Opinion
CIVIL ACTION NO. 02-CV-7133
February 11, 2004
MEMORANDUM ORDER
On September 4, 2002, a Complaint for Redetermination was filed by STA Painting Co. ("STA"), pursuant to 26 U.S.C. § 6330, seeking review of the determinations of an Internal Revenue Service ("IRS") Appeals Officer issued on August 15, 2002, sustaining certain collection activities by the IRS against Plaintiff for non-payment of employment taxes. Defendant IRS has moved for summary judgment seeking affirmation of the Appeal Officer's determinations. (Doc. No. 8.) Plaintiff has filed a cross motion for summary judgment seeking remand alleging that the Appeals Officer's decision rejecting an installment agreement was an abuse of discretion. (Doc. No. 9.) For the following reasons, we will grant Defendant's motion and deny Plaintiff's cross motion.
I. Background
STA, a commercial painting contractor, filed this suit seeking review of three determinations by James J. Polsenki ("Appeals Officer") rejecting Plaintiff's attempt to settle its employment tax deficiency through an installment agreement rather than through lien or levy of its assets. Plaintiff has properly sought review of the Appeals Officer's determinations pursuant to 26 U.S.C. § 6330(d).
In May of 2001, the IRS sent STA a notice of intent to levy for its failure to pay employment taxes for the periods ending June 30, 2000, September 30, 2000, and December 31, 2000. This notice informed STA of its right to a collection due process ("CDP") hearing pursuant to 26 U.S.C. § 6330(a)(1). On June 15, 2001, STA requested a CDP hearing and provided the IRS with specific reasons why a levy was inappropriate. STA requested payment through an installment plan. (Def.'s Mot. for Summ. J. Ex. 1.) STA met with the Appeals Officer twice in September of 2001, to discuss its liability. It proposed an installment agreement in which it would pay $3,000 a week until the principal for each quarter had been paid off, and a lump sum payment of $85,000 to be paid by December 31, 2001. (Def.'s Mot. for Summ. J. Ex. 5.) STA claims that pursuant to this installment proposal, twenty-one $3,000 payments or $63,000 was paid to the IRS between October 5, 2001, and August 30, 2002. STA also made lump sum payments to the IRS of $6956.64 on September 19, 2001, and $8024.30 on September 23, 2001. Despite these payments, on August 15, 2002, the Appeals Officer advised STA that it was ineligible for an installment agreement due to its lack of compliance and that a levy was the appropriate collection action. (Def.'s Mot. for Summ. J. Ex. 6.)
"No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made. . . ." 26 U.S.C. § 6330(a)(1).
In June of 2001, the IRS also notified Plaintiff that it was filing a notice of a lien, pursuant to 26 U.S.C. § 6320, for the deficiency in employment taxes for the periods ending June 30, 2000 and September 30, 2000. (Def.'s Mot. for Summ. J. Ex. 2.) Again, STA requested a CDP hearing appealing the notice of the lien, arguing that the appeal of the aforementioned levy action (described above) prevented the IRS from filing a "collection action," while the appeal was pending. (Def.'s Mot. for Summ. J. Ex. 3.) After meeting with the Appeals Officer, the IRS responded to this argument on August 15, 2002, informing STA that since it did not meet any of the requirements for withdrawal of the notice of lien, this lien would remain in full force and effect until the liability was fully paid. (Def.'s Mot. for Summ. J. Ex. 7.)
The statutory provisions for the filing of a notice of a lien pursuant to 26 U.S.C. § 6320 mirror the provisions in 26 U.S.C. § 6330 which apply to the imposition of a levy.
In September of 2001, the IRS sent STA a notice of intent to levy for STA's failure to pay employment taxes for the period ending March 31, 2001. STA again requested a CDP hearing, incorporating the arguments made to the IRS in its earlier CDP requests. (Def.'s Mot. for Summ. J. Ex. 4.) STA's proposal for an installment agreement covered this period of delinquency as well. (Def.'s Mot. for Summ. J. Ex. 5.) In addition, STA discussed the installment plan with the Appeal Officer on December 11, 2001. Again, the IRS denied STA's request, advising that STA was ineligible for the installment agreement due to its lack of compliance. (Def.'s Mot. for Summ. J. Ex. 8.)
