Opinion
CIVIL ACTION 02-1721, SECTION: B(1).
February 12, 2003
ORDER AND REASONS
Before the Court is a Motion to Dismiss or in the alternative for Summary Judgment filed on behalf of the Defendant. After careful consideration of the arguments presented, the submitted memoranda, the relevant facts, and applicable law, the Court treats this as a motion for summary judgment because matters outside the pleading are presented to and not excluded by the Court. See Fed.R.Civ.P. 12(b). For the reasons that follow,
IT IS ORDERED that Defendant's motion is GRANTED.
BACKGROUND
Plaintiff, who is proceeding pro se, filed this action pursuant to 26 U.S.C. § 6330(d)(1)(A), seeking to set aside a determination issued by the Internal Revenue Service Office of Appeals on May 17, 2002. Plaintiff contends that the determination was in violation of law.Plaintiff timely filed a 1998 federal income tax return that listed no taxable income and was subsequently assessed a $500.00 frivolous return penalty. Defendant contends that the frivolous return penalty was assessed because Plaintiff filed a zero return despite the attached IRS Form W-2 from his employment with Lockheed Martin Corporation disclosing that Plaintiff received $52,734.05 in wages, tips or other compensation. Plaintiff claimed an exemption for himself and the standard deduction on his federal income tax return. He further attached a multi-page document containing various arguments concerning the invalidity of the tax system.
In response to the purported return, Defendant notified Plaintiff by letter on June 28, 1999 that his arguments had no basis in law, and that the form should be corrected within 30 days or the frivolous return penalty would be assessed pursuant to 26 U.S.C. § 6702. Plaintiff failed to correct his return. On November 15, 1999, the IRS assessed the frivolous return penalty and sent Plaintiff a Notice of Intent to Levy.
Plaintiff then requested a collection due process hearing before an IRS Appeals Officer concerning whether the IRS could legally seize Plaintiff's property in connection with the penalty which had been imposed by the IRS, even though no court order, writ of garnishment or writ of attachment had ever been issued by any court of law with respect to Plaintiff's property. Plaintiff also requested that Appeals Officer furnish the following information:
(1) verification from the Secretary that the requirements of any applicable law or administrative procedure have been met;
The Court will use the collective term "Secretary" to refer to the Secretary of the Treasury and any delegates. See 26 U.S.C. § 7701(a)(11)(B). The Secretary of the Treasury may delegate much of his authority and responsibilities to others by prescribing rules and regulations, among other methods. 26 U.S.C. § 7805(a); see also 26 C.F.R. § 301.7701-9, 301.7701-10.
(2) documents that supported the imposition of the penalty or the names, federal ID numbers, and official job descriptions of the IRS employees who imposed the "frivolous penalty";
(3) delegation orders from the Secretary that authorized any IRS employee to impose the frivolous return penalty at issue or required Plaintiff to pay such penalty;
(4) the Treasury Department regulations that allows IRS employees to impose the "frivolous" return penalty; and
(5) documented proof that the Secretary authorized the collection action and that the Attorney General or his delegate "directed" that this action be commenced as required by section 7401. Plaintiff also advised the Appeals Office of his intent to challenge the "existence of the underlying liability" of the tax that generated the "frivolous penalty" as authorized by 26 U.S.C. § 6330(c)(2)(B), claiming that he did not receive a statutorily required Notice and Demand per sections 6203, 6321, and 6331.
At the collection due process hearing, Plaintiff attempted to raise arguments challenging the existence of the underlying tax liability and the authority of the Internal Revenue Service to collect income taxes. Without hesitance, the Appeals Officer dismissed these arguments as meritless and issued a Notice of Determination upholding the levy action on May 17, 2002. Plaintiff complains that the Appeals Officer failed to provide the information he requested and challenges the adequacy of the collections due process hearing. On June 6, 2002, Plaintiff timely filed this action, requesting that the Court declare invalid the IRS determination, order the government to reimburse Plaintiff for all of his costs in bringing this action, and award Plaintiff other such punitive damages as equity relief dictates.
DISCUSSION
Rule 56(b) of the Federal Rules of Civil Procedure provide that a party against who a claim is asserted may, at any time, move with or without supporting affidavits for summary judgment in the party's favor. FED. R. Civ. P. 56(b). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id.; Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party will bear the burden of proof at trial on the dispositive issue, in order to survive summary judgment that party must go beyond the pleadings and designate specific facts as to make a showing sufficient to establish the existence of an essential element to that party's case. Celotex, 477 U.S. at 322.
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show there is some metaphysical doubt as to the material facts. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must come forward with specific facts showing there is a genuine issue for trial. Matsushita, 475 U.S. at 587. The mere existence of a scintilla of evidence on the non-moving party's position is insufficient to defeat a properly supported motion for summary judgment. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). The non-moving party must present evidence upon which a reasonable jury could reasonably find for the non-mover. Id.
I. FRIVOLOUS RETURN PENALTY
In an attempt to deter the filing of frivolous tax returns, Congress in 1982 added Section 6702 to the Internal Revenue Code of 1954, providing for a $500.00 penalty against persons who file such returns or purported returns. Section 6702 provides as follows:
(a) Civil Penalty if
(1) any individual files what purports to be a return of the tax imposed by subtitle A but which —
(A) does not contain information on which the substantial correctness of the self-assessment may be judged; or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
(2) the conduct referred to in paragraph (1) is due to —
(A) a position which is frivolous, or
(B) a desire (which appears from the purported return) to delay or impede the administration of federal income tax laws, then such individual shall pay a penalty of $500.00.26 U.S.C. § 6702 (West 1999). Section 6201 of the Code authorizes the Secretary to make any necessary tax assessments. Section 6703 provides that normal deficiency procedures, as outlined in Title 26, Chapter 63, Subchapter B, do not apply with respect to assessment or collection of the penalties provided by sections 6700, 6701, and 6702. Failure to pay the penalty results in a lien on the person's property. 26 U.S.C. § 6321. If the Secretary wishes to levy the property of the person, he must first send the person a notice of intent to levy no less than thirty (30) days before levy. 26 U.S.C. § 6331(d)(2). The Secretary must also inform the person of his right to a hearing at the same time. 26 U.S.C. § 6330(a).
