March 24, 2004
For the reasons explained herein and in the Memorandum entered herewith, the Court rules as follows:
(1) Plaintiff's Request for Oral Argument or, in the Alternative, Referral to United States Magistrate (Docket Entry No. 8) is DENIED. The Court has determined that oral argument is not needed in order to resolve the issues presented by Defendant's Motion and that referral to the Magistrate Judge for a hearing is unnecessary; and
(2) Defendant's Motion for Summary Judgment (Docket Entry No. 3) is GRANTED.
Therefore, this case is hereby DISMISSED WITH PREJUDICE.
It is so ORDERED.
Pending before the Court is Defendants' Motion for Summary Judgment (Docket Entry No. 3).
I. BACKGROUND AND PROCEDURAL HISTORY
Plaintiff filed this lawsuit on September 6, 2002, pursuant to 26 U.S.C. § 6330(d)(1)(B), seeking judicial review of the Internal Revenue Service's ("IRS") administrative determination that the actions taken to collect Plaintiff's unpaid federal employment and unemployment taxes were appropriate pursuant to 26 U.S.C. § 6320. Plaintiff asserts that the trust fund recovery penalty that the IRS assessed under 26 U.S.C. § 6672 for unpaid employment and unemployment taxes stemming from the operation of his three companies was not appropriate. He seeks an Order directing the Appeals Division of the IRS to reconsider his request for a determination that he is not liable for such penalty and any other relief the Court deems appropriate.
Some background to the tax levy and penalty challenged by Plaintiff is necessary. Plaintiff owns three trucking companies: Dedicated Transportation Services, Inc. ("DTS"); Truck Management Group, Inc. ("TMGI"); and Contract Carriers, Inc. ("CCI"). On December 1, 1988, DTS filed a refund claim for $134,005.79 with the IRS, for alleged overpayment of employment taxes from the first or fourth quarter (the Court has seen conflicting statements in this regard) of 1985 through the third quarter of fiscal year ("FY") 1988. On January 31, 1989, DTS supplemented its refund claim with a letter and attachment from its outside accounting firm explicating additional, allegedly relevant facts. On the same date, prior to its receipt of that attachment, the IRS issued a notice to DTS that its refund claim was denied. That notice commenced the two-year limitations period to bring suit on DTS' refund claim. The IRS apparently received DTS' supplementary letter and attachment on February 13, 1989.
(The following facts are taken from Defendant's Exhibit C to Docket Entry No. 4, or from the "narrative statement" of the offer-in-compromise submitted by Plaintiff to the IRS, Defendant's Exhibit B to Docket Entry No. 3). The Court notes that between Defendant's rather skimpy submissions and Plaintiff's sometimes incoherent submissions, it has been difficult to determine the background to and relevant issues in this case.
On September 25, 1989, the IRS issued a second certified letter to DTS, to notify it that the "claim" the IRS received on February 13, 1989, also was denied. It is unclear to the Court why DTS' supplementary letter and attachment to its December 1988 claim, mailed to the IRS on January 31, 1989, and received by the IRS on either February 4 or 13, 1989, was deemed a separate claim by the IRS. It also is unclear why the IRS would have mailed a second notice of claim disallowance. Section 6532(a)(4) of the Internal Revenue Code (26 U.S.C.) provides that "[a]ny consideration, reconsideration, or action by the Secretary with respect to such claim following the mailing of a notice by certified mail or registered mail of disallowance shall not operate to extend the period within which suit may be begun." Therefore, under the Internal Revenue Code, it appears that any consideration by the IRS of DTS' submission of supplementary materials on January 31, 1989, could not have extended the limitations period on DTS' December 1988 claim, and therefore should not have required a second notice of disallowance.
Again, the parties have used different dates, although which date is correct does not appear to be a matter of importance and is not contested by the parties.
On September 1, 1991, DTS and the IRS executed a Form 907 to extend the limitations period within which DTS could file suit for a refund. That Form 907 specifically addressed the notice of denial of claim mailed by the IRS to DTS on September 25, 1989, which concerned the supplement that was filed by DTS in February 1989 and construed as a separate claim by the IRS. Plaintiff, as owner of DTS, apparently believed that the relevant limitations period was two years from the second notice of denial and, therefore, that his period to file suit would expire on September 25, 1991. DTS and the IRS never executed a Form 907 to specifically extend the limitations period for DTS' original claim (which the February 1989 "claim" supplemented), filed in December 1988, which was denied by the IRS on January 31, 1989.
