Agility Network Servs., Inc. v. United States

• Decision Date: 17 February 2017
• Docket Number: No. 15-2599,15-2599
• Citation: 848 F.3d 790
• Parties: AGILITY NETWORK SERVICES, INC., an Illinois Corporation; Chandler Denny; Cinnamon Denny, Plaintiffs–Appellants, v. UNITED STATES of America, Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

848 F.3d 790

AGILITY NETWORK SERVICES, INC., an Illinois Corporation; Chandler Denny; Cinnamon Denny, Plaintiffs–Appellants,

v.UNITED STATES of America, Defendant–Appellee.

No. 15-2599

United States Court of Appeals, Sixth Circuit.

Argued: January 31, 2017

Decided and Filed: February 17, 2017

ARGUED: Matthew S. DePerno, DEPERNO LAW OFFICE, PLLC, Kalamazoo, Michigan, for Appellants. Gretchen M. Wolfinger, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Matthew S. DePerno, DEPERNO LAW OFFICE, PLLC, Kalamazoo, Michigan, for Appellants. Gretchen M. Wolfinger, Bruce R. Ellisen, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before: GIBBONS, ROGERS, and McKEAGUE, Circuit Judges.

OPINION

ROGERS, Circuit Judge.

After receiving a notice of federal tax lien and a notice of intent to levy, taxpayers Agility Network Services, Inc., Cinnamon Denny, and Chandler Denny requested that the IRS hold a Collection Due Process hearing. The IRS took five months to process the request, and when the Office of Appeals finally held a hearing, the presiding agent refused to discuss multiple issues with the taxpayers. They were still dissatisfied after a second hearing before a different agent and sued the Government for the IRS agents' alleged misbehavior under 26 U.S.C. § 7433, which provides a damages remedy against the United States for certain actions of IRS officers or employees "in connection with any collection of Federal tax." The taxpayers also requested a temporary restraining order against further tax-collection efforts. The district court properly dismissed all claims because the activity challenged in this case did not fall within the scope of § 7433, and because the Tax Anti-Injunction Act precludes the court from issuing a restraining order.

Before the federal government levies a tax against someone or files a lien on a taxpayer's property, the IRS must notify the taxpayer that he has a right to a Collection Due Process (CDP) hearing. 26 U.S.C. §§ 6320(a)(3)(B), 6330(a)(1). If the taxpayer requests one, an impartial officer from the IRS Office of Appeals will conduct the hearing. Id. §§ 6320(b), 6330(b). While CDP proceedings are pending, the IRS must suspend its collection efforts. Id. § 6330(e)(1). The taxpayer "may raise at the hearing 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." Id. § 6330(c)(2)(A). The taxpayer may also challenge the underlying tax liability if he "did not receive any statutory notice of deficiency ... or did not otherwise have an opportunity to dispute" the liability. Id. § 6330(c)(2)(B). When making a determination based on the hearing, the presiding officer must consider the issues raised by the taxpayer and "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." Id. § 6330(c)(3)(B), (C). If after the hearing the Office of Appeals decides to uphold the proposed levy or sustain the notice of federal tax lien, it will issue a notice of determination to that effect. Treas. Reg. § 301.6330–1(f)(1) (as amended in 2016).

The plaintiffs in this case, Cinnamon Denny, Chandler Denny, and their company, Agility Network Services, Inc., have alleged that the IRS mistreated them during the CDP hearing process. Cinnamon Denny owns Agility, and her husband, Chandler Denny, is an employee at Agility (collectively, the taxpayers). On April 17, 2012, the IRS filed a notice of federal tax lien against Agility for overdue employment taxes. On May 21, 2012, the IRS filed a notice of intent to levy based on the same overdue taxes. On May 23, Agility requested a CDP hearing in connection with the proposed lien and levy. Despite the May request, the IRS did not hold the hearing until December 20. According to the taxpayers, Revenue Officer McKinzie intentionally caused the delay by refusing to forward the hearing request to the Office of Appeals in an attempt to pursue a penalty against the Dennys individually. The IRS scheduled the hearing only after the taxpayers filed an application for taxpayer assistance with the Taxpayer Advocate.

