Living Care Alternatives of Utica, Inc. v. U.S., 04-3194.
| Decision Date | 02 June 2005 |
| Docket Number | No. 04-3194.,No. 04-3554.,04-3194.,04-3554. |
| Parties | LIVING CARE ALTERNATIVES OF UTICA, INC., Plaintiff-Appellant, v. UNITED STATES of America, Internal Revenue Service, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Carla I. Struble, Westerville, Ohio, for Appellant.
Robert J. Branman, United States Department of Justice, Appellate Section, Tax Division, Washington, D.C., for Appellee.
Rachel I. Wollitzer, Jonathan S. Cohen, United States Department of Justice, Appellate Section, Tax Division, Washington, D.C., for Appellee.
Before: KEITH, MERRITT, and CLAY, Circuit Judges.
This opinion addresses separate appeals from two district court cases involving the same parties and almost identical issues. Plaintiff, Living Care Alternatives of Utica, Inc. ("Living Care"), appeals district court decisions affirming the Internal Revenue Service's Appeals Office decisions to allow tax liens and levies on Living Care's property for unpaid employment taxes for various periods between 1995 and 2001. These appeals require an interpretation of the new Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105-206, 112 Stat. 685. For the reasons set forth below, we affirm.
Living Care owns and operates a nursing home facility in Licking County, Ohio, which has approximately thirty-five beds and forty employees and receives ninety percent of its revenue from Medicare and Medicaid billing. This revenue totals approximately $100,000 per month. Since the mid-1990's, Living Care has struggled to comply with its tax obligations. The taxes at issue in the instant cases are payroll taxes withheld from employees' paychecks and held in trust by the employer until payments are made to the government. From 1995 to 2001, Living Care has intermittently failed to forward the required taxes to the IRS. (Living Care I, Case No. 04-3194 involves annual payments for tax year 1999 and quarterly payments in 1999 and 2001; Living Care II, Case No. 04-3554 involves annual payments for tax years 1995, 1998 and 2000 and quarterly taxes for various quarters in 1995, 1996, 1999, 2000 and 2001).1 Under a previous levy around 1996 or 1997, Living Care entered into an installment agreement with the IRS, but defaulted in 1999. The total current liability (including interest and penalties) is approximately $450,000, although Living Care points out it has paid its newly accrued taxes since July 2002.
In May 2001 and May 2002, the government sent Notices of Federal Tax Liens and Notices of Intent to Levy to Living Care, along with a notice of the taxpayer's right to request a hearing before the IRS Appeals Office, which the taxpayer timely invoked. Collection due process hearings were conducted by phone in March 2002 (Living Care II, Case No. 04-3554) and December 2002 (Living Care I, Case No. 04-3194). Notice of Determination letters denying Living Care's claims were mailed June 2002 and March 2003, respectively. Living Care appealed these decisions separately to the District Court for the Southern District of Ohio. In both cases, which were heard by different judges, the courts affirmed the IRS.2 See Living Care Alternatives of Utica, Inc. v. United States (Living Care I), No. 02:03-CV-0359, 2003 WL 23311523 (S.D.Ohio Dec.12, 2003); Living Care Alternatives of Utica, Inc. v. United States (Living Care II), 312 F.Supp.2d 929 (S.D.Ohio 2004). Living Care now appeals these decisions.
Collection due process hearings were created by the Internal Revenue Service Restructuring and Reform Act of 1998, Pub.L. No. 105-206, 112 Stat. 685 ("the Restructuring and Reform Act").3 The method or standards for judicial review of these hearings is not yet settled, hence the problems in these cases. Prior to this Act, the IRS had the right to levy on taxpayer property without any prior opportunity for a hearing or procedural due process, so long as post-deprivation procedures were provided. The Supreme Court sustained this approach almost seventy-five years ago. See Phillips v. Commissioner, 283 U.S. 589, 595, 51 S.Ct. 608, 75 L.Ed. 1289 (1931). While passage of the Restructuring and Reform Act does indicate Congress's intent to provide taxpayers with additional protection in the form of procedures prior to IRS action, it must be interpreted in this historical context. Tax liens and levies are not typical collection actions; the IRS has much greater latitude and leeway than a normal creditor. See generally Leslie Book, The Collection Due Process Rights: A Misstep or a Step in the Right Direction? 41 Hous. L.Rev. 1145 (2004) ().
