Opinion
Case No. CV-S-01-1237-KJD-(PAL)
July 31, 2002
ORDER
This matter comes before the Court on Defendant's Motion To Dismiss or In The Alternative, For Summary Judgment (#6). Plaintiff filed a response in opposition (#9).
I. Factual and Procedural History
Plaintiff commenced this action pursuant to 26 U.S.C. § 6330(d) challenging an IRS determination that collection actions against him should not be restricted. Additionally, Plaintiff seeks a refund of $3,125.00 plus 10% interest for income taxes which he "erroneously" paid in 1998. Defendant has now filed a motion to dismiss, or in the alternative, for summary judgment.
A. Collection Activity
The collection activity at issue stems from a frivolous return penalty the IRS assessed against Plaintiff for a return he filed in April 1999. The return had zeroes on all lines which reflected amounts of income earned or taxes due. Attached to the return was a 1998 Form W-2 showing that Plaintiff received wages of at least $1,690.25 and a 1998 Form 1099 showing that Plaintiff received at least $44,069.64 in "nonemployce compensation." Plaintiff also requested a refund of all taxes either withheld or paid during the 1998 tax year. Finally, attached to the 1998 return was a two page document which set forth arguments as to why Plaintiff did not believe that he owed federal income tax.
On July 17, 2000, the IRS assessed a $500 civil penalty against Plaintiff under 26 U.S.C. § 6702 for filing the above described tax return. Section 6702 states that a civil penalty of $500 will be assessed if an individual "files what purports to be a return" but which contains "information that on its face indicates that the self-assessment is substantially incorrect" and is due to "a position which is frivolous." Plaintiffs self assessment of his 1998 income tax liability was substantially incorrect in that he entered zeros for all income and tax information. Plaintiffs self assessment was based on the argument that there is no statutory income tax liability applicable to him and that his wages do not constitute income. Courts, however, have found this argument to be frivolous and patently without merit. See Sisemore v. United States, 797 F.2d 268, 270 (6th Cir 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985). Because Plaintiff's self assessment was on its face substantially incorrect and was based on a frivolous position, there is no doubt as to the validity of the penalty.
On October 12, 2000, IRS sent Plaintiff a "Final Notice-Notice of Intent to Levy and Notice of Your Rights to a Hearing." This letter provided Plaintiff with notice of his right to file an appeal by requesting a Collection Due Process Hearing ("CDP Hearing") within 30 days. Plaintiff timely filed Form 12153 "Request for a Collection Due Process Hearing." Plaintiffs CDP Hearing was held on August 28, 2001 in Las Vegas. Nevada. On September 27, 2001. the IRS Appeals Office sent, by certified mail, a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330." The letter informed Plaintiff that the proposed collection action would not be restricted. The letter also informed Plaintiff of his right to dispute the determination by filing a complaint in Federal District Court within 30 days. Plaintiff filed a timely complaint with this Court.
B. Refund Claim
After examining Plaintiff's 1998 tax return, the IRS determined there was a tax deficiency. In a letter dated December 16, 1999, the IRS informed Plaintiff that he owed $14,405.00 in self employment and other taxes as well as a $2,881.00 Civil Penalty and $1,061.62 in interest charges for a total amount due of $18,347.62. On February 29, 2000, Plaintiff filed a Form 843 "Claim for Refund and Request for Abatement," requesting a refund of the $3,125.00 withheld from his 1998 taxable income. In a statement of his account dated July 24, 2000, which included a credit for the $3,125.00 Plaintiff requested as a refund, the IRS calculated the total amount due with interest to be $15,731.03. There is no information in Plaintiff's complaint which indicates he has made partial or full payment of this amount.
II. Standard of Review
A dismissal for failure to state a claim pursuant to Rule 12(b)(6) is a ruling on a question of law. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). In reviewing a Rule 12(b)(6) motion, the Court "must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true." Swarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Moreover, because Plaintiff in this action is proceeding pro se, the Court must liberally construe all arguments set forth in his complaint. See Boag v. MacDougall, 454 U.S. 364, 365 (1982). Review is limited to the contents of the complaint. See Sprewell v. Golden State Warriors, 231 F.3d 520, 527 (9th Cir. 2000). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Sprewell, 231 F.3d at 528. If matters outside the pleadings are considered, the court should treat the motion as one for summary judgment. See Fed.R.Civ.P. 12(c).
