Lake Mead Air, Inc. v. U.S., CV-S-96-0484-DWH(RLH).
| Decision Date | 18 December 1997 |
| Docket Number | No. CV-S-96-0484-DWH(RLH).,CV-S-96-0484-DWH(RLH). |
| Citation | 991 F.Supp. 1209 |
| Parties | LAKE MEAD AIR, INC., Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — District of Nevada |
R. Glen Woods, Woods & Erickson, Henderson, NV, for plaintiff.
Kathryn E. Landreth, U.S. Atty., Las Vegas, NV, Brian J. Feldman, Trial Attorney, Tax Division, Dept. of Justice, Washington, DC, for Defendant.
This is a dispute regarding excise taxes assessed against plaintiff. Before the court are the Government's motion for summary judgment (# 11, opposition # 15, reply # 17), and plaintiff's motion for summary judgment (# 12, opposition # 17, reply # 18).
Plaintiff was assessed a penalty for failing to collect and pay over air transportation excise taxes under 26 U.S.C. §§ 4261, 4291 and 6672.1
During the tax periods at issue (ending September 30, 1990 through December 30, 1992), plaintiff Lake Mead Air, Inc. ("Lake Mead") operated a fleet of aircraft providing scenic tours around the Grand Canyon. Most of plaintiff's business resulted from tours provided by Gray Line Tours Company ("Gray Line"), with whom plaintiff had been conducting business since 1987. Gray Line advertised air tours and day long excursions including an air component around the Grand Canyon.
According to the Government, there was no written contract between Lake Mead and Gray Line, but Lake Mead was free to reject Gray Line's business. # 11 at 3. The Government points out that when Gray Line expressed interest in running tours to the south rim of the Grand Canyon, plaintiff refused to accommodate that request. It claims that despite not having a contract, there was a set procedure by which Gray Line would take tour reservations on a daily basis (some of which were booked months ahead) and then fax Lake Mead the number of passengers expected for the next day's morning and afternoon trips. On the next day, Gray Line would pick up passengers in the morning and confirm to Lake Mead the number of passengers coming. The passengers fell into three categories: those taking the morning air tour, the afternoon air tour, and the mixed land and air tour.
The air tour portion of the tour was always the same, taking passengers on a tour around the Grand Canyon lasting approximately one and one half hours. The tours originated and terminated at the same airport. Lake Mead would then bill Gray Line for the number of passengers actually flown. Lake Mead collected no excise tax from the passengers.
Plaintiff's description of its operation differs slightly. According to plaintiff, Lake Mead provides charter service to many charter customers in addition to Gray Line, and operates only at the request of its customer. Its charter customer always specifies the time of departure, the destination, route, passengers and details of the charter flights, and always has exclusive control over the charter aircraft, and that passengers from one charter customer would never share an aircraft with those of another charter. Opposition, # 15, at 2, citing Depo. of Art Gallenson.
The IRS determined Lake Mead was liable for a 100% penalty pursuant to I.R.C. § 6672 for failing to collect air transportation excise taxes on its flights and paying the taxes over the United States as required by sections 4261 and 4291. Plaintiff appealed, and the matter was assigned to Appeals Officer Gerry Andrews.
On March 17, 1994, Andrews sent a letter to plaintiff's C.P.A. proposing a settlement requiring plaintiff to execute a Form 906 "Closing Agreement on Specific Matters," requiring plaintiff to agree to collect the air transportation tax on future flights. Thereafter, plaintiff and the IRS made a Request for Technical Advice from the IRS National Office resulting in a Technical Advice Memorandum being issued on March 2, 1995, interpreting section 4281 ()2 and upholding the Government's position regarding the taxability of the air tour flights. Lake Mead contends the adverse request for technical advice is filled with factual errors. Thus, Andrews determined that the Form 906 closing agreement would not be necessary to assure compliance by plaintiff with respect to future tax periods.
On May 9, 1995, Appeals Officer Andrews sent plaintiff's counsel a letter enclosing a Form 2504 "Agreement to Assessment & Collection of Additional Tax and Acceptance of Overassessment." However, in order to achieve finality, Andrews now says he should have sent a Form 866 "Agreement as to Final Determination of Tax Liability." On June 27, 1995, plaintiff's counsel returned to Andrews the executed Form 2504, declaring by cover letter plaintiff consented to the reduced settlement amount but still intended to pay a divisible portion of the tax and file a claim for refund to challenge the section 6672 penalty.