Defendant concedes that the tax case of Boyd Bros, Transp. Co., Inc. v. United States, 27 Fed. Cl. 502 (1992), resolved the legal issues raised by DTS' refund claim (and similar claims filed by other trucking companies) in DTS' favor, and that the IRS instituted a settlement initiative to dispose of such refund claims. Therefore, it appears that Plaintiff's belief that the refund that DTS allegedly was due would cover his companies' tax liabilities (explained below, see infra at 13 n. 5) was not only in good faith but was shared by the IRS.
Nevertheless, upon review of DTS' claim as part of its settlement initiative, the IRS determined that the statute of limitations on DTS' original December 1988 refund claim had expired, due to the fact that no Form 907 had been executed to extend the limitations period for DTS to challenge the IRS' January 31, 1989, denial of its December 1988 claim. The IRS notified Plaintiff of that determination on October 1, 1996. The IRS contends that "the material related to the submission by DTS on January 31, 1989, did not materially change the original claim and, accordingly, there was no reconsideration of that claim which would create a right to bring suit based upon the Form 907 that was executed in September, [sic] 1991" to extend the limitations period on the amended claim.
It appears from this statement that the IRS wants to have its cake and eat it too. That is, the IRS uses this interpretation of the supplementary materials filed by DTS in January 1989 to deny that the Form 907 executed with regard to them extended the limitations period (because the materials did not create a second suit upon which Plaintiff could sue), but it also denies that the Form 907 executed with regard specifically to those supplementary materials relates back to and extends the limitations period on the actual claim, filed in December 1988, which they supplemented. This position is confusing, and appears untenable to the Court. However, while the Court believes that the IRS' position taken in 1996 (and reiterated today) with regard to the refund allegedly owed to DTS is untenable, and will result in a loss to Plaintiff of well over $100,000, that position is not subject to de novo review by the Court. (See infra at 13-15).
Turning now to the levy and hearing that are the subject of the instant motions: before the IRS gave DTS notice on October 1, 1996, that it was barred from suit on its refund claim, the IRS provided a notice of deficiency and assessed the trust fund recovery penalty (the "penalty") at issue in this case. The penalty comprises three parts. The first is an assessment covering the first quarter of 1991, the third quarter of 1991, the first quarter of 1992, and the second quarter of 1992. The amount assessed for those periods was $93,339.79, and it relates to unpaid funds by DTS. The second part of the penalty covers the tax period from the third quarter of 1992 through the second quarter of 1994, and relates to unpaid funds by TMGI. That amount is $66,389.82. The third component of the penalty concerns the second quarter 1992 through the second quarter 1993, in the amount of $182,260.36. That component relates to unpaid funds by CCI.
The parties have not provided the Court with the date when the IRS first notified DTS of its tax liability. That notice of liability appears to have been given in 1993 or 1994. The notice of assessment of the penalty was given in 1995. See infra at 14. At any rate, the parties do not dispute that DTS learned of its liability during the pendency of its refund claim.
In 1994 or 1995 (again, the exact date is unclear), Plaintiff agreed to the assessment of the penalty, in the belief that the IRS was going to settle DTS' claim for a refund pursuant to Boyd Bros. On November 5, 2001, the IRS sent Plaintiff a notice of intent to levy, which proposed to collect an outstanding trust-recovery penalty consisting of unpaid employment and unemployment taxes from DTS, TMGI, and CCI, as well as a penalty, apparently set at 100 percent of the value of the unpaid taxes.
Pursuant to 26 U.S.C. § 6672, the IRS may assess a penalty against a "responsible officer" who "willfully" fails to remit to the IRS withholdings from employee paychecks held in trust.
On November 30, 2001, Plaintiff requested a collection due process hearing ("hearing") pursuant to 26 U.S.C. § 6330 (a)(3) (B)-(c), to challenge the levy. In his request, Plaintiff alleged that he was not liable for the trust fund recovery penalty. IRS appeals officer Robert Whittle, who had no prior involvement with Plaintiff or the determination of the outstanding tax liabilities that were the subject of the proposed levy, was assigned to conduct the hearing, which was held on April 8, 2002.
