Romano-Murphy v. Comm'r of the Internal Revenue Serv., 13–13186.
Decision Date | 07 March 2016 |
Docket Number | No. 13–13186.,13–13186. |
Citation | 816 F.3d 707 |
Parties | Linda J. ROMANO–MURPHY, Petitioner–Appellant, v. COMMISSIONER of the INTERNAL REVENUE SERVICE, Respondent–Appellee. |
Court | U.S. Court of Appeals — Eleventh Circuit |
Linda J. Romano–Murphy, Boca Raton, FL, pro se.
Marion E.M. Erickson, Joan I. Oppenheimer, Gilbert Steven Rothenberg, U.S. Department of Justice, Washington, DC, William J. Wilkins, Chief Counsel–IRS, Washington, DC, for Respondent–Appellee.
Before JORDAN, JULIE CARNES, and LINN,* Circuit Judges.
JORDAN
, Circuit Judge:
Learned Hand and John Minor Wisdom, two of our most venerated jurists, described the Internal Revenue Code as a labyrinth. See Branum v. Commissioner, 17 F.3d 805, 808 (5th Cir.1994)
(Wisdom, J.); Learned Hand, Thomas Walter Swan, 57 Yale L. Rev. 167, 169 (1947). After laboring on this tax appeal for a while, we can understand why.
Two questions, both of a procedural nature, confront us. The first one, which appears to be a matter of first impression, is whether the existing statutory and regulatory framework entitles a taxpayer to a pre-assessment determination of her liability by the IRS under 26 U.S.C. § 6672
if she files a timely protest. If the answer to that query is yes, the second question is whether the IRS' failure to provide such a determination can be harmless. As we will see, framing the questions is a lot easier than answering them.
When an employer withholds income, Social Security, and Medicare taxes from its employees' wages, as federal law requires, it must place those funds in trust and remit them to the IRS at particular intervals. See 26 U.S.C. § 7501
; Oppliger v. United States, 637 F.3d 889, 892 (8th Cir.2011). If the employer fails to pay those taxes, the IRS has a number of options available to it. One such option, pursuant to 26 U.S.C. § 6672(a), is to collect the amount due from "[o]fficers or employees responsible for the collection and payment of withholding taxes who willfully fail to do so," and make them "personally liable for a ‘penalty’ equal to the amount of the delinquent taxes." Smith v. United States, 894 F.2d 1549, 1553 (11th Cir.1990). See also Slodov v. United States, 436 U.S. 238, 244–46, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978) ( ). Although it is called a penalty, the sum due under § 6672(a)"is not penal in nature," as it is "simply a means of ensuring the tax is paid." United States v. Huckabee Auto Co., 783 F.2d 1546, 1548 (11th Cir.1986) (internal quotation marks and citations omitted).
This appeal revolves around the effect and validity of a tax assessment rendered by the IRS. Before we set out the facts, therefore, we provide some background on what an assessment is under the Internal Revenue Code and how it impacts the IRS' ability to collect unpaid taxes. We hope this background will make it easier to put the relevant facts in proper context.
The Code does not define the term "assessment," but the Supreme Court has explained that an assessment, "[a]s used in the ... Code, ... [is] a ‘recording’ of the amount the taxpayer owes the government." Hibbs v. Winn, 542 U.S. 88, 100, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004)
. The Secretary of the Treasury makes an assessment by "calculat[ing] the proper amount of liability and record[ing] it in the Government's books." United States v. Galletti, 541 U.S. 114, 122, 124 S.Ct. 1548, 158 L.Ed.2d 279 (2004). We have therefore described an assessment as "more or less a bookkeeping procedure." Williams–Russell & Johnson, Inc. v. United States, 371 F.3d 1350, 1353 (11th Cir.2004).
An assessment "is not a prerequisite to tax liability ... [and is] only a formal determination that a taxpayer owes money." Id. Nevertheless, it is significant under the Code because it "serves as the trigger for levy and collection efforts." Hibbs, 542 U.S. at 102, 124 S.Ct. 2276
. See also Galletti, 541 U.S. at 122–23, 124 S.Ct. 1548 (). Once an assessment has been made, "a lien arises against ‘all property and rights to property’ belonging to the person against whom the assessment was made." Huckabee Auto., 783 F.2d at 1549
.
