The hearing officer's substantive determination regarding frivolousness was also proper. Title 26 U.S.C. §6702(a) provides for a civil penalty of $500 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 on the purported return) to delay or impede the administration of Federal income tax laws[.]

Defendant persuasively argues that the first prong of 26 U.S.C. §6702(a) is met here. Plaintiff filed an Amended U.S. Individual Income Tax Return, Form 1040X, for the years 1997, 1998 and 1999. Each of those returns indicated an income of zero ( i.e., "0") despite plaintiff's W-2 Wage and Tax Statements for those years reflecting earnings of $79,737.68, $108,322.72, and $121,104.18, respectively. Accordingly, the undersigned finds that for each of the years at issue plaintiff filed what purported to be a return containing information that on its face indicated that the self-assessment was substantially incorrect. See 26 U.S.C. §6702(a)(1)(B); see also Hudson v. United States [ 85-2 USTC ¶9575], 766 F.2d 1288, 1291 (9th Cir. 1985) (return largely completed with "object," "none" and "0" did not contain information on which the substantial correctness of the self-assessment could be judged under §6702(a)(1)(A)).

Defendant also persuasively argues that the second prong of 26 U.S.C. §6702(a) is met, plaintiff having filed the purported returns based on a frivolous position. As explained below, plaintiff's position that his earnings were exempt from taxation has no basis in law or fact and constitutes nothing more than a selective interpretation of statutes, regulations and case law.

Title 26 U.S.C. §1 imposes a tax on the income of every individual who is a citizen or resident of the United States . Taxable income is gross income minus allowable deductions. 26 U.S.C. §63(a). "[G]ross income means all income from whatever source derived" and specifically includes "[c]ompensation for services." 26 U.S.C. §61(a)(1). See also Comm'r of Internal Revenue v. Schleier [ 95-1 USTC ¶50,309], 515 U.S. 323, 327 (1995) ("Section 61(a) of the Internal Revenue Code provides a broad definition of `gross income'.... We have repeatedly emphasized the `sweeping scope' of this section and its statutory predecessors."); Wilcox v. Comm'r of Internal Revenue [ 88-1 USTC ¶9387], 848 F.2d 1007, 1008 (9th Cir. 1988) (stating that wages are taxable income); Dillon v. United States [ 86-2 USTC ¶9492], 792 F.2d 849, 852 (9th Cir. 1986) ("Under Sections 1 and 61 of the Internal Revenue Code, federal income tax applies to `every individual' and to `all income from whatever source derived."'). Further,

The rules of [26 U.S.C.] sections 861-865 have significance in determining whether income is considered from sources within or without the United States . The source rules do not exclude from U.S. taxation income earned by U.S. citizens from sources within the United States .

Loofbourrow v. Comm'r of Internal Revenue [ 2002-1 USTC ¶50,465], 208 F.Supp.2d 698, 710 (S.D. Tex. 2002) (citations omitted). Accordingly, courts have rejected as frivolous plaintiff's assertions to the IRS and this court that 26 U.S.C. §§861-865, and the related United States Treasury regulations, in any way define or limit the definition of gross income. See, e.g., Loofbourrow [ 2002-1 USTC ¶50,465], 208 F.Supp.2d. at 710 ("Loofbourrow ignores the statutory provisions of 26 U.S.C. §§1 and 61, arguing that his compensation does not constitute gross income because it is not an item of income listed in 26 C.F.R. §1.861-8(f). Loofbourrow's argument, however, is misplaced and takes the regulations out of context."); United States v. Bell [ 2003-1 USTC ¶50,501], 238 F.Supp.2d 696, 700 (M.D. Pa. 2003) (" Bell 's U.S. Sources argument is nonsensical. It rests purely on semantics and takes the regulations promulgated under section 861 out of context.").

For these reasons, the undersigned finds that the IRS properly arrived at its determination regarding the frivolous return penalties assessed against plaintiff. Summary judgment is warranted in this case. There exists no genuine issue of material fact and the United States is entitled to judgment as a matter of law.

CONCLUSION

Accordingly, defendant's motion for summary judgment is granted and this case is dismissed. The Clerk of the Court is directed to close the file.

¹ Defendant styled its motion as a motion to dismiss, or in the alternative for summary judgment. However, since defendant submitted materials outside plaintiff's complaint in connection with its motion, the parties were notified by order filed January 28, 2003 , that the court would treat defendant's motion as a motion for summary judgment. See Fed. R. Civ. P. 12(b); In re Rothery, 143 F.3d 546, 549 (9th Cir. 1998).

[2003-2 USTC ¶50,542]Richard E. Hardy, Plaintiff v. United States of America , Defendant.

U.S. District Court, No. Dist. Ala. , East. Div.; CV-02-CO-2005-E, June 4, 2003 .

[ Code Sec. 6330]

Internal Revenue Service: Collection Due Process: Hearing procedures. --

An IRS Appeals officer's Collection Due Process (CDP) determination upholding the imposition of a frivolous return penalty was sustained, absent proof that the IRS failed to follow proper procedures during the CDP hearing.

Order

COOGLER, District Judge: In conformity with the memorandum of opinion entered contemporaneously herewith, it is hereby ORDERED, ADJUDGED, and DECREED that:

1. Defendant's motion for leave to supplement its motion for summary judgment is GRANTED;

2. Defendant's motion for summary judgment is GRANTED;

3. The administrative determination issued by the IRS Appeals Office is SUSTAINED; and

4. Costs are TAXED against the plaintiff and in favor of the defendant.

Memorandum of Opinion

I. Introduction

Presently before the court is a motion for summary judgment, filed by the defendant on December 20, 2002, [Doc. # 9], as well as a motion for leave to supplement the motion for summary judgment, filed by the defendant on February 10, 2003, [Doc. # 18]. The issues raised in the motion for summary judgment have been briefed by both parties, and are now ripe for decision. Upon due consideration, both the motion for leave to supplement the motion for summary judgment and the motion for summary judgment will be granted.

II. Facts ¹

The plaintiff, Richard E. Hardy ("Mr. Hardy"), filed two amended federal income tax returns for 1982; on one, he wrote the words "not lyable" (sic) and entered "0" for the amount of adjusted gross income, and on the other he wrote the words "not lyable" (sic) and attached a statement asserting that he had no income because income "can only be derived from corporate activity," and that filing the return violated his rights under the Constitution. Likewise he filed two federal income tax returns for 1997. On one of his 1997 returns, Mr. Hardy asserted that "there is no statute that referenced the I.R.S. Code granting the goveerment [(sic)] the authority to impose a direct income tax on me," "the only employee in the entire I.R.S. Code is the federal government," "the only employee in the entire I.R.S. Code is the federal employee," and "there are no regulation[s] supporting the collection of direct income tax." On the other 1997 return, Mr. Hardy wrote the words "not lyable" (sic) and stated that his income was "0" for the year. He again asserted the objections made in his second 1982 return. Finally, on his income tax return for 1998, Mr. Hardy asserted those objections for the third time and entered "0" at nearly all lines of the return.

On April 12, 1999, the Internal Revenue Service ("IRS") assessed against Mr. Hardy two $500 penalties for filing frivolous returns for the years 1982 and 1997. Notices of the assessments were sent to Mr. Hardy on that date. ² On July 19, 1999, the IRS assessed another $500 penalty against Mr. Hardy for filing a frivolous return with respect to the year 1998, and a notice of the assessment was sent to him on that date. On November 27, 2001, the IRS sent Mr. Hardy a notice of its intent to collect the penalties by levy, which advised Mr. Hardy of his right to a collection due process ("CDP") hearing. On December 10, 2001, the IRS received from Mr. Hardy a timely request for a CDP hearing; that hearing was scheduled to take place by telephone on May 29, 2002, but upon Mr. Hardy's request, it was rescheduled as a face-to-face meeting on July 10, 2002, with Thomas R. Owens ("Mr. Owens") of the IRS Office of Appeals. Mr. Owens had no prior involvement with the penalties at issue in the hearing; however, Mr. Owens, who held the position of chief of the Special Procedures Function of the IRS in Birmingham prior to becoming employed by the Office of Appeals, was the IRS's signatory to a notice of federal tax lien filed against Mr. Hardy for deficiencies in his income tax returns for the year 1985.

Mr. Hardy requested permission to tape-record the CDP hearing; however, this request was denied. At the hearing, Mr. Hardy contended that the returns in question were not frivolous; however, when given the chance to discuss collection alternatives to a levy, he did not request any alternatives. Rather, Mr. Hardy stated that he could pay the penalties in full. In a notice of determination issued on July 25, 2002, Mr. Owens concluded that all requirements of the law, regulations, and administrative procedures had been met, and sustained the proposed levies.

Pursuant to 26 U.S.C. §6330(d)(1), Mr. Hardy filed the instant action seeking judicial review of the determination sustaining the levies on August 16, 2002. [Doc. # 1, Compl.] Although his filings are less than perfectly clear, Mr. Hardy seems to allege a number of procedural defects attendant to his CDP hearing that necessitate the court's intervention. Specifically, Mr. Hardy alleges: (1) that he did not receive the notice required by 26 U.S.C. §6330(a)(1), and that the notice he did receive was not made by the Secretary of the Treasury as required by that section; (2) that the notice failed to comply with 26 U.S.C. §6751; (3) that Mr. Owens' signature on the notice of federal tax lien for Mr. Hardy's 1985 tax deficiencies rendered him not an impartial appeals officer in violation of 26 U.S.C. §6330(b)(3); (4) that Mr. Owens did not obtain verification that the requirements of the law or any applicable administrative procedure had been met as required by 26 U.S.C. §6330(c)(1); (5) that the IRS was required by 26 U.S.C. §7521 to allow him to tape-record the CDP hearing, and its failure to do so invalidates Mr. Owens' determination; and (6) that the underlying penalties are not warranted under the circumstances. ³ The instant motion for summary judgment was filed on December 20, 2002. [Doc. # 9.] The plaintiff filed an opposition to the motion [Doc. # 14], which raised a number of issues not explored in the complaint; as a result, the defendant filed a motion to supplement its motion for summary judgment on February 10, 2003, [Doc. # 18], in order to address some of the issues first raised by the plaintiff in his response to the motion for summary judgment. Because the court will address the allegations first raised in the plaintiff's response to the motion for summary judgment, it will grant the defendant's motion to supplement the motion for summary judgment.


III. Standard

Summary judgment is proper "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 a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the evidence] which it believes demonstrate the absence of a genuine issue of material fact" Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The movant can meet this burden by presenting evidence showing that there is no genuine dispute of material fact, or by showing that the nonmoving party has failed to present evidence in support of some element of its case on which it bears the ultimate burden of proof. Celotex, 477 U.S. at 322-23. In evaluating the arguments of the movant, the court must view the evidence in the light most favorable to the nonmoving party. Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 742 (11th Cir. 1996).

Once the moving party has met his burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial."' Celotex, 477 U.S. at 324 (quoting Fed.R.Civ.P. 56(e)). "A factual dispute is genuine only if a `reasonable jury could return a verdict for the nonmoving party."' Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991)).

In appeals of CDP determinations, courts review the validity of the assessments de novo, but review other determinations under an abuse of discretion standard. See, e.g., Sillavan v. United States [ 2002-1 USTC ¶50,236], CV-01-BU-803-S, slip op. at 8 (N.D. Ala. Jan. 14, 2002); Geller v. United States [ 2001-2 USTC ¶50,703], C2-00-1116, 2001 U.S. Dist. Lexis 16977, at *6 (S.D. Ohio Sept. 25, 2001); Pikover v. United States [ 2001-2 USTC ¶50,702], CV-00-12379NM, 2001 U.S. Dist. Lexis 16949, at *8 (C.D. Cal. Aug. 22, 2001); Konkel v. Comm'n of Internal Revenue [ 2001-2 USTC ¶50,520], 6:99-CV-1026-Orl-31C, at *8 (M.D. Fla. Nov. 6, 2000); MRCA Info. Servs. v. United States [ 2000-2 USTC ¶50,683], 145 F.Supp.2d 194, 199 (D. Conn. 2000); Goza v. Comm'r [ CCH Dec. 53,803], 114 T.C. 176, 181-82 (2000).


IV. Discussion

A. The legal framework

Pursuant to 26 U.S.C. §6702, the IRS may impose upon an individual who files a frivolous income tax return a penalty in the amount of $500. If the taxpayer fails to pay the penalty assessed against him within ten days after notice and demand, the IRS may collect such penalty by way of a levy upon any and all property belonging to the taxpayer. 26 U.S.C. §6331(a). However, prior to levying on the taxpayer's property, the IRS must notify him of its intent to levy against his property and his right to a CDP hearing. Id. §6330. If the taxpayer requests a hearing, the IRS Appeals Office conducts the hearing; the appeals officer who conducts the hearing must have had no previous involvement with the penalty that gave rise to the levy. Id. §6330(b). At the hearing, the appeals officer must verify that the applicable requirements of the Internal Revenue Code, as well as IRS procedures, have been met. Id. §6330(c). In making a determination, the appeals officer must take into account the verification of procedures, the issues presented by the taxpayer, and whether any proposed collection action balances the need for the efficient collection of the penalty with the legitimate concern of the taxpayer that any collection be no more intrusive than necessary. Id. §6330(c)(3). If the taxpayer is dissatisfied with the determination, he may seek judicial review, as Mr. Hardy has done in the instant action. Id. §6330(d).

B. The plaintiff's allegations

1. Sufficiency of the notices

Mr. Hardy seems to allege that he did not receive notice of the IRS's intent to collect the penalties assessed against him by levy, as required by 26 U.S.C. §6330(a)(1). However, the undisputed evidence, in the form of Certificate of Assessment and Payments forms submitted by the defendant, shows that appropriate and timely notices were sent by the IRS. In the absence of proof that the notices were not sent, or were somehow deficient, notations on Certificate of Assessment and Payments forms establish that the proper notices were sent. See United States v. Chila [ 89-1 USTC ¶9299], 871 F.2d 1015, 1019 (11th Cir. 1989).

