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holding that Medicaid and Medicare funds are subject to levy and that even if the inability to pay was the result of government regulation, it would not excuse the tax liability
Summary of this case from Living Care v. U.S.Opinion
Case No. 02:03-CV-0359
December 12, 2003
OPINION AND ORDER
This matter is before the Court on Defendant United States Internal Revenue Services' ("IRS") Motion for Summary Judgment (Doc. # 15); Plaintiff Living Care Alternatives of Utica, Inc.'s ("Living Care" or "taxpayer") Memorandum Contra to Defendants' Motion for Summary Judgment (Doc. # 18); and Defendants' Reply Memorandum in Support of Its Motion for Summary Judgment (Doc. # 20). For the following reasons, Defendants' motion is GRANTED.
I. NATURE OF PROCEEDINGS
Plaintiff, Living Care, is an Ohio corporation licensed to operate as a nursing home and is a "taxpayer" for federal tax purposes. Living Care seeks judicial review of an IRS collection due process hearing where the IRS sustained the issuance of a lien and levy against Living Care. Defendant has moved for summary judgment, arguing that the decision of the IRS Appeals Officer ("AO") to uphold the IRS's proposed collection action was not an abuse of discretion and should be sustained.II. STANDARD OF REVIEW
The procedure for considering whether summary judgment is appropriate is set forth in Federal Rule of Civil Procedure 56(c), which provides:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is not genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The evidence must be viewed in the light most favorable to the nonmoving party.Adickes v. Kress Co., 398 U.S. 144, 158-159 (1970). Summary judgment will not lie if the dispute about material fact is genuine; "that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, (1986). Summary Judgment is appropriate however, if the opposing party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, (1986); see also Matsuchita Electronic Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986).
Additionally, in responding to a summary judgment motion, the nonmoving party "cannot rely on the hope that the trier of fact will disbelieve the movant's denial of a disputed fact, but must `present affirmative evidence in order to defeat a properly supported motion for summary judgment'" (quoting Liberty Lobby, 477 U.S. at 257). The non moving party must adduce more than a mere scintilla of evidence in order to overcome the summary judgment motion. Id. It is not sufficient for the nonmoving party to merely `"show that there is some metaphysical doubt as to the material facts.'" Id. (quoting Matsushita, 475 U.S. at 586). Moreover, "[t]he trial court no longer has the duty to search the entire record to establish that it is bereft of a genuine issue of material fact." Id. That is, the nonmoving party has an affirmative duty to direct the court's attention to those specific portions of the record upon which it seeks to rely to create a genuine issue of material fact.
III. FACTS
On December 12, 2003, via telephone, a collection due process hearing was held with respect to the IRS's intent to levy and notice of lien filing against Living Care. The AO's "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330" ("Def. Ex. D") explains that the federal tax lien filing and the notice of intent to levy were the result of Living Care's failure to pay over withheld payroll taxes. (Def. Ex. A B.) According to the AO's report, at the time of the hearing Living Care's total unpaid tax liability was approximately $ 400,000.00. (Def. Ex. D).
Living Care raised the following issues at the collection due process hearing: (1) the appropriateness of the IRS's collection action; (2) the collection alternative of selling the nursing home; (3) the collection alternative of an offer-in-compromise. After discussing these issues, the AO determined that Living Care's collection alternative was not appropriate and that Living Care did not qualify for the offer-in-compromise. (Def. Ex. D.) Thus, the AO sustained the levy and lien action.
IV. DISCUSSION
A. Standard
Living Care first argues that the Court should conduct a de novo review of the AO's decision. In the instant case such an extensive review is inappropriate. Sections 6330 and 6320 of the Internal Revenue Code provide for limited judicial review of the timely-requested collection due process hearing. 26 U.S.C. § 6320(c) and § 6330(d). The Court's review jurisdiction under § 6330(d) is limited to the issues properly raised and considered during the due process collection hearing. See Treas. Reg. § 301.6330-1(f)(2), Q-45 A-45 (1999).
