl., file entry 5.)
Under the doctrine of res judicata, or claim preclusion, a final judgment on the merits of a claim precludes the parties or their privies from relitigating issues that were or could have been raised in the prior case. Rivet v. Regions Bank of La., 522 U.S. 470, 476 (1998);Wilkes v. Wyoming Dep't of Employment Div. of Labor Standards , 314 F.3d 501, 503-04 (10th Cir. 2002),petition for cert. filed. 72 U.S.L.W. 3007 (U.S. June 20. 2003) (No. 02-1863). To apply the doctrine of claim preclusion, three elements must be present: (1) a final judgment on the merits in the earlier case; (2) identity of parties or their privies in the two suits; and (3) identity of the cause of action in both cases. Wilkes. 314 F.3d at 504; King v. Union Oil Co. of Cal., 117 F.3d 443, 445 (10th Cir. 1997).
In the instant case, all three elements are met since the parties are identical; there was a final judgment in the earlier cases; and the claims are identical. Plaintiffs incorrectly argue that there is no identity of the causes of action. However, even if this were true, claim preclusion bars both claims that were actually litigated and those that could have been litigated. Accordingly, Plaintiffs' claims relating to frivolous filing penalties for the years 1991 through 1995, and 1998, as well as their claim seeking release of the federal tax lien are barred by the doctrine of claim preclusion. For the same reason, Plaintiffs' claim seeking invalidation of the tax court's decision relating to tax year 1991 is also barred.
G. Claim to Prohibit Collection of Taxes Is Barred by the Anti-Injunction Act
Plaintiffs ask the court to prohibit the IRS from collecting income taxes and penalties for the years 1991 to 2002. As Defendant argues, this claim is barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." 26 U.S.C. § 7421(a); Lonsdale. 919 F.2d at 1442; James v. United States. 970 F.2d 750, 756 (10th Cir. 1992). The purpose of the statute is "protection of the government's need to assess and collect taxes as expeditiously as possible without preenforcement judicial interference and to require that disputed sums of taxes due be determined in suits for refund."Lonsdale. 919 F.2d at 1442-43 (quoting Lowrie v. United States. 824 F.2d 827,830 10th Cir. 1987). The Tenth Circuit has referred to this principle as "the time honored "pay first, litigate later' rule." Lonsdale. 919 F.2d at 1443. Thus, the Anti-Injunction Act bars this court from issuing an injunction prohibiting the RS from collecting taxes for the aforementioned years.
The statute contains several exceptions, none of which are relevant here. There is also a judicial exception which permits an injunction if the taxpayer can demonstrate that (1) under no circumstances could the government establish its claim to the asserted tax; and (2) the taxpayer would suffer irreparable harm if the injunction is not issued. Bob Jones Univ. v. Simon. 416 U.S. 725, 737 (1974); Enochs v. Williams Packing Navigation Co., 370 U.S. 1, 6-8 (1962); Lonsdale. 919 F.2d at 1442. Plaintiffs have failed to show that their case falls within this judicially created exception.
H. Claim to Recover Overpayment
Plaintiffs seek reimbursement from the Government for amounts withheld from their wages which have been applied to income tax. It is well-established that as a sovereign, the United States is immune from suit unless it consents to be sued, and the terms of consent define he court's jurisdiction. United States v. Palm. 494 U.S. 596, 608 (1990); United States v. Mitchell. 445 U.S. 535, 538 (1980);United States v. Testan, 424 U.S. 392, 399 (1976). Waivers of sovereign immunity should be narrowly construed. Ruckelshaus v. Sierra Club. 463 U.S. 680, 685 (1983); Fostvedt v. United States, 978 F.2d 1201, 1202 (10th Cir. 1992);James, 970 F.2d at 753; see also Schmidt v. King. 913 F.2d 837, 839 (10th Cir. 1990). The party bringing suit has he burden of proving that sovereign immunity has been waived. James, 970 F.2d at 753; Fostvedt. 978 F.2d at 1203 ('The burden is on the taxpayer to find and prove an `explicit waiver of sovereign immunity.') see McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 188-89(1936).
A taxpayer seeking a refund must comply with the requirements of 26 U.S.C. § 7422 which represents the United States' only waiver of sovereign immunity with respect to refund litigation. See Palm, 494 U.S. at 608 (quoting section 7422 to the effect that no suit shall be maintained in any court for the recovery of tax until a claim for refund has been filed with the Secretary according to the provisions of law in that regard and the regulations of the Secretary); Angle v. United States. 996 F.2d 252, 253 (10th Cir. 1993) (stating that the filing of a timely refund claim with the IRS is a jurisdictional prerequisite to a suit for refund of taxes); Buck v. United States. 466 F.2d 481, 483 (10th Cir. 1972) (holding that sovereign immunity was not waived where taxpayers failed to claim that any assessments had been paid or that an application for refund had been filed).
In the instant case, Plaintiffs have not alleged facts that would satisfy the jurisdictional prerequisite of section 7422. Accordingly, the court lacks subject matter jurisdiction to consider the claim for refund.
III. ORDER
No genuine issue of material fact exists, and Defendant is entitled to judgment as a matter of law. Accordingly, Defendant's motion for summary judgment (file entry 16) is GRANTED, and Plaintiffs' motion for summary judgment (file entry 13) is DENIED.