Summary judgment may be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show 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. See Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the initial burden of showing the absence of a genuine issue of material fact. See Celox, 477 U.S. at 323. The burden then shifts to the nonmoving party to set forth specific facts demonstrating a genuine factual issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fed.R.Civ.P. 56(e). The evidence, as well as all justifiable inferences drawn from it, must be viewed in the light most favorable to the nonmoving party. See Matsushita, 475 U.S. at 587. Summary judgment shall be entered "against a party who 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 at trial." Celotex, 477 U.S. at 322.
III. Analysis
Plaintiffs complaint contains a barrage of meritless arguments which he insists this Court must address. There are only two genuine issues before this Court. First, whether the IRS Appeals Office met all requirements of any applicable law or administrative procedure when making its determination that the collection action against Plaintiff should continue unrestricted. Second, whether this Court has jurisdiction to grant Plaintiff a tax refund. These issues will be addressed first, followed by a discussion of Plaintiff's purely meritless arguments.
A. Collection Procedure
Procedures for administrative collection actions are found in 26 U.S.C. § 6330 which requires that: (1) the IRS give 30 days' written notice of the taxpayer's right to a CDP Hearing before making a levy; (2) a hearing be conducted by an officer or employee who has no prior involvement with the subject tax liability; (3) the Appeals Office obtains verification from the IRS that the requirements of any applicable law or administrative procedure have been met; (4) the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy at the time of the CDP Hearing, including appropriate spousal defenses, challenges to the collection actions and offer of collection alternatives; (5) the taxpayer may challenge the existence of the underlying tax liability under some circumstances; and (6) the final determination by the Appeals Officer shall take into consideration (a) the verification that any applicable law or administrative procedure has been met, (b) the issues raised by the taxpayer, and (c) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.
A review of Plaintiff's complaint illustrates that all of the above requirements have been met: (1) Plaintiff received timely notice of levy and requested a CDP hearing; (2) Plaintiff attended his CDP Hearing on August 28, 2001 with IRS Appeals Officers Julie Peterson and Tony Aguiar, who had no prior involvement with the subject tax liability; (3) the Appeals Office obtained Form 4340 from the IRS which serves as verification that the requirements of any applicable law or administrative procedure were met; (4) the only relevant issue raised by Plaintiff at the CDP hearing was a claim that he did not receive a proper statutory notice and demand for payment. The Appeals Team Manager reviewed the transcript and found it indicated that the Notice and Demand was sent to the Plaintiff's last known address. Plaintiff presented no evidence other than his testimony to dispute the fact that the Notice and Demand had been sent to his last known address; (5) Plaintiff did not challenge the validity of the underlying tax liability (the penalty); (6) the final determination of the Appeals Officer stated that he took into consideration all required statutory elements. Finally, attachment 3194 to the Notice of Determination noted that Plaintiff did not raise any non-frivolous arguments at the hearing.
B. Plaintiff's Refund
A taxpayer may file a suit in a district court to recover any internal revenue tax alleged to have been excessive or in any manner wrongfully collected under internal revenue laws. See 28 U.S.C. § 1346(a)(1). Before a plaintiff may file in federal district court, he must satisfy the jurisdictional prerequisites of making a full payment of the tax deficiency and exhausting his administrative remedies by filing a refund claim with the IRS. See Flora v. United States, 362 U.S. 145, 146 (1960) (holding that a federal District Court has no jurisdiction under 28 U.S.C. § 1346(a)(1) over a suit by a taxpayer for the refund of income tax payments which did not discharge the entire amount of his assessment); Thomas v. United States, 755 F.2d 728, 729 (9th Cir. 1985) (stating that ordinarily, there is no jurisdiction in the district courts over suits for the refund of amounts paid until the taxpayer had paid the full amount of the contested assessment, and has filed a claim for refund which the IRS has either rejected or not acted upon in six months). When subject matter jurisdiction is challenged under Rule 12(b)(1), as the Defendant does in the instant case, the plaintiff has the burden of proving jurisdiction in order to survive the motion. See Tosco Corp. v. Communities for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001).