II. Review of the IRS Determination
Summary Judgment Standard of Review
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 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." FED. R. CIV. P. 56(c). The party moving for summary judgment bears the initial burden of demonstrating that there are no facts supporting the non-moving party's legal position. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986).
The parties in this matter have agreed that it may be disposed by cross motions for summary judgment and that discovery is inappropriate. The parties agree that the only issue in this case is whether the decisions of the Appeals Officer were correct as a matter of law. Although the parties move for summary judgment, we shall construe the motions as motions for judgment, seeking affirmance or reversal of the IRS's determinations.
"[A] motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure . . . makes no procedural sense when a district court is asked to undertake judicial review of agency action."Lodge Tower Condo. Ass'n v. Lodge Props. Inc., 880 F. Supp. 1370, 1374 (D. Colo. 1995): see also Yeboah v. U.S. Dept. of Justice, 345 F.3d 216. 221 (3d Cir. 2003) (treating appeal from the denial of a Fed.R.Civ.Pro. 56(c) cross-motion for summary judgement, as a review of the INS District Director's decision for abuse of discretion); GDI Info. Servs. Inc. v. Reno, 101 F. Supp.2d 546, 547 (E.D. Mich. 2000) (construing the parties summary judgment memoranda as a motion and cross-motion for judgment).
Standard of Review for Appeal Officer Determination
This case is properly before us under 26 U.S.C. § 6330(d)(1)(B) which provides that "the person may, within 30 days of a determination under this section, appeal such determination — if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States." Even though § 6330 provides for judicial review, it is silent with respect to the standard of review to be applied by the district court. The Third Circuit has not yet spoken to the issue, however, district courts in this and other districts have applied an abuse of discretion standard. Christian v. Comm'r of IRS, No. Civ. A. 02-9120, 2003 WL 21499013, *1 (E.D. Pa. June 5, 2003): see also Danner v. United States, 208 F. Supp.2d 1166, 1170 (E.D. Wash. 2002); MRCA Info. Servs. v. United States, 145 F. Supp.2d 194, 199 (D. Conn. 2000) (comprehensive review of the House Report accompanying the enactment of the IRS Restructuring and Reform Act of 1998, H.Rep. No. 105-599 at 266 (1998), concluding that an abuse of discretion standard of review is appropriate when a district court reviews an IRS Appeal officer's determination pursuant to 26 U.S.C. § 6330). We will also apply that standard.
We have jurisdiction over this case. The United States Tax Court "has exclusive jurisdiction to determine the correctness of deficiency assessments made by the Commissioner of Internal Revenue." Danner v. United States, 208 F. Supp.2d 1166, 1170 (E.D. Wash. 2002). Since Plaintiff does not challenge the amount of liability, at issue in this case is not the "correctness" of the "assessment," but the propriety of the deficiency procedure used for collection. Moreover, since the Tax Court does not have jurisdiction with respect to employment tax liability, the district court is the proper court in which to file a complaint contesting the assessment of employment taxes. See Moore v. Comm'r of Internal Revenue, 114 T.C. 171, 175 (2000).
The abuse of discretion standard requires a court to determine whether the administrative decision was based on a consideration of the relevant factors and whether or not there was a clear error of judgment.Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971). Moreover, an agency must articulate a "rational connection between the facts found and the choice made." Bowman Trans. v. Arkansas-Best Freight, 419 U.S. 281, 285 (1974). `"The task of this court, is not to determine whether in its own opinion . . . `that an installment agreement would best serve both the interest of the IRS and [taxpayer], `but to determine whether there is an adequate basis in law for the officer's conclusion that it did not.'" See MRCA, 145 F. Supp.2d at 199 (quoting RCA Corp. v. United States, 664 F.2d 881, 886 (2d Cir. 1981)).
III. Discussion of Levy Actions
STA argues that the decision to impose the levy and reject the proposed installment agreement was not a rational decision. (Mem. in Supp. of PL's Cross Mot. for Summ. J. at unnumbered 6 (citing 26 U.S.C. § 6330(c)(3)(C)).) Under § 6330(c)(3)(C), the determination by the Appeals Officer must take into consideration the applicable law or administrative procedures, any issues raised by the taxpayer concerning the unpaid tax, the proposed levy or offers of collection alternatives, any challenges to the appropriateness of collection actions, and whether 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(b).