Furthermore, Mr. Hardy challenges the sufficiency of notices received by him on the grounds that they were not issued by the Secretary of the Treasury, as required by 26 U.S.C. §6330(a)(1). While the statute in question does require that notice be sent by the Secretary, the Internal Revenue Code clearly states that the term "Secretary" as used in the code "means the Secretary of the Treasury or his delegate." 26 U.S.C. §7701. Pursuant to validly promulgated regulations, the Secretary's authority to issue notices has been delegated to the District Director and also to the Director of the Service Center . See 26 C.F.R. §301.6212-1(a). The Certificates of Official Record from the IRS with respect to Mr. Hardy's case indicate that the notices in question were validly prepared and sent by the Director of the Service Center . As such, Mr. Hardy has not raised a genuine issue of material fact with respect to the sufficiency of the notices in this case.

2. Compliance with 26 U.S.C. §6751

Mr. Hardy alleges that the notices he received were deficient insofar as they did not comply with 26 U.S.C. §6751, which requires that all notices shall include "the name of the penalty, the section of [the tax code] under which the penalty is imposed, and a computation of the penalty." 26 U.S.C. §6751. However, because the penalties in question in this case were assessed in 1999, §6751, which applies only to penalties assessed after June 30, 2001 , has no application to the notices sent to Mr. Hardy. See Internal Revenue Service Restructuring and Reform Act of 1998, §3306, Pub. L. No. 105-206, 112 Stat. 744, amended by Consolidated Appropriations Act 2001, §302, Pub. L. No. 106-554, 114 Stat. 2763A-632. Therefore, even if the notices in question failed to comply with §6751, such failure does not provide a basis for invalidating the appeals determination in this case.

3. Impartial appeals officer

Under the applicable law, the CDP hearing must "be conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax specified in [the notice sent pursuant to 26 U.S.C. §6330(a)(1)] before the first hearing under this section." 26 U.S.C. §6330(b)(3). Mr. Hardy contends that the appeals officer in his case was not impartial, and as proof thereof, he offers a notice of federal tax lien regarding Mr. Hardy's 1985 income tax liability to which Mr. Owens was the signatory for the IRS. However, while Mr. Owens may have had some involvement in issues related to Mr. Hardy's tax liability for the year 1985, the undisputed evidence shows that Mr. Owens had no prior involvement with respect to the specific penalties at issue in the CDP hearing; §6330(b)(3) requires nothing more. Therefore, Mr. Owens was impartial within the meaning of the statute, and this argument provides no basis for vacating his determination.

4. Compliance with 26 U.S.C. §6330(c)(1)

Mr. Hardy contends that Mr. Owens failed to comply with the terms of 26 U.S.C. §6330(c)(1), which requires the appeals officer to "obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." 26 U.S.C. §6330(c)(1). Generally, courts have held that the hearing officer's receipt of IRS Form 4340, which is the Certificate of Assessment and Payments form, provides at least presumptive evidence that a tax or penalty has been validly assessed. See United States v. Chila [ 89-1 USTC ¶9299], 871 F.2d 1015, 1017-18 (11th Cir. 1989); see also Huff v. United States [ 93-2 USTC ¶50,633], 10 F.3d 1440, 1445 (9th Cir. 1993); Hefti v. IRS [ 93-2 USTC ¶50,591], 8 F.3d 1169, 1172 (7th Cir. 1993); Geiselman v. United States [ 92-1 USTC ¶50,200], 961 F.2d 1, 5-6 (1st Cir. 1992); Rocovich v. United States [ 91-1 USTC ¶60,072], 933 F.3d [F.2d] 991, 994 (Fed. Cir. 1991); Davis v. Comm'r [ CCH Dec. 53,969], 115 T.C. 35, 40 (2000). Furthermore, it has been held that the appeals officer need not bring the documents used in the verification to the hearing, nor need he give the taxpayer a copy of them. Nestor v. Comm'r [ CCH Dec. 54,655], 118 T.C. 162 (2002). Without evidence that demonstrates an irregularity in the assessment procedure that would raise a question about the validity of the assessments, the Form 4340 reflecting Mr. Hardy's liability for the penalties in question satisfies §6330(c)'s requirement that the appeals officer verify that the requirements of applicable law and administrative procedure were met.

5. Mr. Hardy's inability to tape-record the hearing

Mr. Hardy argues that Mr. Owens' refusal to allow him to tape-record the hearing was in contravention of applicable law and therefore provides a basis for vacating Mr. Owens' determination. Mr. Hardy bases this argument on 26 U.S.C. §7521(a)(1), which states:

Any officer or employee of the [IRS] in connection with any in-person interview with any taxpayer relating to the determination or collection of any tax shall, upon advance request of such taxpayer, allow the taxpayer to make an audio recording of such interview at the taxpayer's own expense and with the taxpayer's own equipment.

26 U.S.C. §7521(a)(1). The court is of the opinion that under the plain meaning of the language used in §7521(a)(1), this section is inapplicable to CDP hearings.

On its face, §7521(a)(1) applies to interviews with taxpayers relating to the determination or collection of any tax. It is clear to the court that the CDP hearing at issue in this case was not an interview relating to the determination or collection of a tax. Rather, it was a due process hearing regarding the manner of collecting a penalty from Mr. Hardy. As such, §7521(a)(1) is inapplicable, and the determination's validity may not be questioned on the basis that Mr. Hardy was not permitted to tape-record the proceedings.

The court's conclusion is buttressed by a regulation promulgated by the Secretary of the Treasury, which states that "[a] transcript or recording of any face-to-face meeting or conversation between an Appeals officer or employee and the taxpayer or the taxpayer's representative is not required." 26 C.F.R. §301.6330-1(3) (A-D6). See United States v. Correll, [ 68-1 USTC ¶9101], 389 U.S. 299, 307 (1967) (holding that Treasury Regulations carry the weight of law if they implement congressional mandates in some reasonable manner). Thus, Mr. Hardy was not entitled to tape-record the hearing, and Mr. Owens did not abuse his discretion in forbidding Mr. Hardy from doing so.

6. The validity of the underlying penalties

Finally, to the extent that Mr. Hardy challenges the validity of the underlying penalties, the court is satisfied that they were warranted in this case. 26 U.S.C. §6702 imposes a $500 penalty on any taxpayer filing a frivolous tax return. Examples of frivolous returns are returns that make reference to judicially rejected constitutional arguments and returns that contain insufficient information to determine tax liability. S. Rep. No. 97-494(I), at 277-78 (1982), reprinted in 1982 U.S.C.A.A.N. 781, 1023-24. Courts have consistently found returns like those filed by Mr. Hardy to be frivolous within the meaning of §6702. See, e.g., Stoecklin v. Comm'r [ 89-1 USTC ¶9177], 865 F.2d 1221 (11th Cir. 1989); Ricket v. United States [ 85-2 USTC ¶9740], 773 F.2d 1214 (11th Cir. 1985); Peeples v. Comm'r, 771 F.2d 77 (4th Cir. 1985); Hyslep v. United States [ 85-2 USTC ¶9553], 765 F.2d 1083 (11th Cir. 1985); Rennie v. IRS [ 2002-2 USTC ¶50,548], 216 F.Supp.2d 1078 (E.D. Cal. 2002); Davis v. United States [ 84-2 USTC ¶9929], No. 84-C-5431, 1984 U.S. Dist. Lexis 22301 (N.D. Ill. Oct. 31, 1984); Heitman v. United State, [ 84-1 USTC ¶9330], 3-83-0732, 1984 U.S. Dist. Lexis 19675 (M.D. Tenn. Feb. 8, 1984). Indeed, statements such as income may be derived only from corporate activity and that only federal employees are considered employees within the meaning of the tax code are certainly frivolous. The court is therefore of the opinion that the underlying penalties were warranted, so to the extent Mr. Hardy challenges their validity, his claim must fail.

V. Conclusion

Upon review of the record, the court finds no basis for concluding that the appeals officer abused his discretion in the execution of the notice of determination. Furthermore, to the extent that Mr. Hardy challenges the validity of the underlying penalties, the court is of the opinion that the assessments were warranted. Therefore, the court finds that the defendant is entitled to summary judgment and that the administrative determination is due to be sustained. The court will enter an appropriate order in conformity with this memorandum of opinion.

¹ The facts set out below are gleaned from the parties' submissions of facts claimed to be undisputed, their respective responses to those submissions, and the court's own examination of the evidentiary record. All reasonable doubts about the facts have been resolved in favor of the nonmoving party. See Info. Sys. & Networks Corp. v. City of Atlanta , 281 F.3d 1220, 1224 (11th Cir. 2002). These are the "facts" for summary judgment purposes only. They may not be the actual facts. See Cox v. Adm'r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).

² The defendant has submitted Certificate of Assessment and Payments forms that indicate that the penalties were assessed, and notices were issued, on the dates stated herein.

³ Some of these issues were raised in the complaint; others were first raised in the plaintiff's submission in opposition to the defendant's motion for summary judgment. Because the plaintiff is proceeding pro se, the court will address each ground upon which the plaintiff challenges the underlying determination.

[2003-2 USTC ¶50,587]Henry D. Goltz, Plaintiff-Appellant v. United States of America , Defendant-Appellee.

U.S. Court of Appeals, 5th Circuit; 02-51028, July 14, 2003 .

Unpublished opinion affirming, per curiam, a DC Texas decision, 2002-2 USTC ¶50,638.

[ Code Sec. 6330]

Collection Due Process: Hearing procedures. --

A federal district court properly dismissed an individual's challenge of a collection due process determination imposing a frivolous return penalty against the taxpayer for filing a zero-income return. The taxpayer failed to file a meaningful return, and his challenge of the penalty was deemed frivolous.

[ Code Sec. 6702]

Penalties, civil: Frivolous return: Wages or salaries omitted. --

A federal district court properly imposed a frivolous return penalty against an individual for filing a zero-income return. The taxpayer failed to file a meaningful return, and his challenge of the penalty was deemed frivolous.


Before: Jones, Stewart and Dennis, Circuit Judges.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

PER CURIAM: ^* This court has considered the pro se appellant's challenge to the district court's grant of summary judgment to the United States. The court held frivolous the appellant's challenge to IRS imposition of $500 penalty for his failure to file a meaningful tax return. Substantially and procedurally, the district court was correct. Its judgment is

AFFIRMED.

^* Pursuant to 5th CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th CIR. R. 47.5.4.

[2004-1 USTC ¶50,240]Michael A. Farenga, Plaintiff v. United States of America , Defendant.

U.S. District Court, No. Dist. N.Y. ; 5:01-CV-1478, March 24, 2004 .

[ Code Sec. 6330]

Collection Due Process hearing: Hearing procedures: Levy: Frivolous return. --

An individual taxpayer, who filed a frivolous tax return, failed to establish any procedural and evidentiary defects in his Collection Due Process hearing, that the underlying tax liability and frivolous return penalty assessed by the IRS was without merit, or that the IRS's levy collection activity was inappropriate. The IRS's motion to dismiss was granted. The Form 4340 relied upon by the Appeals officer at the hearing was adequate verification from the IRS collections office that applicable statutory and administrative requirements had been satisfied. There was no requirement that the Appeals officer produce evidence of his delegated authority. Nor was the taxpayer entitled to the names, job descriptions and federal identification numbers of the persons involved in assessing and processing assessed penalties. The Appeals officer was not required to accept the taxpayer's offer to pay the liabilities at issue if the officer identified the regulations establishing his liability. The officer, therefore, properly concluded that a levy action was appropriate.


[ Code Sec. 6702]

Collection Due Process hearing: Hearing procedures: Levy: Frivolous return. --

Based on the facts alleged in the taxpayer's own complaint, which showed that the taxpayer filed a zero income zero tax return claiming that wage income was not subject to tax, an Appeals officer properly sustained imposition of the frivolous return penalty in a Collection Due Process hearing.

Michael A. Farenga, pro se. Glenn T. Suddaby, United States Attorney, Paula Ryan Conan, Assistant United States Attorney, Elizabeth Lan, Department of Justice, for defendant.

MEMORANDUM --DECISION AND ORDER

I. INTRODUCTION

MORDUE, District Judge: On September 27, 2001, plaintiff pro se Michael A. Farenga filed a complaint seeking to set aside a "Notice of Determination Concerning Collection Action(s) Under Section 6330" ¹ in which the Internal Revenue Service concluded a levy was an appropriate action to collect two, five hundred dollar civil penalties that were assessed against plaintiff, pursuant to 26 U.S.C. §6702, for filing a both a frivolous income tax return and a Form 843 ² claim for refund of credits pursuant to 26 U.S.C. §31(a)(1). Presently before the Court is the government's "Motion to Affirm Determination of the Internal Revenue Service." ³

III. [II.] BACKGROUND

According to the complaint and its exhibits: plaintiff, an Alltel of New York employee, filed a federal income tax return for the year 1999 and claimed zero income and zero taxes due. Plaintiff also claimed that $1,311.21 had been withheld as income tax and requested that amount be refunded to him. Plaintiff also filed a "843 claim form" claiming a "statutory refund of credits pursuant to IRS code Section 31 A-1." ⁴ See Transcript of CDP Hearing, Complaint, Ex. D. Finding the income tax return and claim form frivolous, the Internal Revenue Service fined plaintiff $500 for each filing. The IRS sent plaintiff a Notice of Intent to Levy and Notice of Your Right to a Hearing. See Complaint, Ex. C. Plaintiff timely requested a Collection Due Process Hearing (CDP) and stated that he would challenge the existence of his underlying tax liability. See Complaint, Ex. B. Along with his request for a hearing, plaintiff attached a list of items the IRS was to "have at the hearing", including the name(s), "Federal ID number", and job description of the IRS employee(s) who imposed the frivolous penalty; "[t]he delegation of authority from the Secretary authorizing such persons to impose a `frivolous' penalty"; the "Treasury regulation that allows IRS employees to impose the `frivolous' penalty, and the regulation that required me to pay it"; the frivolous penalty determination document; and the "specific Code section that makes me `liable' for the income tax at issue". Plaintiff specified that he "will need to see all of the above documents at the IRC 6320 `Due Process Hearing' before I am persuaded that I am legally obligated to pay the (2) $500, frivolous penalties at issue."

By letter dated July 16, 2001, the IRS informed plaintiff that a hearing had been scheduled. In the letter, Michael Smith, Appeals Settlement Officer, stated that:

IRC section 6012(a) requires the filing of an income tax return by every individual having taxable year gross income exceeding the exemption amount. IRC section 61 defines gross income. The return that you filed showing that you had no income, when you plainly had wages from Alltel, is frivolous on its face. This return resulted in a civil penalty imposed by authority of IRC 6702. While due process permits you the opportunity to object to the underlying assessment, your issue that you are not liable to pay income tax and therefore you are not liable for this civil penalty is unlikely to prevail.