In 1996, Congress amended § 6672
as part of the Taxpayer Bill of Rights II (TBOR2), Pub. L. No. 104–168, 110 Stat. 1452 (1996), in an effort to increase protections for taxpayers under the Internal Revenue Code. See H.R. Rep. 104–506, at 1145 (1996). As a result of the amendment, § 6672(b) now requires the IRS to notify a taxpayer that she shall be subject to an assessment before it can impose a penalty. The IRS must also wait 60 days from the date of the notice letter before making an assessment. See 26 U.S.C. § 6672(b)(1)-(2). See also Moore v. United States, 648 F.3d 634, 639 (8th Cir.2011) ( ).
The IRS has a three-year statute of limitations for making assessments under § 6672
. The limitations period begins to run from the date of the filing of the tax return or the due date of the return, whichever is later. See 26 U.S.C. § 6501(a). Any assessment made by the IRS beyond the applicable three-year period is invalid, and the taxpayer is not obliged to pay. See Williams–Russell & Johnson, 371 F.3d at 1351 ; Hoffman v. Comm'r of Internal Revenue, 119 T.C. 140, 144 (T.C.2002). As part of the 1996 amendment, Congress extended the statute of limitations for an assessment in situations where the taxpayer files a timely protest to the IRS' pre-assessment notice. In such cases, the IRS has an additional 30 days—from when it makes a "final administrative determination" on the taxpayer's pre-assessment protest—to assess the taxpayer. See 26 U.S.C. § 6672(b)(3)(B).1
Before any levy can be made on a taxpayer's property or right to property, the IRS must provide the taxpayer with notice of her right to a collection due process or CDP hearing under 26 U.S.C. § 6330
at least 30 days before the levy is made. See 26 U.S.C. § 6330(a)(1), (2)(C). A taxpayer has the right to "request a [CDP] hearing during the 30–day period [provided by the notice]." 26 U.S.C. § 6330(a)(3)(B). See also Dalton v. Commissioner, 682 F.3d 149, 154–55 (1st Cir.2012) () .
From July of 2002 to June of 2005, Linda Romano–Murphy served as the chief operating officer of Nurses PRN, LLC, a healthcare staffing business that employed nurses and arranged for them to work at various hospitals on a temporary basis. Ms. Romano–Murphy controlled NPRN's finances and signed all federal income and employment tax returns for the company. NPRN struggled financially and failed to timely pay its taxes, particularly income, Social Security, and Medicare taxes that were withheld from its employees' wages.
In July of 2005, NPRN filed a quarterly employment-tax return (a Form 941) for the second quarter of 2005. The return, signed by Ms. Romano–Murphy, reported a total employment-tax liability of $609,832.01 for that time period. After unsuccessfully seeking full payment from NPRN, the IRS sought to recover the remaining amount due from Ms. Romano–Murphy under § 6672(a)
.
To that end, in July of 2006 the IRS sent Ms. Romano–Murphy a Letter 1153 (notice of proposed assessment) informing her that, pursuant to § 6672(a)
, she—as the chief operating officer of NPRN—was personally responsible for the company's unpaid trust fund taxes for the second quarter of 2005. The IRS informed Ms. Romano–Murphy that it intended to make an assessment against her in the amount of $346,732.38.
The IRS also advised Ms. Romano–Murphy in the letter that, if she did not agree with the proposed assessment, she had "the right to appeal or protest this action." The letter explained that, in order to preserve her right to appeal her case to the local Appeals Office, she needed to mail a formal written protest to the IRS within 60 days from the date of the letter. The letter listed all the information Ms. Romano–Murphy would need to include in a formal written protest, including a request for a conference, a list of findings she disagreed with, and a statement explaining why she disagreed with the IRS' findings and why a penalty should not be imposed.
Finally, the IRS explained to Ms. Romano–Murphy that, if she filed a protest and requested a conference to dispute liability, she was entitled to represent herself at the conference or have another qualified individual (an attorney, a certified public accountant, or another person enrolled to practice before the IRS) represent her. If Ms. Romano–Murphy and the IRS 2
On September 6, 2006, Ms. Romano–Murphy filed a timely and written protest with the IRS. She requested "a conference to discuss the supporting documents contained with[ ] [her formal written protest]," disputed the IRS' findings regarding the "[c]alculation of the trust fund monies owed," and explained how, in her view, the IRS erred in (1) determining the total amount of trust fund taxes owed and (2) calculating the penalty charges against her. In other words, she provided all the information the IRS requested.
Due to some unexplained error, the IRS did not forward Ms....
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