Opinion
CV 01-5240 LGB (RNBx)
April 1, 2002
ORDER GRANTING DEFENDANT UNITED STATE'S MOTION FOR SUMMARY JUDGMENT; ORDER DENYING PLAINTIFF'S RULE 56(F) REQUEST
I. INTRODUCTION
Pursuant to 26 U.S.C. § 6330 (d)(1)(B), Plaintiff Andrew Richter ("Plaintiff") brings the instant action against Defendant United States ("Defendant") seeking a judicial review of the Internal Revenue Service ("IRS") appeals office's determination that a levy upon Plaintiff's income and assets to enforce the payment of certain overdue taxes is appropriate. By the instant motion, Defendant seeks summary judgment in its favor on the grounds that no disputed issues of material fact exist and that it is entitled to a judgment as a matter of law because the IRS did not abuse its discretion by making the determination at issue. Plaintiff argues that genuine issues of fact exist that preclude summary judgment or, in the alternative, that pursuant to Fed.R.Civ.P. 56 (f), Defendant's motion must be denied so as to allow discovery concerning whether the IRS appeals officer who made the determination followed all necessary procedures.
For the reasons set forth below, the Court GRANTS Defendant's motion for summary judgment.
II. FACTUAL AND PROCEDURAL BACKGROUND
Unless otherwise noted, the following facts are undisputed. Plaintiff owes a payroll tax penalty previously assessed against him by the IRS. D's Statement of Uncontroverted Facts and Conclusions of Law ("D's Statement of Facts") ¶ 3; P's Statement of Genuine Issues in Opposition to D's Motion for Summary Judgment ("P's Statement of Genuine Issues") ¶ 3. IRS records show that the unpaid amount of the payroll tax penalty on June 21, 2000 was $222,279.59, and that the total amount owed at that time, including accrued penalties and interests, was $458,486.70. Id. In anticipation of taking levy action to collect the payroll tax penalty on June 21, 2000, the IRS sent Plaintiff a "Notice of Intent to Levy and Notice of Your Right to a Hearing." Id. Plaintiff timely protested the IRS's Notice of Intent to Levy and requested a hearing before the IRS appeals office pursuant to Section 6330(b)(1). D's Statement of Facts ¶ 4; P's Statement of Genuine Issues ¶ 4. The only issue raised by Plaintiff in his written request for a hearing is his statement, "I request offer and compromise." D's Statement of Facts ¶ 5; P's Statement of Genuine Issues ¶ 5. IRS records show that Plaintiff had previously submitted an offer to compromise the tax liability in July 1998, and that the offer was returned to Plaintiff in May 2000. D's Statement of Facts ¶ 6; P's Statement of Genuine Issues ¶ 6. The parties dispute whether the IRS had requested verification, of financial information provided in connection with the offer but had not received all of the requested information. D's Statement of Facts ¶ 6; P's Statement of Genuine Issues ¶ 6.
On or about August 21, 2000, IRS Settlement Officer Adlai Climan ("Climan") sent Plaintiff a letter inviting him to call and schedule a conference. D's Statement of Facts ¶ 8; P's Statement of Genuine Issues ¶ 8. The parties dispute whether Climan ever received a response to his letter. Id. On or about December 21, 2000, Climan sent Plaintiff a letter inviting him to file the Offer in Compromise which Plaintiff's appeal letter had stated he wanted to file. D's Statement of Facts ¶ 9; P's Statement of Genuine Issues ¶ 9. Climan's letter included the forms needed to make an Offer in Compromise, and the letter also advised Plaintiff that he would have to file his unfiled 1999 income tax return in order for the offer to be processed. Id. Climan did not receive any responses to his December 21, 2000 letter. D's Statement of Facts ¶ 10; P's Statement of Genuine Issues ¶ 10. On March 30, 2001, Climan sent Plaintiff another letter advising Plaintiff that an appeals conference in the matter was being scheduled for April 16, 2001. D's Statement of Facts ¶ 11; P's Statement of Genuine Issues ¶ 11. On April 13, 2001, Plaintiff's representative called to request that the conference be rescheduled, and the conference was rescheduled for April 20, 2001. D's Statement of Facts ¶ 12; P's Statement of Genuine Issues ¶ 12. During the conference, Plaintiff's representative stated that his client wanted to submit an Offer in Compromise. Id. The parties dispute whether this was the only issue raised — Plaintiff asserts that his representative stated to Climan that his client had already submitted an offer in compromise and wanted to know on what basis it had been rejected. Id. During the appeals conference, Plaintiff's representative stated that Plaintiff had no income in 1999 or 2000, and that Plaintiff was therefore not required to file any tax returns for those years. D's Statement of Facts ¶ 13; P's Statement of Genuine Issues ¶ 13.