The parties agree that Plaintiff was given adequate and proper notice of the actions taken by Defendant, 26 U.S.C. § 6330(a); a fair hearing was conducted by an impartial officer, 26 U.S.C. § 6330(b); and Plaintiff was allowed to raise "any relevant issue relating to the unpaid tax" as required by 26 U.S.C. § 6330(c)(2).
The crux of Plaintiff's argument to the Appeals Officer was that the enforcement of the collection procedures would produce less revenue towards paying the deficiency than would simply allowing STA to continue paying pursuant to the proposed installment agreement. In its properly submitted requests for hearings (Def.'s Mot. for Summ. J. Exs. 1, 3, 4), its letter proposing an installment plan (Letter of Sept. 27, 2001), and in the three statutorily required hearings, Plaintiff offered many reasons why the installment plan was better for both parties than the action to levy assets and place a lien on its property. STA told the IRS that an installment plan would allow the IRS to collect the deficient amount while allowing STA to continue as a viable business. STA advised that if the installment plan was rejected, STA would be forced out of business and the IRS would collect less total revenue. STA indicated that it had no real estate, only simple equipment, and no inventory that would produce any revenue through a levy. In addition, a levy on STA's only substantial asset — its accounts receivable — would force STA out of business because it would be unable to pay its wage labor and thus continue on as a company. Finally, STA pointed to 26 U.S.C. § 6330(c)(2)(A)(iii) which permits it to offer a collection alternative and argued that its installment plan was an acceptable alternative. While admitting that its compliance with the proposed installment plan had not been perfect, STA noted that it had already paid almost $78,000 pursuant to the installment offer, and had voluntarily assigned some of its accounts receivable over to the IRS. (Tiedeken Decl. ¶ 9.)
STA suggested that the installment agreement was an acceptable collection alternative, as it:
1. Affords to the IRS an immediate, continuous, effortless source of payment; and
2. Recognizes STA's commitment to pay, consistent with the construction industry's method of payment to subcontractor's such as STA;
3. Allows STA's union painters to remain employed and contributing to the American economy; and
4. Permits STA to remain a viable contributor to American's [sic] economy.
(Def.'s Mot. for Summ. J. at Ex. 5.)
STA makes clear that it employs only union painters, and has little flexibility when it comes to reducing or deferring payment of wages.
"The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including — offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, and installment agreement, or an offer-in-compromise." 26 U.S.C. § 6330(c)(2)(A)(iii).
Notwithstanding STA's arguments regarding the merits of an installment plan, the Appeals Officer rejected this alternative. The IRS offered the following reasons for this rejection:
You have been a chronic repeater in failing to deposit and pay trust fund taxes. While you were appealing the above tax periods, you failed to file, pay or deposit trust fund taxes for the period ending 6-30-2001.
On September 27, 2001, your representative proposed that you pay $3,000.00 per week to be applied to the September 30, 2001 quarter and would remain current on employment tax's. You also proposed to pay $85,000.00 by Dec. 31, 2001. Although you have made a number of $3,000.00 payments, they have not been weekly as proposed and you never made the $85,000.00 payment toward back taxes. Therefore, you are in default of your own proposal.
Some of the $3,000.00 payments were erroneously applied to quarters other than September 30, 2001 but we are now applying them per your designation. We have allowed you several months in which to obtain additional financing and pay the trust fund liabilities, but you have failed to do so. In addition, during the period of the appeal, you have incurred additional liabilities.
You agreed to deposit trust fund taxes as required by law. You failed to take these actions and incurred another trust fund liability.
You raised no other issues relating to the unpaid taxes and made no other proposals regarding collection alternatives. It appears that you are appealing for purposes of delay.
Balancing Efficient Collection and Intrusiveness
A levy on your bank account(s) or a seizure of your assets would probably yield some revenue in relation to the amount owed. Further delay would only result in increasing the liabilities as you have done during the appeal. You are not eligible for an installment agreement or offer in compromise due to your lack of compliance.
(Def.'s Motion For Summary J. Ex. 6.)
