Cox v. C.I.R.
| Decision Date | 30 January 2008 |
| Docket Number | No. 06-9004.,06-9004. |
| Citation | 514 F.3d 1119 |
| Parties | Louis A. COX; Christine Cox, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Kevin Planegger (Ted H. Merriam with him on the briefs), of Merriam Law Firm, P.C., Denver, CO, for Petitioners-Appellants.
Karen Gregory, Attorney (Eileen J. O'Connor, Assistant Attorney General; Andrea R. Tebbets, Attorney, on the brief), Tax Division, Department of Justice, Washington, DC, for Respondent-Appellee.
Before KELLY, SEYMOUR, and MURPHY, Circuit Judges.
This appeal considers whether an Internal Revenue Service ("IRS") appeals officer was disqualified by statute, I.R.C. § 6330(b)(3), from conducting a Collection Due Process ("CDP") hearing regarding the taxpayers' 2001 and 2002 tax liabilities, when he had previously considered those liabilities during a CDP hearing involving a prior year's (2000) tax liability.1 Exercising jurisdiction under I.R.C. § 7482(a)(1), we reverse the tax court's decision which held that disqualification was unnecessary.
After receiving from the IRS a "Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing" regarding their unpaid 2000 tax liability, taxpayers (Louis A. Cox and Christine Cox) requested a CDP hearing pursuant to I.R.C. § 6330, seeking a less intrusive collection method.2 Appeals officer Bruce Skidmore ("AO Skidmore") was assigned. He informed the taxpayers that to be considered for collection alternatives, they needed to file all tax returns for which they were liable and be in current compliance; to qualify for an installment agreement they needed to document their ability to pay their current taxes and the delinquency in a reasonable period of time (defined as the statutory period for collection plus up to five additional years); and to qualify for an offer-in-compromise they needed, to demonstrate their offer equaled their net assets plus an amount that could be collected from future disposable income.
AO Skidmore held a CDP hearing on August 12, 2003 regarding the taxpayers' 2000 tax liability. Although the taxpayers had not submitted all requested information by that date, they ultimately filed tax returns for 2001 and 2002, reporting liabilities for each year with unpaid balances. They also submitted financial information and requested that their account be placed in "currently uncollectible status" because they had "insufficient income to meet necessary allowable expenses." ROA Ex. 3-J at 70.3
After reviewing this information, AO Skidmore concluded that he could not recommend an alternative to a levy. As part of his review, he considered the 2001 and 2002 tax returns and was concerned that the taxpayers reported a 2002 tax liability of $146,460 but only made $1,000 in estimated payments, notwithstanding the fact that they earned almost $100,000 in net income during the first seven months of 2003. Aplt.App. at 152. He ultimately concluded taxpayers had the ability to make payments toward their outstanding tax liability, which included tax years 1999-2002 and that they were not eligible for an installment agreement or offer-in-compromise because they were not in current compliance regarding estimated taxes for 2003. Id. at 153-54.
On November 25, 2003, the Appeals Office issued a Notice of Determination holding that the proposed levy for 2000 was appropriate. Id. at 115. The Appeals Office determined that the taxpayers were ineligible for collection alternatives as their financial information showed an ability to make payments toward the unpaid tax over the next few years and they did not demonstrate a levy would be overly intrusive. Id. at 114.
Meanwhile, because taxpayers filed their 2001 and 2002 tax returns without payment, the IRS issued to them a "Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing" with respect to these liabilities. ROA Ex. 6-J at 16-17. As before, taxpayers requested a CDP hearing and AO Skidmore was assigned to their case. They requested that AO Skidmore recuse himself, because of his prior involvement in the 2000 CDP hearing. Aplt.App. at 158. Although AO Skidmore believed he was not "technically excluded from hearing these new periods, since [he] ha[d] no `prior involvement' on these new periods," he agreed to postpone the hearing to confirm his conclusion with his supervisor. Id. He consulted with his team manager who agreed that there was "no compelling reason to make a reassignment since it was not technically required" and "would do nothing but create delay." Id.
After being so informed, taxpayers continued to protest AO Skidmore's involvement, claiming that the resolution of their prior case involved discussion of their 2001 and 2002 liabilities. After receiving the taxpayers' letter, AO Skidmore wrote in his notes that:
(a) I had noted the 2001 & 2002 returns were delinquent when I had the case on 1999 & 2000, (b) I solicited the returns and they were filed through me, (c) I considered current financials which would pertain to all periods of the taxpayers, but (d) I at no time was involved with either a consideration of the correct tax liability for 2001 & 2002 nor was I in any way involved in any consideration of collection action for such liabilities.