Plaintiff has stated that he "does not dispute Defendant's statement of facts in any material sense other than the Appeals Officer's failure to consider the facts alleged by the [Plaintiff] asserting that he did not have an opportunity for a hearing." (See Docket Entry No. 10, at 4).
At the hearing, Plaintiff and his attorney presented the following challenges and collection alternatives to the levy: (1) Plaintiff asserted that the assessment of the trust fund recovery penalty was too high because Plaintiff's company, DTS, was due a refund of employment taxes for 1985 through 1988 (under Boyd Bros.) which would cover his tax liability; (2) Plaintiff proposed a collateral agreement, under which he would waive all claims to any refunds he might be entitled to for over-payment of taxes by DTS (pursuant to Boyd Brothers), in exchange for a termination of collection by the IRS; and (3), Plaintiff proposed an offer-in-compromise based upon effective tax administration.
After considering Plaintiff's proposed collection alternatives, appeals officer Whittle determined that the issuance of a notice of levy balanced the need for effective tax collection with the concern that any collection action be no more intrusive than necessary. Whittle found that Plaintiff's proposed collateral agreement was illusory, based on the fact that the IRS previously had denied DTS' claim for a refund after determining that the statute of limitations for bringing suit to obtain the refund had expired. Whittle also considered and rejected Plaintiff's offer-in-compromise. Whittle prepared an appeals case memorandum prior to issuing the notice of determination and verified that all statutory, regulatory, and administrative requirements had been met, pursuant to 26 U.S.C. § 6320(c) and 6330(c)(1), before the notice of intent to levy was issued, and that the liabilities listed on the notice were properly assessed. Specifically, Whittle determined that Plaintiff had been presented with an opportunity for a hearing concerning the assessment of the penalty prior to the hearing convened by Whittle.
On August 8, 2002, Whittle mailed Plaintiff a notice of determination concerning the collection action, based upon his recommendation. The notice of determination included an attachment explaining Whittle's conclusions and recommendations.
Plaintiff filed this lawsuit on September 6, 2002, pursuant to 26 U.S.C. § 6330(d)(1)(B), seeking judicial review of the IRS' administrative determination that the collection actions taken to collect Plaintiff's unpaid federal employment and unemployment taxes were appropriate pursuant to 26 U.S.C. § 6320. Defendants move for judgment as a matter of law, asserting that the appeals officer did not abuse his discretion in rejecting Plaintiff's compromise offers and determining that the proposed levy and penalty against Plaintiff were appropriate.
II. SUMMARY JUDGMENT STANDARD
In ruling on a motion for summary judgment, the Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A party may obtain summary judgment if the evidentiary material on file 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). The moving party bears the burden of satisfying the court that the standards of Rule 56 have been met. Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir. 1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact that is disputed. See Anderson, 477 U.S. at 248. If so, summary judgment dismissal is inappropriate.
To defeat a properly supported motion for summary judgment, an adverse party "must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e). The nonmoving party's burden of providing specific facts demonstrating that there remains a genuine issue for trial is triggered once the moving party "show[s] — that is, point[s] out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
In the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. 105-206, sec. 3401, 112 Stat. 685, 746, Congress enacted § 6330 of the Internal Revenue Code (26 U.S.C.) to provide due process protections for taxpayers in tax collection matters involving levies. See Sego v. CIR, 2000 WL 889754, 114 T.C. No. 37 (2000) (publication page references unavailable) (citing Goza v. CIR, 114 T.C. No. 12 (2000) (publication page references unavailable)). Section 6330 generally provides that the Commissioner cannot proceed with the collection of taxes by way of a levy on a taxpayer's property until the taxpayer has been given notice of the opportunity for an administrative review of the matter in the form of an Appeals Office due process hearing. Section 6330(d)(1) allows the taxpayer to appeal the determination by the appeals officer to the tax court or a district court. See id.; see also Minion v. C.I.R., 2003 WL 22434751 (6th Cir. Oct. 24, 2003) (discussing §§ 6330(a), (b)(1), (c)(2)(B), and (d)(1)).
