US v. Toyota of Visalia

• Decision Date: 13 June 1991
• Docket Number: No. CV-F-90-171 REC.,CV-F-90-171 REC.
• Parties: UNITED STATES of America, Plaintiff, v. TOYOTA OF VISALIA, Defendant.
• Court: U.S. District Court — Eastern District of California

772 F. Supp. 481

UNITED STATES of America, Plaintiff, v. TOYOTA OF VISALIA, Defendant.

No. CV-F-90-171 REC.

United States District Court, E.D. California.

June 13, 1991.

Michael R. Pinatelli, Jr., Law Office of Michael R. Pinatelli, Jr., San Francisco, Cal.

Michael Lawrence Farley, Farley and DeSantos, Hanford, Cal.

DECISION AND ORDERS RE CROSS MOTIONS FOR SUMMARY JUDGMENT

COYLE, Chief Judge.

On April 8, 1991 the court heard the parties' respective Motions for Summary Judgment. Upon due consideration of the written and oral arguments of the parties and the record herein, the court grants summary judgment for the United States and denies summary judgment for Toyota of Visalia, Inc. (hereinafter referred to as Toyota) for the reasons set forth herein.

On March 23, 1990, the United States filed a Complaint to Reduce Assessment to Judgment wherein the United States seeks to reduce to judgment an assessment of $96,084.02 as accrued interest. Toyota filed an answer and counterclaim setting up a number of affirmative defenses, including the bar of the statute of limitations on the ground that the two Form 900 Tax Collection Waivers were executed under duress and therefore void.

Both parties have moved for summary judgment in their favor with respect to a number of issues.¹

A. Background.

Following an audit of Toyota's income tax liabilities for the tax years ending June 30, 1979 and December 31, 1979, the IRS and Toyota entered into a Closing Agreement, which agreement provided that Toyota owed additional tax for both tax years. On March 5, 1984, pursuant to the Closing Agreement, the IRS assessed Toyota for its corporate tax liability for the tax year ending 6/30/79 in the amount of $240,144.00.² The Certificate of Assessments and Payments also shows that on March 5, 1984, the IRS made a "restricted interest assessment" of $150,754.28 and assessed a negligence penalty of $15,212.00. Toyota could not immediately pay the 6/30/79 assessment. Toyota and the IRS entered into an installment agreement providing for periodic payments. As of July, 1987, Toyota's account reflected an outstanding balance of $53,950.25.

On July 27, 1987, the IRS delivered to Toyota a Final Notice and Demand in the amount of $54,230.30 for its 6/30/79 tax liability. This amount breaks down as $53,950.25 as the balance of prior assessments and $280.05 in interest. The Final Demand and Notice provides in pertinent part: "We have calculated penalty and interest amounts to ten days from the date of this notice. If payment is not received by then, additional interest and penalties will be charged." On July 19, 1988, the IRS released the tax lien and notified Toyota by letter dated August 18, 1988 that its income tax liability for the year 1979 had been fully satisfied. However, according to a manual review audit, it was discovered that no statutory interest had been posted to Toyota's 6/30/79 account since the initial assessments were made on March 5, 1984. Therefore, on December 11, 1989, a "restricted interest assessment" in the amount of $94,062.13 was posted to Toyota's Certificate of Assessments and Payments for the tax year ending 6/30/79.

According to the Declaration of Kevin M. Green, C.P.A., a certified public accountant who represents Toyota, on February 14, 1990, Revenue Officer Dennis Stiffler telephoned Green and informed him that Stiffler had just received an assessment for Toyota for the tax year ending 6/30/79 for approximately $96,000.00 in interest. Green further avers in pertinent part:

(b) Mr. Stiffler also informed me that the Statute of Limitations was due to expire in two weeks and that he would need a Tax Collection Waiver signed by Mr. Thomas.

(c) Mr. Stiffler further stated that, if the Tax Collection Waiver was not signed, he would need to start collection action soon.

On February 23, 1990, the IRS issued a Final Notice (Notice of Intention to Levy) seeking payment of accumulated interest and penalty in the amount of $93,391.25.³ The Final Notice states in pertinent part:

Although we have sent notices to you to pay your Federal tax liability shown below, we have no record of receiving the amount due. This letter is your notice that we intend to levy upon your property or rights to property in accordance with section 6331(d) of the Internal Revenue Code.

To prevent such action, send us your check or money order for the total amount due within 30 days from the date of this letter....

. . . . .

