Opinion
Case No.: CV-S-01-0580-RLH (LRL).
February 14, 2002
ORDER (Motion to Dismiss — #7)
Before the Court is Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#7), filed September 24, 2001. The Court has also considered Plaintiffs' Opposition (#14), filed December 17, 2001.
BACKGROUND
In 1999, Plaintiffs Mary K. Adams and Robert E. Adams filed Form W-4 Employee Withholding Certificates declaring that they were "exempt" from the withholding of federal income taxes. In February and March 2000, the Internal Revenue Service sent letters to Plaintiffs informing them that the claimed "exempt" status had been disallowed. The letters also informed Plaintiffs that they would be assessed a civil penalty pursuant to 26 U.S.C. § 6682 unless they could provide a reasonable basis for their claimed "exempt" status. Furthermore, the letters informed Plaintiffs of their right to appeal the IRS's determination within thirty days of receipt of the letters.
Plaintiffs both noted on their W-4's that they were not signing them voluntarily, but rather only so that they would be paid.
Plaintiffs contested the IRS's determination, but provided no reasonable basis for their claiming of "exempt" status. In June and July 2000, the IRS responded by assessing penalties of $500.00 against each Plaintiff and demanding payment of the fines. After Plaintiffs failed to pay the penalties, the IRS sent Plaintiffs each a Notice of Intent to Levy and Notice of Your Right to a Hearing in October and November 2000. The Notice warned Plaintiffs of the IRS's intent to file a tax lien to collect the fines and informed Plaintiffs of their right to request a Collection Due Process Hearing.
On April 12, 2001, a Collection Due Process Hearing was held. At the hearing, Plaintiff did not raise any appropriate defenses and instead attempted to revisit the issue of his underlying tax liability. On April 25, 2001, the IRS sent Plaintiffs Notices of Determination Concerning Collection Action Under Section 6320 and/or 6330. The Notices of Determination informed Plaintiffs of the issues addressed at the Collection Due Process Hearing and notified Plaintiffs of their right to appeal the determination with the United States District Court.
On May 21, 2001, Plaintiffs filed an appeal with this Court of the determination concerning collection action. Defendants now move the Court for dismissal of Plaintiffs' complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted.
DISCUSSION
I. Motion to Dismiss Standard Under Rule 12(b)(6)
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that a court may dismiss a complaint for "failure to state a claim upon which relief can be granted." "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also Yamaguchi v. U.S. Dept. of the Air Force, 109 F.3d 1475, 1481 (9th Cir. 1997). All factual allegations set forth in the complaint "are taken as true and construed in the light most favorable to [p]laintiffs." Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1999). Dismissal is appropriate "only if it is clear that no relief could be granted under any set of facts that could be proven consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984); see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988).
II. Collection of Fines by the IRS
26 U.S.C. § 6331 provides that if any person liable to pay any tax neglects or refuses to do so within 10 days after notice and demand for payment, the IRS is authorized to collect such tax by levy upon property belonging to the taxpayer. Before proceeding with the collection by way of levy, however, the IRS must provide the taxpayer notice of the right to a hearing on the matter. Id. § 6330(a). The taxpayer has a right, within 30 days of the section 6330 notice, to request a hearing with the IRS Office of Appeals. Id. § 6330(a)(3)(B). At the hearing, the taxpayer may raise any issue relevant to the unpaid tax and the proposed levy, including challenges to the propriety of the levy and offers of collection alternatives. Id. § 6330(c)(2).
The impartial IRS Appeals Officer who conducts the hearing must then formulate his or her determination based on: (1) the verification that the requirements of any applicable law or administrative procedure have been met; (2) the issues raised by the taxpayer; and (3) the proper balance between the need for efficient tax collection and the legitimate concern that any collection action be no more intrusive than necessary. See id. § 6330(c)(3). Following the hearing, the Appeals Officer sends a Notice of Determination to the taxpayer that summarizes the matters raised during the hearing and responds to any offers or objections made by the taxpayer. If the taxpayer is dissatisfied with the administrative determination, he may seek judicial review in the United States Tax Court within 30 days of receiving the Notice or, if the Tax Court does not have jurisdiction over the underlying tax liability, the appropriate United States District Court. Id. § 6330(d)(1). Review is limited to matters actually raised at the administrative hearing. Temp. Treas. Reg. § 301.6330-1T(f) (2001).
Section 6330(d) does not specify the standard of review a district court should apply to an appeal of a Notice of Determination. However, the legislative history indicates that the court should conduct a de novo review only "where the validity of the tax liability was properly at issue at the administrative hearing." H. Conf. Rept. 105-599, 105th Cong.2d Sess. 266 (1998). Where the amount of the underlying tax liability is not properly part of the appeal, the court reviews a Notice of Determination for abuse of discretion. See Sego v. Comm'r of Internal Revenue, 114 T.C. 604, 609-10 (2000); Goza v. Comm'r of Internal Revenue, 114 T.C. 176, 179-80 (2000).
Here the IRS hearing officer did not abuse his discretion when he determined that the requirements of applicable law had been met and that Plaintiffs had been afforded statutorily-required administrative procedures. See 26 U.S.C. § 6330 (c)(1). The hearings officer also attempted to address the issues raised by Plaintiffs; however, Plaintiffs did not address any of the statutorily-specified issues that may be raised at a collection due process hearing, such as spousal defenses, the appropriateness of an intended collection action, and possible alternative means of collection. See 26 U.S.C. § 6330 (c); see also Sego, 114 T.C. at 609. Instead Plaintiffs attempted to revisit the issue of their underlying tax liability at the collection hearing at issue.
Appeals of the underlying claims are only appropriate at a collection due process hearing if the plaintiff did not receive notice of tax liability, Goza, 114 T.C. at 182, or "had no previous opportunity to contest the validity of those claims." Kintzler v. Internal Revenue Serv., 2001 WL 1137294, at *2 (D. Nev. 2001). Here Plaintiffs both received notice of their tax liability and had an opportunity to contest those claims. The IRS sent notification letters to Plaintiffs in February and March 2000 informing them that their "exempt" status was improper and that they would be assessed a civil penalty without further documentation. Plaintiffs were at that time informed of their right to appeal the IRS's determination and were furnished with a publication entitled "Your Appeal Rights and How to Prepare a Protest if You Don't Agree." The only other issues raised by Plaintiffs at the collection due process hearing have been deemed frivolous by the courts. See, e.g., Olsen v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985) (rejecting "wages are not income" argument); Browder v. Comm'r of Internal Revenue, T.C.M. 1990-408 (rejecting claim that IRS employee was not a "delegate" of the Secretary of the Treasury).
Plaintiffs have not, and cannot, prove any set of facts in support of their claim which would entitle them to relief Plaintiffs' appeal will therefore be dismissed. See Goza, 114 T.C. at 183 (dismissing tax protester's appeal of IRS Notice of Determination for failure to state a claim).
CONCLUSION
Accordingly, and for good cause appearing,
IT IS HEREBY ORDERED that Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#7) is GRANTED.