Specifically, § 6331(a) provides that, if any person liable to pay any tax neglects or refuses to pay such tax within ten days after notice and demand for payment, the IRS is authorized to collect such tax by levy upon property belonging to the taxpayer.See Sego, 2000 WL 889754 (citing Goza, 114 T.C. No. 12). Section 6331(d) provides that the IRS is obliged to provide the taxpayer with notice, including notice of the administrative appeals available to the taxpayer, before proceeding with collection by levy on the taxpayer's property. See id.
Section 6330(c) prescribes the procedures that must be followed and matters that may be raised by a taxpayer at a due process appeal hearing: (1) the appeals officer shall at the hearing obtain verification from the Secretary of the Treasury that the requirements of any applicable law or administrative procedure have been met; (2) the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy, including challenges to the appropriateness of collection actions and offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise; (3) the taxpayer may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the taxpayer did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability; and (4) the determination by the appeals officer shall take into consideration 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. See id.
In sum, § 6330(c) provides generally for a due process hearing to address collection issues such as the appropriateness of the IRS' intended collection action and possible alternative means of collection, and § 6330(c)(2)(B) specifically provides that the existence and amount of the underlying tax liability can be contested at a due process hearing only if the taxpayer did not receive a notice of deficiency for the taxes in question or did not otherwise have an earlier opportunity to dispute such tax liability. See id. That provision is key to the dispute in this case.
Section 6330 does not prescribe the standard of review that the court is to apply in reviewing the appeals officer's administrative determinations. See MRCA Information Servs. v. United States, 145 F. Supp.2d 194, 1999 (D. Conn. 2000). "`[I]n cases where Congress has simply provided for [judicial] review, without setting forth the standards to be used or the procedures to be followed, [the Supreme Court] has held that consideration is to be confined to the administrative record and that no de novo proceeding may be held.'" Id. (quoting United States v. Carlo Bianchi and Co., Inc., 373 U.S. 709, 714 (1963)). "Furthermore, where a court finds a `statute ambiguous on its face, [it should] seek guidance in the . . . relevant legislative history, congressional purposes expressed . . . and general principles respecting the proper allocation of judicial authority to review agency orders.'" Id. (quoting Florida Power and Light Co. v. Lorion, 470 U.S. 729, 737 (1985)).
The legislative history of the IRS Reform Act of 1998 indicates that Congress intended district courts to employ either an abuse of discretion or de novo standard of review, depending on whether the underlying tax liability was subject to challenge at the hearing. See H.Rep. No. 105-599 at 266 (1998); MRCA, 145 F. Supp.2d at 1999 (stating that "Congress made its intent clear with respect to the proper standard of review"); Sego, 2000 WL 889754; Goza, 114 T.C. No. 12. As the district court in MRCA explained in summarizing the legislative history:
Where the validity of the tax liability was properly at issue in the hearing, and where the determination with regard to the tax liability is part of the appeal, no levy may take place during the pendency of the appeal. The amount of tax liability in such cases will be reviewed by the appropriate court on a de novo basis. Where the validity of the tax liability is not properly part of the appeal, the tax payer may challenge the determination of the appeals officer for an abuse of discretion. In such cases, the appeals officer's determination as to the appropriateness of the collection activity will be reviewed using an abuse of discretion standard of review.145 F. Supp.2d at 1999; see Sego, 2000 WL 889754; Goza, 114 T.C. No. 12.
As a general matter, the Sixth Circuit has determined that the appropriate standard of review for administrative agency decisions for penalty determinations is abuse of discretion, but it has not yet addressed the issue specifically as it pertains to review of an IRS due process collection hearing. Carroll v. United States, 217 F. Supp.2d 852, 855 (W.D. Tenn. 2002) (citingSteeltech, Ltd. v. United States Envtl. Prot. Agency, 273 F.3d 652, 655 (6th Cir. 2001); Schuck v. Frank, 27 F.3d 194, 197 (6th Cir. 1994)). However, "[d]istrict courts within the circuit have adopted the abuse of discretion standard in IRS cases citing the legislative history of §§ 6330(d)." Id. at 856 (citation omitted); see Bonfante v. United States, No. C-2-00-1222, 2002 WL 373407 (S.D. Ohio Jan. 29, 2002); Geller v. United States, 88 A.F.T.R.2d 6494, 2001 WL 1346669 at *2 (S.D. Ohio Sept. 26, 2001)).