Mr. Smith further informed plaintiff:

Your request for the names, job descriptions and delegation authority of the individual involved in imposing the penalty under IRC section 6702 is not relevant to this proceeding. Appeals is not required to produce this documentation before making a determination in your case. Courts have consistently held that a written transcript of your account is presumptive evidence of the validity of the assessment i.e. that the Service complied with the requirements of the law in making the assessment.

Complaint, Ex. F.

On July 31, 2001, Appeals Officer Michael Smith presided over plaintiff's CDP hearing. See Transcript of CDP Hearing, Complaint, Ex. D. At the hearing, plaintiff: (1) argued that the Appeals Officer was required to provide verification from the Secretary that the requirements of any applicable law and administrative procedure have been met; (2) requested the "assessment of [his] account"; (3) requested the identity of the employee who determined the frivolous penalties were appropriate and his or her job description showing that he or she was authorized to assess a penalty; (4) requested that the Appeals Officer show him the regulation authorizing the frivolous penalty; (5) argued that because wages are not income, his income tax return was not frivolous; and (6) requested that the Appeals Officer show him the law establishing his liability for income taxes. Plaintiff stared that he would pay the amount due in full if the Appeals Officer could point to the law establishing his liability for income taxes. The Appeals Officer listened to plaintiff's arguments, refused to answer some of plaintiff's requests, informed plaintiff that he would issue a determination, and terminated the hearing.

On August 29, 2001, the IRS issued a determination that plaintiff did not raise a valid issue concerning the use of a levy action to collect the frivolous tax return penalties. On September 27, 2001 plaintiff filed the instant complaint pursuant to 26 U.S.C. §6330(d)(1)(A) ⁵ seeking damages and to "set aside an invalid collection due process `determination"'. In the complaint, which is redundant and quite lengthy, the Court surmises that plaintiff alleges that he did not receive a proper CDP hearing and that the Appeals Officer's determination was defective because: (1) the penalties are not supported by any testimony or documentary evidence; (2) at the CDP hearing, the Appeals Officer did not produce the "verification from the Secretary" as required by §6330(c) or send plaintiff the "`verification from the IRS office collecting the tax that the requirements of any applicable[] have been met' as `required' by Treasury Regulation 301.6330-1(c)" prior to the issuance of the Notice of Determination; (3) the Appeals Officer did not produce the relevant regulations or statutes including a Treasury Department regulations authorizing IRS employees to impose a "frivolous penalty" or requiring plaintiff to pay such a penalty, a statute that established the existence of the underlying liability for the tax which the frivolous penalty was imposed, and a provision of the Internal Revenue Code which establishes "income tax `liability"'; (4) the Appeals Officer did not produce proof that the Secretary authorized the instant collection action, proof that the "Attorney General or his delegate `directed' that this collection action be commenced", or a document signed by an IRS employee supporting the imposition of the "frivolous penalty"; and (5) the Appeals Officer refused to accept plaintiff's proposed collection alternative, i.e., that plaintiff would pay the amount at issue if the Appeals Officer could show him the regulation establishing his liability. Based on the above, plaintiff claims that no valid CDP hearing was held, and that the determination at issue "is a fraud and a mockery".

Defendant moved to affirm the determination of the IRS on the basis that there was no abuse of discretion and that the Court lacks jurisdiction over plaintiff's claim for damages. ⁶ Defendant argues plaintiff failed to raise any relevant challenges to the tax penalties and did not challenge the underlying tax liability.


III. JURISDICTION

Pursuant to 26 U.S.C. §6330(d)(1):

(d) Proceeding after hearing. --

(1) Judicial review of determination. --The person may, within 30 days of a determination under this section, appeal such determination --

(A) to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter); or

(B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States .

The United States Tax Court has exclusive jurisdiction to review the Commissioner of Internal Revenue's deficiency assessments, but not to review penalties that can be assessed without a notice of deficiency. See Follum v. United States [ 99-1 USTC ¶50,395], 98 CV 0126, 1999 WL 250746 (W.D. N.Y. March 5, 1999 ); Danner v. United States [ 2002-1 USTC ¶50,436], 208 F.Supp.2d 1166, 1171 (E.D. Wash. 2002). Deficiency procedures do not apply to the assessment of collection of frivolous tax return penalties. Thus, this Court has subject matter jurisdiction to review plaintiff's challenges to the two $500 penalties, but not to review plaintiff's income tax liability for the year 1999. Cipolla [v. Internal Revenue Service] [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *3.


IV. DISCUSSION

A. Standard

In addressing a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), the Court accepts as true all of the factual allegations in the complaint and draws inferences from those allegations in the light most favorable to the plaintiff. See Albright v. Oliver, 510 U.S. 266, 268 (1994); McEvoy v. Spencer, 124 F.3d 92, 95 (2d Cir. 1997). Dismissal is proper only where "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 Valmonte v. Bane, 18 F.3d 992, 998 (2d Cir. 1994). Plaintiff brings this action pro se, thus his submissions should be held "`to less stringent standards than formal pleadings drafted by lawyers...". Hughes v. Rowe, 449 U.S. 5, 9 (1980) ( per curiam) (quoting Haines v. Kerner, 404 U.S. 519, 520 (1972)).

B. The Allegations in the Complaint

The method of collection of a penalty, i.e., a levy, is reviewed for abuse of discretion. See Cipolla v. Internal Revenue Service [ 2003-2 USTC ¶50,722], CV-02-2063, 2003 WL 22952617, *3 ( E.D. N.Y. Nov. 5, 2003). The underlying tax liability for the penalty, including allegations of procedural and evidentiary defects are subject to a de novo standard of review. Id.

Verification
The complaint alleges that the Appeals Officer "[d]id not produce and present to Plaintiff the `verification from the Secretary' as required by Section 6330(c)" and that the Appeals Officer "[d]id not `Prior to issuance of the `determination' at issue, send Plaintiff the `verification from the IRS office collecting the tax that the requirements of any applicable [sic] have been met,' as `required' by Treasury Regulation 301.6330-1(e)".

These allegations fail to state a claim upon which relief can be granted. Section 6330(c) of Title 26 of the United States Code, provides that "[t]he appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met." Section 301.6330-1(e) of the Treasury Regulations states that the Appeals Officer must "obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met." There is no requirement that Appeals Officer "produce and present" the verification to the taxpayer. Furthermore, according to the hearing transcript, which is attached to the complaint as Exhibit D, at the hearing the Appeals Officer specifically relied on, and discussed with plaintiff, plaintiff's 1999 tax return and a "transcript" ⁷ of plaintiff's account which showed two assessments made against plaintiff in August 2000 and October 2000. "[T]he literal transcript [ i.e. Form 4340] is considered a valid verification that the requirements of any applicable law or administrative procedure is met". Cipolla [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *5 (citing Dean v. United States [ 2002-2 USTC ¶50,802], 01 CV 430, 2002 WL 31662299 (N.D. Fla. Oct. 23, 2002)). Thus, plaintiff's allegation that the Appeals Officer failed to obtain or send to him a "verification" is not a violation of the statute and cannot state a claim upon which relief can be granted.


Delegation, Regulations, and Statutory Authority

Plaintiff alleges the CDP hearing, which was conducted pursuant to 26 U.S.C. §6330(c), ⁸ was unlawful and the determination invalid because the Appeals Officer failed to: "produce any document signed by any Defendant employee that would have supported the imposition of the `frivolous penalty' at issue": "produce any Delegation of Authority from the Secretary that authorized any Defendant employee to impose the `frivolous penalty' at issue"; "identify or produce a Treasury Department regulation that authorized Defendant employees to impose the `frivolous penalty' at issue or required Plaintiff to pay such a `frivolous penalty"'; "produce any statute that established the `existence ... of the underlying liability' of the tax for which the `frivolous penalty' had been imposed"; and "produce the documented proof that the Secretary authorized the instant collection action and that the Attorney General or his delegate `directed' that this collection action be commenced as they are required to do pursuant to Code Section 7401".

To the extent plaintiff contends the CDP hearing and determination are invalid because the Appeals Officer failed to produce the above referenced regulations or statutory authority, such claim is without merit, in that any regulations or statutory provisions are public information. Cipolla [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *5 ("26 U.S.C. §6702(a) authorizes the penalty for frivolous returns. The failure to produce this publicly available information does not render the hearing defective or demonstrate any error in the determination.") (citing Kelly v. United States [ 2002-2 USTC ¶50,615], 209 F.Supp.2d. 981, 989 (E.D. Mo. 2002); Hoffman v. United States [ 2002-2 USTC ¶50,499], 209 F.Supp.2d 1089, 1094 (W.D. Wash. 2002) (internal citation omitted)). Thus, there is no requirement that the IRS produce this information.

Continuing, with respect to plaintiff's allegation that the Appeals Officer failed to produce evidence of delegated authority from the Secretary of the Treasury to various agents involved or evidence of internal delegations of administrative authority, the Court finds that allegation is also without merit. "There is no requirement that the IRS produce `evidence of any delegated authority from the Secretary of the Treasury' or evidence of `internal delegations of administrative authority"'. Rennie v. Internal Revenue Service [ 2002-2 USTC ¶50,548], 216 F.Supp.2d 1078, 1082 (E.D. Ca. 2002) (citing Hughes v. United States [ 92-1 USTC ¶50,086], 953 F.2d 531, 536 (9th Cir. 1992)). ⁹

Identity and Authority of Individuals who Authorized the Penalties

To the extent that plaintiff claims he was entitled to the names, job descriptions, and "Federal ID" numbers of those individuals involved in assessing and/or processing the penalties, his allegation fails to state a claim upon which relief can be granted. "The Appeals Officer is not required to prove who determined and authorized the penalties. Such information is in irrelevant to whether the penalty was proper." Cipolla [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *6 (internal citation omitted).


Collection Alternative

The complaint alleges that the CDP hearing and determination are invalid because the Appeals Officer did not accept his offer to pay the amount in issue in full if the Appeals Officer could identify the regulation establishing his liability. Such an offer, however, "is not a recognized collection alternative." Id. (citing Dean [ 2002-2 USTC ¶50,802], 2002 WL 31662299 at *7); see also Rennie [ 2002-2 USTC ¶50,548], 216 F.Supp.2d at 1084 ("The purpose of the provision for the consideration of the collection alternatives described in Sections 6330(c)(2)(A) and 6330(c)(3)(C) clearly is intended to allow the taxpayer to propose a method of payment that will [dispose] of the underlying tax liability instead of a tax lien by a levy."). Thus, plaintiff fails to state a claim upon which relief can be granted.



Underlying Tax Liability

Plaintiff alleges that the Appeals Officer failed to "produce any document signed by any Defendant employee that would have supported the imposition of the `frivolous penalty' at issue". Pursuant to 26 U.S.C. §6702, the IRS is authorized to impose a civil penalty for a frivolous tax return 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 on the purported return) to delay or impede the administration of Federal income tax laws,

then such individual shall pay a penalty of $500.

26 U.S.C. §6702(a).

In this case, according to the allegations in the complaint and the attachments thereto, plaintiff filed an income tax return and claim for refund for the year 1999 claiming that he had zero income and owed zero income tax and ought a refund of federal income tax withheld in the amount of $1,311.21. Plaintiff was, according to the hearing transcript, an employee of Alltel of New York and had earned wages of approximately $57,000 in 1999. Plaintiff asserted at the CDP hearing and in his papers that wages are not income and therefore argues that he did not file a frivolous tax return. The argument that wages are not income "has been rejected so frequently that the very raising of it justifies the imposition of sanctions". Connor v. Commissioner of Internal Revenue [ 85-2 USTC ¶9598], 770 F.2d 17, 19 (2d Cir. 1985). Thus, even according to the facts alleged in the complaint and the attachments thereto, plaintiff filed a frivolous tax return and claim for refund by filing his return with zeros even though he earned wages.


Appropriate Collection Activity

Finally, insofar as plaintiff alleges that a levy was inappropriate, plaintiff has failed to allege facts which would entitle him to relief. In determining whether a collection activity is appropriate, the Appeals Officer is required to consider: (a) the verification presented; (b) the issues plaintiff raised at the CDP hearing; and (c) whether "any 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(c)(3).

In this case, according to the Notice of Determination, which is attached to the complaint as Exhibit A, the Appeals Officer relied on the "Form 4340" "transcript", which is "considered a valid verification that the requirements of any applicable law or administrative procedure have been met." Cipolla [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *5. The Appeals Officer also addressed the issues plaintiff raised at the CDP hearing, including plaintiff's concern that the assessment was not properly made. Finally, the Appeals Officer reviewed plaintiff's offer to pay the assessment but concluded that it was not "an acceptable alternative to levy" and that "the levy action properly balances the need for efficient collection with your concerns because they are without legal merit." See Notice of Determination, Complaint Ex. A. Thus, plaintiff has failed to allege any facts upon which this Court could find the Appeals Officer erred in concluding that a levy action was appropriate.

In this case, plaintiff has failed to allege facts upon which this Court could find there were any procedural and evidentiary defects in the administrative action below, that the underlying tax liability was without merit, or that the levy collection activity was inappropriate. Thus, the complaint fails to state a claim under 26 U.S.C. §6330 upon which relief can be granted. Accordingly, defendant's motion to dismiss is granted.


V. CONCLUSION

For the foregoing reasons, it is hereby

ORDERED that defendant's motion to dismiss is GRANTED; and it is further

ORDERED that the complaint is dismissed without prejudice.

IT IS SO ORDERED.

¹ According to 26 U.S.C. §6330, following a determination by the IRS that a levy be imposed, a person "may, within 30 days of a determination under this section, appeal such determination --... (B) if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States."

² Form 843, Claim for Refund and Request for Abatement. Bax v. C.I.R. [ 94-1 USTC ¶50,018], 13 F.3d 54, 57 (2d Cir. 1993).