If you do not comply with this notice, we may take enforcement action without any further notice to you. We may file a notice of Federal tax lien which is public notice to your creditors that a tax lien exists against your property. We may serve a notice of levy on your employer for salary or wages you are due, and may levy on any bank accounts, receivables, commissions, or other kinds of income you have. We may also seize your property or rights to property, such as automobiles, and sell it to satisfy your tax liability.

On February 23, 1990, Mr. Stiffler sent to Toyota a Tax Collection Waiver and a letter. By letter dated February 26, 1990, Michael R. Pinatelli, Jr., counsel for Toyota, responded to Mr. Stiffler's letter by stating that he had advised his client not to execute the Tax Collection Waiver unless it is served with a Notice of Jeopardy Levy and demand for immediate payment pursuant to 26 U.S.C. § 6331(a). However, Mr. Pinatelli then opines that it would be unlawful for the I.R.S. to issue such a Jeopardy Levy. Pinatelli concludes:

... I have instructed my client not to execute the Tax Collection Waiver until provided with a Jeopardy Levy. At that time, the Tax Collection Waiver will be executed under duress and immediate action will be undertaken in District Court to enjoin the Internal Revenue Service from taking any further action and for the damages caused to my client.

On February 28, 1990, Stiffler sent a letter to Toyota stating in pertinent part as follows:

It has been determined that the ... `Final Notice' was not necessary. The present liability is the accumulation of interest resulting from the tax assessed for Form 1120 for the period ending June 30, 1979. The tax was assessed on March 5, 1984 and the `Final Notice' issued for this liability was dated July 27, 1989 sic. This notice sufficiently meets the notice requirements of Internal Revenue Code Section 6303.

. . . . .

Failure to pay this amount as required will result in the levy upon property and rights to property in accordance with Section 6331(d) of the Internal Revenue Code. In addition, the release of previously filed Federal Tax Liens will be revolked sic and recorded again.

By letter dated February 28, 1990, Pinatelli wrote to Stiffler responding that "it is inconceivable that the Final Demand would remain in effect after the amount demanded has been paid." On March 1, 1990, Pinatelli further responded to Stiffler's letter to Toyota dated February 28, 1990:

Your assertion that the IRS has met the notice requirements of IRC § 6303 is patently false. The $90,000-or-so sum ... alleged due is derived from an assessment which was made on December 11, 1989 — two-and-one-half years after the `Final Notice' of July 27, 1987. IRC §§ 6303 and 6331 mandate that `notice and demand' shall be made only after assessment. The requirements and procedures for assessments are set forth in IRC §§ 6203-6203 and the Regulations thereunder.

Your letter of February 28, 1990 also threatens to rerecord `previously filed' tax liens. Those liens were in amounts significantly in excess of the amount in dispute here. Filing of such inflated liens would be a clear violation of IRC § 6321.

In my previous communications, I have requested authority from you to support your position. I still have not received such from you. I realize that you may be frustrated over the running of the Statute of Limitations for collection; however, that does not give you the right to violate the laws and procedures which govern the collection of taxes. The threats that you are making to Toyota of Visalia are not supported by the law. That is, they are unlawful. Moreover, you know or should know such threats are unlawful. Neither you nor your superiors have made reference to any authority which supports your position. You are not following statutorily-mandated provisions for the lawful collection of taxes. Such action may constitute a felony under IRC § 7214 and certainly exposes the Government to civil liability under IRC § 7433.

On March 2, 1990, the IRS served a Notice of Levy on Toyota's business bank account at the Bank of America and on Toyota Motor Credit. It also filed a Notice of Federal Tax Lien with the California Secretary of State and a Revocation of Certificate of Release of Federal Tax Lien with the County Recorder of Tulare County. Also on March 2, 1990, the IRS informed Toyota that it would begin further enforced collection action prior to the expiration of the statute of limitations unless Toyota executed a Tax Collection Waiver. Toyota executed a Tax Collection Waiver extending the statute of limitations from March 4, 1990 to March 16, 1990. Accompanying this Tax Collection Waiver was a letter from Pinatelli to Stiffler stating as follows:

... My client has executed this Tax Collection Waiver under duress as a means by which to have removed the unlawful levies and liens which were served on various third parties on March 2, 1990. It has been agreed that, by executing the Tax Collection Waiver, my client does not waive its right to obtain a court ruling that the Tax Collection Waiver is invalid for being executed under duress, and to proceed for damages incurred for the unlawful levies or for injunctive relief as to further collection action regarding this matter.

It is my understanding that all liens and levies will be released by today, March 2, 1990.

The levies that had been placed upon Toyota's business bank account at the Bank of America and at Toyota...