Carroll v. U.S.

• Decision Date: 29 May 2002
• Docket Number: No. 01-2877-G/Bre.,01-2877-G/Bre.
• Parties: William A. CARROLL, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Tennessee

217 F.Supp.2d 852

William A. CARROLL, Plaintiff, v. UNITED STATES of America, Defendant.

No. 01-2877-G/Bre.

United States District Court, W.D. Tennessee, Western Division.

May 29, 2002.

William A. Carroll, Memphis, TN, pro se.

Jason S. Zarin, U.S. Department of Justice, Tax Division, Washington, DC, for U.S.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ORDER DENYING MOTION FOR PROTECTIVE ORDER AS MOOT AND ORDER GRANTING DEFENDANT'S MOTION FOR COSTS AND ATTORNEY FEES

GIBBONS, District Judge.

Plaintiff, William Carroll, filed a complaint seeking to invalidate the determination by the Internal Revenue Service (IRS) to proceed with collection by levy on the penalty imposed pursuant to 26 U.S.C. § 6702(a). On January 22, 2002, the defendant filed its answer to the complaint. On March 18, 2002, the defendant filed a motion for summary judgment. On March 27, 2002, plaintiff responded to the defendant's motion for judgment. The following undisputed facts appear in the record:

1. On or about March 7, 2000, plaintiff filed his 1999 federal income tax return. (Exh. 1 to defendant's memorandum in support of motion.)

2. Plaintiff alleged on his return that the $21,252.84 in wages he received from Federal Express and LSI Temporary Services was not income. Plaintiff showed no taxable income on the form and calculated that he overpaid the amount withheld, $2200.58. Pages three and four of plaintiff's return consist of various arguments against the validity of the Internal Revenue Code which are commonly made by those who oppose the tax system. In particular, plaintiff asserted that wages are not taxable income. (Exh. 1.)

3. On June 10, 2000, the IRS assessed the $500 frivolous return penalty authorized by 26 U.S.C. § 6702(a) against plaintiff for his 1999 income tax return. (Decl. Of Linda Bearden, Exh. 2, para. 7; Exh. C.)

4. On September 4, 2000, the IRS mailed a final notice and demand letter to plaintiff. (Decl. of Linda Bearden, Exh. 2, para. 7; Exh. C.)

5. On November 7, 2000, the IRS mailed plaintiff a notice of intent to levy, which proposed a levy to collect the frivolous return penalty assessed against him. (Decl. Of Linda Bearden, Exh. 2, para. 3; Exh. A.)

6. On November 14, 2000, plaintiff filed a request for a hearing under 26 U.S.C. § 6330. (Decl. of Linda Bearden, Exh. 2, para. 4; Exh. B.)

7. On May 9, 2001, Linda Bearden, an appeals officer with the IRS, was assigned to conduct the collection due process hearing. (Decl. of Linda Bearden, Exh. 2; para. 5.)

8. Ms. Bearden had no prior involvement with the outstanding penalty which was the subject of the proposed levy. (Decl. of Linda Bearden, Exh. 2, para. 5.)

9. On June 12, 2001, Ms. Bearden met with plaintiff at her office. (Decl. of Linda Bearden, Exh. 2, para. 6.)

10. At the meeting, plaintiff did not discuss or offer any collection alternatives. (Decl. of Linda Bearden, Exh. 2, para. 6.)

11. Although plaintiff alleged that he did not receive a copy of the notice and demand letter mailed to plaintiff on September 4, 2000, plaintiff admitted at the meeting that the address to which the IRS mailed the notice was his current address. (Decl. of Linda Bearden, Exh. 2, para. 7.)

12. At the hearing, plaintiff contended that the assessment of the penalty was improper because: (1) he did not receive a copy of the notice and demand, (2) he was not furnished with proof that the deficiency notice was mailed to him, and (3) wages are not income under 26 U.S.C. § 61. (Decl. of Linda Bearden, Exh. 2, para. 8.)