³ The government did not specify in its moving papers whether its motion was to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) or for summary judgment pursuant to Fed. R. Civ. P. 12(b)(6). Although the government attached to its motion, papers outside the pleadings, because the government has not provided plaintiff with a notification of the consequences of failing to respond to a motion for summary judgment, and there has been no discovery, the Court construes the instant motion as one to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. Thus, the Court disregards the government's evidentiary submissions, and confines its review to the verified complaint and the six exhibits to the complaint. Kramer v. Time Warner, Inc., 937 F.2d 767 (2d Cir. 1991) ( "In considering a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6), a district court must limits itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference.").

⁴ 26 U.S.C. §31(a)(1) provides: "(a) Wage withholding for income tax purposes. --(1) In general. --The amount withheld as tax under chapter 24 shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle."

⁵ The Court construes the complaint as brought pursuant to §6330(d)(1)(B), and assumes that plaintiff's assertion of §6330(d)(1)(A) as the basis for the Court's jurisdiction is a typo because (d)(1)(A) concerns the jurisdiction of the Tax Court, while (d)(1)(B) provides this Court with jurisdiction "if the Tax Court does not have jurisdiction of the underlying tax liability".

⁶ Plaintiff has not opposed dismissal of his claim for damages.

⁷ A Form 4340 together with the Notice of Determination is attached to the complaint. See Complaint, Ex. A. Form 4340 is a "Certificate of Assessments, Payment, and Other Specified Matters", and is a "transcript" reflecting the assessment of the penalties, the date or assessment, the amount of assessment, and the identity of the taxpayer. See Complaint, Ex. A. Thus, there is no allegation that plaintiff did not receive a copy of his transcript. A Form 4340 is considered "presumptive proof of a valid assessment on the date indicated." Cipolla [ 2003-2 USTC ¶50,722], 2003 WL 22952617 at *5. According to plaintiff's exhibits to the complaint, namely, the Notice of Determination, the Appeals Officer relied on the Form 4340 in determining the penalties were validly assessed. Thus, plaintiff's allegation that the penalties are not supported by evidence is without merit. For the same reason, plaintiff's assertion that the Appeals Officer did not provide proof that the statutory "Notice and Demand" was sent out with respect to the penalties, is also without merit. The Form 4340 indicates the statutory notices were sent out each time a penalty was assessed. See Complaint, Ex. A.

⁸ 26 U.S.C. §6330(c) provides:

(c) Matters considered at hearing. --In the case of any hearing conducted under this section --

(1) Requirement of investigation. --The appeals officer shall at the hearing obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met.

(2) Issues at hearing. --

(A) In general. --The person may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including --

(i) appropriate spousal defenses;

(ii) challenges to the appropriateness of collection actions; and

(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.

(B) Underlying liability. --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.

⁹ In Hughes, the Ninth Circuit explained:

Relevant statutes and regulations demonstrate, however that the Secretary does have the power to collect taxes, and that such power can be delegated to local IRS agents. 26 U.S.C. §6301 provides that "[t]he Secretary shall collect the taxes imposed by the internal revenue laws." The actual task of collecting the taxes, however, has been delegated to local IRS director's. "The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue." 26 C.F.R. §301.6301-1. District directors in turn are authorized to redelegate the levy power to lower level officials such as collection officers. See IRS Delegation Order 191. The delegation of authority down, the chain of command, from the Secretary, to the Commissioner or Internal Revenue, to local IRS employees constitutes a valid delegation by the Secretary to the Commissioner, and a redelegation by the Commissioner to the delegated officers and employees. See 26 C.F.R. §301.7701-9.

[ 92-1 USTC ¶50,086], 953 F.2d at 536.

[2004-1 USTC ¶50,282]Jason Wesley Bunch, Plaintiff v. United States of America , Defendant.

U.S. District Court, Dist. Nev. ; CV-S-03-0926-KJD (RJJ), April 20, 2004 .

[ Code Secs. 6330, 6702 and 7402]

Levy: Collection Due Process hearing: Hearing procedures: Notice of determination: District court: Jurisdiction: Suits against the United States . --

The IRS properly followed the applicable law and administrative procedures when assessing the frivolous return penalty against the taxpayer. Thus, its determination that collection action should continue unrestricted was proper. The district court also found that it lacked jurisdiction to review a notice of determination regarding the taxpayer's income tax liabilities. The Tax Court had exclusive jurisdiction over a review of a notice of determination involving income taxes. Further, the taxpayer could not amend his complaint by adding individual IRS employees as defendants. The employees acted in their official capacities and consequently any claims against them are claims against the government.

ORDER

DAWSON, District Judge: Presently, the Court has before it Defendant's Motion to Dismiss and for Summary Judgment (#5). Plaintiff filed a response in opposition as well as a Motion for Leave to Amend Plaintiff's Caption and Complaint (#6, 7). The Defendant opposed Plaintiff's motion (#8).

I. Background.

It appears that in his complaint Plaintiff alleges that the Internal Revenue Service ("IRS") failed to follow the proper procedures in making assessments against him and therefore the collection actions taken with regard to the assessments are wrongful. The IRS sent Plaintiff a notice informing him of its intent to levy the outstanding tax liabilities assessed against him for his 1997, 1998, and 1999 tax years and the civil penalties assessed against him for his 1997, 1998 and 2000 tax years. Included with the notice was information informing the Plaintiff of his right to request a Due Process Appeals Hearing, which the Plaintiff timely requested.

The collection activity with respect to the civil penalty assessments are frivolous return penalties the IRS assessed against Plaintiff for the 1997, 1999, and 2000 tax years. For these tax years, Plaintiff filed federal income tax returns with zeroes on all lines which reflected amounts of income earned or taxes due. However, attached to these returns were W-2 Forms indicating that Plaintiff received income for these years. The Plaintiff also attached form documents setting forth arguments as to why Plaintiff does not owe federal income taxes. According to the attached form document, Plaintiff has no income tax liability because there is no statutory income tax liability that applies to him and wages do not constitute income. Courts, however, have found this position to be patently without merit. See Sisemore v. United States [ 86-2 USTC ¶9576], 797 F.2d 268, 270 (6th Cir 1986); Newman v. Comm'r [ CCH Dec. 54,764(M)], 83 T.C.M. (CCH) 1757 (2002). Accordingly, the IRS assessed a $500 penalty for each tax year pursuant to 26 U.S.C. §6702.

On April 25, 2003, the IRS held the requested CDP Hearing, which Plaintiff attended. Subsequently, on July 2, 2003, Plaintiff was sent two separate "Notice of Determination Concerning Collection Action Under Section 6320 and/or 6330." One concerned Plaintiff's income tax liabilities for his 1997, 1998, and 1999 tax years and the other concerned his civil penalties for his 1997, 1998, and 2000 tax years. The Notices of Determination informed Plaintiff of the matters considered at the appeals hearing and the conclusion that a levy would be appropriate. The Notice concerning the income tax liabilities informed Plaintiff of his right to dispute the IRS's determination by filing a petition with the United States Tax Court for a redetermination within 30 days from the date of the notice. The Notice concerning the civil penalties informed Plaintiff of his right to dispute the IRS's determination by filing a petition with the United States District Court for a redetermination within 30 days from the date of notice. Plaintiff filed the instant complaint on August 1, 2003. In his complaint, he is seeking review of both Notices of Determination.

II. Analysis.

In reviewing a Rule 12(b)(6) motion, the Court "must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true." Swarz v. United States [ 2001-1 USTC ¶50,111], 234 F.3d 428, 435 (9th Cir. 2000). Review is limited to the contents of the complaint. See Sprewell v. Golden State Warriors, 231 F.3d 520, 527 (9th Cir. 2000). 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 claims that would entitle him to relief. See id. at 528. If matters outside the pleadings are considered, the court should treat the motion as one for summary judgment. See Fed. R. Civ. P. 12(c).

Summary judgment may be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed. R. Civ. P. 56(c), Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The evidence, as well as all justifiable inferences drawn from it, must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment shall be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." See Celotex, 477 U.S. at 322.

First, the Court finds that it lacks jurisdiction to review the Notice of Determination concerning the Plaintiff's tax liabilities for the tax years 1997, 1998, and 1999. If a tax payer is challenging a tax liability before paying the deficiency, he must file a timely petition with the tax court. See Scar v. Comm'r [ 87-1 USTC ¶9277], 814 F.2d 1363, 1366 (9th Cir. 1987). Because the underlying collection activity in the Notice of Determination involved income taxes, jurisdiction over the petition for judicial review lies with the United States Tax Court. See Foster v. United States [ 2002-1 USTC ¶50,469], 89 A.F.T.R.2d 2002-2927 (D. Nev. 2002). Therefore, to the extent Plaintiff's complaint seeks review of his 1997, 1998, and 1999 tax liabilities, the Court must dismiss it for lack of jurisdiction.

Second, as to the Notice of Determination concerning the civil penalties, the only genuine issue before this Court is whether the IRS Appeals Office met all requirements of applicable law and administrative procedures when making its determination that the collection action against Plaintiff should continue unrestricted. A review of the complaint and moving papers indicates that the Defendant met all the administrative collection actions set forth in 26 U.S.C. §6330: (1) Plaintiff timely received a notice of levy and requested a CDP Hearing; (2) Plaintiff attended his CDP Hearing with an appeals officer who had no prior involvement with the subject tax liability; (3) the Appeals Office obtained Form 4340 from the IRS which serves as verification that the requirements of any applicable laws or administrative procedures were met; (4) Plaintiff raised no relevant issues or appropriate defenses pertaining to the proposed collection action and offered no feasible collection alternatives; (5) at the Hearing, Plaintiff challenged the liability for the penalty and whether the return filed was frivolous, arguments determined to be without merit by the appeals officer; and (6) in the final determination, the appeals officer stated that he took into consideration all required statutory elements.

In both his complaint and opposition to Defendant's motion to dismiss, Plaintiff raised the same meritless arguments that other individuals have previously raised before this Court in challenging the assessment of the frivolous return penalty. For example, these arguments typically include: (1) the IRS's failure to produce evidence of any delegated authority from the Secretary of Treasury to the various IRS employees invalidates the letters and notices these employees sent; (2) the IRS never produced a document supporting imposition of the penalties at issue; (3) no Treasury Department regulation requires that an individual pay the penalties at issue; (4) no statute establishes an underlying liability for the income tax to which the penalties relate; (5) Plaintiff never received the required statutory Notice and Demand for payment with regard to the penalties at issue; and (6) the IRS failed to produce the verification from the Secretary of Treasury that the requirement of any applicable law or administrative procedure have been met in accordance with 26 U.S.C. §6330. For the reasons stated in the Orders dismissing these other cases, Plaintiff's arguments in his complaint and opposition are patently meritless. See Carrillo v. United States [ 2003-1 USTC ¶50,370], No. CV-S-02-0353-KJD (LRL), Order (#14) dated March 12, 2003, at 5-7; Wahl v. United States, No. CV-S-02-0239-KJD (RJJ), Order (#14) dated Jan. 31, 2003, at 7-9; Carini v. United States, No. CV-S-02-0169-KJD (RJJ), Order (#11) dated Dec. 2, 2002, at 5-7; Caldwell v. United States, CV-S-02-0045-KJD (PAL), Order (#16) dated Feb. 5, 2003, at 5-7; Ordunez v. United States, No. CV-S-02-0033-KJD (LRL), Order (#23) dated Feb. 3, 2003, at 4-7; Samlaska v. United States [ 2002-2 USTC ¶50,749], No. CV-S-01-1237-KJD (PAL), Order (#17) dated July 31, 2002, at 6-8; Waller v. United States [ 2003-1 USTC ¶50,123], No. CV-S-01-1190-KJD (PAL), Order (#11) dated Aug. 6, 2002, at 4-7; Blanchard v. United States [ 2002-2 USTC ¶50,712], No. CV-S-01-1083-KJD (RJJ), Order (#16) dated July 31, 2002, at 5-7; Haas v. United States [ 2002-2 USTC ¶50,631], No. CV-S-01-0905-KJD (RJJ), Order (#11) dated July 24, 2002, at 5-7.

Finally, in his opposition, Plaintiff seeks to amend his complaint by adding individual IRS employees as defendants. A review of the exhibits attached to Plaintiff's complaint reveals that these individual IRS employees either signed official IRS forms or were involved in the Collection Due Process Hearing that Plaintiff was afforded pursuant to 26 U.S.C. §6330. The Court finds that the claims against these officials arise out of actions taken in their official capacities, and thus are essentially claims against the United States . See Gilbert v. DaGrossa [ 85-2 USTC ¶9665], 756 F.2d 1455, 1458 (9th Cir. 1985). Moreover, the only proper defendant in a damages action brought pursuant to §7433(a) is the United States and not any individual federal employee. See Kersting v. United States [ 93-1 USTC ¶50,159], 818 F.Supp. 297, 302-03 (D. Haw. 1992). Accordingly, Plaintiff's motion to amend is futile.

III. Conclusion.

The Court lacks jurisdiction to review Plaintiff's tax liabilities for the 1997, 1998, and 1999 tax years. The Defendant properly followed the requirements of all applicable laws and administrative procedures when assessing the frivolous return penalty and then determining the collection action should continue unrestricted. Additionally, the Plaintiff's arguments raised in his complaint and opposition to Defendant's motion are purely meritless, such that had the Defendant moved for Rule 11 sanctions this Court would have freely granted them.

Accordingly, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss and for Summary Judgment (#5), is GRANTED.

[2004-2 USTC ¶50,353] Marilyn G. Pomeranz, Plaintiff v. United States of America , Department of Treasury, Internal Revenue Service, Defendants.

U.S. District Court, So. Dist. Fla. ; 02-61503-CIV-MARRA/SELTZER, May 28, 2004 .

[ Code Sec. 6330]

Notice of levy and right to hearing: Hearing procedure. --

Imposition of the frivolous return penalty against an individual who asserted that the Internal Revenue Code did not impose a tax liability based on income was proper. Even if the IRS Appeals officer at the taxpayer's Collection Due Process (CDP) hearing did not consider her challenge to the tax code, it was clear that her challenge was without merit. Further, although she claimed that her right to record the CDP hearing was denied, it was not necessary to remand the case to provide the taxpayer with a recorded hearing because she had been fully involved in her CDP hearing, and the record before the court was complete. Thus, the Notice of Determination was upheld and imposition of the frivolous return penalty was proper.
.
[ Code Sec. 6702]

Frivolous return penalty: Wages or salary omitted. --

The frivolous return penalty was properly imposed against an individual who argued that the Internal Revenue Code fails to impose a tax liability based on income.