On April 20, 2001, at the conclusion of the appeals conference, Climan prepared and sent another letter advising Plaintiff that the completed Offer in Compromise, along with a Collection Information Statement and certain documents needed to verify Plaintiff's income and expenses, must be submitted in order for the IRS to consider an Offer in Compromise. D's Statement of Facts ¶ 14; P's Statement of Genuine Issues ¶ 14. The parties dispute whether Plaintiff was only asked to file "required returns" or whether Climan made it "very clear" that he would not accept an Offer in Compromise for consideration without returns from Plaintiff reporting half of his wife's wages. Id. The parties dispute whether Plaintiff filed a joint return with his wife for 1998 and whether Climan knew of a separate property agreement between Plaintiff and his wife or was otherwise told that such an agreement existed. D's Statement of Facts ¶ 15; P's Statement of Genuine Issues ¶ 15. Finally, the parties also dispute whether Plaintiff ever responded to Climan's April 20, 2001 letter. D's Statement of Facts ¶ 16; P's Statement of Genuine Issues ¶ 16. On May 14, 2001, the IRS Appeals Office issued its Notice of Determination that is the basis of this appeal. In that determination, the office determined that IRS levy action was appropriate because Plaintiff had made no acceptable proposal for resolution or payment of the tax liability. Id. Exhibit 8 to Decl. of Russo in Opposition to D's Motion. On June 12, 2001, Plaintiff filed the instant action seeking a judicial review of the IRS Appeals Office's determination.
III. LEGAL STANDARDS AND ANALYSIS
A. Legal Standards
1. Standard governing Plaintiff's appeal of the Notice of Determination
Pursuant to 26 U.S.C. § 6330 (d)(d)(1), this Court may review a timely-filed appeal of an IRS Notice of Determination. On appeal to this Court, Plaintiff may raise only those issues raised with the Appeals Office at the Collection Due Process hearing. See TTK Management v. United States, 2000 WL 33122706 * 1 (C.D. Cal. 2000); see Temporary Treasury Regulation ¶ 301.6320-1T, Q A F5. The parties do not dispute that during the appeals hearing, Plaintiff asked Climan to consider an Offer-in-Compromise as an alternative to a levy action for collection.
If the validity of the tax liability is not in issue, the taxpayer may challenge the determination of the appeals officer for abuse of discretion. TTK, 2000 WL 33122706 *1; H. Conf. Rept. 105-599, at 266 (1998). The Ninth Circuit has stated that an abuse of discretion is "a plain error, discretion exercised to an end not justified by the evidence, a judgment that is clearly against the logic and effect of the facts as are found." Wing v. Asarco, Inc., 114 F.3d 986 (9th Cir. 1997). The burden is on the taxpayer when challenging an IRS collection action. See Redmond v. United States, 507 F.2d 1007, 1011-1012 (5th Cir. 1975).
Rule 56 of the Federal Rules of Civil Procedure provides that a court shall grant a motion for summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
The moving party for summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Rule 56(e) of the Federal Rules of Civil Procedure requires that the party opposing the summary judgment motion "set forth specific facts showing that there is a genuine issue for trial" in its opposition papers.
Fed.R.Civ.P. 56(f) provides that
Should it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.