13. Although Ms. Bearden provided plaintiff with copies of portions of the Internal Revenue Code relevant to the assessment of the frivolous return penalty, plaintiff continued to present argument contesting the authority of the United States to assess and collect income and other taxes. Ms. Bearden terminated the hearing and requested that plaintiff leave her office. (Decl. of Linda Bearden, Exh. 2, para. 9.)

14. Pursuant to plaintiff's request, Ms. Bearden mailed to plaintiff copies of additional Internal Revenue sections relevant to the IRS's authority to file a federal tax lien, a copy of the assessment document, and a copy of her job description. (Decl. of Linda Bearden, Exh. 2, para. 10.)

15. Ms. Bearden determined that the issuance of a notice of levy balanced the need for efficient tax collection with plaintiff's arguments against the legitimacy of the frivolous return penalty. (Decl. of Linda Bearden, Exh. 2, para. 11.)

16. Ms. Bearden prepared the appeals case memorandum in this case prior to the issuance of the notice of determination. The memorandum reflects what occurred during the collection due process hearing on June 12, 2002. (Decl. of Linda Bearden, Exh. 2, para. 12; Exh. D.)

17. On September 28, 2001, the Appeals Office mailed plaintiff a notice of determination, based upon Ms. Bearden's recommendation and evaluation of the appeals hearing. (Decl. of Linda Bearden, Exh. 2, para. 13; Exh. E.)

Under Rule 56(c), summary judgment is proper "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 a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "So long as the movant has met its initial burden of `demonstrat[ing] the absence of a genuine issue of material fact,'" id. at 323, 106 S.Ct. 2548, the nonmoving party then "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). If the nonmoving party is unable to make such a showing, summary judgment is appropriate.

Emmons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989). In considering a motion for summary judgment, "the evidence as well as the inferences drawn therefrom must be read in the light most favorable to the party opposing the motion." Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986).

Pursuant to Rule 56(e), a "party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citations omitted). A genuine issue of material fact exists "if the evidence [presented by the non-moving party] is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In essence, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. 2505.

Twenty six U.S.C. § 6330 provides a taxpayer with the right to a collection due process (CDP) hearing before a levy may issue against any property. The CDP provides an opportunity to discuss collection options and liability issues. Section 6330(c)(2) provides:

Issues at hearing.—

(A) In general.—The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including—

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) 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.

(B) Underlying liability.—The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.

A taxpayer who is dissatisfied with the hearing determination may seek judicial review, pursuant to 26 U.S.C. § 6330(d).

Plaintiff agrees with the defendant that the validity of his underlying tax liability for his 1999 return is not properly part of this appeal and that the appropriate standard of review is under an abuse of discretion standard. While the Sixth Circuit has determined the appropriate standard of review for administrative agency decisions for penalty determinations to be an abuse of discretion standard, it has not yet addressed the issue in the IRS tax penalty context. Steeltech, Ltd. v. United States Environmental Protection Agency, 273 F.3d 652, 655 (6th Cir.2001); Schuck v. Frank, 27 F.3d 194, 197 (6th Cir.1994).

District courts within the circuit have adopted the abuse of discretion standard in IRS cases citing the legislative history of § 6330(d). H.R. Conf. Rep. No. 105-599, at 266 (1998); 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. Cincinnati Ins. Co. v. Byers, 151 F.3d 574, 578 (6th Cir.1998).

Plaintiff attended the CDP, however he declined to challenge matters allowable under § 6330(c)(2). In particular, plaintiff did not challenge the appropriateness of the intended method of collection, offer an alternative means of collection, or raise a spousal defense. Rather, plaintiff challenged whether the IRS followed its required procedures in assessing the penalty and effecting the levy. Plaintiff raises those same issues here, alleging:

1. the final notice which advised him of his right to the CDP was not signed by the Secretary of the Treasury or his delegate,

2. the appeals officer did not obtain verification from the Secretary or his delegate that all requirements of any applicable law or administrative procedures have been met as required by § 6330(c)(1...