[ Code Sec. 7521]

Taxpayer interview: Audio recording of taxpayer interviews. --

Remand to provide an individual with a recorded Collection Due Process (CDP) hearing was unnecessary for a case in which the taxpayer argued only that the tax code does not imposed a tax liability based on income. The taxpayer had been fully involved in her CDP hearing, and the record before the court was complete..

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

MARRA, District Judge: This Cause is before the Court upon Defendant's Motion for Summary Judgment, filed March 26, 2004 (DE 23). Plaintiff filed a response on April 8, 2004 (DE 24). Defendant did not file a reply The Court has considered the motion, the pertinent portions of the record, and is otherwise fully advised in the premises. The matter is now ripe for review.

I. Background

On October 23, 2002, Plaintiff Marilyn G. Pomeranz filed a Complaint against Defendant the United States of America (" United States "). (DE 1.) In the Complaint, Pomeranz alleges that the Notice of Determination issued by the Appeals Office of the Internal Revenue Service ("IRS") on September 24, 2002 for the tax year ending on December 31, 1996, ¹ and the Notice of Determination issued by the IRS Appeals Office on September 24, 2002 for the tax years ending on December 31, 1997 and on December 31, 1998 were in violation of law. (DE 1, Complaint at 1.) On September 24, 2003, the United States filed an Answer to the Complaint. (DE 17.)

II. Facts

For the tax years ending December 31, 1997 and December 31, 1998, Pomeranz submitted U.S. Individual Tax Returns to the IRS asserting no income tax liability based on various "tax protest" arguments set forth in the addenda to the returns ("the Tax Returns"). (Plaintiff's Statement of Facts at 2; Defendant's Statement of Facts 3-4.)

Based on the Tax Returns, the IRS assessed a frivolous return penalty against Pomeranz in the amount of $500 per return. (Declaration of Frank Andreacchi ¶5.)

On December 17, 2001, the IRS sent Pomeranz a Notice of Intent to Levy and Notice of Your Right to a Hearing as a result of her failure to pay the frivolous return penalty and statutory additions with respect to tax year 1997. (Exhibit C to Declaration of Frank Andreacchi.) On the same date, the IRS sent Pomeranz a Notice of Intent to Levy and Notice of Your Right to a Hearing as a result of her failure to pay the frivolous return penalty and statutory additions with respect to tax year 1998. (Exhibit C to Declaration of Frank Andreacchi.) In the Notices, the IRS informed Pomeranz of her right to "request a Collection Due Process Hearing with Appeals." (Exhibit C to Declaration of Frank Andreacchi.)

On or about January 16, 2002, Pomeranz requested a collection due process hearing by filing a Form 12153 with the IRS. (Exhibit E to Declaration of Frank Andreacchi; Plaintiff's Statement of Facts ¶3.)

In advance of the scheduled hearing date, Pomeranz requested permission to tape record the hearing. (Plaintiff's Statement of Facts ¶3.) On August 6, 2002, Frank Andreacchi, an Appeals officer employed by the IRS, informed Pomeranz by letter that she would not be allowed to tape record the hearing. (Plaintiff's statement of Facts ¶3.)

On September 4, 2002. Andreacchi conducted a collection due process hearing ("the Due Process Hearing" or "Hearing" or "section 6330 Hearing"). (Declaration of Frank Andreacchi ¶12.) Franklin Pomeranz attended the Collection Due Process Hearing as Pomeranz's power of attorney. (Declaration of Frank Andreacchi ¶12; Plaintiff's Statement of Facts ¶3.)

On September 24, 2002, Andreacchi issued and mailed to Pomeranz a Notice of Determination, wherein the Appeals Officer found that the assessments of the frivolous income tax return penalties were valid that the issuances of the Notices of Intent to Levy were proper. (Exhibit F to Declaration of Frank Andreacchi; Plaintiff's Statement of Facts ¶4.) In the Notice of Determination, Andreacchi addressed the issues that Pomeranz's representative raised at the Hearing and set forth the conclusions of the Appeals Office. (Exhibit F to Declaration of Frank Andreacchi.) However, in the Notice of Determination, Andreacchi did not specifically address Pomeranz's concern that the Internal Revenue Code does not create a tax liability based on income. (Plaintiff's Statement of Facts ¶5.)

Pursuant to 26 U.S.C. §6330(d), Pomeranz seeks review of the Appeals Officer's Notice of Determination with respect to the tax years 1997 and 1998.

III. Legal Standard

Summary Judgment Standard

Summary judgment "shall be rendered 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 a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the initial responsibility of showing the Court, by reference to the record, that there are no genuine issues of material fact that should be decided at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the non-moving party bears the burden of proof on an issue, the moving party may discharge its burden by showing that the materials on file demonstrate that the party bearing the burden of proof at trial will not be able to meet its burden. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11 ^th Cir. 1991).

When a moving party has discharged its burden, the nonmoving party must "go beyond the pleadings," and, by its own affidavits or by "depositions, answers to interrogatories, and admissions on file." designate specific facts showing there is a genuine issue for trial. Celotex, 477 U.S. at 324. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electronic Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). A mere "scintilla" of evidence supporting the opposing party's position will not suffice; there must be a sufficient showing that the jury could reasonably find for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); see also Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990).

When deciding whether summary judgment is appropriate, the Court must view the evidence and all reasonable factual inferences therefrom in the light most favorable to the party opposing the motion. Witter v. Delta Air Lines, Inc., 138 F.3d 1366, 1369 (citations and quotations omitted). The Court must "avoid weighing conflicting evidence or making credibility determinations." Hilburn v. Murata Electronics N. Am., Inc., 181 F.3d 1220, 1225 (11 ^th Cir. 1999). Rather, the determination is whether there are any genuine issues of fact which should properly be resolved by the fact finder because they can be resolved in favor of either party. Anderson, 477 U.S. at 250.

Standard of Review

Section 6330 of Title 26 of the United States Code provides for judicial review of an Appeals Officer's determination. Although section 6330 does not prescribe the standard of review, the legislative history provides that "[w]here the validity of the tax liability was properly at issue in the hearing ... [t]he amount of the liability will ... be reviewed by the appropriate court on a de novo basis." H.R. Conf. Rep. No. 105-599, at 266 (1998). On the other hand, "[w]here the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the appeals officer for abuse of discretion." H.R. Conf. Rep. No. 105-599, at 266 (1998).

Because Pomeranz challenges the validity of the frivolous return penalties on the ground that the Internal Revenue Code does not create a tax liability based on income, this Court will review the determinations of the Appeals Officer on a de novo basis. Yuen v. United States [ 2003-2 USTC ¶50,661], 290 F.Supp.2d 1220, 1224 (D. Nev. 2003) (applying a de novo standard of review because plaintiff challenged validity of the frivolous return penalties based upon various tax protestor arguments).


IV. Discussion

Based upon the Tax Returns filed by Pomeranz, the IRS assessed a frivolous return penalty against Pomeranz pursuant to 26 U.S.C. §6702(a), When Pomeranz failed to pay the frivolous penalty, the IRS pursued collection of the penalty in accordance with 26 U.S.C. §6330. In accordance with 26 U.S.C. §6330, ² the IRS provided Pomeranz notice of her right to a Collection Due Process Hearing. (Exhibit C to Declaration of Frank Andreacchi.) Thereafter, upon Pomeranz's request, a Collection Due Process Hearing was held. (Exhibit E to Declaration of Frank Andreacchi; Plaintiff's Statement of Facts ¶3; Declaration of Frank Andreacchi ¶12.)

After the Hearing, the Appeals Officer issued a Notice of Determination sustaining the penalties and the proposed levy. (Exhibit F to Declaration of Frank Andreacchi; Plaintiff's Statement of Facts ¶4.) Pomeranz claims in her Opposition to the United States ' Motion for Summary Judgment that the Hearing and the resulting Notice of Determination are detective for two reasons. Pomeranz first contends that the Appeals officer did not address Pomeranz's challenge that the United States Tax Code does not create a tax liability based on income. (Plaintiff's Statement of Facts ¶6; Response to Motion for Summary Judgment at 3-7.) Second, Pomeranz claims that it was error for the Appeals Officer to refuse to allow her to tape record the Hearing. (Plaintiff's Response to Motion for Summary Judgment at 7-10.) The Court considers each of these arguments in turn.

A. Appeals Officer's Failure to Provide Basis for Tax Liability Based on Income

Pomeranz claims that the Collection Due Process Hearing was inadequate because the Appeals officer did not address Pomeranz's challenge that the Internal Revenue Code does not create a tax liability based on income. (Plaintiff's Statement of Facts ¶6; Response to Motion for Summary Judgment at 3-7.)

At a collection due process hearing, the person requesting the hearing may raise any relevant issue relating to the unpaid tax or the proposed levy. 26 U.S.C. §6330(c)(2)(A). Additionally, "[t]he 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). Thereafter, in making its determination, the appeals officer must take into consideration the information presented by the IRS, the issues raised by the taxpayer under section 6330(c)(2), and whether "any 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(c)(3).

In this case, the Appeals Officer chose to entertain Pomeranz's various challenges to the validity of the frivolous income tax return penalties, after finding that Pomeranz had not previously been given any opportunity to dispute the penalties. (Exhibit F to Declaration of Frank Andreacchi at 4.) The Appeals Officer found that Pomeranz filed tax returns for the years 1997 and 1998 showing income tax liability in the amount of -0- for both years. (Exhibit F to Declaration of Frank Andreacchi at 5.) The Appeals Officer further found that Pomeranz "attached written statements [to her tax returns] such as the word 'income' is not defined in the Internal Revenue Code, there is no statute that the IRS can 'change' my return, and my return cannot be termed as 'frivolous.'" (Exhibit F to Declaration of Frank Andreacchi at 5.) The Appeals Officer recognized that Pomeranz's "position has been rejected by Tax Court and other Federal Courts and has been determined to be frivolous." (Exhibit F to Declaration of Frank Andreacchi at 5.) Accordingly, the Appeals Officer sustained the assessment of the frivolous income tax return penalties. (Exhibit F to Declaration of Frank Andreacchi at 5.)

Based upon the Appeals Officer's findings and conclusions in the Notice of Determination, it appears that the Appeals Officer may have implicitly considered Pomeranz's challenge that the Internal Revenue Code does not create a tax liability based on income. Nevertheless, considering the evidence in a light favorable to Pomeranz, the Court will assume for purposes of this Motion that the Appeals Officer did not consider Pomeranz's challenge.

Even if the Appeals Officer did not consider Pomeranz's challenge, it is clear that her challenge lacks any merit. The Internal Revenue Code does impose tax liability based on income, even though, as Pomeranz insists, the word "liable" may not appear in the relevant code sections. Ford v. United States , No. Civ. A. 02-F-553-S, 2003 WL 21744233, at * 4 (M.D. Ala. June 9, 2003) ("[T]he Internal Revenue Code does impose this liability, even though Congress did not use the word "liable" in the relevant code sections"); McDonald v. United States [ 2004-1 USTC ¶50,117], No. 3:02-CV-1510-R, 2003 WL 22992202, at *2 (N.D. Tex. Nov. 25, 2003) ("Plaintiffs' claim that no section of the Internal Revenue Code imposes upon them liability for income taxes is baseless and without merit"). Goltz v. United States [ 2002-2 USTC ¶50,638], No. Civ.A.SA-02-CA-235EP, 2002 WL 31506514, at * 2 (W.D. Tex. Aug. 9, 2002) (finding that plaintiff's argument that the Internal Revenue Code does not establish an income tax liability was "baseless, unsupportable, and designed to obstruct the operations of the IRS," and that "the defendant has shown that there is no genuine issue of material fact about the merits of IRS's determination that his return was frivolous and that the $500 penalty was appropriate); Young v. Commissioner [ CCH Dec. 55,007(M)], No. 1193-02L, 2003 WL 60472, 85 T.C.M. (CCH) 739 (2003) ("[P]etitioner challenges the 'existence' of his underlying tax liabilities on the basis that no Internal Revenue Code section makes him 'liable' for income taxes or requires him 'to pay' income taxes. We have consistently rejected this type of frivolous, tax protestor argument, and we perceive no reason, nor are we required, to address such contentions."); see also Crain v. Commissioner [ 84-2 USTC ¶9721], 737 F.2d 1417, 1418 (5 ^th Cir. 1984) (refusing to adjudicate taxpayer's baseless arguments).

Under a de novo review, the Court concludes that the assessment of the frivolous income tax return penalties was appropriate. Pomeranz's returns were substantially incorrect based upon a frivolous position. Accordingly, Pomeranz properly assessed penalties pursuant to 26 U.S.C. §6702. ³

Based upon the foregoing, the Court finds that there are no genuine issues of material fact as to the Appeals Officer's assessment of the penalties for filing frivolous income tax returns.

B. Appeals Officer's Failure to Grant Permission to Tape Record Hearing

Pomeranz also claims that it was error for the Appeals Officer to refuse to allow her to tape record the Hearing. (Plaintiff's Response to Motion for Summary Judgment at 7-10.) Section 7521(a) of Title 26 of the United States Code provides, in pertinent part, as follows:

Any officer or employee of the Internal Revenue Service in connection with any in-person interview with any taxpayer relating to the determination or collection of any tax shall, upon advance request of such taxpayer, allow the taxpayer to make an audio recording of such interview at the taxpayer's own expense and with the taxpayer's own equipment.

26 U.S.C. §7521(a).

The courts are split as to whether 26 U.S.C. §7521(a) provides a taxpayer with the right to make an audio recording of a collection due process hearing regarding a penalty. ⁴ Some courts hold that section 7521 does provide a taxpayer the right to record such a collection due process hearing, provided the taxpayer makes an advance request and the recording is at the taxpayer's own expense and with the taxpayer's own equipment. McDonald v. United States [ 2004-1 USTC ¶50,117], No. 3:02-CV-1510-R, 2003 WL 22992202, at *2 (N.D. Tex. Nov. 25, 2003) (citing Keene v. Commissioner [ CCH Dec. 55,213], 121 T.C. 8 (2003)). Other courts hold that section 7521 is inapplicable to due process hearings regarding the collection of a penalty. Hardy v. United States [ 2003-2 USTC ¶50,542], No. CV-02- CO-2005-E, 2003 WL 21541358, at *5 (N.D. Ala. June 3, 2003) (holding that section 7521 is inapplicable to a due process hearing regarding the manner of collecting a penalty); c.f. Jewett v; Commissioner, 292 F.Supp.2d 962, 966-67 (N.D. Ohio 2003) (same).