Fed.R.Civ.P. 56(f). In order to make a proper Rule 56(f) showing, a party must make clear what information is sought and how it would preclude summary judgment. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998). Summary judgment may not be granted until the court first determines the merits of the opposing party's request for continuance under Rule 56 (f). Garrett v. San Francisco, 818 F.2d 1515, 1518-19 (9th Cir. 1987). The burden is on the party seeking additional discovery to proffer sufficient facts to show that the evidence sought exists and that it would prevent summary judgment. Nidds v. Schlinder Elevator Corp., 113 F.3d 912, 920 (9th Cir. 1997).
Courts have denied a Rule 56(f) application for lack of sufficient showing to support further discovery where it was clear that the evidence sought was almost certainly nonexistent or was the object of pure speculation. Exxon Corp. v. Federal Trade Comm'n, 663 F.2d 120, 127 (D.C. Cir. 1980) (Rule 56(f) application properly denied where "there [were] simply no facts in the record" to support existence of object of plaintiff's proposed discovery, and where defendant's evidence affirmatively indicated nonexistence of object of discovery).
B. Analysis
Plaintiff argues that Defendant has not met its burden of demonstrating the absence of a genuine issue of material fact, and that it is entitled to judgment as a matter of law. Specifically, he contends that a genuine issue of material fact exists as to 1) whether Climan independently verified that all applicable laws and administrative procedures had been met, 2) whether Climan was aware of Plaintiff's separate property agreement, 3) whether Plaintiff cooperated with the IRS in his attempts to obtain an Offer and Compromise, and 4) whether Climan performed the balancing test required by statute. Pl's Opposition at 9-13. In the alternative, Plaintiff requests that Defendant's motion for summary judgment be denied pursuant to Fed.R.Civ.P. 56(f) so as to allow him to depose Climan with regards to issues 1, 2, and 4. Id. at 13. For reasons set forth below, the Court concludes that Defendant is entitled to summary judgment.
1. The absence of genuine issues of material fact precluding summary judgment
As an initial matter, the Court notes that Plaintiff has erroneously shifted the burden of proof to Defendant. It is not only his burden to show that genuine issues of material fact exist so as to preclude summary judgment but it is also his burden in challenging the validity of the IRS collection action. Plaintiff has satisfied neither here.
First, Plaintiff attempts to raise a genuine issue of fact as to whether Climan independently verified that all applicable laws and administrative procedures had been met by pointing out that though "Climan's [d]eclaration contains his conclusory statement that his review of IRS files indicated that the IRS had complied with requirements of applicable laws and procedures, counsel for Defendant tacitly admits that this allegation was of insufficient value to support a finding of fact by not including it in [Defendant's Statement of Uncontroverted Facts]." Pl's Opposition to D's Motion at 9. The Court agrees with Defendant that the exclusion of this ultimate fact from its Statement of Uncontroverted Facts does not constitute an admission on its part that there is a genuine issue as to whether Climan performed his statutory duties; such an omission is simply irrelevant. Based on the record before it, the Court finds that Climan reviewed the applicable law and administrative procedures and properly concluded that the necessary requirements regarding the IRS's proposed levy action and the filed Notice of Federal Tax Lien had been met. This is so because there is an unpaid assessment of tax liability, the tax liability had been properly and timely assessed, there had been notice and demand made for the payment of the liability and a neglect or refusal to pay, and Plaintiff had been provided with the appropriate notice and opportunity for a collection due process hearing. Exhibit 8 to Decl. of Russo in Support of Pl's Opposition, Notice of Determination at 3; see also Decl. of Climan to Pl's Motion ¶ 3. Plaintiff has not brought forth any evidence to raise a genuine issue of fact as to this matter. Though Plaintiff raises issues regarding his previous Offer in Compromise and the return of the offer to him as "unprocessible," Pl's Opposition at 9, that offer is irrelevant not only to the instant motion but to the action as a whole.