AO Skidmore held a CDP hearing on June 22, 2004, and later concluded that taxpayers did not qualify for a collection alternative. The Appeals Office subsequently issued a Notice of Determination concluding that the proposed levy for 2001 and 2002 was appropriate. Aplt.App. at 163. The notice explained that the financial information taxpayers submitted did not support their being placed in uncollectible status, no procedural errors were found in connection with that determination, and a levy would not be overly intrusive. Id.
Taxpayers filed petitions for review of both Appeals Office determinations in tax court, requesting that their delinquent tax liabilities be placed in currently uncollectible status. The cases were consolidated and submitted fully stipulated. The taxpayers argued that the Appeals Office failed to keep an adequate record of the administrative proceedings preventing "adequate judicial review," they did not receive a fair CDP hearing for 2001 and 2002 by an impartial Appeals Officer with no prior involvement in the case as required by I.R.C. § 6330(b)(3), and AO Skidmore failed to properly evaluate the merits of their case. Aplt.App. at 21-22. The tax court rejected each of these arguments and affirmed the Appeals Office determinations. See Cox v. Comm'r, 126 T.C. 237, 261, 2006 WL 1169568 (2006).
On appeal, taxpayers raise only one issue: whether the tax court erred in holding that AO Skidmore, who conducted the CDP hearing for tax year 2000, was not disqualified by I.R.C. § 6330(b)(3) from conducting the CDP hearing for tax years 2001 and 2002.4
We review tax court decisions "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." I.R.C. § 7482(a)(1). Accordingly, we review the tax court's findings of fact under a clearly erroneous standard while questions of law are reviewed de novo. ABC Rentals of San Antonio, Inc. v. Comm'r, 142 F.3d 1200, 1203 (10th Cir.1998) (citation omitted). We do not defer to the tax court's statutory interpretations, Scanlon White, Inc. v. Comm'r, 472 F.3d 1173, 1175 (10th Cir.2006). In contrast, we defer to the Commissioner's regulatory interpretation of the Internal Revenue Code so long as it is reasonable, Cottage Say. Ass'n v. Comm'r, 499 U.S. 554, 560-61, 111 S.Ct. 1503, 113 L.Ed.2d 589 (1991), meaning that "the regulation harmonizes with the plain language of the statute, its origin, and its purpose." Nat'l Muffler Dealers Ass'n, Inc. v. United States, 440 U.S. 472, 477, 99 S.Ct. 1304, 59 L.Ed.2d 519 (1979). "A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent." Id. "But this general principle of deference, while fundamental, only sets the framework for judicial analysis; it does not displace it.'" United States v. Vogel Fertilizer Co., 455 U.S. 16, 24, 102 S.Ct. 821, 70 L.Ed.2d 792 (1982) (quoting United States v. Cartwright, 411 U.S. 546, 550, 93 S.Ct. 1713, 36 L.Ed.2d 528 (1973)). "The framework for analysis is refined by consideration of the source of the authority to promulgate the regulation at issue." Id. Treasury regulations promulgated under the Commissioner's general authority under 26 U.S.C. § 7805(a) to "prescribe all needful rules and regulations" are owed "less deference than a regulation issued under a specific grant of authority to define a statutory term or prescribe a method of executing a statutory provision." Rowan Cos., Inc. v. United States, 452 U.S. 247, 253, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981); see also McKinney v. Comm'r, 732 F.2d 414, 417 (10th Cir.1983).
Applying these standards, we analyze I.R.C. § 6330(b)(3) and the Treasury Regulation implementing it, Treas. Reg. § 301.6330-1(d)(2). Section 6330, entitled "Notice and opportunity for hearing before levy," was added to the Internal Revenue Code as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "RRA") as part of Congress' effort to provide taxpayers with more due process protection in connection with IRS collection actions. See Pub.L. 105-206, 112 Stat. 685 (1998). Under section 6330, the IRS is required to notify a taxpayer in writing (the "CDP Notice") at least 30 days prior to a proposed levy regarding a specified tax period that the taxpayer may request a hearing before the IRS Office of Appeals, known as a CDP hearing, to challenge the levy action. If the taxpayer requests a CDP hearing, the IRS may not levy on the taxpayer's property while the hearing is pending. Id. § 6330(e)(1).
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