However, even if section 7521 does apply to due process hearings regarding the collection of a penalty, courts have indicated that "it is not necessary or productive to remand a case to Appeals merely to provide the taxpayer a recorded hearing where (1) the taxpayer previously attended and participated in the Appeals Office hearing, and (2) we can properly decide all of the issues pleaded by the taxpayer." Durrenberger v. Commissioner [ CCH Dec. 55,552(M)], No. 107120-2L, 2004 WL 360395, 87 T.C.M. (CCH) 1000 (2004); McDonald [ 2004-1 USTC ¶50,117], 2003 WL 22992202 at *2 ("[F]ailure by the Appeals Office to allow Plaintiffs to make an audio recording of the CDP hearing does not warrant remand"): Kemper v. Commissioner [ CCH Dec. 55,214(M)], No. 17050-02L, 2003 WL 21525481, 86 T.C.M. (CCH) 12 (2003) ("it is not necessary and will not be productive to remand this case to the Appeals Office for another hearing under section 6330(b) in order to allow petitioners to make such an audio recording").

In this case, Pomeranz, by and through her representative, attended and participated in the Collection Due Process Hearing regarding the collection of frivolous return penalties. Other than the failure of the Appeals Officer to grant her permission to record the hearing, the only objection that Pomeranz asserts against the United States ' motion for summary judgment is the failure of the Appeals Officer to consider Pomeranz's challenge that the United States Tax Code does not create a tax liability based on income. This Court has considered and rejected this issue. Remand of this case to the Appeals Officer for a recorded hearing is unnecessary and would be unproductive. Neither the case of Mesa Oil, Inc. v. United States [ 2001-1 USTC ¶50,130], No. Civ. A. 00-B-851, 2000 WL 1745280, at *6-7 (D. Col. Nov. 21, 2000) nor the case of Keenne v. Commissioner [ CCH Dec. 55,213], 121 T.C. 8 (2003), both of which are cited by Pomeranz, persuades this Court otherwise.

In Mesa Oil, the federal district court did not decide the issue of whether a taxpayer is entitled to record a collection due process hearing. Instead, the Mesa Oil court indicated that the lack of a record in that case eroded the taxpayer's statutory right to judicial review under section 6330(d) because it was impossible for the court "to tell what was discussed at the hearing, and what factors were considered by the A[ppeals] O[fficer] in making her Determination." Mesa Oil [ 2001-1 USTC ¶50,130], 2000 WL 1745280, at *7. In this case, on the other hand, the Notice of Determination issued by the Appeals Officer set forth the issues that Pomeranz's representative raised at the Hearing, with the exception of Pomeranz's alleged argument regarding the lack of a statutory basis for tax liability based upon income. (Exhibit F to Declaration of Frank Andreacchi.) The Notice of Determination also set forth the conclusions of the Appeals Officer. (Exhibit F to Declaration of Frank Andreacchi.) Moreover, with respect to Pomeranz's challenge regarding the lack of a statutory basis for tax liability based upon income, the lack of a recording has not hampered or otherwise affected this Court's review of this baseless challenge. Thus, the lack of a recording in this case has not eroded Pomeranz's statutory right to judicial review. The case of Mesa Oil is therefore inapposite.

In Keene , the other case cited by Pomeranz, the United States Tax Court held that a taxpayer was entitled to make an audio recording of a collection due process hearing with respect to his 1991 tax liability. Keene [ CCH Dec. 55,213], 121 T.C. at 16. The court did not consider whether a taxpayer, such as Pomeranz, is entitled to record a due process hearing regarding collection of a penalty. Additionally, in Keene , because of the taxpayer's insistence that the due process hearing be recorded, no hearing was held before the Appeals Office. Keene [ CCH Dec. 55,213], 121 T.C. at 19. In this case, on the other hand, Pomeranz, by and through her representative, attended and participated in a Collection Due Process Hearing. Moreover, this Court was able to resolve Pomeranz's other argument regarding the lack of a statutory basis for income tax liability based upon the existing record. This case therefore falls within those cases where courts have found a remand of the case to be unnecessary. Durrenberger [ CCH Dec. 55,552(M)], 2004 WL 360395 (no publication page references available): McDonald [ 2004-1 USTC ¶50,117], 2003 WL 22992202, at *2: Kemper [ CCH Dec. 55,214(M)], 2003 WL 21525481 (no publication page references available).

Based upon the foregoing, the Court finds, under the undisputed facts of this case, that the Appeals Officer's failure to grant Pomeranz permission to record the Collection Due Process Hearing regarding the frivolous return penalties does not warrant a remand.

V. Conclusion

The Court concludes that Pomeranz has not raised a genuine issue of material fact. The Court therefore affirms the Appeals Officer's Notice of Determination with respect to tax years 1997 and 1998, wherein the Appeals Officer found that the assessments of the frivolous income tax return penalties were valid and that the issuances of the Notices of Intent to Levy were proper. Summary judgment in favor of the United States is appropriate. Accordingly, it is ORDERED and ADJUDGED as follows:

1. Defendant's Motion for Summary Judgment, filed March 26, 2004 (DE 23) is GRANTED.

2. The Court will enter judgment for Defendant by separate Order.

3. Any pending motions are DENIED as moot.

DONE AND ORDERED.

¹ Because this Court does not have jurisdiction to review the Notice of Determination issued as to tax year 1996, the Court does not consider the matter herein. Helvie v. Beach [ 2003-2 USTC ¶50,630], No. 03-80155-Civ-HURLEY/LYNCH, 2003 WL 22073142; at *3 (S.D. Fla. July 16, 2003).

² Pursuant to 26 U.S.C. §6330, "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).

³ 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 that is frivolous, or (b) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws, then such individual shall pay a penalty of $500. 26 U.S.C. §6702(a).

⁴ The applicable regulations relating to collection due process hearings provide that "[a] transcript or recording of any face-to-face meeting or conversation between an Appeals officer or employee and the taxpayer or the taxpayer's representative is not require." 26 C.F.R. §301.6330-1(d)(2)(A-D6). The regulations do not address whether a taxpayer is entitled to record the hearing if the taxpayer makes an advance request.

[2003-2 USTC ¶50,587]Henry D. Goltz, Plaintiff-Appellant v. United States of America , Defendant-Appellee.

U.S. Court of Appeals, 5th Circuit; 02-51028, July 14, 2003 .

Unpublished opinion affirming, per curiam, a DC Texas decision, 2002-2 USTC ¶50,638.

[ Code Sec. 6330]

Collection Due Process: Hearing procedures. --

A federal district court properly dismissed an individual's challenge of a collection due process determination imposing a frivolous return penalty against the taxpayer for filing a zero-income return. The taxpayer failed to file a meaningful return, and his challenge of the penalty was deemed frivolous.

[ Code Sec. 6702]

Penalties, civil: Frivolous return: Wages or salaries omitted. --

A federal district court properly imposed a frivolous return penalty against an individual for filing a zero-income return. The taxpayer failed to file a meaningful return, and his challenge of the penalty was deemed frivolous.

Before: Jones, Stewart and Dennis, Circuit Judges.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

PER CURIAM: ^* This court has considered the pro se appellant's challenge to the district court's grant of summary judgment to the United States. The court held frivolous the appellant's challenge to IRS imposition of $500 penalty for his failure to file a meaningful tax return. Substantially and procedurally, the district court was correct. Its judgment is

AFFIRMED.

^* Pursuant to 5th CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th CIR. R. 47.5.4.

[Dec. 55,252(M)] Charles Brodman and Teresa Brodman v. Commissioner.

Docket No. 16598-02L , T.C. Memo. 2003-230, 86 TCM 212, Filed August 1, 2003 . [Appealable, barring stipulation to the contrary, to CA-6.]

[Code Secs. 6330 and 6673]

Internal Revenue Service: Collection Due Process: Hearing procedures: Penalties, civil: Delay. --

A couple who raised frivolous and groundless arguments at their Collection Due Process (CDP) hearing failed to establish that the IRS Appeals Office abused its discretion in determining to proceed with the collection action regarding their unpaid liability. They were properly assessed the delay penalty because they persisted in raising meritless contentions and caused the Tax Court to waste its limited resources.

Jerry Arthur Jewett, for the petitioners. Michelle M. Lippert, for the respondent.

MEMORANDUM OPINION

COHEN, Judge: The petition in this case was filed in response to a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. The issues for decision are whether there was an abuse of discretion in a determination that collection action could proceed and whether the Court should impose a penalty under section 6673. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background

All of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference.

Petitioners resided in Carey , Ohio , at the time they filed their petition.

Petitioners timely filed Forms 1040, U.S. Individual Income Tax Returns, for 1996, 1997, and 1998, reporting income received in the amounts of $8,595, $9,593, and $8,618, respectively. On the Form 1040 for 1998, petitioners inserted above their signatures a reference to signing the return "under duress". On March 30, 2000 , respondent sent to petitioners a notice of deficiency, determining deficiencies of $9,621, $6,313, and $4,173 for 1996, 1997, and 1998, respectively, and penalties under section 6662(a) for each of those years.

Petitioners did not file a petition in response to the notice of deficiency. In their petition in this case, they acknowledge receipt of the notice of deficiency but claim that it was not valid because it "was not signed by the Secretary of the Treasury or his authorized delegate, and the person who signed the 'notice of deficiency' did not have authority to do so because no delegation order exists which authorizes that person to sign notices of deficiency for the Secretary of the Treasury."

After petitioners defaulted on the March 30, 2000 , notice of deficiency, assessments of accuracy-related penalties and additional income tax liabilities were made. Erroneously claimed earned income credits were reversed on petitioners' accounts for the years in issue. A "Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing" was sent to petitioners on December 18, 2000 . A Notice of Federal Tax Lien was filed with the Wyandot County Recorder on January 8, 2001 , and a "Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320" was sent to petitioners on January 9, 2001 .

Petitioners received the notices sent on December 18, 2000 , and January 9, 2001 , marked them "Refused for Fraud", and returned them to the Internal Revenue Service (IRS), with instructions that they be filed as a permanent part of petitioners' records. On January 11, 2001 , petitioners filed a Request for a Collection Due Process Hearing. In their request, petitioners demanded a variety of forms, including a Form 23C, a Form 17-A, a delegation order of the Revenue agent who sent the notice of levy, and demanded "the law that makes us liable for income taxes." Among other things, petitioners demanded:

13. Provide the documents from the Internal Revenue Code, the Code of Federal Regulations, United States Statutes at Large, or Public Law that supports the IRS contention that a 1040 or 1040A is a type of tax.

14. I demand that you send me the proof that I am a Virgin Island resident (see your TC-150 coding of me as per your manual 30(55)4.2).

15. Please send me a copy of the court order to seize, confiscate or take my money as per fair debit collection act.

16. Send the Regulations listing the Taxable activity which is the bases for this 1058 Letter.

17. Provide me with a copy of the letter in which the district Director ordered me to keep records per 26 I.R.C. 6001, and what type of books and records to keep. See US vs. Mercer, Sixth Circuit District Court, Cincinnati , Ohio , 1996.

18. Form 6809 Civil Penalty Report.

19. Please send me the logo the, the Bureau of Alcohol, Tobacco, and Firearms or the Secret Service should be using on their correspondence to us. In Title 31 U.S.C., Chapter 3, Subtitle 1-Organization, does not list these organizations as being part of the Department of the Treasury.

20. Title 26 of the Internal Revenue Code is literally the repealed National Prohibition Act which was repealed in 1933 and classified to Title 26 in 1939 as the Internal Revenue Code of 1939 which is evidenced by 48 USC 1402. Do you have any evidence that we are subject to the National Prohibition? If so please disclose now.

21. Send us a copy of any "Dummy Returns" or "Substitute for Return" that have been created by the IRS pertaining to us. [Exhibit refs. omitted.]

Petitioners' request for a hearing continued with frivolous arguments and included the following paragraph:

As honest citizens of Ohio state we desire to comply with any and all laws that compel us to action. We are willing to file any and every form or return that we are required by law to file. We desire to pay every penny of tax that we are required by law to pay. We have no desire to obstruct or hamper any valid government agency or function. Just send us the law making us liable for paying income tax.

On January 23, 2002 , Jerry Arthur Jewett (Mr. Jewett) executed a power of attorney, Form 2848, Power of Attorney and Declaration of Representative. On February 25, 2002 , Mr. Jewett sent to the IRS Appeals Office a letter incorporating and adding to petitioners' frivolous arguments and asserting:

1. The individual or individuals named above are not "persons or a person" liable for the income tax or required to file a Form 1040, by virtue of non-residence in, or lack of income earned within, or effectively connected to, any U.S. Territory, Possession and/or enclave deriving authority from Article I, Sec. 2 Cl. 17 or Article 4, Sec. 3, Cl. 2 of the Constitution of the United States. The individual or individuals named herein are natural born Citizens of one of the 50 Republic states, under the Constitution and Law.

Although the pages of the letter were unnumbered, it consisted of 33 pages of tax protester boilerplate.

A hearing pursuant to petitioners' request was conducted on March 21, 2002 , with a court reporter present. A transcript of the proceedings was made. At the hearing, Mr. Jewett repeated his frivolous arguments. Among other things, Mr. Jewett argued:

MR. JEWETT: *** So the only case which addresses the issue of wages not being income and a tax, an individual is not a taxpayer within the meaning of the Internal Revenue Code is the John Cheek case and it supports the position of my clients.

HEARING OFFICER KANE: I'm not familiar with that case. It sounds like the Supreme Court said a technicality, instructions weren't given to the jury properly, it didn't say that that position was, was based on law and a solid position. I'm not familiar with that, but there are dozens of court cases where these arguments have been presented and I'm not aware of any of them that have been successful.

MR. JEWETT: Well, the Supreme Court is the ultimate arbiter and when the Supreme Court tells us something, I tend to believe it. They're the only, they're the only court whose word is final.

HEARING OFFICER KANE: But it didn't tell us what you're saying it told us, at least if I heard you correctly.