The IRS argues that these reasons adequately support the Appeals Officer's decision. It cites MRCA in support of its position. In MCRA the court found no abuse of discretion where an appeals officer rejected an installment agreement because plaintiff failed to pay an agreed upon lump sum payment, plaintiff defaulted on prior installment agreements, and there was a continued escalation of plaintiff's tax liability during the appeals process. 145 F. Supp.2d at 200. Our research reveals other courts that have similarly concluded that the decision to levy and reject an installment agreement is not an abuse of discretion where the taxpayer had incurred additional deficiencies and has already failed to comply with an installment agreement. See PCT Servs., Inc. v. United States, No. Civ. A. 02-2085, 2003 WL 21541283, * 5 (N.D. Ga. May 19, 2003); Stop 26 — Riverbend, Inc. v. United States, No. C2-02-0285, 2003 WL 1908747, * 3 (S.D. Ohio March 12, 2003) (holding that where taxpayer provided no information to show that payments could be made and that it was continuing to accrue unpaid tax liabilities the decision by appeals officer to deny installment agreement was not an abuse of discretion);Kitchen Cabinets. Inc. v. United States, No. Civ. A. OO-cv-0599, 2001 WL 237384, * 3 (N.D. Tex. March 6, 2001) (same);Jon H. Berkey, P.C. v. Dep't of the Treasury, No. OO-cv-75149, 2001 WL 1397680, * 5 (E.D. Mich. Sept. 20, 2001) (finding that appeals officer's decision was not abuse of discretion where plaintiff "continues to fail to make scheduled payments, and continued to be in non-compliance with federal tax laws").
Notwithstanding the explanations offered by STA as to why it was unable to comply with the installment plan and stay current in its payment of taxes, it is apparent that the IRS had sufficient reason to believe that despite Plaintiff's good intentions an installment plan would not solve STA's deficiency problem.
IV. Discussion of Notice of Lien
STA argues that the filing of a lien by the IRS was inappropriate while it was contesting the levy action for the same deficiency period. On May 20, 2001, the IRS filed its intent to levy notice for the periods ending June 30, 2000, September 30, 2000 and December 31, 2000. STA filed a timely appeal on June 15, 2001. The IRS then filed a notice of lien for the June and September periods on June 20, 2001. Section 6330(e)(1) provides that during the time a levy action is under review, the levy action for that time period is suspended. Significantly, § 6330(e)(1) makes no reference to the filing of liens. It states only that "the levy actions which are the subject of the requested hearing . . . shall be suspended for the period during which such hearing, and appeals therein, are pending." Id. STA argues that the filing of a lien was inappropriate because § 6330(e)(1) requires the suspension of the collection activity pending appeal of a levy action. The IRS defends arguing that a lien is not a collection action but a preservation of the status quo pending a decision on the levy action. It points out that "unless the service is permitted to preserve the position of the United States' revenue relative to other creditors of the taxpayer, by filing a notice of Federal tax lien, the taxpayer would be free to commit its assets to pay other creditors during the time the services' ability to levy is suspended by § 6330(e)(1)." This places the United States at a significant disadvantage.
As noted above, § 6330(e)(1) suspends only "levy actions which are the subject of the requested hearing." It says nothing about liens. We also note that § 6320 dealing with liens provides in subsection (c) that "to the extent practicable, a hearing under this section shall be held in conjunction with a hearing under § 6330." Perhaps the IRS had this in mind when it filed the notice of lien. We agree with the IRS that the filing of the lien under these circumstances was not prohibited by § 6330(e)(1). Any other conclusion would make little sense.
V. CONCLUSION
Based upon the foregoing we conclude that the Appeals Officer did not abuse his discretion in rejecting STA's proposal of an installment agreement and that the determinations of the Internal Revenue Service were proper.
An appropriate Order follows.
ORDER
AND NOW on this ___ day of February, 2004, upon review of the motion filed by Defendant Internal Revenue Service (Docket No. 8), and the cross motion filed by Plaintiff STA Painting Co. (Docket No. 9), and all papers filed in support thereof and in opposition thereto, it is ORDERED that Defendant's motion is GRANTED, and the Plaintiff's cross motion is DENIED. The determinations of the Internal Revenue Service are AFFIRMED.IT IS SO ORDERED.