Second, Plaintiff similarly misses the mark in attempting to raise a genuine issue of fact as to whether Climan performed the balancing test required by statute by pointing to Defendant's failure to include this ultimate fact in its Statement of Uncontroverted Facts. In addition, he also notes that "[n]owhere in Climan's declaration does he state that he performed this balancing test. It is reasonable to infer that had he done so it would have been stated in his declaration." Pl's Opposition to D's Motion at 12-13. The Court refrains from reaching this inference on the grounds that it would be inappropriate, and finds Plaintiff's quibbles with minor details to be misdirected, especially given that the Notice of Determination states that Climan found that the proposed enforced collection action balances the need for efficient collection of the liability with Plaintiff's concerns. Exhibit 8 to Decl. of Russo in Support of Pl's Opposition, Notice of Determination at 3. The Notice of Determination thus states that "You have made no acceptable alternative proposal for payment of the liability. The proposed levy action appears no more intrusive than necessary considering the government's need to collect the debt." Id. Plaintiff has not proffered any evidence to create a genuine issue of fact as to this matter.
Third, Plaintiff's argument that there are material issues of fact as to whether he cooperated with the IRS in his attempts to obtain an Offer and Compromise is also irrelevant, given that it is undisputed that he ultimately failed to submit an Offer and Compromise to the IRS for processing and consideration. Pl's Opposition at 12.
Plaintiff's strongest argument appears to be that there are genuine issues of material fact as to whether Climan was aware of his separate property agreement, Pl's Opposition at 10-12, but this too ultimately lacks merit and is insufficient to bar the grant of summary judgment in favor of Defendant. The Notice of Determination shows that Climan's decision was based on the fact that Plaintiff "made no acceptable proposal for resolution or payment of the subject tax liability." Exhibit 8 to Decl. of Russo in Support of Pl's Opposition, Notice of Determination at 2. More specifically, Climan notes that Plaintiff "ha[d] submitted no Offer in Compromise, nor made any proposal for installment payments." Id. Defendant thus contends that it did not abuse its discretion by determining that IRS levy action was appropriate in light of the fact that Plaintiff raised only the issue of an Offer in Compromise and yet ultimately failed to tender one. D's Reply Brief at 5-7; id. at 8 ("Mr. Richter simply cannot expect the government to grant his request for a compromise if Mr. Richter refuses to make an offer.").
Plaintiff, however, counters that the reason that he did not submit an offer is because Climan had continuously insisted that he file his 1999 and 2000 tax returns despite the fact that he had allegedly informed Climan that he need not file such documents. See Pl's Opposition at 10-11 ("Since the Richters had a prenuptial agreement providing that their income was to remain their separate property, and he had no income during 1999 or 2000, there was no legal requirement that he file a return reporting 1/2 of his wife's income during those years."); Comm'r of Internal Revenue v. Harmon, 323 U.S. 44, 55 n. 8 (1944) (if in traditional community property states, community property is transmuted by agreement of spouses into the separate property of one spouse, the income thereafter is taxable solely to the latter); United States v. Elam, 112 F.3d 1036, 1038 (9th Cir. 1997) (noting that transmutation agreements that are valid under state law are also binding on the government for federal tax purposes); Helvering v. Hickman, 70 F.2d 985, 987 (9th Cir. 1934) (finding wife's income was not taxable on the husband because transmutation agreement kept her earnings as separate property). Under the circumstances, Plaintiff argues that he knew that to submit an offer without filing the returns would be considered useless by the IRS and as such, did not submit the offer. Plaintiff concludes that Climan's insistence on the returns as a condition for the processing and consideration constitutes an abuse of discretion.