MR. JEWETT: It said that that belief is an absolute, it is a defense to a charge of failing to file a return, and my clients rely on that. You know, my clients subsequently filed for these years 1040X's in which they indicated that, that they actually didn't have any income, they had zero income for Federal income tax purposes. Now, the reasons why are extensive and they have been dealt with in the paperwork that I've given you, so I'm not going to go into that.

The Appeals officer provided to petitioners literal transcripts of their account. On April 17, 2002 , a copy of Form 4340, Certificate of Assessments, Payments, and Other Specified Matters, was sent to petitioners.

On September 18, 2002 , a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 was sent to petitioners. The notice indicated the frivolous nature of petitioners' arguments and stated: "It has been determined that the lien filing and proposed levy action are sustained. The Internal Revenue Service has complied with code and procedural requirements in collecting the tax."

In the petition in this case, signed by Mr. Jewett, petitioners again challenge the authority of the officers issuing the notice of deficiency, the notice of intent to levy and the notice of lien, and the procedures by which the Appeals officer verified the validity of the assessment; claim that they were entitled to challenge the underlying liabilities because they received no valid notice of deficiency; and assert that no provision of the Internal Revenue Code makes them liable for the income tax and penalties determined in the statutory notice. The same arguments were repeated in petitioners' trial memorandum signed by Mr. Jewett and filed with the Court.

On May 30, 2003, Mr. Jewett and counsel for respondent placed a conference telephone call to the Court in one of the essentially identical cases on the Cleveland, Ohio, June 2, 2003, calendar in which Mr. Jewett represented taxpayers.¹ The conference telephone call concerned the desire of the taxpayers in one of Mr. Jewett's cases to withdraw him as counsel and to work with the IRS in attempting to resolve their tax liability. During the conference telephone call, the Court advised Mr. Jewett that, upon review of his trial memoranda, it appeared that he was making arguments that had led to penalties under section 6673 against many taxpayers and that penalties had recently been affirmed by the Court of Appeals for the Sixth Circuit, to which this case is appealable. See, e.g., Hauck v. Commissioner [Dec. 54,823(M)], T.C. Memo. 2002-184, affd. [2003-1 USTC ¶50,445] 64 Fed. Appx. 492 (6th Cir. 2003) ($10,000 penalty affirmed). The Court also cited to Mr. Jewett the cases of Roberts v. Commissioner [Dec. 54,733], 118 T.C. 365 (2002), affd. [2003-1 USTC ¶50,359] 329 F.3d 1224 (11th Cir. 2003); Takaba v. Commissioner [Dec. 54,959], 119 T.C. 285 (2002); Edwards v. Commissioner [Dec. 55,164(M)], T.C. Memo. 2003-149, in which awards were made under section 6673(a)(2) against the taxpayers' counsel in addition to penalties against the taxpayers in cases where frivolous arguments were made. The Court also referred to Everman v. Commissioner [Dec. 55,151(M)], T.C. Memo. 2003-137, in which Mr. Jewett was counsel of record and his arguments about delegation of authority were rejected. When this case was called from the calendar on June 2, 2003, Mr. Jewett acknowledged the Court's warning to him, stated that his clients had been apprised of the Court's position, and asserted that his clients nonetheless wished to pursue the arguments that the Court had identified as frivolous. Mr. Jewett stated that he had not had time to read the cases cited to him by the Court.

Discussion

All of the arguments that petitioners have presented in this case, in one form or another, have been rejected in prior cases. Those arguments dealing with the taxability of their income are irrelevant in any event. Because they received the statutory notice of deficiency for 1996, 1997, and 1998, petitioners were not entitled to challenge their underlying tax liability at the hearing conducted under section 6330. Sec. 6330(c)(2)(B). They did not raise any bona fide issues or collection alternatives at the hearing, and they have not raised any genuine issues in this case. There was no abuse of discretion with respect to the determination that collection should proceed.

Numerous cases establish that no particular form of verification is required, that no particular document need be provided to taxpayers at a hearing conducted under section 6330, and that Form 4340 provided to the taxpayers after the hearing satisfies the requirements of section 6330(c)(1). See, e.g., Roberts v. Commissioner, supra; Nestor v. Commissioner [Dec. 54,655], 118 T.C. 162, 167 (2002); Hauck v. Commissioner, supra; Kuglin v. Commissioner [Dec. 54,661(M)], T.C. Memo. 2002-51. Scores of cases have disposed of claims indistinguishable from petitioners' claims by summary judgment, with imposition of a penalty under section 6673. See, e.g., Roberts v. Commissioner, supra; Hill v. Commissioner [Dec. 55,159(M)], T.C. Memo. 2003-144; Holguin v. Commissioner [Dec. 55,135(M)], T.C. Memo. 2003-125; Hodgson v. Commissioner [Dec. 55,132(M)], T.C. Memo. 2003-122; Bourbeau v. Commissioner [Dec. 55,127(M)], T.C. Memo. 2003-117; Williams v. Commissioner [Dec. 55,091(M)], T.C. Memo. 2003-83; Kaye v. Commissioner [Dec. 55,082(M)], T.C. Memo. 2003-74; Smith v. Commissioner [Dec. 55,051(M)], T.C. Memo. 2003-45; Eiselstein v. Commissioner [Dec. 55,025(M)], T.C. Memo. 2003-22; Gunselman v. Commissioner [Dec. 55,012(M)], T.C. Memo. 2003-11; Young v. Commissioner [Dec. 55,007(M)], T.C. Memo. 2003-6; Tornichio v. Commissioner [Dec. 54,944(M)], T.C. 2002-291; Land v. Commissioner [Dec. 54,909(M)], T.C. Memo. 2002-263; Perry v. Commissioner [Dec. 54,802(M)], T.C. Memo. 2002-165; Smeton v. Commissioner [Dec. 54,771(M)], T.C. Memo. 2002-140; Newman v. Commissioner [Dec. 54,764(M)], T.C. Memo. 2002-135; Coleman v. Commissioner [Dec. 54,761(M)], T.C. Memo. 2002-132; Williams v. Commissioner [Dec. 54,734(M)], T.C. Memo. 2002-111; Weishan v. Commissioner [Dec. 54,704(M)], T.C. Memo. 2002-88, affd. [2003-1 USTC ¶50,512] 66 Fed. Appx. 113 (9th Cir. 2003). In some such cases, penalties have been imposed by the Court sua sponte. See, e.g., Robinson v. Commissioner [Dec. 55,085(M)], T.C. Memo. 2003-77; Keene v. Commissioner [Dec. 54,927(M)], T.C. Memo. 2002-277; Schmith v. Commissioner [Dec. 54,897(M)], T.C. Memo. 2002-252; Schroeder v. Commissioner [Dec. 54,829(M)], T.C. Memo. 2002-190.

Section 6673(a)(1) provides:

Procedures instituted primarily for delay, etc. --Whenever it appears to the Tax Court that --

(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay,

(B) the taxpayer's position in such proceeding is frivolous or groundless, or

(C) the taxpayer unreasonably failed to pursue available administrative remedies, the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.

Section 6673 is a penalty provision, intended to deter and penalize frivolous claims and petitions. Cf. Bagby v. Commissioner [Dec. 49,772], 102 T.C. 596, 613-614 (1994). The purpose "is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate." Takaba v. Commissioner, supra at 295.

In this case, respondent did not move for summary judgment or for a penalty, and the case was submitted fully stipulated. Petitioners were specifically warned here, and taxpayers (and their counsel) were warned in Pierson v. Commissioner [Dec. 54,152], 115 T.C. 576, 581 (2000), and by the numerous subsequent cases, of the likelihood of a penalty under section 6673 if they abused the protections afforded by sections 6320 and 6330.

Petitioners in this case should be treated the same as taxpayers similarly situated. They should not be treated the same as taxpayers who abandon frivolous arguments before trial. The Court takes judicial notice that, in three other cases on the Cleveland calendar in which Mr. Jewett represented the taxpayers in presenting frivolous claims in the petition, the taxpayers did not pursue those claims at the time of trial. In two of those cases, disposition was prior to trial by agreement of the parties. In a third case, mentioned above, Mr. Jewett was withdrawn as counsel. The taxpayers who continue to pursue those claims are not entitled to a free ride. We conclude that a penalty of $5,000 against petitioners should be awarded to the United States in this case.

It is particularly egregious for taxpayers to be aided in pursuing frivolous claims by attorneys trained in the law. A frivolous claim is one that is contrary to established law and unsupported by a meritorious argument for change in the law. See, e.g., Nis Family Trust v. Commissioner [Dec. 54,138], 115 T.C. 523, 544 (2000); cf. Harper v. Commissioner [Dec. 48,610], 99 T.C. 533, 548 (1992). Attorneys who practice in this Court are bound by the ABA Model Rules of Professional Conduct (Model Rules). Rule 201(a). Rule 3.1 of the Model Rules states in part:

A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.

 ***

Section 6673(a)(2) provides in part as follow:

Counsel's liability for excessive costs. --Whenever it appears to the Tax Court that any attorney or other person admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously, the Tax Court may require --

(A) that such attorney or other person pay personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct ***

Rule 33(b) provides:

(b) Effect of Signature: The signature of counsel or a party constitutes a certificate by the signer that the signer has read the pleading[s]; that, to the best of the signer's knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. The signature of counsel also constitutes a representation by counsel that counsel is authorized to represent the party or parties on whose behalf the pleading is filed. *** If a pleading is signed in violation of this Rule, the Court, upon motion or upon its own initiative, may impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, including reasonable counsel's fees.

Petitioners' counsel here did not cite at any time the law applicable to the stipulated facts of this case. He failed even to read the cases cited to him by the Court before he submitted the case. In recent cases, counsel for a taxpayer has been ordered to pay the fees and costs of respondent's counsel incurred in responding to frivolous arguments. See Takaba v. Commissioner [Dec. 54,959], 119 T.C. at 296-305; Edwards v. Commissioner [Dec. 55,164(M)], T.C. Memo. 2003-149. It seems particularly appropriate that counsel should bear costs when his clients have been penalized. Cf. Johnson v. Commissioner [2002-1 USTC ¶50,402], 289 F.3d 452 (7th Cir. 2002), affg. [Dec. 54,254] 116 T.C. 111 (2001). In Edwards v. Commissioner [Dec. 54,807(M)], T.C. Memo. 2002-169, we explained:

All litigants, especially members of the bar who have received training in law and professional responsibility, are expected to read the cases cited for the Court, to assure that those cases remain current, and to advance only those legal arguments that are warranted by existing law, by nonfrivolous argument for its extension, modification, or reversal, or by the establishment of new law. See, e.g., Fed. R. Civ. P. 11(b)(2); Coleman v. Commissioner [86-1 USTC ¶9401], 791 F.2d 68, 72 (7th Cir. 1986) ("The purpose of sections 6673 and 6702, like the purpose of Rules 11 and 38 and of sec. 1927 [of 28 U.S.C.], is to induce litigants to conform their behavior to the governing rules regardless of their subjective beliefs. Groundless litigation diverts the time and energies of judges from more serious claims; it imposes needless costs on other litigants. Once the legal system has resolved a claim, judges and lawyers must move on to other things. They cannot endlessly rehear stale arguments.").

Mr. Jewett asserted, when the case was submitted, that he is proceeding in good faith. His failure to consult or address the established law renders his assertion untenable. Unlike counsel in Takaba v. Commissioner, supra, and in Edwards v. Commissioner [Dec. 55,164(M)], T.C. Memo. 2003-149, however, he did not extend these proceedings by meaningless motions and other delays. (Perhaps that is why respondent did not request a penalty in this case.) Determining the amount of excessive costs in this case would require further proceedings and would add to the delays already caused by the frivolous arguments asserted by petitioners and Mr. Jewett. Other grounds for sanctions might also be considered. Cf. Matthews v. Commissioner [Dec. 51,037(M)], T.C. Memo. 1995-577, affd. without published opinion 106 F.3d 386 (3d Cir. 1996); Leach v. Commissioner [Dec. 49,043(M)], T.C. Memo. 1993-215. See generally Chambers v. NASCO, Inc., 501 U.S. 32 (1991); First Bank v. Hartford Underwriters Ins. Co., 307 F.3d 501 (6th Cir. 2002).

We have decided not to extend these proceedings for the purpose of imposing further sanctions, but Mr. Jewett and other counsel are reminded of the consequences to them if they repeat or persist in similar claims in the future. See also Martin v. Commissioner [85-1 USTC ¶9238], 756 F.2d 38, 41 (6th Cir. 1985), affg. [Dec. 40,346(M)] T.C. Memo. 1983-473.

To reflect the foregoing,

Decision will be entered for respondent.

¹ Three of those cases were submitted fully stipulated and are in the same posture as this case. James Benson and Melanie A. Dunham, Docket No. 7029-02L; Gregory R. Brown, Docket No. 8368-02L; Harold V. and Imogene N. Pahl, Docket No. 11572-02L.

[Dec. 55,257(M)] William G. Wells v. Commissioner.

Docket No. 163-01L , T.C. Memo. 2003-234, 86 TCM 227, Filed August 6, 2003 . [Appealable, barring stipulation to the contrary, to CA-9..]

[Code Sec. 6330]

Collection Due Process: Hearing: Hearing procedures. --

An IRS Appeals officer did not abuse his discretion in issuing a Collection Due Process (CDP) determination against an individual to proceed with a proposed levy. The taxpayer was given a reasonable amount of time to submit his financial information or an offer-in-compromise. Despite his stroke and resulting hearing loss, the taxpayer was not precluded from assisting his attorney in preparing such information and, as a result, additional time was not warranted. Consequently, the taxpayer's request for remand to IRS Appeals for further proceedings was denied.

William G. Wells, pro se. Lorraine Y. Wu, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: Pursuant to section 6330(d),¹ petitioner seeks review of respondent's determination to proceed with collection of his 1991 and 1992 tax liabilities.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time he filed the petition, petitioner resided in Santa Monica , California .

Until August 1995, for a period of approximately 25 years, petitioner was employed as the president of Fujita Corp.

In 1998, petitioner entered into an installment agreement with respondent as a method of paying his outstanding 1991 and 1992 income tax liabilities (1998 installment agreement). Pursuant to the 1998 installment agreement, instead of petitioner's receiving rental income payments from Miramar Hotel Corp. ( Miramar ), respondent was to receive monthly payments directly from the Miramar . Petitioner defaulted on the 1998 installment agreement when Miramar ceased making payments to respondent.