"Under the abuse of discretion standard, a determination will be affirmed unless the court determines with a `"definite and firm conviction' that a clear error of judgment has been committed." Id. (quoting Cincinnati Ins. Co. v. Byers, 151 F.3d 574, 578 (6th Cir. 1998)); see also MRCA, 145 F. Supp.2d at 1999 (quoting RCA Corp. v. United States, 664 F.2d 881, 886 (2d Cir. 1981)) (applying the abuse of discretion standard to a taxpayer's challenge to an appeals officer's conclusion after a due process hearing and stating that "`[t]he task of [this] court, therefore, is not to determine whether in its own opinion . . .' that [a compromise] would best serve both the interests of the IRS and [the taxpayer], `but to determine whether there is an adequate basis in law for the [officer's] conclusion that it did not'").
In this case, the validity of the underlying tax is not part of this collection due process appeal before the Court, because Plaintiff had an opportunity to challenge the tax liability before assessment. On September 1 and 5, 1995, the IRS mailed Plaintiff letters proposing assessment of the trust fund taxes at issue in his appeal. The letters provided Plaintiff with 60 days to appeal the determination before assessment. Therefore, Plaintiff had an opportunity — which he did not take — to challenge the amount of his tax liability before assessment, and he was not entitled to challenge the liability during his collection due process hearing in 2002. See 26 U.S.C. § 6330(c)(2)(B). Accordingly, the hearing officer correctly excluded from his consideration the validity of the underlying liability, the amount of that liability is not part of this appeal, and the appropriate standard of review of the officer's determinations that the Court must adopt in this case is abuse of discretion, not de novo review. See MRCA, 145 F. Supp.2d at 1999 (stating that "`consideration is to be confined to the administrative record and that no de novo proceeding may be held'") (quoting Carlo Bianchi and Co., 373 U.S. at 714).
It confounds the Court that Plaintiff now asserts, notwithstanding the fact that in 1994 he agreed to the assessment of the penalty (in the reasonable belief that the IRS was going to settle DTS' claim for a refund pursuant to Boyd Bros.), that he "had no opportunity for hearing to dispute the Penalty imposed against him." (See Docket Entry No. 10, at 12). Plaintiff asserts that because he, and most likely the IRS also, "firmly, and without any doubt, believed that his companies were going to receive a substantial refund of tax plus interest for a long period of time," somehow he "did not have an opportunity for a hearing." (See id.)
More specifically, Plaintiff apparently contends that his failure to challenge the underlying tax liability and penalty somehow should be excused, and he now be allowed to challenge them, because of estoppel: according to Plaintiff, he "had to sign the form agreeing to the Penalty. If [he] did not sign the form, the [IRS] had the authority to request an assessment of the tax." (See id.) By agreeing to the assessment, Plaintiff was trying to "buy time to process the refunds" he believed he was owed under Boyd Bros.
While the Court does not doubt Plaintiff's good faith belief at the time that he was owed refunds, and that he needed to avoid immediate assessment of the levy and penalty by the IRS in order to buy time to obtain a tax refund settlement that would cover his liability, it is abundantly clear that Plaintiff had an opportunity, which he forewent, to challenge the assessment. The Code makes no provision for Plaintiff's argument, nor does the IRS appear to have acted in bad faith in accepting Plaintiff's consent to the assessment at a time when the IRS had not yet determined that Plaintiff's refund claim was time-barred. Therefore, the Court finds that Plaintiff was afforded an opportunity to challenge the assessment and did not do so, and that hearing officer Whittle correctly determined that the amount of the liability was not part of Plaintiff's due process hearing.
After reviewing the administrative record, and in particular officer Whittle's determinations after the collection due process hearing, the Court is satisfied that he did not abuse his discretion and that all the requirements of § 6330 were satisfied. Therefore, the Court finds that there is no genuine issue as to any material fact and that Defendants are entitled to judgment as a matter of law.
Based on the foregoing reasons, Defendants' Motion for Summary Judgment (Docket Entry No. 3) will be GRANTED.
An appropriate Order will be entered.