Even assuming that Plaintiff indeed informed Defendant of the existence of the separate property agreement, Climan's insistence on the filing of the 1999 and 2000 returns does not create genuine issues of material fact as to whether the IRS abused its discretion in issuing the Notice of Determination. The Court construes Plaintiff as making an equitable estoppel-type of argument against Defendant, for he acknowledges that he did not submit an Offer in Compromise to the IRS but blames his reliance on Climan's alleged oral representations for such a failure. In dealing with the government, however, Plaintiff is charged with knowledge of applicable statutes and regulations. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947). The applicable treasury regulations require that an Offer in Compromise and an acceptance be in writing. 26 C.F.R. § 301.7122-1 (d)(1), (d)(3). Thus, Plaintiff should have known that Climan's oral representations were not binding and should have known that he needed to initiate the process by submitting an offer, thereby placing the burden upon Climan to justify any subsequent rejection of the offer. Moreover, a rejection of an Offer in Compromise does not occur until the government formally rejects the offer. United States v. McGee, 993 F.3d 184, 186 (9th Cir. 1993). Climan's alleged representations to Plaintiff thus do not constitute an appealable "rejection" despite Plaintiff's attempts to now paint them as such. In addition, it is well-settled that the IRS will not process proposed collection alternatives for past liabilities when a taxpayer has not been meeting its current payroll tax obligations. See TTK Management v. United States, 2000 WL 33122706 * 2 (C.D. Cal. 2000); AJP Management v. United States, 2000 WL 33122693 * 2 (C.D. Cal. 1999). The IRS puts the taxpayer seeking to compromise his tax liabilities on notice of this fact since the Form 656 package states that "[w]e'll also consider your overall history of filing and paying taxes." D's Supplemental Brief, Form 656 at 1. In addition, the package also states that "[y]ou are not eligible for consideration of an Offer in Compromise on the basis of doubt as to collectibility or effective tax administration if . . . you haven't filed all required federal tax returns." Id. at 2. Though Plaintiff alleges that he informed Climan of the existence of a separate property agreement, he does not allege that he ever produced the agreement for Climan's review or otherwise submitted written verification that he need not file the 1999 and 2000 returns.
Based on the foregoing, the Court finds that Plaintiff has failed to raise genuine issues of fact as to whether the issuance of the Notice of Determination constitutes an abuse of discretion, either on the part of Climan or the IRS as a whole.
2. Plaintiff's Rule 56(f) Request
This Court must determine the merits of Plaintiff's Fed.R.Civ.P. 56 (f) request before it can grant Defendant's motion for summary judgment. Margolis, 140 F.3d at 852. Plaintiff has produced an affidavit from his counsel stating that Climan has personal knowledge as to the specific steps he took, if any, to verify that all statutory, regulatory, and administrative requirements for the proposed collection action have been met and what steps, if any, he took to determine that the proposed collection action balanced the need for efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Exhibit of Brager in Opposition to D's Motion ¶ 2. Plaintiff's counsel states that
[i]n response to informal discovery requests, the IRS has provided me with the files kept by Climan in connection with the Collection Due Process hearing upon which this case based. Having reviewed them, I believe that Climan's deposition will reveal that he performed his statutory duties a perfunctory manner, if at all.
Id. ¶ 3. Thus, Plaintiff seeks information specifically regarding the steps that Climan took in making his determination that IRS levy action is appropriate. The Court, however, finds that Plaintiff has failed to bear his burden of proffering sufficient facts to show that the evidence sought exists and how it would preclude summary judgment. Nidds, 113 F.3d at 920. In light of counsel's conclusory statement that a review of Climan's files forms the basis of his belief that Climan performed his duties in an inadequate manner, the Court has no choice but to conclude that the evidence sought by Plaintiff is the "object of pure speculation." Exxon Corp., 663 F.2d at 127. Ultimately, Plaintiff has done nothing more than "rely on vague assertions that additional discovery will produce needed, but unspecified facts." International Shortstop, Inc., et al. v. Rally's, Inc., 939 F.2d 1257, 1267 (5th Cir. 1991) (internal quotations omitted).
IV. CONCLUSION
Based on the foregoing, the Court finds that besides failing to create a genuine issue of material fact as to preclude the grant of Defendant's motion for summary judgment, Plaintiff has also failed to adequately support his Rule 56(f) request. The Court finds that viewing the facts in the light most favorable to Plaintiff as the non-moving party, Defendant did not abuse its discretion by issuing the Notice of Determination being appealed here.
For the reasons set forth above, the Court GRANTS Defendant's motion for summary judgment. The case is hereby termed closed.
IT IS SO ORDERED.