The Tax Code grants taxpayers the right to a hearing both on notice of lien and on notice of levy. See 26 U.S.C. § 6320(b); 26 U.S.C. § 6330(b). Proceedings are informal and may be conducted via correspondence, over the phone or face to face. See Treas. Reg. § 601.106(c) & § 301.6330-1, Q & A-D6. No transcript, recording, or other direct documentation of the proceeding is required. See id. § 301.6330-1, Q & A-D6. Taxpayers do have a right to an impartial hearing officer "who has had no prior involvement with respect to the unpaid tax ... before the first hearing." 26 U.S.C. § 6320(b)(3). A taxpayer may challenge his underlying tax liability at the collection due process hearing, only if he "did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability." 26 U.S.C. § 6330(c)(2)(B). Any other relevant issue relating to the unpaid tax may be raised during the hearing, including spousal defenses, challenges to the appropriateness of collection actions, and alternative collection options (such as posting of a bond, installment agreements, or offers in compromise). 26 U.S.C. § 6330(c)(2)(A). By statute, the IRS Appeals Officer must: 1) conduct a verification that the IRS has met all legal requirements and fulfilled its procedural obligations to move forward with the lien or levy, 2) consider defenses and collection alternatives proffered by the taxpayer and, 3) make a determination that the "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." 26 U.S.C. § 6330(c)(3) (emphasis added). This final balancing factor is novel in American tax law and injects into the calculus an equitable consideration for the taxpayer and his concerns. Not surprisingly, the taxpayer in the instant cases relies quite heavily on this factor in its arguments for relief.
On completion of his review, the Appeals Officer sends his final decision to the taxpayer in a Notice of Determination letter. The statutes then allow for judicial review of this determination by whatever federal court has jurisdiction over the underlying tax (either the Tax Court or the District Courts).
We review a district court's grant of summary judgment de novo.4 Both the parties and the district court judges in these cases agreed that it was proper to review the IRS Appeals Office de novo with respect to decisions about the underlying tax liability and for abuse of discretion with respect to all other decisions, see Bartley v. United States, 343 F.Supp.2d. 649, 652 (N.D.Ohio 2004), but the parties disagreed about whether the underlying liability was actually challenged in these cases. See Part II.A., infra. Finally, the district court may only review issues that were originally raised in the collection due process hearing. See Treas. Reg. § 301.6330-1(f)(2), Q-F5 & A-F5.
Judicial review of collection due process hearings presents a real problem for reviewing courts. Congress overlaid the Restructuring and Reform Act on a previous system that involved very little judicial oversight. The result is a surprisingly scant record, comprised almost exclusively of the parties' appellate briefs and the Notice of Determination letter. No transcript or official record of the hearing is required and, accordingly, one rarely exists. Since normal review of administrative decisions requires the existence of a record, see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), overruled on unrelated grounds by Califano v. Sanders, 430 U.S. 99, 105, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977), Congress must have been contemplating a more deferential review of these tax appeals than of more formal agency decisions. This might explain why, of six collection due process cases reviewed by the Sixth Circuit, five have been disposed of under our Court's Rule 34 and all six have been unpublished. None has overturned the IRS decision or required a remand. See Herip v. United States, 106 Fed.Appx. 995 (6th Cir.2004) (unpublished); Minion v. Commissioner, No. 03-1337, 2003 WL 22434751 (6th Cir. Oct.24, 2003) (unpublished); Wasson v. Commissioner, No. 02-2134, 2003 WL 1516288 (6th Cir. Mar.21, 2003) (unpublished); Hauck v. Commissioner, No. 02-2301, 2003 WL 21005238 (6th Cir. May 2, 2003) (unpublished); Brown v. Commissioner, No. 02-1630, 2002 WL 31863695 (6th Cir. Dec.19, 2002) (unpublished); Diefenbaugh v. Weiss, No. 00-3344, 2000 WL 1679510 (6th Cir. Nov.3, 2000) (unpublished).
Living Care raises four identical claims in each case. They will therefore be analyzed together.
Living Care agrees with the government that, in order to receive a de novo review of the Appeals Officers' decisions, it had to have challenged the validity of the underlying tax liability at the collection due process hearings. Otherwise, the Appeals Officers' decisions are reviewed for abuse of discretion.5
Living Care's evidence that it challenged...
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