If a person requests a hearing, the hearing officer must "obtain verification form the Secretary that the requirements of any applicable law or administrative procedure have been met." 26 U.S.C. § 6330(c)(1). At the hearing, the person may raise any relevant issue, including spousal defenses, the appropriateness of the collection action, and any collection alternatives. 26 U.S.C. § 6330(c)(2)(A). The person "may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person 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).
The underlying tax liability in this case is the frivolous return penalty. To the extent that Plaintiff challenges the determination based on whether an underlying tax liability exists, that matter falls within the exclusive jurisdiction of the Tax Court. The Tax Court does not, however, have jurisdiction to consider frivolous return penalties.
Although the statutory deficiency procedures do not apply to a frivolous return penalty, Plaintiff was given a prior opportunity to dispute the penalty when Defendant notified Plaintiff by letter dated June 28, 1999 that his tax form should be corrected. Plaintiff failed to do so. Plaintiff now complains that the CDP hearing was not conducted in accordance with § 6330(c) because he attempted to raise relevant issues that the Appeals Officer ignored. Plaintiff does not assert that he raised issues related to "appropriate spousal defenses, challenges to the appropriateness of the collections actions, and offers of collection alternatives." Rather, Plaintiff chose to raise matters that are not provided for in the statute, and the Appeals Officer did not have to consider them.
Section 6330(d) is silent on the standard that the court should use to review the determination of the collection hearing. 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). Here, the validity of the income tax owed is not an issue and an abuse of discretion standard applies. However, the return that Plaintiff filed is still relevant because it determines whether assessment of the frivolous return penalty was proper.
There is no doubt about the validity of the penalty. Plaintiff submitted a 1998 tax return with zeros in the income section and Forms W-2 showing income considerably more than zero. He also attached an explanation which challenged the authority of the Internal Revenue Service to collect taxes. Courts have consistently upheld penalties for filing frivolous returns that indicated no taxable income for the year in question, even though W-2 forms attached indicated that wages were received. See Kelly v. U.S., 789 F.2d 94, 97 (1st Cir. 1986); Sullivan v. U.S., 788 F.2d 813, 815 (1st Cir. 1986); Davis v. U.S. Government, 742 F.2d 171, 173 (5th Cir. 1984); Lovell v. U.S., 755 F.2d 517, 519 (7th Cir. 1984); Holker v. U.S., 737 F.2d 751, 752 (8th Cir. 1984); Bradley v. U.S., 817 F.2d 1400, 1403 (9th Cir. 1987); Miller v. U.S., 2000 WL 1141597, *2 (C.D.Ill. June 05, 2000); Drefchinski v. Reagan, 589 F. Supp. 1516, 1526 (W.D.La. 1984). Such is the case here, and like the appeals officer, this Court finds that Plaintiff's tax return indicated that the self-assessment was substantially incorrect and due to a frivolous position; thus making Plaintiff liable for the frivolous return penalty. Even taking the factual allegations of the complaint as true, this Court cannot ignore the patent frivolity of the zero return.
II. COLLECTION DUE PROCESS HEARING
Plaintiff makes the conclusory allegation that the collection due process hearing was not in accordance with the law. Plaintiff repeatedly insisted that he see verification and documents by the Secretary or by a person with a delegation order signed by the Secretary. Section 6330(c)(1) only requires that the appeals officer "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." Section 301.6330-1(e) provides that the appeals officer is required to "obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met." Nothing in either the statute of the regulation requires that verification be sent to or provided to the taxpayer. Rennie v. I.R.S., 216 F. Supp.2d 1078, 1080 (E.D.Cal. June 11, 2002) ( citing Nestor v. Commissioner, 2002 WL 236682 (U.S.Tax. Ct. 2002)).
Furthermore, relevant statutes and regulations vest in the Secretary the power to collect taxes as well as the authority to delegate such power to officials who can redelegate the power to lower level officials such as collection officers. Id. ( citing IRS Delegation Order 191). There is no requirement of publication of internal delegations of administrative authority to enforce the Internal Revenue laws. Id.; See also Davis v. C.I.R., 115 T.C. 35 (U.S.Tax Ct. 2000). The appeals officer was within her authority and discretion to rely on the verification from the Secretary and rule that the penalty was correctly imposed.
Plaintiff contends that a penalty cannot be assessed because he did not receive the "statutory Notice and Demand" pursuant to section 6331. As pointed out above, the normal deficiency procedures do not apply. Section 6330 requires notice by the Secretary of a person's right to a hearing before a levy on any property is made. The notice must contain, in simple and nontechnical terms, the proposed action by the Secretary, and the rights of the person with respect to such action. 26 U.S.C. § 6330(a)(3). More than one court has held that the form of the notice does not matter as long as the required contents are contained within the notice. See Cole v. U.S., 2002 WL 31495841, *5 (W.D.Mich. Oct. 21, 2002). Defendants assert that a letter dated November 15, 1999 provided just such notice, and Plaintiff does not deny receiving the notice. Furthermore, Plaintiff's actions indicate that such notice was received because he requested and received a collection due process hearing, pursuant to the notice. The Court finds that Defendants complied with all requirements of § 6330 and its related regulations.
Without declaring the Defendant's collection due process determination invalid, the Court has no reason to reach Plaintiff's requests for costs or damages.