A taxpayer may, however, challenge a tax liability before paying the deficiency by filing a timely petition with the tax court. See Scar v. Comm'r, 814 F.2d 1363, 1366 (9th 26 Cir. 1987)
Here, Plaintiff has failed to meet his burden. Plaintiffs only "claim" for his refund was the frivolous return he filed in April 1999 for the 1998 tax year. IRS records attached to Plaintiff's complaint indicate that Plaintiff has not made a full payment of the amount he owes for the year in question. Plaintiff does not claim that he has made full payment, only that he does not owe any taxes so the amount withheld should be refunded to him. Moreover, Plaintiff does not claim to have filed an administrative claim with the IRS seeking a refund. Absent full payment and exhaustion of his administrative remedies, Plaintiff's remedy lies in tax court. Accordingly, Plaintiff's refund claim must be dismissed for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.
C. Plaintiff's Arguments
1. Inadequacy of Notice
Plaintiff repeatedly argues that letters and notices the IRS sent him are invalid because there is no evidence of any delegated authority from the Secretary of Treasury to the various IRS employees. Relevant statutes and regulations demonstrate, however, that the Secretary does have the power to collect taxes, and that such power can be delegated to local IRS agents. 26 U.S.C. § 6301 provides that "[t]he Secretary shall collect the taxes imposed by the internal revenue laws." The actual task of collecting the taxes, however, has been delegated to local IRS directors. See 26 C.F.R. § 301.6301-1 ("The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue."). The delegation of authority down the chain of command, from the Secretary, to the Commissioner of Internal Revenue, to local IRS employees, constitutes a valid delegation by the Secretary to the Commissioner, and a re-delegation by the Commissioner to the delegated officers and employees. See 26 U.S.C. § 7701(a)(11)(A), (12)(A)(i); 26 C.F.R. § 301.7701-9; Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1991).
2. Adequacy of Supporting Documentation
Plaintiff contends the IRS has never produced a document supporting imposition of the penalties at issue. He does not believe that a computer transcript is adequate to verify an assessment. At his CDP Hearing, the appeals officer provided Plaintiff with the Form 4340, "Certificate of Assessments and Payments" for the penalty assessment. The Ninth Circuit has held that a Form 4340 is sufficient evidence to support a grant of summary judgment on a claim that the IRS failed to issue notice of assessment and demand for payment. See Huff v. United States, 10 F.3d 1440, 1446-1447 (9th Cir. 1993); Hughes, 953 F.2d at 535. Moreover, official certificates, such as Form 4340, can constitute proof of the fact that the assessments actually were made. See Hughes, 953 F.2d at 535.
3. Regulation Requiring Plaintiff to Pay Penalty
Plaintiff contends that no Treasury Department regulation requires him to pay the penalties at issue and that the Defendant has not produced any such regulation. 26 U.S.C. § 6702(a) provides the statutory authority for assessing the penalty and does not by its terms require any implementing regulations. See Hoffman v. United States No. C02-5023RJB, 2002 WL 1299991, at *5 (W.D. Wash. May 3, 2002).
4. Underlying Liability for Income Tax
Plaintiff contends that no statute establishes an underlying liability for the income tax to which the penalties relate, and the IRS has not identified any such statute. Plaintiffs liability for tax deficiencies (what he owed in taxes for 1998) is not at issue in this case, although he consistently tried to make it so at the CDP Hearing and in the instant complaint. As explained previously, Plaintiff's remedy with regard to the liability for tax deficiencies does not lie in this Court. This Court does not have jurisdiction to consider income tax deficiencies. See 26 U.S.C. § 6213(a); Moore v. Comm, 114 T.C. 171, 175 (2000).
III. Conclusion.
Plaintiffs 1998 Form 1040 was clearly frivolous and the civil penalty was validly assessed. More importantly, the Defendant properly followed all requirements of the applicable laws and administrative procedures when assessing the civil penalty and then determining the collection action should continue unrestricted. Furthermore, the Court lacks jurisdiction over Plaintiff's claim for a tax refund. The arguments that the Court could glean from Plaintiff's disjunctive complaint and opposition to Defendant's motion are purely meritless. Finally, because Plaintiff's complaint lacks any merit, had the Defendant moved for Rule 11 sanctions this Court would have freely granted such motion.
Accordingly, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss or In The Alternative, For Summary Judgment (#6) is GRANTED.
IT IS FURTHER ORDERED that Plaintiff's complaint is hereby DISMISSED.