When a taxpayer is not challenging the underlying tax liabilities, the sole issue before the court is whether the appeals officer abused his discretion in deciding the appeal before him. See Bonfante v. U.S., 2002 WL 373407, *5 (S.D. Ohio January 2, 2002) (noting that in cases where the validity of the underlying tax liability itself is properly at issue in the hearing, the administrative determination will be reviewed de novo. Where the validity of the underlying tax liability is not properly part of the appeal, the taxpayer may challenge the determination for abuse of discretion.) See also H.R. Conf. Rep. No. 105-599, at 266 (1998); Goza v. Comm'r of Internal Revenue, 114 T.C. 176, 181-182 (2000) (concluding that a court must review the IRS officer's determinations using an abuse of discretion standard when the validity of the tax liability itself is not at issue); MRCA Info. Services v. United States, 145 F. Supp.2d 194, 199 (D. Conn. 2000); Geller v. United States, 88 A.F.T.R.2d 6494, 2001 WL 1346669, *2 (S.D. Ohio Sept. 25, 2001).
Living Care argues that it "has challenged the underlying tax liability" (Pl's Mem. Opp'n at 13). However, there is no evidence before the Court to support this assertion. To the contrary, a review of the evidence before the Court indicates that Living Care has never disputed the underlying tax liability.
For example, the AO's report states that "the underlying tax was not challenged" at the collection due process hearing. (Def. Ex. D at 3.) The AO's report explains how Living Care admitted to the underlying tax liability: "The taxpayer's admission that he [Mr. Rosser, Living Care's President] made the calculated business decision to pay other debts rather than pay over withheld taxes cannot be a basis for an Appeals decision to grant relief." (Def. Ex. D at 3.) Moreover, Living Care's Complaint admits to Living Care's tax liability: "Plaintiff was unable to pay or pay timely all federal withholding taxes" (Pl's Compl. ¶ 5). Living Care's Complaint also states that the collection due process hearing: "Plaintiff presented its explanation for its inability to pay taxes. . . ." (Pl's Compl. ¶ 7.) Both Plaintiff's Complaint and the AO's report prove that Living Care's underlying tax liability was not at issue during the collection due process hearing.
Next, Living Care argues that the collection due process hearing record is incomplete with regard to the AO's decision making process, and that such deficiency in the record erodes Living Care's statutory right to judicial review. Living Care submits that from the record before the Court it is impossible to tell what was discussed at the hearing, and what factors were considered by the AO in making his determination to uphold the IRS collection action. See Mesa Oil, Inc. v. U.S., 2000 WL 1745280, *4 (D. Colo. November 21, 2000). Under these circumstances, argues Living Care, the Court should review the AO's decision de novo.
In Mesa Oil, the court remanded plaintiff's case to the collection appeals level for a more complete review of plaintiff's claim. The court explained:
The Determination's [the appeals officer's report] blank recitation of the statute gives no indication that the statutory goal of a "meaningful hearing" was accomplished, or that actual balancing occurred. Instead, the sparse Determination gives every indication that the "proposed collection action [was] approved solely because the IRS show[ed] that it ha[d] followed appropriate procedures.Mesa Oil at *4. Unlike the court in Mesa Oil, this Court has before it a report from the collection due process hearing which sets forth the issues raised by Living Care, as well as a discussion of those issues. The AO's report explains the collection alternatives raised by Plaintiff and why those collection alternatives were impracticable and unreasonable. In the instant case the AO enumerated specific reasons why the IRS's levy action and lien filing balanced the need for efficient collection of taxes and the concern that a tax collection action be no more intrusive than necessary. See Id. at 4. Thus, the Court will review the appeals officer's decision only for the purpose of determining whether the appeals officer abused his discretion.
B. Review
There are no facts which tend to show that the AO abused his discretion when he decided to uphold the IRS's proposed collection action. It is undisputed that Living Care was unable to pay, or timely pay, federal withholding taxes. (Pl.'s Compl. ¶ 5.) Evidence before the Court shows that Living Care had outstanding tax liabilities from as far back as 1995 (Defs.' Mot. at 7), and that at the time of the hearing Living Care's unpaid tax liability was approximately $400,000.00. (Def. Ex. D.) Augmenting these facts is Living Care's own description of the financial situation it faced at the time of the collection due process hearing.