On August 4, 1999 , respondent issued to petitioner a Notice of Defaulted Installment Agreement Under IRC 6159(b), Notice of Intent to Levy Under IRC 6331(b) for 1991 and 1992 and a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for 1991 and 1992. As of this date, petitioner owed $1,387,786.98 for 1991 and $865,486.80 for 1992 --a total of $2,253,273.78.

On or about September 3, 1999 , petitioner submitted to respondent a Form 12153, Request for a Collection Due Process Hearing, regarding his 1991 and 1992 tax years (hearing request). In explaining his disagreement with the proposed levy, petitioner wrote "SEE ATTACHED LETTER". Petitioner attached to his hearing request a 2-page letter from his representative, Steven Toscher. The attached letter stated:

As you are aware, Mr. Wells has not been able to continue the installment obligation entered into in July of 1998. The installment obligation was premised on Mr. Wells receiving $24,969 in rental income from Miramar Hotel leases. Unfortunately, as you are also aware, Mr. Wells is involved in litigation with Fujita USA which has caused the lessee to terminate the rental payments. Thus, Mr. Wells has no ability to continue to make said payments. Mr. Wells requests that IRS modify the agreement based upon his current ability to pay. A modification of an installment obligation will facilitate collection of such liabilities.

Enclosed please find IRS Form 12153 where Mr. Wells requests a due process hearing pursuant to I.R.C. §6330(b) with respect to the IRS Notice of Intent to Levy. As stated above, a modified installment agreement or an Offer in Compromise are more appropriate collection alternatives given Mr. Wells' financial situation. Mr. Wells continues to explore any and all alternatives in satisfying the IRS' previous assessments. It will not be productive for the IRS or Mr. Wells to levy on any of his "assets."

Please have the Appeals Officer assigned to this case call me to arrange a mutually convenient time to meet and discuss this matter.

On July 6, 2000 , Appeals Officer Richard William Bailey and Mr. Toscher met to hold a section 6330 hearing (July 6, 2000, hearing).² At the July 6, 2000 , hearing, the issues raised by Mr. Toscher were the possibility of full payment of petitioner's 1991 and 1992 income tax liabilities, the renegotiation and revision of the 1998 installment agreement, and the possibility of an offer-in-compromise. Mr. Toscher had no information regarding petitioner's financial status to provide to Appeals Officer Bailey. Appeals Officer Bailey agreed to meet with Mr. Toscher again on November 9, 2000 , to give petitioner the opportunity to present his financial information to respondent.

Before November 9, 2000 , Appeals Officer Bailey filled out a "CDP Priority Case Action Plan". He completed this form because the case was over 180 days old and the total tax liability was over $500,000. In the section entitled "Action plan", Appeals Officer Bailey wrote:

This taxpayer owes a lot of money and has many assets, the representative now realizes that the taxpayer may if [sic] fact have to full pay these deficiencies. I have a 2nd hearing scheduled for 11/9/2000 , at which time the representative should have a full accounting of the taxpayer's assets and ability to pay. On that date either arrangement for full payment will be made or the taxpayer's representative will present an offer-in-compromise. Case delayed due to open related cases in appeals. Representative wanted those concluded first.

On November 9, 2000 , Appeals Officer Bailey and Mr. Toscher met regarding petitioner's case (November 9, 2000, meeting). Mr. Toscher still had no information regarding petitioner's financial status to provide to Appeals Officer Bailey.

On November 13, 2000 , Mr. Toscher wrote to Appeals Officer Bailey. The letter thanked Appeals Officer Bailey for meeting with him, stated that Mr. Toscher understood that Appeals Officer Bailey could no longer hold on to the case and needed to issue a determination, and thanked Appeals Officer Bailey for his consideration of this matter.

Appeals Officer Bailey prepared an "Appeals Case Memo". In it, he wrote:

The taxpayer has many holdings, both real estate and businesses. *** although the taxpayer's corporate businesses may be legally titled to the taxpayer's wife, these corporations owe the taxpayer sizable amounts of money *** . It appears now that the taxpayer may be able to full pay all of the outstanding taxes *** . At Appeals last meeting with the taxpayer's representative on the CDP matter, such an accounting was still in the process of being made and the representative could not give Appeals a reasonable date for the conclusion of such accounting.

On December 5, 2000 , respondent issued a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 to petitioner regarding his 1991 and 1992 tax years (notice of determination). In the notice of determination, respondent determined that the proposed levy was appropriate. The notice of determination explained:

Along with your Form 12153, Request for a Collections Due Process Hearing, you offered no alternative to enforced collection, but suggested that your defaulted installment agreement might be renegotiated and reinstituted. At your due process hearing your representative discussed disposition of the liabilities through full payment or the possibility of making an Offer-in-Compromise. However, your representative was unable to provide a comprehensive accounting of your assets so that a determination might be made with regard to the necessity of full payment or the feasibility of an offer (nothing was presented upon which a legal sufficiency determination could be based), nor was an Offer-in-Compromise presented. The renegotiation and reinstatement of your installment agreement is not possible because of the pending assessments; your previous default; and, the amount of the required payments considering all unpaid balance of assessments will not pay the debt within the statute.

OPINION

At trial, petitioner stated the only relief he is seeking is a remand to the Appeals Office for further proceedings.³ Where the validity of the underlying tax liability is not properly in issue, we review respondent's determination for an abuse of discretion. Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 610 (2000).

Petitioner testified that he suffered from a stroke in 1995 and hearing loss shortly thereafter. As of April 1999, petitioner began using hearing aids. By October 1999, petitioner felt the hearing aids were functioning well for him.

In October 1999, petitioner was evaluated by Eugene H. Freed, M.D.⁴ Dr. Freed was an Agreed Medical Examiner, a Qualified Medical Examiner, and an Independent Medical Examiner.⁵ Based on a physical examination, Dr. Freed determined that petitioner "was a well developed, sixty-seven year old well nourished male not in acute distress," and petitioner "was alert and cooperative." Dr. Freed concluded that petitioner's hearing aids were adequate for his current hearing loss.

At the trial, the Court asked petitioner if he could hear us and respondent. He answered, "Yes". Petitioner also stated that his physical condition had improved.

Petitioner was represented by counsel at the July 6, 2000 , hearing and the November 9, 2000 , meeting. Petitioner's physical condition was not discussed at the July 6, 2000 , hearing or the September 9, 2000 , meeting. During 2000, Appeals Officer Bailey was not aware of petitioner's physical condition. See Magana v. Commissioner [Dec. 54,765], 118 T.C. 488 (2002).

Given the fact that respondent was not made aware of petitioner's 1995 stroke or hearing loss and that petitioner was represented by counsel, 4 months was a reasonable amount of time to allow petitioner to submit his financial information. Furthermore, the evidence petitioner provided at trial does not suggest that he was physically unable to compile his financial records within this period of time, and there is no evidence that petitioner was unable to assist his attorney.

Petitioner did not submit an offer-in-compromise or any financial information to respondent. Respondent gave petitioner a reasonable amount of time to submit information about his financial condition.⁶ We conclude that respondent's determination was not an abuse of discretion.⁷

Petitioner has failed to raise a spousal defense or make a valid challenge to the appropriateness of respondent's intended collection action. These issues are now deemed conceded. Rule 331(b)(4).

In reaching all of our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit.

To reflect the foregoing,

Decision will be entered for respondent.

¹ Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.

² Appeals Officer Bailey was not involved in the approval of, or the notification of default on, the 1998 installment agreement.

³ Petitioner's underlying tax liability is not in issue.

⁴ Although the record is unclear, this examination appears to be part of petitioner's litigation with Fujita Corp.

⁵ The record does not contain an explanation of these titles.

⁶ Additionally, petitioner provided no evidence of his financial condition at trial that could allow us to conclude that a remand of this case would prove to be helpful.

⁷ We note that respondent also considered the fact that petitioner had defaulted on a prior installment agreement as an additional reason to proceed with collection.

[2003-2 USTC ¶50,612]Donna Jean Barnett, Plaintiff v. United States Government, Defendant.

U.S. District Court, Mid. Dist. Fla., Fort Myers Div.; 2:01-cv-526-FtM-29SPC, July 15, 2003 .

[ Code Sec. 6702]

Penalties, civil: Frivolous return: Wages or salary omitted. --

A frivolous return penalty was imposed against an individual who filed a zero-income return but received unreported wages in the tax year at issue. Because the Eleventh Circuit has held that claims asserting that wages are not income are "patently frivolous", the government was entitled to summary judgment dismissing the taxpayer's action.


[ Code Sec. 6330]

Collection Due Process: Hearing: Notice. --

The IRS provided proper notice and demand to an individual of her tax liability before levy and, as a result, was entitled to dismissal of the taxpayer's suit. The taxpayer attached a copy of the notice and demand for payment she received by the IRS to her complaint. The court rejected her argument that the notice was not valid because it was computer generated and did not contain the proper form number..

[ Code Sec. 6330]

Collection Due Process: Hearing: Forms and transcripts: Procedures: Issues raised at hearing. --

The district court dismissed an individual's challenge to an adverse Collection Due Process determination where evidence established that the IRS followed proper hearing procedures. The Appeals officer was not required to provide the taxpayer with a copy of the verification that the requirements of applicable law and administrative procedure had been met. The taxpayer was appropriately prohibited from disputing her underlying tax liability because she received a notice of deficiency and did not contest the liability at that time. Moreover, the Appeals officer was not required to produce documentation of a delegation of authority to impose or collect the frivolous return penalty. Finally, the taxpayer unsuccessfully argued that the IRS improperly denied her a collection alternative after she challenged the Appeals officer to produce a statute or code regulation authorizing the imposition of the frivolous return penalty.

REPORT AND RECOMMENDATION

TO THE UNITED STATES DISTRICT COURT

CHAPPELL, Magistrate Judge: This matter comes before the Court on Defendant's Motion for Summary Judgment (Doc. #25) as to the Federal Income Tax penalty assessed under 26 U.S.C. §6702 against the Plaintiff for filing a frivolous tax return for the year 1997.

STANDARD OF REVIEW

Summary judgment is appropriate only when the Court is satisfied 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). An issue is "genuine" if there is sufficient evidence such that a reasonable jury could return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if it may affect the outcome of the suit under governing law. Id. "Conclusory allegations based on subjective beliefs are insufficient to create a genuine issue of material fact. Johnson v. U.S. [ 2003-1 USTC ¶50,297], 2002 WL 32003906 (N.D. Fla.). In deciding a motion for summary judgment the record and all reasonable inferences drawn from the record must be viewed in the light most favorable to the non-moving party. Whatley v. CNA Ins. Co., 189 F.3d 1310,1313 (11th Cir. 1999). In reviewing appeals from Collection Due Process (CDP) hearing determinations, the Court reviews the validity of the tax de novo and all other determinations for abuse of discretion. Johnson [ 2003-1 USTC ¶50,297], 2002 WL 3200396 at 2. Defendant's argue that summary judgment is due to be granted because there are no material facts as to which there is a genuine issue, and therefore summary judgment should be granted as a matter of law. (Doc. #26).

FACTS

The Plaintiff filed a form 1040 tax return with the Internal Revenue Service (IRS) on May 7, 1998 for the tax year 1997. The Plaintiff's tax return reported zero earned income and zero taxable income even though the Plaintiff earned a combined total of $26,761.00 income from her employment with the State of Florida and the federal government's Office of Personnel Management. On October 26, 1998, under 26 U.S.C. §6702, the IRS assessed a $500.00 penalty against the Plaintiff for filing a frivolous return and on the same day sent the Plaintiff a demand for payment. The IRS followed up the payment demand with two notices of intent to levy to collect the penalty. The first notice of intent to levy to collect was sent on December 21, 1998 and the second notice was sent on June 13, 2000.

The Plaintiff filed for a Collection Due Process (CDP) hearing on July 14, 2000 and the hearing was held on May 23, 2001. After the hearing, the IRS issued a determination that the Plaintiff's 1997 tax return was indeed frivolous and, therefore, the penalty was properly assessed. In response to the IRS's determination that the penalty was properly assessed, the Plaintiff filed a complaint with this Court on September 24, 2001 requesting that the IRS's determination be invalidated. The Government (Defendant) filed a motion to dismiss ¹ which was denied by United States District Judge Steele on October 25, 2002 (Doc. #14). As a result of its motion to dismiss being denied, the Defendant now files this Motion for Summary Judgment.

DISCUSSION

The Court must consider whether there are any genuine issues of material fact remaining before rendering a decision on the Defendant's Motion for Summary Judgment. The genuine issues of material fact that this Court must take into account are: (1) whether the Plaintiff's 1997 tax return was frivolous; (2) whether the Plaintiff received proper notice of the IRS's intent to levy to collect the penalty; and (3) whether the Plaintiff's CDP hearing conformed to the requirements of 26 U.S.C. §6330.

(1) Whether the Plaintiff's 1997 Tax Return was Frivolous

26 U.S.C. §6702(a)(1)(B) states that a tax return is frivolous if the return contains information that is "substantially incorrect." The Plaintiff recorded her income as zero on her 1997 tax return. (Doc. #13 exhibit J). The recording of her wages for 1997 as zero is a "substantially incorrect" statement. Her wages for 1997 were $26,701.00. (Doc. #27 ¶2). In Biermann v. Comm'r of Internal Revenue, the Eleventh Circuit Court of Appeals held that arguments asserting that wages are not considered income are "patently frivolous." [ 85-2 USTC ¶9632], 769 F.2d 707, 707 (11th Cir. 1985). Therefore, it is clearly established that an individual's wages are income subject to federal income tax. Hyslep v. U.S. [ 85-2 USTC ¶9553], 765 F.2d 1083, 1084 (11th Cir 1985). More to the point, Courts have routinely upheld frivolous filing penalties where the taxable income line item was simply zeroed out by the tax payer. Johnson [ 2003-1 USTC ¶50,297], 2002 WL 32003906 at 5. Consequently, the Plaintiff's 1997 tax return clearly falls within the scope of a frivolous tax return under section 6702.

Therefore, no genuine issue of material fact exists that would cause a jury to decide that the Plaintiff's 1997 tax return was anything but frivolous.

(2) Whether the Plaintiff Received Proper Notice of the IRS's Intent to Levy to Collect