By letter dated June 30, 1995, Andrews responded to plaintiff's counsel advising that an IRS Form 866 should have been sent along with the Form 2504 to assure that the liabilities for the periods at issue would be closed with finality. Andrews advised plaintiff's counsel that a settlement without finality would be rejected by Andrews' Associate Chief. Plaintiff's counsel did not execute the Form 866 accompanying Andrews' June 30, 1995 letter, so the proposed settlement of the section 6672 liability was never presented to the Associate Chief. By letter dated July 29, 1995, the IRS advised that to the extent the parties were unable to reach a satisfactory agreement, section 6672 liability would be assessed. The Government claims that at no time during Andrews' involvement was he delegated final settlement approval to compromise on section 6672. Defendant's Motion, # 11, at 6-16.
On August 14, 1995, the IRS made a § 6672 assessment against plaintiff in the amount of $301,730.00. On or about December 6, 1995, the IRS sent plaintiff a Final Notice of Intention to Levy. On or about January 8, 1996, the IRS issued notice of levy (Form 688-A); however, on January 17, 1996, the levies were released by the IRS, and IRS transcripts indicate that no funds were collected as a result of the levies.
On or about April 9, 1996, plaintiff satisfied the prerequisites for filing a tax refund suit by, inter alia, paying under protest an assessment for one passenger per quarter and filing claims for refund with the IRS. Plaintiff's claims for refund address the merits of the assessment described above. There is no mention in the claims for refund of a settlement agreement at the IRS administrative level that was breached, nor is there any mention in the claims for refund of any improper levies on plaintiff's bank accounts.
On May 13, 1996, plaintiff's claims for refund were disallowed, and plaintiff commenced this action on June 4, 1996.
Summary judgment is appropriate if the evidence, read in the light most favorable to the nonmoving party, demonstrates there is no genuine issue as to any material fact, and the moving part is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Taylor v. List, 880 F.2d 1040, 1044 (9th Cir.1989). "There is no genuine issue of material fact if the party opposing the motion `fails to make an adequate 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 vial.'" Taylor, 880 F.2d at 1045 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Nor is there a genuine issue of fact if a rational trier of fact could not find in favor of the party opposing the motion for summary judgment. Taylor, 880 F.2d at 1045 (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). Finally, conclusory allegations that are unsupported by factual data cannot defeat a motion for summary judgment. Taylor, 880 F.2d at 1045.
The main thrust of this case so far has been whether the transportation provided by plaintiff is excepted under section 4281 because it is not "operated on established line."
26 C.F.R. § 49.4263-5(c) provides:
The term "operated on an established line" means operated with some degree of regularity between definite points. It does not necessarily mean that strict regularity of schedule is maintained; that the full run is always made; that a particular route is followed; or that intermediate stops are restricted. The term implies that the person rendering the service maintains and exercises control over the direction, route, time, number or passengers carried, etc.
Thus, the two main components of "operated on established line" are "some degree of regularity" and "between definite points." Regarding the "some degree of regularity" requirement, the regulations focus on both the frequency of travel over a certain area and the control exercised by the person rendering the service. For instance, 26 C.F.R. § 49-4263-5(a) exempts from tax "amounts paid for the transportation of person on a small aircraft of the type sometimes referred to as `air taxis.'" The analogy to "air taxis" suggests an airplane for hire, subject to the whims of a particular customer. Except to the hiring customer, its route is wholly unpredictable and unreliable. However, the crux of the phrase "on an established line" seems to be that the public can rely on the transportation because of a regularity determined by the provider, not the customer, i.e., the whims of customers do not dictate a particular route.
This general principle is supported by analysis of the Revenue Rulings. Rev.Rul. 66-301 considered helicopter rides offered by a private contractor on an unscheduled basis at a community fair lasting 10 days per year. There were no scheduled or fixed times, and no advance booking was available. The Service found this was not operation on an established line because:
A schedule other than customer...
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Papillon Airways, Inc. v. United States, Case No. 09-297T
...treatment other courts have given this issue when faced with similar facts that we find most persuasive. In Lake Mead Air, Inc. v. United States, 991 F. Supp. 1209 (D. Nev. 1997), a Nevada District Court held a fixed-wing airplane service that flew standardized, twice-daily scenic tours ove......
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Papillon Airways, Inc. v. United States, Case No. 09-297T
...treatment other courts have given this issue when faced with similar facts that we find most persuasive. In Lake Mead Air, Inc. v. United States, 991 F. Supp. 1209 (D. Nev. 1997), a Nevada District Court held a fixed-wing airplane service that flew standardized, twice-daily scenic tours ove......
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