In essence Living Care's request for a collection due process hearing provides the IRS with a description of Living Care's dire financial state. The request letter acknowledges that the only way for Living Care to pay back taxes, penalty, and interest is through profit. Then the letter goes on to admit that Living Care's dependance on Medicaid and Medicare does not allow Living Care to make this necessary profit. (Pl.'s June 2, 2002 Request Letter). Additionally, the letter arguess that Living Care's financial situation is the result of government actions and that the IRS's collection action would be fufile because the Medicaid and Medicare monies payed to Living Care would not be subject to a levy. (Pl's June 2, 2002 Request Letter). Plaintiff's belief that it's tax liability is "a direct result of government agencies' actions" (Pl's June 2, 2002 Request Letter) does not negate the interest of the IRS to efficiently collect taxes. Living Care is a taxpayer and cannot "choose" to pay other debts instead of paying withheld taxes. Furthermore, Living Care's assertion that Medicaid and/or Medicare funds are not subject to an IRS lien or levy is simply wrong. While Section 6334 of the Internal Revenue Code exempts certain public assistance payments from levy, § 6334 is inapplicable to Living Care. Section 6334 exempts from levy:
Any amount payable to an individual as a recipient of public assistance under; (A) Title IV or Title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act, or (B) state or local government public assistance or public welfare programs for which eligibility is determined by a needs or income test.26 U.S.C.A. § 6334. Living Care is a corporation, not an individual, thus the amounts payable to Living Care are not exempt from levy under § 6334. Besides this fact, § 6334 does not encompass Medicare payments which fall within Title XVII of the Social Security Act ( 42 U.S.C. § 1395).
Along with considering Living Care's financial condition and ability to pay owed taxes, the AO analyzed Living Care's alternate collection plan; to sell the nursing home. The AO determined that selling the nursing home was not a reasonable option, noting; "the nursing home has been on the market since April, 2001, with no buyers." (Def. Ex. D at 6.) Plaintiff's Complaint confirms this determination. The Complaint states that during the 1990's time on the market to the closing of the sale for Licking County nursing home facilities was an average of 1 to 10 years. (Pl's Compl. ¶ 54.) Requiring the IRS to abstain from collecting hundreds of dollars in accrued taxes for an indefinite period, a period that could be up to ten years, is nonsensical. The facts show that it was not an abuse of discretion for the AO to determine that Living Care's proposal to sell the nursing home was not an appropriate alternative to the lien and levy.
The AO addressed the possible alternative of an offer-in-compromise, and determined that Living Care was not eligible for this alternative. At the time of the collection due process hearing, Living Care had not timely filed and timely deposited its employment tax liabilities for the proceeding two quarters. See Def. Ex. D at 6. Thus, it was not an abuse of discretion for the appeals officer to determine that the alternative of an offer-in-compromise was an inappropriate collection alternative.
Finally, while Living Care argues, and the AO's report notes, that Living Care appeared to be current for both the 3rd and 4th quarters of 2002, this fact does not prove that the AO abused his discretion by sustaining the levy action. Decisions by appeals officers may be based upon a number of factors, including, but not limited to: (1) whether the taxpayer had previously agreed to a collection alternative; (2) whether the taxpayer supported a collection alternative with relevant information to show that payments could be made under the alternative; (3) whether the taxpayer is current on its tax obligations; (4) the escalating amount of the outstanding tax liability; and (5) the IRS's need to collect the tax liability. See Tres. Reg. § 301.6330-l(e)(1).
Plaintiff's arguments regarding changes in circumstances since the collection due process hearing will not be considered. The Court's jurisdiction is limited to review of the administrative record before the appeals officer. See Konkel v. Commissioner of Internal Revenue, 2000 WL 1819417 (M.D. Fla. November 6, 2000).
The instant record reveals that the AO considered Living Care's present financial situation, along with the fact that Living Care owed approximately $400,00.00 in overdue taxes, extending as far back as 1995. The AO considered Living Care's acknowledgment of its inability to make payments on the back taxes, and the slim possibility that the nursing home could be profitably sold in a timely manner. All of these factors, discussed in the AO's determination report, support his decision to uphold the IRS collection action.
V. CONCLUSION
The record shows that there was an adequate basis in law and fact for the appeals officer's decision to uphold the Internal Revenue Service's proposed collection action. Thus, there was no abuse of discretion in the appeals officer's decision, Defendant's motion for summary judgment (doc. # 20) is GRANTED. This case is hereby TERMINATED.