IRS Appeals Agent Jaclyn Allen presided over the December 20 hearing. The taxpayers "outlined multiple issues they wanted to discuss at the hearing, including a request for penalty abatement, collection tactics used as leverage and in an underhanded manner that violated due process, and collection alternatives," but Allen limited the discussions. In particular: Allen refused to investigate the taxpayers' assertion that they tried to make payments but that the IRS refused to accept them; Allen misstated the tax code and Internal Revenue Manual while offering excuses for Officer McKinzie's failure to process the taxpayers' CDP request; Allen refused to discuss the taxpayers' requested installment plan, reasoning that they did not make enough money to justify one; and Allen denied the taxpayers' request to abate penalties. Furthermore, Allen stated at the hearing "that she knew ... McKinzie's actions were made with the genuine intent to help the taxpayers." The taxpayers contend that this statement proves Allen had an impermissible ex parte communication with McKinzie. The hearing ended with the taxpayers having discussed only one issue of the many they had planned to raise.

In May 2013, the taxpayers received notice that Allen had scheduled another meeting. After Allen denied the taxpayers' request to record the meeting, their attorney called IRS Appeals Manager Diane Villa. Villa then "determined that Agent Allen was biased and reassigned the case to IRS Appeals Agent Leonard Hanline," who held a second hearing on July 15, 2013. Hanline told the taxpayers that they were now dealing with a "well-trained" agent and "that he was just then starting the due process for" them. At the hearing, the taxpayers requested that the IRS withdraw the lien and allow them to set up an installment plan. But Hanline refused the request. He reasoned—contradicting Allen's earlier rationale—that the taxpayers made too much money to warrant an installment plan. Hanline also refused to abate penalties. Furthermore, he "found nothing wrong with the actions taken by ... McKinzie or Agent Allen." Instead of working out an alternative collection plan with the IRS, the taxpayers "began a self-imposed $5,000.00 per month payment plan," which they are still following.

Dissatisfied with their treatment during the CDP hearings, the taxpayers sued the United States, seeking damages for violations of 26 U.S.C. § 7433 and requesting "a Temporary Restraining Order (TRO) preventing any further collection action." The district court granted the Government's motion to dismiss all claims. See Agility Network Servs., Inc. v. United States , No. 1:14–CV–1310, 2015 WL 9591356 (W.D. Mich. Nov. 23, 2015). The court first reasoned that the waiver of the federal government's sovereign immunity in § 7433 does not encompass the taxpayers' suit, because the provision, narrowly construed, applies only "to conduct specifically related to the actual collection of taxes," which does not include CDP hearings. See id. at *3. The court then held that the taxpayers' request for a TRO was barred by the Tax Anti–Injunction Act, 26 U.S.C. § 7431(a), as a request to restrain the government's tax-collection efforts. See id. at *4. The taxpayers now appeal.

The United States has not consented to being sued in this case, and the district court therefore lacked jurisdiction to hear the taxpayers' § 7433 claim. A person may sue the federal government for damages under 26 U.S.C. § 7433"[i]f, in connection with any collection of Federal tax with respect to [the] taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of" the tax code or any regulation promulgated thereunder. The present suit falls outside this waiver of sovereign immunity because the challenged conduct did not occur in connection with tax collection.

As a preliminary matter, because the taxpayers have challenged IRS conduct that occurred solely during or in connection with CDP hearings, the question of whether IRS conduct was "in connection with any collection of Federal tax" is limited to the conduct at the CDP hearings. The only IRS action to occur outside of the CDP hearings that is described in the taxpayers' complaint is Revenue Officer McKinzie's intentional delay in forwarding the hearing request to the Office of Appeals. But, in describing their § 7433 claim in the complaint, the taxpayers focus almost exclusively on Allen's and Hanline's conduct during the two CDP hearings. The complaint mentions McKinzie only in a vague allegation that McKinzie and the other agents "demonstrated bias" and in allegations that Allen and Hanline refused to investigate or "give any consideration" to McKinzie's misconduct. The taxpayers' administrative claim similarly omits McKinzie's delay while defining the § 7433 claim. Such brief mentions of McKinzie's conduct in the complaint hardly put the Government on notice that the taxpayers have sued for damages based on McKinzie's refusal to forward the hearing request. Therefore, we examine only whether the taxpayers have a cognizable claim for damages based on Allen's and Hanline's conduct during the CDP hearings.

The relevant question, then, is whether an IRS agent acts "in connection with any collection of Federal tax" when she conducts a CDP hearing. Under the most reasonable interpretation of the phrase, the answer is no. In common parlance, an IRS agent acting in connection with tax collection would be taking an affirmative step to recover money owed to the government. In contrast, a CDP hearing is a right bestowed upon a taxpayer, at the...